Back to Basics: Are All Members Created Equal?

Written by Pamela Yu, Special Counsel for Compliance and Research

With reportedly 108 million credit union members, it's no secret that credit unions are a terrific choice for American consumers seeking financial services. Credit unions are member-owned, not-for-profit cooperative financial institutions that provide local communities with key financial products.  Unlike banks, which operate with the purpose of maximizing shareholder profits, credit unions operate with the purpose of returning benefits to their member-owners in the form of lower interest rates on loans and higher returns on savings and deposits. According to an independent study released by NAFCU earlier this year, the cumulative benefit credit unions provide the greater economy totals over $16 billion per year. 

Of course, to benefit from the advantages of credit union membership, individuals must be eligible to join a credit union. Usually, this means a person falls within a credit union's field of membership. A federal credit union's field of membership may include individuals who share a common bond of occupation, association, or community.  But if a person doesn't directly qualify for membership, they may still be eligible to join because of a close relationship with someone who does qualify.

"Primary" and "Secondary" Credit Union Membership

There are two types of credit union members: primary and secondary (or derivative) members. The way an individual may qualify for credit union membership depends on whether that person is a potential primary member or a potential secondary member.

NCUA's chartering and field of membership rules allow a federal credit union the discretion to include in its field of membership (FOM) "other persons eligible for credit union membership," including among others, "members of the immediate family or household."  The Chartering and FOM Manual defines "immediate family" as "spouse, child, sibling, parent, grandparent, or grandchild. This includes stepparents, stepchildren, stepsiblings, and adoptive relationships."  In addition, "household" is defined as "persons living in the same residence maintaining a single economic unit." This definition includes any person who is a permanent member of and participates in the maintenance of the household, including family members, domestic partners, foster children, and legal guardian relationships. Roommates in a single residence would also meet this definition, but a fraternity, sorority, or nursing home relationship would not. See, NCUA Letter to Federal Credit Unions 99-FCU-2, p. 23.

If such "other persons" are included in the credit union's FOM, both "primary" and "secondary or derivative" membership in the credit union is permitted.  NCUA has issued a number of legal opinions discussing the meaning and parameters of both primary and secondary membership.  Those opinions explain that an individual that is within a federal credit union's FOM is eligible for membership as a primary member.  Immediate family and household members of the primary member, because of their close relationship to the federal credit union's common bond group, are considered potential secondary or derivative members of the credit union. See, NCUA Legal Opinion 97-1020. 

The eligibility rules for primary membership vary from those for and secondary membership.  NCUA's Chartering and FOM Manual provides:

"Membership eligibility is extended only to individuals who are members of an “immediate family or household” of a credit union member. It is not necessary for the primary member to join the credit union in order for the immediate family or household member of the primary member to join, provided the immediate family or household clause is included in the field of membership. However, it is necessary for the immediate family member or household member to first join in order for that person's immediate family member or household member to join the credit union." (Emphasis added).

Thus, where a federal credit union has included the immediate family or household member clause in its field of membership, the immediate family and household members of a primary individual may join the credit union as long as the primary individual is within the credit union's FOM at the time the family or household member joins the federal credit union. In other words, immediate family and household members are allowed to join a federal credit union even if the primary individual is not a member, as long as the primary individual is currently within the federal credit union's FOM.  However, if the primary individual leaves the FOM without having become a member, the immediate family or household members of the primary individual are no longer eligible to join the credit union. See, NCUA Legal Opinions 97-1020; 98-0404.

On the flip side, if an immediate family or household member of a primary individual joins the credit union and, subsequently, that primary individual leaves the FOM, the family member can stay with the credit union.  Under the "once a member always a member" policy, immediate family or household members can maintain their membership in a federal credit union even if the primary individual is no longer within the field of membership. See, NCUA Legal Opinion 97-1020.  For example, in the circumstance where a primary individual dies, NCUA has opined that immediate family or household members that have already joined a federal credit union through their relationship to the primary individual within the credit union's common bond may continue their membership after that individual's death. See, NCUA Legal Opinion 97-1019.

 Example

 The flow charts below demonstrate primary and secondary membership eligibility.  For ease of reference, the charts analyze an immediate family or household relationship:

 

Keep in mind that there are other ways to qualify for secondary membership, aside from a close family or household relationship.  For example, "other persons" like volunteers, by virtue of their close relationship with a sponsor group, may also be included in the credit union's FOM. 

Finally, remember that eligibility alone is not enough to establish credit union membership. Under the Federal Credit Union Act, membership in a federal credit union requires an approved membership application and payment and maintenance of at least a par value share (as well as any applicable entrance fee). See, 12 U.S.C. §1759(a); FCU Bylaws, Article III.