The NCUA published a letter to federal credit unions last week reminding federal credit unions who advertise their membership as open to “anyone,” without limitation, may be in violation of federal law and regulation. Recent examples noted by the NCUA in its letter refer to advertisements focusing on becoming a credit union member by first joining a particular association. The NCUA goes on to say that this type of advertisement, which gives the perception of an “open” membership is a false impression that there are not restrictions on joining a federal credit union.
The NCUA letter was intended to remind federal credit unions of the common bond requirements in the Federal Credit Union Act and NCUA rules; requirements for accuracy of advertising in NCUA rules; and consequences of failing to comply with those requirements.
The Federal Credit Union Act limits federal credit union membership to three types: single common bond, multiple common bond and community.
A multiple common bond credit union consists of more than one group of persons related by either occupational or associational affiliations. The requirements for an associational common bond are explained in the Chartering and Field of Membership Manual of the NCUA rules (Appendix B of 12 C.F.R. 701).
The NCUA rules indicate that the “common bond for an associational group cannot be established simply on the basis that the association exists.” A group satisfies the associational common bond requirements for a federal credit union charter, if the “totality of the circumstances” include:
The commentary in the NCUA rules goes on to say that “individuals or honorary members who only make donations to the association are not eligible to join the credit union.” The commentary also provides examples of educational groups that may constitute an associational common bond such as “parent-teacher organizations, alumni associations, and student organizations in any school and church groups.” Specifically they provide the example of the “Alumni of Jacksonville State University” and indicate that it is insufficient to demonstrate an associational common bond. “To qualify as an association, the alumni association must meet the requirements for an associational common bond. The alumni of a school must first join the alumni association, and not merely be alumni of the school to be eligible for membership.”
The NCUA Commentary provides further examples for federal credit unions in making the determination if an associational bond meets the requirements set forth in the charter. Part 701 of the NCUA rules can be found here.
The NCUA Letter went on to remind federal credit unions that by advertising that membership is “open to anyone” or that “anyone can join,” without qualifying language can be an inaccurate or deceptive advertisement, which is prohibited under the NCUA’s Accuracy of Advertising Rule.