80 FR 76747 - Chartering and Field of Membership Manual
NATIONAL CREDIT UNION ADMINISTRATION
Federal Register Volume 80, Issue 237 (December 10, 2015)
Page Range
76747-76853
FR Document
2015-30069
The NCUA Board proposes to comprehensively amend its chartering and field of membership rules to put them in a more efficient framework and to maximize access to federal credit union services to the extent permitted by law. The amendments will implement changes in policy affecting: The definition of a local community, a rural district, and an underserved area; the expansion of multiple common bond credit unions and members' proximity to them; the expansion of single common bond credit unions based on a trade, industry or profession; and the process for applying to charter or expand a federal credit union.
Federal Register, Volume 80 Issue 237 (Thursday, December 10, 2015)
[Federal Register Volume 80, Number 237 (Thursday, December 10, 2015)]
[Proposed Rules]
[Pages 76747-76853]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2015-30069]
[[Page 76747]]
Vol. 80
Thursday,
No. 237
December 10, 2015
Part II
National Credit Union Administration
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12 CFR Part 701
Chartering and Field of Membership Manual; Proposed Rule
Federal Register / Vol. 80 , No. 237 / Thursday, December 10, 2015 /
Proposed Rules
[[Page 76748]]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
RIN 3133-AE31
Chartering and Field of Membership Manual
AGENCY: National Credit Union Administration (NCUA).
ACTION: Proposed rule with request for comments.
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SUMMARY: The NCUA Board proposes to comprehensively amend its
chartering and field of membership rules to put them in a more
efficient framework and to maximize access to federal credit union
services to the extent permitted by law. The amendments will implement
changes in policy affecting: The definition of a local community, a
rural district, and an underserved area; the expansion of multiple
common bond credit unions and members' proximity to them; the expansion
of single common bond credit unions based on a trade, industry or
profession; and the process for applying to charter or expand a federal
credit union.
DATES: Comments must be received on or before February 8, 2016.
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.
Email: Address to [email protected]. Include ``[Your
name] Comments on Notice of Proposed Rulemaking Regarding Associational
Common Bond'' in the email subject line.
Fax: (703) 518-6319. Use the subject line described above
for email.
Mail: Address to Gerard S. Poliquin, Secretary of the
Board, National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428.
Hand Delivery/Courier: Same as mail address.
Public Inspection: You may view all public comments on NCUA's Web
site at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as
submitted, except for those we cannot post for technical reasons. NCUA
will not edit or remove any identifying or contact information from the
public comments submitted. You may inspect paper copies of comments in
NCUA's law library at 1775 Duke Street, Alexandria, Virginia 22314, by
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment,
call (703) 518-6546 or send an email to [email protected].
FOR FURTHER INFORMATION CONTACT: Matthew Biliouris, Deputy Director, or
Robert Leonard, Director, Division of Consumer Access, or Rita Woods,
Director, Division of Consumer Access South, Office of Consumer
Protection, at the above address or telephone (703) 518-1140; or Senior
Staff Attorney Steven Widerman or Staff Attorney Marvin Shaw, Office of
General Counsel, at the above address or telephone (703) 518-6540.
SUPPLEMENTARY INFORMATION:
I. Background
A. Overview
NCUA's Chartering and Field of Membership Manual, incorporated as
appendix B to part 701 of its regulations (``Chartering and FOM
Manual''),\1\ implements the field of membership (``FOM'') requirements
established by the Federal Credit Union Act (``the FCU Act'') for
federal credit unions (``FCUs'').\2\ An FOM consists of those persons
and entities eligible for membership according to an FCU's type of
charter.
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\1\ Appendix B to 12 CFR part 701(``appendix B'').
\2\ 12 U.S.C. 1759.
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In adopting the Credit Union Membership Access Act of 1998
(``CUMAA''), Congress reiterated its longstanding support for credit
unions, noting their ``specif[ic] mission of meeting the credit and
savings needs of consumers, especially persons of modest means.'' \3\
As amended by CUMAA, the FCU Act provides a choice among three charter
types: A single group sharing a single occupational or associational
common bond; \4\ a multiple common bond, with each group having a
distinct occupational or associational common bond among group members;
\5\ and a community common bond among persons or organizations within a
well-defined local community, neighborhood or rural district.\6\
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\3\ Pub. L. 105-219, Section 2, 112 Stat. 913 (Aug 7, 1998).
\4\ 12 U.S.C. 1759(b)(1).
\5\ Id. Section 1759(b)(2)(A).
\6\ Id. Section 1759(b)(3).
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Based on NCUA's experience in processing applications for initial
approval and subsequent expansion of all three types of charters, the
Board periodically updates and revises the Chartering and FOM Manual to
ensure adherence to the statutory criteria, limitations and special
rules that apply to each charter type, to reflect contemporary
practice, and to enhance the user-friendliness of the Chartering and
FOM Manual for the benefit of those seeking to charter an FCU, as well
as for existing credit unions.
B. Why is NCUA Proposing this Rule?
The proposed rule will modify the Board's policies affecting the
definition of a local community, a rural district, and an underserved
area; group members' proximity to multiple common bond FCUs when they
expand; and expansion of single common bond FCUs that serve a trade,
industry or profession; and the process for applying to charter or
expand an FCU. Consistent with its responsibility under CUMAA to
facilitate access to credit unions and their delivery of services, the
Board is proposing these policy modifications in order to accomplish
several objectives. The first is to ease any undue burdens and
restrictions on an FCU's ability to provide services to consumers who
are eligible for FCU membership, particularly those of modest means and
those who may not currently be members of a credit union. The second is
to enhance the menu of strategic options for FOM expansions. The third
is to maximize competitive parity between federal and state charters,
to the extent allowed by law, while respecting the national system of
dual chartering. The Board invites public comments addressing all
aspects of the proposed rule.
II. Summary of the Proposed Rule
A. Community Common Bond
As amended in 1998, the FCU Act limits membership in a community
credit union to ``[p]ersons or organizations within a well-defined
local community, neighborhood or rural district.'' \7\ It directs the
Board to define what constitutes a well-defined local community,
neighborhood or rural district for purposes of ``making any
determination'' regarding a community credit union,\8\ and to establish
applicable criteria for any such determination.\9\ To qualify as a
well-defined local community or rural district, the Board requires the
proposed area to have ``specific geographic boundaries,'' such as those
of ``a city, township, county (single or multiple portions of a county)
or their political equivalent, school districts or a clearly
[[Page 76749]]
identifiable neighborhood.'' \10\ The boundaries themselves may consist
of political borders, streets, rivers, railroad tracks, or other static
geographical feature.\11\ The Board continues to emphasize interaction
and common interests among residents within those boundaries as
essential to the viability of a local community.
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\7\ Id. Section 1759(b).
\8\ Id. Section 1759(g)(1)(A).
\9\ Id. Section 1759(g)(1)(B).
\10\ Appendix B, Ch. 2, Section V.A.2.
\11\ Appendix B, Ch. 2, Section V.A.5.
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Since 2010, the Board has provided credit unions the option of two
uniform, nationally-recognized, objective geographic units that, by
definition, meet the statutory criteria of a well-defined local
community, neighborhood or rural district. The first is a ``Single
Political Jurisdiction . . . or any contiguous portion thereof,''
regardless of population.\12\ The second is a single U.S. Census
Bureau-designated Core Based Statistical Area or one or more
Metropolitan Divisions within, or a well-defined portion of either one,
subject in any case to a 2.5 million population limit that applies to
the Core Based Statistical Area as a whole.\13\ Under either well-
defined local community option, a credit union must be able to serve
the proposed community or rural district, as demonstrated by its
business and marketing plans that must accompany an application for
charter approval, expansion or conversion.\14\
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\12\ Appendix B, Ch. 2, Section V.A.2.
\13\ Appendix B, Ch. 2, Section V.A.2.
\14\ Appendix B, Ch. 2, Section V.A.4.
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1. Core Based Statistical Area Population Limit. As explained
above, a Core Based Statistical Area qualifies as a well-defined local
community only if its population does not exceed 2.5 million. By
design, this population limit conforms to the population parameter by
which OMB recognizes metropolitan divisions with a Core Based
Statistical Area.\15\ Upon further consideration in connection with
this rule, the Board has decided to retain the 2.5 million population
limit, but nonetheless invites public comment on whether to adjust the
limit, by what amount, and for what specific reasons.
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\15\ https://www.whitehouse.gov/sites/default/files/omb/bulletins/2015/15-01.pdf (at page 62).
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2. ``Core Area'' Service Requirement. Since 2010, NCUA has required
that when a credit union applies to serve a community consisting of a
portion of a Core Based Statistical Area, that portion must include the
Core Based Statistical Area's ``core area,'' which NCUA defines as the
most populated county or named municipality in the Core Based
Statistical Area's title.\16\ The primary purpose of this requirement
was to acknowledge the core area of a Core Based Statistical Area as
the typical focal point for common interests and interaction among
residents. An additional purpose was to extend FCU services to low-
income persons and underserved areas, both typically located primarily
in the core area of a Core Based Statistical Area. NCUA's review of
progress under approved FCUs' business and marketing plans over the
last five years indicates that those credit unions are adequately
serving low-income persons and underserved areas without regard to
their location within the community. Accordingly, NCUA proposes to
repeal the core area requirement as an indicator of service to low-
income persons and underserved areas, in favor of its practice of
annually reviewing the progress of business and marketing plans for
three years following charter approval or expansion, and relying on
those plans to assess those service objectives within an original or an
expanded community.
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\16\ 75 FR 36257, 36260 (June 25, 2010).
