[Federal Register Volume 59, Number 106 (Friday, June 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12119]
[[Page Unknown]]
[Federal Register: June 3, 1994]
BILLING CODE 3410-11-P-M
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Part IV
National Credit Union Administration
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12 CFR Part 701
Organization and Operation of Federal Credit Unions; Rule
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
Organization and Operation of Federal Credit Unions
AGENCY: National Credit Union Administration (``NCUA'').
ACTION: Final Interpretive Ruling and Policy Statement 94-1--Chartering
and Field of Membership Policy (IRPS 94-1).
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SUMMARY: This final interpretive ruling and policy statement (``IRPS'')
is the result of NCUA's policy of reevaluating all its regulations
periodically to determine whether change is warranted. The NCUA Board
approved publication of a proposed IRPS on chartering and field of
membership after its July 15, 1993 open meeting; the public ultimately
was given 180 days to submit comments. This final IRPS 94-1 reflects a
full evaluation of those comments; substantial changes as outlined
below were made to the proposal. This IRPS 94-1 replaces IRPS 89-1.
The NCUA is also issuing a final amendment to update Part 701.1 of
its Rules and Regulations entitled ``Organization and Operations of
Federal Credit Unions''.
EFFECTIVE DATE: July 5, 1994.
ADDRESSES: National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428.
FOR FURTHER INFORMATION CONTACT: H. Allen Carver, Regional Director,
National Credit Union Administration, (404) 396-4042, 7000 Central
Parkway, Suite 1600, Atlanta, Georgia 30328.
SUPPLEMENTARY INFORMATION:
Background
I. The Proposed IRPS
On July 28, 1993, the NCUA Board published a proposed interpretive
rule and policy statement (IRPS) updating chartering and field of
membership policies, and also published a proposed amendment to Section
701.1 of the NCUA Rules and Regulations (12 CFR 701.1), to reference
the updated IRPS. The proposal was issued with a 90 day comment period
that was extended by the NCUA Board for an additional 90 days due to a
public request. The proposed IRPS was designed: (1) To update policies
on low-income credit unions; (2) to streamline the charter application
process; (3) to address credit unions undergoing corporate and military
unit restructuring; (4) to clarify NCUA policy on the ``operational
area'' requirement for select group expansions; and (5) to make certain
other minor or technical changes to modify or clarify NCUA policy.
The Board also requested specific comment on the following issues:
(1) Whether NCUA should permit credit union chartering and field of
membership expansions based on associational groups formed for the sole
purpose of making credit union service available to low-income persons,
such as is now permitted for existing credit unions seeking to extend
service to senior citizens; (2) Whether NCUA should permit
occupational, associational, and multiple group federal credit unions
to add to their fields of membership communities satisfying the ``low-
income credit union'' definition found in Part 701.32 of NCUA's Rules
and Regulations; (3) Whether there should be special procedures for
permitting select group expansions ``in the public interest;'' and (4)
Whether NCUA should establish a streamlining ``file and serve''
procedure for select group expansions of fewer than 50 potential
members.
II. Summary of Comments Received
One hundred and thirty-nine public comment letters were received.
Comments were received from seventy-eight federal credit unions, six
state chartered credit unions, one state regulator, thirteen state
credit union leagues, seven national credit union trade organizations,
and two individuals.
The Board also received comments from thirty-two banks and banking
associations. Briefly summarized, the bank commenters argued that
federal credit unions are permitted to expand only within a single
common bond, and that federal credit unions should be subject to tax
like banks. The NCUA Board, in currently ongoing litigation, has
repeatedly stated its disagreement with banking organizations' position
on various matters regarding field of membership issues. The question
of taxation has been decided by Congress and the President.
In general, the credit union commenters partially supporting or
opposed to the proposal argued that NCUA should go even further in
liberalizing chartering and field of membership policy. For example,
the vast majority of commenters favored deleting operational area
requirements altogether for select group amendments. Though the credit
union community's desire for more flexibility in accepting new members
is understandable, the NCUA Board is unwilling to make the significant
changes suggested in operating rules that have served the community
well for so long. The Board, in the final IRPS, has adopted a more
conservative approach to change.
At the same time, the Board has noted the continuing decline in the
number of credit unions and the lack of new chartering activity in
recent years. The final IRPS makes significant changes to existing
policy to encourage new chartering activity, particularly in low-income
areas.
THE ISSUES AND NCUA BOARD DECISIONS
I. Field of Membership Changes To Promote Service to Low-Income
Persons
A. Comments in General
The Board's suggestions for significantly liberalizing field of
membership policy to encourage service to low-income persons by any
sector of the credit union movement generated a great deal of interest.
The first suggestion was to permit credit union chartering and
field of membership expansion based on associational groups formed for
the sole purpose of making credit union service available to low-income
persons, much as is now permitted for existing credit unions seeking to
extend service to senior citizens. Nineteen commenters approved of this
proposal as a proper method to increase financial services to low-
income individuals. However, one association commenter stated that in
the case of a low-income credit union, it would oppose a low-income
``association'' seeking to align with such a non low-income credit
union if the association's constituents were already eligible for
membership in an existing low-income credit union, unless the latter
did not object. This commenter asked whether it was NCUA's intent that
the individuals of this associational group themselves be low-income or
simply have a stated interest in making services available to low-
income persons. This commenter also asked what method of income
documentation NCUA would require for the association and whether all of
the proposed members would have to qualify as low-income or simply a
majority. Four commenters opposed this proposal as unnecessary.
The Board also requested comment on a proposal to permit
occupational, associational, and multiple group federal credit unions
to add to their fields of membership communities satisfying the ``low-
income credit union'' definition of Part 701.32 of NCUA's Regulations.
Thirty commenters approved of this proposal. Most of these commenters
believed that it would allow healthy credit unions to help low-income
individuals. Two commenters stated that in many cases credit unions are
the only financial institutions that are willing to work with low-
income individuals in an effort to promote fiscal responsibility. Two
commenters believed there was reason to limit this proposal to non-
community credit unions. These commenters believed there may be
instances when it would be appropriate for a community credit union to
serve a non-contiguous low-income community. Furthermore, these
commenters suggested that any credit union wishing to serve a low-
income group or community should include in its business plan details
on how it will serve the group and periodically review how successful
its efforts have been.
Eight commenters opposed the proposal. Three commenters believed
there would be a potential for the credit union to ``cherry pick'' low-
income neighborhoods without truly being dedicated to its development.
Two commenters suggested that the credit union maintain separate
accounting records for the low-income addition, and at a later date, if
the low-income addition was successful, it could be spun off and stand
on its own. One commenter suggested that ``persons participating in
programs to alleviate poverty or distress'' in a designated community
also be considered an acceptable group for additions. Five commenters
suggested it might be possible to charter new community development
credit unions that would immediately operate under the agency's
conservatorship policies--perhaps for a minimum period of three years.
The commenters also suggested that under NCUA's broad conservatorship
powers, NCUA could hire the services of a nearby existing credit union
under a management contract to operate the new credit union.
One commenter stated that minimum requirements should be instituted
for any non-low-income credit unions seeking permission to enter a low-
income area to ensure that the community will be adequately served. One
commenter suggested that a non low-income credit union be required to
provide status reports on its service to such a low-income group. One
commenter recommended that no expansion should be granted unless it
could be demonstrated that there would be no adverse material impact on
existing low-income credit unions in the area, or groups in the process
of chartering a low-income credit union. One commenter stated that
before an expansion was granted, the federal credit union should be
required to perform a study of the credit and depository needs of the
low-income group.
One commenter supported using the existing limited income
designation criteria as defined by NCUA to allow existing religious-
based credit unions to grant access to credit union service in their
immediate financially underserved communities. One commenter
recommended allowing minority chambers of commerce or other
associations of minority and economically disadvantaged business
people, along with their respective employees, to qualify for charters.
B. NCUA Board Decision
The Board agrees that low-income persons need expanded credit union
service. To ensure that all possible means of accomplishing this end
can be used, the final IRPS:
Permits chartering associational low-income federal credit
unions, where the association is organized solely for the purpose of
providing credit union service to low-income persons.
Permits a low-income federal credit union, whether
associational or community based, to include in its charter,
occupational, associational, and community common bond groups without
regard to location. The credit union will have to monitor such
additions to its base common bond, however, to ensure that the credit
union remains qualified for a low-income credit union designation.
Permits a federal credit union of any type--occupational,
associational, community, or multiple group--to include low-income
groups in its field of membership, without regard to the groups'
location, either by forming an association which is organized solely
for the purpose of providing such service or by including a community
group which could be the basis for chartering a low-income credit
union.
The Board shares some commenters' concerns that this policy change
may be used to ``cherry pick'' by meeting the credit needs of a
relatively well-off portion of a low-income community while leaving
those most in need of service with nothing. The Board will institute
special reporting requirements and special examination procedures for
any credit union including a low-income group in its field of
membership to ensure that adequate credit union services are provided
to all persons in the community.
The Board sees no limitation in the Federal Credit Union Act
preventing this policy change. While true that NCUA has generally
refrained from combining community-based common bonds with occupational
and associational common bonds, the reason for that limitation has been
a concern for the safe and sound development of credit unions. The
language of Section 109 of the Federal Credit Union Act, 12 U.S.C.
1759, which states ``Federal credit union membership shall be limited
to groups having a common bond of occupation or association, or to
groups within a well-defined neighborhood, community, or rural
district,'' does not require segregation of community groups from other
kinds of common bonds. The difference in wording for community based
common bond seems to have arisen from the fact that the bond was more
difficult to describe adequately. The ``or'' between the ``common
bond'' provisions and the community description is no different from
the ``or'' between ``occupation'' and ``association'', which the Board
has long concluded permits combining occupational and associational
common bonds in a single federal credit union, and which is consistent
with the word's common usage.
Moreover, in IRPS 89-1, the Board described all three groupings--
occupational, associational, and community--as ``common bonds'' without
distinction, and in the case of distress mergers permitted
intermingling of all three common bond types.
Finally, there is nothing in the evident purposes of the Act which
suggests that community groups are necessarily to be treated
differently from other common bonds. Functionally, all three common
bonds perform an identical role--to help maintain in credit union
members the sense of belonging and ownership that is so crucial to
credit union success.
Other commenter suggestions--such as providing assurances that
existing low-income credit unions are not overlapped and extending the
agency's conservatorship power to help start low-income credit unions--
can be implemented under existing policy where appropriate.
II. Other Issues Relating to Low-Income Federal Credit Unions
A. Comments
Four commenters approved of updating low-income credit union
polices based on the revised regulatory definition. Two commenters
believed that low-income credit unions should have access to the CDCU
Revolving Loan Program immediately upon beginning operation. One
commenter suggested that community groups be able to seek a preliminary
determination of a low-income designation before final submission of a
charter package.
One commenter urged that associational groups proposing to start
low-income credit unions not be required to demonstrate voting, dues-
paying membership structures because, among other things, it would hurt
church based associational groups.
B. NCUA Board Decision
The Board agrees with these suggestions. The final IRPS:
Updates the provisions on low-income credit unions to
reflect recent changes in the Rules and Regulations
Eliminates the voting and dues-paying requirements for
recognition of an associational common bond
Provides for preliminary review of the low-income
designation.
Part 705 of the NCUA Rules and Regulations (12 CFR 705.0 et seq.)
currently provides qualifying newly chartered credit unions with
immediate access to the CDCU Revolving Loan Fund.
III. Streamlining the Process for New Charter Applications
A. Comments
Six commenters approved the streamlining process for new charter
applications. Four commenters believed that the amount of time that
passes between the day a potential credit union submits a charter
application to NCUA for approval and the day the application is
actually approved or denied was acceptable. Two commenters believed the
time frame for chartering was unacceptably lengthly. One commenter
suggested that an acknowledgment of receipt of the chartering
application ``be sent to the organizers in a timely fashion''
preferably within 10 days.
One commenter stated that it would facilitate chartering if groups
were able to obtain tentative approval of their fields of membership
early in the process. This commenter also believed that early
submission of NCUA 4012 may also speed the process.
The proposal stated that the subscribers should be responsible for
paying the cost of credit reports and background checks when applying
for a credit union charter. Seven commenters agreed with this
provision. Nine commenters believed that the subscribers should not be
responsible for paying the cost of credit reports and background checks
when applying for a new charter. Two commenters recommended that NCUA
articulate the standards relied upon in disqualifying credit union
organizers.
B. NCUA Board Decision
The NCUA Board agrees with these suggestions and is hopeful that
the result of all the changes made will be a significant increase in
new federal chartering activity. Small, vibrant credit unions, serving
their members on a first-name basis and willing to take reasonable
credit risks based on personal knowledge of their members' character,
are a vital part of the credit union movement. Many credit unions which
used to fill this niche have through their success grown to the point
where credit union management can no longer make these personal
judgments on each individual member: A new generation of small credit
unions is needed to fill that void, particularly in the many poor
inner-city and rural areas where credit needs are now largely unmet.
The final IRPS provides:
That charter applicants will receive acknowledgment of the
application's receipt in 10 business days
That tentative field of membership approval will be given
early in the process
That early submission of NCUA 4012 will be encouraged
That the cost of credit reports and background checks will
be borne by NCUA
The NCUA Board does not believe, however, that it would be
productive to establish many other absolute standards and guidelines.
Each application is to some extent unique and may require somewhat
different procedures and time frames. The Board believes these are best
left to be worked out between the prospective credit union officials
and NCUA staff.
IV. Distress Situations Caused by Dramatic Changes in Economic
Conditions Within a Federal Credit Union's Field of Membership
A. Comments
The proposal would have permitted an associational, occupational,
or multiple group credit union converting to a community charter as a
result of significant corporate or military restructurings to maintain
service to groups in its field of membership prior to conversion and to
add other groups within the credit union's operational area after the
conversion, but for only so long as needed to ensure the credit union's
continued viability. A group consisting of all NCUA Regional Directors
and the Director of Examination and Insurance would vote to determine
the necessity of allowing the converting credit union to maintain the
select employee groups. Eighteen commenters favored the proposal.
Four commenters believed this authority should be expanded to all
community charters where continued viability is threatened by a major
employer's restructuring. These commenters believed there was no reason
to treat a ``converting to'' community charter any different from
existing community charters when in both cases the threat is viability
caused by similar events.
Though many commenters suggested abandoning the operational area
requirement altogether (see ```Public Interest' Addition Comments''
below), one in particular urged that it at least be abandoned in
distress situations. Eight commenters opposed the proposal. Two
commenters stated that military credit unions should not be granted
community charters except in rare cases where an isolated base is the
community. These commenters believed that in a heavily populated area
where there are many other credit unions already serving select groups,
this proposal would grant an unfair advantage to military credit
unions. Six commenters approved the special administrative approval
procedure but nine objected to it.
B. NCUA Board Decision
The Board is persuaded that federal credit unions of all types need
additional flexibility when faced with distress situations such as
significant corporate or military restructuring. The final IRPS:
Permits federal credit unions of all types--occupational,
associational, multiple group, and community--to apply for designation
as a ``distressed federal credit union'' and to do so regardless of
whether they are converting to community charter
Permits federal credit unions with such designations to
add occupational and associational groups to their fields of membership
regardless of location.
As an added assurance that the process is administered consistently
and proper guidance is given, the NCUA Board will reserve to itself, at
least initially, the authority to grant ``distressed credit union''
designations. The Board believes that, with this added requirement,
there will be adequate controls in place to prevent abuse: There will
be a comprehensive review by the NCUA Board prior to initial
designation; groups must request service in order to be added to a
distressed credit union's field of membership; the regional director
must approve all expansion requests; and normal overlap procedures will
apply.
V. Common Bond Issues
A. Occupational Common Bonds
1. Comments
The proposal suggested only slight modifications of current policy.
It stated that a proposed federal credit union whose primary sponsor is
a particular corporation may include the employees of that corporation
who work at another location, employees of the corporation who are paid
from or are supervised from the headquarters location, such as sales
persons or sales agents who work at a number of locations, employees of
a division or majority-owned subsidiary of the parent company
regardless of location, and employees of a related company (such as a
person working regularly for an enterprise under contract and
possessing a strong dependency relationship with the sponsoring
enterprise). Each group to be served (e.g., majority-owned
subsidiaries, contractors) was to be separately listed.
