Industry Issues: Credit Unions: A Timeline (1909-Present)

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Timeline of Credit Union Expansion

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YEAR

EVENT

1909

The first credit union in the United States is formed in New Hampshire. Massachusetts passes the first state credit union law.

1934

The Federal Credit Union Act becomes law, creating the federal credit union charter.

1937

An amendment to the Federal Credit Union Act creates a special tax exemption for federal credit unions.

1951

The tax-exempt status of S&Ls and mutual savings banks is revoked by Congress. According to Senate Report No. 781:

"Mutual savings banks are in active competition with commercial banks and life insurance companies for the public savings, and they compete with many types of taxable institutions in the security and real estate markets... continuance of the tax-free treatment now accorded mutual savings banks would be discriminatory."

1968

Federal credit unions are authorized to issue secured loans with maturities of 10 years; unsecured loan limit is increased to $2,500.

1970

The National Credit Union Administration (NCUA) is established to regulate federal credit unions and federal deposit insurance is extended to credit unions via the National Credit Union Share Insurance Fund.

1977

Amendments to the Federal Credit Union Act expand savings, lending, and investment powers. For example, amendments allow 30-year residential mortgage loans, 15-year mobile home loans and home-improvement loans.

1980

The Depository Institutions Deregulation and Monetary Control Act authorizes credit unions to offer share draft (i.e., checking) accounts.

1982

The passage of the Garn-St Germain Depository Institutions Act broadens mortgage loan authorities for credit unions.

National Credit Union Administration expands the definition of "common bond" to include multiple employer groups.

1983

The May 23, 1983, edition of Washington Financial Reports publishes a story on The Grace Commission report about cost control:

"Credit unions are no longer a unique breed of financial institution", the task force said and should no longer be exempt from taxes. Credit unions now function like other financial institutions and compete directly with banks and S&Ls, according to the task force.

1984

NCUA broadens credit union investment authorities by allowing them to invest in Eurodollars, bankers' acceptances, cash forward agreements, and reverse repurchase transactions. Loan limits, documentation, and maturity are no longer regulated by the NCUA, but instead are to be developed by the individual credit union.

NCUA enlarges the "field of membership" definition to allow retirees to band together and form a credit union. Though the NCUA says senior citizens' groups may be formed with the primary purpose of obtaining service from a credit union, the courts later strike this down saying a common bond is necessary.

1989

NCUA extends the maturity limit for loans from 15 to 20 years. Credit unions can now offer 20-year loans for mobile homes, second mortgages, and home improvement.

1994

NCUA revises field of membership rules to allow federal credit unions to add occupational groups of up to 100 persons without NCUA's specific approval.

1997

"Member business loans," defined as "any loan, line of credit or letter of credit, the proceeds of which will be used for a commercial, corporate, business, investment property or venture, or agricultural purpose, "reach $2.9 billion in outstandings. In some cases, more than 30 percent of credit unions' assets are devoted to commercial loans.

NCUA proposes raising the hurdles for credit unions wishing to convert to mutual savings banks, even though many believe that switching to a different type of cooperative charter would better accommodate their members' needs.

Feb 25, 1998

The Supreme Court rules that NCUA broke the law when it allowed occupational credit unions to include multiple unrelated groups in their fields of membership. Although the Justices split 5-4 on whether banks had "standing" to sue the NCUA over its policy, the decision on the merits of the case was unanimous.

Spring & Summer 1998

Congress considers various proposals to loosen credit union membership rules while limiting burdens on U.S. taxpayers.

Aug 1998

Congress passes H.R.1151, The Credit Union Membership Access Act, which authorizes credit unions to serve multiple common bond groups. The bill does, however, contain some restrictions on credit unions, including business lending limits and a requirement that community CUs be local. Bill also subjects credit unions to "Prompt Corrective Action" for the first time.