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3. Population Limit as Applied to a Well-Defined Portion of a Core
Based Statistical Area. The Board presently permits a well-defined
portion of a Core Based Statistical Area to qualify as a well-defined
local community provided the population of the Core Based Statistical
Area as a whole does not exceed the 2.5 million population
limitation,\17\ disregarding whether the portion a credit union seeks
to serve alone meets that limitation. A review of requests to serve a
portion of a Core Based Statistical Area that were denied because the
population of the whole Core Based Statistical Area exceeded 2.5
million has convinced the Board that this is an unnecessarily broad
application of the population cap that produces unintended
consequences.
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\17\ Appendix B, Ch. 2, Section V.A.2. (``statistical area''
definition).
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To target the 2.5 million population limit strictly to the
community a credit union seeks to serve, the Board proposes to modify
its ``statistical area'' definition to specify that ``a Core Based
Statistical Area, Metropolitan Division, or well-defined portion of
either one, must itself have a population of 2.5 million or fewer
people.'' This will ensure that a portion of a Core Based Statistical
Area, or a Metropolitan Division within, qualifies as a well-defined
local community when it meets the population limit solely as applied to
that portion, even if the Core Based Statistical Area as a whole
exceeds the limit.
4. ``Combined Statistical Area'' as a Single Well-Defined Local
Community. As explained above, a Core Based Statistical Area or a
Metropolitan Division within a Core Based Statistical Area, or a well-
defined portion of either one, qualifies as a well-defined local
community subject to a population limit.\18\ Acknowledging the
interdependence among adjacent Core Based Statistical Areas, the Office
of Management and Budget (``OMB'') has recognized 169 Combined
Statistical Areas consisting of contiguous Core Based Statistical
Areas, and Metropolitan and Micropolitan Statistical Areas within, that
complement one another according to objective measurements of social
and economic integration among an area's residents.\19\
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\18\ 75 FR 36257 (June 25, 2010).
\19\ OMB Bulletin No. 15-01 to Heads of Executive Departments
and Establishments (July 15, 2015) defines a Combined Statistical
Area as ``two or more Metropolitan Statistical Areas, a Metropolitan
Statistical Area and a Micropolitan Statistical Area, two or more
Micropolitan Statistical Areas, or multiple Metropolitan and
Micropolitan Statistical Areas that have social and economic ties as
measured by commuting, but at lower levels than are found among
counties within Metropolitan and Micropolitan Statistical Areas.''
OMB characterizes Core Based Statistical Areas as ``representing
larger regions that reflect broader social and economic
interactions, such as wholesaling, commodity distribution, and
weekend recreation activities, and are likely to be of considerable
interest to regional authorities and the private sector.'' https://www.whitehouse.gov/sites/default/files/omb/bulletins/2015/15-01.pdf
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OMB's approach in designating Combined Statistical Areas is
consistent with that of the Board in relying on residents' interactions
and common interests to define a local community. Accordingly, the
Board proposes to expand the existing single Core Based Statistical
Area definition of a well-defined local community to include Combined
Statistical Areas as designated by OMB, subject to the 2.5 million
population limit. Additionally, in evaluating expansion requests, NCUA
will continue its practice of reviewing each FCU's business and
marketing plans to determine its capability and success in serving its
original and previously expanded community.
5. Addition of an Adjacent Area to a Well-Defined Local Community.
Despite the convenience, certainty and staff efficiency of using a
Single Political Jurisdiction, a Core Based Statistical Area or a
Combined Statistical Area to form a well-defined local community or
rural district, areas adjacent to the perimeter of these objective
geographic units may lack a credit union presence and/or lack
sufficient access to financial services, even though residents on both
sides of the perimeter may routinely interact or share common interests
with
[[Page 76750]]
each other. To enable residents of those adjacent areas to access
credit union services, the Board proposes to permit the addition of
such an area to a community consisting of a Single Political
Jurisdiction, Core Based Statistical Area, Combined Statistical Area,
or rural district, upon a showing by subjective evidence that residents
on both sides of the perimeter interact or share common interests.
The expanded community would be subject to the proposed population
limits for community charters (2.5 million) and rural district charters
(1 million).\20\ The more expansive the adjacent area, theoretically
even surrounding the original community's entire perimeter, the more
challenging and burdensome it may be for a credit union to, first,
subjectively demonstrate a sufficient totality of indicia of
interaction or common interests among residents of the expanded
community,\21\ and then to establish through the credit union's
business and marketing plans its ability and commitment to serve the
entire expanded community.
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\20\ See Rural District Definition discussion later in this same
section.
\21\ The proposed rule incorporates guidance identifying
compelling indicia of common interests and interaction that would be
relevant when a credit union chooses to submit a narrative to NCUA
to demonstrate that the residents of the expanded community meet the
requirements of a well-defined local community.
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The Board recognizes that credit unions seeking to add bordering
areas to their existing community or rural district charters
historically have already established a proven track record of serving
an existing community or rural district and should not be subject to
the same requirements as those for a credit union seeking to convert to
a community or rural district charter. Therefore, the Board proposes to
require a federal credit union seeking to add a bordering area to
follow a streamlined set of business plan requirements contained in
this rule. The Board seeks comment on the appropriateness of the
proposed set of streamlined requirements, and if any specific items
should be added or removed from the proposed criteria. The Board also
seeks comment on the existing comprehensive business and marketing plan
requirements. Finally, the Board is considering whether to limit the
availability of this streamlined approach to a federal credit union
seeking a certain maximum percentage increase in its field of
membership, and is interested in receiving public comment on this
aspect of the proposal.
6. Individual Congressional District as a Well-Defined Local
Community. Since 1999, the Board has maintained that neither a
Congressional district nor a whole state qualifies as a well-defined
local community, despite recognizing that both are well-defined.\22\
These restrictions were never imposed by statute; rather, the Board
disallowed whole states and Congressional districts solely as a matter
of policy.\23\ When imposing these restrictions, the Board recognized
that--
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\22\ 63 FR 72013, 72037 (December 30, 1998); Appendix B, Ch. 2,
Section V.A.2.
\23\ 63 FR at 72037. See also 75 FR at 36258 (affirming that
entire state is not acceptable as WDLC)
in general, a large population in a small geographic area or a
small population in a large geographic area, may meet community
chartering requirements. Conversely, . . . a large population in a
large geographic area will not normally meet community chartering
requirements. In so doing, however, the Board has not summarily
dismissed or prejudged any potential application. While an area with
a large population may require additional documentation, it still
may meet the definition of a local community.\24\
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\24\ 63 FR at 72012.
A significant change in circumstances has prompted the Board to
reconsider this policy as it applies to Congressional districts--namely
that, NCUA has, since 1999, approved 21 Single Political Jurisdictions
that each have a population in excess of 1 million, while the average
population of the United States' 435 Congressional districts is
710,767.\25\
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\25\ http://www.census.gov/fastfacts.
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The most populous of the 435 districts is the ``at large'' district
serving the state of Montana, with a population of 1,023,579; Rhode
Island has the smallest average district size at 523,028.\26\ As
measured by population, it is appropriate to recognize each individual
Congressional district, as well as the District of Columbia and each
U.S. territory represented by a non-voting delegate,\27\ as local when
compared to Single Political Jurisdictions as large in population as
Los Angeles County, California (9.6 million), approved by the Board in
2003, and Harris County, Texas (3.45 million), approved by the Board in
2007.
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\26\ Id. Seven states presently are comprised of a single
Congressional district, effectively giving each a state-wide FOM:
Alaska, Delaware, Montana, North Dakota, South Dakota, Vermont and
Wyoming.
\27\ American Samoa, Guam, Northern Mariana Islands, Puerto
Rico, and the U.S. Virgin Islands.
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Among residents of Single Political Jurisdictions comprised of
towns, cities and counties, the focal point of common interests and
interaction tends be local services, resources and facilities (e.g.,
taxes, schools, police and fire protection). The proposal acknowledges
that Congressional districts, structured for purposes of federal
representation, reflect interaction and common interests among each
district's constituents based on issues and matters decided at the
federal level that affect them locally (e.g., economic, agricultural,
and environmental).
Based on this rationale, the Board proposes to recognize each
individual Congressional district as a Single Political Jurisdiction,
thus qualifying it as a well-defined local community without regard to
population.\28\
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\28\ Appendix B, Ch. 2, Section V.A.1.
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As in the case of any community charter application, a credit union
that applies to serve a Congressional district must submit a business
and marketing plan demonstrating its ability and commitment to serve
the entire community. The larger the Congressional district, the more
challenging and burdensome it may be for an applicant to satisfy this
requirement.
If, as a result of redistricting, the boundaries of an individual
Congressional district were to be redrawn, the FOM consisting of the
original Congressional district would no longer be available to be
served by any other FCU. Only an FCU that was approved to serve an FOM
comprised of an individual Congressional district would be
grandfathered to continue serving that area.
B. Rural District Definition
The Board has, since 2013, imposed two requirements for a proposed
area to qualify as a well-defined ``Rural District.'' The first is that
the area's total population cannot exceed the greater of either 250,000
people or 3 percent of the population of the state in which the
majority of the proposed Rural District's residents would be
located.\29\ The second is that either at least 50 percent of the
proposed Rural District's population must reside in census blocks or
other geographic units the U.S. Census Bureau (``U.S. Census'')
designates as ``rural,'' or the proposed Rural District's population
density cannot exceed 100 persons per square mile.\30\ Independently of
these well-defined local community requirements, a credit union must be
able to serve the proposed Rural District, as demonstrated by its
business and marketing plans that must accompany
[[Page 76751]]
an application for charter approval, expansion or conversion.\31\
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\29\ Appendix B, Ch. 2, Section V.A.2.
\30\ Id.
