[Federal Register: June 17, 2008 (Volume 73, Number 117)]
[Proposed Rules]
[Page 34365-34464]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17jn08-19]
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Part II
National Credit Union Administration
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12 CFR Part 701
Organization and Operations of Federal Credit Unions; Proposed Rule
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
RIN 3133-AD48
Organization and Operations of Federal Credit Unions
AGENCY: National Credit Union Administration (NCUA).
ACTION: Proposed rule.
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SUMMARY: NCUA seeks public comment on four proposals to modify its
Chartering and Field of Membership Manual to update and clarify the
process of approving credit union service to ``underserved areas.'' The
first proposal clarifies the procedure for establishing that an
``underserved area'' qualifies as a local community. The second
addresses the application of the economic distress criteria that
determine whether an area combining multiple geographic units is
sufficiently ``distressed'' to qualify as ``underserved.'' The third
would update the documentation and clarify the scope requirements for
demonstrating that a proposed area has ``significant unmet needs'' for
loans and applicable financial services. The final proposal recognizes
that meaningful data from NCUA and the federal banking agencies will be
available to assess whether an area is ``underserved by other
depository institutions.''
DATES: Comments must be received on or before August 18, 2008.
ADDRESSES: You may submit comments by any of the following methods
(Please send comments by one method only):
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
NCUA Web Site: http://www.ncua.gov/
RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the
instructions for submitting comments.
E-mail: Address to regcomments@ncua.gov. Include ``[Your
name] Comments on Proposed Rule Part 701.1'' in the e-mail subject
line.
Fax: (703) 518-6319. Use the subject line described above
for e-mail.
Mail: Address to Mary Rupp, Secretary of the Board,
National Credit Union Administration, 1775 Duke Street, Alexandria,
Virginia 22314-3428.
Hand Delivery/Courier: Same as mail address.
FOR FURTHER INFORMATION CONTACT: Michael J. McKenna, Deputy General
Counsel; John K. Ianno, Associate General Counsel; or Steven W.
Widerman, Trial Attorney, Office of General Counsel, 1775 Duke Street,
Alexandria, Virginia 22314 or telephone (703) 518-6540.
SUPPLEMENTARY INFORMATION:
I. Background
In 1998, Congress enacted the Credit Union Membership Access Act
(CUMAA), Public Law 105-219, 112 Stat. 914 (1998). Among other things,
CUMAA authorized the NCUA Board to allow multiple common bond credit
unions to serve members residing in ``underserved areas,'' provided the
credit union establishes and maintains a facility there. 12 U.S.C.
1759(c)(2). For an area to be ``underserved,'' CUMAA requires the NCUA
Board to determine that a local community, neighborhood or rural
district is an ``investment area'' as defined in the Community
Development Banking and Financial Institutions Act of 1994 (``CDFI
Act''), 12 U.S.C. 4702(16), and also that it is ``underserved * * * by
other depository institutions.'' \1\ 12 U.S.C. 1759(c)(2)(A).
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\1\ A ``depository institution'' is defined to include insured
credit unions. 12 U.S.C. 461(b)(1)(A)(iv).
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The CDFI Act defines an ``investment area'' as a geographic area
that ``encompasses or is located in an empowerment zone or enterprise
community designated under [26 U.S.C. 1391]''; or that ``meets the
objective criteria of economic distress developed by the [Community
Development Financial Institutions] Fund'' (``CDFI Fund'') and also
``has significant unmet needs for loans or equity investments.'' 12
U.S.C. 4702(16). The Fund established ``criteria of economic distress''
and implemented the ``significant unmet needs'' criterion by
regulation. 12 CFR 1805.201(d) and (e) (1998); 12 CFR 1805.104(dd)
(1998).
To reflect the enactment of CUMAA and its introduction of
``underserved areas,'' NCUA revised its Chartering and Field of
Membership Manual (``Chartering Manual'') in 1998, replacing the
previous authority to serve low-income communities and associations. 12
CFR 701.1 (1999). As revised, the Chartering Manual implemented the
statutory definition of ``underserved area'' and incorporated the then-
existing CDFI criteria for establishing a ``distressed'' area. 63 FR
71998 (December 30, 1998). Those criteria addressed median family
income, poverty, unemployment, distressed housing, county population
loss, and significant unmet needs for loans and equity investments. 63
FR at 72015, 72042.
Anticipating the possibility of periodic additions to the then-
existing distress criteria, the Chartering Manual incorporated by
reference other criteria that the CDFI Fund might establish in the
future. 67 FR 20013, 20017 (April 24, 2002). The distress criteria that
apply today are the same ones that applied in 1998, except that the
``distressed housing'' criterion has been replaced by county ``net
migration loss.'' 12 CFR 1805.201(b)(3)(D)(5) (2008).
The proposed rule (Interpretive Ruling and Policy Statement 08-2)
is intended to update and clarify the existing process of approving
credit union service to ``underserved areas.'' Public comments on the
proposed modifications are welcome. To facilitate the consideration of
these comments, the NCUA Board urges commenters to organize and label
their comments to correspond to the topics and issues discussed below.
II. Discussion of Proposed Rule
A. Definition of a Local Community
To be eligible for approval as an ``underserved area,'' a proposed
area first must qualify as a ``local community, neighborhood or rural
district'' (``local community''). 12 U.S.C. 1759(c)(2)(A); S. Rep. No.
193, 105th Cong., 2d Sess. 6 (1998); H.R. Rep. No. 105-472, 105th
Cong., 2d Sess. 19 (1998). The Chartering Manual's criteria for
establishing a ``local community'' for ``underserved area'' purposes
deviates somewhat from the ``well-defined local community'' criteria
elsewhere in the Manual.
When a proposed area qualifies as a ``presumptive community''
(multiple political jurisdictions with a total population of 500,000 or
less; or an area within a Metropolitan Statistical Area with a
population of 1 million or less) the Chartering Manual's chapter on
community chartering requires a credit union to complete the
presumption by submitting a letter ``describing how the area meets the
standards for community interaction and/or common interests'' within in
the proposed area.\2\ Id. Ch. 2, Sec. V.A.1. The chapter on
``underserved areas'' does not require an equivalent letter to
establish that a proposed ``underserved area'' is a ``presumptive
community.'' Manual, Ch. 3, Sec. III.A.
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\2\ When the letter supporting a ``presumptive community'' fails
to present sufficient evidence of community interaction and/or
common interests, the credit union may be required to provide a full
analysis to support that the area is a well-defined local community.
Manual, Ch. 2 Sec. V.A.1.
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The disparity concerning the letter supporting a ``presumptive
community'' provides an opportunity to reconsider
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whether the letter is needed at all to establish a local community in
the context of either a community charter or an ``underserved area.''
The original purpose of the letter in the community charter context was
to supplement the record with qualitative evidence of interaction and
common interests within the community. The NCUA Board invites public
comment on whether a supporting letter is necessary to further that
purpose when a multiple group credit union seeks to add an
``underserved area.'' To ensure consistency, the proposed rule revises
the chapter on ``underserved areas'' to incorporate the definition of
``well defined local community'' set forth in the chapter on community
chartering. That definition will be revised depending on the Board's
evaluation of the comments received on the letter requirement.
B. Criteria of Economic Distress
The proposed rule addresses the practical incompatibility between
credit union service to a local community and the CDFI Fund's economic
distress criteria that apply to determine whether a proposed area is an
``investment area,'' thus qualifying it as ``underserved.'' To qualify
as a ``local community, neighborhood or rural district,'' the proposed
area must be a ``single, well-defined'' area so as to facilitate the
mandatory interaction and common interests that signify a common bond
among its residents. 65 FR 37065, 37072, 37082 (June 13, 2000). This
has always meant that the parts of a proposed area must be contiguous,
regardless of any other prerequisites for credit union service that
apply. Because of this restriction, NCUA evaluates a ``local community,
neighborhood or rural district''--whether seeking approval as an
``underserved area'' or otherwise--strictly as a single, unified
entity.
In several respects, the ``single unified entity'' approach is
incompatible with the ``geographic units'' the CDFI Fund utilizes to
apply its economic distress criteria. First, the areas that the CDFI
Fund is asked to certify as ``investment areas'' conform from the
outset to prescribed census units (e.g., tracts or blocks) or political
subdivisions, allowing each such geographic unit or group of units to
be treated as a separate ``investment area.'' 12 CFR
1805.201(b)(3)(ii)(B) (2008). In contrast, an ``underserved area'' that
a credit union proposes to add may be drawn without regard to
prescribed geographic units or political boundaries, reflecting the
area's status as a single unified entity (i.e., a well-defined
community). Second, the proposed area's boundaries may be
nontraditional, consisting of a riverbank, a railroad line or an
interstate highway, for example. 63 FR at 72038-72039. Further, the
proposed area may even bisect the traditional geographic units and
political subdivisions upon which the CDFI Fund relies. Finally, when
evaluating an ``investment area,'' the CDFI Fund considers only the
number of persons who reside there. In contrast, when deciding whether
to add a proposed area to its field of membership, a credit union
considers potential membership from among the persons who reside, work,
worship or attend school there. These distinctions tend to complicate
the translation of a proposed ``underserved area'' into the geographic
units envisioned by the CDFI Fund's economic distress criteria.
In the decade since CUMAA, a plethora of economic and demographic
data has become available over the Internet, and there has been a
manifold increase in the number of people who have Internet access.
Convenient on-line access to relevant data has considerably simplified
the task of translating an ``underserved area'' into the geographic
units that the CDFI Fund uses to apply the economic distress criteria
that define an ``investment area.'' Therefore, this proposed rule
revisits NCUA's rules for qualifying an ``underserved area'' primarily
to update and conform its approach to present circumstances.
As a preliminary matter, a proposed area qualifies as an
``investment area'' without regard to the economic distress and
``significant unmet needs'' criteria if it is presently designated an
``Empowerment Zone'' or an ``Enterprise Community.'' 12 CFR
1805.201(b)(3)(ii)(A)(3). Empowerment Zones and Enterprise Communities
were designated by the U.S. Department of Housing and Urban Development
and the U.S. Department of Agriculture between 1993 and 1996. These
designations have since largely expired,\3\ so most proposed areas will
not be able to bypass the economic distress and ``significant unmet
needs'' criteria of an ``investment area.''
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\3\ Unexpired Empowerment Zones and Enterprise Communities are
identified at: http://www.hud.gov/offices/cpd/economicdevelopment/
programs/rc/tour/index.cfm. At this link, select a state from the
map or list, then select from the ``RC/EZ/EC Communities'' shown to
generate a map of the designated areas.
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For proposed areas that do not benefit from an Empowerment Zone or
Enterprise Community designation, the availability of certain on-line
resources will make it easier to apply the economic distress criteria.
The on-line resources that correspond to each step are discussed below
and the internet address of each is cited in the footnotes. In any
case, it is useful to understand in a step-by-step progression how the
economic distress criteria operate.
Metro or Non-Metro Location. The initial step is to determine
whether a proposed area is located within or outside a ``Metropolitan
Area'' as designated by the Office of Management and Budget (``OMB'').
12 CFR 1805.104(ff). In practice, the CDFI Fund deems a proposed area
to be located within a Metropolitan Area if it is located within an
OMB-designated ``Metropolitan Statistical Area'' (``MSA''), and vice
versa. 44 U.S.C. 3504(e)(3)(E). OMB updates its MSA designations
annually; however, to ensure consistency with the CDFI Fund's distress
criteria, which are measured according to the most recent decennial
Census, the proposed rule relies solely on the MSA designations that
correspond to the same decennial census, rather than on updated
designations.\4\
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\4\ For MSA designations that correspond to the 2000 decennial
Census, see ``Metropolitan Areas and Components, 1999, with FIPS
Codes'' (6/30/99 revised 1/28/02) at: http://www.census.gov/
population/estimates/metro-city/99mfips.txt
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The location within or outside a Metropolitan Area dictates the
``geographic unit(s)'' into which the proposed area must be translated
in order to apply the economic distress criteria. The geographic units
prescribed for a Metropolitan area (``Metro units'') are a census
tract, a block group, and an American Indian or Alaskan Native area. 12
CFR 1805.201(b)(3)(ii)(B) (2008). The geographic units prescribed for a
Non-Metropolitan area (``Non-Metro units'') are a county (or equivalent
area), a ``minor civil division that is a unit of local government,''
an incorporated place, a census tract, a block numbering area, a block
group, or an American Indian or Alaskan Native area. Id. In either
case, the proposed area must consist entirely of whole Metro or Non-
Metro units; it cannot consist of fractional units (e.g., half of a
census tract or half of a county). A proposed area that is partly
within and partly outside a Metropolitan Area (e.g., that straddles an
MSA's boundary) must be evaluated using Metro units because they are
the largest permissible unit that is common to all parts of the area.
Single Metro or Non-Metro Unit. To qualify as an ``investment
area,'' a proposed area consisting of a single whole Metro unit (e.g.,
a single census tract) or a single whole Non-Metro unit (e.g., a single
county) must as a whole meet one of the following distress criteria, as
reported by the most recent
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decennial census published by the U.S. Bureau of the Census
(``decennial Census''):
Unemployment. Unemployment rate at least 1.5 times the
national average; or
Poverty. At least 20 percent (20%) of the population lives
in poverty. 12 CFR 1805.201(b)(3)(ii)(D)(1) and (3) (2008).
If the proposed area consists of a single Metro unit of any kind,
it may also meet the following criterion, as reported by the most
recent decennial Census:
Metro Area Median Family Income. Median family income
(``MFI'') at or below 80 percent (80%) of either the Metro Area's MFI
or the national Metro Area MFI, whichever is greater.
If the proposed area consists of a single Non-Metro unit of any
kind, it may also meet the following criterion, as reported by the most
recent decennial Census:
Non-Metro Area Median Family Income. MFI at or below 80
percent (80%) of either the statewide Non-Metro Area's MFI or the
national Non-Metro Area MFI, whichever is greater.
12 CFR 1805.201(b)(3)(ii)(D)(2)(i) and (ii) (2008).
Finally, if the proposed area consists of a single Non-Metro
county, it may meet one of the following two additional criteria, as
reported by the most recent decennial Census:
County Population Loss. County's population loss of at
least 10 percent (10%) between the most recent and the preceding
decennial census; or
County Migration Loss. County's net migration loss of at
least 5 percent (5%) in the 5-year period preceding the most recent
decennial census.
12 CFR 1805.201(b)(3)(ii)(D)(4) and (5) (2008).
Multiple Contiguous Metro or Non-Metro Units. If a proposed area
consists of multiple contiguous Metro units (e.g., a group of adjoining
census tracts) or multiple contiguous Non-Metro units (e.g., a group of
adjoining counties), the area is subject to a population threshold that
does not apply to a proposed area consisting of a single unit. Thus,
when a proposed area consists of multiple contiguous units, at least 85
percent (85%) of the area's total population must reside within the
units that ``together meet one of the [applicable distress] criteria''
set forth above (``the 85% population threshold''). 12 CFR
1805.201(b)(3)(ii)(C)(2) (2008).