One commenter objected to the proposal that each group to be served
must be separately listed. This commenter suggested that NCUA be more
lenient. Another commenter requested that if an occupational credit
union furnished evidence of its parent company's preference for one
credit union, that credit union should be allowed to describe its field
of membership to include the parent and all other companies under
common control. One commenter stated that the components of a field of
membership definition should be limited to legal entities.
One commenter stated that the Chartering Manual does not state
procedures necessary for a credit union to keep its existing
membership, if a company or a division has been sold. This commenter
believes that if a company or division is sold to a company which has a
credit union, then the original credit union loses the field of
membership after the sale; otherwise, service should be allowed to
continue.
2. NCUA Board Decision
The NCUA Board agrees that the wording of this portion of IRPS 89-1
pertaining to business relationships is in need of some revision. The
final IRPS has been rewritten to provide more clarity. However, the
Board does not see a need to broaden the occupational common bond
definition in general at this time.
The Board does believe, however, that it is a disservice to cut off
service to groups which are divested from a sponsoring firm. The final
IRPS permitted continued service if the group desires it.
Finally, it is clear that some in the credit union community have
misunderstood why the NCUA Board proposed requiring listing of
subsidiary entities included in a common bond. The agency is in the
process of establishing a field of membership database for internal
monitoring of overlaps. Federal credit union listing of all subgroups
would greatly enhance the reliability and overall usefulness of the
database. But the NCUA Board sees no need to impose this requirement on
a federal credit union which finds that process overly burdensome, and
the final IRPS has deleted this portion of the proposal. Such a credit
union should understand, however, that if a specific group is not
mentioned in its charter, and the group in good faith states in a
request for service from another credit union that it does not have
credit union service available (as often happens with new subsidiaries
of sponsoring groups), an overlap may inadvertently be permitted
without full consideration for the overlapped credit union's interests.
If the overlap is discovered after the other credit union has begun
service, it is likely that, in the interests of the group and the other
credit union, NCUA will permit the overlap to continue.
B. Associational Common Bonds
1. Comments
The proposal clarified that a federal credit union seeking to
include an association in its field of membership may only include
natural persons who pay dues and have voting rights or hold office in
the association. Eight commenters supported this change. Twenty-one
commenters opposed the proposal. In general, these commenters believed
that not all natural person associations require a member to pay dues.
A few commenters stated that the proposal would harm church
associations that have members that do not pay dues. Four commenters
stated the proposal would harm low-income cooperatives. One commenter
stated that the collection of dues for an associational group may be
entirely irrelevant to the group's purpose or mission. One commenter
stated that this requirement can not be reasonably monitored by a
federal credit union.
The proposal also clarified that a federal credit union's field of
membership has to be updated and approved by NCUA when an association
changed its bylaws to modify the scope of those eligible for
membership. Six commenters approved of this clarification. One
commenter stated that without this limitation an associational credit
union would be allowed to change to an open field of membership.
Thirteen commenters disapproved of the clarification. Six of these
commenters believed that if an association changed its bylaws
frequently it could cause an administrative nightmare for the credit
union and NCUA if the charter had to be amended every time the bylaws
changed. One commenter believed the main concern should be whether the
association in question was a viable functioning organization. This
commenter believed that an association with membership qualification
requirements, bylaws and meetings should be defined as a functioning
organization.
The proposal removed the requirement that students must join the
credit union prior to family members becoming eligible. Five commenters
agreed with this change.
One commenter stated that the final IRPS should be modified to
allow for inclusion of an entire association in a federal credit union
at a higher level if that level provided broad based services which
were not available at a lower level.
2. NCUA Board Decision
The NCUA Board agrees that the dues-paying and voting rights
requirements of the proposal could be unfair to some bona fide
associations. The final IRPS lists these elements as factors to be
considered, not as requirements.
The Board has also attempted to clarify in the final IRPS the
ambiguities noted by some of the commenters.
The Board does not agree, however, that it should alter its present
policy in favor of service to associations at the lowest possible
level, or that it is appropriate to allow associations to modify
portions of their bylaws which dramatically change the make-up of
membership without agency review. The final IRPS maintains these
provisions as in the proposal.
VI. Select Group Addition Issues
A. Comments
A number of comments were received on the various proposed changes
to NCUA's select group addition policy. They are best discussed as a
group.
1. ``Public Interest'' Addition Comments
The Board requested comment on a limited ``public interest''
procedure by which NCUA might approve a federal credit union expansion
to include a group outside the operational area of a home or branch
office, if such action was in the interest of making quality credit
union service available to all eligible groups who wish to have it, and
if doing so would not have a significant adverse effect on the safe and
sound operations of credit unions. Any federal credit union seeking
such an expansion would need to provide certain documentation,
including a summary of the views of each credit union with a home or
branch office within a 25 mile radius as to whether each has agreed to
inclusion of the group in the applying credit union's field of
membership, and if the credit union refused, the reasons for the
refusal.
Thirty commenters supported the concept of the ``public interest''
proposal. These commenters generally believed that the proposal would
provide more people with credit union service. However, most of these
commenters believed the proposal's operational area requirement was
unnecessary. Furthermore, sixteen commenters stated that the proposal's
documentation requirements were so onerous that it would discourage
most credit unions from trying to use the procedure. Six commenters
opposed this proposal.
One commenter believed that the only use for the ``public
interest'' procedure should be to provide an exception to the rules for
credit unions experiencing a loss of members due to some extraordinary
circumstances, such as a base closing or a corporate restructuring.
This commenter believed the test for a ``public interest'' procedure
should be based on: (1) The demand for credit union service; (2) the
capability of the credit union to provide services; and (3) the level
of membership necessary to sustain the affected credit union.
2. ``Operational Area'' Comments
NCUA has traditionally focused multiple group field of membership
additions around the ``operational area'' of a home or branch office.
This policy was designed to ensure a satisfactory level of commitment
and service to the groups included in the field of membership, while
also minimizing instances of overlap and deterring territorial
stakeouts by overly aggressive credit unions. However, in response to
new technologies and innovations, the proposal clarified operational
area requirements. The first clarification was that for purposes of a
field of membership expansion the ``standard'' operational area will be
considered an area within a 25 mile radius of a home or branch office,
but that this standard may be extended for rural areas. Six commenters
believed the proposed operational area was reasonable and approve of
it. Four other commenters agreed in general with the definition but
believed that there should be more leeway for rural areas.
Forty-one commenters objected to the 25 mile operational area as
outdated in light of current technology. Thirty-seven commenters stated
there should not be any operational area. They believed that direct
deposit, automated teller service, and service-by-phone, in many cases,
has eliminated the need for physical access to a branch. Five
commenters believed operational area should just be one of many factors
to be considered in a field of membership expansion.
A few of the commenters stated that a progressive approach to the
expansion of services is one based on functionality, not geography.
They believed a functional approach should be based on the capacity and
willingness to serve matched with a demand for those services. One
commenter suggested that the determination of the operational area of a
credit union should be based on whether the credit union can reasonably
be expected to deliver adequate credit union service to the area. This
commenter suggested that NCUA approve a field of membership expansion
request if: (1) There is a clear demand for the credit union's
services; (2) the credit union is capable of providing the services;
and (3) other credit unions in the area are not already providing the
service. Twelve commenters stated that any credit union should have the
option to add select employee groups to its field of membership
(without regard to operational area) if it has the financial resources
to do so and there is no overlap.
3. ``Shared Facilities'' Comments
The proposal stated that ``shared facilities'' and ``shared service
centers'' were specifically to be excluded from consideration as either
a ``home'' or ``branch'' office for purposes of meeting NCUA's
operational area requirement, except in unusual circumstances--e.g.,
where a credit union is converting an existing home or branch office to
a ``shared facility.'' Nine commenters believed this to be a reasonable
position and agreed with the clarification. One commenter stated that
this position would ultimately help service centers prosper and control
predatory concerns from credit unions not participating in shared
service center programs.
Seven commenters opposed the clarification. Several commenters
believed the proposal would force some credit unions into unnecessary
expenditures for ``brick and mortar'' facilities. Some commenters
suggested that field of membership expansions be allowed around a
shared branch if the credit union has a material (20%) stake in the
facility. They believed shared branches were tantamount to a credit
union's own property.
4. ``Branch'' Comments
The proposal stated that a facility which was directly and solely
owned by, leased by or donated by a credit union and had credit union
employees regularly on site who accept payment on shares and disburse
loans was clearly a home or branch office. One commenter objected to
the requirement that a branch office have a paid employee working in
it. This commenter believed this section needed to be modified to
include credit union volunteers.
One commenter believed that in order to facilitate growth among
credit unions, NCUA should reconsider its position that ``the addition
of a new select group alone is not enough to justify a proposed home or
branch office.''
One commenter believed the definition of branches should be
expanded to more closely identify and define the difference between an
``open branch'' and a ``closed branch.'' This commenter stated that an
open branch should be identified as one where members from any company
or group could have free access and that a closed branch should be
identified as one that is located within a sponsor's facility that is
accessible only to employees of that group. This commenter believed
that taking on additional small employee groups using a close branch as
the base in determining the 25 mile radius should not be permitted.
B. NCUA Board Decision
The NCUA Board is not prepared to jettison the ``operational area''
limitation or to make substantial changes in how that limitation is
defined. The requirement has served credit unions well and remains
vital. Some of the wording in the final IRPS has been changed to make
the concept more adaptable to the variety of credit union service
outlets, however. ``Home or branch office'' has been changed to
``service facility,'' for example, and the requirement to have an
``employee'' on site has been changed to ``representative'' to
accommodate the possibility of volunteers.
However, the final IRPS does not include provisions for a ``public
interest'' field of membership expansion. Moreover, the Board does not
believe that technology has reached the point where access to a
facility where business can be transacted by interaction with another
person is unimportant. Therefore, the operational area requirement will
continue to be linked to the credit union's ability to provide service
by such means. Finally, the Board cannot, without substantially more
experience, allow ``shared service centers'' and other similar kinds of
group service arrangements to be considered ``service facilities'' for
select group expansion purposes; the effects of such a change are too
unclear at this point. The final IRPS therefore excludes from the
definition of a ``shared facility'' locations at which service is
provided to a significant number of different credit unions' members.
VII. Community Charters
A. Comments
Two commenters believed the proposal did not address the concerns
of community credit unions. The proposal clarified that a community
credit union's operational (service) area was to be defined by its
boundaries. Four commenters agreed with this clarification. Four
commenters believed that the authority to add new groups outside
community boundaries should be extended to all community charters where
continued viability is threatened by a major corporate or military
restructuring. These commenters believed there was no reason to treat a
``converting to'' community charter any differently from existing
community charters when in both cases the threat is viability caused by
similar events. Eight commenters believed any community credit union
should have the option to add select employee groups to its field of
membership if it has the financial ability to do so and NCUA determines
that no other credit union in the area could serve the group. Four
commenters suggested allowing community credit unions to merge with
multiple group or associational credit unions while still continuing to
serve the former fields of membership of both credit unions.
Four commenters believed NCUA should provide for the chartering of
community credit unions in two non-adjacent communities. These
commenters believed the granting of community charter status in one
area should not prevent the credit union from continuing to serve and
admit new members from existing select employee groups in a second
area, or obtaining a dual community charter.
One commenter believed NCUA should make it easier to expand
geographic boundaries of community credit unions by eliminating the
requirement of showing a ``commingling of the two communities.'' This
commenter believed this requirement was no longer realistic because
electronic transactions have taken over in the marketplace.
B. NCUA Board Decision
The Board believes the final policy statement addresses the needs
of community charters. In response to the advent of new technologies in
communication and the evolving character of communities, the Board has
slightly revised the definition of a community common bond. A community
charter must continue to be limited to ``a well-defined neighborhood,
community, or rural district.'' However, a community will be defined as
a single, well-defined area where residents interact. To meet this
definition, the Board has established the following common bond
requirements for a community charter: the geographic area's boundaries
must be clearly defined; and the applicant for a new charter or an
expansion must establish that the area is recognized as a ``distinct
neighborhood, community or rural district.'' This new policy eliminates
the commingling requirement while still requiring the members to
interact. The final policy also clarifies that the community credit
union's operational (service) area is defined by its boundaries.
As stated earlier, community credit unions may also apply for a
designation as a ``distressed federal credit union'' and to do so
regardless of whether they are converting to a community charter. These
credit unions, as well as low-income community credit unions, may add
select employee groups outside their operational area to their fields
of membership as long as they have the financial ability to serve the
group. After the credit union community has some experience with this
policy, the Board will assess the wisdom of extending this option to
all community credit unions.
VIII. Overlap Issues
A. Comments
The proposal clarified that NCUA may exclude from overlap
protection state chartered credit unions with a field of membership so
broadly defined as to include virtually everyone in a wide area. Four
commenters agreed with this clarification. However, many commenters
addressed other overlap issues. Two commenters supported the
requirement that credit unions involved in overlap situations first
attempt to resolve related issues among themselves before turning to
NCUA. Three commenters stated that field of membership policy was
overly liberal and permits numerous overlaps which hurt small credit
unions. Eight commenters stated that overlaps between credit unions
should be liberally permitted.
Four commenters believed NCUA should include a definition of the
term ``incidental overlap'' as a further aid to the credit union
community. One commenter believed the term should be defined as 3% of
the potential membership of the credit union being overlapped. One
commenter stated that overlaps are incidental if they do not create
questions of viability for the credit union affected by the overlap.
The proposal stated that an overlap may be justified if the
original credit union failed to provide quality service to the group.
One commenter suggested that the Board define ``quality service'' and
reexamine its position regarding the absence of ``specialized service
as not being a justification for an overlap.'' Seven other commenters
also believed that the term ``quality service'' needed to be defined.
They believed the term was very subjective: Did it mean the number of
services, hours open, or the attitude of workers? A few of these
commenters believed the lack of a definition has hurt small credit
unions.
One commenter supported NCUA's intent to provide overlap protection
for any type of charter if there are significant safety and soundness
concerns. This commenter would expand this to include a low-income
service impact test: A credit union should be protected from overlaps
which would impair its ability to effectively serve low-income members
of the community.
The proposal also stated that in special cases exclusionary
language should be used to limit the membership eligibility of widely
dispersed employees or associations. One commenter disagreed with this
limitation. This commenter believed that if there was a legitimate
common bond, such as a single employer or association, and no credit
union was serving the group, then exclusionary language was not
necessary.
B. NCUA Board Decision
The final IRPS contains the provision in the proposal removing from
overlap consideration broadly based state chartered credit unions,
which parallels how the agency approaches broadly based federal
charters. As to most of the remaining comments, the Board disagrees
with many of the suggestions. The Agency's long-standing policy is
working well. The vast majority of all overlaps are consented to by the
overlapped credit union. The remainder are resolved in a way which
makes the interests of the group paramount. The Board continues to
believe it needs flexibility in this area. Therefore, the final IRPS
does not define ``incidental overlap'' or ``quality service.''
However, the Board agrees that experience with exclusionary clauses
has not been entirely satisfactory. This entire section has been
rewritten in the final IRPS in the hope of limiting their use to the
few situations where they are truly warranted and effective.
IX. Documentation Issues
A. Comments
The proposal attempted to streamline documentation requirements.
Five commenters stated that the documentation requirements in the
proposal were not burdensome. Ten commenters disagreed. Many of these
commenters also believed that financial statements were unnecessary in
light of periodic call reports and examinations. Four commenters
believed that financial statements should not be necessary for field of
membership expansions.
Two commenters noted that, for a field of membership expansion, the
proposal required documentation from groups ``on the group's letterhead
stationery and signed by an official representative to the group.'' The
commenters believed this has generally been interpreted to mean an
officer of the employer. These commenters believed that NCUA should be
flexible and recognize that not all groups are represented by the
employer or have an ``official'' representative. They suggested that
the IRPS allow the regions to accept other documentation or
certification.