\31\ Appendix B, Ch. 2, Section V.A.4.
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1. Population Limits. The 250,000 persons/3 percent population
limits were based on the view that a Rural District should have a
relatively small, widely disbursed population. However, a compelling
countervailing factor continues to weigh against this view: To make the
area attractive as a strategic option, a Rural District must have a
population sufficient to enable credit unions to achieve a sufficient
level of operating efficiencies and scale to deliver products and
services. Balancing these opposing population considerations, NCUA
proposes to modify the Rural District definition to increase the
population limit to 1 million persons. Because the increased population
limit would exceed 3 percent of a state's population in all states but
one (California), making that alternative redundant, the proposed rule
omits it. The Board invites public comment on whether to adjust the
proposed 1 million population limit, by what amount, and for what
specific reasons.
2. Multi-State Expansion Limit. In 1998, the Board conceded that
``While an area with a large population may require additional
documentation, it still may meet the definition of a local community.
Similarly, multiple counties, particularly in rural areas, may qualify
for a community charter.'' \32\ To achieve consistency with U.S. Census
recognition of expansive rural areas, the proposed rule modifies the
option for an area to qualify as a Rural District either because it is
among the ``rural counties'' identified by the Consumer Financial
Protection Bureau (``CFPB''),\33\ or because the area has a sparse
population density of no more than 100 people per square mile. These
criteria truly reflect an area's rural character regardless of its
physical size, as shown by the eight states in which the U.S. Census
identifies more than 40 percent of the state population as ``rural.''
\34\
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\32\ 63 FR at 72012.
\33\ See CFPB's ``Rural or underserved counties list'' available
at: http://www.consumerfinance.gov/guidance/#ruralunderserved.
\34\ https://www.census.gov/geo/reference/ua/urban-rural-2010.html (List of Population, Land Area and Percent Urban and Rural
in 2010 and Changes from 2000 to 2010).
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As revised, the Rural District definition--a 1 million population
limit, and either a sparse population density or ``rural''
designation--would continue to permit a Rural District to extend beyond
a single state's boundaries. To prevent the overexpansion of Rural
Districts, however, the Board proposes to prohibit a single well-
defined Rural District from exceeding the boundaries of the states that
are immediately contiguous to the state in which the FCU serving the
Rural District is headquartered (i.e., not to exceed the outer
perimeter of the layer of states immediately bordering the headquarters
state).
C. Underserved Areas
The FCU Act authorizes the NCUA Board to allow multiple common bond
credit unions to serve members residing in an ``underserved area,''
provided the FCU establishes and maintains a facility in the area.\35\
For an area to be ``underserved,'' it must qualify: (1) As a well-
defined local community, neighborhood or rural district; \36\ (2) as an
``investment area'' under the Community Development Banking and
Financial Institutions Act (``CDFI Act''); \37\ and (3) as
``underserved'' by other depository institutions (as defined [by the
CDFI Act]) ``based on data of the Board and the Federal banking
agencies.'' \38\ Other than to limit the sources of data and to define
``depository institutions,'' the FCU Act prescribes no specific test or
criteria to assess ``underservice.'' Within this broad authority, the
Board seeks to refine the data used in its concentration of facilities
ratio, first introduced in 2008,\39\ to determine whether a proposed
area is underserved by other depository institutions, as well as to
propose for comment alternative methodologies and metrics as options
for making that determination.
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\35\ 12 U.S.C. 1759(c)(2).
\36\ Id.
\37\ Id. Section 4702(16).
\38\ Id. Section 1759(c)(2)(A) citing id. Section 461(b)(1)(A).
By definition, a ``depository institution'' is insured and includes
credit unions. Id. Section 461(b)(1)(A)(iv).
\39\ 73 FR 73392 (Dec. 2, 2008). Using census tracts as the unit
of measure, the concentration of facilities ratio compares the
concentration of depository institution facilities among the
population within the non-``distressed'' portions of the proposed
area against the concentration of such facilities among the
population of the area as a whole. 73 FR at 73396. Ch.3, Section
III.B.3.of appendix B. An area qualifies as underserved by other
depository institutions when the concentration of facilities ratio
within its non-``distressed'' census tracts exceeds the
concentration of facilities ratio within the census tracts of the
area as a whole.
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1. Exclusion of Non-Depository Institutions and Non-Community
Credit Unions from Concentration of Facilities Ratio. It has been
NCUA's practice to calculate an area's concentration of facilities
ratio on behalf of a credit union seeking approval to serve it as an
underserved area. To assess the presence of banks and savings
associations within geographic units that do not already qualify as
``distressed'' under the CDFI Act, NCUA has relied upon data compiled
by the Federal Deposit Insurance Corporation (``FDIC'') in its Summary
of Deposits Survey,\40\ and on NCUA data to assess the presence of
credit unions. The Board proposes to exclude two data components from
the ratio, on a contingent basis, to prevent the concentration of
facilities ratio from being diluted or distorted by over-inclusive
data, as well as to ensure compliance with the letter and the spirit of
the ``depository institutions'' definition the FCU Act references.\41\
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\40\ FDIC's ``Summary of Deposits Survey,'' e.g., https://www.fdic.gov/news/news/financial/2015/fil15024.pdf.
\41\ 12 U.S.C. 461(b)(1)(A).
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The first component is NCUA data reflecting the presence of non-
community credit unions, such as multiple common bond credit unions--
other than those already serving the proposed area as an underserved
area--because they would be unable to serve the general public of a
underserved area (i.e., unable to serve anyone not within its select
groups). The second component is FDIC data reflecting the presence of
non-depository institutions, such as trust companies, which do not
accept deposits from the general public. Excluding data reflecting the
presence of institutions that would not be capable of serving a
proposed area, either by definition or in fact, will preclude the
unwarranted denial of an application to serve an underserved area.
It would be impracticable and an inefficient use of resources for
NCUA to segregate bank and credit union data on a nationwide scale to
exclude non-depository bank and non-community credit union data.
However, in the event an initial concentration of facilities ratio
calculation fails to identify a proposed area as underserved by other
depository institutions, the proposed rule would require NCUA to then
exclude the non-depository bank and non-community credit union data and
recalculate the ratio. This will ensure the integrity of the result, as
well as maximize the identification of areas that would benefit from
the introduction of credit union service to compensate for the lack of
service by other depository institutions. This approach also will
conserve NCUA resources that otherwise would be consumed in routinely
excluding this data without regard to whether an initial concentration
of facilities ratio calculation without those exclusions would yield a
positive result.
[[Page 76752]]
2. Alternatives to Identify Areas ``Underserved by Other Depository
Institutions.'' While the concentration of facilities ratio has
generally proven to be an effective measure of underservice by other
depository institutions, it has some inherent limitations: It accounts
for the physical presence of depository institutions in a given area,
but it does not necessarily evaluate the benefit or quality of services
these institutions deliver.\42\ Accordingly, the Board proposes two
alternatives to the concentration of facilities ratio that may reflect
underservice by other depository institutions more comprehensively. The
first would be the designation of ``underserved counties'' by the
CFPB,\43\ which has rulemaking authority over Federal banking agencies'
collection of Home Mortgage Disclosure Act (``HMDA'') data used to make
those designations.\44\ The second would be a metric of a credit
union's own choosing that it would submit as evidence of underservice
in a proposed area, provided the metric is based on ``data of the Board
and the Federal banking agencies.''\45\
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\42\ The benefit and quality of services depository institutions
deliver is addressed by the ``distress'' criterion requiring the
area to have ``significant unmet need for loans and financial
services.'' 12 U.S.C. 4702(16)(A)(ii).
\43\ Although CFPB's annual ``Rural or underserved counties
list'' does not segregate ``rural'' and ``underserved'' counties,
NCUA will use the data collected by CFPB to produce and make
available a list that identifies ``underserved areas'' exclusively.
\44\ 12 U.S.C. 1813(z). Financial institutions, including
national banks, Federal savings associations, state member banks,
and FCUs report mortgage related data to their respective Federal
regulator -OCC, the Fed, FDIC and NCUA.
\45\ E.g., FDIC ``Summary of Deposits Survey.''
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The Board invites commenters to identify other methodologies and
Federal banking agency data that would be useful in identifying areas
``underserved by other depository institutions'' in an objective
manner. Examples include data from Community Reinvestment Act
examination reports prepared by the FDIC, Office of the Comptroller of
the Currency (``OCC'') or the Board of Governors of the Federal Reserve
System (``the Fed''),\46\ and HMDA data collected by these agencies.
The Board encourages commenters to suggest why and how any specific
methodology and supporting data recommended for consideration would
establish an objective basis for analysis of underservice by other
depository institutions.
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\46\ E.g., http://www.ffiec.gov/cra/default.htm.
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D. Multiple Common Bond
As amended in 1998, the FCU Act restored the Board's multiple
common bond policy, permitting a multiple common bond credit union to
serve a combination of distinct, definable occupational and/or
associational groups, each having its own common bond among group
members.\47\
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\47\ 63 FR 71998, December 30, 1998; 12 U.S.C. 1759(b)(2)(A).
See NCUA v. First National Bank & Trust Co., 522 U.S. 479 (1988).
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1. Credit Union's ``Reasonable Proximity'' through Members' Online
Access to Services. The FCU Act authorizes multiple common bond credit
unions to expand through the addition of select groups having
dissimilar common bonds, provided such a group does not exceed 3,000
members.\48\ To add a group that exceeds that limit, the group must
meet other criteria the FCU Act prescribes to establish that it ``could
not feasibly or reasonably establish a new single common bond credit
union.'' \49\ Regardless of group size, the FCU Act further requires
the Board, in deciding whether to approve a multiple common bond
expansion, ``to encourage the formation of separately chartered credit
unions . . . whenever practicable and consistent with reasonable
standards for the safe and sound operation of the credit union,'' based
on approval criteria the FCU Act prescribes.\50\
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\48\ Id. Section 1759(d)(1).