The language of the 85% population threshold suggests that all of
the ``distressed'' units must qualify as such under the same criterion,
but in practice, the CDFI Fund allows each ``distressed'' tract within
a group to qualify under any one of the criteria. Also, the decennial
Census itself does not apply the 85% population threshold to a proposed
area consisting of multiple contiguous units; it only reports whether
an individual unit meets an applicable distress criterion.
A proposed area consisting either of a single Metro or Non-Metro
unit, or of multiple contiguous units in which the ``distressed'' units
represent at least 85 percent of the area's population, will meet the
definition of an ``investment area'' provided that, as explained below,
it also has ``significant unmet needs'' for loan products and
applicable financial services.
Resources for Determining If Distress Criteria Are Met. The CDFI
Fund's ``My CDFI Fund'' Web site is an invaluable resource for
determining whether a proposed area is ``distressed,'' but only if the
area's unit(s) conform to one or more census tracts or counties, or to
an independent city (which is treated as equivalent to a county); the
site is not equipped to analyze any other kind of geographic unit.\5\
Using its ``Information and Mapping System'' feature, the ``My CDFI
Fund'' Web site allows the user to enter selected units that it then
analyzes individually and as a proposed area. The analysis reflects the
most recent decennial Census data.\6\ The results are displayed on a
comprehensive ``Investment Area/Hot Zone Worksheet'' (``IA
Worksheet'').
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\5\ The ``My CDFI Fund'' Web site's ``Information and Mapping
System'' (``CIMS'') is available at: https://www.cdfifund.gov/
myCDFI/Organization/Mapping/Mapping.asp The ``Welcome to CIMS'' page
explains the options for identifying ``CDFI Investment Areas'' and a
``Mapping System Overview and Tutorial.'' The ``My CDFI Fund'' Web
site is accessible to registered users through an organizational
account holder. For instructions on how to become a registered user,
see http://www.ncua.gov/CreditUnionDevelopment//Underserved/
underserved.html. Under the ``Expanding into Investment Areas''
section is a link entitled ``Instructions to Use the CDFI Web
site.''
\6\ Typically, there is an 18-month lag between the taking of a
decennial U.S. Census and the publication of the results. Thus, for
example, the results of the 2000 census became available when
published in 2002 and will remain the most recent census until the
results of the 2010 census are published.
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For each unit individually, the IA Worksheet shows: Whether it is
located within an MSA; its total population; its poverty rate; the
percent of benchmark MFI; the unemployment rate; and most importantly,
whether the unit is ``distressed'' under the distress criteria.\7\ For
the proposed area as a whole, the IA Worksheet shows: Whether the
population of the non-``distressed'' units is less than 15 percent of
the whole area's population (i.e., applies the 85% population
threshold); the exact percentage of the area's population that resides
in the non-``distressed'' units; the total population of the non-
``distressed'' units; and whether the combined units are contiguous.
When the IA Worksheet indicates that a proposed area does not qualify
as ``distressed,'' none of these details is provided.
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\7\ The ``My CDFI Fund'' Web site implies that it determines
whether a proposed area ``qualifies as an investment area.'' If so,
it would not be necessary for an applicant to meet a further
criterion--demonstrating ``significant unmet needs for loans,''
etc., within the proposed area. In fact, it is apparent that the Web
site determines only whether a unit or proposed area is
``distressed,'' meaning that an applicant still must independently
demonstrate the proposed area's ``significant unmet needs for
loans,'' etc., in order to qualify as an ``investment area.''
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At present, the ``My CDFI Fund'' Web site's analysis is the most
expeditious means of establishing that a proposed area is sufficiently
``distressed,'' thus conserving credit union resources. To benefit from
the convenience of the ``My CDFI Fund'' Web site, the NCUA Board
encourages credit unions to conform their proposed ``underserved
areas'' to the ``geographic units'' the site is limited to--census
tracts and county boundaries, as the case may be.
Approval to Serve an Already Approved ``Underserved Area''. Once a
credit union is initially approved to serve an area that qualifies as
``underserved,'' other credit unions may be approved to serve the area
provided it is ``underserved'' at the time they apply. The proposed
rule ``grandfathers'' all credit unions approved to serve an area while
it qualifies as ``underserved,'' allowing them to continue serving that
area in the event it no longer qualifies. To terminate the approval to
serve an area that no longer is ``underserved'' would penalize the
credit union for its efforts to bring an adequate level of service to
the area.
An area that previously was approved as ``underserved'' may still
qualify as ``distressed'' when the proposed rule is applied using the
decennial Census in effect when the new applicant applies. When that is
the case, the new applicant must show at the time it applies that the
area still has ``significant unmet needs for loans and financial
services'' (to qualify as an ``investment area'') and still is
``underserved by other depository institutions'' (to qualify as
``underserved''). These criteria may become more difficult to meet as
the number of depository institutions serving the area increases.
Issues for Comment. The NCUA Board invites public comment on the
application of the economic distress
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criteria, including whether a proposed area should be required to
conform to county or census tract boundaries, as the case may be, so
that census tracts apply uniformly to areas located within a
Metropolitan Area, and counties apply uniformly to areas located
outside a Metropolitan Area.
C. Significant Unmet Needs for Loans or Financial Services
Apart from applying the economic distress criteria, the CDFI Fund
definition of an ``investment area'' requires a showing of
``significant unmet needs for loans or equity investments'' within the
proposed area. 12 U.S.C. 4702(16)(A)(ii). Because credit unions are not
authorized to offer equity investments, the scope of this ``unmet
needs'' test initially was limited by definition to the unmet needs for
loans.\8\ In implementing the ``significant unmet needs test,'' the
CDFI Fund added the alternative of addressing the unmet needs for a
range of financial services including many that credit unions are
authorized to offer: Checking accounts, savings accounts, check
cashing, money orders, certified checks, automated teller machines,
deposit taking, safe deposit box services, and other similar
services.\9\ 12 CFR 1805.102(b)(3)(ii)(A)(2).
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\8\ Credit unions are not authorized to offer ``equity
investments,'' which are defined to include ``a stock purchase, a
purchase of a partnership interest, a purchase of a limited
liability company membership interest, a loan made on such terms
that it has sufficient characteristics of equity [and] a purchase of
secondary capital.'' 12 CFR 1805.104(t) (2008).
\9\ The financial services credit unions are authorized to offer
are drawn from the CDFI Fund's definition of ``financial services''
that institutions generally offer. 12 CFR 1805.104(v) (2008). To
these financial services, the Fund also added certain ``financial
products'' that, except for loans, credit unions do not offer to
their members. 12 CFR 1805.104(u) (2008).
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From 1998 through 2000, NCUA permitted the ``significant unmet
needs'' showing to be made through the Business Plan required to be
developed by a credit union seeking to add an ``underserved area.'' 63
FR at 72042. The Business Plan already was required to ``identify the
credit and depository needs of the community and detail how the credit
union plans to serve those needs.'' Id. For that reason, NCUA revised
its policy to recognize that a proposed area that is ``distressed'' is
presumed to have ``significant unmet needs.'' 65 FR 64512, 64518 (Oct.
27, 2000).
Since the enactment of CUMAA, the CDFI Fund has modified the
documentation and scope requirements for a proposed area to meet the
``significant unmet needs'' test. ``Studies or other analyses'' were
originally required to ``adequately demonstrate a pattern of unmet
needs for loans and equity investments.'' 12 CFR 1805.301(e) (1998). As
modified, a ``narrative analysis'' is the only supporting documentation
now required. 12 CFR 1805.201(b)(3)(ii)(E) (2008). In practice, the
CDFI Fund accepts a one-page Narrative Statement describing the
significant unmet capital or financial services of a proposed area.
``CDFI Certification Application'' (June 2007) at 11. The analysis must
be supported by relevant statistical evidence. There are no definitive
standards of evaluation; the statements are evaluated on a case-by-case
basis.
Instead of a presumption of ``significant unmet needs,'' the
proposed rule revises the Chartering Manual to require a credit union
to support its ``underserved area'' application with a one-page
``Narrative Statement'' demonstrating a pattern of ``significant unmet
needs'' in the proposed area for loans or for one or more of the
financial services that credit unions are authorized to offer. However,
a credit union may choose which of these services to address and need
not address all of them.
Under the proposed rule, the Narrative Statement on ``significant
unmet needs'' must be supported by relevant, objective statistical data
reflecting, among other things, loan and financial services activity in
the proposed area--much of which is now publicly available over the
Internet. The Narrative Statement also may be supplemented by objective
testimonial evidence. The supporting data and evidence should be
appended to the Narrative Statement.
In addressing a proposed area's unmet needs, for example, a credit
union might focus on the need for cash operations to replace check
cashing outlets and on the need for personal loans at reasonable rates
to replace pawn brokers, payday lenders and rent-a-centers. To support
such a Narrative Statement, the credit union might rely on statistics
and conclusions about these needs published by the proposed area's
Chamber of Commerce.
Issues for Comment. Public commenters are invited to address the
``significant unmet needs'' criterion, including whether the Narrative
Statement should be integrated into the Business Plan a credit union is
already required to submit. Further, the NCUA Board asks commenters to
identify available statistical data that would assist credit unions in
demonstrating the unmet needs for loans and credit union services in a
proposed area.
D. Underserved by Other Depository Institutions
The CDFI Fund's ``significant unmet needs'' test focuses on the
need for products and services within a proposed area. In contrast,
CUMAA's demand that a proposed area be ``underserved * * * by other
depository institutions'' focuses on the presence of providers of
products and services within the area. CUMAA did not specify a
methodology for determining whether a proposed area meets this test;
instead, it broadly refers to unspecified ``data of the [NCUA] Board
and the Federal banking agencies.'' 12 U.S.C. 1759(c)(2)(A)(ii).
In the decade since CUMAA, raw data has accumulated within
government on branch locations and the volume of business in certain
products and services, but meaningful and reliable data on these points
has only recently become readily accessible. This data makes it
possible to quantify and compare the presence of financial institution
facilities in a given area. The proposed rule suggests a flexible
methodology that relies on publicly available population data and data
on the location of financial institution branches.
Concentration of Facilities. The proposed methodology compares two
measures to determine whether an area is adequately served according to
the concentration of depository institution facilities within the area.
The first measure--which sets a benchmark level of adequate service--is
the ratio of depository institution facilities to the population of the
non-``distressed'' tracts in a proposed area, regardless whether those
tracts are contiguous. In cases where there are no non-``distressed''
tracts within a proposed area, a non-``distressed'' tract or larger
unit immediately adjoining the proposed area (e.g., county or city) may
be used to set the benchmark ratio. The second measure is the ratio of
facilities to the combined population of all of the tracts within the
proposed area.
As shown in the example below, if the benchmark ratio of facilities
within the non-``distressed'' tracts (column A below) exceeds the ratio
of facilities within all the tracts of the proposed area as a whole
(column B below), the proposed rule deems the area to be ``underserved
by other depository institutions,'' and vice versa (column C below):
[[Page 34370]]
[GRAPHIC] [TIFF OMITTED] TP17JN08.000
The proposed methodology does not distinguish between Metro and
Non-Metro locations, and need not be limited to census tracts as its
unit of measure for each ratio. Census tracts are proposed as the unit
of measure, however, because most credit unions are likely to have
already used them in determining whether the proposed area is
sufficiently ``distressed,'' and thus will be familiar with the data
and data sources associated with the tracts within the area.
Data on Population and Location of Facilities. Current tract-by-
tract population data is available on-line from the ``My CDFI Fund''
Web site's IA Worksheet or from the most recent decennial Census
itself. Current data on the location of facilities of institutions
insured by the Federal Deposit Insurance Corporation (``FDIC'') or
regulated by the Office of Thrift Supervision is available on-line on
the FDIC's ``Summary of Deposits'' webpage sorted by state, county and
MSA.\10\ Current data on the location of credit union facilities is
collected by NCUA annually from a credit union's ``Report of
Officials.'' NCUA plans to organize that data and make it available on-
line at the NCUA Web site. This data can be sorted manually on a tract-
by-tract basis.
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\10\ FDIC Summary of Deposits webpage: http://www2.fdic.gov/sod/
sodSummary.asp?baritem=3.
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Issues for Comment. Public commenters are invited to address the
``underserved by other depository institutions'' criterion, including
whether the facilities of such institutions should be defined to
include ATMs and shared branches. Further, the NCUA Board asks
commenters to suggest methodologies other than the concentration of
facilities to assess whether a proposed area is ``underserved by other
depository institutions,'' and to identify sources of data on the
location depository institution facilities that is sorted by census
tract.
E. Service Status Reports
The current rule authorizes NCUA's regional directors to obtain
from FCUs adding ``underserved areas'' reports on their success in
serving members in these areas. Manual, Ch. 3, Sec. III.A. Some
commenters have in the past recommended that NCUA affirmatively require
these reports. That issue is not addressed in this proposed rulemaking
because the Board is as a separate matter considering recommendations
of NCUA's Outreach Task Force that would call for NCUA to obtain
information from credit unions on member income levels and products and
services offered to members, and to organize the data by census tract.
Consideration of the issue in this rulemaking would therefore be an
unnecessary duplication.
F. Pending Applications To Serve an ``Underserved Area''
If, as a result of its review of public comments on this proposed
rule, the NCUA Board adopts a final rule modifying the current
Chartering Manual, the modifications will apply prospectively. Pending
applications for approval to serve an ``underserved area'' and
applications received after the date of publication of this rule will
be deferred until the rulemaking process is completed.
Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact a regulation may have on a
substantial number of small credit unions (primarily those under $10
million in assets). The proposed amendments will not have a significant
economic impact on a substantial number of small credit unions and
therefore, a regulatory flexibility analysis is not required.
Paperwork Reduction Act
This proposed rule imposes a requirement that any multiple common
bond federal credit union that wishes to add an underserved area must
apply for the NCUA Board's written approval to do so. This proposed
rule mandates certain specific information that must be included in the
application. NCUA requests public comment on all aspects of the
collection of information in this proposed rule. Based upon past
experience NCUA anticipates approximately 100 applications per year.
Given the type of information required to be included in the
application, NCUA estimates a burden of 8 hours per application and
will revisit this estimate in light of the comments NCUA receives.
NCUA will submit the collection of information requirements
contained in this proposed rule to the Office of Management and Budget
(OMB) in accordance with the Paperwork Reduction Act of 1995. 44 U.S.C.
3507. NCUA will use any comments received to develop its new burden
estimates. Comments on the collections of information should be sent to
Office of
[[Page 34371]]
Management and Budget, Reports Management Branch, New Executive Office
Building, NCUA Desk Officer, Room 10202, 725 17th St., NW., Washington,
DC 20503; or by fax to (202) 395-6974; Attention: Desk Officer for
NCUA. Please send NCUA a copy of any comments you submit to OMB.
NCUA made the following assumptions about this proposed rule:
The likely respondents are multiple common bond federal
credit unions.
Estimated annual number of respondents: 100.
Estimated average annual burden hours per respondent: 8
hours.
Estimated total annual disclosure and recordkeeping
burden: 800 hours.
