81 FR 88412 - Chartering and Field of Membership Manual
NATIONAL CREDIT UNION ADMINISTRATION
Federal Register Volume 81, Issue 235 (December 7, 2016)
Page Range
88412-88523
FR Document
2016-26956
The NCUA Board is comprehensively amending its chartering and field of membership rules to maximize access to federal credit union services to the extent permitted by law, and to organize the rules in a more efficient framework. The amendments will implement changes in policy affecting: The definition of a local community, a rural district, and an underserved area; the chartering and expansion of a multiple common bond credit union; the expansion of a single common bond credit union that serves a trade, industry or profession; and the process for applying to charter, or to expand, a federal credit union.
Federal Register, Volume 81 Issue 235 (Wednesday, December 7, 2016)
[Federal Register Volume 81, Number 235 (Wednesday, December 7, 2016)]
[Rules and Regulations]
[Pages 88412-88523]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2016-26956]
[[Page 88411]]
Vol. 81
Wednesday,
No. 235
December 7, 2016
Part IV
National Credit Union Administration
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12 CFR Part 701
Chartering and Field of Membership Manual; Final Rule
Federal Register / Vol. 81 , No. 235 / Wednesday, December 7, 2016 /
Rules and Regulations
[[Page 88412]]
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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: Final rule.
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SUMMARY: The NCUA Board is comprehensively amending its chartering and
field of membership rules to maximize access to federal credit union
services to the extent permitted by law, and to organize the rules in a
more efficient framework. The amendments will implement changes in
policy affecting: The definition of a local community, a rural
district, and an underserved area; the chartering and expansion of a
multiple common bond credit union; the expansion of a single common
bond credit union that serves a trade, industry or profession; and the
process for applying to charter, or to expand, a federal credit union.
DATES: The effective date of this final rule is February 6, 2017.
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
II. Summary of Comments on Proposed Rule
III. Regulatory Procedures
I. Background
NCUA's Chartering and Field of Membership Manual, incorporated as
Appendix B to part 701 of its regulations (``Chartering Manual''),\1\
implements the field of membership (``FOM'') requirements and
limitations established by the Federal Credit Union Act (``the Act'')
for federal credit unions (each an ``FCU'').\2\ As amended by the
Credit Union Membership Access Act of 1998 (``CUMAA''), the Act
provides a choice among three charter types: a single common bond
consisting of a group whose members all share the same occupational or
associational common bond; \3\ a multiple common bond in which each
group has a distinct occupational or associational common bond among
its own members; \4\ and a community common bond among persons or
organizations within a well-defined local community, neighborhood, or a
rural district.\5\
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\1\ Appendix B to 12 CFR part 701 (``Appendix B'').
\2\ 12 U.S.C. 1759.
\3\ Id. Sec. 1759(b)(1).
\4\ Id. Sec. 1759(b)(2)(A).
\5\ Id. Sec. 1759(b)(3).
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To facilitate consumer access to credit unions and to enhance their
delivery of services as the Act contemplates, the Board periodically
modifies and updates the Chartering Manual to advance certain
objectives. Among these are relief from undue burdens and restrictions
on an FCU's ability to provide services to consumers who are eligible
for FCU membership, especially to benefit those of modest means;
enhancement of the menu of strategic options for FOM expansions; and
maximization of competitive parity between federal and state charters
to the extent allowed by law, while respecting the national system of
dual chartering. To serve those objectives, the Board published a
proposed rule in December 2015 requesting public comment on fifteen
substantive modifications to the rules affecting each of the three FOM
types that the Act authorizes.\6\
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\6\ 80 FR 76748 (December 10, 2015).
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As explained below, this final rule will implement proposed
modifications to the rule affecting: The definition of a local
community, a rural district, and an underserved area; the expansion of
a multiple common bond credit union; the expansion of a single common
bond credit union that serves a trade, industry or profession; and the
type and extent of information that must be submitted to support an
application to charter or expand an FCU's FOM.
II. Summary of Comments on Proposed Rule
NCUA received approximately 11,380 comments on the proposed rule:
31 from national and regional credit union trade associations and
leagues; 99 from individual FCUs; 14 from federally-insured state-
chartered credit unions; 8291 from individual credit union members; 14
from national and regional bank trade associations; 6 from individual
banks; 2925 from individual bank customers; and 6 from other
commenters.\7\ The commenters generally supported the proposed rule by
a ratio of approximately 3 to 1, mostly without reference to a specific
proposal and without suggesting alternatives or modifications.
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\7\ Among credit union- and bank-affiliated commenters combined,
98 percent of the 11,380 comments consisted of form letters, with
minimal original content and often submitted by a third party vendor
on the commenter's behalf.
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A. Community Common Bond
The Act limits membership in a community credit union to
``[p]ersons or organizations within a well-defined local community,
neighborhood, or rural district,'' \8\ directing the Board to establish
criteria defining those terms for purposes of ``making any
determination'' regarding such a credit union,\9\ and to establish
applicable criteria for any such determination.\10\ The Act does not
impose for any of the three community categories a maximum limitation
on population or geographic size, thus supporting the Board's
observation that ``there is no statutory requirement or economic
rationale that compels the Board to charter only the smallest [well-
defined local community] in a particular area.'' \11\
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\8\ 12 U.S.C. 1759(b).
\9\ Id. Sec. 1759(g)(1)(A).
\10\ Id. Sec. 1759(g)(1)(B).
\11\ 74 FR 68722, 68725 (Dec. 29, 2009).
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To qualify as a well-defined local community (``WDLC'') or as a
rural district, the Board requires a proposed area to have ``specific
geographic boundaries,'' \12\ and for residents within those boundaries
to interact or share common interests that signify a cohesive
community. Since 2010, the Board has offered two ``presumptive
community'' options that by definition meet the statutory criteria of a
WDLC. Each is based on uniform, objective geographic units. One is a
``Single Political Jurisdiction . . . or any individual portion
thereof'' (each an ``SPJ''), regardless of population.\13\ The other is
a single Core Based Statistical Area (``CBSA'' or ``a statistical
area,'' or a portion thereof) as designated by the U.S. Census Bureau
(``Census''), or a Metropolitan Division within a CBSA, subject in
either case to a 2.5 million population limit.\14\
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\12\ Appendix B, Ch. 2, Sec. V.A.2.
\13\ Appendix B, Ch. 2, Sec. V.A.2.
\14\ Appendix B, Ch. 2, Sec. V.A.2. According to the Census,
``the term `core-based statistical area' became effective in 2003
and refers collectively to metropolitan statistical areas and
micropolitan statistical areas.'' https://www.census.gov/geo/reference/gtc/gtc_cbsa.html#md.
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1. ``Core Based Statistical Area'' Population Limit. The existing
2.5 million population limit that applies to a community consisting of
a CBSA, or a Metropolitan Division or other portion within, conforms to
the population threshold by which the Office of Management and Budget
(``OMB'') designates Metropolitan Divisions
[[Page 88413]]
within a CBSA.\15\ The proposed rule retained the 2.5 million limit,
but solicited public comment on whether to adjust it, to 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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The vast majority of commenters urged the Board to eliminate the
population cap on statistical areas altogether because the Act does not
mandate it. They maintained that an area's population is unrelated to
what should be the paramount considerations in identifying a local
community, namely, interaction or common interests among residents, and
the FCU's ability and commitment to serve the area. The commenters also
contended that, by imposing a population limit, the Board is
substituting its judgment for Census data, by which CBSAs are
designated without regard to population, and that population alone is
not a source of undue risk to an FCU or to the National Credit Union
Share Insurance Fund (``the Insurance Fund''). Finally, some commenters
protested that a population cap on statistical areas puts FCUs at a
competitive disadvantage compared to communities consisting of an SPJ,
which are not limited by population.
Some commenters advocated increasing the present cap from 2.5
million to between 3.5 million and as much as 5 million, respectively,
to ensure the long-term growth and viability of FCUs in general. Others
urged increasing the population limit to match that of the most
populous SPJ the Board has approved (Los Angeles County, CA, at 10
million), or that of the nation's most populous Metropolitan
Statistical Area (New York-Newark-Jersey City, NY-NJ-PA Metro Area at
20 million). One commenter recommended linking the population limit to
an appropriate index that would trigger periodic reevaluation and
possible adjustment of the existing limit.
In contrast, dozens of commenters criticized the existing 2.5
million cap as being too high, urging that it be reduced. One insisted
that the 2.5 million cap is not a credible ``indicator of common,
close-knit interaction.'' Another predicted that an area as populous as
10 million could qualify as a local community as long as its residents
``interact in some way . . . within lines drawn by NCUA.'' Yet another
criticized the Board for implying that the existing 2.5 million cap is
too low only by comparison to the most populous SPJs the Board has
approved (e.g., Los Angeles County, CA, and Harris County, TX).
The Board finds considerable merit in commenters' suggestions to
eliminate the population cap, increase the present population cap to a
given amount, tie the cap to the population of a certain geographic
unit, or administer any cap according to a framework of oversight and
internal controls. Out of concern that the public should have notice
and an opportunity to address such recommendations, as the
Administrative Procedure Act requires,\16\ the Board has decided to
make no change to the existing 2.5 million population cap at this time.
Instead, the Board will issue a proposal soliciting public comment on
alternatives to modify the cap, and an alternative to the ``presumptive
community'' options to form a WDLC.
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\16\ 5 U.S.C. 553(c).
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2. ``Core Area'' Service Requirement. Since 2010, the Board has
required a community consisting of a portion of a CBSA to include the
CBSA's ``core area,'' \17\ defined in practice as the most populated
county or named municipality in a CBSA's title. The Act itself does not
mandate any such requirement for a community. The proposed rule
repealed the ``core area'' service requirement in favor of relying on
NCUA's practice of annually reviewing an FCU's business and marketing
plans, for the first three years following approval of a community
charter expansion or conversion, to assess whether the credit union is
adequately serving the intended beneficiaries of the requirement--
namely low-income and underserved populations within an original or an
expanded community.\18\
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\17\ 75 FR 36257, 36260 (June 25, 2010).
\18\ 80 FR at 76749.
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The majority of commenters favored repeal of the ``core area''
service requirement, primarily because it is not mandated by the Act
and thus unnecessarily imposes an additional constraint on who credit
unions can serve. They further speculated that relief from an
obligation to serve a ``core area'' will give FCUs the flexibility to
adapt to the specific area each initially is able to reasonably and
safely serve, allowing it to establish and maintain a ``marketplace
footprint'' there. Other commenters criticized the ``core area''
service requirement for dividing an otherwise viable community or
excluding portions that would enhance its viability; for causing an FCU
to sacrifice service to other areas within the chosen portion of a
CBSA; and as a disincentive to serve populated urban areas due to the
additional cost and resources of serving a ``core area.''
A few commenters suggested alternatives in lieu of applying a
``core area'' service requirement to a portion of a CBSA. One is to
permit an FCU to develop a presence, reputation and services to enable
it to later expand into the ``core area'' of a CBSA. The other is to
defer to the National Federation of Community Development Credit Unions
and to the Community Development Financial Institutions Fund regarding
how best to identify and to provide service to low-income and
underserved populations.\19\
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\19\ For Underserved Area purposes, the Act, at 12 U.S.C.
1759(c)(2)(A)(i), relies on the Community Development Banking and
Financial Institutions Act, id. Sec. 4702(16)(A), to define an
``investment area,'' which, among other things, can consist of an
``empowerment zone'' or ``enterprise community'' as defined by 26
U.S.C. 1391.
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In contrast, bank-affiliated commenters generally favored retaining
the ``core area'' service requirement. One predicted that its absence
would effectively permit ``redlining'' through formation of a community
primarily consisting of wealthier areas within a CBSA, while excluding
areas where low-income and minority populations are concentrated.
Another urged the Board to retain the ``core area'' service requirement
given that, unless expressly required by state law, credit unions
typically are not subject to the Community Reinvestment Act, which
requires financial institutions other than credit unions to publicly
document service to people of modest means.\20\
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\20\ 12 U.S.C. 2902(2)
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What critics of repealing the ``core area'' service requirement
overlook is that NCUA has in place a supervisory process to assess
management's efforts to offer service to the entire community an FCU
seeks to serve. NCUA holds credit union management accountable for the
results of an annual evaluation that encompasses a community FCU's
implementation of its business and marketing plans,\21\ extending for
three years after the credit union either is chartered, converts or
expands. Experience confirms that the agency's evaluations are a more
effective means of ensuring that the low-income and underserved
populations are fairly served compared to the rest of the community, in
contrast to a requirement forcing a credit union to serve the ``core
area'' of the portion of a CBSA that comprises its community. The Board
considered extending this review period to five years, but has declined
to do so,
[[Page 88414]]
believing that three years is sufficient time to gauge a credit union's
commitment to serve an original or expanded area, and that the
additional two years of projections would be too stale to be probative.
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\21\ The results of an annual evaluation of an FCU's
implementation of its business and marketing plans typically would
be reflected in the ``findings'' or ``overview'' sections of an
examination report, or in a ``Document of Resolution'' issued
following an examination.
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Another relevant part of the supervisory process is the agency's
mandate to consider member complaints alleging discriminatory practices
affecting low-income and underserved populations, such as redlining,
and to respond as necessary when such practices are shown to exist.