B. NCUA Board Decision
The NCUA Board agrees that in the vast majority of cases regional
staff have sufficient financial information available to make a
determination as to the economic advisability of the proposed charter
change. Therefore, the requirement to submit financial statements with
a charter change request has been deleted. If a regional office needs
additional information, it may ask for it. The NCUA Board also agrees
that the requirement for letterhead stationery can be relaxed. With
regard to the requirement that an ``official representative'' of the
group sign the letter requesting service, the Board does not believe a
change in the wording is needed, but will ensure that the regional
offices are instructed to be more flexible in applying the term to
specific situations.
X. The Proposed ``File and Serve'' Procedure
A. Comments
The proposal requested comment on a ``File and Serve'' select group
expansion procedure. It was envisioned that the procedure would permit
CAMEL code 1 and 2 credit unions to begin providing service to small
groups--50 persons or fewer was suggested--prior to formal NCUA
approval of the expansion. Thirty-six commenters favored the procedure.
These commenters believed it would allow credit unions to timely serve
new groups. However, some commenters suggested an increase in the
number of potential members that could be added using the procedure.
One commenter inquired whether the number included family members. Four
commenters recommended NCUA issue guidelines on what to do if the
expansion is subsequently denied by the Region.
Eighteen commenters objected to the ``File and Serve'' proposal.
The reasons were varied. Nine commenters stated there were no
procedures for what would happen if the expansion was denied by the
Region and that it would be an administrative nightmare if a denial
occurred. Eight commenters believed this proposal was not justified
since regulatory delay in approving expansion requests was not a
problem. Six commenters believed that there would be more conflicts
arising from both intentional and unintentional overlaps. Five
commenters stated that regulatory approval distinguishes credit unions
from banks.
Three commenters suggested any CAMEL code 1, 2 and 3 credit unions
be permitted to use the file and serve procedure. One commenter
suggested that NCUA implement an alternative procedure by which CAMEL
code 1 and 2 credit unions should be given preference by NCUA in
reviewing field of membership expansions. Two commenters specifically
objected to the procedure's being tied to a CAMEL rating. Four
commenters recommended that all credit unions should be able to use the
file and serve procedure. One of these commenters suggested NCUA could
then restrict the file and serve authority on a case-by-case basis for
any credit union it had concerns about. One commenter recommended
adding a requirement that the filing credit union have to state that
there was no overlap or existing eligibility for membership in another
credit union for the group to be served.
B. NCUA Board Decision
Many of the commenters' suggestions have been incorporated into the
final IRPS. The new policy will permit well operated federal credit
unions in good standing with NCUA to apply for charter amendments which
authorize the credit unions to make use of a streamlined process for
adding small occupational groups currently without credit union
service. The initial maximum number of persons in a group to be added
under this procedure has been set initially by the NCUA Board at 100.
The Board may be resolution adjust that number from time to time as
appropriate.
XI. Other Procedures for Reviewing Field of Membership Addition
Requests
A. Comments
The proposal sought to clarify the mechanics of requesting
additions to a federal credit union's field of membership. Four
commenters believed that the approval time on select employee group
additions was excessive. Another commenter stated that the field of
membership expansion procedure was burdensome and should be
streamlined. Two commenters supported NCUA's goal of approving or
denying field of membership expansion requests within the ``10 business
day or less'' time frame.
One commenter stated that, in regard to charter amendments, once
NCUA approves one, the board of directors of the credit union should
not subsequently have to adopt it to make it effective.
Two commenters stated that pre-notification of a proposed field of
membership expansion in another credit union's operating area should be
a common courtesy. Three commenters believed the final IRPS should
provide at a minimum for some form of publication and hearings or
period of comment relative to an expansion of any credit union's field
of membership.
B. NCUA Board Decision
The NCUA Board believes that a ten-business-day turnaround for
field of membership amendment requests is reasonable. All regions have
automated the review process so that this time frame should be exceeded
only in extraordinary cases. The Board strongly believes, however, that
a federal credit union's board needs to be involved in the process--
after all, the board is responsible for the institution's overall
direction and control. There are adequate procedures a federal credit
union can put in place to ensure that needed board oversight can be
maintained without delaying initiation of service to a group.
The Board also disagrees that a public notice procedure should be
implemented. The overlap procedures now in place provide adequate
safeguards.
XII. Federalism Concerns
A. Comments
The proposal would permit state-chartered credit unions that are
converting to a federal charter and that had an established history of
being able to serve multiple groups outside of its operational area to
continue to serve these groups without regard to the operational area
requirements normally applicable to new federal multiple group
charters. Three commenters supported the change but suggested that the
concept of operational area be discarded in favor of non-geographic
criteria. One commenter opposed relaxing the rules for converting state
charters.
B. NCUA Board Decision
The Board believes that, with respect to converting state charters,
where the commitment to the group and the ability to provide quality
service have been demonstrated, there is no need to impose the
operational area requirement. The final IRPS maintains this portion of
the proposal. Moreover, the IRPS establishes the same flexibility for
an occupational, associational, and multiple group federal credit union
converting to a community charter.
XIII. Miscellaneous Matters
A. Staff Leasing
1. Comments
The proposal attempted to clarify NCUA's policy on staff leasing
arrangements. The proposal stated that where the requirements of
existing policy were met, the employees leased to a firm listed in a
federal credit union's field of membership might be added as a common
bond expansion. Where those requirements were not met, the elements of
a select group expansion to serve employees of the leasing company had
to be met. When a leasing company was to be included in a credit
union's field of membership, the company had to identify each client
and work location served by the leasing company.
Four commenters favored the leasing clarification. Five commenters
disapproved of the clarification. These commenters believed that the
requirement for specific delineation of each separate company that was
a client of the employee leasing firm was both impractical and
impossible from an operational standpoint.
2. NCUA Board Decision
On reconsideration, it is evident that general policy can be
adequately adapted to the leasing company situation. Therefore, this
portion has been deleted from the final IRPS.
B. Spin-offs, Mergers, and Purchase and Assumptions
1. Comments
The proposal clarified NCUA's policy on mergers, spin-offs and
purchase and assumptions. Four commenters approved of the update on
spin-offs. Three of these commenters specifically approved of the
voting requirements for a spin-off. Seven commenters approved of the
revised merger section. Three commenters approved of the provision to
allow a merged state credit union's field of membership to be served by
the continuing federal credit union even if the inclusion of this field
of membership would otherwise be restricted under NCUA guidelines.
One commenter disapproved of the merger policy. This commenter
believed that by applying an operational area condition to distress
mergers, NCUA is limiting its own range of action. This commenter
further stated that a suitable merger candidate may not be located
within the operational area of a distressed credit union and that it
seemed wasteful to wait for emergency conditions to evolve and moot the
operational area issue.
One commenter suggested that NCUA should be able to put a credit
union for which it is seeking a merger partner into temporary
conservatorship, which would allow public notification and bidding from
interested credit unions. In addition, this commenter stated that
current merger procedures were left to the discretion of each regional
office and suggested NCUA give serious consideration to standardizing
procedures which would give all credit unions an opportunity to bid.
Four commenters suggested allowing community credit unions to merge
with occupational, associational, or multiple group credit unions while
still continuing to serve the former fields of membership of both
credit unions. Two commenters requested that with respect to mergers,
the final IRPS should clarify that when a state chartered credit union
is merged into a federal credit union, the federal credit union would
be allowed to retain the merged state chartered credit union's select
employee groups, regardless of operational area, in order to assure the
vitality of the federal credit union after the merger. Another
commenter agreed with this suggestion and would expand it to all
mergers, including mergers between federal credit unions.
2. NCUA Board Decision
The NCUA Board agrees that operational area limitations should not
be an obstacle to merger of credit unions in distress situations, and
believes this was Congress' intent in giving NCUA emergency merger
authority. The Board has therefore interpreted Section 205(h) of the
Federal Credit Union Act (12 U.S.C. 1785(h)) to permit authorizing as
emergency mergers what have become known since IRPS 89-1 as distress
mergers.
For the reasons stated earlier, however, the Board does not believe
that the operational area limitation should be discarded entirely or
that exercise of NCUA's conservatorship authority should become a
standard part of the merger process.
C. Removal of Groups
1. Comments
The proposal clarified NCUA's policy on the removal of groups from
a federal credit union's field of membership. Four commenters agreed
with the clarification. One of these commenters suggested allowing the
removal of a group when it does not respond to a federal credit union's
repeated attempts to contact them.
2. NCUA Board Decision
The final IRPS incorporates this suggested change.
D. School Systems
1. Comments
The proposal clarified that employees of different school systems
and different government units do not have the same primary sponsor.
Therefore, the addition of the employees of a particular school
district by a federal credit union serving employees of an adjoining
school district would have to be done under the select group addition
procedures. Three commenters concurred with this clarification. Two
commenters disagreed with this proposal. They believed that school
employees in different school districts may share the same common bond
and they should be added under the common bond procedure.
2. NCUA Board Decision
The final IRPS deletes discussion of school systems. They will be
analyzed under general common bond policy. In the vast majority of
cases, different school systems will be considered different common
bonds.
E. Industrial Parks
1. Comments
The proposal suggested modifying existing policy to permit field of
membership expansions to include all employees of office complexes,
industrial parks, shopping centers and similar establishments upon
request from the leasing agent or similar authoritative figure. No
overlap protection would be given to the expanding credit union and
exclusionary clauses would be used to prevent injury to those credit
unions serving a portion of these employees. Sixteen commenters favored
this proposal. One commenter believed NCUA needs to identify other
contacts beside the leasing agent.
Three commenters opposed this modification. One commenter stated
that if NCUA adopted this modification, it should ensure that no
overlap protection was given to the expanding credit union and that
exclusionary language was incorporated into the bylaws of the expanding
credit union to prevent possible injury to other credit unions which
served the same employees. One commenter stated that this modification
would cause numerous overlaps in fields of memberships.
2. NCUA Board Decision
The Board has decided to adopt this proposal with a modification.
Although the proposal stated that exclusionary clauses would be used to
protect overlapped credit unions, the Board believes that the member,
in such cases, should have the ability to use the credit union which
best serves his/her needs. In many cases it might be the industrial
park type credit union that is more attractive to the individual.
Therefore, in general, no overlap protection will be given to the
credit union with the industrial park or similar complex in its
charter. However, the regional director may, for safety and soundness
reasons, provide overlap protection or require exclusionary clauses to
prevent significant economic injury to other credit unions serving a
portion of these employees.
Although NCUA has not specifically identified parties other than
the complex leasing agent or owner, the final IRPS provides sufficient
flexibility in this matter.
F. Outside Vendors
1. Comments
The proposal provided guidance on the safety and soundness concerns
NCUA had with a credit union using outside parties, insurance agents
and car dealers, among others, to recommend select group expansions.
Three commenters approved of this addition. One commenter stated that
this guidance should be expanded to include discussion of indirect
lending.
2. NCUA Board Decision
The final IRPS includes the discussion on outside vendors and has
been expanded to include indirect lending.
G. Approval of Officials
1. Comments
The proposal clarified that NCUA must approve all prospective
officials and management personnel of a newly chartered credit union
during the first two years. A few comments opposed this provision.
2. NCUA Board Decision
The Board has adopted the proposal in the final IRPS since the
requirement is statutory; the reason for its inclusion in the IRPS is
to be a reminder to credit union officials.
H. Appeal Rights
1. Comments
The proposal clarified the appeal rights for new charters and for
those credit unions denied requests for a field of membership
amendment, spin-offs and mergers. Eight commenters supported the appeal
procedure. Nine commenters believed the appeal procedure was
insufficient. Four of these commenters requested that appeals be sent
directly to the central office and bypass the region. One commenter
questioned whether central office staff would act independently of the
regional director. One commenter stated the proposal was unclear on
what rights of appeal an overlapped credit union had involving the
field of membership of another credit union.
The appeal process in the proposal did not include a provision for
oral argument. Six commenters agreed that oral argument before the
Board was unnecessary. Fourteen commenters disagreed.
One commenter suggested the proposal clarify that a resubmission or
additional information for consideration to the Regional Director
within 90 days of a denial should be considered a new request for
purposes of the appeal time limit. Furthermore, the commenter stated,
if the resubmission was denied, the credit union should then have
another 60 days to appeal.
2. NCUA Board Decision
The Board is currently undertaking a complete review of its appeal
process. The final IRPS makes the agency's standard appeal process
applicable.
I. Professional Organizations
1. Comments
The proposal included language to minimize potential conflicts of
interest when adding certain professional organizations to the field of
membership of a federal credit union. Four commenters concurred with
the guidance provided when adding a professional organization to a
field of membership.
2. NCUA Board Decision
The final IRPS includes this portion of the proposal.
J. Corporate Federal Credit Unions
1. Comments
The proposal clarified that corporate credit union chartering and
field of membership issues were handled by the Office of Examination
and Insurance. Four commenters agreed with the proposed change.
2. NCUA Board Decision
The final IRPS includes this portion of the proposal.
K. Appendix C--Type of Membership Classification System
1. Comments
One commenter stated the classification was fixed at the time of
chartering and it was his understanding that it never changed.
Furthermore, in recognition that the membership composition of a credit
union can undergo substantial change over time, this commenter
suggested a procedure be created to provide classification changes.
Otherwise, this commenter believed classification related data would
become increasingly flawed.
2. NCUA Board Decision
Since the coding is used for internal analytical purposes, Appendix
C has been deleted from the final IRPS. As a note, the codes are
changed periodically by NCUA staff.
L. Format of the Manual
1. Comments
One commenter was concerned with the terminology ``field of
membership expansion.'' This commenter believed that all changes in the
field of membership were not for the purpose of expansion and some
field of membership ``modifications'' were based on considerations
other than the mere decision of a credit union to expand. This
commenter recommended replacing the term ``expansion'' with
``modification.'' Two commenters believed the manual should be
reorganized so it would be more accessible to the user.
2. NCUA Board Decision
The Board agrees that not all field of membership changes are
expansions and therefore has replaced the term ``expansion'' with the
term ``amendment.'' The format of the proposed IRPS has been modified
substantially in the final version. Additionally, the IRPS, when put in
the form of a manual, will be indexed to make it easier to use.
Regulatory Procedures
Regulatory Flexibility Act
As was noted in the proposed IRPS, the NCUA Board has determined
that changes to NCUA policy resulting from adoption of the IRPS will
not have a significant economic impact on a substantial number of small
credit unions (primarily those under $1 million in assets). The changes
in the final IRPS clarify existing policy rather than create new
restrictions. Therefore, a regulatory flexibility analysis has not been
performed.
Paperwork Reduction Act
Paperwork requirement should decrease under the final IRPS. The
information collection requirements contained in the IRPS have been
submitted to the Office of Management and Budget (OMB) for approval.
OMB is in the process of reviewing these requirements. A notice of OMB
approval will be published in the Federal Register upon its receipt.
Any comments regarding collection requirement should be forwarded
directly to the OMB Desk Officer indicated below at the following
address: OMB Reports Management Branch, New Executive Office Building,
room 3208, Washington, DC 20503; Attn.: Gary Waxman.
Executive Order
Executive Order 12612 requires NCUA to consider the effect of its
actions on state interests. The final IRPS makes no significant changes
with respect to state credit unions and, therefore, will not materially
affect state interests.
List of Subjects in 12 CFR Part 701
Chartering, Conversions, Credit Union, Field of Membership
Addition, Mergers by the National Credit Union Administration Board on
May 12, 1994.
Becky Baker,
Secretary of the Board.
Accordingly, NCUA amends 12 CFR part 701, supersedes 89-1 and
establishes the following IRPS 94-1 as follows:
PART 701--ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNIONS
1. The authority citation for part 701 continues to read as
follows:
Authority: 12 U.S.C. 1755, 1756, 1757, 1759, 1761a, 1761b, 1766,
1767, 1782, 1784, 1787, 1789, and 1798.
2. Section 701.1 is revised as follows:
Sec. 701.1 Federal credit union chartering, field of membership
modifications, and conversions.
National Credit Union Administration practice and procedure
concerning chartering field of membership modifications, and
conversions are set forth in Interpretive Ruling and Policy Statement
94-1--Chartering and Field of Membership Policy (IRPS 94-1). The IRPS
is incorporated into this regulation.
3. IRPS 89-1 is superseded by the following IRPS 94-1:
[Note: The following ruling will not appear in the Code of
Federal Regulations.]