In addition to comments on the proposed rule, NCUA invites comment
on:
The accuracy of NCUA's estimate of the burden of the
information collections;
Ways to minimize the burden of the information collections
on Federal credit unions, including the use of automated collection
techniques or other forms of information technology; and
Estimates of capital or start-up costs and costs of
operation, maintenance, and purchase of services to provide
information.
Recordkeepers are not required to respond to this collection of
information unless it displays a currently valid OMB control number.
NCUA is currently requesting a control number for this information
collection from OMB.
Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. In
adherence to fundamental federalism principles, NCUA, an independent
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies
with the executive order. The proposed rule would not have substantial
direct effects on the states, on the connection between the national
government and the states, or on the distribution of power and
responsibilities among the various levels of government. NCUA has
determined that this proposed rule does not constitute a policy that
has federalism implications for purposes of the executive order.
The Treasury and General Government Appropriations Act, 1999
The NCUA has determined that this proposed rule would not affect
family well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act of 1999, Public Law 105-277, 112
Stat. 2681 (1998).
List of Subjects in 12 CFR Part 701
Credit, Credit unions, Reporting and recordkeeping requirements.
By the National Credit Union Administration Board on May 29,
2008.
Mary Rupp,
Secretary of the Board.
For the reasons stated above, 12 CFR Part 701 is proposed to be
amended as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
1. The authority citation for part 701 continues to read as
follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a,
1761b, 1766, 1767, 1782, 1784, 1787, 1789. Section 701.6 is also
authorized by 15 U.S.C. 3717. Section 701.31 is also authorized by
15 U.S.C. 1601, et seq., 42 U.S.C. 1981 and 3601-3610. Section
701.35 is also authorized by 12 U.S.C. 4311-4312.
2. Section 701.1 is revised to read as follows:
Sec. 701.1 Federal credit union chartering, field of membership
modifications, and conversions.
National Credit Union Administration policies concerning
chartering, field of membership modifications, and conversions are set
forth in Interpretive Ruling and Policy Statement 08-2, Chartering and
Field of Membership Manual (IRPS 08-2) published as Appendix B to this
part. The Chartering and Field of Membership Manual also is available
on-line at http://www.ncua.gov.
3. Appendix B to 12 CFR Part 701 is added to read as follows:
Appendix B To Part 701--Chartering and Field of Membership Manual
Chapter 1
Federal Credit Union Chartering
I--Goals of NCUA Chartering Policy
The National Credit Union Administration's (NCUA) chartering and
field of membership policies are directed toward achieving the
following goals:
To encourage the formation of credit unions;
To uphold the provisions of the Federal Credit Union
Act;
To promote thrift and credit extension;
To promote credit union safety and soundness; and
To make quality credit union service available to all
eligible persons.
NCUA may grant a charter to single occupational/associational
groups, multiple groups, or communities if:
The occupational, associational, or multiple groups
possess an appropriate common bond or the community represents a
well-defined local community, neighborhood, or rural district;
The subscribers are of good character and are fit to
represent the proposed credit union; and
The establishment of the credit union is economically
advisable.
Generally, these are the primary criteria that NCUA will
consider. In unusual circumstances, however, NCUA may examine other
factors, such as other federal law or public policy, in deciding if
a charter should be approved.
Unless otherwise noted, the policies outlined in this manual
apply only to federal credit unions.
II--Types of Charters
The Federal Credit Union Act recognizes three types of federal
credit union charters--single common bond (occupational and
associational), multiple common bond (more than one group each
having a common bond of occupation or association), and community.
The requirements that must be met to charter a federal credit
union are described in Chapter 2. Special rules for credit unions
serving low-income groups are described in Chapter 3.
If a federal credit union charter is granted, Section 5 of the
charter will describe the credit union's field of membership, which
defines those persons and entities eligible for membership.
Generally, federal credit unions are only able to grant loans and
provide services to persons within the field of membership who have
become members of the credit union.
III--Subscribers
Federal credit unions are generally organized by persons who
volunteer their time and resources and are responsible for
determining the interest, commitment, and economic advisability of
forming a federal credit union. The organization of a successful
federal credit union takes considerable planning and dedication.
Persons interested in organizing a federal credit union should
contact one of the credit union trade associations or the NCUA
regional office serving the state in which the credit union will be
organized. Lists of NCUA offices and credit union trade associations
are shown in the appendices. NCUA will provide information to groups
interested in pursuing a federal charter and will assist them in
contacting an organizer.
While anyone may organize a credit union, a person with training
and experience in chartering new federal credit unions is generally
the most effective organizer. However, extensive involvement by the
group desiring credit union service is essential.
The functions of the organizer are to provide direction,
guidance, and advice on the chartering process. The organizer also
provides the group with information about a credit union's functions
and purpose as well as technical assistance in preparing and
submitting the charter application. Close
[[Page 34372]]
communication and cooperation between the organizer and the proposed
members are critical to the chartering process.
The Federal Credit Union Act requires that seven or more natural
persons--The ``subscribers''--present to NCUA for approval a sworn
organization certificate stating at a minimum:
The name of the proposed federal credit union;
The location of the proposed federal credit union and
the territory in which it will operate;
The names and addresses of the subscribers to the
certificate and the number of shares subscribed by each;
The initial par value of the shares;
The detailed proposed field of membership; and
The fact that the certificate is made to enable such
persons to avail themselves of the advantages of the Federal Credit
Union Act.
False statements on any of the required documentation filed in
obtaining a federal credit union charter may be grounds for federal
criminal prosecution.
IV--Economic Advisability
IV.A--General
Before chartering a federal credit union, NCUA must be satisfied
that the institution will be viable and that it will provide needed
services to its members. Economic advisability, which is a
determination that a potential charter will have a reasonable
opportunity to succeed, is essential in order to qualify for a
credit union charter.
NCUA will conduct an independent on-site investigation of each
charter application to ensure that the proposed credit union can be
successful. In general, the success of any credit union depends on:
(a) The character and fitness of management; (b) the depth of the
members' support; and (c) present and projected market conditions.
IV.B--Proposed Management's Character and Fitness
The Federal Credit Union Act requires NCUA to ensure that the
subscribers are of good ``general character and fitness.''
Prospective officials and employees will be the subject of credit
and background investigations. The investigation report must
demonstrate each applicant's ability to effectively handle financial
matters. Employees and officials should also be competent,
experienced, honest and of good character. Factors that may lead to
disapproval of a prospective official or employee include criminal
convictions, indictments, and acts of fraud and dishonesty. Further,
factors such as serious or unresolved past due credit obligations
and bankruptcies disclosed during credit checks may disqualify an
individual.
NCUA also needs reasonable assurance that the management team
will have the requisite skills--particularly in leadership and
accounting--and the commitment to dedicate the time and effort
needed to make the proposed federal credit union a success.
Section 701.14 of NCUA's Rules and Regulations sets forth the
procedures for NCUA approval of officials of newly chartered credit
unions. If the application of a prospective official or employee to
serve is not acceptable to the regional director, the group can
propose an alternate to act in that individual's place. If the
charter applicant feels it is essential that the disqualified
individual be retained, the individual may appeal the regional
director's decision to the NCUA Board. If an appeal is pursued,
action on the application may be delayed. If the appeal is denied by
the NCUA Board, an acceptable new applicant must be provided before
the charter can be approved.
IV.C--Member Support
Economic advisability is a major factor in determining whether
the credit union will be chartered. An important consideration is
the degree of support from the field of membership. The charter
applicant must be able to demonstrate that membership support is
sufficient to ensure viability.
NCUA has not set a minimum field of membership size for
chartering a federal credit union. Consequently, groups of any size
may apply for a credit union charter and be approved if they
demonstrate economic advisability. However, it is important to note
that often the size of the group is indicative of the potential for
success. For that reason, a charter application with fewer than
3,000 primary potential members (e.g., employees of a corporation or
members of an association) may not be economically advisable.
Therefore, a charter applicant with a proposed field of membership
of fewer than 3,000 primary potential members may have to provide
more support than an applicant with a larger field of membership.
For example, a small occupational or associational group may be
required to demonstrate a commitment for long-term support from the
sponsor.
IV.D--Present and Future Market Conditions--Business Plan
The ability to provide effective service to members, compete in
the marketplace, and to adapt to changing market conditions are key
to the survival of any enterprise. Before NCUA will charter a credit
union, a business plan based on realistic and supportable
projections and assumptions must be submitted.
The business plan should contain, at a minimum, the following
elements:
Mission statement;
Analysis of market conditions, including if applicable,
geographic, demographic, employment, income, housing, and other
economic data;
Evidence of member support;
Goals for shares, loans, and for number of members;
Financial services needed/desired;
Financial services to be provided to members of all
segments within the field of membership;
How/when services are to be implemented;
Organizational/management plan addressing qualification
and planned training of officials/employees;
Continuity plan for directors, committee members and
management staff;
Operating facilities, to include office space/equipment
and supplies, safeguarding of assets, insurance coverage, etc.;
Type of record keeping and data processing system;
Detailed semiannual pro forma financial statements
(balance sheet, income and expense projections) for 1st and 2nd
year, including assumptions--e.g., loan and dividend rates;
Plans for operating independently;
Written policies (shares, lending, investments, funds
management, capital accumulation, dividends, collections, etc.);
Source of funds to pay expenses during initial months
of operation, including any subsidies, assistance, etc., and terms
or conditions of such resources; and
Evidence of sponsor commitment (or other source of
support) if subsidies are critical to success of the federal credit
union. Evidence may be in the form of letters, contracts, financial
statements from the sponsor, and any other such document on which
the proposed federal credit union can substantiate its projections.
While the business plan may be prepared with outside assistance,
the subscribers and proposed officials must understand and support
the submitted business plan.
V--Steps in Organizing a Federal Credit Union
V.A--Getting Started
Following the guidance contained throughout this policy, the
organizers should submit wording for the proposed field of
membership (the persons, organizations and other legal entities the
credit union will serve) to NCUA early in the application process
for written preliminary approval. The proposed field of membership
must meet all common bond or community requirements.
Once the field of membership has been given preliminary
approval, and the organizer is satisfied the application has merit,
the organizer should conduct an organizational meeting to elect
seven to ten persons to serve as subscribers. The subscribers should
locate willing individuals capable of serving on the board of
directors, credit committee, supervisory committee, and as chief
operating officer/manager of the proposed credit union.
Subsequent organizational meetings may be held to discuss the
progress of the charter investigation, to announce the proposed
slate of officials, and to respond to any questions posed at these
meetings.
If NCUA approves the charter application, the subscribers, as
their final duty, will elect the board of directors of the proposed
federal credit union. The new board of directors will then appoint
the supervisory committee.
V.B--Charter Application Documentation
V.B.1--General
As discussed previously in this Chapter, the organizer of a
federal credit union charter must, at a minimum, provide evidence
that:
The group(s) possess an appropriate common bond or the
geographical area to be served is a well-defined local community,
neighborhood, or rural district;
[[Page 34373]]
The subscribers, prospective officials, and employees
are of good character and fitness; and
The establishment of the credit union is economically
advisable.
As part of the application process, the organizer must submit
the following forms, which are available in Appendix 4 of this
Manual:
Federal Credit Union Investigation Report, NCUA 4001;
Organization Certificate, NCUA 4008;
Report of Official and Agreement to Serve, NCUA 4012;
Application and Agreements for Insurance of Accounts,
NCUA 9500; and
Certification of Resolutions, NCUA 9501.
Each of these forms is described in more detail in the following
sections.
V.B.2--Federal Credit Union Investigation Report, NCUA 4001
The application for a new federal credit union will be submitted
on NCUA 4001. State-chartered credit unions applying for conversion
to a federal charter will use NCUA 4000. (See Chapter 4 for a full
discussion.) The organizer is required to certify the information
and recommend approval or disapproval, based on the investigation of
the request.
V.B.3--Organization Certificate, NCUA 4008
This document, which must be completed by the subscribers,
includes the seven criteria established by the Federal Credit Union
Act. NCUA staff assigned to the case will assist in the proper
completion of this document.
V.B.4--Report of Official and Agreement to Serve, NCUA 4012
This form documents general background information of each
official and employee of the proposed federal credit union. Each
official and employee must complete and sign this form. The
organizer must review each of the NCUA 4012s for elements that would
prevent the prospective official or employee from serving. Further,
such factors as serious, unresolved past due credit obligations and
bankruptcies disclosed during credit checks may disqualify an
individual.
V.B.5--Application and Agreements for Insurance of Accounts, NCUA 9500
This document contains the agreements with which federal credit
unions must comply in order to obtain National Credit Union Share
Insurance Fund (NCUSIF) coverage of member accounts. The document
must be completed and signed by both the chief executive officer and
chief financial officer. A federal credit union must qualify for
federal share insurance.
V.B.6--Certification of Resolutions, NCUA 9501
This document certifies that the board of directors of the
proposed federal credit union has resolved to apply for NCUSIF
insurance of member accounts and has authorized the chief executive
officer and recording officer to execute the Application and
Agreements for Insurance of Accounts. Both the chief executive
officer and recording officer of the proposed federal credit union
must sign this form.
VI--Name Selection
It is the responsibility of the federal credit union organizers
or officials of an existing credit union to ensure that the proposed
federal credit union name or federal credit union name change does
not constitute an infringement on the name of any corporation in its
trade area. This responsibility also includes researching any
service marks or trademarks used by any other corporation (including
credit unions) in its trade area. NCUA will ensure, to the extent
possible, that the credit union's name:
Is not already being officially used by another federal
credit union;
Will not be confused with NCUA or another federal or
state agency, or with another credit union; and
Does not include misleading or inappropriate language.
The last three words in the name of every credit union chartered
by NCUA must be ``Federal Credit Union.''
The word ``community,'' while not required, can only be included
in the name of federal credit unions that have been granted a
community charter.
VII--NCUA REVIEW
VII.A--General
Once NCUA receives a complete charter application package, an
acknowledgment of receipt will be sent to the organizer. At some
point during the review process, a staff member will be assigned to
perform an on-site contact with the proposed officials and others
having an interest in the proposed federal credit union.
NCUA staff will review the application package and verify its
accuracy and reasonableness. A staff member will inquire into the
financial management experience and the suitability and commitment
of the proposed officials and employees, and will make an assessment
of economic advisability. The staff member will also provide
guidance to the subscribers in the proper completion of the
Organization Certificate, NCUA 4008.
Credit and background investigations may be conducted
concurrently by NCUA with other work being performed by the
organizer and subscribers to reduce the likelihood of delays in the
chartering process.
The staff member will analyze the prospective credit union's
business plan for realistic projections, attainable goals, adequate
service to all segments of the field of membership, sufficient
start-up capital, and time commitment by the proposed officials and
employees. Any concerns will be reviewed with the organizer and
discussed with the prospective credit union's officials. Additional
on-site contacts by NCUA staff may be necessary. The organizer and
subscribers will be expected to take the steps necessary to resolve
any issues or concerns. Such resolution efforts may delay processing
the application.
