[Federal Register Volume 61, Number 57 (Friday, March 22, 1996)]
[Rules and Regulations]
[Pages 11721-11728]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-6701]



=======================================================================
-----------------------------------------------------------------------

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701


Federal Credit Union Field of Membership and Chartering Policy

AGENCY: National Credit Union Administration (``NCUA'').

ACTION: Final rule and final amendments to Interpretive Ruling and 
Policy Statement 94-1 (``IRPS 96-1'').

-----------------------------------------------------------------------

SUMMARY: The NCUA Board is updating the references to federal credit 
union chartering, field of membership modifications and conversions. 
The NCUA Board is issuing amendments to its field of membership 
policies. One change will require senior citizen and retiree groups to 
meet the same conditions as other associational groups in order to 
qualify for a federal credit union charter or addition to an existing 
charter through a field of membership amendment. The Board is also 
issuing five amendments to clarify operational issues. The amendments 
clarify: The application of field of membership requirements to 
mergers; the streamlined expansion procedure; the documentation 
requirements for low-income communities; the use of surveys to support 
a community common bond; and appeal procedures.

EFFECTIVE DATE: July 1, 1996.

FOR FURTHER INFORMATION CONTACT: Michael J. McKenna, Staff Attorney, 
Office of General Counsel, 1775 Duke Street, Alexandria, Virginia 
22314-3428 or telephone (703) 518-6540.

SUPPLEMENTARY INFORMATION:

A. Background

    In 1984, NCUA adopted a policy which permitted federal credit 
unions (FCUs) to accept senior citizen and retiree members through the 
formation of associations. The only requirement for adding these 
associations to a credit union charter was a written request from the 
FCU to the NCUA; no request from the group or copy of the association's 
charter or bylaws was necessary. As a result, many FCUs added senior 
citizen/retiree associations to their charters. Subsequent policy 
statements, including Interpretive Ruling and Policy Statement 94-1 
(IRPS 94-1) (the ``Chartering Manual''), continued this policy. 59 FR 
29066 (June 3, 1994).
    In 1994, two bank trade associations and six Texas commercial banks 
filed suit against Communicators FCU of Houston, Texas, as a result of 
several additions to the FCU's field of membership. The suit 
challenged, among other additions, the 1994 addition of a senior 
citizen/retiree group formed solely for the purpose of acquiring credit 
union service. While upholding the other field of membership additions, 
the court vacated the addition of the senior citizen/retiree 
association and permanently enjoined NCUA from adding any similar 
associations to the FCU. Texas Bankers Association, et al. v. NCUA, et 
al., 1995 WL 328319 (D.D.C., May 31, 1995) (the ``Communicators FCU'' 
decision). On September 28, 1995, partly in response to the 
Communicators FCU decision, the Board issued proposed amendments to the 
Chartering Manual. 60 Fed. Reg. 51396 (October 4, 1995).

B. Comments

    Seventy comments were received. Comments were received from thirty-
four federal credit unions, two state chartered credit unions, seven 
state credit union leagues and three national credit union trade 
associations. The comments were generally positive and supported most 
of the proposed amendments.
    The Board also received comments from twenty-five banking 
associations. Briefly summarized, the bank commenters support NCUA's 
proposed amendment to require senior citizen/retiree groups to meet the 
same conditions as other associational groups before seeking to charter 
or join a federal credit union. The bank commenters argue against 
permitting federal credit unions that have adopted the ``once a member, 
always a member'' bylaw to continue serving members based on their 
membership in the senior citizen group. Many of the bank commenters 
also request that NCUA re-examine its policies relating to all forms of 
select group field of membership expansions.

