By Dennis Dollar
November 11, 2016  Courtesy of CREDIT UNION JOURNAL

Want proof things in Washington do not have to be dysfunctional? Let's look at the NCUA Board's action a couple of weeks ago on field of membership as a case study in government as it should work.

Here's the setting, one ripe for dysfunction and gridlock: the normal three-member NCUA Board is down to only two members — one a Democrat and the other a Republican. In a hotly contested election year, no less. Any regulation, to be approved, required unanimity between the two. Each member, in effect, has a de facto veto authority over any NCUA regulatory action.

One of the two board members has been nominated to another position and could be off the board any time the Senate confirms his nomination. The other board member, who is chairman, has a term that expires less than a year from now.

A then-unknown president to be elected in just a few weeks will choose both of their successors at some point in his or her first term. Easy to kick the can down the road to the next board.

The field of membership rules are without a doubt the most contentious regulations on the NCUA books, contended by federal credit unions as being too limiting and by bankers as being too lax.

More than 12,000 comment letters were submitted on the proposal, each one raising an issue that could cause disagreement between two principled decision makers.

The FOM rule itself is over 180 pages long, each page representing a controversial provision that could easily be cited as a reason for inaction by either of the two guys with total veto authority over the rule.

Banker trades groups ­— one of which had brought litigation a few months earlier over another NCUA regulation obviously in hopes that action would back the board down on the FOM rule — were threatening to sue the agency over the FOM rule if the board proceeded with it.

Federal credit unions, many looking at more liberal FOM rules in their states, wanted the rule to go much further than it did and believe the law supports further expansion.

Yet, despite all of these factors that would have gridlocked Congress and most federal agencies, the NCUA Board found a way to — on a bipartisan, unanimous vote — approve an FOM rule that is clearly within the statutes, enhances growth opportunities for FCUs needing FOM diversification to remain safe and sound, enables more Americans of modest means to have access to lower-cost financial services and could have easily been either more expansive or restrictive.

They chose to move forward with a rule that, while not perfect from a critic's viewpoint on either side of the issue, did not allow the perfect to preclude the good.

While the final FOM rule is indeed not perfect, it is still a remarkably well-balanced rule considering the odds stacked against a final rule at all.

Chairman Metsger and Board Member McWatters proved — inside the Washington Beltway, mind you — that a two-member board with both parties represented by strong and engaged board members can make law in an election year with consensus and compromise on a hotly debated and contentious issue with a threatened lawsuit staring at them in hopes of driving them into inaction.

This board did not allow any outside pressure — from CUNA and NAFCU pushing for more expansion opportunities to be included or from the ICBA and ABA threatening possible lawsuits if they expanded the provisions at all — to keep them from doing what was right for the growth, diversification, safety and soundness of federal credit unions.

Hear. Hear. An example for Congress and other agencies.

Lawsuits likely? Quite possible. That is the norm today. But my experience tells me that the bankers wanting to litigate this rule are likely to find their lawsuit quickly dismissed.

This NCUA Board acted well within the statutes and in accordance with every standard of bipartisan board responsibility when they approved this rule. In fact, this rule did not go as far in expanding FOM as the 1999 rules that the bankers challenged in court and lost. Nor does it go as far as the 2003 rules that the bankers elected not to challenge because they had lost so badly in their 1999 lawsuit.

The courts ruled in 1999 that NCUA was well within the 1998 Credit Union Membership Access Act (CUMAA) with those more expansive rules. Because of that loss, the bankers did not even sue — despite much bluster and threat — over the even further-reaching 2003 rules.

Neither the 1999 nor the 2003 FOM rules had any population cap on a federal community chartered credit union. The 2016 final FOM rule has a population cap of 2.5 million for metropolitan communities and 1 million for rural communities.

Neither the 1999 nor the 2003 rules limited community charters to a single metropolitan statistical area (MSA) or combined statistical area (CSA). The 2016 final FOM rules will not allow a federal community charter application to be considered if the proposed community is outside an MSA or a CSA.

Neither the 1999 nor the 2003 FOM rules required a concentration of facilities test to be conducted before a federal credit union could expand into an underserved area. The 2016 final FOM rule includes this very burdensome and restrictive requirement.

Neither the 1999 nor the 2003 FOM rules prevented a federal community-chartered CU from expanding into an underserved area outside of its community. The 2016 final FOM rule retains such a prohibition.

This NCUA Board did not bow to CU industry pressure to go back to the 1999 or 2003 rules. It did not bow to banker threats to sue them if they stayed put with the 2016 rule as proposed.

With a lesson others in Washington could stand to learn from, these board members did the job they were assigned by Congress to do. They opened the doors of consumer access to lower cost financial services in a balanced manner that will make credit unions more diversified, safe and sound in the years ahead. And they did so with great deference to the law passed by Congress in 1998.

Let's not let the warts we all can find and often focus upon in the regulatory process obscure the face of solid and good, albeit far from perfect for either side, rulemaking when it comes.

Dennis Dollar was NCUA Chairman from 2001-2004 and served on the NCUA Board from 1997-2004. He currently is Principal Partner of Dollar Associates LLC, Birmingham, Ala.