CREDIT UNIONS NORTH DAKOTA BANKERS ASSOCIATION 65 TH LEGISLATIVE SESSION

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Noah Sutton
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1 CREDIT UNIONS NORTH DAKOTA BANKERS ASSOCIATION 65 TH LEGISLATIVE SESSION

2 PLAN OF ACTION ISSUE Should NDBA sponsor legislation to bring some limitation back into Credit Union field of membership? PROPOSED SOLUTION NDBA is considering supporting legislation that would limit the current field of membership for credit unions. The ABA is concerned that the expansive language towards credit union membership gives them an unfair advantage over banks. The nonprofit designation of credit unions allows them to avoid taxes and other rules followed by private banks. By allowing credit unions a long-reaching field of membership and the ability to offer similar services to banks, they have gained an unfair advantage over banks. 2

3 TABLE OF CONTENTS Laws on Credit Unions... 4 North Dakota Laws Membership in Credit Union... 4 Federal Credit Union Act Section 1759(b)... 5 ABA s Perspective... 5 Conclusion

4 LAWS ON CREDIT UNION MEMBERSHIP North Dakota Laws NDBA is concerned whether current regulations on credit union membership are too expansive and should seek to bring some limitation back into the mix. The current statutes on credit union membership only describe members needing to pay their initial entrance fees and share a common bond. A common bond can be; (1) of occupation; or (2) association; or (3) live within a 75 mile radius of the credit union itself. The courts have generally read this language as permissive or expansive, rather than limiting who can join a credit union. Issues arising from this are: (1) credit unions don t have to pay taxes; and (2) credit unions don t have to abide by all the same rules as banks. This gives credit unions an unfair advantage over banks due to their non-profit status. Below is the exact language from the Century Code. Membership in credit union: N.D.C.C : 1. The membership of a credit union consists of the incorporators and such other persons as may be elected to membership. Each member shall subscribe to and pay the initial installment on at least one share in the credit union and pay the entrance fee as provided by the bylaws of the credit union. Organizations incorporated or otherwise, composed principally of the same general group as the credit union membership may be members of the credit union. 2. Credit union membership is limited to groups having a common bond of occupation or association or to groups residing within a geographic area that does not extend beyond a seventy-five-mile [ kilometer] radius of the home office of the credit union. Except as provided by this section, an office of a credit union that has a field of membership defined by geography may not be located more than seventy-five miles [ kilometers] from the credit union main office. The restrictions on location and 4

5 field of membership under this section do not apply to a credit union office location or field of membership approved by the board before January 1, In the event of a merger between credit unions with different geographic fields of membership, the surviving credit union may expand the field of membership to include the geographic field of membership of the merged credit union. After December 31, 2004, a credit union may not establish and operate a new branch office that is outside the credit union's field of membership. A branch office may not expand the geographic field of membership of a credit union. Federal Credit Union Act Section 1759(b) Subject to the other provisions of this section, the membership of any Federal credit union shall be limited to the membership described in one of the following categories: (1) Single common-bond credit union. One group that has a common bond of occupation or association. (2) Multiple common-bond credit union. More than one group (A) each of which has (within the group) a common bond of occupation or association; and (B) the number of members, each of which (at the time the group is first included within the field of membership of a credit union described in this paragraph) does not exceed any numerical limitation applicable under subsection (d) of this section. (3) Community credit union. Persons or organizations within a well-defined local community, neighborhood, or rural district. ABA S PERSPECTIVE The American Bankers Association has been a proponent to limiting the field of membership of credit unions. The ABA released a presser stating 1 : 1 ABA Presser: 5

6 The 1934 law establishing the federal credit union charter stated its purpose was to make more available to people of small means credit for provident purposes through a national system of cooperative credit. Once, members of a credit union knew each other and pooled their resources to provide credit for their co-workers and/or neighbors. This common bond, the hallmark of the credit union industry, has been stretched beyond recognition. Today, many credit unions have grown into highly profitable, billion-dollar institutions offering a full range of financial services- including insurance and securities brokerage- to just about anyone. Though these institutions look and act like banks, they do not pay taxes or abide by the same rules as banks. The NCUA has steadily adopted policies that have expanded credit union membership beyond the limits prescribed by Congress. As credit union membership expands, so does the cost to American taxpayers, who underwrite the credit union industry's tax subsidy to the tune of more than $1 billion a year. ABA has challenged NCUA's policies through comment letters and in court and will continue to make the case that similar institutions ought to be treated similarly. The ABA has been involved in many different legal battles with the NCUA in dispute over the field of membership laws regarding credit unions. CONCLUSION NDBA is considering supporting legislation that would limit the current field of membership for credit unions. The ABA is concerned that the expansive language towards credit union membership gives them an unfair advantage over banks. The nonprofit designation of credit unions allows them to avoid taxes and other rules followed by private banks. By allowing credit unions a long-reaching field of membership and the ability to offer similar services of banks, credit unions gain from an unfair advantage. 6

RULES OF TENNESSEE DEPARTMENT OF FINANCIAL INSTITUTIONS CREDIT UNION DIVISION CHAPTER CREDIT UNION FIELD OF MEMBERSHIP EXPANSIONS

RULES OF TENNESSEE DEPARTMENT OF FINANCIAL INSTITUTIONS CREDIT UNION DIVISION CHAPTER 0180-29 CREDIT UNION FIELD OF MEMBERSHIP EXPANSIONS TABLE OF CONTENTS 0180-29-.01 Purpose 0180-29-.08 Application to