CHAPTER 1--FEDERAL CREDIT UNION CHARTERING
I--Goals of NCUA Chartering Policy
NCUA's chartering policies are directed toward achieving three
goals:
to uphold the provisions of the Federal Credit Union Act
concerning granting federal charters
to promote credit union safety and soundness
to make quality credit union service available to all
eligible groups who wish to have it.
NCUA may grant a charter to any group or combination of groups
desiring credit union service where it finds:
the group or groups possess an appropriate common bond;
the subscribers are of good character and are fit to
represent the group; and
establishment of the credit union is economically
advisable--i.e., it will be a viable institution and its chartering
will not materially affect the interests of other credit unions or the
credit union system.
Generally, these are the only criteria NCUA will look to. In
unusual circumstances, however, NCUA may consider other factors, such
as other federal law or public policy, in deciding if a charter should
be approved.
II--Common Bond
Congress, in the Federal Credit Union Act, has recognized three
types of federal credit union common bonds--occupational,
associational, and community. A federal credit union may also consist
of a combination of occupational, associational, and, in certain
limited circumstances, community groups. For example, NCUA may charter
a federal credit union consisting of employees of a local school
district and members of a church group.
The Federal Credit Union Act and NCUA recognize that individual
groups have their own common bond. All of the groups belonging to one
particular credit union included in Section 5 of the credit union's
charter make up the credit union's field of membership. If the charter
is granted, the federal credit union will only be able to grant loans
and provide services to persons within the groups defined in the field
of membership.
If a federal credit union later wishes to add persons to its field
of membership, it must comply with the procedures set forth in Chapter
2.
II.A--Occupational Common Bonds
II.A.1--General
A federal credit union may include in a single occupational common
bond, regardless of location, any and all persons who share that common
bond. NCUA permits a person's membership in an occupational common bond
to be established in a number of ways:
Employment (or a long-term contractual relationship
equivalent to employment) in a single corporation or other legal entity
makes that person part of an occupational common bond of employees of
the entity.
Employment in a corporation or other legal entity with an
ownership interest in or by another legal entity makes that person part
of an occupational common bond of employees of the two entities.
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 an occupational common bond of employees of the two
entities.
A proposed federal credit union must supply documentation from as
many authorized representatives as are needed to establish that all
persons to be included in a single occupational common bond are in fact
linked in one of the ways described above.
An occupational common bond must include a geographic definitions,
e.g., ``employees, officials, and persons who work regularly under
contract in Miami, Florida for ABC Corporation or any of these
majority-owned subsidiaries. * * *'' Other acceptable geographic
definitions are: ``employees of * * * who are paid from * * *'' or
``employees of * * * who are supervised from * * *'' To the maximum
extent possible, setting geographic definitions by changeable corporate
or division boundary--e.g., ``employees of Federal Reserve District
6''--is to be avoided.
So that NCUA may monitor any potential field of membership
overlaps, each group to be served (e.g., employees of subsidiaries,
franchisees, and contractors) may be separately listed.
The employer may also be included in this common bond--e.g., ``ABC
Corporation and its subsidiaries.'' The employer group will be defined
in the last clause describing the field of membership.
II.A.2--Sample Occupational Fields of Membership
Some examples of occupational group definitions are:
``Employees of the Scott Manufacturing Company who work in
Chester, Pennsylvania. * * *'' (common bond--same employer)
``Employees and elected and appointed officials of
municipal government in Parma, Ohio. * * *'' (common bond--same
employer)
``Employees of Johnson Soap Company and its majority-owned
subsidiary, Johnson Toothpaste Company, who work in Augusta and
Portland, Maine. * * *'' (common bond--parent and majority-owned
subsidiary company)
``Personnel of fleet units of the U.S. Navy home ported at
Mayport, Florida. * * *'' (common bond--same employer)
``Department of Defense civilian and U.S. Army personnel
who work or are stationed at, or are attached or assigned to Fort
Belvoir, Virginia, or those who are retired from, or their dependents
or dependent survivors who are eligible by law or regulation to receive
and are receiving benefits or services from, that military
installation. * * *'' (common bond--same employer)
``Employees of those contractors who work regularly at
U.S. Naval Shipyard in Bremerton, Washington. * * *'' (common bond--
employees of contractors)
``Employees, doctors, medical staff, technicians, medical
and nursing students who work at Boston Medical Center at the locations
stated: * * *'' (common bond--same employer)
``Employees and teachers who work for the School District
Number 3 in Austin, Texas * * *.'' (common bond--same employer)
``Employees of the JKL Employee Leasing Company who are
paid from Lake Charles, Louisiana * * *.'' (common bond--same employer)
``Employees of JKL, Inc. and STU, Inc. working for the XYZ
Joint Venture Company in Los Gatos, California * * *.''
Some examples of insufficiently defined occupational groups are:
``Employees of engineering firms in Seattle, Washington.''
(Not the same occupational common bond, since various firms compete
against one another; names of firms must be stated; however, may be the
basis for a multiple group charter.)
``Persons employed or working in Chicago, Illinois.'' (No
common bond; names of firms must be stated.)
``Persons working in the entertainment industry in
California.'' (No occupational common bond, since firms compete against
one another; names of firms must be stated.)
II.B--Associational Common Bonds
II.B.1--General
A federal credit union may include in its field of membership,
regardless of location, all members of a recognized association.
NCUA limits this common bond to groups consisting primarily of
individuals (natural persons) who participate in activities developing
common loyalties, mutual benefits, and mutual interests. Except for
student, church, and similar groups, all associational common bonds
will include a definition of the group that may be served based on the
effective date of the association's charter and bylaws and a geographic
limitation. Therefore, with the exceptions noted above, applicants for
an associationally-based federal credit union charter must provide a
copy of the association's charter and bylaws.
Qualifying associational groups must hold meetings open to all
natural person members at least once a year, must sponsor other
activities which clearly demonstrate that the members of the group meet
and interact regularly to accomplish the objectives of the association,
and must have an authoritative definition of who is eligible for
membership--usually, this will be the association's charter and bylaws.
In determining whether a group satisfies the common bond
requirement for a federal credit union charter, NCUA will consider the
totality of the circumstances--such as whether members pay dues, have
voting rights, and hold office, whether the group maintains a
membership list, the clarity of the associational group's definition
and compactness of its membership, and the frequency of meetings and
the interaction of members. A support group, whose members are
continually changing, may not meet the criteria.
NCUA's focus with respect to chartering associational federal
credit unions will be on the group's natural person members. In certain
instances, however, NCUA will also allow non-natural persons (e.g.,
corporate sponsors, entities participating in programs to alleviate
poverty and distress, or organizations of members) to be eligible for
membership. It is not necessary that every non-natural person member of
the group be a recognized legal entity; NCUA will consider such groups
on a case-by-case basis.
Student groups--for example, parent-teacher organizations, alumni
associations, and students in a trade school or other curriculum--and
church groups constitute associational common bonds and may qualify for
a federal credit union charter. Since such groups usually do not have a
formal association charter, there is no requirement for these groups to
provide a charter or bylaws.
Homeowners associations, tenant groups, electric co-ops, consumer
groups and other groups of persons having an ``interest in'' a
particular cause and certain consumer cooperatives may be eligible to
receive a federal charter. However, they must make a strong showing of
common activities which clearly demonstrate that the group meets and
interacts regularly to accomplish the objectives of the association.
Furthermore, they must provide clear evidence of economic viability.
Newly-organized associations must make a similar strong showing of
common activities. Experience has shown that a new group's efforts are
best focused on solidifying member interest before attempting to offer
credit union service.
The associational sponsor itself may also be included in the field
of membership--e.g., ``ABC Association''--and will be shown in the last
clause of the field of membership.
II.B.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 state dated
in the field of membership, the credit union must submit the revised
charter or bylaws for NCUA's consideration prior to serving members of
the association added as a result of the change. This type of field of
membership amendment will require following select group amendment
procedures discussed in Chapter 2.
II.B.3--Widely Dispersed Associational Charters
NCUA policy is to charter associational federal credit unions at
the lowest organizational level which is economically feasible. NCUA
will grant associational charters with widely dispersed memberships
only where clearly demonstrated to be in the best interests of the
association's members and the credit union community, and only after
scrutinizing the adequacy of the applicant's common bond and the
economic advisability of a more compact field of membership. NCUA, in
its discretion, may require that the proposed field of membership be
narrowed before granting a new charter. Amendment to include a larger
portion of the association's members may be allowed at a later time, if
appropriate.
Also, as with any widely dispersed group, overlap issues are likely
to arise, either at the time of or subsequent to chartering. NCUA will
consider the effect that granting a charter with such a group in its
field of membership would have on any number of existing credit unions.
In addition, an associational credit union with a widely dispersed
membership may expect overlaps, particularly at the local level, to be
granted to other credit unions in the future.
In recognition of these unique circumstances, NCUA follows a
separate internal procedure for associational charter applications for
associations with proposed fields of membership of 500 or more persons
which cross NCUA regional boundaries. NCUA's Director of Examination
and Insurance and all NCUA regional directors with any of the
association's members located in their region must vote on the charter
application. A majority vote is required for approvals. Tie votes are
referred directly to the NCUA Board for decision.
II.B.4--Limits of Associational Common Bond
Except for retiree clubs and low-income groups (discussed below),
associations formed primarily to obtain a federal credit union charter
do not have a sufficient associational common bond. Similarly,
associations based on a client-customer relationship--for example, an
insurance company and its customers or a buyer's club and its members--
do not have a sufficient associational common bond.
The common bond extends only to the association's members. The
employees of a member of a local chamber of commerce, for example, do
not have a sufficiently close tie to the association to be included. A
proposal to include these persons among those to be served by the
federal credit union may be considered as a multiple-group charter
application. In such cases, letters of support and request for service
must be provided from each separate entity.
II.B.5--Sample Associational Fields of Membership
Some examples of associational group definitions are:
Regular members of Locals 10 and 13, IBEW, Miami, Florida,
who qualify for membership in accordance with their charter and bylaws
in effect on May 20, 1994.''
``Members of the Hoosier Farm Bureau who live or work in
Grant, Logan, or Lee Counties of Indiana, who qualify for membership in
accordance with its charter and bylaws in effect on March 7, 1994.''
``Members of the First Baptist Church in Topeka, Kansas.''
``Members of the Shalom Congregation in Chevy Chase,
Maryland.''
``Regular members of the Corporate Executives Association,
located in Westchester, New York, who live or work in Westchester,
Rockland, and Suffolk Counties in New York, who qualify for membership
in accordance with its charter and bylaws in effect on December 1,
1994.''
``Members of the Northern Michigan Electric Co-op located
in Marquette, Michigan.''
``Members of the ABC Association living or working in New
York, New York, who qualify for membership in accordance with its
charter and bylaws in effect on January 21, 1994.'' Some examples of
insufficiently defined associational group definitions are:
``Members of military service clubs in the State of New
Mexico.'' (No single associational tie; specific clubs and locations
must be named; may be considered as multiple group.)
``Veterans of U.S. military service.'' (Group is too
broadly defined; no formal association of all members of the group.)
Some examples of unacceptable associational common bonds are:
``Members of ABC Buyers Club.'' (An interest in purchasing
does not meet associational standards.)
``Customers of ABC Insurance Company.'' (Policyholders or
customer/client relationships do not meet associational standards.)
II.C--Community Common Bonds
II.C.1--General
Congress requires that a credit union charter based on a tie to a
specific geographic location be limited to ``a well-defined
neighborhood, community, or rural district.'' NCUA policy is to limit
the community to a single, geographically well-defined area where
residents interact.
NCUA recognizes three types of affinity on which a community common
bond can be based--persons who live in, persons who worship in, and
persons who work in the community. Businesses and other legal entities
within the community boundaries may also qualify for membership. Given
the diversity of community characteristics throughout the country and
NCUA's goal of making credit union service available to all eligible
groups who wish to have it, NCUA has established the following common
bond requirements for community charters:
The geographic area's boundaries must be clearly defined;
and
The charter applicant must establish that the area is
recognized as a distinct ``neighborhood, community, or rural
district.''
II.C.2--Special Documentation Requirements
Information to support that the area chosen represents one well-
defined area, distinguishable from the immediate surrounding areas,
includes:
political jurisdictions
major trade areas (shopping patterns)
traffic flows
shared/common facilities (for example, educational,
medical, police and fire protection, school district, water, etc.)
organizations/clubs whose membership is made up
exclusively of persons within the area
newspapers or other periodicals published for and about
the area
census tracts
common characteristics and background of residents (for
example, income, religious beliefs, primary ethnic groups, similarity
of occupations, household types, primary age group, etc.)
history of area
in general, what distinguishes the chosen area and its
residents to be distinguishable from the immediate surrounding areas
and residents--some examples are old, well established ethnic
neighborhoods, planned communities and small/rural towns
The following information must be provided to support a need for a
community credit union:
a list of credit unions presently in area
a list of other financial institutions (for example,
banks, savings and loan associations) that service the area
Necessary written documentation (for example, letters, surveys,
studies, pledges, petitions) reflecting support for the application for
or the conversion to a community credit union is as follows:
For the residents of the area:
Approximate number contacted.
Number in favor of the credit union.
Number against the credit union.
Number who will join the credit union.
Number who have pledged initial and/or systematic savings
and amount of pledges.
For the employers:
Number of area employers and number of employees.
Number contacted.
Number in favor of the credit union.
Number against the credit union.
Number willing to provide payroll deductions to the credit
union.
Number willing to provide other type(s) of support to the
credit union.
For organizations (including churches):
Number in areas and number of members.
Number contacted.
Number in favor of the credit union.
Number against the credit union.
Number willing to provide some type of support to the
credit union, i.e., advertising facilities, etc.
letters of support from area civic leaders.
If the community is also a recognized legal entity, it may comprise
or be included in the field of membership--for example, ``DEF Township,
Kansas'' or ``GHI County, Minnesota.''
II.C.3--Community Service Area
The service area of a community federal credit union is the area
defined in its charter, usually with north, east, south, and west
boundaries.
II.C.4--Sample Community Fields of Membership
Some examples of community common bond definitions are:
``Persons who live or work in, and businesses located in
the area of XYZ City bounded by Fern Street on the north, Long Street
on the east, Fourth Street on the south, and Elm Avenue on the west.''
``Persons who live or work in Green County, Maine. . . .''
``Persons who live, worship or work in and businesses and
other legal entities located in Independent School District No. 1,
DuPage County, Illinois. . . .''
``Persons who live or work within a twenty mile radius of
the main post office in Walnut, Illinois. . . .'' (Rural areas only.)
Some examples of insufficiently defined community common bond
definitions are:
``Persons who live or work within and businesses located
within a ten-mile radius of Washington, DC.'' (Not a recognized
neighborhood, community, or rural district.)
``Persons who live or work in the industrial section of
New York, New York.'' (Not a recognized neighborhood, community, or
rural district.)
II.D--Multiple Occupational/Associational Common Bonds
II.D.1--General
NCUA may charter a federal credit union to serve a combination of
distinct, definable occupational and/or associational common bonds. For
a common bond which will constitute a majority of the federal credit
union's field of membership, the requirements for occupational and
associational fields of membership apply. Any other group constituting
an occupational or associational common bond to be included within the
federal credit union's field of membership must be within what will be
the credit union's operational area.
A proposed federal credit union's operational area is the area
which, as determined by NCUA in its sole discretion, may reasonably be
served by the service facilities that will be accessible by the groups
to be included in the field of membership when the credit union begins
operation. A credit union's service facility is a place where, also as
determined by NCUA in its sole discretion: (1) Shares are accepted for
members' accounts; (2) loan applications are accepted or loans are
disbursed; (3) a member can deal directly with a credit union
representative; and (4) the service provided is clearly associated with
that particular credit union. An automated teller machine or similar
device is not a federal credit union service facility. Similarly, a
branch or service center shared by a number of credit unions is not a
service facility for purposes of this Chapter.
Any members of a group who will have access to one of a proposed
federal credit union's service facilities may be included in the field
of membership. In addition, the group as a whole will be considered to
be within a proposed credit union's operational area when:
A majority of the group's members live, work, or gather
regularly within the operational area;
The group's headquarters is located within the operational
area; or
The group's ``paid from'' or ``supervised from'' location
is within the operational area.