Dec 1998

NCUA implements their new field of membership rule Interpretive Ruling and Policy Statement 99-1, disregarding legislative intent. The rules promulgated disregarded statutory language regarding the "local" nature of credit unions and guidelines regarding an immediate family member or roommate's eligibility for membership. The rule also defines a "local" area as a single county with fewer than 300,000 persons or multiple contiguous counties with fewer than 200,000 persons.

Feb 2001

The "Access Across America" initiative is unveiled by NCUA. Chairman Dennis Dollar stated that the initiative's purpose was to:

… facilitate credit unions as they seek to reach out and provide lower-cost financial services to as many Americans as possible.

Dollar also stated in Credit Union Magazine that:

You must realize that everything you would like to see in the FOM rules will not, and, frankly, cannot be included under existing law. But we can make sure the existing law works to its fullest extent and works better than it does today for those millions of Americans who still need access to credit unions.

Feb 2003

The Small Business Administration expands the use of the guaranteed loan program, opening its eligibility rules to allow partnerships with all credit unions. Loans guaranteed by the federal government do not count against the aggregate business lending cap.

Mar 2003

The Interpretive Ruling and Policy Statement 03-1 (IRPS 03-1) is issued by NCUA. This statement alters FOM rules to create Trade, Industry and Profession (TIP) wide charter; and broadening the community charter to include any single county, city, or political subdivision regardless of population as a well defined, local community. IRPS 03-1 also expands the definition of "local community" for purposes of community charters to include residents of "any city, county, or smaller political jurisdiction, regardless of population size." Under the proposal, "local community" also includes any metropolitan statistical area (MSA), or part of it, with fewer than one million people. Political jurisdictions with populations up to 500,000 (up from 200,000) also are included. The proposal allows credit unions to seek charters for even larger areas.

Apr 2003

NCUA approves Tooele FCU's application to expand community charter to 6 Utah counties comprising two-thirds of the state's population.

May 2003

Goldenwest and America First convert to federal charter serving the exact same field of membership as Tooele FCU.

The NCUA sends out Letter 03-FCU-04 claiming that "Any federal credit union may include in its field of membership, regardless of size, location, or charter type, communities satisfying the definition for serving the underserved (investment) areas in the Federal Credit Union Act."

Jul 2003

ABA, Utah Bankers Association, and 4 banks sue NCUA over Tooele's application.

Sep 2003

An amendment to the member business loan rule is made by the NCUA board. It allows flexibility in determining loan amounts counted against the cap. The board also acts to permit Credit Union Service Organizations to originate business loans and relaxing risk-weighting standards.

Oct 2003

The first in a series of member business lending workshops is convened by NCUA. These workshops are directed at facilitating the involvement of new credit unions into business lending. See Press Release.

Jul 2004

The NCUA approves the community charter for "LA Financial." Its new charter includes 9,637,494 potential members making it the largest single community charter approved to date. The approved "local community" includes a population larger than 42 states and the geographic area exceeds the combined square miles of Rhode Island and Delaware.

Apr 2004

The NCUA's Director of Examination of Insurance issues a memo encouraging NCUA's Regional Directors to "evaluate and consider granting a waiver for all loans made as part of SBA's 504 program." The waiver helps credit unions fund business loans by suspending the value limits required in the member business loan rule during the first four months of the lending process.

Dec 2004

The U.S. District Court for the District of Utah invalidates Tooele's FCU charter ruling that the proposed community is not local. U.S. District Judge Dale Kimball states that the NCUA "cannot act as a rubber stamp or cheerleader for any application brought before it."

Community CU and OmniAmerican CU begin conversion process to become mutual savings banks.

Aug 2005

The NCUA invalidates Community and OmniAmerican's conversion votes because of the manner in which the disclosures were folded, causing both credit unions to sue. After criticism from Members of Congress and the judge hearing the case, NCUA settles to allow both credit unions to convert.

Nov 2005

ABA announces two lawsuits against NCUA. The first lawsuit challenges NCUA's approval of "underserved" expansions for community chartered credit unions. The second suit alleges that NCUA approved a community charter in Pennsylvania that is not "local and well-defined" as necessitated by statute.