\49\ Id. Section 1759(d)(2)(A).
\50\ Id. Section 1759(f)(1)(A).
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When formation of a stand-alone single common bond credit union
either is not practicable, or would be inconsistent with reasonable
standards of safety and soundness, the FCU Act requires ``inclusion of
the group in the [FOM] of a credit union that is within reasonable
proximity to the location of the group whenever practicable and
consistent with reasonable standards for the safe and sound operation
of the credit union.'' \51\ The Chartering and FOM Manual implements
both the stand-alone feasibility criteria and the multiple common bond
expansion approval criteria.
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\51\ Id. Section 1759(f)(1)(B) (emphasis added).
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In 1998, the Board acknowledged that ``reasonable proximity'' is an
essential factor in determining whether a select group can be added to
a multiple common bond credit union.\52\ However, the Board did not
require an added group's location to be within reasonable proximity of
the credit union's main office, but rather, within the service area of
a ``service facility'' of the credit union. As currently defined, a
``service facility'' includes a credit union branch, a shared branch, a
mobile branch that visits the same location on a weekly basis, and a
credit union-owned electronic facility.\53\ To qualify as a service
facility, a group's members must be able to deposit funds, apply for a
loan or obtain funds on approved loans.\54\
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\52\ 63 FR 71998, 72002 (December 30, 1998).
\53\ Appendix B, Ch.2, Section IV.A.1 and appendix 1 (glossary).
\54\ Appendix B, Ch.2, Section IV.A.1.
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To recognize the role of advancing technologies in enabling
reasonable proximity between a credit union and the groups it serves,
the Board proposes to revise the definition of a ``service facility''
to extend it to members of occupational select groups, and members of
pre-approved associational groups,\55\ who have access to their credit
union's products and services through an online internet channel such
as a transactional Web site. This proposed change would apply solely to
meet the ``reasonable proximity'' requirement that applies to a
multiple common bond credit union and its select occupational and
associational groups; it would not apply to meet the requirement that a
credit union serving an underserved area ``must establish and maintain
an office or facility in [the underserved area].'' \56\ To provide the
same functionality currently required for a service facility, the
online internet channel must be capable of accepting shares for those
members' accounts and loan applications from them, or disbursing loan
proceeds to them. The Board emphasizes that this proposed change would
allow access to online financial services only by already existing
members of multiple common bond credit unions; it would not permit an
individual to qualify remotely for membership in a community credit
union based on electronic access to it from outside its well-defined
local community.
---------------------------------------------------------------------------
\55\ Appendix B, Ch. 2, Section III.A.1.B.
\56\ 12 U.S.C. 1759(c)(1)(B).
---------------------------------------------------------------------------
To support its proposal to incorporate online financial services in
the definition of ``service facility'' through online internet channels
via access to laptop computers, personal computers and mobile devices,
the Board has reviewed data from FCUs regarding consumer needs and
preferences. By all measures, the use of online financial services has
increased dramatically in the past 15 years. Federally insured credit
unions' Call Report data indicates that the proportion of members using
transactional Web sites has steadily increased from 27 percent of
members in the fourth quarter of 2006 (23.2 million) to 45 percent in
the second quarter of 2015 (40.5 million)--an increase of 17.3 million
users.
[[Page 76753]]
Among FCUs, only 22 percent offered home banking via an internet
Web site in 2000. This share increased to 68 percent in the fourth
quarter of 2011 (4,846 out of 7,094), and 75 percent by the second
quarter of 2015 (4,612 out of 6,159). There has been similarly
significant growth in the use of smart phones and tablets to conduct
mobile banking transactions. With such technology non-existent as late
as 2008, only 6 percent of FCUs offered mobile banking in 2009. This
share increased to 16 percent in 2011, and 47 percent by the second
quarter of 2015.
Similarly, data collected by the Boston Consulting Group (``BCG'')
indicates actual consumer use of online delivery channels has increased
significantly.\57\ Specifically, online consumer contacts with banks
nearly doubled from 2004 to 2012. Mobile and internet banking increased
from 5 percent of customer contacts in 2004 to about 48 percent by
2012. In contrast, the share of contacts conducted in branches fell
from 75 percent to 30 percent during this period. The BCG study noted
that mobile and internet banking transaction volume advanced not only
due to the increase in the number of overall contacts, but because
banking transactions accounted for a larger share of total activity.
The BCG study emphasized that to compete effectively in the financial
sector, financial institutions need to establish business plans that
make ``interactions across multiple channels simple--not disjointed or
constrained by internal organizational boundaries in a way that leads
customers to dead ends. Channels should support each other, not
compete.'' \58\ In addition, the BCG study predicted that internet
contacts as a percentage of all contacts would increase to about 66
percent by 2020.
---------------------------------------------------------------------------
\57\ Maguire, Andy, et. al., Distribution 2020: The Next Big
Journey for Retail Banking (March 2013): https://www.bcgperspectives.com/content/articles/financial_institutions_sales_channels_distribution_2020/?chapter=2.
\58\ American Bankers Association Press Release: More Consumers
Turning to Mobile Banking (August 11, 2015).
---------------------------------------------------------------------------
The dramatic increase in FCUs offering mobile banking service is
consistent with the use of internet and mobile banking services by
consumers generally. An annual study sponsored by the American Bankers
Association, and conducted by Ipsos Public Affairs for 2015, surveyed
1,000 adults about their banking preferences among the following
choices: Internet banking (laptop or personal computer), mobile devices
(cell phone, Blackberry, PDA, tablet), brick and mortar branches, ATMs,
telephone, and mail. A primary question was, ``Which method do you use
most often to manage your bank accounts?'' The table below indicates
that 41 percent of customers preferred internet or mobile banking. In
contrast, only 21 percent preferred branch banking. These preferences
were similar in 2013 and in 2014. The study sponsor further stated that
``This is the sixth year in a row [2008-2014] that customers named the
Internet as their favorite way of conducting their banking business.''
\59\
---------------------------------------------------------------------------
\59\ Id. at 2.
------------------------------------------------------------------------
Type of banking 2014 2013
------------------------------------------------------------------------
Online channels (laptop or PC).......... 31% 39%
Branches................................ 21% 18%
ATMs.................................... 14% 11%
Mobile (cell phone, Blackberry, PDA, 10% 8%
IPad)..................................
Telephone............................... 7% 7%
Mail.................................... 6% 7%
Don't Know/Not sure..................... 11% 10%
------------------------------------------------------------------------
Similarly, government-sponsored studies indicate dramatic increases
in online banking in the past few years. Since 2011, the Fed has
conducted an annual survey that focuses on one channel of online
banking: Smart phone technology for mobile banking.\60\ That survey
illustrates the increased reliance of smart phone technology for mobile
banking. The March 2015 Report of a December 2014 survey stated,
``Thirty nine percent of all mobile phone owners with a bank account
have used mobile banking in the 12 months prior to the survey, up from
33 percent in 2013 and 29 percent in 2012.'' Further, ``Fifty two
percent of smartphone owners with a bank account used mobile banking in
the past 12 months, up from 51 percent in 2013.'' The Federal Reserve
survey further found that another 11 percent of mobile phone users
think that they will use smart phones for online banking within 12
months.\61\
---------------------------------------------------------------------------
\60\ Federal Reserve Consumers and Mobile Financial Services
(March 2015).
\61\ Id. Executive Summary at 4.
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The Federal Reserve Bank of Atlanta studied the use of mobile
banking by banks and credit unions to determine the level of and type
of mobile financial services offered by financial institutions.\62\ Of
189 respondents in Georgia, Alabama, Florida, and parts of Mississippi,
Louisiana, and Tennessee, which included banks and credit unions of all
asset sizes, only six (3 percent) did not currently offer or, plan to
offer mobile banking services. Further, the study noted, ``There was
very little difference between the bank and CU responses.'' The study
also confirmed a significant trend toward offering mobile banking,
given that 23 percent of the respondents began offering mobile banking
within the past year and 15 percent were planning to offer such
services within the next two years.
---------------------------------------------------------------------------
\62\ Mobile Banking and Payments Survey of Financial
Institutions of the Sixth District, Lott, David (March 2015).
---------------------------------------------------------------------------
The strong consumer preference for online financial services, as
well as for integration of online banking into financial institutions'
overall business and marketing plans indicates the need to amend the
Chartering and FOM Manual to facilitate current credit union members'
access to such online services. Accordingly, to put multiple common
bond credit unions and members of the groups they serve within
reasonable proximity of each other, as required by law, as well as to
put them in parity with their depository institution competitors, the
Board is proposing to amend the definition of ``service facility'' to
include online financial services, including computer-based and mobile
phone channels meeting certain criteria for access.
In addition to the proposal to include a transactional Web site in
the definition of ``service facility,'' the Board is considering
modifying the definition of ``service area'' to include one or more
discreet political jurisdictions such as a county or city. While the
Board historically has discouraged using mileage and distance factors
exclusively to define reasonable proximity,\63\ it acknowledges that
there may be an appropriate level of certainty in also defining
reasonable proximity to
[[Page 76754]]
encompass a city or county jurisdiction. The Board invites comments on
options to modify the definition of ``service area.''
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\63\ 63 FR 71998, 72003 (December 30, 1998).