NCUA staff will then make a recommendation to the regional
director regarding the charter application. The recommendation may
include specific provisions to be included in a Letter of
Understanding and Agreement. In most cases, NCUA will require the
prospective officials to adhere to certain operational guidelines.
Generally, the agreement is for a limited term of two to four years.
A sample Letter of Understanding and Agreement is found in Appendix
2.
VII.B--Regional Director Approval
Once approved, the board of directors of the newly formed
federal credit union will receive a signed charter and standard
bylaws from the regional director. Additionally, the officials will
be advised of the name of the examiner assigned responsibility for
supervising and examining the credit union.
VII.C--Regional Director Disapproval
When a regional director disapproves any charter application, in
whole or in part, the organizer will be informed in writing of the
specific reasons for the disapproval. Where applicable, the regional
director will provide information concerning options or suggestions
that the applicant could consider for gaining approval or otherwise
acquiring credit union service. The letter of denial will include
the procedures for appealing the decision.
VII.D--Appeal of Regional Director Decision
If the regional director denies a charter application, in whole
or in part, that decision may be appealed to the NCUA Board. An
appeal must be sent to the appropriate regional office within 60
days of the date of denial and must address the specific reasons for
denial. The regional director will then forward the appeal to the
NCUA Board. NCUA central office staff will make an independent
review of the facts and present the appeal with a recommendation to
the NCUA Board.
Before appealing, the prospective group may, within 30 days of
the denial, provide supplemental information to the regional
director for reconsideration. A reconsideration will contain new and
material evidence addressing the reasons for the initial denial. The
regional director will have 30 days from the date of the receipt of
the request for reconsideration to make a final decision. If the
request is again denied, the applicant may proceed with the appeal
process within 60 days of the date of the last denial. A second
request for reconsideration will be treated as an appeal to the NCUA
Board.
VII.E--Commencement of Operations
Assistance in commencing operations is generally available
through the various credit union trade organizations listed in
Appendix 5.
All new federal credit unions are also encouraged to establish a
mentor relationship with a knowledgeable, experienced credit union
individual or an existing, well-operated credit union. The mentor
should provide guidance and assistance to the new credit union
through attendance at meetings and general oversight. Upon request,
NCUA will provide assistance in finding a qualified mentor.
VIII--Future Supervision
Each federal credit union will be examined regularly by NCUA to
determine that it
[[Page 34374]]
remains in compliance with applicable laws and regulations and to
determine that it does not pose undue risk to the NCUSIF. The
examiner will contact the credit union officials shortly after
approval of the charter in order to arrange for the initial
examination (usually within the first six months of operation).
The examiner will be responsible for monitoring the progress of
the credit union and providing the necessary advice and guidance to
ensure it is in compliance with applicable laws and regulations. The
examiner will also monitor compliance with the terms of any required
Letter of Understanding and Agreement. Typically, the examiner will
require the credit union to submit copies of monthly board minutes
and financial statements.
The Federal Credit Union Act requires all newly chartered credit
unions, up to two years after the charter anniversary date, to
obtain NCUA approval prior to appointment of any new board member,
credit or supervisory committee member, or senior executive officer.
Section 701.14 of the NCUA Rules and Regulations sets forth the
notice and application requirements. If NCUA issues a Notice of
Disapproval, the newly chartered credit union is prohibited from
making the change.
NCUA may disapprove an individual serving as a director,
committee member or senior executive officer if it finds that the
competence, experience, character, or integrity of the individual
indicates it would not be in the best interests of the members of
the credit union or of the public to permit the individual to be
employed by or associated with the credit union. If a Notice of
Disapproval is issued, the credit union may appeal the decision to
the NCUA Board.
IX--Corporate Federal Credit Unions
A corporate federal credit union is one that is operated
primarily for the purpose of serving other credit unions. Corporate
federal credit unions operate under and are administered by the NCUA
Office of Corporate Credit Unions.
X--Groups Seeking Credit Union Service
NCUA will attempt to assist any group in chartering a credit
union or joining an existing credit union. If the group is not
eligible for federal credit union service, NCUA will refer the group
to the appropriate state supervisory authority where different
requirements may apply.
XI--Field of Membership Designations
NCUA will designate a credit union based on the following
criteria:
Single Occupational: If a credit union serves a single
occupational sponsor, such as ABC Corporation, it will be designated
as an occupational credit union. A single occupational common bond
credit union may also serve a trade, industry, or profession (TIP),
such as all teachers.
Single Associational: If a credit union serves a single
associational sponsor, such as the Knights of Columbus, it will be
designated as an associational credit union.
Multiple Common Bond: If a credit union serves more than one
group, each of which has a common bond of occupation and/or
association, it will be designated as a multiple common bond credit
union.
Community: All community credit unions will be designated as
such, followed by a description of their geographic boundaries (e.g.
city or county).
Credit unions desiring to confirm or submit an application to
change their designations should contact the appropriate NCUA
regional office.
XII--Foreign Branching
Federal credit unions are permitted to serve foreign nationals
within their fields of membership wherever they reside provided they
have the ability, resources, and management expertise to serve such
persons. Before a credit union opens a branch outside the United
States, it must submit an application to do so and have prior
written approval of the regional director. A federal credit union
may establish a service facility on a United States military
installation or United States embassy without prior NCUA approval.
Chapter 2
Field of Membership Requirements for Federal Credit Unions
I--Introduction
I.A.1--General
As set forth in Chapter 1, the Federal Credit Union Act provides
for three types of federal credit union charters--single common bond
(occupational or associational), multiple common bond (multiple
groups), and community. Section 109 (12 U.S.C. 1759) of the Federal
Credit Union Act sets forth the membership criteria for each of
these three types of credit unions.
The field of membership, which is specified in Section 5 of the
charter, defines those persons and entities eligible for membership.
A single common bond federal credit union consists of one group
having a common bond of occupation or association. A multiple common
bond federal credit union consists of more than one group, each of
which has a common bond of occupation or association. A community
federal credit union consists of persons or organizations within a
well-defined local community, neighborhood, or rural district.
Once chartered, a federal credit union can amend its field of
membership; however, the same common bond or community requirements
for chartering the credit union must be satisfied. Since there are
differences in the three types of charters, special rules, which are
fully discussed in the following sections of this Chapter, may apply
to each.
I.A.2--Special Low-Income Rules
Generally, federal credit unions can only grant loans and
provide services to persons who have joined the credit union. The
Federal Credit Union Act states that one of the purposes of federal
credit unions is ``to serve the productive and provident credit
needs of individuals of modest means.'' Although field of membership
requirements are applicable, special rules set forth in Chapter 3
may apply to low-income designated credit unions and those credit
unions assisting low-income groups or to a federal credit union that
adds an underserved community to its field of membership.
II--Occupational Common Bond
II.A.1--General
A single occupational common bond federal credit union may
include in its field of membership all persons and entities who
share that common bond. NCUA permits a person's membership
eligibility in a single occupational common bond group to be
established in five ways:
Employment (or a long-term contractual relationship
equivalent to employment) in a single corporation or other legal
entity makes that person part of a single occupational common bond;
Employment in a corporation or other legal entity with
a controlling ownership interest (which shall not be less than 10
percent) in or by another legal entity makes that person part of a
single occupational common bond;
Employment in a corporation or other legal entity which
is related to another legal entity (such as a company under contract
and possessing a strong dependency relationship with another
company) makes that person part of a single occupational common
bond;
Employment or attendance at a school makes that person
part of a single occupational common bond (see Chapter 2, Section
III.A.1); or
Employment in the same Trade, Industry, or Profession
(TIP) (see Chapter 2, Section II.A.2).
A geographic limitation is not a requirement for a single
occupational common bond. However, for purposes of describing the
field of membership, the geographic areas being served may be
included in the charter. For example:
Employees, officials, and persons who work regularly
under contract in Miami, Florida, for ABC Corporation and
subsidiaries;
Employees of ABC Corporation who are paid from * * *;
Employees of ABC Corporation who are supervised from *
* *;
Employees of ABC Corporation who are headquartered in *
* *; and/or
Employees of ABC Corporation who work in the United
States.
The corporation or other legal entity (i.e., the employer) may
also be included in the common bond--e.g., ``ABC Corporation.'' The
corporation or legal entity will be defined in the last clause in
Section 5 of the credit union's charter.
A charter applicant must provide documentation to establish that
the single occupational common bond requirement has been met.
Some examples of single occupational common bonds are:
Employees of the Hunt Manufacturing Company who work in
West Chester, Pennsylvania (common bond--same employer with
geographic definition);
Employees of the Buffalo Manufacturing Company who work
in the United States (common bond--same employer with geographic
definition);
Employees, elected and appointed officials of municipal
government in Parma,
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Ohio (common bond--same employer with geographic definition);
Employees of Johnson Soap Company and its majority
owned subsidiary, Johnson Toothpaste Company, who work in, are paid
from, are supervised from, or are headquartered in Augusta and
Portland, Maine (common bond--parent and subsidiary company with
geographic definition);
Employees of MMLLJS contractor who work regularly at
the U.S. Naval Shipyard in Bremerton, Washington (common bond--
employees of contractors with geographic definition);
Employees, doctors, medical staff, technicians, medical
and nursing students who work in or are paid from the Newport Beach
Medical Center, Newport Beach, California (single corporation with
geographic definition);
Employees of JLS, Incorporated and MJM, Incorporated
working for the LKM Joint Venture Company in Catalina Island,
California (common bond--same employer--ongoing dependent
relationship);
Employees of and students attending Georgetown
University (common bond--same occupation);
Employees of all the schools supervised by the Timbrook
Board of Education in Timbrook, Georgia (common bond--same
employer); or
All licensed nurses in Fairfax County, Virginia
(occupational common bond TIP).
Some examples of insufficiently defined single occupational
common bonds are:
Employees of manufacturing firms in Seattle, Washington
(no defined occupational sponsor; overly broad TIP);
Persons employed or working in Chicago, Illinois (no
occupational common bond).
II.A.2--Trade, Industry, or Profession
A common bond based on employment in a trade, industry, or
profession can include employment at any number of corporations or
other legal entities that--while not under common ownership--have a
common bond by virtue of producing similar products, providing
similar services, or participating in the same type of business.
While proposed or existing single common bond credit unions have
some latitude in defining a trade, industry, or profession
occupational common bond, it cannot be defined so broadly as to
include groups in fields which are not closely related. For example,
the manufacturing industry, energy industry, communications
industry, retail industry, or entertainment industry would not
qualify as a TIP because each industry lacks the necessary
commonality. However, textile workers, realtors, nurses, teachers,
police officers, or U.S. military personnel are closely related and
each would qualify as a TIP.
The common bond relationship must be one that demonstrates a
narrow commonality of interests within a specific trade, industry,
or profession. If a credit union wants to serve a physician TIP, it
can serve all physicians, but that does not mean it can also serve
all clerical staff in the physicians' offices. However, if the TIP
is based on the health care industry, then clerical staff would be
able to be served by the credit union because they work in the same
industry and have the same commonality of interests.
If a credit union wants to include the airline services
industry, it can serve airline and airport personnel but not
passengers. Clients or customers of the TIP are not eligible for
credit union membership (e.g., patients in hospitals). Any company
that is involved in more than one industry cannot be included in an
industry TIP (e.g., a company that makes tobacco products, food
products, and electronics). However, employees of these companies
may be eligible for membership in a variety of trade/profession
occupational common bond TIPs.
Since a TIP must be narrowly defined, it cannot include third
party vendors and other suppliers. For example, the steel suppliers
to the automobile industry would not be part of the automobile
industry TIP. However, the automobile industry includes
manufacturers and their automobile dealerships.
In general, except for credit unions currently serving a
national field of membership or operating in multiple states, a
geographic limitation is required for a TIP credit union. The
geographic limitation will be part of the credit union's charter and
generally correspond to its current or planned operational area.
More than one federal credit union may serve the same trade,
industry, or profession, even if both credit unions are in the same
geographic location.
This type of occupational common bond is only available to
single common bond credit unions. A TIP cannot be added to a
multiple common bond or community field of membership.
To obtain a TIP designation, the proposed or existing credit
union must submit a request to the regional director. New charter
applicants must follow the documentation requirements in Chapter 1.
New charter applicants and existing credit unions must submit a
business plan on how the credit union will serve the group with the
request to serve the TIP. The business plan also must address how
the credit union will verify the TIP. Examples of such verification
include state licenses, professional licenses, organizational
memberships, pay statements, union membership, or employer
certification. The regional director must approve this type of field
of membership before a credit union can serve a TIP. Credit unions
converting to a TIP can retain members of record but cannot add new
members from its previous group or groups, unless it is part of the
TIP.
Section II.B on Occupational Common Bond Amendments does not
apply to a TIP common bond. Removing or changing a geographical
limitation will be processed as a housekeeping amendment. If safety
and soundness concerns are present, the regional director may
require additional information before the request can be processed.
Section II.H, on Other Persons Eligible for Credit Union
Membership, applies to TIP based credit unions except for the
corporate account provision which only applies to industry based
TIPs. Credit unions with industry based TIPs may include
corporations as members because they have the same commonality of
interests as all employees in the industry. For example, an airline
service TIP (industry) can serve an airline carrier (corporate
account); however, a nurses TIP (profession) could not serve a
hospital (corporate account) because not everyone working in the
hospital shares the same profession.
If a TIP designated credit union wishes to convert to a
different TIP or employer-based occupational common bond, or
different charter type, it only retains members of record after the
conversion. The regional director, for safety and soundness reasons,
may approve a TIP designated credit union to convert to its original
field of membership.
II.B--Occupational Common Bond Amendments
II.B.1--General
Section 5 of every single occupational federal credit union's
charter defines the field of membership the credit union can legally
serve. Only those persons or legal entities specified in the field
of membership can be served. There are a number of instances in
which Section 5 must be amended by NCUA.
First, a group sharing the credit union's common bond is added
to the field of membership. This may occur through various ways
including agreement between the group and the credit union directly,
or through a merger, corporate acquisition, purchase and assumption
(P&A), or spin-off.
Second, if the entire field of membership is acquired by another
corporation, the credit union can serve the employees of the new
corporation and any subsidiaries after receiving NCUA approval.
Third, a federal credit union qualifies to change its common
bond from:
A single occupational common bond to a single
associational common bond;
A single occupational common bond to a community
charter; or
A single occupational common bond to a multiple common
bond.
Fourth, a federal credit union removes a portion of the group
from its field of membership through agreement with the group, a
spin-off, or because a portion of the group is no longer in
existence.
An existing single occupational common bond federal credit union
that submits a request to amend its charter must provide
documentation to establish that the occupational common bond
requirement has been met. The regional director must approve all
amendments to an occupational common bond credit union's field of
membership.
II.B.2--Corporate Restructuring
If the single common bond group that comprises a federal credit
union's field of membership undergoes a substantial restructuring,
the result is often that portions of the group are sold or spun off.
This requires a change to the credit union's field of membership.
NCUA will not permit a single common bond credit union to maintain
in its field of membership a sold or spun-off group to which it has
been providing service unless the group otherwise qualifies for
membership in the credit union or the credit union converts to a
multiple common bond credit union.