Questions? Please contact Keith Leggett for more information.

YEAR	EVENT
1909	The *first credit union* in the United States is formed in New Hampshire. Massachusetts passes the first state credit union law.
1934	The *Federal Credit Union Act* becomes law, creating the federal credit union charter.
1937	An amendment to the Federal Credit Union Act *creates a special tax exemption for federal credit unions*.
1951	The *tax-exempt status of S&Ls and mutual savings banks is revoked* by Congress. According to Senate Report No. 781: "Mutual savings banks are in active competition with commercial banks and life insurance companies for the public savings, and they compete with many types of taxable institutions in the security and real estate markets... continuance of the tax-free treatment now accorded mutual savings banks would be discriminatory."
1968	Federal credit unions are *authorized to issue secured loans* with maturities of 10 years; unsecured loan limit is increased to $2,500.
1970	The *National Credit Union Administration* (NCUA) is established to regulate federal credit unions and *federal deposit insurance is extended to credit unions* via the National Credit Union Share Insurance Fund.
1977	Amendments to the Federal Credit Union Act *expand savings, lending, and investment powers*. For example, amendments allow 30-year residential mortgage loans, 15-year mobile home loans and home-improvement loans.
1980	The Depository Institutions Deregulation and Monetary Control Act authorizes credit unions to offer *share draft (i.e., checking) accounts*.
1982	The passage of the Garn-St Germain Depository Institutions Act *broadens mortgage loan authorities* for credit unions. National Credit Union Administration *expands the definition of "common bond"* to include multiple employer groups.
1983	The May 23, 1983, edition of Washington Financial Reports publishes a story on *The Grace Commission* report about cost control: "*Credit unions are no longer a unique breed of financial institution"*, the task force said and should no longer be exempt from taxes. Credit unions now function like other financial institutions and compete directly with banks and S&Ls, according to the task force.
1984	NCUA *broadens credit union investment authorities* by allowing them to invest in Eurodollars, bankers' acceptances, cash forward agreements, and reverse repurchase transactions. Loan limits, documentation, and maturity are no longer regulated by the NCUA, but instead are to be developed by the individual credit union. NCUA *enlarges the "field of membership" definition* to allow retirees to band together and form a credit union. Though the NCUA says senior citizens' groups may be formed with the primary purpose of obtaining service from a credit union, the courts later strike this down saying a common bond is necessary.
1989	NCUA extends the maturity limit for loans from 15 to 20 years. Credit unions can now offer 20-year loans for mobile homes, second mortgages, and home improvement.
1994	NCUA revises field of membership rules to allow federal credit unions to add occupational *groups of up to 100 persons* without NCUA's specific approval.
1997	"*Member business loans," defined as "any loan, line of credit or letter of credit, the proceeds of which will be used for a commercial, corporate, business, investment property or venture, or agricultural purpose, "reach $2.9 billion in outstandings*. In some cases, more than 30 percent of credit unions' assets are devoted to commercial loans. NCUA proposes raising the hurdles for credit unions wishing to convert to mutual savings banks, even though many believe that switching to a different type of cooperative charter would better accommodate their members' needs.
Feb 25, 1998	The *Supreme Court rules that NCUA broke the law when it allowed occupational credit unions to include multiple unrelated* groups in their fields of membership. Although the Justices split 5-4 on whether banks had "standing" to sue the NCUA over its policy, the decision on the merits of the case was unanimous.
Spring & Summer 1998	Congress considers various proposals to loosen credit union membership rules while limiting burdens on U.S. taxpayers.
Aug 1998	Congress passes H.R.1151, The Credit Union Membership Access Act, which *authorizes credit unions to serve multiple common bond groups*. The bill does, however, contain some restrictions on credit unions, including business lending limits and a requirement that community CUs be local. Bill also subjects credit unions to "Prompt Corrective Action" for the first time.