The Senior Citizen and Retiree Association Policy

    The Board proposed to modify its senior citizen/retiree policy to 
require such groups to meet associational common bond requirements 
before seeking to join or charter an FCU. Twenty-three commenters agree 
with NCUA that senior citizen and retiree groups should meet the same 
criteria as other associational groups before seeking to charter or 
join a federal credit union.
    Sixteen commenters disagreed with the Board's proposal. Seven of 
these commenters believe that such groups are an underserved segment of 
the population. They believe that a formal organization with bylaws and 
officer and membership requirements should be sufficient for senior 
citizen associations. Two commenters recommend that NCUA treat senior 
citizen groups the same as low-income groups. Two commenters state that 
the conversion of an existing group to a bona fide association should 
not require that the association be completely divorced from the credit 
union. They suggest that a senior citizen/retiree group could have 
bylaws that permit the group to have the same directors as the credit 
union and conduct their annual meeting concurrently with the credit 
union's annual meeting. One commenter suggests that the final 
amendments clarify that a credit union may help senior groups meet the 
associational common bond requirement.
    The Board believes the policy modification is an appropriate 
response to the Communicators FCU decision and is adopting the proposed 
amendment in final. In determining whether a group satisfies this 
common bond requirement, NCUA will consider the totality of the 
circumstances, such as whether the members pay dues, have voting 
rights, hold office, hold meetings, have a purpose other than to obtain 
credit union services, whether there is interaction among members and 
whether the group has its own bylaws. See, Chapter 1, Section II.B. of 
the Chartering Manual, 59 FR at 29076. Provided operational area 
requirements are met, senior citizen/retiree associations formed for 
purposes other than seeking credit union service will qualify to join 
an existing FCU. The Board is not requiring such associations to have a 
specific type of internal structure. Moreover, the Board continues to 
stress that an FCU may assist a senior citizen group to form an 
association that will qualify under the Chartering Manual.

[[Page 11722]]

    The Board also requested comment on how to address members of 
existing senior citizen/retiree groups which do not meet the proposed 
characteristics of an association. The Board proposed that such groups 
must meet the normal associational common bond requirements to enroll 
new senior citizen/retiree group members. If the credit union has 
adopted the ``once a member, always a member'' bylaw, it may continue 
to serve its current members. Fourteen commenters agree with this 
proposal. One commenter believes it would be unfair to current senior 
citizen members to deny them credit union service and benefits because 
of a change in NCUA policy.
    Thirteen commenters oppose NCUA's proposed treatment of senior 
citizen/retiree groups that do not have associational characteristics. 
Nine of these commenters recommend grandfathering any existing senior 
citizen/retiree groups and allowing the credit unions to continue to 
serve the groups. Two commenters state that the Communicators FCU 
decision does not compel the Board to retroactively apply any new 
policy it adopts. The comments from banking associations all opposed 
permitting existing members to retain membership.
    The Communicators FCU decision does not compel the Board to apply 
its new policy retroactively. The Board considered whether to 
grandfather existing groups in the final amendment. However, in light 
of the rationale expressed in the Communicators FCU decision, the Board 
believes that grandfathering groups that do not meet the requirements 
of the new policy is inappropriate. Grandfathering the groups will 
simply invite litigation without furthering any of NCUA's chartering 
goals. Therefore, the Board is requiring that all existing senior 
citizen groups meet standard associational common bond requirements or 
be deleted from the charter. Many of these groups may already meet 
these requirements. If the FCU has adopted the ``once a member, always 
a member'' bylaw, it can continue to serve members who had joined based 
on their membership in the senior citizen/retiree group. Any other 
treatment would not be in the best interest of current members or the 
credit unions to which they belong. An FCU that has a group that does 
not meet the associational requirements in its field of membership 
should delete the group by submitting a charter amendment to the 
appropriate regional office. Compliance will be monitored through the 
exam program.

Low-Income Associations

    The Board did not propose any changes to the ability of a federal 
credit union to add low-income associations that are formed solely for 
the purpose of obtaining credit union service without meeting the 
standard characteristics of an association. Thirteen commenters agreed 
that credit unions should be allowed to add to low-income groups to 
their field of membership. Three of these commenters stated that this 
policy enables credit unions to serve groups not currently receiving 
financial services. One commenter believes this policy is consistent 
with credit unions' ``people helping people'' philosophy.
    Five commenters stated that federal credit unions should not be 
allowed to add low-income groups formed solely for the purpose of 
seeking credit union service. Two of these commenters found no reason 
to differentiate between senior citizen groups and low-income groups. 
One of these commenters believes eliminating this policy would not 
significantly affect the ability of low-income persons to join federal 
credit unions. One commenter believes it is preferable for low-income 
groups seeking credit union service to be encouraged to form a credit 
union rather than to be included in the field of membership of an 
existing credit union.
    Congress and the NCUA Board have long recognized that special 
efforts must be made for those who are attempting to serve the needs of 
persons of limited means. The FCU Act was enacted ``to make more 
available to people of small means credit for provident purposes 
through a national system of cooperative credit.'' 12 U.S.C. 1751. 
Congress established a special segment of credit unions serving 
predominantly low-income members. 12 U.S.C. 1752(5). Congress also 
established and funded a Community Development Revolving Loan Fund for 
Credit Unions, designed to help, through loans to credit unions serving 
predominantly low-income persons, in providing ``basic financial and 
related services'' to low-income persons and in ``stimulating economic 
activities * * * which will result in increased income, ownership and 
employment opportunities for low-income residents.'' 12 CFR 705.2(a). 
See also, 12 U.S.C. 1766(k) (giving the Board authority over the 
Community Development Revolving Loan Fund for Credit Unions). NCUA 
defines as ``low-income'' persons earning less than 80 percent of the 
average for all wage earners and persons whose annual household income 
falls at or below 80 percent of the median household income for the 
nation. 12 CFR 701.32(d)(2). The Board believes that the current low 
income credit union program continues to serve an important 
governmental purpose and is therefore not modifying its low-income 
association policy.