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2. Inclusion of Select Employee Group Contractors in a Multiple
Common Bond. The Board presently includes within the definition of a
single occupational common bond the persons who work regularly for an
entity that is under contract to the sponsor of the select employee
group (``SEG'') listed in its charter, provided the contractor has a
``strong dependency relationship'' with that sponsor.\64\ This
definition relies on the presence of a ``strong dependency
relationship'' between the SEG sponsor and its contractor to establish
the ``common bond of occupation'' the FCU Act requires for a group to
be included in either a single or a multiple common bond credit
union.\65\ There being no distinction between a single and a multiple
common bond credit union for purposes of recognizing the occupational
affinity between a SEG sponsor's own employees and those of each
sponsor's contractors, the Board proposes to extend to multiple
occupational common bond credit unions the ability to add persons who
work regularly for an entity that is under contract to any of the
multiple SEG sponsors listed in its charter, provided the contractor
has a ``strong dependency relationship'' with the sponsor in each case.
---------------------------------------------------------------------------
\64\ Appendix B, Ch. 2, Section II.A.1.
\65\ 12 U.S.C. 1759(b)(1) & (2).
---------------------------------------------------------------------------
3. Inclusion of Office/Industrial Park Tenants in a Multiple Common
Bond. In the past, NCUA has recognized industrial parks as a special
type of community charter.\66\ As an alternative to extend credit union
service to persons who work in an office or industrial park, the Board
now proposes to also permit a multiple common bond credit union to
include as a SEG the employees of a park's tenants (e.g., retail
tenants of a shopping mall, business tenants of an office building or
complex). The group listed in the charter would be the office/
industrial park itself; it would not be necessary to individually list
each tenant as a group sponsor. Inclusion of such office/industrial
park groups within a multiple common bond credit union would be subject
to two conditions: Each tenant within the group must have fewer than
3,000 employees working at a facility within the park, and only those
employees who work regularly at the park during their employer's
tenancy would be eligible for FCU membership. New tenants to the
industrial park would be eligible for membership subject to the above
conditions.
---------------------------------------------------------------------------
\66\ Appendix B, Ch. 2, Section V.A.6 (special community
charters).
---------------------------------------------------------------------------
The option of including a tenants' SEG within a multiple common
bond would allow those FCUs to more efficiently offer services to
employees of small businesses, avoiding an extensive outlay of
resources to obtain letters from each group requesting credit union
service. Instead, a multiple common bond credit union could serve
employees of an office/industrial park's tenants by obtaining a letter
from an authorized representative of the park itself, such as its
leasing agent.
4. Streamlined Determination of Stand-Alone Feasibility of Groups
Greater than 3,000. Based on NCUA's experience in assessing the stand-
alone feasibility of groups in excess of 3,000 members, and data
regarding the failure rate of credit unions during a 12-year
period,\67\ a trend has emerged: 80 percent of credit union failures
occurred in credit unions with fewer than 5,000 members. In view of
this trend, the Board has decided to modify NCUA's process for
assessing the stand-alone feasibility of groups that seek to be added
to the FOM of an existing multiple common bond credit union, rather
than forming the group's own single common bond credit union.
Accordingly, the Board proposes to reorganize and streamline the
application process for multiple common bond expansions according a
group's size.
---------------------------------------------------------------------------
\67\ Credit union failures according to asset size and
membership as reflected in final Call Reports for 2003Q1-2015Q2.
---------------------------------------------------------------------------
Groups of fewer than 3,000 members will be subject to the existing
application process, consisting of the following: A written request
using the Application for Field of Membership (NCUA 4015 EZ), a letter
from the group requesting credit union service and indicating the
desire to be added to the FCU's field of membership; the number of
persons included in the group to be added; and the group's proximity to
the credit union's nearest service facility. Applicants do not need to
support these groups' lack of ability to form their own credit union.
Since the statute presumes a group of 3,000 or more members can
form a credit union, there is a higher burden of proof to establish
that such a group cannot form its own credit union. When a group has
between 3,000 and 5,000 members and displays evidence of a lack of
available subsidies, disinterest among the group's members, and an
overall lack of sufficient resources, the Board has historically
determined that the group could not feasibly or reasonably establish a
new single common bond credit union. In such cases the Board will
accept a written statement indicating these conditions exist as
sufficient documentation the group cannot form its own credit union.
Consistent with current policy on incidental overlaps, the Board will
no longer require an overlap analysis of a group between 3,000 and
5,000 members, given that groups in this size range rarely have been
able to form a stand-alone credit union. Groups with more than 5,000
members will be subject to the existing standard application process,
requiring a group to fully describe its inability to establish a new
single common bond credit union.
However, the Board is particularly interested in comments on
whether to consider a larger number than 5,000 for this threshold.
While 80 percent of failures occurred in credit unions with fewer than
5,000 actual members, the number of potential members of those credit
unions was significantly larger. Therefore, if 5,000 actual credit
union members were deemed to be the minimum number needed to charter a
viable new credit union, the number of potential members needed to
reach 5,000 actual members would be larger.
For example, if the average penetration rate of actual members to
potential members at the smallest multiple-group credit unions is 50
percent, a group of 10,000 potential members may be needed to reach
5,000 actual members. The Board welcomes comments on how many actual
members are needed to charter a viable new credit union, and how many
potential members would be needed in order to reach that minimum number
of actual members.
There are three benefits to the proposed three-tiered process for
assessing a group's stand-alone feasibility. First, it conforms to the
stand-alone feasibility criteria the FCU Act prescribes for groups in
excess of 3,000, and the approval criteria it prescribes for the
addition of a group, regardless of its size, to an existing multiple
common bond credit union.\68\ Second, it will minimize the resource
burden on individual groups and credit unions in compiling information
and documentation to support an application to add a group, as well as
on the NCUA staff in assessing the application. Finally, it will allow
NCUA to more effectively allocate its resources by focusing its
scrutiny on individual groups based on the record of survival of newly
chartered credit unions having
[[Page 76755]]
more than 5,000 members when formed. This would enhance the agency's
ability to conduct an appropriate level of due diligence in its
reviews.
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\68\ Id. Section 1759 (d)(2) & (f)(1).
---------------------------------------------------------------------------
E. Other Persons Eligible for Credit Union Membership
NCUA has historically recognized a variety of persons who, by
virtue of their relationship to a common bond group, have been entitled
to credit union membership eligibility. Principal among these persons
are members of the immediate family or household of a primary member of
a credit union members (i.e., spouse, child, sibling, parent,
grandparent, grandchild, including by step or adoptive
relationship).\69\ Other such affinity groups include spouses of
deceased credit union members, current credit union employees,
pensioners and annuitants who have retired from credit union
employment, and persons who perform volunteer work for a credit
union.\70\
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\69\ Appendix B, Ch.2, Sections II.H., IV.H., and appendix 1
(glossary definition of ``affinity'').
\70\ Appendix B, Ch.2, Sections II.H., IV.H.
---------------------------------------------------------------------------
Active duty and discharged military personnel and their families
share a similar affinity, typically maintaining a close relationship
with their active duty branch of service, largely through Armed Forces
associations, publications and continued access to military bases, such
as Veterans Administration facilities, base commissaries, post
exchanges, and morale, welfare and recreation sponsored programs. To
honor the contributions of those serving in the United States Armed
Forces, and to give them the benefit of access to credit union service
throughout their lives following active duty, the Board proposes to
include within a credit union's common bond the honorably discharged
veterans of any branch of the United States Armed Forces listed in its
charter, continuing their eligibility for credit union membership
beyond active duty.
F. Trade, Industry or Profession (``TIP'') as a Single Common Bond
A TIP is a single occupational common bond based on employment at
any number of corporations or other legal entities that, while not
under common ownership, still have a common bond by reason of producing
similar products, providing similar services, sharing the same
profession or trade, or participating in the same industry.\71\ To
establish ``one group that has a common bond of occupation,'' as the
FCU Act prescribes, a TIP-based FOM must reflect a narrow commonality
of interests among those working within a specific trade, industry, or
profession, and there must be a close nexus among the entities within
the group.\72\ The commonality of interest and close nexus requirements
preclude a TIP from including third-party vendors and other suppliers
and contractors. As an example, an automobile TIP may include all
workers manufacturing automobiles but may not include the steel
suppliers or other component suppliers.
---------------------------------------------------------------------------
\71\ 68 FR 18334, 18336 (April 15, 2003); Appendix B, Ch. 2,
Section IIA.2.
\72\ Id.
---------------------------------------------------------------------------
Inclusion of ``Strong Dependency'' Vendors and Suppliers in TIP
Definition. The Board already recognizes a single occupational common
bond between a SEG sponsor's own employees and those of its
contractors, provided there is a ``strong dependency relationship''
between the sponsor and the contractor. Similarly, NCUA proposes to
clarify its definition of a TIP to include employees of types of
entities that have a strong dependency relationship on, and whose
employees work directly with employees of, other entities within the
same industry. An example would be an FCU that serves employees of
companies within the airline industry that have a strong dependency
relationship with airlines or airports, and whose employees work
directly with providers of air freight transportation, courier
services, air passenger services, in-flight food services, airport
security, baggage handling, and commercial janitorial, maintenance and
repair services. The premise of a strong relationship between these
providers and their airport and airline customers is the likelihood of
a significant economic impact, if not equally between them, if one were
unable to continue in its operations without doing business with the
other. As expanded, the TIP definition would give credit unions the
opportunity to demonstrate that an entity is ``strongly dependent'' on
the others within a TIP, and shares a narrow commonality of interest
with them, as necessary to be part of a TIP-based single occupational
common bond.