Having considered the comments addressing repeal of the ``core
area'' service requirement, and because it is not a requirement
mandated by the Act, the Board has decided to repeal it in view of
credit unions' success in providing financial services to low-income
and underserved populations without regard to where they are located
within a community, i.e., beyond its ``core area.'' This assessment is
based on the periodic evaluations, overseen or conducted by the Office
of Consumer Protection since 2010, of FCUs' implementation of their
business and marketing plans.\22\ In place of the ``core area'' service
requirement, the final rule requires NCUA to continue these evaluations
to ensure fair and adequate service to the low-income and underserved
populations within a community consisting of a portion of a CBSA.
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\22\ For communities with a population of less than 1 million,
NCUA regional offices conduct the review of business and marketing
plans to assess an FCU's service to the community as a whole,
including low-income and underserved populations within. They report
the results to the Office of Consumer Protection semi-annually. For
communities with a population of 1 million or greater, the Office of
Consumer Protection itself conducts the review and assessment.
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3. Population Limit as Applied to a Portion of a ``Core Based
Statistical Area''. The existing rule disqualifies a portion of a CBSA
as a WDLC when the population of the CBSA as a whole exceeds the 2.5
million population cap, even when the population of the portion by
itself does not exceed that limit--an unintended consequence.\23\ To
correct this oversight, the proposed rule modified the ``statistical
area'' definition to specify that in the case of a community consisting
of a portion of either a CBSA or a Metropolitan Division within, the
portion by itself must have a population of 2.5 million or fewer,
regardless whether the CBSA or Metropolitan Division as a whole exceeds
the limit.
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\23\ Appendix B, Ch. 2, Sec. V.A.2. (``statistical area''
definition).
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The majority of commenters supported this technical remedy in order
to prevent the unintended disqualification of a portion of a CBSA that
falls within the population cap solely because the CBSA as a whole
exceeds it. In that event, an FCU would have no recourse but to serve
an area smaller than the portion it seeks to serve (e.g., an SPJ
consisting of a city or town). Although many commenters opposed the
existing 2.5 million population cap as excessive, none opposed this
proposal to narrowly apply the cap exclusively to the portion of a CBSA
that an FCU designates as its community.
Having considered the comments addressing this proposal, the Board
considers it an appropriate remedial initiative to limit to the
population cap adopted in the final rule the portion of a CBSA a credit
union seeks to serve.
4. ``Combined Statistical Area'' as a Well-Defined Local Community.
The existing rule designates two ``presumptive communities'' that by
definition qualify as a WDLC--an SPJ regardless of population, and a
CBSA subject to a 2.5 million population limit.\24\ The proposed rule
added a third ``presumptive community'': A Combined Statistical Area as
designated by OMB,\25\ subject to the same population limit. The 174
Combined Statistical Areas that OMB has designated each combine ``two
or more adjacent CBSAs that have substantial employment interchange.''
\26\ As with any community an FCU seeks to serve, a Combined
Statistical Area would be subject to NCUA's practice of periodically
reviewing the FCU's implementation of its business and marketing plans
to assess its capability of, and success in, serving its original or
previously expanded community.
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\24\ 75 FR 36257 (June 25, 2010).
\25\ OMB Bulletin No. 15-01 to Heads of Executive Departments
and Establishments (July 15, 2015) at: https://www.whitehouse.gov/sites/default/files/omb/bulletins/2015/1-01.pdf.
\26\ U.S. Census Bureau, Geographic Terms and Concepts, at:
https://www.census.gov/geo/reference/gtc/gtc_cbsa.html#md.
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Scores of commenters supported the proposal to recognize Combined
Statistical Areas as ``presumptive communities,'' concurring that OMB's
approach in designating Combined Statistical Areas is consistent with
NCUA's long-standing consideration of factors such as employment,
commuting patterns and economic interaction to identify a WDLC. These
commenters further contended that Combined Statistical Areas are
appropriate ``presumptive communities'' according to social and
economic integration among residents within them, apart from strict
population and density numbers, because Combined Statistical Areas
represent the same ``commonality of substantial employment
interchange'' that an individual CBSA's residents must have.
In addition, commenters cited certain benefits of recognizing
Combined Statistical Areas as ``presumptive communities.'' One is the
flexibility to serve multiple counties located within a single Combined
Statistical Area, or to expand a community beyond an individual CBSA's
boundaries. Another is the opportunity for an FCU serving a single CBSA
with a population less than 2.5 million to further expand in scope up
to that limit. Another benefit is the addition of Combined Statistical
Areas to the menu of safe and sound strategic options for an FCU to
grow and survive once it reaches a saturation level within its present
FOM.
Finally, one commenter supported the recognition of Combined
Statistical Areas as ``presumptive'' communities as a ``welcomed change
that is obviously within the confines [of the Act].'' Another cited an
OMB pronouncement in support of Government agency use of Metropolitan
and Micropolitan Statistical Area or Combined Statistical Area
delineations to develop a non-statistical program, as long as the
agency seeks public comment on the proposed use \27\--as the Board did
in this rulemaking through the proposed rule.
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\27\ OMB Bulletin No. 15-01 supra note 24.
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Bank trade associations opposed recognizing Combined Statistical
Areas as ``presumptive communities.'' One criticized the proposal as
exceeding the reasonable definition of ``local.'' Others contended that
a Combined Statistical Area necessarily is too expansive to be
``local'' because it ``represents larger regions'' that can encompass
thousands of square miles crossing county and state borders. One
opponent predicted that Combined Statistical Areas would be used to
create state-wide FOMs, believing that this was not what Congress
intended. Another claimed that Congress sought to impose narrow limits
on areas a community credit union serves.
These commenters overlook certain facts that contradict the notion
that a Combined Statistical Area is too expansive to be ``local.''
First, of the 174 designated Combined Statistical Areas, the 22 largest
would not qualify as a WDLC because each, as a whole, exceeds the 2.5
million population cap. Second, the average geographic size among the
152 Combined Statistical Areas that would each qualify as a WDLC, at
4553 square miles, is comparable to the average geographic
[[Page 88415]]
size among the 243 individual CBSAs the Board has approved since 2010,
at 4572 square miles.
Having considered the comments addressing the proposal to recognize
a Combined Statistical Areas as a ``presumptive community,'' the Board
adopts the proposal given that a Combined Statistical Area simply
unifies, as a single community, two or more contiguous CBSAs that each
independently meet the existing rule's definition of a ``statistical
area'' that presumptively qualifies as a WDLC. Accordingly, subject to
the existing 2.5 million population limit for a CBSA, the rule adds to
the ``statistical area'' definition ``all or an individual portion of .
. . a Combined Statistical Area designated by the U.S. Office of
Management and Budget.'' \28\
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\28\ Appendix B, Ch. 2, Sec. V.A.2.
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5. Addition of an Adjacent Area to a Well-Defined Local Community.
The existing rule does not, for general use, give credit unions the
option to submit a narrative, supported by objective documentation,
that an FCU contends will demonstrate common interests or interaction
among residents of a proposed community (the ``narrative model'').\29\
The proposed rule allows credit unions to once again use a narrative
approach supported by objective documentation to demonstrate that an
area adjacent to a community consisting of an SPJ, a CBSA or a Combined
Statistical Area qualifies as part of that local community. The credit
union, using objective documentation, must demonstrate that the
adjacent area is logically part of a WDLC that includes an SPJ, CBSA,
or Combined Statistical Area due to common interests or interaction
among residents on both sides of the perimeter. The expanded community
still is subject to the applicable population limit. Any FCU has the
option of pursuing a community charter that combines an adjacent area
with all or a portion of an SPJ, CBSA or Combined Statistical Area. To
support such an expansion, an FCU with a proven track record in serving
an existing FOM may be permitted to use an agency-prescribed set of
relaxed business plan requirements, as set forth in the final rule.\30\
However, a credit union without an established track record of serving
a community, such as a credit union converting to a community charter,
will need to provide a full business and marketing plan.
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\29\ In 2010, the Board abandoned the narrative model in favor
of giving credit unions an option among ``presumptive communities''
that each by definition qualifies as a WDLC. 75 FR 36257, 36260
(June 25, 2010).
\30\ 80 FR at 76750; Appendix B, Ch. 2, Sec. V.B.
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Most credit union-affiliated commenters supported the proposal to
permit a community credit union to add an adjacent area upon narrative
proof of common interests or interaction among residents of the
expanded community. They recommended that option as a logical advance
in business development because it would allow an FCU to add an
adjacent area without requiring it to discontinue serving its existing
community. However, several commenters opposed the requirement that an
FCU must support its application to add an adjacent area with a
business plan demonstrating its post-expansion commitment and ability
to serve the entire community.
Bank trade associations opposed the concept of permitting adjacent
area additions to a community, regardless how common interests or
interaction among residents is demonstrated, and in a few cases opposed
it conditionally. Without specifying a substantive or procedural
objection, some commenters asserted that the Board lacks statutory
authority to implement the proposal. Another contended that, due to the
breadth and scope of the banking industry, the adjacent areas the
proposal addresses do not lack sufficient access to financial services.
Still another complained that approval of an adjacent area addition on
the basis of NCUA's qualitative assessment of a narrative would render
the process non-transparent.
Two critical commenters conditioned their opposition to the
proposal to allow adjacent area additions on certain modifications. The
first would be to require the Board develop a complete record
confirming that the proposed adjacent area meets six interaction or
common interest characteristics among its residents, rather than
accepting on its face the supporting information the credit union
provides. The second would be, in each case, to require the Board to
then publish a notice in the Federal Register inviting public comment
on whether the proposed adjacent area is a WDLC.
The Act gives the Board broad discretion to define a WDLC for
purposes of ``making any determination'' regarding a community credit
union,\31\ and to establish criteria to apply to any such
determination.\32\ Under that authority, the Board proposed a set of
criteria that a narrative should address, and which NCUA staff would
consider in evaluating an application to add an adjacent area to an
existing community.\33\ In contrast, the Act did not require NCUA to
effectively subject each such application to a referendum by means of
notice and an opportunity for the public to comment. In that event, the
volume of community charter, conversion and expansion applications the
agency's staff receives each year (an annual average of eighty-seven
since 2010) would make it impracticable to seek public comment on each
proposed adjacent area addition, and would needlessly consume agency
resources. Further, a notice and opportunity to comment on each
application, followed by agency review of the comments, would delay
credit union service to the residents of the adjacent area in each
case.
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\31\ 12 U.S.C. 1759(g)(1)(A) (emphasis added).
\32\ Id. Sec. 1759(g)(1)(B).
\33\ 80 FR at 76772 (referring to the presence of an economic
hub, quasi-governmental agencies, Government designated programs,
shared public services and facilities, and colleges and
universities).
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Having considered the comments addressing the proposal to permit an
adjacent area addition to a community and, for that limited purpose, to
accept narrative proof of common interests and interaction among
residents, the Board has decided to adopt the proposal in the final
rule.\34\ In addition, the Office of Consumer Protection, or its
successor, will separately issue guidance on the criteria introduced in
the proposed rule that a narrative should address to support the
addition of an adjacent area, and which the Board will consider in
deciding an FCU's application to do so. The guidance may specify a
certain number of criteria that, if met, would presumptively qualify an
adjacent area for approval.
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\34\ Appendix B, Ch. 2, Sec. V.A.2.
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6. Individual Congressional District as a Well-Defined Local
Community. Although not prohibited by statute, since 1999 the Board has
maintained that Congressional districts and whole states do not qualify
as a WDLC, even though both are well-defined.\35\ In the December 2015
proposed rule, the Board reconsidered its policy and, as a result,
proposed to recognize an individual Congressional district as a SPJ,
thus qualifying each as a ``presumptive community'' without regard to
population.\36\ As with any other community charter application, the
proposal required an FCU to support its application to serve a
Congressional district with a business and marketing plan demonstrating
its ability and
[[Page 88416]]
commitment to serve the entire community.
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\35\ 63 FR 72012, 72013, 72037 (Dec. 30, 1998); Appendix B, Ch.
2, Sec. V.A.2. See also 75 FR at 36258 (affirming that entire state
is not acceptable as WDLC).
\36\ Appendix B, Ch. 2, Sec. V.A.1.
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At least a thousand credit union-affiliated commenters supported
the proposal to recognize Congressional districts as SPJs; only one
opposed it.\37\ The supporters emphasized that the Act never restricted
Congressional districts from qualifying as a WDLC, thus giving the
Board latitude to reconsider its original policy disqualifying them.
One commenter characterized Congressional districts as the ``ultimate
political jurisdictions'' because their average population of about
710,000 is far less than that of many SPJs, and less than the
population threshold by which OMB may divide a CBSA into Metropolitan
Divisions (2.5 million). Another suggested that a community consisting
of an individual Congressional district should be allowed to encompass
a certain radius of miles beyond the district's boundaries. In
contrast, hundreds of bank-affiliated commenters opposed recognition of
individual Congressional districts as SPJs.
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\37\ The single credit union-affiliated opponent alleged a lack
of ``commonality'' among residents of a Congressional district
because it is ``skewed for political reasons to enable election of a
certain party's candidates.''