Clarifications of Operational Issues

    The Board proposed five amendments to its chartering and field of 
membership policies to clarify operational issues. The amendments 
addressed: (1) the application of field of membership rules to credit 
union mergers; (2) the use of the streamlined expansion procedure; (3) 
the documentation requirements for low-income community credit unions 
as well as low-income additions; (4) the use of surveys to support a 
community charter; and (5) appeal procedures.

Mergers

A. Operational Area
    The Board proposed to clarify how it applies operational and field 
of membership requirements to mergers. The Board reiterated that 
mergers will usually fall into the common bond addition or select group 
addition category, but some may fall into both categories. In a merger, 
common bond groups may be added to a federal credit union's field of 
membership without regard to location. The Board then clarified that 
for select group additions the field of membership requirements are met 
for each merging group only if the group could have been added to the 
continuing credit union without the benefit of the merger. The 
continuing credit union would have to analyze each group in the merging 
credit union's field of membership as if the continuing credit union 
was expanding its own field of membership without a merger. Three 
commenters support this proposal. One of these commenters believes that 
a more expansive policy would give large credit unions a great 
advantage over smaller credit unions in expanding their field of 
membership. This commenter believes that most credit unions cannot 
realistically provide quality service to members who live and work a 
great distance from the credit union.
    Thirty-four commenters disagree with the concept of applying 
operational area requirements to ``select group additions'' in a 
merger. Nineteen commenters believe that a discontinuing credit union's 
groups should be added to the continuing credit union's charter. Nine 
commenters believe that operational area is an anachronism in an era of 
significant technological advancements. Three commenters

