Compliance Blog

Happy Monday, compliance friends! Today we’re going to talk about the National Credit Union Administration’s (NCUA) proposed rule regarding chartering and field of membership (FOM) regulations. Specifically, the portion dealing with the eligibility of immediate family members of decedents.

Current Rule

You can either be a primary or a secondary member of a credit union. Regarding primary members, NCUA Legal Opinion 97-1020 provides that “[a]n FCU may include in its FOM those individuals who share a common bond of occupation, association, or community.” The legal opinion goes on to state that “[t]hese individuals are considered primary members of the FCU.” Essentially, a primary member falls within the field of membership (FOM) as defined in the credit union’s charter (the credit union’s FOM is found in Section 5 of its charter).

When it comes to secondary members, NCUA’s Chartering and Field of Membership Manual states that:

“A number of persons, by virtue of their close relationship to a common bond group, may be included, at the charter applicant's option, in the field of membership. These include the following:

• Spouses of persons who died while within the field of membership of this credit union;

• Employees of this credit union;

• Persons retired as pensioners or annuitants from the above employment;

• Volunteers;

• Members of the immediate family or household;

• Honorably discharged veterans who served in any of the Armed Services of the United States listed in this charter;

• Organizations of such persons; and

• Corporate or other legal entities in this charter.” (Emphasis added).

As NCUA’s Legal Opinion 97-1020 points out, “where an FCU has included immediate family members within its FOM, the immediate family members of a primary individual may join the FCU as long as the primary individual is within the FCU's FOM at the time the family member joins the FCU.” Furthermore, “immediate family members are allowed to join an FCU even if the primary individual is not a member, as long as the primary individual is within FCU's FOM. However, immediate family members only come within the FCU's FOM by virtue of their familial relationship to a primary member. Once the primary individual leaves the FOM without having become a member, the immediate family members of the primary individual are no longer eligible to join the FCU.” But as it mentions in NCUA’s Field of Membership Manual, “spouses of persons who died while within the field of membership” may still be considered for eligibility.

Proposed Rule

NCUA’s proposed rule explains the issues with the current field of membership rules discussed above. It points out, “under the current options available for FCUs to enroll secondary members, immediate family or household members of decedents are not eligible for membership unless the person was a spouse of a person who died while within the field of membership of the credit union.” This means that surviving immediate family or household members (that were not spouses of the decedent) do not retain their membership eligibility.

NCUA points out some problems with this, including the fact that “FCUs may lose the funds the decedents held in the credit union to another financial institution, along with any goodwill associated with a longstanding relationship the credit union had with the decedent.”

Additionally, NCUA is aware that immediate family or household members may not have become secondary members of a credit union when the primary member was still alive “due to an oversight, lack of awareness regarding eligibility, or a perceived lack of need in cases where the decedent handled the finances of the family or household”. 

In this new proposed rule, NCUA is proposing to amend the eligibility of immediate family members of decedents by updating the definition of “secondary member” to be more inclusive. The amendment would “update the definition of secondary members for each common bond type to include every member of a decedent’s immediate family or household for a 6-month period following the decedent’s passing.” This means that, when a primary member dies, there would be a 6-month grace period for surviving immediate family members or surviving household members to “exercise a right that existed while the member or potential member was still living.” It is also important to point out that the 6-month grace period would also mean that survivors would not have the option to join “in perpetuity” (i.e., forever). 

Overall, this amendment would be a win for credit unions (and potential secondary members) as it provides more flexibility and understanding regarding membership eligibility. As discussed here, NAFCU had specifically requested that NCUA make this change, so this proposed rule is a welcome development. This rule is still only “proposed,” so there is no word yet on when this change could take effect. NAFCU will keep our members apprised of any developments that occur on this topic.

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