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The Board has considered the comments addressing the proposal to
recognize an individual Congressional district as a ``presumptive
community.'' Notwithstanding certain merits of the proposal, the Board
has decided to defer action on it at this time, consistent with an
incremental approach to introducing, and permitting credit unions to
acclimate to, other significant community common bond enhancements
adopted in the final rule (e.g., Combined Statistical Areas, adjacent
area additions, and an increased population limit and a new multi-state
expansion limit on Rural Districts). As a result, the final rule does
not designate an individual Congressional district as a ``presumptive
community.''
7. Commenters' Recommendations in Response to the Proposed Rule.
Several commenters initiated community common bond recommendations that
the Board did not propose. The first commenter-initiated recommendation
was that the Board accept as a ``presumptive community'' (in addition
to CBSA and SPJ that the existing rule permits) any ``Federal, state or
other statistical model'' an FCU chooses to designate as its community.
The second recommendation was that the Board extend membership
eligibility to non-profit organizations that provide services to the
community a credit union serves, regardless whether the organization is
headquartered or located there (as the existing rule requires). The
third recommendation was that the Board accept for general use a
narrative to demonstrate interaction or common interests among
residents to support any application to charter, expand or to convert
to a community credit union (not just in support of an adjacent area
addition, as the final rule provides). The fourth recommendation was
that the Board, by regulation, permit a multiple common bond credit
union that converts to a community charter to add and serve new members
from its pre- conversion select employee groups (``SEGs'') now located
outside its community boundaries. This proposal would interpret the
Act's ``grandfathered members and groups'' exception \38\ to permit
what would effectively be a ``once a SEG, always a SEG regardless of
common bond'' policy allowing a multiple common bond credit union to
retain those outside SEGs after it converts to a community charter.
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\38\ The ``grandfathered members and groups'' exception provides
that ``Notwithstanding [section 1759(b)]--(i) any person or
organization that is a member of any Federal credit union as of
August 7, 1998, may remain a member of the credit union after August
7, 1998; and (ii) a member of any group whose members constituted a
portion of the membership of any Federal credit union as of August
7, 1998, shall continue to be eligible to become a member of that
credit union, by virtue of membership in that group, after August 7,
1998.'' 12 U.S.C. 1759(c)(1)(A).
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The Administrative Procedure Act (``APA'') prohibits the Board from
adopting these four recommendations in the final rule because the
proposed rule did not introduce them for public comment, thus not
``provid[ing] sufficient factual detail and rationale for the rule to
permit interested parties to comment meaningfully.'' \39\ Nor is any of
the four recommendations a logical outgrowth of a proposal that was
introduced for public comment in the December 2015 proposed rule. As a
result, the public was not given reasonable notice and an opportunity
to address these commenters' recommendations.
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\39\ 5 U.S.C. 553(b)(3), 706(2)(A); United States Telecom Ass'n
v. Federal Communications Commission, 2016 WL 3251234 (slip op. page
10); CSX Transp., Inc. v. Surface Transp. Bd., 584 F.3d 1076 (D.C.
Cir. 2009); Ass'n of Private Sector Colleges and Univ. v. Duncan,
681 F.3d 427 (D.C. Cir. 2012).
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B. Rural District Definition
The Act does not mandate a population limit for a Rural District.
However, to qualify as a Rural District, the existing rule restricts
the area's total population to 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.\40\ In addition,
either at least 50 percent of the proposed Rural District's population
must reside in geographic units the Census designates as ``rural,'' or
the proposed Rural District's population density cannot exceed 100
persons per square mile.\41\
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\40\ Appendix B, Ch. 2, Sec. V.A.2.
\41\ Id.
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1. Population Limit. The proposed rule modified the present Rural
District definition to increase the population limit from 250,000 to 1
million persons to ensure that the population of a Rural District is
sufficient to provide a level of operating efficiencies and scale that
would make the area attractive as a strategic option, and to facilitate
credit unions' statutory responsibility to provide consumers, including
persons of modest means who may reside in rural areas, with access to
our national system of cooperative credit. The proposed rule also
omitted as redundant the alternative population limitation of 3 percent
of the population of the state in which the majority of the Rural
District's residents would be located.
Nearly all of the credit union-affiliated commenters who addressed
the proposed population increase to 1 million supported it, provided
the Board does not eliminate the population cap on Rural Districts
altogether. They dismissed the cap as superfluous in view of other
qualifying criteria--the existing minimum population density and
``rural'' designation options and, if it were adopted, the multi-state
expansion limit. They further contend that the characteristics of a
Rural District do not change much as its population fluctuates.
Conversely, one commenter conditioned its support for a 1 million
population cap on elimination of the population density criterion,
arguing that (at 100 persons per square mile) it is unduly low in any
case.
Others believed that the sole criterion to qualify as a Rural
District should be a credit union's ability to serve the area, as
demonstrated by business and marketing plans, including via online
services to members. To expand a Rural District, these commenters urged
that the decisive factor should be evidence of the contiguous area's
economic and social ties to the pre-expansion Rural District. One
commenter suggested permitting an area to qualify as a Rural District
so long as the Census does not classify it as either an ``urban area''
or
[[Page 88417]]
an ``urban cluster.'' \42\ Instead of relying on ``rural'' versus
``urban'' distinctions, another commenter urged the Board to treat a
Rural District the same as the final rule treats an adjacent area
addition to a community, i.e., allow the use of a narrative to
demonstrate interaction and common interests among proposed Rural
District residents.
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\42\ For Census identification of ``urban areas'' and ``urban
clusters,'' see https://www.census.gov/geo/reference/ua/urban-rural-2010.html.
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Apart from the preference to eliminate the Rural District
population cap, several commenters predicted that a 1 million
population cap would open up consumer choice for a cooperative form of
financial institution, helping credit unions to serve the low wage
workers who dominate certain rural markets. Others emphasized the
difficulty of delineating the borders of a Rural District versus an
urban community, due to scattered population hubs and widely dispersed
individuals and businesses, and urged the Board to modify its rules to
facilitate credit union service to those areas.
Six bank-affiliated trade associations objected to the proposal
because it quadrupled the Rural District population cap. These
commenters stated that the proposal was an unreasonable interpretation
of the statutory terms ``rural'' and ``local.'' They expressed concern
that credit unions will exploit the increased population cap to combine
densely populated and thinly populated areas into a single area to meet
the population density limit, and to create state-wide fields of
membership.
To limit Rural District expansions, one commenter urged NCUA to
require the majority of persons within a proposed Rural District to
reside in geographic units the Census designates as ``rural.'' Another
commenter opposed the use of similar Consumer Financial Protection
Bureau (``CFPB'') designations of ``rural'' counties, which would
qualify approximately 3 out of 4 counties in the commenter's state for
a Rural District expansion, believing that such a result would exceed a
reasonable interpretation of ``local'' and ``rural.'' On the assumption
that the Act requires a Rural District to be ``local,'' a commenter
maintained that ``a Rural District encompassing a large region
inherently would lack interaction or common interests among residents
and thus inconsistent with the Act.''
These views rely on a pair of misconceptions: That ``local'' as
used in section 1759(b) and (g) modifies ``rural district,'' when in
fact it does not; and that a ``local'' area and a ``rural'' area
necessarily share similar characteristics, which they inherently do
not. In any case, a Rural District by its very nature typically covers
an area that is too large to be considered ``local.''
As the proposed rule explained, a Rural District must have a
population sufficient to enable it to provide a level of operating
efficiencies and scale that will make it attractive to credit unions as
a strategic option. In that regard, a commenter questioned why a
population of 1 million is needed to achieve that objective when,
according to the commenter, community banks manage to serve far fewer
than 1 million people located in rural areas. Another commenter
expressed concern that NCUA will exploit the need for ``operating
efficiencies'' to raise the Rural District population cap beyond 1
million.
Having considered the comments addressing the Rural District
population cap, the Board has decided to set the rural district
population cap at 1 million, as proposed. The Board believes this
higher limit will achieve a ``balance . . . between permitting rural
districts to be large enough to be economically viable but not
unreasonably large taking into account the purpose of the rural
district,'' \43\ and will bring affordable financial services to
portions of the country that would not otherwise meet the requirements
of a WDLC.
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\43\ 78 FR 13460, 13462 (Feb. 28, 2013).
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A higher population cap is supported by the Board's experience
since 2013 with eight credit unions, in four different states, serving
Rural Districts with an average population of 536,646.\44\ The ability
of these credit unions to bring affordable financial services to more
populated areas has convinced the Board that a population cap should
permit additional growth opportunities in rural areas. These
opportunities would assist credit unions located in areas where
residents are unable to readily interact or share common interests to
support a WDLC--which is subject to a much higher population cap--even
though these residents need access to affordable financial services.
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\44\ Each of these eight Rural Districts was approved under the
existing rule despite a population in excess of 250,000 because, in
each case, its population was less than 3 percent of the population
of the state in which the majority of the Rural District's residents
were located.
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The existing rule provides an alternative population limit of 3
percent of the population of the state in which a majority of a rural
districts residents are located. Under that alternative, the Board has
approved 8 rural districts above the general population limit of
250,000. Moreover, that alternative already allows a rural district
with a population of at least 1 million in one state, and of at least
800,000 in another. Having set a 1 million precedent in one state, the
purpose of the alternative limit also justifies a fixed 1 million
population cap for the other 49 states--a high enough cap to
accommodate not only the hub area within a rural district, but also the
surrounding population of potential members, to support the rural
district's economic viability.
In view of this objective, a 1 million cap is appropriate because
it strikes an appropriate balance between economic viability and an
excessive population. It also leaves credit unions that already serve a
Rural District, as well as those that would consider doing so,
sufficient flexibility going forward to maintain economic viability and
to maximize penetration of the potential membership base.
Most importantly, an increased cap will enhance consumer access to
our national system of cooperative credit, particularly those of modest
means in rural areas, who may otherwise lack access to a not-for-profit
cooperative credit union. In this regard, the Board finds it compelling
that in 97 percent of non-metropolitan counties, more than 50 percent
of the population is either low, moderate, or middle income.\45\
Accordingly, the final rule increases the Rural District population cap
to 1 million, while still requiring credit unions to demonstrate an
intent and ability to serve the entire area.
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\45\ https://www.ffiec.gov/geocode/help3.aspx
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Bank-associated commenters speculated that larger regions would
lack interaction or common interests among their residents. What these
commenters overlook is that these defining characteristics of a WDLC do
not apply to a Rural District. Rather, primarily due to the sparsely
distributed population in rural areas,\46\ the defining characteristic
of a Rural District necessarily is population density.
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\46\ 74 FR 68722, 68723 (December 29, 2009).
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The Board believes that increasing the population limit on rural
districts is warranted by the contemporary economic realities of
serving sparsely populated areas. The penetration rate among community
charters typically is five percent. As a result, for a credit union
serving a rural district to thrive, a sufficiently large population
base is essential to enable it to offer financial services
economically. Although some commenters believe that the higher limit
would give credit unions an unfair
[[Page 88418]]
competitive advantage, the reality is that credit unions in rural
districts are subject to restrictions on who they may serve, unlike
other types of financial institutions. The Board believes that the
objective of expanding opportunities for credit unions to serve more
consumers in rural areas outweighs any perceived impact on competition.
The Board's concern about excessive expansion of rural districts is
addressed below.
2. Multi-State Expansion Limit. The existing rule permits the
expansion of a Rural District beyond the boundaries of the state in
which the FCU maintains its headquarters. To achieve consistency with
Census recognition of expansive rural areas while appropriately
limiting multi- state expansion, the proposed rule revised the present
Rural District definition (population limit plus either sparse
population density or a ``rural'' designation) to confine a Rural
District's expansion to the boundaries of the states that are
immediately contiguous to the state in which the FCU approved to serve
the Rural District is headquartered (i.e., not to exceed the outer
perimeter of the layer of states immediately bordering the headquarters
state).
Relatively few commenters addressed the proposed multi-state
expansion limit. Some of the credit union-affiliated commenters opposed
the multi-state expansion limit as redundant, suggesting that it should
be eliminated in view of the population cap, which would function as an
appropriate check on overexpansion. Conversely, others advocated
retaining the multi-state expansion limit, provided the population cap
on Rural Districts is eliminated. One commenter urged that the sole
criterion for approving a Rural District should be the credit union's
ability to serve an area lacking in access to credit union service,
including by technological means. The few bank commenters who addressed
the proposed multi-state expansion limit opposed the concept of multi-
state Rural Districts altogether, dismissing it as a means to
effectively allow state-wide and multi-state FOMs.
In contrast to these comments, the Board's purpose is to have dual
limitations that each serve a unique purpose--one on population, the
other on geographic area size. Therefore, having considered the
comments addressing the proposed multi-state limit on Rural District
expansions, the Board has decided to adopt it without alteration in the
final rule. Accordingly, the final rule provides that, to qualify as a
Rural District, an area's boundaries must ``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).'' \47\
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\47\ Appendix B, Ch. 2, Sec. V.A.2.
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C. Underserved Areas
The Act authorizes the 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.\48\ To
qualify as ``underserved,'' an area must, among other criteria, be
``underserved . . . by other depository institutions . . ., based on
data of the Board and the Federal banking agencies.'' \49\ In the
absence of a specific test or criteria to assess such ``underservice,''
the Board developed a ``concentration of facilities ratio'' (``COF
ratio'') \50\ that it has relied upon to determine whether a proposed
area is underserved by other depository institutions.