[[Page 11723]]
believe that mergers are a business decision that should best be left 
to credit unions, not NCUA. Three commenters state that the proposal is 
overly restrictive. Three commenters state that the clarification will 
create additional paperwork and delay approval. Two commenters believe 
the proposal will result in a decrease in the number of mergers. Two 
commenters state that mergers should be based on the services the 
continuing credit union can provide and the philosophical ``fit'' 
between the merging credit unions. One commenter believes that the 
economic impact on other credit unions in a similar area should not be 
the determining factor on whether a merger is approved or not. One 
commenter suggests NCUA should be concerned with safety and soundness 
issues and not field of membership issues when considering a merger.
    The Board recognizes that how field of membership requirements 
should be applied in a merger is a continuing controversy within the 
credit union community. The Board wishes to reiterate that it is not 
willing to discard operational area requirements in the merger context. 
However, the Board believes that in response to changing technologies, 
operational area requirements need to be reviewed, and not only in the 
context of mergers. The Board is currently in the process of conducting 
such a review and may issue new policies after the study is complete.
    The Board's proposed clarification may, however, impose a paperwork 
burden without providing any significant assistance in reaching NCUA's 
field of membership goals. In light of the commenter's concerns and the 
language of IRPS 94-1, the Board believes that the proposed 
clarification was overly broad and has reconsidered its position. 
Rather than requiring each group in the discontinuing field of 
membership to be within the operational area of the continuing credit 
union, any of the discontinuing credit union's groups that are within 
the operational area of either credit union may be transferred intact 
to the continuing credit union. Any group that is not within the 
operational area of either federal credit union, prior to the 
completion of the merger, will be deleted from the continuing credit 
union's field of membership and only members of record will be 
transferred to the continuing credit union.
    This clarification should not significantly decrease the number of 
mergers or impose a significant burden on credit unions wishing to 
merge. Rather, it applies the operational area requirements to mergers 
as required by IRPS 94-1 since a group could not ordinarily be added to 
either credit union's field of membership if it was not within the 
operational area of the credit union.
    The Board also requested comment on whether mergers should be 
limited to credit unions that primarily serve groups in the same 
geographic location. One commenter supports this concept. Fourteen 
commenters disagree and believe that credit unions should be able to 
merge even if they do not primarily serve groups in the same geographic 
area. Seven commenters believe that geographic location is unimportant 
because of current and coming technologies. Four commenters state that 
the standard for considering mergers should be whether the continuing 
credit union can provide quality member services. One commenter 
believes that financial soundness is more important than geographic 
location. The Board is not placing any new geographic limitations on 
mergers but is continuing to study whether it should modify how it 
applies field of membership requirements to mergers.
B. Views of Overlapped Credit Unions
    The Board requested comment on whether it should require NCUA 
Regions to conduct an overlap analysis for merging credit unions and 
whether an affected credit union should be notified of the merger and 
be given an opportunity to comment or object. Twelve commenters wanted 
both an overlap analysis and the opportunity to comment or object. One 
of these commenters believes that some recent merger decisions have put 
some smaller credit unions in a competitive disadvantage with larger 
credit unions. One commenter believes that such an analysis is 
necessary because of the potential harm to the overlapped credit union. 
This commenter states that with respect to a preexisting overlap, NCUA 
should review the effect a proposed merger may have on the nature of 
any preexisting overlaps.
    Sixteen commenters believe that NCUA should not require an overlap 
analysis for a group in a discontinuing credit union's field of 
membership that has service available from another credit union. Five 
of these commenters believe the analysis is unnecessary since one was 
conducted when the overlap was originally granted. Two commenters state 
that there is no useful purpose in re-examining an existing overlap. 
One commenter states that the merger should not adversely affect the 
credit union anymore than it was affected by the original overlap. Two 
commenters state that a merger does not add to the number of federal 
credit unions a member can belong, it just replaces an existing overlap 
with a different credit union.
    The Board believes that conducting an analysis of a preexisting 
overlap is unnecessary. Such a requirement would increase the burden on 
the merging credit unions as well as NCUA without any corresponding 
benefit. The Board believes that transferring a preexisting overlap to 
the continuing credit would not ordinarily have a significant impact on 
any other credit union. Consequently, the Board is not modifying its 
existing policy which does not require the Region to conduct an overlap 
analysis for merging credit unions.
    The Board also requested comment on whether credit unions that may 
be adversely affected by a merger should have the right to appeal the 
Regional Director's determination. The Board also asked whether NCUA 
should establish a formal process for credit unions to comment on a 
merger prior to the Regional Director making a determination. Thirteen 
commenters believe that NCUA should establish such a comment process; 
twelve oppose the right to appeal the Regional Director's decision. 
Four commenters state that such an appeal creates an unnecessary 
obstacle to a merger and will delay the process. One of these 
commenters believes that the appeal process will prove costly to NCUA 
and credit unions.
    The Board believes that a formal comment period will delay the 
merger process and increase costs for credit unions and NCUA without 
any corresponding benefits. Therefore, the Board is not establishing 
such a process. However, the Board will continue to consider appeals 
from credit unions that may be adversely affected by a merger through 
the normal appeal process.
C. Waivers
    An operational area waiver procedure is available when a state-
chartered credit union is merged into an FCU. The Board clarified that 
the waiver is discretionary on the part of NCUA and permits groups 
already receiving quality credit union services, who are located 
outside of the credit union's operational area, to continue to have 
credit union service after the merger. Two commenters recommend making 
available to federal credit unions the operational area waiver 
procedure. The Board does not believe the waiver procedure needs to be 
extended to federal credit unions because in almost all cases involving 
federal credit unions

[[Page 11724]]
operational area requirements will be met. The Board is clarifying in 
the final amendments that the waiver is only available if the group is 
not being served by any other credit union. The Board will continue to 
review this area but is not making any further changes at this time.