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If the group comprising the single common bond of the credit
union merges with, or is acquired by, another group, the credit
union can serve the new group resulting from the merger or
acquisition after receiving a housekeeping amendment.
II.B.3--Economic Advisability
Prior to granting a common bond expansion, NCUA will examine the
amendment's likely effect on the credit union's operations and
financial condition. In most cases, the information needed for
analyzing the effect of adding a particular group will be available
to NCUA through the examination and financial and statistical
reports; however, in particular cases, a regional director may
require additional information prior to making a decision.
II.B.4--Documentation Requirements
A federal credit union requesting a common bond expansion must
submit an Application for Field of Membership Amendment (NCUA 4015-
EZ) to the appropriate NCUA regional director. An authorized credit
union representative must sign the request.
II.C--NCUA's Procedures for Amending the Field of Membership
II.C.1--General
All requests for approval to amend a federal credit union's
charter must be submitted to the appropriate regional director.
II.C.2--Regional Director's Decision
NCUA staff will review all amendment requests in order to ensure
compliance with NCUA policy.
Before acting on a proposed amendment, the regional director may
require an on-site review. In addition, the regional director may,
after taking into account the significance of the proposed field of
membership amendment, require the applicant to submit a business
plan addressing specific issues.
The financial and operational condition of the requesting credit
union will be considered in every instance. NCUA will carefully
consider the economic advisability of expanding the field of
membership of a credit union with financial or operational problems.
In most cases, field of membership amendments will only be
approved for credit unions that are operating satisfactorily.
Generally, if a federal credit union is having difficulty providing
service to its current membership, or is experiencing financial or
other operational problems, it may have more difficulty serving an
expanded field of membership.
Occasionally, however, an expanded field of membership may
provide the basis for reversing current financial problems. In such
cases, an amendment to expand the field of membership may be granted
notwithstanding the credit union's financial or operational
problems. The applicant credit union must clearly establish that the
expanded field of membership is in the best interest of the members
and will not increase the risk to the NCUSIF.
II.C.3--Regional Director Approval
If the regional director approves the requested amendment, the
credit union will be issued an amendment to Section 5 of its
charter.
II.C.4--Regional Director Disapproval
When a regional director disapproves any application, in whole
or in part, to amend the field of membership under this chapter, the
applicant will be informed in writing of the:
Specific reasons for the action;
Options to consider, if appropriate, for gaining
approval; and
Appeal procedure.
II.C.5--Appeal of Regional Director Decision
If a field of membership expansion request, merger, or spin-off
is denied by the regional director, the federal credit union may
appeal the decision to the NCUA Board. An appeal must be sent to the
appropriate regional office within 60 days of the date of denial,
and must address the specific reason(s) for the denial. The regional
director will then forward the appeal to the NCUA Board. NCUA
central office staff will make an independent review of the facts
and present the appeal to the Board with a recommendation.
Before appealing, the credit union may, within 30 days of the
denial, provide supplemental information to the regional director
for reconsideration. A reconsideration will contain new and material
evidence addressing the reasons for the initial denial. The regional
director will have 30 days from the date of the receipt of the
request for reconsideration to make a final decision. If the request
is again denied, the applicant may proceed with the appeal process
within 60 days of the date of the last denial. A second request for
reconsideration will be treated as an appeal to the NCUA Board.
II.D--Mergers, Purchase and Assumptions, and Spin-Offs
In general, other than the addition of common bond groups, there
are three additional ways a federal credit union with a single
occupational common bond can expand its field of membership:
By taking in the field of membership of another credit
union through a common bond or emergency merger;
By taking in the field of membership of another credit
union through a common bond or emergency purchase and assumption
(P&A); or
By taking a portion of another credit union's field of
membership through a common bond spin-off.
II.D.1--Mergers
Generally, the requirements applicable to field of membership
expansions found in this chapter apply to mergers where the
continuing credit union has a federal charter. That is, the two
credit unions must share a common bond.
Where the merging credit union is state-chartered, the common
bond rules applicable to a federal credit union apply.
Mergers must be approved by the NCUA regional director where the
continuing credit union is headquartered, with the concurrence of
the regional director of the merging credit union, and, as
applicable, the state regulators.
If a single occupational credit union wants to merge into a
multiple common bond or community credit union, Section IV.D or
Section V.D of this Chapter, respectively, should be reviewed.
II.D.2--Emergency Mergers
An emergency merger may be approved by NCUA without regard to
common bond or other legal constraints. An emergency merger involves
NCUA's direct intervention and approval. The credit union to be
merged must either be insolvent or likely to become insolvent, and
NCUA must determine that:
An emergency requiring expeditious action exists;
Other alternatives are not reasonably available; and
The public interest would best be served by approving
the merger.
If not corrected, conditions that could lead to insolvency
include, but are not limited to:
Abandonment by management;
Loss of sponsor;
Serious and persistent record keeping problems; or
Serious and persistent operational concerns.
In an emergency merger situation, NCUA will take an active role
in finding a suitable merger partner (continuing credit union). NCUA
is primarily concerned that the continuing credit union has the
financial strength and management expertise to absorb the troubled
credit union without adversely affecting its own financial condition
and stability.
As a stipulated condition to an emergency merger, the field of
membership of the merging credit union may be transferred intact to
the continuing federal credit union without regard to any common
bond restrictions. Under this authority, therefore, a single
occupational common bond federal credit union may take into its
field of membership any dissimilar charter type.
The common bond characteristic of the continuing credit union in
an emergency merger does not change. That is, even though the
merging credit union is a multiple common bond or community, the
continuing credit union will remain a single common bond credit
union. Similarly, if the merging credit union is also an unlike
single common bond, the continuing credit union will remain a single
common bond credit union. Future common bond expansions will be
based on the continuing credit union's original single common bond.
Emergency mergers involving federally insured credit unions in
different NCUA regions must be approved by the regional director
where the continuing credit union is headquartered, with the
concurrence of the regional director of the merging credit union
and, as applicable, the state regulators.
II.D.3--Purchase and Assumption (P&A)
Another alternative for acquiring the field of membership of a
failing credit union is through a consolidation known as a P&A. A
P&A has limited application because, in most cases, the failing
credit union must be placed into involuntary liquidation. In the few
[[Page 34377]]
instances where a P&A may be appropriate, the assuming federal
credit union, as with emergency mergers, may acquire the entire
field of membership if the emergency merger criteria are satisfied.
However, if the P&A does not meet the emergency merger criteria, it
must be processed under the common bond requirements.
In a P&A processed under the emergency criteria, specified
loans, shares, and certain other designated assets and liabilities,
without regard to common bond restrictions, may also be acquired
without changing the character of the continuing federal credit
union for purposes of future field of membership amendments.
If the purchased and/or assumed credit union's field of
membership does not share a common bond with the purchasing and/or
assuming credit union, then the continuing credit union's original
common bond will be controlling for future common bond expansions.
P&As involving federally insured credit unions in different NCUA
regions must be approved by the regional director where the
continuing credit union is headquartered, with the concurrence of
the regional director of the purchased and/or assumed credit union
and, as applicable, the state regulators.
II.D.4--Spin-Offs
A spin-off occurs when, by agreement of the parties, a portion
of the field of membership, assets, liabilities, shares, and capital
of a credit union are transferred to a new or existing credit union.
A spin-off is unique in that usually one credit union has a field of
membership expansion and the other loses a portion of its field of
membership.
All common bond requirements apply regardless of whether the
spun-off group becomes a new credit union or goes to an existing
federal charter.
The request for approval of a spin-off must be supported with a
plan that addresses, at a minimum:
Why the spin-off is being requested;
What part of the field of membership is to be spun off;
Whether the affected credit unions have a common bond
(applies only to single occupational credit unions);
Which assets, liabilities, shares, and capital are to
be transferred;
The financial impact the spin-off will have on the
affected credit unions;
The ability of the acquiring credit union to
effectively serve the new members;
The proposed spin-off date; and
Disclosure to the members of the requirements set forth
above.
The spin-off request must also include current financial
statements from the affected credit unions and the proposed voting
ballot.
For federal credit unions spinning off a group, membership
notice and voting requirements and procedures are the same as for
mergers (see Part 708 of the NCUA Rules and Regulations), except
that only the members directly affected by the spin-off--those whose
shares are to be transferred--are permitted to vote. Members whose
shares are not being transferred will not be afforded the
opportunity to vote. All members of the group to be spun off
(whether they voted in favor, against, or not at all) will be
transferred if the spin-off is approved by the voting membership.
Voting requirements for federally insured state credit unions are
governed by state law.
Spin-offs involving federally insured credit unions in different
NCUA regions must be approved by all regional directors where the
credit unions are headquartered and the state regulators, as
applicable. Spin-offs in the same region also require approval by
the state regulator, as applicable.
II.E--Overlaps
II.E.1--General
An overlap exists when a group of persons is eligible for
membership in two or more credit unions. NCUA will permit single
occupational federal credit unions to overlap any other charter
without performing an overlap analysis.
II.E.2--Organizational Restructuring
A federal credit union's field of membership will always be
governed by the common bond descriptions contained in Section 5 of
its charter. Where a sponsor organization expands its operations
internally, by acquisition or otherwise, the credit union may serve
these new entrants to its field of membership if they are part of
the common bond described in Section 5. NCUA will permit a complete
overlap of the credit unions' fields of membership.
If a sponsor organization sells off a group, new members can no
longer be served unless they otherwise qualify for membership in the
credit union or it converts to a multiple common bond charter.
Credit unions must submit documentation explaining the
restructuring and providing information regarding the new
organizational structure.
II.E.3--Exclusionary Clauses
An exclusionary clause is a limitation precluding the credit
union from serving the primary members of a portion of a group
otherwise included in its field of membership. NCUA no longer grants
exclusionary clauses. Those granted prior to the adoption of this
new chartering manual will remain in effect unless the credit unions
agree to remove them or one of the affected credit unions submits a
housekeeping amendment to have it removed.
II.F--Charter Conversion
A single occupational common bond federal credit union may apply
to convert to a community charter provided the field of membership
requirements of the community charter are met. Groups within the
existing charter which cannot qualify in the new charter cannot be
served except for members of record, or groups or communities
obtained in an emergency merger or P&A. A credit union must notify
all groups that will be removed from the field of membership as a
result of conversion. Members of record can continue to be served.
Also, in order to support a case for a conversion, the applicant
federal credit union may be required to develop a detailed business
plan as specified in Chapter 2, Section V.A.3.
A single occupational common bond federal credit union may apply
to convert to a multiple common bond charter by adding a non-common
bond group that is within a reasonable proximity of a service
facility. Groups within the existing charter may be retained and
continue to be served. However, future amendments, including any
expansions of the original single common bond group, must be done in
accordance with multiple common bond policy.
II.G--Removal of Groups From the Field of Membership
A credit union may request removal of a portion of the common
bond group from its field of membership for various reasons. The
most common reasons for this type of amendment are:
The group is within the field of membership of two
credit unions and one wishes to discontinue service;
The federal credit union cannot continue to provide
adequate service to the group;
The group has ceased to exist;
The group does not respond to repeated requests to
contact the credit union or refuses to provide needed support; or
The group initiates action to be removed from the field
of membership.
When a federal credit union requests an amendment to remove a
group from its field of membership, the regional director will
determine why the credit union desires to remove the group. If the
regional director concurs with the request, membership will continue
for those who are already members under the ``once a member, always
a member'' provision of the Federal Credit Union Act.
II.H--Other Persons Eligible for Credit Union Membership
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;
Organizations of such persons; and
Corporate or other legal entities in this charter.
Immediate family is defined as spouse, child, sibling, parent,
grandparent, or grandchild. This includes stepparents, stepchildren,
stepsiblings, and adoptive relationships.
Household is defined as persons living in the same residence
maintaining a single economic unit.
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
[[Page 34378]]
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. A credit union can adopt a more restrictive
definition of immediate family or household.
Volunteers, by virtue of their close relationship with a sponsor
group, may be included. Examples include volunteers working at a
hospital or school.
Under the Federal Credit Union Act, once a person becomes a
member of the credit union, such person may remain a member of the
credit union until the person chooses to withdraw or is expelled
from the membership of the credit union. This is commonly referred
to as ``once a member, always a member.'' The ``once a member,
always a member'' provision does not prevent a credit union from
restricting services to members who are no longer within the field
of membership.
III--Associational Common Bond
III.A.1--General
A single associational federal credit union may include in its
field of membership, regardless of location, all members and
employees of a recognized association. A single associational common
bond consists of individuals (natural persons) and/or groups (non-
natural persons) whose members participate in activities developing
common loyalties, mutual benefits, and mutual interests. Separately
chartered associational groups can establish a single common bond
relationship if they are integrally related and share common goals
and purposes. For example, two or more churches of the same
denomination, Knights of Columbus Councils, or locals of the same
union can qualify as a single associational common bond.
Individuals and groups eligible for membership in a single
associational credit union can include the following:
Natural person members of the association (for example,
members of a union or church members);
Non-natural person members of the association;
Employees of the association (for example, employees of
the labor union or employees of the church); and
The association.
Generally, a single associational common bond does not include a
geographic definition and can operate nationally. However, a
proposed or existing federal credit union may limit its field of
membership to a single association or geographic area. NCUA may
impose a geographic limitation if it is determined that the
applicant credit union does not have the ability to serve a larger
group or there are other operational concerns. All single
associational common bonds should include a definition of the group
that may be served based on the association's charter, bylaws, and
any other equivalent documentation.
The common bond for an associational group cannot be established
simply on the basis that the association exists. In determining
whether a group satisfies associational common bond requirements for
a federal credit union charter, NCUA will consider the totality of
the circumstances, which includes:
Whether members pay dues;
Whether members participate in the furtherance of the
goals of the association;
Whether the members have voting rights. To meet this
requirement, members need not vote directly for an officer, but may
vote for a delegate who in turn represents the members' interests;
Whether the association maintains a membership list;
Whether the association sponsors other activities;
The association's membership eligibility requirements;
and
The frequency of meetings.
A support group whose members are continually changing or whose
duration is temporary may not meet the single associational common
bond criteria. Each class of member will be evaluated based on the
totality of the circumstances. Individuals or honorary members who
only make donations to the association are not eligible to join the
credit union.
Educational groups--for example, parent-teacher organizations,
alumni associations, and student organizations in any school--and
church groups may constitute associational common bonds.
Student groups (e.g., students enrolled at a public, private, or
parochial school) may constitute either an associational or
occupational common bond. For example, students enrolled at a church
sponsored school could share a single associational common bond with
the members of that church and may qualify for a federal credit
union charter. Similarly, students enrolled at a university, as a
group by itself, or in conjunction with the faculty and employees of
the school, could share a single occupational common bond and may
qualify for a federal credit union charter.
The terminology ``Alumni of Jacksonville State University'' 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.
Homeowner associations, tenant groups, consumer groups, and
other groups of persons having an ``interest in'' a particular cause
and certain consumer cooperatives may also qualify as an
association.