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\48\ 12 U.S.C. 1759(c)(2).
\49\ Id. Sec. 1759(c)(2)(A) citing id. Sec. 461(b)(1)(A). The
Act relies on the Community Development Banking and Financial
Institutions Act to define ``depository institution.'' Id. Sec.
4702(16). By definition, a ``depository institution'' is insured and
includes credit unions. Id. Sec. 461(b)(1)(A)(iv).
\50\ 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. Appendix B, Ch.3,
Sec. III.B.3. 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. To prevent
dilution and distortion of the COF ratio, as well as to strictly adhere
to the letter and the spirit of the ``depository institutions''
definition,\51\ the proposed rule excluded non-depository banks (e.g.,
trust companies, which do not accept deposits from the general public)
\52\ and non-community credit unions (e.g., multiple common bond credit
unions other than those already serving an Underserved Area) from the
COF ratio. By definition or in practice, neither is capable of serving
the general public of a proposed Underserved Area.
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\51\ 12 U.S.C. 461(b)(1)(A).
\52\ As identified in FDIC's ``Summary of Deposits Survey,''
e.g., https://www.fdic.gov/news/news/financial/2015/fil15024.pdf.
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Of the commenters who specifically addressed the proposed non-
depository bank and non-community credit union exclusions from the COF
ratio, most opposed the COF concept altogether, denouncing it as:
Flawed, unduly cumbersome and incapable of producing a meaningful
analysis; the cause of unnecessary disapprovals; and a disincentive to
serve an Underserved Area.\53\ However, assuming the Board would retain
the COF ratio, 41 credit union-affiliated commenters supported both
exclusions.
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\53\ As the Board explained when it proposed the COF ratio:
``CUMAA did not specify a methodology for determining whether a
proposed area meets the `underserved . . . by other depository
institutions' test; instead, it broadly refers to unspecified `data
of the [NCUA] Board and the Federal banking agencies.' 12 U.S.C.
1759(c)(2)(A)(ii). In the decade since CUMAA, raw data has
accumulated within government on branch locations and the volume of
business in certain products and services, but meaningful and
reliable data on these points has only recently become readily
accessible. This data makes it possible to quantify and compare the
presence of financial institution facilities in a given area. The
proposed rule suggests [the COF ratio as] a flexible methodology
that relies on publicly available population data and data on the
location of financial institution branches.'' 73 FR 34366, 34369
(June 17, 2008). See also 73 FR 73392, 73396 (Dec. 2, 2008).
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Other commenters urge that once a Government agency designates an
area as ``underserved,'' the Board should not require the FCU to also
demonstrate that the area is ``underserved by other depository
institutions'' (even though the Act mandates exactly that); should
disregard the number of depository institutions already serving the
area (even though the Act mandates the opposite); and should exempt
underserved areas from the population cap that applies to a CBSA. These
commenters maintained that greater flexibility concerning Underserved
Area criteria would reduce burden--presently a disincentive for credit
unions to expand service to an Underserved Area. However, these
commenters overlooked the Act's explicit requirement that an area be
``underserved by other depository institutions'' \54\ regardless of the
other statutory criteria, in order to qualify as an Underserved Area.
---------------------------------------------------------------------------
\54\ 12 U.S.C. 1759(c)(2)(A)(ii).
---------------------------------------------------------------------------
One commenter asked the Board to clarify how shared branches would
count to determine whether an area is ``underserved by other depository
institutions'' (i.e., whether each shared branch participant counts as
an individual depository institution, or the shared branch as a whole
counts as a single depository institution regardless of the number of
participating institutions). As an incentive to serve Underserved
Areas, another commenter asked the Board to develop and make public a
list of Underserved Areas that qualify under the applicable criteria
(effectively pre-approving them) in
[[Page 88419]]
order to conserve the resources credit unions otherwise must devote to
identifying Underserved Areas.
Although many bank-affiliated commenters opposed the concept of the
COF ratio altogether, one supported the proposed exclusions. Having
considered the comments addressing the proposed exclusions from the COF
ratio, the Board considers the proposal an appropriate improvement and,
therefore, implements both exclusions in the final rule.
2. Alternatives to Identify Areas ``Underserved by Other Depository
Institutions.'' As alternatives to using the COF ratio to assess
whether a proposed area is underserved by other depository
institutions, the proposed rule permitted use of ``underserved county''
designations by the CFPB,\55\ as well as a metric of a credit union's
own choosing provided it is based on NCUA or other Federal banking
agency data.\56\ In addition, the proposed rule invited commenters to
identify other methodologies and Federal banking agency data that would
be useful to objectively determine whether an area is ``underserved by
other depository institutions.''
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\55\ CFPB's annual ``Rural or underserved counties list'' does
not segregate ``rural'' and ``underserved'' counties. Therefore,
NCUA will use the data collected by CFPB to produce and make
available a list that identifies ``underserved areas'' exclusively.
\56\ E.g., FDIC ``Summary of Deposits Survey,'' supra note 51.
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Credit union-affiliated commenters suggested various metrics to use
in addition to, or instead of, the COF ratio to assess the existing
level of service by depository institutions already present in a
proposed Underserved Area. These included the CFPB's ``underserved''
county designations, and Home Mortgage Disclosure Act (``HMDA'') data
indicating the number of depository institutions that meet a minimum
ratio of mortgage loans extended to residents within an area versus
borrowers from outside, and to persons below a certain credit score
limit. In many cases, the suggested metric is generic because the
commenter did not specify the data the metric would rely on and/or the
source of the data.\57\ A single bank commenter opposed the use of
alternative metrics altogether, finding it inappropriate to allow
credit unions to rely on a metric of their own choosing.
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\57\ E.g., U.S. Department of Agriculture data; Pew Research
Center reports; changes in an area's characteristics between
decennial Censuses; local economic factors; local poverty rates;
local unemployment rate; local median family income; and reports and
surveys an applicant credit union itself develops.
---------------------------------------------------------------------------
Having considered the comments suggesting alternative metrics to
determine whether a proposed area is underserved by other depository
institutions, the Board has decided to accept the CFPB's ``underserved
county'' designations as a proxy for a determination of
``underservice.'' The Board also will consider an FCU-chosen metric,
provided it is based on NCUA or Federal banking agency data. An example
of such a metric would be relevant data from the publicly available
reports of Community Reinvestment Act examinations conducted by the
Federal Deposit Insurance Corporation (``FDIC''), the Office of the
Comptroller of the Currency or the Board of Governors of the Federal
Reserve System, or from HMDA data collected by these agencies.\58\
---------------------------------------------------------------------------
\58\ 12 U.S.C. 2902(2)
---------------------------------------------------------------------------
Accordingly, the final rule provides that ``a proposed area will
qualify as `underserved by other depository institutions' if it is
designated as, or is within, an `underserved county' according to data
produced by the CFPB. . . . NCUA will make a list of `underserved
counties' available on its Web site.'' \59\ Alternatively, the final
rule permits a credit union to submit for approval ``a metric of its
own choosing that is based on NCUA or other Federal banking agency
data, [that] establishes to NCUA that the proposed area is `underserved
by other depository institutions.' \60\
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\59\ Appendix B, Ch. 2, Sec. III.B.3.
\60\ Id.
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3. Commenters' Recommendations in Response to the Proposed Rule. In
response to the proposed rule, a few commenters initiated Underserved
Area recommendations of their own. The Board can adopt a regulatory
proposal only when, and to the extent, it is authorized by law, and
then only if it is supported by rational and reasonable policy
conclusions as reflected in the rulemaking record.\61\
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\61\ 5 U.S.C. 706(2)(A).
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The first commenter recommendation was that the Board, by
regulation, permit any charter type to add an Underserved Area, whereas
the existing rule permits only a multiple common bond credit union to
do so. To allow any charter type to serve an Underserved Area would
require Congress to amend the Act, which presently limits Underserved
Area additions to FCUs in the ``the field of membership category of
which is described in [section 1759(b)(2)],'' i.e., exclusively a
``multiple common-bond credit union.'' \62\ Pending such an amendment
to the Act, the Board lacks the authority to adopt the recommendation
to allow any charter type to add an Underserved Area.
---------------------------------------------------------------------------
\62\ 12 U.S.C. 1759(c)(2).
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The second commenter recommendation was that the Board permit
``other technical means,'' beyond what the existing ``service
facility'' definition permits, to meet the Act's explicit mandate that
a credit union ``establish and maintain an office or facility in'' the
Underserved Area it is approved to serve.\63\ For the Board to depart
from this statutory mandate would require Congress to amend the Act to,
for example, substitute ``to serve'' for the word ``in.'' Pending such
an amendment to the Act, the Board lacks the authority to adopt the
recommendation to permit a transactional Web site to qualify as a valid
service facility within an Underserved Area.
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\63\ Id. Sec. 1759(c)(2)(B) (emphasis added). The Board
authorized video teller machines in an opinion letter dated August
6, 2012, at: https://www.ncua.gov/regulation-supervision/Pages/rules/legal-opinions/2012/0965.aspx.
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D. Multiple Common Bond
As amended in 1998, the 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, provided each has its own common bond among group members.\64\
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\64\ 63 FR 71998, Dec. 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'' via Members' Online
Access to Services. When it is either impracticable or inconsistent
with reasonable standards of safety and soundness for a group to form a
stand-alone single common bond credit union, the Act requires
``inclusion of [a new] 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.'' \65\ Solely to meet the
``reasonable proximity'' requirement, the Board proposed revising the
definition of a ``service facility'' to include online internet access
in the form of a transactional Web site that gives members of added
occupational or associational groups access to their credit union's
products and services.\66\
[[Page 88420]]
The Board noted the significant benefits of access via an electronic
service facility, namely that it would put multiple common bond credit
unions in parity with their depository institution competitors, and
would permit them to keep pace with advances in technology that enable
more efficient delivery of products and services to their members.
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\65\ 12 U.S.C. 1759(f)(1)(B) (emphasis added).
\66\ The revised definition 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. Nor would the revised definition 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].''
\66\ 12 U.S.C. 1759(c)(1)(B).
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Scores of credit union commenters supported the proposal to modify
the definition of service facility to permit use of a transactional Web
site to achieve reasonable proximity between a multiple common bond
credit union and members of its added groups. These commenters
contented that the proposal is within the Board's authority to
interpret the Act. As a practical matter, the commenters asserted that
online proximity reflects the large and growing role of modern
financial technology, making geographic location and physical branches
less representative of the scope of a credit union's service area.
Online access would allow FCUs to efficiently meet their members' needs
and expectations.
Commenters stated that while an FCU's physical presence
conveniently close to the groups it served may have been a practical
necessity in the past, evolving technology has expanded the menu of
options members have to interact with their financial institution,
effectively putting them in close proximity regardless of geographic
location. In contrast, scores of bank commenters opposed the proposal
to amend the definition of service facility to include online access.
They claimed that the proposal exceeds the Board's statutory authority
and is inconsistent with Congressional intent, in that an online
internet channel would ``effectively remove the statutory requirement
that a multiple common bond FCU be in a `reasonable proximity to the
location of the group.'' Moreover, they criticized the proposal as
inconsistent with NCUA's prior interpretation of ``reasonable
proximity'' as mandating an FCU branch office or mobile office
physically near the group to be added. One commenter recommended that
NCUA study the effect of the proposal on the wider financial services
industry.
The Board has considered the comments addressing the proposal to
modify the definition of service facility to permit use of a
transactional Web site to achieve ``reasonable proximity'' between a
multiple common bond credit union and members of its added groups.
Notwithstanding certain merits of the proposal, the Board has decided
to defer action on it at this time, consistent with an incremental
approach to introducing the other FOM modifications adopted in the
final rule, thus permitting credit unions to acclimate to them. The
Board will further study the impact of the proposal.\67\ However, this
decision does not detract from the Board's belief in the utility of on-
line access to facilitate transactions between credit unions and their
members generally.
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\67\ The Board notes that a shared branch or other facility can
be used as an alternative to meet the ``reasonable proximity''
requirement.
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2. Inclusion of Select Employee Group Contractors in a Multiple
Common Bond. The proposed rule extended to multiple occupational common
bond credit unions the ability (that single common bond credit unions
already have) \68\ to add persons who work regularly for an entity that
is under contract to any of the SEG sponsors listed in a credit union's
charter, provided there is a ``strong dependency relationship'' between
the contractor and the SEG sponsor in each case.
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\68\ Appendix B, Ch. 2 Sec. II.A.1.
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Scores of FCU commenters supported this proposal, believing that it
better reflects today's modern workforce, in which it is not uncommon
for businesses to outsource work to contractors whose employees,
although not directly employed by a SEG sponsor, are integral to the
sponsor's functioning and operations. In some cases, the employees of
an independent contractor have worked for a SEG sponsor longer than
many of the sponsor's own employees, who were eligible for membership
from the outset of their employment. As many commenters pointed out,
there is no functional distinction between a single and multiple common
bond credit union for purposes of recognizing the occupational common
bond between a SEG sponsor's own employees and those of its contractors
with whom they work.