The following special additional requirements pertaining to
multiple group applications must be satisfied before NCUA will grant
such a charter:
Each group to be included in the proposed field of
membership of the federal credit union must have its own occupational
or associational common bond.
Except for employee groups in the same industrial park,
shopping center or similar facility, each group must individually
request inclusion in the proposed federal credit union's charter.
The proposed federal credit union's business plan must
show that the credit union will possess the financial resources and
management capability to provide quality credit union service to each
group.
The proposed federal credit union must show that, when it
begins operations, each group to be added will be within the
operational area of a service facility to which the group will have
access.
II.D.2--Sample Multiple Group Field of Membership
An example of a multiple group field of membership is: ``The field
of membership of this federal credit union shall be limited to the
following:
1. Employees of Dupont Corporation who work in Wilmington,
Delaware;
2. Partners and employees of Smith & Jones, Attorney at Law, who
work in Wilmington, Delaware;
3. Members of the GHI Association who live in Wilmington, Delaware,
and qualify for membership in accordance with its charter and bylaws in
effect on December 31, 1994.
II.D.3--Additional Documentation
For multiple group charters, NCUA will need the following, in
addition to what is required for new charters generally:
For each group seeking to be included in the proposed
federal credit union's field of membership, the credit union must
provide a letter from the group, on the group's letterhead stationery
and signed by an official representative of the group wherever
possible, or if that is not possible, such other documentation or
certification as the regional director may, in his or her discretion,
deem appropriate, containing this information:
The fact that the group wants to obtain service from the
proposed federal credit union, the kind of service it desires and the
credit union has agreed to provide, and the extent to which the group
supports the credit union--e.g., by providing access to its employees
or members via payroll deduction, by permitting use of employee or
members' newsletter, etc.
The number of employees or members in the group.
The proximity to the proposed federal credit union's
closest service facility.
The name of any credit union to which the group currently
has access.
The group's headquarters location and all other work
locations the credit union is proposing to serve.
If the group is eligible for membership in another credit
union, documentation must be provided to support inclusion of the group
under the standards set forth in the ``Overlaps'' section of this
chapter.
II.E--Other Persons Sharing Common Bond
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.''
Members of their immediate families.''
``Volunteers.''
``Organizations of such persons.''
``Members of their immediate families'' may be generally defined as
deemed appropriate by a federal credit union when including this group
among those to be served. To be made effective, however, the federal
credit union's board of directors must approve the definition by
resolution, and include it in Article XVIII, Section 2, of its by-laws.
NCUA approval is not necessary.
Volunteers, by virtue of their close relationship with a sponsor
group, may be included. Examples include volunteers working at a
hospital or church.
Under Article II, Section 5, of NCUA's Standard Bylaws, if a member
leaves the field of membership, standard member services are
terminated. However, the board of directors may, by resolution, set
forth the circumstances under which a member may maintain membership.
This option is commonly referred to as the ``once a member, always a
member'' bylaw provision. NCUA approval is not necessary here, either.
III--Subscribers
Federal credit unions are organized by persons who donate time and
resources and are responsible for determining the interest, commitment,
and advisability of forming a federal credit union. The organization of
federal credit union takes considerable planning and dedication in
order to ensure the success of the new credit union.
Persons interested in organizing a federal credit union should
contact the NCUA regional office serving the state in which the credit
union will be organized or one of the trade associations. Lists of NCUA
offices and 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.
A credit union organizer may be a trade association representative
or a person with training and experience in chartering new federal
credit unions. 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 group members are critical to the chartering
process.
The Federal Credit Union Act requires that seven or more natural
persons--the ``subscribers''--must 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.
The term of the existence of the corporation, which may be
perpetual.
The fact that the certificate is made to enable such
persons to avail themselves of the advantages of the Federal Credit
Union Act.
False statements on the organization certificate may be grounds for
federal criminal prosecution.
IV--Economic Advisability
IV.A--Viability
IV.A.1--General
Before chartering a federal credit union, NCUA must be assured that
the institution will be viable and that it will not materially affect
existing state or federal credit unions. This economic advisability
inquiry has become especially important since 1970, when Congress
assigned NCUA the obligation to establish a fund insuring credit union
members' shares and to preserve that fund.
NCUA will conduct an independent on-site investigation of each
charter application to assure itself that the proposed credit union can
be successful. In general, the success of any credit union depends on:
(a) the depth of the members' support; (b) the character and fitness of
management; and (c) present and projected market conditions.
IV.A.2--Proposed Management's Character and Fitness
The Federal Credit Union Act requires NCUA to satisfy itself as to
the ``general character and fitness'' of the subscribers. In addition,
prospective officials and employees will be the subject of credit and
background investigations. The investigation reports must demonstrate
their ability to effectively handle financial matters.
NCUA also needs 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.
IV.A.3--Member Support
While NCUA has not set a minimum size field of membership for
chartering a federal credit union, experience has shown that a credit
union with under 500 potential members generally is unlikely to
succeed. Therefore, a charter applicant with a proposed field of
membership of under 500 will have to demonstrate convincing support for
the credit union. For example, a small occupational group must
demonstrate a commitment for significant long-term support from the
employer.
The group's size is meaningful only if members participate in the
credit union. The charter applicant must show that a substantial
percentage of the group's members will join the credit union and use
its services. Survey results must be based, at a minimum, on a sampling
of 250 potential members. In particular instances, especially where the
common bond is broadly defined or newly established, NCUA may require a
larger sampling.
IV.A.4--Present and Future Market Conditions--Business Plan
IV.A.4.a--General
The ability to compete in the marketplace and to adapt to changing
market conditions is key to the survival of any enterprise, and a
crucial part of that is the ability to plan well. NCUA, therefore,
requires an applicant to submit a business plan based on realistic and
supportable projections and assumptions, including, as a minimum, these
elements:
Mission statement.
Analysis of market conditions--economic prospects for the
group, availability of financial services from other credit unions,
banks, and savings and loans.
Summary of survey results.
Financial services needed/desired.
Financial services to be provided.
How/when services are to be implemented.
Staffing of credit union and credentials of key employees.
Physical facility--office, equipment.
Type of recordkeeping system, including consideration of a
data processing system.
Budget for 1st and 2nd year.
Semiannual pro forma financial statements for 1st and 2nd
year, including assumptions--e.g., loan and dividend rates.
Goals for number of members.
Goals for operating independently.
Source of funds to pay expenses during initial months of
operation.
Written policies (shares, lending, investments, funds
management, capital accumulation, dividends).
Goals for shares and loans.
Plan for continuity--directors, committee members.
Evidence of sponsor commitment if subsidies are critical
to success of the federal credit union--evidence may be in the form of
letters, contracts, or any other such document on which the proposed
federal credit union can substantiate its projects.
NCUA expects that the subscribers and proposed officials will
understand and support the business plan submitted.
IV.A.4.b--Special Requirements for Community Credit Unions
Community credit unions are frequently more susceptible to
competition from other local financial institutions and generally do
not have substantial support from any single sponsoring company or
association. Also, the lack of payroll deduction creates special
challenges in the development of savings promotion programs and in the
collection of loans. Therefore, it is essential for the group to
develop a detailed and practical business plan for at least the first
three years of operation. The business plan should contain, but not
necessarily be limited to, the following:
Analysis of market area--geographic, demographic,
employment, income, housing, and economic data.
Service/market strategy--financial and other services to
be provided, new member/share/loan promotion policies and procedures
and income generation strategy.
Organizational/management plan--qualification and planned
training of officials/employees, operating facilities to include office
space/equipment and supplies, accounting system, safeguarding of
assets, insurance coverage, etc.
Financial plan--sources and application of funds
statements and pro forma balance sheet and income/expense statements
and assumptions.
IV.B--Effects on Other Credit Unions--Overlaps
(This discussion pertains to new and existing charters.)
IV.B.1--Overlaps In General
An overlap exists when a group of persons is eligible for
membership in two or more credit unions, including state charters.
General policy requires that every reasonable effort be made to avoid
an overlap. Ideally, a group of persons should be included in the field
of membership of only one credit union.
New credit unions are obligated to investigate the possibility of
an overlap prior to submitting an application for a new charter by
surveying the prospective field of membership.
When a potential overlap situation does arise, officials of the
involved credit unions must attempt to work the problem out between or
among themselves. In the case of a new federal credit union applying
for or converting to a community field of membership, the applicant
will generally be required to contact only those credit unions with a
service facility within the community boundary. Other credit unions
serving select groups within the proposed area will not ordinarily be
contacted or afforded overlap protection unless a significant portion
of their field of membership is affected. If the matter is resolved
informally, the applicant must submit a letter to that effect from the
credit union whose field of membership already includes the subject
group.
If no resolution is possible, an application for a new charter may
still be submitted, but must also include information regarding the
overlap and document attempts at informal resolution. Documentation on
the interests of the group, such as a petition signed by a majority of
the group's members, will be strongly considered.
When resolution of the issue is not possible, and other
circumstances warrant, an overlap may be permitted. Among the
circumstances which may justify an overlap are:
Failure of the original credit union to provide quality
service.
Limited participation by members or employees of the group
in the original credit union after the expiration of a reasonable
period of time.
Incidental overlap--the group of persons in question is so
small as to have no material effect on the original credit union.
In reviewing the overlap, the regional director will consider the
nature of the issue, efforts made to resolve the matter, financial
effect on the overlapped credit union, the desires of the group(s), the
desire of the sponsor organization, the opinion of the state credit
union supervisor and other interested parties, as applicable, and the
best interests of the affected group and the credit union members
involved.
Potential overlaps of a 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. However, where a state credit
union's field of membership is so general as to include virtually
everyone in a wide area, NCUA may exclude any state credit union from
overlap protection altogether just as it would with a federal credit
union with a broadly defined field of membership. Prior to making that
decision, the regional director will consult the credit union and the
state regulator. Any decision by the regional director will be provided
in writing to the credit union and the state regulator.
Generally, NCUA will permit federal credit unions serving
occupational groups to overlap associational and community charters.
However, should the proposed overlap pose significant safety and
soundness concerns, NCUA may provide overlap protection for any type
charter. For example, labor union groups constitute an associational
common bond, and while some labor unions serve members who work
regularly for several employers, others have members who work for only
one employer. In these latter cases, overlap protection may be provided
if a substantial portion of the company's employees are served by the
credit union.
Some situations may not justify approval of a requested overlap.
For example, if the requesting credit union offers certain specialized
services not offered by the original credit union (such as credit
cards, ATMs, and IRAs), the extra services alone may not justify the
overlap. Also, proximity, by itself, may not warrant approval of an
overlap. A federal credit union in Chicago, Illinois, may not have a
convincing argument, based on geography alone, that a select group also
located in Chicago would be better served by it than by the select
group's headquarters credit union located in Dallas, Texas.
From an overlap prevention perspective, new charter applicants and
every occupational or associational group which comes before the
regional director for affiliation with an existing federal credit union
must advise in writing whether the group is included within the field
of membership of any other credit union. This requirement will alert
the regional director to possible overlap situations before they occur.
Most potential field of membership conflicts can be avoided in this
way. If cases do arise where the assurance given to a regional director
concerning unavailability of credit union service turns out later to be
inaccurate, the misinformation is grounds for removal of the group from
the federal credit union's charter.
IV.B.2--Overlap Issues as a Result of Organizational Restructuring
A federal credit union's field of membership will always be
governed by the group 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 a
group described in Section 5. Where acquisitions are made which add a
new wholly-owned or majority-owned subsidiary, the group cannot be
served until the subsidiary is included in the field of membership.
Overlaps may occur as a result of restructuring of the parent
organization. Credit unions affected by organizational restructuring
are required first to attempt to resolve overlap issues among
themselves. Once the affected credit unions reach agreement, they must
apply to NCUA for a modification of their fields of membership to
reflect the groups each will serve.
In addition, credit unions must submit to NCUA correspondence from
the parent organization explaining the restructuring and providing
information regarding the new organizational structure. To help in
future monitoring of overlaps, the organizational structure should
identify divisions and subsidiaries and the location and number of
employees at each location.
Overlaps may also occur as a result of the parent organization's
merger. NCUA's general policy of avoiding overlaps applies to those
resulting from corporate mergers as well. Affected credit unions must
make every reasonable effort to identify up front and address the
overlap issue raised by parent corporation mergers and must attempt to
resolve any differences among themselves. In those rare cases which
require NCUA's intervention, all attempts to resolve the issues must be
fully documented by the affected credit unions.
Affected credit unions should consider consolidation (merger) of
institutions as a possible alternative to dividing up the field of
membership, particularly if safety and soundness concerns exist or
future viability is in question. A federal credit union which has a
broad based field of membership generally has a better chance of
survival when a sponsor restructures or closes.
While neutral, NCUA will make the final decision regarding field of
membership amendments, taking into account the credit unions'
agreements, safety and soundness concerns, the desires of the members,
the significance of the overlap and other relevant issues.
NCUA will be flexible when working with credit unions affected by
parent corporation mergers and divestitures. Where no other credit
union service is available and the sponsor and its employees desire to
continue service, NCUA may use wording such as the following:
``Employees of XYZ Corporation, formerly a subsidiary of ABC,
Incorporated, located in Charleston, South Carolina. . . .''
IV.B.3--Overlaps-Exclusionary Clauses
This discussion pertains to new and existing charters.)
Where two credit unions agree and/or NCUA has determined that an
overlap should be avoided, this decision may need to be memorialized in
a federal credit union's charter through an exclusionary clause.
Examples of exclusionary wording are:
Persons who work for Hilo Sugar Company, except those who
work in or are paid from or are supervised from San Francisco,
California.
Persons who work for the ABC Co., except those employed by
the XYZ Division as of June 30, 1994.
Persons who work for the ABC Co., except those who were
members of the XYZ Federal Credit Union as of June 30, 1994.
Exclusionary clauses are very difficult for credit unions and NCUA
to monitor properly. To minimize this difficulty, NCUA generally does
not require federal credit unions to apply exclusionary clauses to
persons eligible for membership in another credit union simply because
they are one of the ``other persons sharing common bond'' listed in
Section II.E of this Chapter.
Moreover, if phrased improperly or used in situations for which
they are not suited, exclusionary clauses can be ineffective or create
obvious inequities--one spouse may be eligible for membership in a
federal credit union while the other may not; one employee may be
eligible for credit union service while the person working next to him
or her may not. For this reason, exclusionary clauses are rarely if
ever appropriate for inclusion in a community charter's field of
membership as a way to resolve overlap concerns.
One example of an appropriate use of an exclusionary clause may be
where there is a merger of two corporations served by two credit unions
which will continue to serve their groups as they had prior to their
sponsors' consolidation. Addition of an exclusionary clause to the
field of membership of one or both of the credit unions may be the best
way to clarify the division of service responsibility within the new
corporate entity.
When an exclusionary clause is included in a federal credit union's
field of membership, NCUA will strive to define as precisely as
possible:
The identity of the group to be excluded;
Whether the exclusion is to apply to the entire group or
only to those who are actually members of another credit union; and
Whether the exclusion is to apply only to the current
members of the group or to future members as well.
V--Special Situations
There are some instances where, because of overriding policy,
special common bond rules apply. To ensure quality service to as many
low-income and senior citizens as possible, NCUA has established
broader common bond rules for federal credit unions seeking to serve
those groups. Further, to expedite service to groups in industrial
parks, shopping centers, and similar areas, the documentation
requirements for federal credit unions seeking to serve these groups
have been simplified. Finally, to ensure consistency throughout the
credit union movement, NCUA has centralized decision making for the
corporate credit union program in the Central Office.
V.A--Low-Income Credit Union Groups
V.A.1--General
A low-income credit union is defined in Part 701.32 of the NCUA
Rules and Regulations as one where a majority of its members either
earn less than 80 percent of the average for all wage earners as
established by the Bureau of Labor Statistics, or whose annual income
falls at or below 80 percent of the median household income for the
nation. In documenting its low-income membership, a credit union that
serves a geographical area where a majority of residents fall at or
below the annual income standard is presumed to be serving
predominantly low-income members.