Associations based primarily on a client-customer relationship
do not meet associational common bond requirements. However, having
an incidental client-customer relationship does not preclude an
associational charter as long as the associational common bond
requirements are met. For example, a fraternal association that
offers insurance, which is not a condition of membership, may
qualify as a valid associational common bond.
Applicants for a single associational common bond federal credit
union charter or a field of membership amendment to include an
association must provide, at the request of the regional director, a
copy of the association's charter, bylaws, or other equivalent
documentation, including any legal documents required by the state
or other governing authority.
The associational sponsor itself may also be included in the
field of membership--e.g., ``Sprocket Association''--and will be
shown in the last clause of the field of membership.
III.A.2--Subsequent Changes to Association's Bylaws
If the association's membership or geographical definitions in
its charter and bylaws are changed subsequent to the effective date
stated in the field of membership, the credit union must submit the
revised charter or bylaws for NCUA's consideration and approval
prior to serving members of the association added as a result of the
change.
III.A.3--Sample Single Associational Common Bonds
Some examples of associational common bonds are:
Regular members of Locals 10 and 13, IBEW, in Florida,
who qualify for membership in accordance with their charter and
bylaws in effect on May 20, 2001;
Members of the Hoosier Farm Bureau in Grant, Logan, or
Lee Counties of Indiana, who qualify for membership in accordance
with its charter and bylaws in effect on March 7, 1997;
Members of the Shalom Congregation in Chevy Chase,
Maryland;
Regular members of the Corporate Executives
Association, located in Westchester, New York, who qualify for
membership in accordance with its charter and bylaws in effect on
December 1, 1997;
Members of the University of Wisconsin Alumni
Association, located in Green Bay, Wisconsin;
Members of the Marine Corps Reserve Officers
Association; or
Members of St. John's Methodist Church and St. Luke's
Methodist Church, located in Toledo, Ohio.
Some examples of insufficiently defined single associational
common bonds are:
All Lutherans in the United States (too broadly
defined); or
Veterans of U.S. military service (group is too broadly
defined; no formal association of all members of the group).
Some examples of unacceptable single associational common bonds
are:
Alumni of Amos University (no formal association);
Customers of Fleetwood Insurance Company (policyholders
or primarily customer/client relationships do not meet associational
standards);
Employees of members of the Reston, Virginia Chamber of
Commerce (not a sufficiently close tie to the associational common
bond); or
Members of St. John's Lutheran Church and St. Mary's
Catholic Church located in Anniston, Alabama (churches are not of
the same denomination).
III.B--Associational Common Bond Amendments
III.B.1--General
Section 5 of every associational federal credit union's charter
defines the field of
[[Page 34379]]
membership the credit union can legally serve. Only those persons
who, or legal entities that, join the credit union and are specified
in the field of membership can be served. There are three instances
in which Section 5 must be amended by NCUA.
First, a group that shares the credit union's common bond is
added to the field of membership. This may occur through various
ways including agreement between the group and the credit union
directly, or through a merger, purchase and assumption (P&A), or
spin-off.
Second, a federal credit union qualifies to change its common
bond from:
A single associational common bond to a single
occupational common bond;
A single associational common bond to a community
charter; or
A single associational common bond to a multiple common
bond.
Third, a federal credit union removes a portion of the group
from its field of membership through agreement with the group, a
spin-off, or a portion of the group is no longer in existence.
An existing single associational federal credit union that
submits a request to amend its charter must provide documentation to
establish that the associational common bond requirement has been
met. The regional director must approve all amendments to an
associational common bond credit union's field of membership.
III.B.2--Organizational Restructuring
If the single common bond group that comprises a federal credit
union's field of membership undergoes a substantial restructuring,
the result is often that portions of the group are sold or spun off.
This is an event requiring a change to the credit union's field of
membership. NCUA may not permit a single associational credit union
to maintain in its field of membership a sold or spun-off group to
which it has been providing service unless the group otherwise
qualifies for membership in the credit union or the credit union
converts to a multiple common bond credit union.
If the group comprising the single common bond of the credit
union merges with, or is acquired by, another group, the credit
union can serve the new group resulting from the merger or
acquisition after receiving a housekeeping amendment.
III.B.3--Economic Advisability
Prior to granting a common bond expansion, NCUA will examine the
amendment's likely impact on the credit union's operations and
financial condition. In most cases, the information needed for
analyzing the effect of adding a particular group will be available
to NCUA through the examination and financial and statistical
reports; however, in particular cases, a regional director may
require additional information prior to making a decision.
III.B.4--Documentation Requirements
A federal credit union requesting a common bond expansion must
submit an Application for Field of Membership Amendment (NCUA 4015-
EZ) to the appropriate NCUA regional director. An authorized credit
union representative must sign the request.
III.C--NCUA Procedures for Amending the Field of Membership
III.C.1--General
All requests for approval to amend a federal credit union's
charter must be submitted to the appropriate regional director.
III.C.2--Regional Director's Decision
NCUA staff will review all amendment requests in order to ensure
conformance to NCUA policy.
Before acting on a proposed amendment, the regional director may
require an on-site review. In addition, the regional director may,
after taking into account the significance of the proposed field of
membership amendment, require the applicant to submit a business
plan addressing specific issues.
The financial and operational condition of the requesting credit
union will be considered in every instance. The economic
advisability of expanding the field of membership of a credit union
with financial or operational problems must be carefully considered.
In most cases, field of membership amendments will only be
approved for credit unions that are operating satisfactorily.
Generally, if a federal credit union is having difficulty providing
service to its current membership, or is experiencing financial or
other operational problems, it may have more difficulty serving an
expanded field of membership.
Occasionally, however, an expanded field of membership may
provide the basis for reversing current financial problems. In such
cases, an amendment to expand the field of membership may be granted
notwithstanding the credit union's financial or operational
problems. The applicant credit union must clearly establish that the
expanded field of membership is in the best interest of the members
and will not increase the risk to the NCUSIF.
III.C.3--Regional Director Approval
If the regional director approves the requested amendment, the
credit union will be issued an amendment to Section 5 of its
charter.
III.C.4--Regional Director Disapproval
When a regional director disapproves any application, in whole
or in part, to amend the field of membership under this chapter, the
applicant will be informed in writing of the:
Specific reasons for the action;
Options to consider, if appropriate, for gaining
approval; and
Appeal procedures.
III.C.5--Appeal of Regional Director Decision
If a field of membership expansion request, merger, or spin-off
is denied by the regional director, the federal credit union may
appeal the decision to the NCUA Board. An appeal must be sent to the
appropriate regional office within 60 days of the date of denial and
must address the specific reason(s) for the denial. The regional
director will then forward the appeal to the NCUA Board. NCUA
central office staff will make an independent review of the facts
and present the appeal to the NCUA Board with a recommendation.
Before appealing, the credit union may, within 30 days of the
denial, provide supplemental information to the regional director
for reconsideration. A reconsideration will contain new and material
evidence addressing the reasons for the initial denial. The regional
director will have 30 days from the date of the receipt of the
request for reconsideration to make a final decision. If the request
is again denied, the applicant may proceed with the appeal process
within 60 days of the date of the last denial. A second request for
reconsideration will be treated as an appeal to the NCUA Board.
III.D--Mergers, Purchase and Assumptions, and Spin-Offs
In general, other than the addition of common bond groups, there
are three additional ways a federal credit union with a single
associational common bond can expand its field of membership:
By taking in the field of membership of another credit
union through a common bond or emergency merger;
By taking in the field of membership of another credit
union through a common bond or emergency purchase and assumption
(P&A); or
By taking a portion of another credit union's field of
membership through a common bond spin-off.
III.D.1--Mergers
Generally, the requirements applicable to field of membership
expansions found in this section apply to mergers where the
continuing credit union is a federal charter. That is, the two
credit unions must share a common bond.
Where the merging credit union is state-chartered, the common
bond rules applicable to a federal credit union apply.
Mergers must be approved by the NCUA regional director where the
continuing credit union is headquartered, with the concurrence of
the regional director of the merging credit union, and, as
applicable, the state regulators.
If a single associational credit union wants to merge into a
multiple common bond or community credit union, Section IV.D or
Section V.D of this Chapter, respectively, should be reviewed.
III.D.2--Emergency Mergers
An emergency merger may be approved by NCUA without regard to
common bond or other legal constraints. An emergency merger involves
NCUA's direct intervention and approval. The credit union to be
merged must either be insolvent or likely to become insolvent, and
NCUA must determine that:
An emergency requiring expeditious action exists;
Other alternatives are not reasonably available; and
The public interest would best be served by approving
the merger.
If not corrected, conditions that could lead to insolvency
include, but are not limited to:
Abandonment by management;
Loss of sponsor;
Serious and persistent record keeping problems; or
Serious and persistent operational concerns.
[[Page 34380]]
In an emergency merger situation, NCUA will take an active role
in finding a suitable merger partner (continuing credit union). NCUA
is primarily concerned that the continuing credit union has the
financial strength and management expertise to absorb the troubled
credit union without adversely affecting its own financial condition
and stability.
As a stipulated condition to an emergency merger, the field of
membership of the merging credit union may be transferred intact to
the continuing federal credit union without regard to any common
bond restrictions. Under this authority, therefore, a single
associational common bond federal credit union may take into its
field of membership any dissimilar charter type.
The common bond characteristic of the continuing credit union in
an emergency merger does not change. That is, even though the
merging credit union is a multiple common bond or community, the
continuing credit union will remain a single common bond credit
union. Similarly, if the merging credit union is an unlike single
common bond, the continuing credit union will remain a single common
bond credit union. Future common bond expansions will be based on
the continuing credit union's single common bond.
Emergency mergers involving federally insured credit unions in
different NCUA regions must be approved by the regional director
where the continuing credit union is headquartered, with the
concurrence of the regional director of the merging credit union
and, as applicable, the state regulators.
III.D.3--Purchase and Assumption (P&A)
Another alternative for acquiring the field of membership of a
failing credit union is through a consolidation known as a P&A. A
P&A has limited application because, in most cases, the failing
credit union must be placed into involuntary liquidation. In the few
instances where a P&A may be appropriate, the assuming federal
credit union, as with emergency mergers, may acquire the entire
field of membership if the emergency merger criteria are satisfied.
However, if the P&A does not meet the emergency merger criteria, it
must be processed under the common bond requirements.
In a P&A processed under the emergency criteria, specified
loans, shares, and certain other designated assets and liabilities,
without regard to common bond restrictions, may also be acquired
without changing the character of the continuing federal credit
union for purposes of future field of membership amendments.
If the purchased and/or assumed credit union's field of
membership does not share a common bond with the purchasing and/or
assuming credit union, then the continuing credit union's original
common bond will be controlling for future common bond expansions.
P&As involving federally insured credit unions in different NCUA
regions must be approved by the regional director where the
continuing credit union is headquartered, with the concurrence of
the regional director of the purchased and/or assumed credit union
and, as applicable, the state regulators.
III.D.4--Spin-Offs
A spin-off occurs when, by agreement of the parties, a portion
of the field of membership, assets, liabilities, shares, and capital
of a credit union are transferred to a new or existing credit union.
A spin-off is unique in that usually one credit union has a field of
membership expansion and the other loses a portion of its field of
membership.
All common bond requirements apply regardless of whether the
spun-off group becomes a new credit union or goes to an existing
federal charter.
The request for approval of a spin-off must be supported with a
plan that addresses, at a minimum:
Why the spin-off is being requested;
What part of the field of membership is to be spun off;
Whether the affected credit unions have the same common
bond (applies only to single associational credit unions);
Which assets, liabilities, shares, and capital are to
be transferred;
The financial impact the spin-off will have on the
affected credit unions;
The ability of the acquiring credit union to
effectively serve the new members;
The proposed spin-off date; and
Disclosure to the members of the requirements set forth
above.
The spin-off request must also include current financial
statements from the affected credit unions and the proposed voting
ballot.
For federal credit unions spinning off a group, membership
notice and voting requirements and procedures are the same as for
mergers (see Part 708 of the NCUA Rules and Regulations), except
that only the members directly affected by the spin-off--those whose
shares are to be transferred--are permitted to vote. Members whose
shares are not being transferred will not be afforded the
opportunity to vote. All members of the group to be spun off
(whether they voted in favor, against, or not at all) will be
transferred if the spin-off is approved by the voting membership.
Voting requirements for federally insured state credit unions are
governed by state law.
Spin-offs involving federally insured credit unions in different
NCUA regions must be approved by all regional directors where the
credit unions are headquartered and the state regulators, as
applicable. Spin-offs in the same region also require approval by
the state regulator, as applicable.
III.E--Overlaps
III.E.1--General
An overlap exists when a group of persons is eligible for
membership in two or more credit unions. NCUA will permit single
associational federal credit unions to overlap any other charters
without performing an overlap analysis.
III.E.2--Organizational Restructuring
A federal credit union's field of membership will always be
governed by the common bond descriptions contained in Section 5 of
its charter. Where a sponsor organization expands its operations
internally, by acquisition or otherwise, the credit union may serve
these new entrants to its field of membership if they are part of
the common bond described in Section 5. NCUA will permit a complete
overlap of the credit unions' fields of membership. If a sponsor
organization sells off a group, new members can no longer be served
unless they otherwise qualify for membership in the credit union or
it converts to a multiple common bond.
Credit unions must submit documentation explaining the
restructuring and providing information regarding the new
organizational structure.
III.E.3--Exclusionary Clauses
An exclusionary clause is a limitation precluding the credit
union from serving the primary members of a portion of a group
otherwise included in its field of membership. NCUA no longer grants
exclusionary clauses. Those granted prior to the adoption of this
new chartering manual will remain in effect unless the credit unions
agree to remove them or one of the affected credit unions submits a
housekeeping amendment to have it removed.
III.F--Charter Conversions
A single associational common bond federal credit union may
apply to convert to a community charter provided the field of
membership requirements of the community charter are met. Groups
within the existing charter which cannot qualify in the new charter
cannot be served except for members of record, or groups or
communities obtained in an emergency merger or P&A. A credit union
must notify all groups that will be removed from the field of
membership as a result of conversion. Members of record can continue
to be served. Also, in order to support a case for a conversion, the
applicant federal credit union may be required to develop a detailed
business plan as specified in Chapter 2, Section V.A.3.
A single associational common bond federal credit union may
apply to convert to a multiple common bond charter by adding a non-
common bond group that is within a reasonable proximity of a service
facility. Groups within the existing charter may be retained and
continue to be served. However, future amendments, including any
expansions of the original single common bond group, must be done in
accordance with multiple common bond policy.
III.G--Removal of Groups From the Field of Membership
A credit union may request removal of a portion of the common
bond group from its field of membership for various reasons. The
most common reasons for this type of amendment are:
The group is within the field of membership of two
credit unions and one wishes to discontinue service;
The federal credit union cannot continue to provide
adequate service to the group;
The group has ceased to exist;
The group does not respond to repeated requests to
contact the credit union or refuses to provide needed support; or
The group initiates action to be removed from the field
of membership.