These commenters noted that the proposal would allow greater
flexibility for potential members to join an FCU, thus easing or
eliminating unnecessary administrative burdens and restrictions on
FCUs. As a result, they claimed that this proposal would help to expand
the multiple common bond membership base nationally, thereby making
affordable financial services available to more American consumers.
In contrast, bank commenters opposed the contractor eligibility
proposal, arguing that it is inconsistent with the Act and its
legislative history to include within a SEG the employees of its
sponsor's contractors. They asserted that the Act favors the formation
of single common bond credit unions.
Having considered the comments addressing inclusion of SEG
contractors in a multiple common bond, the Board has determined that
the proposal not only is consistent with the statute, but reflects the
modern economy's increasing reliance on contractors. Specifically, the
Board notes the proposal's consistency with the Act's provisions
requiring a stand-alone feasibility assessment above the 3000 member
threshold. The strong mutual dependency of a SEG sponsor and its
contractor on each other effectively cements the single common bond the
sponsor's employees and the contractor's employees share with each
other.
Despite the Act's preference for the formation of single common
bond credit unions, the Act expressly permits a multiple common bond
addition when a group cannot reasonably establish a single common bond
credit union, or likely would be unable to successfully manage and
sustain such a credit union.\69\ The addition of a contractor's
employees to a SEG consisting of the sponsor's employees with whom they
work is consistent with that approach. Accordingly, the final rule
provides that a multiple occupational common bond credit union may add
persons who work regularly for an entity that is under contract to any
of the SEG sponsors listed in the credit union's charter, provided
there is a ``strong dependency relationship'' between the contractor
and sponsor. To extend to multiple common bond credit unions the
ability that single common bond credit unions already have to add
persons who work regularly for an entity under contract to its sponsor
advances the Board's goal to enable parallel functioning between single
and multiple common bond credit unions whenever feasible and consistent
with the Act.
---------------------------------------------------------------------------
\69\ 12 U.S.C. 1759(f)(1)(B).
---------------------------------------------------------------------------
Some commenters requested the Board to define what constitutes a
``strong dependency relationship'' between a SEG sponsor and its
contractor, but cautioned against requiring either SEG sponsors or
their contractors to disclose trade secrets or confidential financial
information. Some suggested permitting an FCU to pledge in good faith
that it can
[[Page 88421]]
document a ``strong dependency relationship'' between each SEG's
sponsor and the sponsor's contractor in accordance with the particulars
of the industry in which they operate. Reflecting the Board's
preference for a more objective standard, the final rule defines a
``strong dependency relationship'' between a SEG sponsor and the
sponsor's contractor to mean that both rely on each other as measured
by a pattern of regularly doing business with each other, for example,
as documented by the number, the term length and the dollar volume of
prior and pending contracts between them. The Board intends the
``strong dependency'' standard to be determined by credit unions
themselves, so as to create a rebuttable presumption that the sponsor's
employees and those of the contractor share a single common bond, as
the Act requires. NCUA's Office of Consumer Protection, or its
successor, anticipates issuing further guidance to clarify what
documentation will be acceptable to confirm a contractual relationship
based on a pattern of regularly doing business.
3. Multiple Common Bond of Office/Industrial Park Employees. The
existing rule expressly permits a community charter to consist of
persons who are employed within an office or industrial park.\70\ As an
alternative to such a community charter, the proposed rule expressly
permitted a multiple common bond credit union to combine in a single
SEG all the employees of a park's business and retail tenants (e.g.,
within a shopping mall, an office building or an office complex),
provided each tenant has fewer than 3000 employees working regularly at
a facility within the park--effectively a SEG consisting of park
tenants themselves rather than their employees.
---------------------------------------------------------------------------
\70\ Appendix B, ch. 2 Sec. V.A.7.
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About a dozen credit union commenters specifically addressed the
tenants' SEG proposal, generally favoring it as an enhancement of an
FCU's ability to serve multiple businesses within an office/industrial
park by leveraging its resources to provide more value to its
membership. Specifically, the proposal enabled an FCU to use a park's
tenant base to more efficiently identify and offer services to
employees of businesses within the park.
Critics of the proposal included some credit unions and several
banks that believed the proposal would create an impermissible
``hybrid'' charter that combined community and occupational common bond
characteristics. Specifically, these commenters believed such a charter
would make a SEG out of a group (i.e., employees of a park's retail and
business tenants) that is more properly characterized simply as persons
who work in a geographically based community. These commenters
emphasized that the Act prescribes distinct criteria for groups sharing
an occupational versus an associational common bond.\71\ The opponents
also questioned the justification for this proposal beyond
administrative convenience.
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\71\ As set forth in the Chartering Manual, the criteria of an
occupational common bond are: (1) Employment in a single
corporation, (2) employment in a corporation with a controlling
interest in or by another legal entity, (3) employment in a
corporation which is related to another legal entity (such as a
company under contract and possessing a strong dependency
relationship with another company); (4) employment or attendance in
a school, or (5) employment in the same Trade, Industry or
Profession. Appendix B, ch. 2, Sec. II.A.1.
---------------------------------------------------------------------------
Having considered the comments addressing the tenants' SEG
proposal, the Board believes it is appropriate to give the employees of
a park's tenants the option to join a multiple common bond credit
union. However, a SEG sponsored by a landlord and consisting of its
tenants (as opposed to the landlord's own employees) unequivocally
lacks the essential occupational common bond due to the lack of an
employment relationship between the landlord and each tenant.
Notwithstanding this structural flaw, the existing rule's language and
its application in practice have convinced the Board that the rule
already permits a park's tenants, in each one's capacity as an
employer, to form a multiple occupational common bond credit union
combining each one's individual SEG.\72\
---------------------------------------------------------------------------
\72\ Appendix B, ch. 1 Sec. XI.
---------------------------------------------------------------------------
Accordingly, in lieu of the tenant SEG proposal, the final rule
clarifies the current availability of the multiple common bond option
for employers within an industrial park, shopping mall, office park, or
office building (each a ``park'') by expressly specifying it as an
example within the rule; no rule change is required.\73\ Consistent
with the Act's stand-alone feasibility exemption for groups with fewer
than 3000 members,\74\ each park tenant's SEG must have fewer than 3000
employees who work at a facility within the park, each of whom would be
eligible for FCU membership only for so long as he/she regularly works
there.\75\ This existing multiple common bond option creates neither a
new charter type nor an impermissible hybrid community/multiple group
charter; rather, it gives FCUs a choice between either distinct charter
type to serve an office/industrial park.
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\73\ To facilitate the formation of multiple SEGs among a park's
retail and business tenants, a multiple common bond credit union
could rely on a letter from an authorized representative of the
park, such as its leasing agent, to identify each incoming tenant
capable of forming its own SEG, and to give notice of the departure
of an existing SEG's sponsor from the park, thus discontinuing its
SEG.
\74\ 12 U.S.C. 1759(d)(2)(A).
\75\ Appendix B, ch. 2, Sec. IV.A.1.
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4. Streamlined Documentation to Assess Stand-Alone Feasibility of
Groups of 3000 or Greater. The proposed rule streamlined NCUA's process
for assessing the stand-alone feasibility of a group of 3000 or more
members (``>=3000 group'') that seeks to be added to the FOM of an
existing multiple common bond credit union, instead of forming a single
common bond credit union. A group of fewer than 3000 members (``<3000
group'') is subject to the existing process under the Application for
Field of Membership (NCUA form 4015 EZ). A group between 3000 and 5000
is required to document its inability to form a credit union of its own
based on evidence of a lack of available subsidies, disinterest among
the group's members, and an overall lack of sufficient resources (NCUA
form 4015-A). Groups with more than 5000 members are subject to the
existing standard application process, requiring a group to fully
describe its inability to establish a new single common bond credit
union (NCUA form 4015). The proposed rule invited comments on whether
to increase the 5000 member threshold that triggers the standard
application process.
Scores of comments, both in support and in opposition, addressed
the proposal to streamline the documentation requirement to assess the
stand-alone feasibility of >=3000 groups. Credit union commenters
generally favored the proposal, but requested modifications,
particularly to increase the membership threshold and the method of
quantifying group size. Most commenters recommended increasing the
threshold to 5000, while others recommended increasing it to as many as
20,000 members. One commenter recommended eliminating a numerical
threshold completely. Further, many credit union commenters recommended
evaluating the stand-alone feasibility criteria using the number of
actual rather than potential members. Acknowledging the Board's initial
rationale for the streamlined approach--that 80 percent of failures
occur among FCUs with fewer than
[[Page 88422]]
5000 actual members \76\--certain supporters urged NCUA to consider the
safety and soundness consequences and the risk to the Insurance Fund of
insisting that groups between 3000 and 5000 members form their own
credit unions. They suggested that NCUA's goal should be to charter
FCUs that are most likely to survive.
---------------------------------------------------------------------------
\76\ 80 FR at 76754.
---------------------------------------------------------------------------
Several bank commenters criticized the proposal, claiming that it
violates the Act and is inconsistent with the legislative history.
These commenters stated that, with limited exceptions, the Act
expressly limits to 3000 members the size of a group that can be added
to an existing multiple common bond credit union. The commenters were
concerned that the proposal's practical effect would be to unilaterally
increase the numerical limitation prescribed by law.
In contrast, credit union commenters insisted that the proposal is
within the Act's statutory authority because it does not obviate the
requirement that a >3000 group demonstrate its inability to establish a
new single common bond FCU. In their view, it allows NCUA to accept a
group's statement of inability to form a stand-alone credit union in
lieu of full supporting documentation. To the extent such documentation
is absent, they noted that NCUA retains the ability to reject or to
further investigate a group's statement of inability to form a stand-
alone credit union.
Having considered the comments addressing the streamlined
documentation proposal for assessing the stand-alone feasibility of
>3000 groups, it is clear that commenters opposing the proposal relied
on a fundamental misconception--that the proposal would alter the 3000
member stand-alone feasibility threshold mandated by the Act. On the
contrary, the final rule merely reduces the documentation required,
depending on group size, to support a stand-alone feasibility
determination, while continuing to honor both the 3000 member
feasibility threshold and the feasibility criteria that the Act
prescribes. Further, streamlining the required documentation is a
response to complaints to the agency from multiple common bond credit
unions that the excessive paperwork demand on groups they seek to add
has been a disincentive to those groups, causing them to withdraw in
frustration.
Certain credit unions urged the Board to increase the threshold
above 5000, if based on potential members or, if left at 5000, to base
it on actual members. These commenters did not provide a compelling
justification for adjusting this amount at this time. On the contrary,
the Board has determined that the proposed 5000 member threshold is
appropriate at this time, believing that it represents the minimum
number of potential members needed for a credit union to maintain long-
term economic viability.
The process of applying the statutory stand-alone feasibility
criteria is identical under both the streamlined documentation and the
standard approaches. In either case, the Board would review a >3000
group's application and determine whether to accept or reject it, or to
request additional supporting information. Accordingly, the streamlined
documentation proposal is consistent with the Act's stand-alone
feasibility mandate.
5. Commenter-initiated Emergency Merger Proposal. To facilitate
mergers between credit unions with unlike common bonds, several
commenters recommended a variety of approaches for relaxing, if not
effectively disregarding, the statutory standard authorizing an
emergency merger free of the FOM constraints the Act otherwise imposes.
``Notwithstanding any other provision of law,'' including the FOM
limitations it may impose, the Act permits the Board to authorize the
merger of an insured credit union (or a purchase and assumption of its
assets) provided the credit union is ``insolvent or is in danger of
insolvency.'' \77\ Given that this explicit, objectively measurable
``insolvency'' standard is expressly imposed by the Act, the Board is
bound by it no matter what other circumstances it would consider to
warrant a merger of unlike common bonds. Within that standard, the
Board retains discretion to define ``danger of insolvency,'' e.g., in
terms of imminence, as the existing rule does according to time
increments (between 12 and 36 months) pending a credit union's
declining net worth classification.\78\ The Board will, in a separate
rulemaking, consider alternative approaches to define the ``danger of
insolvency'' prerequisite for an emergency merger of unlike common
bonds.
---------------------------------------------------------------------------
\77\ 12 U.S.C. 1785(h).
\78\ Appendix B, Ch. 2, section II.D.2. (glossary definition of
``danger of insolvency'').
---------------------------------------------------------------------------
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.\79\ To recognize the
contributions of those who have served in the United States Armed
Forces, and to give them the benefit of access to credit union service
following active duty, the proposed rule permitted a credit union to
include as an affinity group within its common bond the honorably
discharged veterans of any branch of the United States Armed Forces
listed in its charter.
---------------------------------------------------------------------------
\79\ Appendix B, Ch.2, sections II.H., IV.H., and Appendix 1
(glossary definition of ``affinity'').
---------------------------------------------------------------------------
Credit union commenters uniformly favored this proposal for
recognizing not only the affinity that veterans share with their own
active duty branch of service, but the affinity among active duty and
retired military personnel generally. Some commenters supported the
proposal as a means to protect military veterans from unscrupulous
lenders. Another opposed it as too expansive, contending that it would
justify membership eligibility for retirees of other organizations
within an FOM. Conversely, yet another commenter advocated expanding
the proposal to grant membership eligibility based upon the affinity
of, for example, retired federal employees and retired teachers. The
single bank commenter who addressed this proposal was concerned that it
would enable individuals to use ``creative measures'' to join an FCU by
group affinity generally.