Dec 1998	NCUA implements their new field of membership rule Interpretive Ruling and Policy Statement 99-1, disregarding legislative intent. The rules promulgated disregarded statutory language regarding the "local" nature of credit unions and guidelines regarding an immediate family member or roommate's eligibility for membership. The rule also defines a "local" area as a single county with fewer than 300,000 persons or multiple contiguous counties with fewer than 200,000 persons.
Feb 2001	The "Access Across America" initiative is unveiled by NCUA. Chairman Dennis Dollar stated that the initiative's purpose was to: … facilitate credit unions as they seek to reach out and provide lower-cost financial services to as many Americans as possible. Dollar also stated in Credit Union Magazine that: You must realize that everything you would like to see in the FOM rules will not, and, frankly, cannot be included under existing law. But we can make sure the existing law works to its fullest extent and works better than it does today for those millions of Americans who still need access to credit unions.
Feb 2003	The Small Business Administration expands the use of the guaranteed loan program, opening its eligibility rules to allow partnerships with all credit unions. Loans guaranteed by the federal government do not count against the aggregate business lending cap.
Mar 2003	The Interpretive Ruling and Policy Statement 03-1 (IRPS 03-1) is issued by NCUA. This statement alters FOM rules to create Trade, Industry and Profession (TIP) wide charter; and broadening the community charter to include any single county, city, or political subdivision regardless of population as a well defined, local community. IRPS 03-1 also expands the definition of "local community" for purposes of community charters to include residents of "any city, county, or smaller political jurisdiction, regardless of population size." Under the proposal, "local community" also includes any metropolitan statistical area (MSA), or part of it, with fewer than one million people. Political jurisdictions with populations up to 500,000 (up from 200,000) also are included. The proposal allows credit unions to seek charters for even larger areas.
Apr 2003	NCUA approves Tooele FCU's application to expand community charter to 6 Utah counties comprising two-thirds of the state's population.
May 2003	Goldenwest and America First convert to federal charter serving the exact same field of membership as Tooele FCU. The NCUA sends out Letter 03-FCU-04 claiming that "Any federal credit union may include in its field of membership, regardless of size, location, or charter type, communities satisfying the definition for serving the underserved (investment) areas in the Federal Credit Union Act."
Jul 2003	ABA, Utah Bankers Association, and 4 banks sue NCUA over Tooele's application.
Sep 2003	An amendment to the member business loan rule is made by the NCUA board. It allows flexibility in determining loan amounts counted against the cap. The board also acts to permit Credit Union Service Organizations to originate business loans and relaxing risk-weighting standards.
Oct 2003	The first in a series of member business lending workshops is convened by NCUA. These workshops are directed at facilitating the involvement of new credit unions into business lending. See Press Release.
Jul 2004	The NCUA approves the community charter for "LA Financial." Its new charter includes 9,637,494 potential members making it the largest single community charter approved to date. The approved "local community" includes a population larger than 42 states and the geographic area exceeds the combined square miles of Rhode Island and Delaware.
Apr 2004	The NCUA's Director of Examination of Insurance issues a memo encouraging NCUA's Regional Directors to "evaluate and consider granting a waiver for all loans made as part of SBA's 504 program." The waiver helps credit unions fund business loans by suspending the value limits required in the member business loan rule during the first four months of the lending process.
Dec 2004	The U.S. District Court for the District of Utah invalidates Tooele's FCU charter ruling that the proposed community is not local. U.S. District Judge Dale Kimball states that the NCUA "cannot act as a rubber stamp or cheerleader for any application brought before it." Community CU and OmniAmerican CU begin conversion process to become mutual savings banks.
Aug 2005	The NCUA invalidates Community and OmniAmerican's conversion votes because of the manner in which the disclosures were folded, causing both credit unions to sue. After criticism from Members of Congress and the judge hearing the case, NCUA settles to allow both credit unions to convert.
Nov 2005	ABA announces two lawsuits against NCUA. The first lawsuit challenges NCUA's approval of "underserved" expansions for community chartered credit unions. The second suit alleges that NCUA approved a community charter in Pennsylvania that is not "local and well-defined" as necessitated by statute.