When a federal credit union requests an amendment to remove a
group from its field
[[Page 34381]]
of membership, the regional director will determine why the credit
union desires to remove the group. If the regional director concurs
with the request, membership will continue for those who are already
members under the ``once a member, always a member'' provision of
the Federal Credit Union Act.
III.H--Other Persons Eligible for Credit Union Membership
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;
Volunteers;
Members of the immediate family or household;
Organizations of such persons; and
Corporate or other legal entities in this charter.
Immediate family is defined as spouse, child, sibling, parent,
grandparent, or grandchild. This includes stepparents, stepchildren,
stepsiblings, and adoptive relationships.
Household is defined as persons living in the same residence
maintaining a single economic unit.
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. A credit union can adopt
a more restrictive definition of immediate family or household.
Volunteers, by virtue of their close relationship with a sponsor
group, may be included. One example is volunteers working at a
church.
Under the Federal Credit Union Act, once a person becomes a
member of the credit union, such person may remain a member of the
credit union until the person chooses to withdraw or is expelled
from the membership of the credit union. This is commonly referred
to as ``once a member, always a member.'' The ``once a member,
always a member'' provision does not prevent a credit union from
restricting services to members who are no longer within the field
of membership.
IV--Multiple Occupational/Associational Common Bonds
IV.A.1--General
A federal credit union may be chartered to serve a combination
of distinct, definable single occupational and/or associational
common bonds. This type of credit union is called a multiple common
bond credit union. Each group in the field of membership must have
its own occupational or associational common bond. For example, a
multiple common bond credit union may include two unrelated
employers, or two unrelated associations, or a combination of two or
more employers or associations. Additionally, these groups must be
within reasonable geographic proximity of the credit union. That is,
the groups must be within the service area of one of the credit
union's service facilities. These groups are referred to as select
groups. A multiple common bond credit union cannot include a TIP or
expand using single common bond criteria.
A federal credit union's service area is the area that can
reasonably be served by the service facilities accessible to the
groups within the field of membership. The service area will most
often coincide with that geographic area primarily served by the
service facility. Additionally, the groups served by the credit
union must have access to the service facility. The non-availability
of other credit union service is a factor to be considered in
determining whether the group is within reasonable proximity of a
credit union wishing to add the group to its field of membership.
A service facility for multiple common bond credit unions is
defined as a place where shares are accepted for members' accounts,
loan applications are accepted or loans are disbursed. This
definition includes a credit union owned branch, a mobile branch, an
office operated on a regularly scheduled weekly basis, a credit
union owned ATM, or a credit union owned electronic facility that
meets, at a minimum, these requirements. A service facility also
includes a shared branch or a shared branch network if either: (1)
The credit union has an ownership interest in the service facility
either directly or through a CUSO or similar organization; or (2)
the service facility is local to the credit union and the credit
union is an authorized participant in the service center. This
definition does not include the credit union's Internet Web site.
The select group as a whole will be considered to be within a
credit union's service area when:
A majority of the persons in a select group live, work,
or gather regularly within the service area;
The group's headquarters is located within the service
area; or
The group's ``paid from'' or ``supervised from''
location is within the service area.
IV.A.2--Sample Multiple Common Bond Field of Membership
An example of a multiple common bond field of membership is:
``The field of membership of this federal credit union shall be
limited to the following:
1. Employees of Teltex Corporation who work in Wilmington,
Delaware;
2. Partners and employees of Smith & Jones, Attorneys at Law,
who work in Wilmington, Delaware;
3. Members of the M&L Association in Wilmington, Delaware, who
qualify for membership in accordance with its charter and bylaws in
effect on December 31, 1997.''
IV.B--Multiple Common Bond Amendments
IV.B.1--General
Section 5 of every multiple common bond federal credit union's
charter defines the field of membership and select groups the credit
union can legally serve. Only those persons or legal entities
specified in the field of membership can be served. There are a
number of instances in which Section 5 must be amended by NCUA.
First, a new select group is added to the field of membership.
This may occur through agreement between the group and the credit
union directly, or through a merger, corporate acquisition, purchase
and assumption (P&A), or spin-off.
Second, a federal credit union qualifies to change its charter
from:
A Single occupational or associational charter to a
multiple common bond charter;
A multiple common bond to a single occupational or
associational charter;
A multiple common bond to a community charter; or
A community to a multiple common bond charter.
Third, a federal credit union removes a group from its field of
membership through agreement with the group, a spin-off, or because
the group no longer exists.
IV.B.2--Numerical Limitation of Select Groups
An existing multiple common bond federal credit union that
submits a request to amend its charter must provide documentation to
establish that the multiple common bond requirements have been met.
The regional director must approve all amendments to a multiple
common bond credit union's field of membership.
NCUA will approve groups to a credit union's field of membership
if the agency determines in writing that the following criteria are
met:
The credit union has not engaged in any unsafe or
unsound practice, as determined by the regional director, which is
material during the one year period preceding the filing to add the
group;
The credit union is ``adequately capitalized.'' NCUA
defines adequately capitalized to mean the credit union has a net
worth ratio of not less than 6 percent. For low-income credit unions
or credit unions chartered less than ten years, the regional
director may determine that a net worth ratio of less than 6 percent
is adequate if the credit union is making reasonable progress toward
meeting the 6 percent net worth requirement. For any other credit
union, the regional director may determine that a net worth ratio of
less than 6 percent is adequate if the credit union is making
reasonable progress toward meeting the 6 percent net worth
requirement, and the addition of the group would not adversely
affect the credit union's capitalization level;
The credit union has the administrative capability to
serve the proposed group and the financial resources to meet the
need for additional staff and assets to serve the new group;
Any potential harm the expansion may have on any other
credit union and its members is clearly outweighed by the
[[Page 34382]]
probable beneficial effect of the expansion. With respect to a
proposed expansion's effect on other credit unions, the requirements
on overlapping fields of membership set forth in Section IV.E of
this Chapter are also applicable; and
If the formation of a separate credit union by such
group is not practical and consistent with reasonable standards for
the safe and sound operation of a credit union.
A detailed analysis is required for groups of 3,000 or more
primary potential members requesting to be added to a multiple
common bond credit union. It is incumbent upon the credit union to
demonstrate that the formation of a separate credit union by such a
group is not practical. The group must provide evidence that it
lacks sufficient volunteer and other resources to support the
efficient and effective operations of a credit union or does not
meet the economic advisability criteria outlined in Chapter 1. If
this can be demonstrated, the group may be added to a multiple
common bond credit union's field of membership.
IV.B.3--Documentation Requirements
A multiple common bond credit union requesting a select group
expansion must submit a formal written request, using the
Application for Field of Membership Amendment (NCUA 4015 or NCUA
4015-EZ) to the appropriate NCUA regional director. An authorized
credit union representative must sign the request.
The NCUA 4015-EZ (for groups less than 3,000 potential members)
must be accompanied by the following:
A letter, or equivalent documentation, from the group
requesting credit union service. This letter must indicate:
[cir] That the group wants to be added to the applicant federal
credit union's field of membership;
[cir] The number of persons currently included within the group
to be added and their locations; and
[cir] The group's proximity to credit union's nearest service
facility.
The most recent copy of the group's charter and bylaws
or equivalent documentation (for associational groups).
The NCUA 4015 (for groups of 3,000 or more primary potential
members) must be accompanied by the following:
A letter, or equivalent documentation, from the group
requesting credit union service. This letter must indicate:
[cir] That the group wants to be added to the federal credit
union's field of membership;
[cir] Whether the group presently has other credit union service
available;
[cir] The number of persons currently included within the group
to be added and their locations;
[cir] The group's proximity to credit union's nearest service
facility; and
[cir] Why the formation of a separate credit union for the group
is not practical or consistent with safety and soundness standards.
A credit union need not address every item on the list, simply those
issues that are relevant to its particular request:
Member location--whether the membership is widely dispersed or
concentrated in a central location.
Demographics--the employee turnover rate, economic status of the
group's members, and whether the group is more apt to consist of
savers and/or borrowers.
Market competition--the availability of other financial
services.
Desired services and products--the type of services the group
desires in comparison to the type of services a new credit union
could offer.
Sponsor subsidies--the availability of operating subsidies.
The desire of the sponsor--the extent of the sponsor's interest
in supporting a credit union charter.
Employee interest--the extent of the employees' interest in
obtaining a credit union charter.
Evidence of past failure--whether the group previously had its
own credit union or previously filed for a credit union charter.
Administrative capacity to provide services--will the group have
the management expertise to provide the services requested.
If the group is eligible for membership in any other
credit union, documentation must be provided to support inclusion of
the group under the overlap standards set forth in Section IV.E of
this Chapter; and
The most recent copy of the group's charter and bylaws
or equivalent documentation (for associational groups).
IV.B.4--Corporate Restructuring
If a select group within a federal credit union's field of
membership undergoes a substantial restructuring, a change to the
credit union's field of membership may be required if the credit
union is to continue to provide service to the select group. NCUA
permits a multiple common bond credit union to maintain in its field
of membership a sold, spun-off, or merged select group to which it
has been providing service. This type of amendment to the credit
union's charter is not considered an expansion; therefore, the
criteria relating to adding new groups are not applicable.
When two groups merge and each is in the field of membership of
a credit union, then both (or all affected) credit unions can serve
the resulting merged group, subject to any existing geographic
limitation and without regard to any overlap provisions. However,
the credit unions cannot serve the other multiple groups that may be
in the field of membership of the other credit union.
IV.C--NCUA'S Procedures for Amending the Field of Membership
IV.C.1--General
All requests for approval to amend a federal credit union's
charter must be submitted to the appropriate regional director.
IV.C.2--Regional Director's Decision
NCUA staff will review all amendment requests in order to ensure
conformance to NCUA policy.
Before acting on a proposed amendment, the regional director may
require an on-site review. In addition, the regional director may,
after taking into account the significance of the proposed field of
membership amendment, require the applicant to submit a business
plan addressing specific issues.
The financial and operational condition of the requesting credit
union will be considered in every instance. An expanded field of
membership may provide the basis for reversing adverse trends. In
such cases, an amendment to expand the field of membership may be
granted notwithstanding the credit union's adverse trends. The
applicant credit union must clearly establish that the approval of
the expanded field of membership meets the requirements of Section
IV.B.2 of this Chapter and will not increase the risk to the NCUSIF.
IV.C.3--Regional Director Approval
If the regional director approves the requested amendment, the
credit union will be issued an amendment to Section 5 of its
charter.
IV.C.4--Regional Director Disapproval
When a regional director disapproves any application, in whole
or in part, to amend the field of membership under this chapter, the
applicant will be informed in writing of the:
Specific reasons for the action;
Options to consider, if appropriate, for gaining
approval; and
Appeal procedure.
IV.C.5--Appeal of Regional Director Decision
If a field of membership expansion request, merger, or spin-off
is denied by the regional director, the federal credit union may
appeal the decision to the NCUA Board. An appeal must be sent to the
appropriate regional office within 60 days of the date of denial,
and must address the specific reason(s) for the denial. The regional
director will then forward the appeal to the NCUA Board. NCUA
central office staff will make an independent review of the facts
and present the appeal to the Board with a recommendation.
Before appealing, the credit union may, within 30 days of the
denial, provide supplemental information to the regional director
for reconsideration. A reconsideration will contain new and material
evidence addressing the reasons for the initial denial. The regional
director will have 30 days from the date of the receipt of the
request for reconsideration to make a final decision. If the request
is again denied, the applicant may proceed with the appeal process
within 60 days of the date of the last denial. A second request for
reconsideration will be treated as an appeal to the NCUA Board.
IV.D--Mergers, Purchase and Assumptions, and Spin-Offs
In general, other than the addition of select groups, there are
three additional ways a multiple common bond federal credit union
can expand its field of membership:
By taking in the field of membership of another credit
union through a merger;
By taking in the field of membership of another credit
union through a purchase and assumption (P&A); or
By taking a portion of another credit union's field of
membership through a spin-off.
[[Page 34383]]
IV.D.1--Voluntary Mergers
a. All Select Groups in the Merging Credit Union's Field of Membership
Have Less Than 3,000 Primary Potential Members.
A voluntary merger of two or more federal credit unions is
permissible as long as each select group in the merging credit
union's field of membership has less than 3,000 primary potential
members. While the merger requirements outlined in Section 205 of
the Federal Credit Union Act must still be met, the requirements of
Chapter 2, Section IV.B.2 of this manual are not applicable.
b. One or More Select Groups in the Merging Credit Union's Field of
Membership Has 3,000 or More Primary Potential Members.
If the merging credit unions serve the same group, and the group
consists of 3,000 or more primary potential members, then the
ability to form a separate credit union analysis is not required for
that group. If the merging credit union has any other groups
consisting of 3,000 or more primary potential members, special
requirements apply. NCUA will analyze each group of 3,000 or more
primary potential members, except as noted above, to determine
whether the formation of a separate credit union by such a group is
practical. If the formation of a separate credit union by such a
group is not practical because the group lacks sufficient volunteer
and other resources to support the efficient and effective
operations of a credit union or does not meet the economic advisable
criteria outlined in Chapter 1, the group may be merged into a
multiple common bond credit union. If the formation of a separate
credit union is practical, the group must be spun-off before the
merger can be approved.
c. Merger of a Single Common Bond Credit Union Into a Multiple Common
Bond Credit Union.
A financially healthy single common bond credit union with a
primary potential membership of 3,000 or more cannot merge into a
multiple common bond credit union, absent supervisory reasons,
unless the continuing credit union already serves the same group.
d. Merger Approval.
If the merger is approved, the qualifying groups within the
merging credit union's field of membership will be transferred
intact to the continuing credit union and can continue to be served.
Where the merging credit union is state-chartered, the field of
membership rules applicable to a federal credit union apply.
Mergers must be approved by the NCUA regional director where the
continuing credit union is headquartered, with the concurrence of
the regional director of the merging credit union, and, as
applicable, the state regulators.
IV.D.2--Supervisory Mergers
The NCUA may approve the merger of any federally insured credit
union when safety and soundness concerns are present without regard
to the 3,000 numerical limitation. The credit union need not be
insolvent or in danger of insolvency for NCUA to use this statutory
authority. Examples constituting appropriate reasons for using this
authority are: abandonment of the management and/or officials and an
inability to find replacements, loss of sponsor support, serious and
persistent record keeping problems, sustained material decline in
financial condition, or other serious or persistent circumstances.
IV.D.3--Emergency Mergers
An emergency merger may be approved by NCUA without regard to
field of membership rules, the 3,000 numerical limitation, or other
legal constraints. An emergency merger involves NCUA's direct
intervention and approval. The credit union to be merged must either
be insolvent or likely to become insolvent, and NCUA must determine
that:
An emergency requiring expeditious action exists;
Other alternatives are not reasonably available; and
The public interest would best be served by approving
the merger.
If not corrected, conditions that could lead to insolvency
include, but are not limited to:
Abandonment by management;
Loss of sponsor;
Serious and persistent record keeping problems; or
Serious and persistent operational concerns.