Having considered the comments addressing the proposal to extend
membership eligibility to honorably discharged military members, the
Board believes that it is appropriate due to the unique bond that
discharged veterans typically retain with their former branch of
service (e.g., via military-sponsored morale, welfare and recreational
associations). The Board emphasizes that such an affinity applies
exclusively to honorably discharged veterans; in contrast, membership
eligibility would be available to retirees of other groups, such as
teachers or federal employees within an FOM, only to the extent an
individual credit union permits it in its charter. Accordingly,
exclusively for ``Honorably discharged veterans who served in any of
the Armed Services of the United States listed in [a credit union's]
charter,'' the final rule automatically grants membership
eligibility.\80\
---------------------------------------------------------------------------
\80\ Appendix B, Ch. 2, Sec. II.H.
---------------------------------------------------------------------------
[[Page 88423]]
F. Inclusion of ``Strong Dependency'' Vendors and Suppliers in a Single
Common Bond Within a Trade, Industry or Profession
A single occupational common bond within a trade, industry or
profession (a ``TIP'') is based on employment by any number of
separately owned corporations or other legal entities that share a
common bond by reason of producing similar products, providing similar
services, sharing the same profession or trade, or participating in the
same industry.\81\ A TIP-based common bond requires a narrow
commonality of interests among the TIP entities' employees and a close
nexus among the entities themselves.\82\
---------------------------------------------------------------------------
\81\ 68 FR 18334, 18336 (April 15, 2003); Appendix B, ch. 2,
Sec. IIA.2.
\82\ Id.
---------------------------------------------------------------------------
The proposed rule clarified that the existing definition of a TIP-
based single common bond of occupation includes employees of entities
that have a strong dependency relationship on, and whose employees work
directly with employees of, other entities within the same industry, to
the extent that a significant, if not equal, economic impact is likely
if one were unable to continue in its operations without doing business
with the other.
Several credit unions favored the proposal to include ``strong
dependency'' vendors and suppliers in a TIP, stating that it would
provide regulatory relief in allowing TIP credit unions to reach
potential members more easily. One commenter welcomed the Board's
recognition that current employment practices frequently involve
outsourcing of work to independent vendors and suppliers under
contract. No commenter opposed the proposal.
Some commenters expressed a mistaken belief that the existing rule
restricts a TIP charter from serving the entire nation. On the
contrary, the existing rule imposes no geographic limitation on service
to the groups within a TIP. In fact, NCUA has approved several TIPs
whose groups span the whole nation.
Having considered the comments addressing the proposal to include
``strong dependency'' vendors and suppliers in a TIP, the Board has
decided to adopt it in the final rule.\83\ Further, at the request of
commenters, the final rule defines a ``strong dependency'' relationship
between TIP entities and their vendors and suppliers as a relationship
in which they rely on each other to the extent, for example, that the
absence of one likely would cause the other to suffer a material
decline in either revenue, functionality or productivity, among other
consequences.\84\
---------------------------------------------------------------------------
\83\ Appendix B, Ch. 2, section II.A.2.
\84\ Id.
---------------------------------------------------------------------------
G. Technical Updates
Since publishing the December 2015 proposed rule, the Board has
renamed the agency's Office of Consumer Protection as the Office of
Consumer Financial Protection and Access (``OCFPA''). Accordingly, the
final rule updates the agency's Chartering Manual to substitute OCFPA
in place of certain references to regional office and regional director
chartering responsibilities, and to substitute the Board Secretary for
the former Office of Consumer Protection in reference to appeals of
chartering decisions.\85\ The final rule also corrects statutory and
regulatory citations and cross-references in the Chartering Manual and
its appendices, and updates those appendices to reflect current
information and practices.
---------------------------------------------------------------------------
\85\ Appendix B, Ch. 2, sections II.C., II.C.6., III.C.,
III.C.6., IV.B., IV.B.5., V.C. and VII.D.
---------------------------------------------------------------------------
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.\86\ For purposes of this
analysis, NCUA considers small credit unions to be those having under
$100 million in assets.\87\ This rule is anticipated to economically
benefit FCUs that choose to expand their FOMs, but not to the extent
that it will affect a substantial number of small entities. In any
case, NCUA certifies that the rule will not have a significant economic
impact on small credit unions.
---------------------------------------------------------------------------
\86\ 5 U.S.C. 603(a).
\87\ See 80 FR 57512 (Sept. 24, 2015).
---------------------------------------------------------------------------
Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA'') \88\ applies to
collections of information through which an agency creates a paperwork
burden on regulated entities or the public, or revises existing
burden.\89\ For purposes of the PRA, a paperwork burden may take the
form of either a reporting, recordkeeping, or third-party disclosure
requirement, also referred to as information collections.
---------------------------------------------------------------------------
\88\ 44 U.S.C. 3501 et seq.
\89\ Id. Sec. 3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------
Notwithstanding any other provision of law, no person is required
to respond to, nor shall any person be subject to a penalty for failure
to comply with, a collection of information subject to the requirements
of the PRA, unless that collection of information displays a currently
valid OMB control number. This rule involves a collection of
information approved under OMB control number 3133-0015--Chartering and
Field of Membership Manual.
The final rule creates new strategic options for FCUs, while
requiring of them 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 (NCUA 4015-A)
within Appendix 4 to the Chartering and Field of Membership Manual that
condenses the application process that otherwise would apply to the
addition of certain groups to a multiple common bond FOM. Using this
condensed version will streamline the application process and will no
longer require completion of the Form 4015. By adding this option, no
new burden is realized with the addition of NCUA 4015-A.
Regarding a community common bond, the final rule permits a
community FCU to add an area adjacent to the perimeter of an existing
community consisting of a Single Political Jurisdiction, Core Based
Statistical Area or Combined Statistical Area, based upon a narrative
showing that residents on both sides of the perimeter interact or share
common interests. For that purpose, the rule identifies compelling
indicia of interaction or common interests that would be relevant in
developing and supporting a narrative to establish 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
evidence of interaction or common interests, and to develop and submit
a narrative summarizing the evidence to support its application to
expand, would create a new information collection requirement. In the
proposed rule, NCUA identified and described this new information
collection requirement, estimating the time it would take to comply,
and solicited commenters on the information collection aspects of the
proposed rule. The sole commenter who addressed the information
collection aspects of the proposed rule concluded without explanation
that it would double the existing paperwork burden. The burden outlined
in the December proposed rule revealed an increase of 26,160 hours due
to the new and revised information collection requirements. With this
estimated increase, the total burden
[[Page 88424]]
requested under OMB No. 3133-0015 is 44,223 hours.
Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. To
adhere 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 13132.
Assessment of Federal Regulations and Policies on Families
NCUA has determined that this final rule will not affect family
well-being within the meaning of Section 654 of the Treasury and
General Government Appropriations Act, 1999.\90\
---------------------------------------------------------------------------
\90\ Public Law 105-277, 112 Stat. 2681 (1998).
---------------------------------------------------------------------------
Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996
(Pub. L. 104-121) (``SBREFA'') provides generally for congressional
review of agency rules. A reporting requirement is triggered in
instances where NCUA issues a final rule as defined by Section 551 of
the Administrative Procedure Act.\91\ NCUA does not believe this final
rule is a ``major rule'' within the meaning of the relevant sections of
SBREFA, but as required, has submitted this final rule to OMB for its
determination.
---------------------------------------------------------------------------
\91\ 5 U.S.C. 551.
---------------------------------------------------------------------------
List of Subjects in 12 CFR Part 701
Credit, Credit unions, Reporting and recordkeeping requirements.
By the National Credit Union Administration Board on October 27,
2016.
Gerard S. Poliquin,
Secretary of the Board.
For the reasons stated above, NCUA amends 12 CFR part 701 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; \92\
---------------------------------------------------------------------------
\92\ 12 U.S.C. 1751 et seq.
---------------------------------------------------------------------------
To promote thrift and credit extension;
To promote credit union safety and soundness; and
To make quality credit union service available to all
eligible persons.
NCUA may grant a charter to single occupational/associational
groups, multiple groups, or communities if:
The occupational, associational, or multiple groups
possess an appropriate common bond or the community represents a
well-defined local community, neighborhood, or rural district;
The subscribers are of good character and are fit to
represent the proposed credit union; and
The establishment of the credit union is economically
advisable.
Generally, these are the primary criteria that NCUA will
consider. In unusual circumstances, however, NCUA may examine other
factors, such as other federal law or public policy, in deciding if
a charter should be approved.
Unless otherwise noted, the policies outlined in this manual
apply only to federal credit unions.
II--Types of Charters
The Federal Credit Union Act recognizes three types of federal
credit union charters-- single common bond (occupational and
associational), multiple common bond (more than one group each
having a common bond of occupation or association), and community.
The requirements that must be met to charter a federal credit
union are described in Chapter 2. Special rules for credit unions
serving low-income groups are described in Chapter 3.
If a federal credit union charter is granted, Section 5 of the
charter will describe the credit union's field of membership, which
defines those persons and entities eligible for membership.
Generally, federal credit unions are only able to grant loans and
provide services to persons within the field of membership who have
become members of the credit union.
III--Subscribers
Federal credit unions are generally organized by persons who
volunteer their time and resources and are responsible for
determining the interest, commitment, and economic advisability of
forming a federal credit union. The organization of a successful
federal credit union takes considerable planning and dedication.
Persons interested in organizing a federal credit union should
contact one of the credit union trade associations or the NCUA
regional office serving the state in which the credit union will be
organized. Lists of NCUA offices and credit union trade associations
are shown in the appendices. NCUA will provide information to groups
interested in pursuing a federal charter and will assist them in
contacting an organizer.
While anyone may organize a credit union, a person with training
and experience in chartering new federal credit unions is generally
the most effective organizer. However, extensive involvement by the
group desiring credit union service is essential.
The functions of the organizer are to provide direction,
guidance, and advice on the chartering process. The organizer also
provides the group with information about a credit union's functions
and purpose as well as technical assistance in preparing and
submitting the charter application. Close 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.
Willfully and knowingly making false statements on any of the
required documentation filed in obtaining a federal credit union
charter may be grounds for federal criminal prosecution under 18
U.S.C. 1001.
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 key
factor in determining whether a potential charter will have a
reasonable opportunity to succeed, is
[[Page 88425]]
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 Financial
Protection and Access 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 Financial Protection
and Access 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, to compete
in the marketplace, and to adapt to changing market conditions are
key to the survival of any enterprise. Before NCUA will charter a
credit union, a business plan based on realistic and supportable
projections and assumptions must be submitted.
The business plan should contain, at a minimum, the following
elements:
Mission statement;
Analysis of market conditions, including if applicable,
geographic, demographic, employment, income, housing, and other
economic data;
Evidence of member support;
Goals for shares, loans, and for number of members;
Financial services needed/desired;
Financial services to be provided to members of all
segments within the field of membership;
How/when services are to be implemented;
Organizational/management plan addressing qualification
and planned training of officials/employees;
Continuity plan for directors, committee members and
management staff;
Operating facilities, to include office space/equipment
and supplies, safeguarding of assets, insurance coverage, etc.;
Type of record-keeping and data processing system;
Detailed semiannual pro forma financial statements
(balance sheet, income and expense projections) for 1st and 2nd
year, including assumptions--e.g., loan and dividend rates;
Plans for operating independently;
Written policies (shares, lending, investments, funds
management, capital accumulation, dividends, collections, etc.);
Source of funds to pay expenses during initial months
of operation, including any subsidies, assistance, etc., and terms
or conditions of such resources; and
Evidence of sponsor commitment (or other source of
support) if subsidies are critical to success of the federal credit
union. Evidence may be in the form of letters, contracts, financial
statements from the sponsor, and any other such document on which
the proposed federal credit union can substantiate its projections.
While the business plan may be prepared with outside assistance,
the subscribers and proposed officials must understand and support
the submitted business plan.
V--Steps in Organizing a Federal Credit Union
V.A--Getting Started
Following the guidance contained throughout this policy, the
organizers should submit wording for the proposed field of
membership (the persons, organizations and other legal entities the
credit union will serve) to NCUA early in the application process
for written preliminary approval. The proposed field of membership
must meet all common bond or community requirements.
Once the field of membership has been given preliminary
approval, 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.
[[Page 88426]]
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. 5--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. 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 Financial Protection and Access Director regarding the
charter application. The recommendation may include specific
provisions to be included in a Letter of Understanding and
Agreement. In most cases, NCUA will require the prospective
officials to adhere to certain operational guidelines. Generally,
the agreement is for a limited term of two to four years. A sample
Letter of Understanding and Agreement is found in appendix 2.
VII.B--Office of Consumer Financial Protection and Access 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 Financial Protection and Access
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 Financial Protection and Access Director
Disapproval
When the Office of Consumer Financial Protection and Access
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
Financial Protection and Access Director will provide information
concerning options or suggestions that the applicant could consider
for gaining approval or otherwise acquiring credit union service.
The letter of denial will include the procedures for appealing the
decision.
