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Less-Restricted Fields of Membership for Credit Unions: Public Policy Implications

The purpose of this study is to determine the extent to which variation in field of membership policies across chartering authorities is correlated with measures of effects on consumers and on banks.

  • William Kelly Center for Credit Union Research at University of Wisconsin-Madison

Executive Summary

Liberalized field of membership (FOM) policies make it easier for consumers to access credit union services. Restrictive FOM policies make this access more difficult. Forty-seven states and the federal government have chartering authority, and credit unions can choose between state and federal charters. There are varying degrees of restrictiveness or liberality in state FOM policies across the nation. The purpose of this study is to determine whether and to what extent such policies are associated with measurable effects on consumers and other financial institutions.

What is the Research About?

We developed an index of FOM policy by reviewing state statutes, regulations, and information from state credit union leagues. Based on data availability and the relative predominance of state or federal charters in each state, we selected a sample of twenty states. We categorized these states into three groups: those with FOM policies similar to federal policies, those with more restrictive policies and those with more liberal policies. We then correlated the FOM policies in states with observable measures of potential effects of these policies on consumers and on other financial institutions.

Effects on consumers are measured by the degree of monopoly power of banks, and by rates on two types of loans in markets within these states. Effects on other financial institutions are measured by the credit union market share of deposits and by growth in the number of bank branches.

What Are the Credit Union Implications?

The evidence suggests that consumers benefit from competition engendered in markets where FOM policies are more liberal. We do not see much adverse effect on banks in loss of market share or any withdrawal from the market; in fact we see an increased presence in the market from bank branches where FOM policies are more liberal.

This analysis is based on correlations between FOM policies and measures of the association between these measures and measures of potential observable effects on consumers and banks. While more research in this area is desirable, our analysis suggests that more liberal FOM policies benefit consumers without diminishing the ability of banks to provide competing services.