G. Technical Updates
Apart from introducing substantive revisions to NCUA's FOM rules
and policies, the proposed rule will update the Chartering and FOM
Manual to enhance its accuracy and user-friendliness for the benefit of
those seeking to charter a credit union, as well as for existing credit
unions. To that end, the proposed rule substitutes certain references
to regional office and regional director chartering responsibilities
with references to the Office of Consumer Protection as the primary
office for chartering matters within NCUA and, to address previous
comments, substitutes the Board Secretary for the Office of Consumer
Protection in reference to appeals of chartering decisions.\73\
Finally, the proposed rule corrects statutory and regulatory citations
and cross-references, as well as typos; updates the appendices to the
Chartering and FOM Manual to reflect current agency practices; and
updates references to NCUA offices and industry trade associations.
---------------------------------------------------------------------------
\73\ 87 FR 25924, 25929 (May 6, 2015).
---------------------------------------------------------------------------
III. 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 entities.\74\ For purposes of this
analysis, NCUA considers small credit unions to be those having under
$50 million in assets.\75\ Although this rule is anticipated to
economically benefit FCUs that choose to expand their FOMs, NCUA
certifies that it will not have a significant economic impact on small
credit unions.
---------------------------------------------------------------------------
\74\ 5 U.S.C. 603(a).
\75\ Effective November 23, 2015, the asset ceiling for small
credit unions will increase to $100 million. 80 FR 57512 (Sept. 24,
2015).
---------------------------------------------------------------------------
Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) applies to collections of
information through which an agency creates a paperwork burden on
regulated entities or the public, or modifies an existing burden.\76\
For purposes of the PRA, a paperwork burden may take the form of either
a reporting or a recordkeeping requirement, both referred to as
information collections. The Office of Management and Budget (OMB)
previously approved the current information collection requirements for
the Chartering and Field of Membership Manual and assigned them control
number 3133-0015.
---------------------------------------------------------------------------
\76\ 44 U.S.C. 3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------
The proposed rule creates new strategic options for FCUs, while
requiring essentially the same information that the existing rule
required to apply for and be granted a charter expansion or conversion,
with two exceptions. It introduces a new form within an appendix to the
[[Page 76756]]
Chartering and Field of Membership Manual to condense the application
process for adding certain groups to a multiple common bond FOM. This
new form does not add any additional burden to FCUs.
Regarding a community common bond, the proposed rule permits an FCU
to add an area adjacent to the perimeter of its existing community
consisting of a Single Political Jurisdiction, Core Based Statistical
Area, Combined Statistical Area or rural district, upon a showing by
subjective evidence that residents on both sides of the perimeter
interact or share common interests. For that purpose, the rule provides
guidance in identifying compelling indicia of interaction or common
interests that would be relevant in drafting a narrative summarizing
the indicia that demonstrate that the residents of the expanded
community meet the requirements of a well-defined local community.
NCUA has determined that the procedure for an FCU to assemble such
subjective evidence of interaction or common interests, and to draft
and submit a narrative summarizing the evidence to support its
application to expand, would create a new information collection
requirement. As required, NCUA is applying to OMB for approval to amend
the current information collection to account for the new procedure.
Approximately 1,090 FCUs have a community charter. While there is
no reasonable way to measure how many FCUs will use this particular
option, it would be available to any community FCU, regardless of asset
size. NCUA estimates that, on average, it would take an FCU's staff
approximately 24 hours to collect the evidence of interaction and
common interests and to draft a narrative to support its application to
expand. Accordingly, NCUA estimates the aggregate information
collection burden on FCUs that seek to add an area adjacent to the
perimeter of an existing community consisting of a Single Political
Jurisdiction, Core Based Statistical Area, Combined Statistical Area or
rural district would be 24 hours times 1,090 FCUs for a total of 26,160
hours. NCUA is proposing to amend the current information collection
control number 3133-0015 to account for these additional burden hours.
Organizations and individuals wishing to submit comments on this
information collection requirement should direct them to the Office of
Information and Regulatory Affairs, OMB, Attn: Shagufta Ahmed, Room
10226, New Executive Office Building, Washington, DC 20503, with a copy
to the Secretary of the Board, National Credit Union Administration,
1775 Duke Street, Alexandria, Virginia 22314-3428.
NCUA will consider comments by the public on this proposed
collection of information in:
Evaluating whether the proposed collection of information
is necessary for the proper performance of the functions of the NCUA,
including whether the information will have a practical use;
Evaluating the accuracy of NCUA's estimate of the burden
of the proposed collection of information, including the validity of
the methodology and assumptions used;
Enhancing the quality, usefulness, and clarity of the
information to be collected; and
Minimizing the burden of collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology (e.g., permitting
electronic submission of responses).
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. Primarily because this rule applies to FCUs
exclusively, it will not have a substantial direct effect 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 this rule does not
constitute a policy that has federalism implications for purposes of
the executive order.
Assessment of Federal Regulations and Policies on Families
NCUA has determined that this proposed rule will not affect family
well-being within the meaning of Section 654 of the Treasury and
General Government Appropriations Act, 1999.\77\
---------------------------------------------------------------------------
\77\ Pub. L. 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 November
19, 2015.
Gerard S. Poliquin,
Secretary of the Board.
For the reasons stated above, NCUA proposes to amend 12 CFR part
701, appendix B, as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
0
1. The authority for part 701 continues to read as follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759,
1761a, 1761b, 1766, 1767, 1782, 1784, 1786, 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 42 U.S.C. 4311-4312.
0
2. Appendix B to part 701 is revised 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.
[[Page 76757]]
The requirements that must be met to charter a federal credit
union are described in Chapter 2 of this manual. Special rules for
credit unions serving low-income groups are described in Chapter 3
of this manual.
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 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 Office of Consumer Protection
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 Office of Consumer Protection 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
[[Page 76758]]
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;
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 Office of
Consumer Protection 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 of this manual.
VII.B--Office of Consumer Protection 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 Office of Consumer Protection Director.
Additionally, the officials will be advised of the name of the
examiner assigned responsibility for supervising and examining the
credit union.
VII.C--Office of Consumer Protection Director Disapproval
When the Office of Consumer Protection 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 Office of Consumer Protection Director will
provide information concerning options or suggestions that the
applicant could consider
[[Page 76759]]
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 Office of Consumer Protection Director Decision
If the Office of Consumer Protection 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 NCUA Board Secretary
within 60 days of the date of denial and must address the specific
reasons for denial. The appeal must be clearly identified as such
and address the specific reason(s) the prospective group disagrees
with the denial. A copy of the appeal must be sent to the Office of
Consumer Protection Director. 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 Office of
Consumer Protection Director for reconsideration. A reconsideration
will contain new and material evidence addressing the reasons for
the initial denial. The Office of Consumer Protection 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 of this manual.
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 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 National Examinations and Supervision.
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,
including but not limited to city or county boundaries, roadways,
rivers, transportation lines.
Credit unions desiring to confirm or submit an application to
change their designations should contact the Office of Consumer
Protection.
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 of
this manual 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;
[[Page 76760]]
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 of this manual); or
Employment in the same Trade, Industry, or Profession
(TIP) (see Chapter 2, Section II.A.2 of this manual).
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 valid 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, 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).
In contrast, 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.
Although a TIP must be narrowly defined, and cannot include
third-party vendors and other suppliers, it may include, on a case
by case basis with NCUA approval, employees of types of entities
that have a strong dependency relationship and work directly with
other types of entities within the industry. As one example, an FCU
may serve employees of companies within the Airline Transportation
Industry that have a strong dependency relationship with airlines or
airports, without the limitation that these employees work at an
airport. This is provided they work directly with the following: Air
transportation of freight, air courier services; air passenger
services; airport baggage handling; airport security; commercial
airport janitorial services; maintenance, servicing, and repair
services; and on board airline food services. The employees of those
entities have a narrow commonality of interests, share the single
occupational common bond, and can be included within the Air
Transportation Industry field of membership.
In general, except for credit unions 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 Office of Consumer Protection
Director. New charter applicants must follow the documentation
requirements in Chapter 1 of this manual. 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 Office of Consumer
Protection 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 of this manual, 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 Office of Consumer Protection 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
[[Page 76761]]
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 Office of Consumer Protection 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 Office of Consumer Protection 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.
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, the Office of Consumer
Protection 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 Office of Consumer Protection 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 Office of Consumer Protection
Director.
II.C.2--Office of Consumer Protection Director Decision
NCUA staff will review all amendment requests in order to ensure
compliance with NCUA policy.
Before acting on a proposed amendment, the Office of Consumer
Protection Director may require an on-site review. In addition, the
Office of Consumer Protection 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--Office of Consumer Protection Director Approval
If the Office of Consumer Protection Director approves the
requested amendment, the credit union will be issued an amendment to
Section 5 of its charter.
II.C.4--Office of Consumer Protection Director Disapproval
When the Office of Consumer Protection 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 Office of Consumer Protection Director Decision
If a field of membership expansion request, merger, or spin-off
is denied by staff, the federal credit union may appeal the decision
to the NCUA Board. An appeal must be sent to the NCUA Board
Secretary within 60 days of the date of denial. The appeal must be
clearly identified as such and must address the specific reason(s)
the federal credit union disagrees with the denial. A copy of the
appeal must be sent to the Office of Consumer Protection, or as
applicable, the appropriate regional office. 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 office rendering the
initial decision for reconsideration. A reconsideration will contain
new and material evidence addressing the reasons for the initial
denial. The office rendering the initial decision 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
[[Page 76762]]
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 in danger of insolvency, as
defined in the Glossary, 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 recordkeeping 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
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. Spin-offs involving the creation
of a new federally insured credit union require the approval of the
Office of Consumer Protection Director. The Office of Consumer
Protection also provides advice regarding field of membership
compatibility when appropriate.
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
[[Page 76763]]
the adoption of this new Chartering and Field of Membership 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 of this manual.