VII.D--Appeal of Office of Consumer Financial Protection and Access
Director Decision
If the Office of Consumer Financial Protection and Access
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 Financial Protection and
Access 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 Financial Protection and Access Director for
reconsideration. A reconsideration will contain new and material
evidence addressing the reasons for the initial denial. The Office
of Consumer Financial Protection and Access Director will have 30
days from the date of the receipt of the request for reconsideration
to make a final decision. If the request is again denied, the
applicant may proceed with the appeal process within 60 days of the
date of the last denial. A second request for reconsideration will
be treated as an appeal to the NCUA Board.
VII.E--Commencement of Operations
Assistance in commencing operations is generally available
through the various credit union trade organizations listed in
appendix 5.
All new federal credit unions are also encouraged to establish a
mentor relationship with a knowledgeable, experienced credit union
individual or an existing, well-operated credit union. The mentor
should provide guidance and assistance to the new credit union
through attendance at meetings and general oversight. Upon request,
NCUA will provide assistance in finding a qualified mentor.
VIII--Future Supervision
Each federal credit union will be examined regularly by NCUA to
determine that it 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
[[Page 88427]]
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 are not governed by this manual, but instead
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
Financial Protection and Access.
XII--Foreign Branching
A federal credit union is permitted to serve foreign nationals
within its field of membership wherever such individuals reside if
management has the ability and resources to serve them. 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 or Office of National Examinations and
Supervision 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 addresses the membership requirements for each type
of charter.
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 apply to
each, which are fully discussed in the following sections of this
Chapter.
I.A. 2--Special Low-Income Rules
Generally, federal credit unions can only grant loans and
provide services to persons who have joined the credit union. The
Federal Credit Union Act states that one of the purposes of federal
credit unions is ``to serve the productive and provident credit
needs of individuals of modest means.'' Although field of membership
requirements are applicable, special rules set forth in Chapter 3
may apply to low-income designated credit unions and those credit
unions assisting low-income groups or to a federal credit union that
adds an underserved community to its field of membership.
II--Occupational Common Bond
II.A.1--General
A single occupational common bond federal credit union may
include in its field of membership all persons and entities who
share that common bond. NCUA permits a person's membership
eligibility in a single occupational common bond group to be
established in five ways:
Employment (or a contractual relationship equivalent to
employment) in a single corporation or other legal entity makes that
person part of a single occupational common bond;
Employment in a corporation or other legal entity with
a controlling ownership interest (which shall not be less than 10
percent) in or by another legal entity makes that person part of a
single occupational common bond;
Employment in a corporation or other legal entity which
is related to another legal entity (such as a company under contract
and possessing a strong dependency relationship with another
company) makes that person part of a single occupational common
bond;
Employment or attendance at a school makes that person
part of a single occupational common bond (see Chapter 2, Section
III.A.1); or
Employment in the same Trade, Industry, or Profession
(TIP) (see Chapter 2, Section II.A.2).
A geographic limitation is not a requirement for a single
occupational common bond. However, for purposes of describing the
field of membership, the geographic areas being served may be
included in the charter. For example:
Employees, officials, and persons who work regularly
under contract in Miami, Florida for ABC Corporation and
subsidiaries;
Employees of ABC Corporation who are paid from * * *;
Employees of ABC Corporation who are supervised from *
* *;
Employees of ABC Corporation who are headquartered in *
* *; and/or
Employees of ABC Corporation who work in the United
States.
The corporation or other legal entity (i.e., the employer) may
also be included in the common bond--e.g., ``ABC Corporation.'' The
corporation or legal entity will be defined in the last clause in
Section 5 of the credit union's charter.
A charter applicant must provide documentation to establish that
the single occupational common bond requirement has been met.
Some examples of 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
[[Page 88428]]
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 should be narrowly defined, and ordinarily would
not include third-party vendors and other suppliers, it may include,
on a case by case basis, employees of types of entities that have a
``strong dependency relationship'' and work directly with other
types of entities within the industry. In this context, a ``strong
dependency relationship'' between a TIP entity and its supplier/
vendor must be demonstrated by their reliance on each other as
measured by the presence of indicators of a likelihood that the
absence of one would cause the other to suffer a material decline in
either revenue, functionality or productivity.
Under this definition, a firm whose employees are specially
trained to protect nuclear facilities, and whose employees work
primarily at such facilities, could be a part of a TIP based on the
firm's participation in the nuclear energy industry.
Other ``strong relationship'' indicators NCUA would consider
include the regularity or frequency of work that employees of the
entity perform at facilities directly related to the industry, or
the degree to which employees must adjust their work practices to
adapt to the needs of the industry. For example, a company's focus
on producing specialized confectionary products for a hotel chain
could add that company to a hospitality industry TIP. A credit union
seeking to include a clause of this type in its TIP charter must
provide a brief narrative identifying indicators that support the
existence of a strong dependency relationship between the TIP entity
and its individual supplier/vendors.
Likewise, an FCU may serve employees of companies within the
commercial airline industry that have a strong dependency
relationship with airlines or airports, without the limitation that
these employees work at an airport. However, these employees must
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 Financial
Protection and Access Director. New charter applicants must follow
the documentation requirements in Chapter 1. New charter applicants
and existing credit unions must submit a business plan on how the
credit union will serve the group with the request to serve the TIP.
The business plan also must address how the credit union will verify
the TIP. Examples of such verification include state licenses,
professional licenses, organizational memberships, pay statements,
union membership, or employer certification. The Office of Consumer
Financial Protection and Access 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 the group
or groups are part of the TIP.
Section II.B on Occupational Common Bond Amendments does not
apply to a TIP common bond. Removing or changing a geographical
limitation will be processed as a housekeeping amendment. If safety
and soundness concerns are present, the Office of Consumer Financial
Protection and Access Director may require additional information
before the request can be processed.
Section II.H, on Other Persons Eligible for Credit Union
Membership, applies to TIP based credit unions except for the
corporate account provision which only applies to industry based
TIPs. Credit unions with industry based TIPs may include
corporations as members because they have the same commonality of
interests as all employees in the industry. For example, an airline
service TIP (industry) can serve an airline carrier (corporate
account); however, a nurses TIP (profession) could not serve a
hospital (corporate account) because not everyone working in the
hospital shares the same profession.
If a TIP designated credit union wishes to convert to a
different TIP or employer-based occupational common bond, or
different charter type, it only retains members of record after the
conversion. The Office of Consumer Financial Protection and Access
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
[[Page 88429]]
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 Financial
Protection and Access Director must approve all amendments to an
occupational common bond credit union's field of membership.
II.B.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
Financial Protection and Access Director may require additional
information prior to making a decision.
II.B.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 Financial Protection and Access
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 Financial
Protection and Access Director.
II.C.2--Office of Consumer Financial Protection and Access 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
Financial Protection and Access Director may require an on-site
review. In addition, the Office of Consumer Financial Protection and
Access 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 Financial Protection and Access Director
Approval
If the Office of Consumer Financial Protection and Access
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 Financial Protection and Access Director
Disapproval
When the Office of Consumer Financial Protection and Access
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 Financial Protection and
Access 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 Financial Protection
and Access, or as applicable, the appropriate regional office or
Office of National Examinations and Supervision Director. 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
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 or Office
of National Examinations and Supervision Director where the
continuing credit union is headquartered, with the concurrence of
the regional director or Office of National Examinations and
Supervision 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
[[Page 88430]]
community credit union, Section IV.D or Section V.D of this Chapter,
respectively, should be reviewed.
II.D.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 field regions must be approved by the regional
director or Office of National Examinations and Supervision Director
where the continuing credit union is headquartered, with the
concurrence of the regional director or Office of National
Examinations and Supervision Director of the merging credit union
and, as applicable, the state regulators.
II.D.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 or Office of
National Examinations and Supervision Director where the continuing
credit union is headquartered, with the concurrence of the regional
director or Office of National Examinations and Supervision 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 and, if
applicable, Office of National Examinations and Supervision Director
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 Financial Protection and Access Director. The
Office of Consumer Financial Protection and Access 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.Organizational Restructuring
A federal credit union's field of membership will always be
governed by the common bond descriptions contained in Section 5 of
its charter. Where a sponsor organization expands its operations
internally, by acquisition or otherwise, the credit union may serve
these new entrants to its field of membership if they are part of
the common bond described in Section 5. NCUA will permit a complete
overlap of the credit unions' fields of membership.
If a sponsor organization sells off a group, new members can no
longer be served unless they otherwise qualify for membership in the
credit union or it converts to a multiple common bond charter.
Credit unions must submit documentation explaining the
restructuring and providing information regarding the new
organizational structure.
II.E.3--Exclusionary Clauses
An exclusionary clause is a limitation precluding the credit
union from serving the primary members of a portion of a group
otherwise included in its field of membership. NCUA no longer grants
exclusionary clauses. Those granted prior to the adoption of this
new Chartering 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
[[Page 88431]]
membership requirements of the community charter are met. Groups
within the existing charter which cannot qualify in the new charter
cannot be served except for members of record, or groups or
communities obtained in an emergency merger or P&A. A credit union
must notify all groups that will be removed from the field of
membership as a result of conversion. Members of record can continue
to be served. Also, in order to support a case for a conversion, the
applicant federal credit union may be required to develop a detailed
business plan as specified in Chapter 2, Section V.A.3.
A single occupational common bond federal credit union may apply
to convert to a multiple common bond charter by adding a non-common
bond group that is within a reasonable proximity of a service
facility. Groups within the existing charter may be retained and
continue to be served. However, future amendments, including any
expansions of the original single common bond group, must be done in
accordance with multiple common bond policy.
II.G--Removal of Groups From the Field of Membership
A credit union may request removal of a portion of the common
bond group from its field of membership for various reasons. The
most common reasons for this type of amendment are:
The group is within the field of membership of two
credit unions and one wishes to discontinue service;
The federal credit union cannot continue to provide
adequate service to the group;
The group has ceased to exist;
The group does not respond to repeated requests to
contact the credit union or refuses to provide needed support; or
The group initiates action to be removed from the field
of membership.
When a federal credit union requests an amendment to remove a
group from its field of membership, the Office of Consumer Financial
Protection and Access Director will determine why the credit union
desires to remove the group. If the Office of Consumer Financial
Protection and Access 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;
1.
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
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.
[[Page 88432]]
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.
III.A.1.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;
(1)
(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 Financial Protection and Access Director
must approve all amendments to an associational common bond credit
union's field of membership.
III.B.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
Financial Protection and Access Director may require additional
information prior to making a decision.
[[Page 88433]]
III.B.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 Financial Protection and Access
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 Financial
Protection and Access Director.
III.C.C.2--Office of Consumer Financial Protection and Access
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
Financial Protection and Access Director may require an on-site
review. In addition, the Office of Consumer Financial Protection and
Access 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 Financial Protection and Access
Director Approval
If the Office of Consumer Financial Protection and Access
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 Financial Protection and Access
Director Disapproval
When the Office of Consumer Financial Protection and Access
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 Financial Protection and
Access 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 Financial Protection and Access, or as
applicable, the appropriate regional office or Office of National
Examinations and Supervision Director. 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 or Office
of National Examinations and Supervision Director where the
continuing credit union is headquartered, with the concurrence of
the regional director or Office of National Examinations and
Supervision 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.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 or
Office of National Examinations and Supervision Director where the
continuing credit union is headquartered, with the concurrence of
the regional director or Office of National Examinations and
Supervision Director of the merging credit union and, as applicable,
the state regulators.
III.D.Purchase and Assumption (P&A)
Another alternative for acquiring the field of membership of a
failing credit union is
[[Page 88434]]
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 or Office of
National Examinations and Supervision Director where the continuing
credit union is headquartered, with the concurrence of the regional
director or Office of National Examinations and Supervision 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 and, if
applicable, Office of National Examinations and Supervision Director
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 Financial Protection and Access Director. The
Office of Consumer Financial Protection and Access 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.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.
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 Financial
Protection and Access Director will determine why the credit union
desires to remove the group. If the Office of Consumer Financial
Protection and Access 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;
[[Page 88435]]
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. 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
to, and possessing a strong dependency relationship with, the other
company) makes that person part of the occupational common bond of a
select employee group within a multiple common bond. In this
context, a ``strong dependency relationship'' is a relationship in
which the entities rely on each other as measured by a pattern of
regularly doing business with each other, for example, as documented
by the number, the term length, and the dollar volume of prior and
pending contracts between them.
A multiple common bond credit union's charter may also combine
individual occupational groups that each consist of employees of a
retailer or other business tenant of an industrial park, a shopping
mall, office park or office building (each ``a park''). To be able
to have this type of clause in its charter, the multiple common bond
credit union first must receive a request from an authorized
representative of the group or the park to establish credit union
service. The park must be within the multiple common bond credit
union's service area, and each occupational group must have fewer
than 3,000 employees, who are eligible for membership only for so
long as each is employed by a park tenant. Under this clause, a
multiple common bond credit union can enroll group employees only
while the group's retail or business employer is a park tenant, but
such credit unions are free to serve employees of new groups under
the above conditions as each respective employer becomes a park
tenant.