A credit union designated by NCUA as serving predominantly low-
income members has greater flexibility in accepting non member deposits
insured by the National Credit Union Share Insurance Fund. It also may
participate in special funding programs such as the Community
Development Revolving Loan Program for Credit Unions if it is involved
in the stimulation of economic development and community revitalization
efforts. A credit union participating in the revolving loan program is
also eligible for technical assistance. The requirements for
participation in the revolving loan program are set forth in Part 705
of NCUA's Regulations. Only operating credit unions are eligible for
participation in the revolving loan program.
A federal credit union charter applicant meeting the definition of
a low-income credit union should forward a separate request for low-
income designation, along with appropriate documentation, at the time
the charter application is submitted. A charter applicant's low-income
designation will be based on its primary field of membership and not on
its actual members as is the practice for operating credit unions. In
most cases, if the credit union qualifies, NCUA will grant the charter
and low-income designation simultaneously.
A low-income federal credit union charter applicant may contract
with a third party to assist in the chartering process. Even after the
charter is granted, a low-income credit union may contract with a third
party to provide necessary management services. Such contracts should
be for a duration of one year subject to renewal. However, within three
years of commencement of operations, the credit union should no longer
require such services.
V.A.2--Special Common Bond Rules for Low-Income Federal Credit Unions
Generally, a low-income credit union is chartered as a community or
associational credit union. A low-income credit union that has a
community common bond may include the following language in its field
of membership:
``Persons who live in [the target area]; persons who regularly
work, worship, perform volunteer services, or participate in
associations headquartered in [the target area]; persons participating
in programs to alleviate poverty or distress which are located in [the
target area]; incorporated and unincorporated organizations located in
[the target area] or maintaining a facility in [the target area]; and
organizations of such persons.''
In recognition of the special efforts needed to help make credit
union service available to persons in low-income communities, NCUA
permits credit union chartering and field of membership amendments
based on associational groups formed for the sole purpose of making
credit union service available to low-income persons. The association
must be defined so that all its members will meet the low-income
definition of Part 701.32 of NCUA's Regulations. The association, in
documenting its low-income membership, may use the same types of
documentation as is currently permitted for determining whether a
community is low-income under Part 701.32 of NCUA's Regulations.
In addition, a proposed low-income community or associationally
based federal credit union may include in its field of membership,
without regard to location, another group constituting an occupational,
associational or community common bond. Except for the operational area
requirements, the proposed credit union must meet all the requisites
for including the group in its charter. Moreover, the proposed credit
union must take care to ensure that it will continue to meet the
requirements for low-income status.
V.A.3--Special Common Bond Rules for Other Federal Credit Unions
Seeking to Serve Low-Income Persons
In the interest of making credit union service available to persons
in low-income communities, NCUA also permits any occupational,
associational, multiple group, or community federal credit union to
include in its field of membership, without regard to location,
communities and associational groups satisfying the low-income
definition of Part 701.32 of NCUA's Regulations. The associational
group may be formed for the sole purpose of providing eligibility for
federal credit union service, but must comprise only persons meeting
NCUA's low-income definition.
The federal credit union adding the low-income community or
association must document that the community or association meets the
low income definition in Part 701.32 of NCUA's Regulations, just as is
required for a designated low-income credit union. A federal credit
union adding such a community or association, however, would not be
able to receive the benefits, such as expanded use of non member
deposits and access to the Community Development Revolving Loan Program
for Credit Unions, offered to low-income credit unions.
A federal credit union that desires to include a low-income
community or association in its field of membership must first develop
a business plan specifying how it will serve the entire low-income
community. The business plan, at a minimum, must identify the credit
and depository needs of the low-income community or association and
detail how the credit union plans to serve those needs. The credit
union will be expected regularly to review the business plan as well as
loan penetration rates in the community to determine if the community
is being adequately served. NCUA will require periodic service status
reports on its service to the low-income community and may review the
credit union's service to low-income persons during examinations.
V.B--Retiree and Senior Citizen Groups
Special common bond rules also apply for providing service to
retiree and senior citizen groups. It is NCUA policy to encourage
federal credit unions to bring credit union service to senior citizens
(aged 50 and over) and retired persons. To help in this effort, federal
credit unions may form associations of such persons for the sole
purpose of providing eligibility for credit union service. Except for
the minimum age requirement of 50, the definition of a senior citizen
is left to the credit union's discretion. Moreover, the only
documentation requirement for including such an association in a
federal credit union's charter is a written request from the credit
union; no request from the group or copy of the association's charter
or bylaws will be needed. In all other respects, however, the
requirements for including an association in a federal credit union's
field of membership apply, including those relating to the credit
union's operational area.
V.C--Employees at Industrial Parks, Shopping Centers, and Similar
Areas
A federal charter may include in its field of membership persons
working in a particular industrial park, shopping mall, office complex,
or similar development either through a community or multiple group
charter.
If the multiple group option is selected, NCUA permits the credit
union to satisfy the requirement for a request from each of the groups
through a request by the complex owner, leasing agent, or similar
responsible official. The complex owner, leasing agent or similar
official must provide information regarding credit union service
available to any segment of the proposed select group amendment or
proposed federal credit union. It is up to the applicant credit union
to investigate whether credit union service is already available to any
segment of the select group amendment or proposed charter.
In general, exclusionary clauses will not be used to protect any
overlapped credit union. However, in those cases where each employee
group in the complex has not specifically requested credit union
service, NCUA may exercise broad discretion in addressing overlaps with
other credit unions and any request from a group to be removed from the
field of membership.
The following or similar wording will be used to define groups
added under this procedure: ``Employees who regularly work in the Plaza
Mall, New Orleans, Louisiana''
If the community option is selected, the industrial park, shopping
center, or office complex must meet the standards for community
charters.
V.D--Corporate Federal Credit Unions
A corporate credit union is defined as one that:
is operated primarily for the purpose of serving other
credit unions,
is designated by the NCUA as a corporate credit union, and
limits natural person members to the minimum required by
state or federal law to charter and operate the credit union.
Corporate credit unions operate under and are governed by standards
different from those applicable to natural person credit unions. These
standards are set forth in part 704 of NCUA's Regulations.
Supervision of corporate credit unions is the responsibility of
NCUA's Office of Examination and Insurance. All applications for
federal corporate charters as well as requested changes to section 5 of
the charter of existing corporate federal credit unions should be
directed to that office.
VI--Name Selection
It is the responsibility of the federal credit union organizers to
ensure that the federal credit union applicant's name or federal credit
union name change does not constitute an infringement on the name of
any corporation in their trade area. This responsibility also includes
researching any service marks or trademarks used by any other credit
union in their trade area. NCUA will ensure, to the greatest 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 federal credit union; and
does not include inappropriate language.
The last three words in the name of every credit union chartered by
NCUA must be ``Federal Credit Union.''
VII--Steps To Take To Organize a Federal Credit Union
VII.A--Getting Started
Following the guidance contained throughout this policy, the
organizers should submit the proposed field of membership to NCUA early
in the process for written tentative approval.
Once the field of membership has been tentatively approved, and the
organizer is satisfied the application has merit, the organizers should
conduct a preliminary 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.
The organizers and subscribers should arrange for any meetings
necessary to develop the business plan discussed in section IV.A.4 of
this chapter and to complete the documentation for submittal to NCUA.
Each of the required documents is discussed more fully later in this
chapter.
The organizers and subcribers must apply for insurance of member
accounts. The Certificate of Resolutions (NCUA 9501) will be executed
by the prospective chief executive officer and recording officer.
Following action on this issue, the prospective chief executive officer
and chief financial officer will execute the Application and Agreements
for Insurance of Accounts (NCUA 9500). These documents should be
provided to NCUA as part of the charter application.
The organizers and subscribers should also complete an NCUA 4012,
Report of Official or Employee, for each prospective board member,
credit and supervisory committee member, and employee. The NCUA 4012s
should be submitted to NCUA as early as possible to enable the
necessary credit reports and background checks to be obtained well in
advance of the anticipated charter date. NCUA will pay the direct costs
of acquiring such credit and background checks.
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 the meeting.
If NCUA approves the charter application, the subscribers, as their
final duty, will elect the board of directors and credit committee of
the proposed federal credit union. The new board of directors will then
appoint the supervisory committee.
VII.B--Support for Charter Application
VII.B.1--General
As discussed previously in this chapter, applicants for federal
credit union charters must, at a minimum, provide evidence that:
the group constitutes a recognized common bond;
the subscribers, prospective officials and employees are
of good character; and
the establishment of the credit union is economically
feasible.
In addition, the Federal Credit Union Act requires applicants to
submit a sworn organization certificate setting forth seven criteria
(see section entitled ``Subscribers'' earlier in this chapter). In
order to process the application and capture all required information,
NCUA has developed certain chartering forms to assist organizers. See
Appendix D for the necessary blank forms.
VII.B.2--Federal Credit Union Investigation Report, NCUA 4001
Applications for new federal credit unions will be submitted on
NCUA 4001. (State-chartered credit unions applying for conversion to
federal charter will use NCUA 4000. See chapter 3 for a full
discussion.) The organizer is required to certify the information and
recommend approval or disapproval, based on the investigation of the
request. Instructions and guidance for completing the form are provided
on the form's reverse. Associational charter applicants must include a
statement of their membership criteria (normally the group's charter or
bylaws) and current financial statements on the associational sponsor.
VII.B.3--Report of Official and Employee, NCUA 4012
This form documents general background information of each official
and employee of the proposed federal credit union. Each official must
complete and sign this form. The organizers must review each of the
NCUA 4012s for elements--criminal convictions, indictments, etc.--that
would prevent the prospective official or employee from serving in an
official capacity. Further, such factors as past due credit obligations
and bankruptcies disclosed during credit checks may disqualify an
individual.
VII.B.4--Organization Certificate, NCUA 4008
This document establishes the seven criteria required of
subscribers by the Federal Credit Union Act and is signed by the
subscribers and notarized. This document should be executed in
duplicate. During his or her on-site contact, the NCUA staff member
assigned to the case will assist in the proper completion of this
document.
VII.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 insurance of member
accounts and has authorized the chief executive officer and chief
financial officer to execute the Application and Agreements for
Insurance of Accounts. This form must be signed by both the chief
executive officer and recording officer of the proposed federal credit
union.
VII.B.6--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. Each prospective federal credit union must qualify
for federal share insurance.
VIII--NCUA Review
VIII.A--General
As discussed previously, NCUA may provide tentative approval of the
proposed federal credit union's field of membership. Additionally,
credit and background investigations may be conducted concurrently by
NCUA with other work being performed by the organizers and subscribers
to reduce the likelihood of delays in the chartering process.
Once NCUA receives a complete charter application package, an
acknowledgment of receipt will be sent to the organizers within 10
business days of receipt, and 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 will make
every effort to process the application expeditiously.
The staff member will review the application package and verify its
accuracy and reasonableness. The staff member will inquire into the
financial management experience, suitability and commitment of the
proposed officials and make an assessment of economic advisability. The
staff member will also assist the subscribers in the proper completion
of the Organization Certificate, NCUA 4008. By assisting in the
completion of the Organization Certificate, the staff member may,
without indicating his or her endorsement of the charter application,
expedite the process.
The staff member will thoroughly analyze the prospective credit
union's business plan for realistic projections, attainable goals, and
time commitment. Any concerns will be reviewed with the organizers and
discussed with the prospective credit union's officials.
The staff member will then make a recommendation to the regional
director regarding the charter application. His or her recommendation
may include specific provisions to be included in a Letter of
Understanding and Agreement. In most cases, NCUA will require the
prospective federal credit union's officials to enter into an agreement
not to engage in certain activities. The agreement is for a limited
term--usually two to four years. A sample Letter of Understanding and
Agreement is attached in Appendix B.
VIII.B--Regional Director Approval
Once approved, the board of directors of the newly formed federal
credit union will receive a signed charter and bylaws from the regional
director. Additionally, the officials will be advised of the name and
mailing address of the examiner who has been assigned responsibility
for supervising and examining the credit union.
Generally, 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).
Assistance in commencing operations is generally available through the
various trade organizations listed in Appendix F.
VIII.C--Regional Director Disapproval
Where a regional director disapproves any application, in whole or
in part, under this Chapter, the organizers will be informed in writing
of the specific reasons for the action. Where applicable, the regional
director will provide information concerning options or suggestions
that they could consider for gaining approval or otherwise acquiring
credit union service.
The letter of denial will include the procedure for and other
information on the group's right to appeal the decision.
VIII.D--Appeal of Regional Director Decision
The procedures for filing an appeal of any actions taken by NCUA
regional directors will be followed. If not included with the denial
notice, a copy of these procedures may be obtained from the regional
director who made the decision.
The prospective group may submit substantive new and additional
information to the regional director for reconsideration. In these
cases, the request will not be considered as an appeal but as a request
for reconsideration by the regional director. If the request is again
denied, the group may proceed with the appeal process.
IX--Future Supervision
Once NCUA has granted a charter to a new federal credit union, an
examiner will be assigned to supervise the credit union.
The examiner will be responsible for monitoring the progress of the
credit union and ensuring it gets off to a good start. The examiner
will also monitor compliance with the terms of the Letter of
Understanding and Agreement. Typically, the examiner will require
copies of monthly board minutes and financial statements.
Each federal credit union is examined regularly to NCUA to
determine that it remains in compliance with law and regulation and to
determine that it does not pose undue risk to the National Credit Union
Share Insurance Fund.
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 board member, any credit or
supervisory committee member, or any senior executive officer. Part
701.14 of the NCUA 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 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.
CHAPTER 2--AMENDMENTS TO THE FIELD OF MEMBERSHIP
I--Introduction
As stated in Chapter 1, Section 5 of every federal credit union's
charter defines the groups the credit union is legally entitled to
serve. There are a number of instances in which Section 5 may need to
be changed. On each of these occasions, the federal credit union must
obtain approval from NCUA before amending its charter.
First, a group not included in a federal credit union's charter may
wish to be served by that credit union. This may occur through
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 may wish to change it common bond entirely--from an
occupational to a community credit union, for example, or vice versa.
Third, which is discussed in Chapter 3, a state-chartered credit union
may wish to convert to a federal charter. (The field of membership of a
federal credit union converting to a state charter is determined under
applicable state law, except to the extent that the credit union seeks
to continue to be federally insured and the proposed new field of
membership would adversely affect the safe and sound operation of the
institution.) Finally, a federal credit union may wish to remove a
group from its field of membership--for example, through agreement with
the group or a spin-off.
NCUA's goals with respect to amendments of federal credit union
charters are the same as for including groups in the charters of new
federal credit unions. The Agency's analysis, therefore, is also
similar, though adapted for the different circumstances in which the
issue arises--primarily the facts that the federal credit union is in
existence and has a history of service that can be evaluated.
The three issues NCUA must evaluate in deciding whether to approve
a change in a federal credit union's field of membership are:
whether the change satisfies NCUA's common bond
requirements;
whether the interests of the groups to be added are
demonstrated; and
whether the change is economically advisable.
II--Additions Through Direct Agreement With a Group
The most common type of addition to a federal credit union's field
of membership is through agreement with the group itself. The
requirements are similar to those for including a group in a federal
credit union's charter initially.
II.A--Common Bond Requirement
II.A.1--Additions to Fields of Membership of Occupational,
Associational, and Multiple Occupational/Associational Federal Credit
Unions
As with new multiple occupational/associational federal credit
unions, occupational and associational groups may be added to
occupational, associational, and multiple occupational/associational
federal credit unions in two ways. If the group is part of an
occupational or associational common bond which constitutes a majority
of the federal credit union's field of membership, the group may be
added regardless of location. These are commonly called ``common bond
additions.'' For any other occupational or associational common bond,
the group must be within the credit union's operational area. These are
commonly called ``select group additions.''
The requirements for common bond additions are identical to those
for inclusion of occupational and associational common bonds in a
credit union's initial field of membership; please refer to Section
II.A and II.B of Chapter 1 for guidance. The requirements for select
groups additions are similar to those set forth in Section II.D of
Chapter 1 for inclusion of other associational and occupational groups
in a multiple group federal credit union's field of membership
initially, with this exception: The credit union may add groups within
the operational areas of one of its planned service facilities if:
The planned facility begins operation shortly after the
group is added; and
The current field of membership constitutes a significant
portion of the total field of membership to be served initially by the
proposed facility. Although the addition of a new select group alone is
not enough to justify a planned service facility, it is permissible to
include new groups as partial justification for such a facility.