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 Office of Consumer
Protection Director will determine why the credit union desires to
remove the group. If the Office of Consumer Protection 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;
Honorably discharged veterans who served in any of the
Armed Services of the United States listed in this charter;
Organizations of such persons; and
Corporate or other legal entities in this charter.
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. 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.
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 NCUA, 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.1.a--Threshold Requirement Regarding the Purpose for Which an
Associational Group Is Formed and the Totality of the Circumstances
Criteria
As a threshold matter, when reviewing an application to include
an association in a federal credit union's field of membership, NCUA
will determine if the association has been formed primarily for the
purpose of expanding credit union membership. If NCUA makes such a
determination, then the analysis ends and the association is denied
inclusion in the federal credit union's field of membership. If NCUA
determines that the association was formed to serve some other
separate function as an organization, then NCUA will apply the
following totality of the circumstances test to determine if the
association satisfies the associational common bond requirements.
The totality of the circumstances test consists of the following
factors:
1. Whether the association provides opportunities for members to
participate in the furtherance of the goals of the association;
2. Whether the association maintains a membership list;
3. Whether the association sponsors other activities;
4. Whether the association's membership eligibility requirements
are authoritative;
5. Whether members pay dues;
6. 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;
7. The frequency of meetings; and
[[Page 76764]]
8. Separateness--NCUA reviews if there is corporate separateness
between the group and the federal credit union. The group and the
federal credit union must operate in a way that demonstrates the
separate corporate existence of each entity. Specifically, this
means the federal credit union's and the group's respective business
transactions, accounts, and corporate records are not intermingled.
No one factor alone is determinative of membership eligibility
as an association. The totality of the circumstances controls over
any individual factor in the test. However, NCUA's primary focus
will be on factors 1-4 of this section.
III.A.1.b--Pre-Approved Groups
NCUA automatically approves the below groups as satisfying the
associational common bond provisions. NCUA only approves regular
members of an approved group. Honorary, affiliate, or non-regular
members do not qualify.
These groups are:
(1) Alumni associations;
(2) Religious organizations, including churches or groups of
related churches;
(3) Electric cooperatives;
(4) Homeowner associations;
(5) Labor unions;
(6) Scouting groups;
(7) Parent teacher associations (PTAs) organized at the local
level to serve a single school district;
(8) Chamber of commerce groups (members only and not employees
of members);
(9) Athletic booster clubs whose members have voting rights;
(10) Fraternal organizations or civic groups with a mission of
community service whose members have voting rights;
(11) Organizations having a mission based on preserving or
furthering the culture of a particular national or ethnic origin;
and
(12) Organizations promoting social interaction or educational
initiatives among persons sharing a common occupational profession.
III.A.1.c--Additional Information
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.
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.
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. Health clubs are
an example of a group not meeting associational common bond
requirements, including YMCAs. 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.
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 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 that 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 Office of Consumer Protection 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, the Office of Consumer
Protection Director may
[[Page 76765]]
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 Office of Consumer Protection 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 Office of Consumer Protection
Director.
III.C.2--Office of Consumer Protection Director Decision
NCUA staff will review all amendment requests in order to ensure
conformance to NCUA policy.
Before acting on a proposed amendment, the Office of Consumer
Protection Director may require an on-site review. In addition, the
Office of Consumer Protection 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--Office of Consumer Protection Director Approval
If the Office of Consumer Protection Director approves the
requested amendment, the credit union will be issued an amendment to
Section 5 of its charter.
III.C.4--Office of Consumer Protection Director Disapproval
When the Office of Consumer Protection 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 Office of Consumer Protection Director Decision
If a field of membership expansion request, merger, or spin-off
is denied by staff, the federal credit union may appeal the decision
to the NCUA Board. An appeal must be sent to the NCUA Board
Secretary within 60 days of the date of denial and must be clearly
identified as such and address the reason(s) the federal credit
union disagrees with the denial. A copy of the appeal must be sent
to the Office of Consumer Protection, or as applicable, the
appropriate regional office. 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 office rendering the
initial decision for reconsideration. A reconsideration will contain
new and material evidence addressing the reasons for the initial
denial. The office rendering the initial decision 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 in danger of insolvency, as
defined in the Glossary, 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
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
[[Page 76766]]
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. Spin-offs involving the creation
of a new federally insured credit union require the approval of the
Office of Consumer Protection Director. The Office of Consumer
Protection also provides advice regarding field of membership
compatibility when appropriate.
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 and Field of Membership 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 of this
manual.
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 of membership, the Office of Consumer
Protection Director will determine why the credit union desires to
remove the group. If the Office of Consumer Protection 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;
Honorably discharged veterans who served in any of the
Armed Services of the United States in this charter;
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
[[Page 76767]]
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.
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 the occupational common bond of a
select employee group within a multiple common bond.
A multiple common bond credit union is also able to serve the
employees of tenants who work in an industrial park, such as a
shopping mall or office park, without listing each occupational
group, provided that each tenant employee group has fewer than 3,000
employees at the location. In addition, only employees who work at
the facility during the tenancy are eligible for membership. New
tenants would be eligible for membership subject to the above
requirements.
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 includes the means for a multiple common bond
credit union to accept shares for members' accounts, accept loan
applications from them or disburse loans to them. 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, a credit union owned electronic facility, or a credit union's
transactional Web site that meets the above listed transactional
requirements (a ``transactional Web site''). A credit union's
transactional Web site that meets these requirements may be accessed
by a computer, smart phone, tablet, or similar technological device.
This definition of service facility does not meet the requirement
that a credit union establish and maintain an office or facility in
an underserved area.
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;
4. Employees of tenants with fewer than 3,000 employees of MJB
Office Park who work in MJB Office Park's Wilmington, Delaware
location.''
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 Office of Consumer Protection 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 Office of Consumer Protection
Director, with input from the appropriate regional director, which
is material during the one year period preceding the filing to add
the group;
The credit union is ``adequately capitalized'' pursuant
to part 702 of NCUA's Rules and Regulations. For low-income credit
unions or credit unions chartered less than ten years, the Office of
Consumer Protection Director, with input from the appropriate
regional director, may determine that a less than ``adequately
capitalized'' credit union can qualify for an expansion if it is
making reasonable progress toward becoming ``adequately
capitalized.'' For any other credit union, the Office of Consumer
Protection Director, with input from the appropriate regional
director, may determine that a less than ``adequately capitalized''
credit union can qualify for an expansion if it is making reasonable
progress toward becoming ``adequately capitalized,'' 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 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.
Additional information is required for groups of 3,000 or more
primary potential
[[Page 76768]]
members requesting to be added to a multiple common bond credit
union. For groups between 3,000 and 4,999 potential members, NCUA
requires documentation indicating the group has a lack of available
subsidies, interest among the group's members, and sufficient
resources. For such cases the NCUA will accept a written statement
indicating these conditions exist as sufficient documentation the
group cannot form its own credit union. Groups with 5,000 or more
members will be subject to the standard application process as
discussed later in this chapter, requiring a group to fully describe
its inability to establish a new single common bond credit union.
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 Office of Consumer Protection 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:
That the group wants to be added to the applicant
federal credit union's field of membership;
The number of persons currently included within the
group to be added and their locations; and
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 between 3,000 and 4,999 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:
That the group wants to be added to the federal credit
union's field of membership;
Whether the group presently has other credit union
service available;
The number of persons currently included within the
group to be added and their locations;
The group's proximity to credit union's nearest service
facility, and
Why the formation of a separate credit union for the
group is not practical or consistent with safety and soundness
standards because of a lack of available subsidies, interest among
the group's members, and sufficient resources.
The NCUA 4015 (for groups of 5,000 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:
That the group wants to be added to the federal credit
union's field of membership;
Whether the group presently has other credit union
service available;
The number of persons currently included within the
group to be added and their locations;
The group's proximity to credit union's nearest service
facility, and
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 Office of Consumer Protection
Director.
IV.C.2--Office of Consumer Protection Director Decision
NCUA staff will review all amendment requests in order to ensure
conformance to NCUA policy.
Before acting on a proposed amendment, the Office of Consumer
Protection Director may require an on-site review. In addition, the
Office of Consumer Protection 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--Office of Consumer Protection Director Approval
If the Office of Consumer Protection Director approves the
requested amendment, the credit union will be issued an amendment to
Section 5 of its charter.
IV.C.4--Office of Consumer Protection Director Disapproval
When the Office of Consumer Protection 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 Office of Consumer Protection Director Decision
If a field of membership expansion request, merger, or spin-off
is denied by staff, the federal credit union may appeal the decision
to the NCUA Board. An appeal must be sent to the NCUA Board
Secretary within 60 days of the date of denial and must be clearly
identified as such and address the reason(s) the federal credit
union disagrees with the denial. A copy of the appeal must be sent
to the Office of Consumer Protection or, as applicable, the
appropriate regional office. 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 office rendering the
initial decision for reconsideration. A reconsideration will contain
new and material evidence addressing the reasons for the initial
denial. The office rendering the initial decision 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
[[Page 76769]]
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.
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 of this manual, 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
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 in danger of insolvency, as
defined in the Glossary, 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.
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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.
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 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 5,000 or more primary potential
members. If cases arise where the assurance given to the Office of
Consumer Protection 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 outweighs any adverse effect on the overlapped credit union.
In reviewing the overlap, the Office of Consumer Protection
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.
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 and Field of Membership 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 of this manual.