A federal credit union's service area is the area that can
reasonably be served by the service facilities accessible to the
groups within the field of membership. The service area will most
often coincide with that geographic area primarily served by the
service facility. Additionally, the groups served by the credit
union must have access to the service facility. The non-availability
of other credit union service is a factor to be considered in
determining whether the group is within reasonable proximity of a
credit union wishing to add the group to its field of membership.
A service facility for multiple common bond credit unions is
defined as a place where shares are accepted for members' accounts,
loan applications are accepted or loans are disbursed. This
definition includes a credit union owned branch, a mobile branch, an
office operated on a regularly scheduled weekly basis, a credit
union owned ATM, or a credit union owned electronic facility that
meets, at a minimum, these requirements. A service facility also
includes a shared branch or a shared branch network if either: (1)
The credit union has an ownership interest in the service facility
either directly or through a CUSO or similar organization; or (2)
the service facility is local to the credit union and the credit
union is an authorized participant in the service center. This
definition does not include the credit union's Internet Web site.
The select group as a whole will be considered to be within a
credit union's service area when:
A majority of the persons in a select group live, work,
or gather regularly within the service area;
The group's headquarters is located within the service
area; or
The group's ``paid from'' or ``supervised from''
location is within the service area.
IV.A.2--Sample Multiple Common Bond Field of Membership
An example of a multiple common bond field of membership is:
``The field of membership of this federal credit union shall be
limited to the following:
1. Employees of Teltex Corporation who work in Wilmington,
Delaware;
2. Partners and employees of Smith & Jones, Attorneys at Law,
who work in Wilmington, Delaware;
3. Members of the M&L Association in Wilmington, Delaware, who
qualify for membership in accordance with its charter and bylaws in
effect on December 31, 1997;
4. Employees of tenants of MJB Office Park under the following
conditions:
--Each tenant's employees form an individual occupational group;
--the tenant has fewer than 3,000 employees working at MJB Office
Park; and
--those employees 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 Financial Protection and Access 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 Financial
Protection and Access Director, with input from the appropriate
regional director or Office of
[[Page 88436]]
National Examinations and Supervision 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 Financial Protection and Access Director, with input from
the appropriate regional director or Office of National Examinations
and Supervision 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
Financial Protection and Access Director, with input from the
appropriate regional director or Office of National Examinations and
Supervision 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.
The Federal Credit Union Act presumes that a group of 3,000 or
more primary potential members is able to form its own stand-alone
credit union unless NCUA determines that it is infeasible to do so
for reasons such as:
(i) The group lacks sufficient volunteer and other resources to
support the efficient and effective operation of its own credit
union;
(ii) the group does not meet criteria that the Board has
determined to be an important indicator of success in establishing
and managing a new credit union, including demographic
characteristics such as the geographic location of members, the
diversity of ages and income levels among members, and other factors
that may affect such a credit union's financial viability and
stability; or
(iii) the group would be unlikely to operate a safe and sound
credit union.
As such, NCUA requires additional information when a multiple
common bond credit union applies to add a group of 3,000 or more
primary potential members. 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 NCUA, in its
discretion, 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 document requirements 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.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-EZ, NCUA
4015-A or NCUA 4015) to the Office of Consumer Financial Protection
and Access 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 the 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-A (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;
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.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 Financial
Protection and Access Director.
IV.C.2--Office of Consumer Financial Protection and Access 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
Financial Protection
[[Page 88437]]
and Access Director may require an on-site review. In addition, the
Office of Consumer Financial Protection and Access 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 Financial Protection and Access Director
Approval
If the Office of Consumer Financial Protection and Access
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 Financial Protection and Access Director
Disapproval
When the Office of Consumer Financial Protection and Access
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 Financial Protection and
Access 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 Financial Protection and Access or, as
applicable, the appropriate regional office or Office of National
Examinations and Supervision Director. 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.
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. Voluntary Mergers
a. All Select Groups in the Merging Credit Union's Field of Membership
Have Less Than 3,000 Primary Potential Members
A voluntary merger of two or more federal credit unions is
permissible as long as each select group in the merging credit
union's field of membership has less than 3,000 primary potential
members. While the merger requirements outlined in Section 205 of
the Federal Credit Union Act must still be met, the requirements of
Chapter 2, Section IV.B.2 of this manual are not applicable.
b. One or More Select Groups in the Merging Credit Union's Field of
Membership Has 3,000 or More Primary Potential Members
If the merging credit unions serve the same group, and the group
consists of 3,000 or more primary potential members, then the
ability to form a separate credit union analysis is not required for
that group. If the merging credit union has any other groups
consisting of 3,000 or more primary potential members, special
requirements apply. NCUA will analyze each group of 3,000 or more
primary potential members, except as noted above, to determine
whether the formation of a separate credit union by such a group is
practical. If the formation of a separate credit union by such a
group is not practical because the group lacks sufficient volunteer
and other resources to support the efficient and effective
operations of a credit union or does not meet the economic advisable
criteria outlined in Chapter 1, the group may be merged into a
multiple common bond credit union. If the formation of a separate
credit union is practical, the group must be spun-off before the
merger can be approved.
c. Merger of a Single Common Bond Credit Union Into a Multiple Common
Bond Credit Union
A financially healthy single common bond credit union with a
primary potential membership of 3,000 or more cannot merge into a
multiple common bond credit union, absent supervisory reasons,
unless the continuing credit union already serves the same group.
d. Merger Approval
If the merger is approved, the qualifying groups within the
merging credit union's field of membership will be transferred
intact to the continuing credit union and can continue to be served.
Where the merging credit union is state-chartered, the field of
membership rules applicable to a federal credit union apply.
Mergers must be approved by the applicable NCUA regional or
Office of National Examinations and Supervision Director where the
continuing credit union is headquartered, with the concurrence of
the regional director or Office of National Examinations and
Supervision 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. 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
[[Page 88438]]
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 or
Office of National Examinations and Supervision Director where the
continuing credit union is headquartered, with the concurrence of
the regional director or Office of National Examinations and
Supervision Director of the merging credit union and, as applicable,
the state regulators.
IV.D. 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 or Office of
National Examinations and Supervision Director where the continuing
credit union is headquartered, with the concurrence of the regional
director or Office of National Examinations and Supervision Director
of the purchased and/or assumed credit union and, as applicable, the
state regulators.
IV.D.5--Spin-Offs
A spin-off occurs when, by agreement of the parties, a portion
of the field of membership, assets, liabilities, shares, and capital
of a credit union are transferred to a new or existing credit union.
A spin-off is unique in that usually one credit union has a field of
membership expansion and the other loses a portion of its field of
membership.
All common bond requirements apply regardless of whether the
spun-off group becomes a new charter or goes to an existing federal
charter.
The request for approval of a spun-off group must be supported
with a plan that addresses, at a minimum:
Why the spin-off is being requested;
What part of the field of membership is to be spun off;
Which assets, liabilities, shares, and capital are to
be transferred;
The financial impact the spin-off will have on the
affected credit unions;
The ability of the acquiring credit union to
effectively serve the new members;
The proposed spin-off date; and
Disclosure to the members of the requirements set forth
above.
The spin-off request must also include current financial
statements from the affected credit unions and the proposed voting
ballot.
For federal credit unions spinning off a group, membership
notice and voting requirements and procedures are the same as for
mergers (see part 708 of the NCUA Rules and Regulations), except
that only the members directly affected by the spin-off--those whose
shares are to be transferred--are permitted to vote. Members whose
shares are not being transferred will not be afforded the
opportunity to vote. All members of the group to be spun off
(whether they voted in favor, against, or not at all) will be
transferred if the spin-off is approved by the voting membership.
Voting requirements for federally insured state credit unions are
governed by state law.
Spin-offs involving federally insured credit unions in different
NCUA regions must be approved by all regional directors and, if
applicable, the Office of National Examinations and Supervision
Director 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 Financial Protection and Access 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 Financial
Protection and Access 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. 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.
[[Page 88439]]
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.
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
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 Financial
Protection and Access Director will determine why the credit union
desires to remove the group. If the Office of Consumer Financial
Protection and Access 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 Financial Protection and
Access 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, the Office of Consumer
Financial Protection and Access reserves the right to request this
documentation at any time. If the FCU fails to provide this
documentation when the Office of Consumer Financial Protection and
Access requests it, the director of the Office of Consumer Financial
Protection and Access 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, the Office of Consumer Financial
Protection and Access 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 the
Office of Consumer Financial Protection and Access requires. The FCU
will have 15 days to provide the necessary documentation. the Office
of Consumer Financial Protection and Access 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, the Office of Consumer Financial Protection and
Access will again correspond with the FCU and provide a 15-day time
frame for correcting the concern. the Office of Consumer Financial
Protection and Access 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 Office of Consumer Financial
Protection and Access 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 Financial Protection and Access 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, the Office of Consumer Financial Protection and Access 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. the Office of
Consumer Financial Protection and Access will also provide context
as to the source of NCUA's concerns, such as the discovery of new
information about a particular group or an examination finding
brought to the attention of the Office of Consumer Financial
Protection and Access;
2. If the Office of Consumer Financial Protection and Access
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, the Office of Consumer Financial Protection and
Access 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 or Office of National Examinations and Supervision
Director, and in accordance with agency guidelines for
administrative actions, the Director of the Office of Consumer
Financial Protection and Access 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, the Office of Consumer
Financial Protection and Access 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
[[Page 88440]]
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 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, township,
county (single, multiple, or portions of a county) or a political
equivalent, school district, 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.
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 individual portion thereof.
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 only to the addition of an immediately adjacent area
falling outside a Single Political Jurisdiction, 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 address how the residents meet the
requirements for being a local community. The Office of Consumer
Financial Protection and Access will issue additional guidance to
help a credit union develop its written narrative. 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.
Isolated Areas: Areas geographically isolated, such as by
mountains, bodies of water, or other prominent features.
Quasi-Governmental Agencies: A quasi-governmental agency, such
as a regional planning commission, predominantly covers the proposed
service area 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.
An area of any geographic size qualifies as a Rural District if:
The proposed district has well-defined, contiguous
geographic boundaries;
The total population of the proposed district does not
exceed 1,000,000.
Either more than 50% of the proposed district's
population resides in census blocks or other geographic units 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 affinity groups that apply to well-defined local
communities, found in Chapter 2, Section V.G., also apply to Rural
Districts.
The OMB definitions of Core Based Statistical Area and
Metropolitan Division, as
[[Page 88441]]
well as that of Combined Statistical Area (found at https://www.whitehouse.gov/omb/bulletins_default) are incorporated herein by
reference. Access to these definitions is also available through
NCUA's Web site at http://www.ncua.gov.
The requirements in Chapter 2, Sections V.A.4 through V.G. also
apply to a credit union that serves a rural district.
V.A.3--Previously Approved Communities
If 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 that is not exactly the same as a previously
approved well defined local community must comply with the current
criteria in place for determining a well-defined local community.
V.A. 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
Maps showing the current and proposed service
facilities, ATMs, political boundaries, major roads, and other
pertinent information.
An existing Federal credit union may apply to convert to a
community charter. Groups currently in the credit union's field of
membership, but outside the new community credit union's boundaries,
may not be included in the new community charter. Therefore, the
credit union must notify groups that will be removed from the field
of membership as a result of the conversion. Members of record can
continue to be served.
Before approval of an application to convert to a community
credit union, NCUA must be satisfied that the credit union will be
viable and capable of providing services to its members.
Community credit unions will be expected to regularly review and
to follow, to the fullest extent economically possible, the
marketing and business plans submitted with their applications.
Additionally, NCUA will follow-up with an FCU every year for three
years after the FCU has been granted a new or expanded community
charter, and at any other intervals NCUA believes appropriate, to
determine if the FCU is satisfying the terms of its marketing and
business plans.
An FCU failing to satisfy those terms will be subject to
supervisory action. As part of this review process, the regional
office or Office of National Examinations and Supervision Director
will report to the NCUA Board instances where an FCU is failing to
satisfy the terms of its marketing and business plan and indicate
what supervisory actions the region or ONES intends to take.
V.A.5--Community Boundaries
The geographic boundaries of a community Federal credit union
are the areas defined in its charter. The boundaries can usually be
defined using political borders, streets, rivers, railroad tracks,
or other static geographical feature.
A community that is a recognized legal entity may be stated in
the field of membership-- for example, ``Gus Township, Texas,''
``Isabella City, Georgia,'' or ``Fairfax County, Virginia.''
A community that is an entire United States Census Bureau
designated Core Based Statistical Area or Combined Statistical Area
may be stated in the field of membership--for example, ``Fort Wayne,
IN Metropolitan Statistical Area,'' ``Albany, GA Metropolitan
Statistical Area,'' or ``Syracuse-Auburn, NY Combined Statistical
Area.''
V.A.6--Special Community Charters
A community field of membership may include persons who work or
attend school in a particular industrial park, shopping mall, office
building or complex, or similar development. The proposed field of
membership must have clearly defined geographic boundaries.
V.A. Ample Community Fields of Membership
A community charter does not have to include all four affinities
(i.e., live, work, worship, or attend school in a community). Some
examples of community fields of membership are:
Persons who live, work, worship, or attend school in,
and businesses located in the area of Johnson City, Tennessee,
bounded by Fern Street on the north, Long Street on the east, Fourth
Street on the south, and Elm Avenue on the west;