Streamlined Expansion Procedure (SEP)

    SEP permits well-operated federal credit unions to add small groups 
of less than 100 persons with an occupational common bond to its field 
of membership without prior NCUA approval. The group must be located 
within 25 miles of the credit union's service facilities and in 
general, the group must not have credit union service available. The 
Board proposed three clarifications to this policy. First, the Board 
proposed that a credit union may use SEP if the only other credit union 
service available is from a community credit union. The Board is 
adopting this proposal. Nineteen commenters supported this proposal. 
One of those commenters requests that it be modified to protect 
community credit unions serving smaller rural communities. Another 
commenter that approved of the proposal states that there should be 
some minimum overlap protection for community credit unions.
    Six commenters do not believe credit unions should be able to use 
SEP to overlap a community credit union. Three commenters believe any 
overlap of a community credit union should be done through the normal 
expansion process because the use of SEP could erode a community credit 
union's potential for growth. One commenter believes that community 
credit unions need overlap protection. One commenter states that if a 
company is within a community's boundaries and being adequately served 
by a community credit union, then no overlap should be permitted.
    NCUA does not afford overlap protection to a community credit union 
when it is overlapped by an occupational group. Chapter I, IV.B.1, 
Chartering Manual, 59 FR at 29080. This long-standing policy is working 
well and the Board is not convinced that it should be changed. Since 
the standard policy is not being changed it is only logical to extend 
the policy to SEP. To do otherwise would simply place an unnecessary 
paperwork burden on credit unions and NCUA. Consequently, the Board is 
adopting the proposed amendment in final.
    Second, the Board proposed that, consistent with standard field of 
membership expansions, the group as a whole will be considered to be 
within a credit union's 25 mile limit when: a majority of the group's 
members live or work within the 25 mile limit; or the group's 
headquarters is located within the 25 mile limit; or the group's ``paid 
from'' or ``supervised from'' location is within the 25 mile limit. 
Eight commenters support this proposal. One commenter objects to the 
proposed amendment. Eleven commenters believe that NCUA should 
eliminate the 25 mile limit for SEP because they believe the concept of 
operational area is outdated. Six commenters believe that groups added 
to a credit union's field of membership under SEP should be required to 
be within 25 miles of the credit union.
    The Board believes the 25 mile limit for SEP is working well and 
should not be modified at this time. The Board is adopting the proposed 
amendment in final so that SEP's definition of a group's location is 
consistent with standard field of membership expansions. To eliminate 
any possible confusion the Board is reiterating that there is no 
standard 25 mile operational area limit for standard field of 
membership expansions.
    Third, the Board proposed that if an FCU has SEP in its charter and 
merges into a credit union without SEP, the continuing credit union 
must submit a charter amendment and receive NCUA approval if it wishes 
to use SEP. Nine commenters support this proposal. One commenter states 
that applying for SEP is not a burden for credit unions. One commenter 
believes that this proposal provides NCUA with appropriate control. One 
commenter requests that NCUA clarify that if the continuing credit 
union already had SEP it would not need to reapply after the merger. 
One commenter believes that if either federal credit union in a merger 
has SEP then the continuing credit union should maintain SEP.
    The Board is adopting this proposed amendment in final to maintain 
appropriate controls over SEP. The Board believes that the continuing 
credit union's application for SEP can be accomplished as part of the 
merger process. The Board is also clarifying that if the continuing 
credit union already has SEP it need not reapply after the merger.

Documentation Requirements to Establish Low-Income Services

    The Board proposed that for new low-income charters or community 
expansions, the Regional Director would decide what documentation 
satisfies the community common bond requirement. The Board is adopting 
this proposal. Such documentation must clearly define the area's 
geographic boundaries and the charter applicant must establish that the 
area is recognized as a distinct ``neighborhood, community or rural 
district.'' Chapter 1, Section II.C.1, Chartering Manual, 59 FR at 
29077. Twelve commenters support this proposal. One commenter states 
that depending on the circumstances the Regional Director may be better 
able to determine documentation requirements. One commenter supports 
this proposal if it will result in providing more flexibility for 
groups seeking to charter low-income credit unions or for low-income 
community expansions.
    Five commenters state that the Regional Director should not be 
allowed to determine the appropriate documentation for low-income 
charters or low-income expansions. Three commenters believe that 
documentation requirements for low-income credit unions and expansions 
should be specific and uniform. Two of the commenters believe this 
proposal will result in inconsistencies among the Regions.
    The Board believes that in many cases, a low-income area already 
has the common interest and characteristics of a community just by 
lacking the basic financial services found in more affluent 
communities. The Board also believes that allowing the Regional 
Director to decide what documentation will satisfy the community common 
bond requirement will provide NCUA with more flexibility in granting 
low-income community charters and low-income community expansions. The 
Board also expects that this amendment will minimize bureaucratic 
hurdles and expedite making credit union service available to persons 
in low-income communities. The Board will be monitoring the process to 
assure consistent application among NCUA Regions.