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--Credit Union Requested 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
[[Page 76771]]
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 Office of Consumer
Protection Director will determine why the credit union desires to
remove the group. If the Office of Consumer Protection 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--NCUA Supervisory Action To Remove Groups From the Field of
Membership
NCUA has in place quality control processes that protect the
integrity of its field of membership requirements. As part of this
obligation, NCUA's Office of Consumer Protection will randomly
select groups added through NCUA's Field of Membership Internet
Application (FOMIA) system for quality assurance reviews even if the
expansion application meets all the conditions for approval. Each
FCU is responsible for obtaining certain documentation when seeking
to add groups to its field of membership through FOMIA. In addition,
as indicated in the FOMIA User Instruction Guide, available on
NCUA's Web site, an FCU must permanently retain the documentation
from the select group requesting service and the Confirmation
Certificate generated at the time the FOMIA request is submitted to
NCUA.
As part of the quality assurance process, OCP reserves the right
to request this documentation at any time. If the FCU fails to
provide this documentation when OCP requests it, OCP may consider
removing the group from the FCU's field of membership and
restricting the FCU from using the FOMIA system for future requests.
Specifically, as part of the FOMIA quality assurance process, OCP
staff will do the following:
1. Within 10 days of receiving an application selected for a
quality assurance review, notify the FCU of the documentation OCP
requires. The FCU will have 15 days to provide the necessary
documentation. OCP staff will respond to the FCU with a
determination on the quality assurance review of the association
within 15 days of receiving the requested information;
2. After receiving the additional documentation, if any concerns
remain outstanding, OCP staff will again correspond with the FCU and
provide a 15-day time frame for correcting the concern. OCP staff
will respond to the FCU with a determination on the quality
assurance review of the association within 15 days of receiving the
requested information; and
3. If the FCU does not provide the requested documentation, or
cannot correct the concern, the OCP Director will deny the
application and notify the credit union of its appeal rights.
IV.I--NCUA Investigation of Potential Field of Membership Violations
NCUA's Office of Consumer Protection (OCP) is responsible for
investigating field of membership complaints from the public, and
matters referred to it from the field. It also pursues corrective
action as needed for FCUs with confirmed field of membership
violations. Although circumstances can vary with each case, OCP
staff will generally adhere to the following process for
investigating and addressing potential field of membership
violations:
1. Initially correspond with management to outline concerns and
request clarifying information within 60 days. OCP staff will also
provide context as to the source of OCP's concerns, such as the
discovery of new information about a particular group or an
examination finding brought to OCP's attention;
2. If OCP does not receive the requested information within 60
days, it will notify the FCU and again request the required
information be provided within 30 days;
3. After receiving the additional documentation, if any concerns
remain outstanding, OCP staff will again correspond with the FCU to
provide a 60-day time frame for addressing the concern; and
4. If the FCU is unable to correct the concern, and after
consultation with the Office of General Counsel and the appropriate
Regional Office, and in accordance with agency guidelines for
administrative actions, OCP will remove the group from the FCU's
field of membership pursuant to authority delegated by the NCUA
Board. Removal of a group is treated the same as an initial denial
under the Chartering Manual. In any adverse final determination on
removal under the above delegations, OCP will notify the FCU of its
appeal rights.
NCUA considers the removal of an association from an FCU's field
of membership as an action of last resort. If a group is removed,
the FCU can no longer add new members from the group, but can
continue serving those who are already members of the FCU under the
``once a member, always a member'' provision of the Federal Credit
Union Act. Also, if the group subsequently qualifies due to changes
to the group itself, management can submit a new application at that
time.
IV.J--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;
Honorably discharged veterans who served in any of the
Armed Services of the United States in this charter;
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. 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
There are two types of community charters. One is based on a
single, geographically well-defined local community or neighborhood;
the other is a rural district. More than one credit union may serve
the same community.
NCUA recognizes four types of affinity on which both a community
charter and a rural district can be based--persons who live in,
worship in, attend school in, or work in the community or rural
district. Businesses and other legal entities within the community
boundaries or rural district may also qualify for membership.
NCUA has established the following requirements for community
charters:
The geographic area's boundaries must be clearly
defined; and
The area is a well-defined local community or a rural
district.
V.A.2--Definition of Well-Defined Local Community and Rural
District
In addition to the documentation requirements in Chapter 1 of
this manual 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.
An applicant has the burden of demonstrating to NCUA that the
proposed community area meets the statutory requirements of being:
(1) Well-defined, and (2) a local community or rural district.
``Well-defined'' means the proposed area has specific geographic
boundaries. Geographic boundaries may include a city,
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township, county (single, multiple, or portions of a county) or
their political equivalent, an individual Congressional district,
school districts, or a clearly identifiable neighborhood. Although
state boundaries are well-defined areas, states themselves do not
meet the requirement that the proposed area be a local community or
rural district.
The well-defined local community requirement is met if:
Single Political Jurisdiction--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. A
Congressional district qualifies as Single Political Jurisdiction.
If redistricting were to redraw the boundaries of a Congressional
district into two or more Congressional districts, an FOM consisting
of the original Congressional district would no longer be available
to be served by any other credit union.
Statistical Area--The area is a designated Core Based
Statistical Area or allowing a portion thereof, or in the case of a
Core Based Statistical Area with Metropolitan Divisions, the area is
a Metropolitan Division or is a portion thereof; or
The area is a designated a Combined Statistical Area or
a portion thereof; AND
The Core Based Statistical Area, Metropolitan Division
or Combined Statistical Area, or the portion thereof, must have a
population of 2.5 million or less people.
Compelling Evidence of Interaction or Common
Interests--In lieu of a statistical area as defined above, this
option applies when an area is substantially a Core Based
Statistical Area or Combined Statistical Area, but also has an
additional portion falling outside, and which is immediately
adjacent to, the Core Based Statistical Area or Combined Statistical
Area, and thus may demonstrate a sufficient level of interaction to
qualify as a local community. For these situations, applicants have
the option of submitting a narrative to NCUA to discuss how the
residents meet the requirements for being a local community. NCUA
will base its decision on a consideration of the following factors
with respect to the proposed service area in its entirety:
Economic Hub: Evidence indicates residents commonly travel to a
geographically compact locale within the area for work and major
commerce needs. Traffic flows, the presence of common or related
industries, or unified economic planning demonstrate how the locales
have economic interdependence.
Population Center: Area has a dominant county or municipality
with a significant portion of the area's population and evidence
exists to support the relevance of the population center to all
residents within the area.
Quasi-Governmental Agencies: A quasi-governmental agency, such
as a regional planning commission, covers the proposed service area
in its entirety and derives its leadership from the area to advance
meaningful objectives advancing the residents' common interests in
economic development and/or improving quality of life. Success of
agency in meeting its mission depends upon collaboration from
throughout the area.
Government Designations: A division of a federal or state agency
specifically designates the proposed service area as its area of
coverage or as a target area for specific programs.
Shared Public Services/Facilities: Formal agreements exist that
provide for a common need shared by all of the residents, such as
common police or fire protection, or public utilities.
Colleges and Universities: Evidence exists to demonstrate the
common relevance of an institution or institutions to the entire
area, such as unique educational initiatives to support economic
objectives benefiting all residents and/or partnerships with local
businesses or high schools.
The rural district requirement is met if:
Rural District--
The district has well-defined, contiguous geographic
boundaries;
The total population of the district does not exceed
1,000,000.
Either more than 50% of the district's population
resides in census blocks or other geographic areas that are
designated as rural by either the Consumer Financial Protection
Bureau or the United States Census Bureau, OR the district has a
population density of 100 persons or fewer per square mile; and
The boundaries of the well-defined rural district do
not exceed the outer boundaries of the states that are immediately
contiguous to the state in which the credit union maintains its
headquarters (i.e., not to exceed the outer perimeter of the layer
of states immediately surrounding the headquarters state). The
affinities that apply to rural districts are the same as those that
apply to well-defined local communities. The OMB definitions of Core
Based Statistical Area and Metropolitan Division may be found at
https://www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf. Access to these definitions is available through the main
page of the Federal Register Web site at http://www.gpoaccess.gov/fr/index.html and on NCUA's Web site at http://www.ncua.gov.
The requirements in Chapter 2, Sections V.A.4 through V.G. of
this manual also apply to a credit union that serves a rural
district.
V.A.3--Previously Approved Communities
If prior to July 26, 2010 NCUA has determined that a specific
geographic area is a well-defined local community, then a new
applicant need not reestablish that fact as part of its application
to serve the exact area. The new applicant must, however, note
NCUA's previous determination as part of its overall application. An
applicant applying for an area after that date that is not exactly
the same as the previously approved well defined local community
must comply with the current criteria in place for determining a
well-defined local community.
V.A.4--Business Plan Requirements for a Community Credit Union
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 and promotion of savings
programs and in the collection of loans. Accordingly, to support an
application for a community charter, an applicant Federal credit
union must develop a business plan incorporating the following data:
Pro forma financial statements for a minimum of 24
months after the proposed conversion, including the underlying
assumptions and rationale for projected member, share, loan, and
asset growth;
Anticipated financial impact on the credit union,
including the need for additional employees and fixed assets, and
the associated costs;
A description of the current and proposed office/branch
structure, including a general description of the location(s);
parking availability, public transportation availability, drive-
through service, lobby capacity, or any other service feature
illustrating community access;
A marketing plan addressing how the community will be
served for the 24-month period after the proposed conversion to a
community charter, including detailing: how the credit union will
implement its business plan; the unique needs of the various
demographic groups in the proposed community; how the credit union
will market to each group, particularly underserved groups; which
community-based organizations the credit union will target in its
outreach efforts; the credit union's marketing budget projections
dedicating greater resources to reaching new members; and the credit
union's timetable for implementation, not just a calendar of events;
Details, terms and conditions of the credit union's
financial products, programs, and services to be provided to the
entire community; and