Moreover, in the case of a planned facility, NCUA may, in its
discretion, require financial projections and/or a business plan
supporting amendments around that service facility in order to
determine the economic feasibility and to address any safety and
soundness concerns of the amendment.
II.A.2--Additions to the Common Bond of a Community Federal Credit
Union
Community federal credit unions, except those designated low-income
or distressed, may expand their fields of membership only by redefining
their boundaries. There must be interaction among persons who live or
work within the proposed well-defined neighborhood, community or rural
district. The burden of proof for existence of the common bond is
placed upon the applicant credit union.
In the majority of cases where community credit unions are asking
to expand their areas of service, and in all cases where a conversion
to a community charter is proposed, an NCUA staff member will make a
documented on-site evaluation of the proposal. The staff member will
prepare a separate analysis of the proposed amendment, independent of
the credit union's application. Following completion of the on-site
evaluation and regional office review of the staff member's report, the
regional director will act on the proposal. Certain expansions require
NCUA Board consideration.
II.A.3--Special Situations
II.A.3.a--General
The special rules for credit unions serving low-income persons,
serving retirees and senior citizens over 50 years old, and serving
employees at industrial parks, shopping centers and similar facilities
apply equally to field of membership additions. However, there are two
special situations unique to existing federal credit unions: (1)
corporate restructurings and (2) plant or base closings, and other
kinds of distress to a substantial portion of a credit union's
membership.
II.A.3.b--Corporate Restructuring
If an occupational or associational group within 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 which requires a change to the credit union's field of
membership if the credit union is to continue to provide service. NCUA
will permit a credit union to add to its field of membership a sold or
spun off group to which it has been providing service, without regard
to location, if the group requests continued service, documented by a
letter from an official representative, on the group's letterhead where
possible.
II.A.3.c--Distress Situations
If a major group within the field of membership of any federal
credit union--whether occupational, associational, community or
multiple group--suffers a severe economic reversal--e.g., a plant or
base closing--one option for the credit union may be to diversify its
field of membership by adding groups desiring to be served. If
economically advisable, NCUA may facilitate the credit union's
diversification efforts, to the extent and only until the credit
union's viability is assured, by allowing the credit union to add
occupational and associational groups without regard to location. To
obtain this authorization, the credit union must submit a request for
designation as a distressed credit union to its regional director.
The decision will be based on the totality of the circumstances,
including the severity of the economic problem, whether offsetting
gains from the expansion of other groups currently in its field of
membership are reasonably foreseeable, the availability of other groups
able to be served, the likely cost the credit union will incur in
reorienting itself to serve those groups, the competitive environment
it is operating in, the effect on other credit unions, and the
availability of alternatives such as merger. Prior to making a
determination on this issue, NCUA may request such additional
information, including a business plan, as may be appropriate.
II.B--Interests of the Group to be Added
Of primary concern to NCUA is that quality credit union service be
provided to all groups served by a federal credit union. Therefore,
with respect to each field of membership addition, NCUA requires
documentation from each group to be added stating that it desires
service from the applying credit union.
II.C--Economic Advisability
Prior to granting a field of membership addition, NCUA will examine
the amendment's likely effect on the credit union's operations and
financial condition and its likely effect on other credit unions. Most
of the information needed for analyzing the effect of adding a
particular group will already be available to NCUA through the
examination and call reports; generally, nothing more will be needed.
However, in particular cases, a regional director may ask for
additional information prior to making a decision. With respect to a
proposed addition's effect on other credit unions, the requirements on
overlapping fields of membership set forth in Section IV.A.2 of Chapter
1 apply here as well.
II.D--Documentation Required
The documentation needed for community charter additions will vary
substantially depending on the circumstances, and has been described in
general terms above. For common bond and select group additions, which
constitute the bulk of amendment requests, the procedures are more
standardized. A federal credit union requesting such a change must
submit a formal written request, using the Application for Field of
Membership Amendment form shown in Appendix D, or its equivalent, to
the appropriate NCUA regional director. The request must be signed by
an authorized credit union representative.
The Application for Field of Membership Amendment form must be
accompanied by the following:
A letter signed by an official representative of the group
to be added. Wherever possible, this letter must be submitted on the
group's letterhead stationery--regional directors may, at their
discretion, however, accept such other documentation or certification
as they deem appropriate. This letter must indicate:
that the group wants to be added to the applicant federal
credit union's field of membership;
whether the group presently has any credit union service
available;
the number of persons currently included within the group
to be added and their locations; and
in the case of a select group addition, the group's
proximity to one of the credit union's service facilities to which the
group has access.
If the group is eligible for membership in any other
credit union, documentation must be provided to support inclusion of
the group under the standards set forth in Section IV.B of Chapter 1.
If the group to be included is an associational group, the
credit union must, where required as established in Chapter 1, also
provide a copy of the group's charter and bylaws defining the group's
purpose, membership classes, and geographical area.
III--Additions Through Consolidation With Another Credit Union
NCUA supports credit unions desiring to remain a separate entity.
However, there are three other ways a federal credit union can expand
its field of membership, two of which result in a credit union's
ceasing to exist--by taking in the field of membership of another
credit union through a merger or a purchase and assumption (P&A), or by
taking a portion of a continuing credit union's field of membership
through a spin-off. Spin-offs are discussed in Section VI of this
Chapter.
III.A--Mergers
Generally, the standards applicable to field of membership
amendments apply to mergers where the continuing credit union is a
federal charter. In particular, where the merging credit union is state
chartered, the field of membership rules applicable to a credit union
converting to a federal charter apply. However, there are some
differences:
As to a merger involving a common bond addition, the
requirements to provide a request for credit union service from the
corporate, associational, or other unit to be added is not required,
since the unit already has credit union service.
As to a merger involving a select group addition:
For the same reason, the requirement for a letter from
each group included in the credit union's field of membership is not
required.
Where a state credit union is merging into a federal
credit union, the operational area requirement may be waived on a
proper showing that the state credit union will continue to be able to
provide quality credit union service to its current field of membership
as a federal credit union. Upon merging, the state credit union's field
of membership will be worded to conform to the NCUA standards set forth
in Chapter 1. Any subsequent field of membership amendments must comply
with applicable amendment procedures.
As to a merger of a community credit union into a federal
credit union of any type, the continuing credit union may be permitted
to continue to provide service to the merging credit union's members of
record as of the merger date where the operational area requirement is
satisfied. Except in the case of an emergency merger, the continuing
federal credit union can obtain only the members of record of the
merging community credit union.
Where both credit unions are community charters, the continuing
credit union is a federal credit, and the criteria for expanding the
service area of a community federal credit union (as discussed
previously in this Chapter) are satisfied, the entire field of
membership of the merging credit union may be added to the continuing
federal credit union's charter.
Mergers must be approved by all affected NCUA regional directors,
and, as applicable, the state regulators.
III.B--Emergency Mergers
A specifically designated emergency merger may be approved by NCUA
without regard to field of membership or other legal constraints. An
emergency merger involved NCUA's direct intervention. The credit union
to be merged must either be insolvent or will likely become insolvent
within 12 months and NCUA must determine that:
an emergency requiring expeditious action exists
other alternatives are not reasonably available
the public interest would best be served by approving the
merger
In an emergency merger situation, NCUA takes 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 and without changing the character of the
continuing federal credit union for future amendments. Under this
authority, therefore, a federal credit union may take into its field of
membership a group defined by a community or associational common bond
permitted under state law, regardless of whether that common bond
definition could be approved under the Federal Credit Union Act.
III.C--Purchase and Assumptions (P&A's)
Another alternative for acquiring the field of membership of a
failing credit union is through a consolidation known as a purchase and
assumption (P&A).
A P&A has limited application because 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 along
with specified loans, shares and certain other designated assets and
liabilities, without regard to field of membership amendment
restrictions and without changing the character of the continuing
federal credit union for purposes of future field of membership
amendments.
P&A's involving federally insured state credit unions in different
NCUA regions must be approved by all affected regional directors and,
as applicable, the state regulators.
IV--Field of Membership Conversions
A community federal credit union may convert to an occupational,
associational, or multiple group credit union, and an occupational,
associational, or multiple group credit union may convert to a
community credit union. In any case, a change to the credit union's
field membership will be necessary.
IV.A--Conversion to Occupational, Associational, or Multiple Group
Federal Credit Union
A community federal credit union converting to an occupational,
associational, or multiple group field of membership must meet the
common bond and economic advisability requirements applicable to the
type of charter which it seeks conversion to.
IV.B--Conversion to Community Charter
An existing occupational, associational or multiple group federal
credit union may apply to convert to a community charter. In most
cases, groups currently in the credit union's field of membership but
outside the new community credit union's boundaries may be included in
the new community charter.
In order to support a case for a conversion to community charter,
the applicant federal credit union must develop a detailed business
plan incorporating the following data:
Current financial statements, including the income
statement and a summary of loan delinquency.
A map or maps showing both the existing and proposed
boundaries for the field of membership.
A written description of the area of community service for
the proposed community credit union.
The most current population figures for the existing and
proposed boundaries.
The source of the population information; census data are
considered the most authoritative; the greater the population of the
proposed area, the greater justification necessary to support the
existence of the ``community'' and interaction among its residents.
Evidence in the form of surveys or letters from official
representatives of prominent groups located in the area to be added
showing that the persons who live, work, or worship in the area are
interested in affiliating with the applicant credit union.
Evidence that the proposed area is a ``community'' as
defined in ``Community Common Bond'' in Chapter 1.
Information concerning the availability of financial
services to the residents of the new area.
A list of credit unions with a home or branch office in
the proposed area. (If present credit union service to the residents of
the new area is adequate, there may be no basis for the proposed
conversion.)
The attitude of current credit union sponsors and existing
credit union members toward the proposed conversion.
The anticipated financial impact on the credit union in
terms of need for additional employees and fixed assets.
V--Removal of Groups From the Field of Membership
Credit unions may request removal of a group from its field of
membership for various reasons.
The most common reasons for this type amendment are:
The group is within the overlapping 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.
When a federal credit union requests an amendment to remove a group
from its field of membership, the regional director will determine why
the credit union wishes to remove the group and whether the existing
members of the group will continue membership. Membership may continue
for those who are already members if the credit union has adopted the
``once a member, always a member'' bylaw provision.
VI--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 one credit union has a field of membership
addition and the other has a removal.
If the spin-off goes to a new federal charter, the requirements of
Chapter 1 apply. (See that chapter for discussion of the field of
membership and documentation requirements for new federal charters.) If
it goes to an existing federal charter, the requirements of Chapter 2
apply.
Spin-offs involving federally insured state credit unions in
different NCUA regions must be approved by all affected regional
directors and the state regulators, as applicable.
The request for approval of a spin-off must be supported with a
plan that addresses, as 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 sponsor
or are located within the same operational area.
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.
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 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. Voting requirements for
federally insured state credit unions are governed by state statute.
VII--Professional Conflicts
It is important for a credit union, as well as professional
organizations such as accounting firms, law firms, real estate title
insurance firms and appraisal firms, to avoid the appearance of
impropriety when the credit union contracts with a professional
organization for services. This is even more critical if the
professional organization and/or its employees are members of the
credit union.
When a professional organization is added to a federal credit
union's field of membership, the credit union should notify the
professional organization of certain provisions. The following notice
is intended to ensure that decisions made by a credit union and the
professional organizations serving the credit union are independent of
any loan decisions or deposit activities:
``Please be advised that with respect to the addition of the
employees of [professional organization] to the [FCU], any lending,
deposit and/or other credit union services involving this group's
members must avoid any appearance of impropriety and must follow the
ethical standards of the profession.''
VIII--Procedures for Amending the Field of Membership
VIII.A--General
All requests for approval to amend a federal charter must be
submitted to the appropriate regional director. In normal cases, the
regional director will make a decision on the request within 10
business days. If a decision cannot be made within that time, the
regional director will notify the credit union within the 10-business-
day period.
To streamline the process further, NCUA has instituted two
additional procedures--a limited preapproval process and a procedure
for easing the workload when making substantial charter changes as with
mergers and charter conversions.
VIII.B--Streamlined Expansion Procedure (SEP) for Small Occupational
Groups
In keeping with the goals of NCUA chartering policy to provide
service to all eligible groups desiring credit union service, well
operated federal credit unions except those designated as
``distressed'' may take advantage of the SEP for adding occupational
groups to their fields of membership.
To use this procedure, the federal credit union's board of
directors must first apply to their respective NCUA regional director
for a charter amendment. The charter amendment request must be signed
by the presiding officer of the board of directors.
The following is a sample amendment for permitting a federal credit
union to use the SEP authority:
Groups of persons with occupational common bonds which are located
within 25 miles of one of the credit union's service facilities, which
have provided a written request for service to the credit union, which
do not presently have credit union service available, and which have no
more members in the group than the maximum number established by the
NCUA Board for additions under this provision: Provided, however, that
the National Credit Union Administration may permanently or temporarily
revoke the power to add groups under this provision upon a finding, in
the Agency's discretion, that permitting additions under this provision
are not in the best interests of the credit union, its members, or the
National Credit Union Share Insurance Fund.
Once NCUA has approved the amendment and the credit union board has
adopted it, the SEP authority may be implemented. The charter amendment
permits approved federal credit unions to immediately begin serving
employee groups meeting criteria set forth in this section. Under this
procedure, there is no formal NCUA action necessary on each group being
added.
The maximum number of persons for each group of employees which may
be added under SEP will be established by the NCUA Board from time to
time. The number will be based on potential primary members--that is,
the persons sharing the basic occupational affinity to each sponsor
group; family members and other derivative members are not included in
the SEP limit. Several groups may be simultaneously added using these
procedures; however, the maximum number of persons for each group must
fall within the SEP limit.
The SEP does not apply to associational groups since NCUA must
review membership requirements and geographical area prior to these
groups' being added to a field of membership. The procedure also does
not apply to community charter expansions because of the more
individualized analysis required.
The following SEP steps and documentation requirements must be
adhered to:
The federal credit union must complete, for each group to
be added, an Application for Field of Membership Amendment form shown
in Appendix D
The federal credit union must obtain a letter, on the
group's letterhead where possible, signed by an official representative
identified by title, requesting credit union service and stating that
the group does not have any other credit union service available from
any source
The group must be located within 25 miles of one of the
federal credit union's service facilities
The group must indicate the number of potential members--
the number of employees--seeking service
The federal credit union must maintain the above
documentation permanently with its charter
The federal credit union must maintain a control log of
groups added to its field of membership under the SEP procedure. The
control log must include the date the group obtained service, the name
and location of the sponsor group, the number of potential primary
members added, the number of miles to the nearest main or branch
office, the federal credit union board of director's approval of the
group and the date approved. See Appendix D for a sample control log.
The groups added under SEP must be reported to the federal
credit union's board at the next regular board meeting and made a part
of the meeting minutes
The control log and other SEP documentation must be made
available to NCUA upon request
The regional director may from time to time request service status
reports on groups added under SEP. It is advisable to use some method,
such as a sponsor prefix added to the member account number, to readily
access data for such groups.
Should a federal credit union fail to provide quality credit union
service, as determined by the group's members or employees, to a group
added under SEP, NCUA may subsequently permit dual membership with
another credit union.
Should a federal credit union fail to follow the above procedures
or deteriorate financially or operationally, NCUA, at its discretion,
may revoke the SEP privilege.
VIII.C--Block Additions
When a state credit union is converting to a federal charter or
when a credit union is being merged into a federal credit union, large
blocks of select groups frequently are added to a credit union's field
of membership. In such cases, the federal credit union whose field of
membership is being revised should consult directly with the
appropriate regional office early in the process to ensure the
efficient treatment of such revisions and to avoid misunderstandings.
Therefore, when a block of 50 or more new groups is being added to
a credit union's field of membership at any one time, NCUA may require
that a list of the groups and their locations be provided on a computer
diskette. Director coordination with the appropriate NCUA regional
office will ensure the compatibility of hardware and software.