In an emergency merger situation, NCUA will take an active role
in finding a suitable merger partner (continuing credit union). NCUA
is primarily concerned that the continuing credit union has the
financial strength and management expertise to absorb the troubled
credit union without adversely affecting its own financial condition
and stability.
As a stipulated condition to an emergency merger, the field of
membership of the merging credit union may be transferred intact to
the continuing federal credit union without regard to any field of
membership restrictions including numerical limitation requirements.
Under this authority, any single occupational or associational
common bond, multiple common bond, or community charter may merger
into a multiple common bond credit union and that credit union can
continue to serve the merging credit union's field of membership.
Subsequent field of membership expansions of the continuing multiple
common bond credit union must be consistent with multiple common
bond policies.
Emergency mergers involving federally insured credit unions in
different NCUA regions must be approved by the regional director
where the continuing credit union is headquartered, with the
concurrence of the regional director of the merging credit union
and, as applicable, the state regulators.
IV.D.4--Purchase and Assumption (P&A)
Another alternative for acquiring the field of membership of a
failing credit union is through a consolidation known as a P&A.
Generally, the requirements applicable to field of membership
expansions found in this chapter apply to purchase and assumptions
where the purchasing credit union is a federal charter.
A P&A has limited application because, in most cases, the
failing credit union must be placed into involuntary liquidation.
However, in the few instances where a P&A may occur, the assuming
federal credit union, as with emergency mergers, may acquire the
entire field of membership if the emergency criteria are satisfied.
Specified loans, shares, and certain other designated assets and
liabilities, without regard to field of membership restrictions, may
also be acquired without changing the character of the continuing
federal credit union for purposes of future field of membership
amendments. Subsequent field of membership expansions must be
consistent with multiple common bond policies.
P&As involving federally insured credit unions in different NCUA
regions must be approved by the regional director where the
continuing credit union is headquartered, with the concurrence of
the regional director of the purchased and/or assumed credit union
and, as applicable, the state regulators.
IV.D.5--Spin-Offs
A spin-off occurs when, by agreement of the parties, a portion
of the field of membership, assets, liabilities, shares, and capital
of a credit union are transferred to a new or existing credit union.
A spin-off is unique in that usually one credit union has a field of
membership expansion and the other loses a portion of its field of
membership.
All common bond requirements apply regardless of whether the
spun-off group becomes a new charter or goes to an existing federal
charter.
The request for approval of a spun-off group must be supported
with a plan that addresses, at a minimum:
Why the spin-off is being requested;
What part of the field of membership is to be spun off;
Which assets, liabilities, shares, and capital are to
be transferred;
The financial impact the spin-off will have on the
affected credit unions;
The ability of the acquiring credit union to
effectively serve the new members;
The proposed spin-off date; and
Disclosure to the members of the requirements set forth
above.
The spin-off request must also include current financial
statements from the affected credit unions and the proposed voting
ballot.
For federal credit unions spinning off a group, membership
notice and voting requirements and procedures are the same as for
mergers (see Part 708 of the NCUA Rules and Regulations), except
that only the members directly affected by the spin-off--those whose
shares are to be transferred--are permitted to vote. Members whose
shares are not being transferred will not be afforded the
opportunity to vote. All members of the group to be spun off
(whether they voted in favor, against, or not at all) will be
transferred if the spin-off is approved by the voting membership.
Voting requirements for federally insured state credit unions are
governed by state law.
Spin-offs involving federally insured credit unions in different
NCUA regions must be approved by all regional directors where the
credit unions are headquartered and the state regulators, as
applicable. Spin-offs in the same region also require approval by
the state regulator, as applicable.
[[Page 34384]]
IV.E--Overlaps
IV.E.1--General
An overlap exists when a group of persons is eligible for
membership in two or more credit unions, including state charters.
An overlap is permitted when the expansion's beneficial effect in
meeting the convenience and needs of the members of the group
proposed to be included in the field of membership clearly outweighs
any adverse effect on the overlapped credit union.
Credit unions must investigate the possibility of an overlap
with federally insured credit unions prior to submitting an
expansion request if the group has 3,000 or more primary potential
members. If cases arise where the assurance given to a regional
director concerning the unavailability of credit union service is
inaccurate, the misinformation may be grounds for removal of the
group from the federal credit union's charter.
When an overlap situation requiring analysis does arise,
officials of the expanding credit union must ascertain the views of
the overlapped credit union. If the overlapped credit union does not
object, the applicant must submit a letter or other documentation to
that effect. If the overlapped credit union does not respond, the
expanding credit union must notify NCUA in writing of its attempt to
obtain the overlapped credit union's comments.
NCUA will approve an overlap if the expansion's beneficial
effect in meeting the convenience and needs of the members of the
group clearly outweighs any adverse effect on the overlapped credit
union.
In reviewing the overlap, the regional director will consider:
The view of the overlapped credit union(s);
Whether the overlap is incidental in nature--the group
of persons in question is so small as to have no material effect on
the original credit union;
Whether there is limited participation by members or
employees of the group in the original credit union after the
expiration of a reasonable period of time;
Whether the original credit union fails to provide
requested service;
Financial effect on the overlapped credit union;
The desires of the group(s);
The desire of the sponsor organization; and
The best interests of the affected group and the credit
union members involved.
Generally, if the overlapped credit union does not object, and
NCUA determines that there is no safety and soundness problem, the
overlap will be permitted.
Potential overlaps of a federally insured state credit union's
field of membership by a federal credit union will generally be
analyzed in the same way as if two federal credit unions were
involved. Where a federally insured state credit union's field of
membership is broadly stated, NCUA will exclude its field of
membership from any overlap protection.
NCUA will permit multiple common bond federal credit unions to
overlap community charters without performing an overlap analysis.
IV.E.2--Overlap Issues as a Result of Organizational Restructuring
A federal credit union's field of membership will always be
governed by the field of membership descriptions contained in
Section 5 of its charter. Where a sponsor organization expands its
operations internally, by acquisition or otherwise, the credit union
may serve these new entrants to its field of membership if they are
part of any select group listed in Section 5. Where acquisitions are
made which add a new subsidiary, the group cannot be served until
the subsidiary is included in the field of membership through a
housekeeping amendment.
Overlaps may occur as a result of restructuring or merger of the
parent organization. When such overlaps occur, each credit union
must request a field of membership amendment to reflect the new
groups each wishes to serve. The credit union can continue to serve
any current group in its field of membership that is acquiring a new
group or has been acquired by a new group. The new group cannot be
served by the credit union until the field of membership amendment
is approved by NCUA.
Credit unions affected by organizational restructuring or merger
should attempt to resolve overlap issues among themselves. Unless an
agreement is reached limiting the overlap resulting from the
corporate restructuring, NCUA will permit a complete overlap of the
credit unions' fields of membership. When two groups merge, or one
group is acquired by the other, and each is in the field of
membership of a credit union, both (or all affected) credit unions
can serve the resulting merged or acquired group, subject to any
existing geographic limitation and without regard to any overlap
provisions. This is accomplished through a housekeeping amendment.
Credit unions must submit to NCUA documentation explaining the
restructuring and provide information regarding the new
organizational structure.
IV.E.3--Exclusionary Clauses
An exclusionary clause is a limitation precluding the credit
union from serving the primary members of a portion of a group
otherwise included in its field of membership. NCUA no longer grants
exclusionary clauses. Those granted prior to the adoption of this
new chartering manual will remain in effect unless the credit unions
agree to remove them or one of the affected credit unions submits a
housekeeping amendment to have it removed.
IV.F--Charter Conversion
A multiple common bond federal credit union may apply to convert
to a community charter provided the field of membership requirements
of the community charter are met. Groups within the existing charter
which cannot qualify in the new charter cannot be served except for
members of record, or groups or communities obtained in an emergency
merger or P&A. A credit union must notify all groups that will be
removed from the field of membership as a result of conversion.
Members of record can continue to be served. Also, in order to
support a case for a conversion, the applicant federal credit union
may be required to develop a detailed business plan as specified in
Chapter 2, Section V.A.3.
A multiple common bond federal credit union may apply to convert
to a single occupational or associational common bond charter
provided the field of membership requirements of the new charter are
met. Groups within the existing charter, which do not qualify in the
new charter, cannot be served except for members of record, or
groups or communities obtained in an emergency merger or P&A. A
credit union must notify all groups that will be removed from the
field of membership as a result of conversion.
IV.G--Removal of Groups From the Field of Membership
A credit union may request removal of a group from its field of
membership for various reasons. The most common reasons for this
type of amendment are:
The group is within the field of membership of two
credit unions and one wishes to discontinue service;
The federal credit union cannot continue to provide
adequate service to the group;
The group has ceased to exist;
The group does not respond to repeated requests to
contact the credit union or refuses to provide needed support;
The group initiates action to be removed from the field
of membership; or
The federal credit union wishes to convert to a single
common bond.
When a federal credit union requests an amendment to remove a
group from its field of membership, the regional director will
determine why the credit union desires to remove the group. If the
regional director concurs with the request, membership will continue
for those who are already members under the ``once a member, always
a member'' provision of the Federal Credit Union Act.
IV.H--Other Persons Eligible for Credit Union Membership
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;
Organizations of such persons; and
Corporate or other legal entities in this charter.
Immediate family is defined as spouse, child, sibling, parent,
grandparent, or grandchild. This includes stepparents, stepchildren,
stepsiblings, and adoptive relationships.
Household is defined as persons living in the same residence
maintaining a single economic unit.
Membership eligibility is extended only to individuals who are
members of an
[[Page 34385]]
``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. A credit union can adopt a more
restrictive definition of immediate family or household.
Volunteers, by virtue of their close relationship with a sponsor
group, may be included. Examples include volunteers working at a
hospital or church.
Under the Federal Credit Union Act, once a person becomes a
member of the credit union, such person may remain a member of the
credit union until the person chooses to withdraw or is expelled
from the membership of the credit union. This is commonly referred
to as ``once a member, always a member.'' The ``once a member,
always a member'' provision does not prevent a credit union from
restricting services to members who are no longer within the field
of membership.
V--Community Charter Requirements
V.A.1--General
Community charters must be based on a single, geographically
well-defined local community, neighborhood, or rural district where
individuals have common interests and/or interact. More than one
credit union may serve the same community.
NCUA recognizes four types of affinity on which a community
charter can be based--persons who live in, worship in, attend school
in, or work in the community. Businesses and other legal entities
within the community boundaries may also qualify for membership.
NCUA has established the following requirements for community
charters:
The geographic area's boundaries must be clearly
defined;
The area is a ``well-defined local, community,
neighborhood, or rural district;'' and
Individuals must have common interests and/or interact.
V.A.2--Documentation Requirements
In addition to the documentation requirements set forth in
Chapter 1 to charter a credit union, a community credit union
applicant must provide additional documentation addressing the
proposed area to be served and community service policies.
A community credit union must meet the statutory requirements
that the proposed community area is (1) well-defined, and (2) a
local community, neighborhood, or rural district.
``Well-defined'' means the proposed area has specific geographic
boundaries. Geographic boundaries may include a city, township,
county (or its political equivalent), or a clearly identifiable
neighborhood. Although congressional districts and state boundaries
are well-defined areas, they do not meet the requirement that the
proposed area be a local community.
The well-defined local community, neighborhood, or rural
district requirement is met if:
The area to be served is in a recognized single
political jurisdiction, i.e., a city, county, or their political
equivalent, or any contiguous portion thereof.
The well-defined local community, neighborhood, or rural
district requirement may be met if:
The area to be served is in multiple contiguous
political jurisdictions, i.e., a city, county, or their political
equivalent, or any contiguous portion thereof and if the population
of the requested well-defined area does not exceed 500,000; or
The area to be served is a Metropolitan Statistical
Area (MSA) or its equivalent, or a portion thereof, where the
population of the MSA or its equivalent does not exceed 1,000,000.
If the proposed area meets either the multiple political
jurisdiction or MSA criteria, the credit union must submit a letter
describing how the area meets the standards for community
interaction and/or common interests.
If NCUA does not find sufficient evidence of community
interaction and/or common interests or if the area to be served does
not meet the MSA or multiple political jurisdiction requirements of
the preceding paragraph, the application must include documentation
to support that it is a well-defined local community, neighborhood,
or rural district.
It is the applicant's responsibility to demonstrate the
relevance of the documentation provided in support of the
application. This must be provided in a narrative summary. The
narrative summary must explain how the documentation demonstrates
interaction and/or common interests. For example, simply listing
newspapers and organizations in the area is not sufficient to
demonstrate that the area is a local community, neighborhood, or
rural district.
Examples of acceptable documentation may include:
The defined political jurisdictions;
Major trade areas (shopping patterns and traffic
flows);
Shared/common facilities (for example, educational,
medical, police and fire protection, school district, water, etc.);
Organizations and clubs within the community area;
Newspapers or other periodicals published for and about
the area;
A local map designating the area to be served and
locations of current and proposed service facilities and a regional
or state map with the proposed community outlined; or
Other documentation that demonstrates that the area is
a community where individuals have common interests and/or interact.
An applicant need not submit a narrative summary or
documentation to support a proposed community charter, amendment or
conversion as a well-defined local community, neighborhood or rural
district if the NCUA has previously determined that the same exact
geographic area meets that requirement in connection with
consideration of a prior application since IRPS 99-1, as amended.
Applicants may contact the appropriate regional office to find out
if the area they are interested in has already been determined to
meet the community requirements. If the area is the same as a
previously approved area, an applicant need only include a statement
to that effect in the application. Applicants may be required to
submit their own summary and documentation regarding the community
requirements if NCUA has reason to believe that prior submissions
are no longer accurate.
A community credit union is frequently more susceptible to
competition from other local financial institutions and generally
does not have substantial support from any single sponsoring company
or association. As a result, a community credit union will often
encounter financial and operational factors that differ from an
occupational or associational charter. Its diverse membership may
require special marketing programs targeted to different segments of
the community. For example, the lack of payroll deduction creates
special challenges in the development of savings promotional
programs and in the collection of loans.
Accordingly, it is essential for the proposed community credit
union to develop a detailed and practical business and marketing
plan for at least the first two years of operation. The proposed
credit union must not only address the documentation requirements
set forth in Chapter 1, but also focus on the accomplishment of the
unique financial and operational factors of a community charter.
Community credit unions will be expected to regularly review and
to follow, to the fullest extent economically possible, the
marketing and business plan submitted with their application.
V.A.3--Special Documentation Requirements for a Converting Credit Union
An existing federal credit union may apply to convert to a
community charter. Groups currently in the credit union's field of
membership but outside the new community credit union's boundaries
may not be included in the new community charter. Therefore, the
credit union is required to notify groups that will be removed from
the field of membership as a result of the conversion. Members of
record can continue to be served.
The documentation requirements set forth in Section V.A.2 of
this Chapter must be met before a community charter can be approved.
In order to support a case for a conversion to community charter,
the applicant federal credit union must develop a business plan
incorporating the following data:
Pro forma financial statements for the first two years
after the proposed conversion, including assumptions--e.g., member,
share, loan, and asset growth;
Marketing plan addressing how the community will be
served;
Financial services to be provided to members;