VIII.D--Regional Director's Decision
Except for those field of membership amendments resulting from use
of the SEP, all such amendment requests will be reviewed by regional
office staff in order to ensure conformance to NCUA policy, are
properly documented, and do not cause significantly harmful or
unreasonable overlap with the fields of membership of existing credit
unions.
NCUA understands and appreciates the importance of timely
processing of well-supported amendment requests. Therefore, NCUA has
established a goal of ten business days from the date of receipt in the
regional office for processing of a routine, complete amendment
request. A fully documented request, including the Application for
Field of Membership Amendment, that fulfills all of the criteria
discussed in this manual and does not require written or telephone
follow-up will normally be processed within this time.
In some cases, an on-site review by NCUA staff may be required by
the regional director before acting on a proposed amendment. In
addition, the regional director may, after taking into account the
significance of the proposed field of membership amendment, require the
applicant to submit a business plan.
The condition of the requesting credit union will be considered in
every instance. The economic feasibility of expanding the field of
membership of a credit union with serious financial or operational
problems must be carefully considered if the safety and soundness of
the credit union is to be preserved.
In most cases, field of membership amendments will only be approved
for credit unions which are operating satisfactorily. If a federal
credit union is having difficulty providing good service to its current
membership, it may have even more difficulty serving an enlarged field
of membership. In some cases, expanding the field of membership of a
struggling credit union may do more harm than good. A struggling credit
union's resources need to be focused on current problems. Placing an
additional strain on these resources by increasing the field of
membership may also increase the credit union's problems.
VIII.E--Regional Director Approval
If the requested amendment is approved by the regional director,
the credit union will be furnished a formal, updated Section 5 of its
charter which restates the field of membership, including the requested
amendment. After action by the board of directors, the form should be
promptly filed with the credit union's official charter and bylaws.
VIII.F--Regional Director Disapproval
Where a regional director disapproves any application, in whole or
in part, under this chapter, the applicant will be informed in writing
of the specific reasons for the action. Where applicable, the regional
director will provide information concerning options or suggestions
that could be considered for gaining approval.
The denial letter will include the procedure for and other
information on the credit union's right to appeal the decision.
VIII.G--Appeal of Regional Director Decision
The procedures for filing an appeal of any actions taken by NCUA
regional directors will be followed. If not included with the denial
notice, a copy of these procedures may be obtained from the regional
director who made the decision.
The prospective group may submit substantive new and additional
information to the regional director for reconsideration. In these
cases, the request will not be considered as an appeal but as a request
for reconsideration by the regional director. If the request is again
denied, the group may proceed with the appeal process.
IX--Service Status Reports
Federal credit unions which frequently add select groups to their
fields of membership should be prepared to furnish a written summary of
the results of their efforts to bring service to the employees or
members of the select groups.
The regional directors will periodically request that such federal
credit unions submit service status reports to NCUA showing, at a
minimum, the number of primary potential members of each select group
added and the number of persons from each select group who have
actually enrolled as credit union members.
These service status reports can be enlarged to require information
concerning aggregate share and loan activity by select group or
participation in other credit union services.
In any event, federal credit unions using the select group
amendment method should implement an information gathering system early
in their amendment/diversification program to track their progress in
providing service to the potential members of their select groups.
This information will help the credit union to operate more
efficiently and will give management the data necessary to make
decisions about marketing strategy, new promotions, implementation of
new services, etc.
The service status reports will enable NCUA to determine which
federal credit unions are serving newly added groups, as well as any
federal credit unions that are not serving new groups.
If the NCUA determines that a federal credit union is not
adequately serving new groups, the regional director may restrict
further amendments and permit the groups not being adequately served to
be overlapped with another federal credit union or remove the select
group(s) not being served from Section 5 of the credit union charter.
CHAPTER 3--CHARTER CONVERSIONS
I--Introduction
A charter conversion is a change in the jurisdictional authority
under which a credit union operates. A credit union's charter is the
instrument granted to the institution by the state or federal
government.
Federal credit unions receive their charters from NCUA and are
subject to its supervision, examination, and regulation; they are
incorporated under federal law.
State-chartered credit unions are incorporated in a particular
state, receiving their charter from the state agency responsible for
credit unions and subject to the state's regulator. If the state-
chartered credit union's deposits are federally insured it will also
fall under NCUA's jurisdiction.
A federal credit union's power and authority are derived from the
Federal Credit Union Act and NCUA Rules and Regulations. State-
chartered credit unions are governed by state law and regulation.
There are two types of charter conversions--federal charter to
state charter, and state charter to federal charter. Although common
bond is not an issue from NCUA's standpoint in the case of a federal to
state charter conversion, the procedures and forms relevant to such a
conversion have been included.
II--Conversion of a State Credit Union to a Federal Credit Union
II.A--General Requirements
Any state-chartered credit union may apply to convert to a federal
credit union. In order to do so, it must:
Comply with state law regarding conversion;
File proof of compliance with NCUA;
File the required conversion application, proposed federal
credit union organization certificate and other documents with NCUA;
Comply with the requirements of the Federal Credit Union
Act, e.g., common bond and reserve requirements; and
be granted a charter by NCUA.
Conversions are treated the same as any initial application for a
federal charter, including mandatory on-site examination by NCUA. NCUA
will also consult with the appropriate state authority regarding the
credit union's current condition, management expertise, and past
performance. Since the applicant in a conversion is an ongoing credit
union, the economic advisability of granting a charter is more readily
determinable than in the case of an initial charter application.
Generally, a converting state credit union's field of membership
must conform to NCUA chartering policy. However, if a converting credit
union can demonstrate that it has been effectively serving groups
outside what would have been its operational area if it had been a
federal credit union, the regional director, in his or her discretion,
may permit continued service to these groups after conversion. Every
reasonable effort will be made to phrase the field of membership
similar to the presentations in Chapters 1 and 2 with individually
listed groups and their locations. In any case, subsequent changes must
conform to NCUA amendment policy in effect at that time.
II.B.--Submission of Conversion Proposal to NCUA
The following actions are to be taken before submitting a
conversion proposal:
The credit union board must approve a proposal for
conversion.
The Application to Convert (NCUA 4401) must be completed.
Its purpose is to provide the regional director with information on the
present operating policies and financial condition of the credit union
and the reasons why the conversion is desired. A continuation sheet may
be used if space on the form is inadequate. Particular attention should
be given to answering the question on the reasons for conversion. These
reasons should be stated in specific terms, not as generalities.
The application must be accompanied by all required
attachments including the following:
Written evidence that the state regulator is either in
agreement with the conversion proposal or, if not in agreement, the
reasons therefor.
The Application for Insurance of Accounts (NCUA 9600) in
the case of a state credit union that is not federally insured.
The Application and Agreements for Insurance of Accounts
(NCUA 9500).
The Federal Credit Union Investigation Report, Conversion
of State Charter to Federal Charter (NCUA 4000).
The most current financial report and delinquent loan
schedule.
The Organization Certificate (NCUA 4008). Only Part (3)
and the signature/notary section of page 4 should be completed and,
where applicable, signed by the credit union officials. The NCUA
regional office will complete the other sections of this document.
II.C--NCUA Consideration of Application to Convert
II.C.1--Review by the Regional Director
The application will be reviewed to determine that it is complete
and that the proposal is in compliance with Section 125 of the Federal
Credit Union Act. This review will include a determination that the
state credit union's field of membership is in compliance with NCUA's
chartering policies. The regional director may make further
investigation into the proposal and may require the submission of
additional information to support the request to convert. At this
point, NCUA will conduct an on-site review of the credit union.
II.C.2--On-Site Review
NCUA will examine the books and records of the credit union on-
site. Non-federally insured credit unions will be assessed an insurance
application fee.
II.C.3--Approval by the Regional Director and Conditions to the
Approval
The conversion will be approved by the regional director if it is
in compliance with Section 125 of the Federal Credit Union Act and
meets the criteria for federal insurance. Where applicable, the
regional director will specify any special conditions that the credit
union must meet in order to convert a federal charter, including
changes to the credit union's field of membership in order to conform
to NCUA's chartering policies. Some of these conditions may be set
forth in a Letter of Understanding and Agreement (``LUA''), which
requires the signature of the officials and the regional director.
II.C.4--Notification
The regional director will notify both the credit union and the
state regulator of the decision on the conversion.
II.D--Action by Board of Directors
II.D.1--General
Upon being informed of the regional director's approval, the board
must:
Comply with all requirements of the state regulator that
will enable the credit union to convert to a federal charter and cease
being a state credit union;
Obtain a letter or official statement from the state
regulator certifying that the credit union has met all of the state
requirements and will cease to be a state credit union upon its
receiving a federal charter. A copy of this document must be submitted
to the regional director;
Obtain a letter from the share insurer, if applicable,
certifying that the credit union has met all withdrawal requirements. A
copy of this document must be submitted to the regional director.
Submit a statement of the action taken to comply with any
conditions imposed by the regional director in the approval of the
conversion proposal and, if applicable, submit the signed LUA.
II.D.2--Application for a Federal Charter
When the regional director has received evidence that the board has
completed the actions described above, the federal charter and new
Certificate of Insurance will be issued.
The credit union may then complete the conversion as discussed in
the following section. Denials are appealable. (See Chapter 1, section
VIII.D.)
II.E--Completion of the Conversion
II.E.1--Effective Date of Conversion
The date on which the regional director approves the Organization
Certificate and the Application and Agreements for Insurance of
Accounts is the date on which the credit union becomes a federal credit
union. The regional director will notify the credit union and the state
regulator of the date of the conversion.
II.E.2--Assumption of Assets and Liabilities
As of the effective date, the federal credit union will be the
owner of all of the assets and will be responsible for all of the
liabilities and share accounts of the state credit union.
II.E.3--Board of Directors' Meeting
Upon receipt of its federal charter, the board will hold its first
meeting as a federal credit union. At this meeting, the board will
transact such business as is necessary to complete the conversion as
approved and to operate the credit union in accordance with the
requirements of the Federal Credit Union Act and NCUA Rules and
Regulations. Actions to be taken at this meeting include:
Change of the credit union's name on all records,
accounts, investments and other documents evidencing assets or
liabilities of the credit union;
Changes to the credit union's books and records:
As of the commencement of business, the accounting system,
records, and forms must conform to the standard established by NCUA;
New journal and cash record and general ledger records
should be set up. The general ledger accounts for the state credit
union will be posted through the effective date of the conversion, and
the new balances will be transferred to the new general ledger accounts
of the federal credit union;
The income and expense accounts of the state credit union
will not be closed unless the conversion is at the close of an
accounting period or is required by the state regulator; and
The individual share and loan ledger accounts used by the
state credit union may continue to be used.
The federal credit union's name will be properly reflected on these
accounts.
II.E.4--Reports to NCUA
Within 10 business days after commencement of operations, the
recently converted federal credit union must submit to the regional
director the following:
Report of Officials (NCUA 4501).
Financial and Statistical Reports, (Forms FCU 109A, 109B,
and 109F, or their equivalent) as of the commencement of business of
the federal credit union.
III--Conversion of a Federal Credit Union to a State Credit Union
III.A--General Requirements
Any federal credit union may apply to convert to a state credit
union. In order to do so, it must:
Notify NCUA prior to commencing the process to convert to
a state charter and state the reason(s) for the conversion;
Comply with the requirements of Section 125 of the Federal
Credit Union Act that enable it to convert to a state credit union and
to cease being a federal credit union; and
Comply with applicable state law and the requirements of
the state regulator.
Particular attention should be given to answering the question on
the reasons for conversion. These reasons should be stated in specific
terms, not as generalities.
III.B--Special Provisions Regarding Federal Share Insurance
If the federal credit union wants to continue federal share
insurance after the conversion to a state credit union, it must submit
an Application for Insurance of Accounts (NCUA 9600) to the regional
director at the time it requests approval of the conversion proposal.
The regional director has the authority to approve or disapprove the
Application.
If the converting federal credit union does not want to continue
federal share insurance or if its application for continued insurance
is denied, insurance will cease in accordance with the provisions of
Section 206 of the Federal Credit Union Act.
If, upon its conversion to a state credit union, the federal credit
union will be terminating its federal share insurance or converting
from federal to non federal share insurance, it must comply with the
membership notice and voting procedures set forth in Section 206 of the
Federal Credit Union Act and Part 708 of NCUA's Rules and Regulations.
Where the state credit union will be non federally insured, federal
insurance ceases on the effective date of the charter conversion. If it
will be otherwise uninsured, then federal insurance will cease one year
after the date of conversion subject to the restrictions in Section
206(d)(1) of the Federal Credit Union Act. In either case, the state
credit union will be entitled to a refund of the federal credit union's
NCUSIF capitalization deposit and any unused portion of the federal
insurance premium after the final date on which any of its shares are
federally insured.
The NCUA Board reserves the right to delay the refund of the
capitalization deposit for up to one year if it determines that payment
would jeopardize the NCUSIF.
III.C--Submission of Conversion Proposal to NCUA
Upon approval of a proposition for conversion by a majority vote of
the board of directors at a meeting held in accordance with the federal
credit union's bylaws, the conversion proposal will be submitted to the
regional director and will include:
A current financial report;
A current delinquent loan schedule;
An explanation and appropriate documents relative to any
changes in insurance of member accounts;
A resolution of the board of directors;
A proposed Notice of Special Meeting of the Members (NCUA
4221);
A copy of the ballot to be sent to members (NCUA 4506);
Evidence that the state regulator is in agreement with the
conversion proposal; and
A statement of reasons supporting the request to convert.
III.D--Approval of Proposal to Convert
III.D.1--Review by the Regional Director
The proposal will be reviewed to determine that it is complete and
is in compliance with Section 125 of the Federal Credit Union Act. The
regional director may make further investigations into the proposal and
require the submission of additional information to support the
request.
III.D.2--Conditions to the Approval
The regional director will specify any special conditions that the
credit union must meet in order to proceed with the conversion.
III.D.3--Approval by the Regional Director
The proposal will be approved by the regional director if it is in
compliance with Section 125 and, in the case where the state credit
union will no longer be federally insured, the notice and voting
requirements of Section 206 of the Federal Credit Union Act.
III.D.4--Notification
The regional director will notify both the credit union and the
state regulator of the decision on the proposal.
III.E--Approval of Proposal by Members
Upon approval of the proposal by the regional director, the
following actions will be taken by the board of directors:
The proposal must be submitted to the members for approval
and a date set for a vote on the proposal. The proposal may be acted on
at the annual meeting, at a special meeting for that purpose, or by
written ballot to be filed by the date set for the vote.
Members must be given advance notice (NCUA 4221) of the
meeting at which the proposal is to be submitted in accordance with the
provisions of the Federal Credit Union Bylaws (Article V). The notice
shall:
Specify the purpose, time and place of the meeting;
Include a brief and accurate statement of the reasons for
and against the proposed conversion, including any effects it could
have upon share holdings, insurance of member accounts, and the
policies and practices of the credit union;
Inform the members that they have the right to vote on the
proposal at the meeting, or by written ballot to be filed not later
than the date and time announced for the annual meeting, or at the
special meeting called for that purpose;
Be accompanied by a Ballot for Conversion Proposal (NCUA
4506); and
State in bold face type that the issue will be decided by
a majority of members who vote.
A copy of the notice of the meeting shall be delivered to
the regional director at the same time that it is delivered to the
members.
The proposed conversion must be approved by a majority of
all of the members who vote on the proposal, a quorum being present, in
order for the credit union to proceed further with the proposition.
Ballots cast by members who did not attend the meeting but who
submitted their ballots in accordance with instructions above will be
counted with votes cast at the meeting. In order to have a suitable
record of the vote, the voting at the meeting should be by written
ballot as well.
The board of directors shall, within 10 days, certify the
results of the membership vote to the regional director. The statement
shall be verified by affidavits of the Chief Executive Officer and the
Recording Officer on NCUA 4505.
III.F--Compliance With State Laws
If the proposition for conversion is approved by a majority of all
members who voted, the board of directors should then:
Ensure that all requirements of state law and the state
regulator have been accommodated;
Ensure that the state charter or the license has been
received within 90 days from the date the members approved the proposal
to convert;