Community Charters

    The Board proposed to amend the Chartering Manual to clarify that 
surveys are not always required to demonstrate a community charter. Ten 
commenters agreed with this proposal and none opposed. Surveys should 
not be required if other evidence is more relevant or more clearly 
demonstrates the sentiment of the community. The Board is adopting the 
proposed amendment in final.

Procedures for Appealing Chartering and Field of Membership 
Determinations

    The Board proposed that all appeals be made within 60 days of the 
Regional Director's determination. Seventeen

[[Page 11725]]
commenters agree with this proposal; two commenters believe there 
should be less time and four commenters oppose the proposed appeal 
procedure.
    Three commenters recommend that the appeal process for chartering 
and field of membership should be the same as those adopted by NCUA for 
examination issues. One commenter believes the current appeal process 
is sufficient.
    The Board believes that a timeframe should be established to deal 
with appeals expeditiously and concludes that the 60 days proposed by a 
majority of those commenting gives the credit union sufficient time to 
appeal the region's determination. The Board also believes that it and 
not the supervisory review committee is best suited to resolve field of 
membership issues. The Board is adopting the proposed amendment in 
final.
    The Board also requested comment on whether there should be a time 
limit on the Board to render a decision on the appeal. Fourteen 
commenters believe there should be such a time limit. Nine commenters 
suggest 60 days, four suggest 30 days and one suggests 10 days. Two 
commenters believe that the Board's time limit for deciding an appeal 
could be extended if there were extenuating circumstance or good cause. 
Two commenters state that there should be a procedure to protect credit 
unions from possible retaliation as a result of their appeal.
    Recent experience leads the Board to believe that flexibility is 
necessary to respond to unique circumstances. The appealing credit 
union does not necessarily want the Board's determination fast, they 
want it correct. The Board is setting a goal of 90 days to render a 
decision. The Board will investigate any claim by a credit union that 
believes it is being singled out by NCUA because of its proper use of 
the appeal process to immediately contact the Board.

Miscellaneous Comments

    There were several comments received which did not address 
themselves to specific requests for comment. Three commenters believe 
that charter amendments and mergers which create virtually unlimited 
fields of membership violate the cooperative nature of credit unions 
and dilute the principle of the common bond. One commenter, discussing 
operational area requirements, stated that if a select group feels they 
will be better served by a credit union 1000 miles away instead of the 
neighboring credit union then the select group should be permitted to 
be added to the field of membership of the distant credit union. One 
commenter states that NCUA should develop policies that would prohibit 
overlapping memberships. The Board is continuing to review operational 
area and overlaps and will take these comments into consideration when 
studying the issues.
    One commenter states that the Regions should be required to make 
field of membership expansion determinations within 10 days. In fact, 
most determinations are made within a 10 day period. There are 
circumstances, however, which make it difficult to meet this goal.
    One commenter requests that students should be part of the 
community common bond so that persons who attend any educational 
institution located in a community would be eligible to join a credit 
union whose field of membership includes that community. The Board 
agrees. The Board believes that a student is working for the purpose of 
the community common bond and therefore a person going to school within 
a community but is not living within the community boundaries is deemed 
to be working in the community for field of membership purposes. One 
commenter believes that NCUA should not allow a federal credit union to 
add low-income communities to their field of membership. The Board 
disagrees. The policy is working well and has increased the number of 
low-income people receiving credit union service.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires the NCUA to prepare an 
analysis to describe any significant economic impact a proposed 
regulation may have on a substantial number of small credit unions 
(primarily those under $1 million in assets). The changes to NCUA 
policy resulting from the adoption of these amendments to the IRPS do 
not have a significant economic impact on a substantial number of small 
credit unions. The changes are either legally required or simply 
clarify existing policy. Accordingly, the Board determines and 
certifies that this final rule does not have a significant economic 
impact on a substantial number of small credit unions and that a 
Regulatory Flexibility Act analysis is not required.

Paperwork Reduction Act

    NCUA has determined that the requirement for a FCU to delete from 
its charter senior citizen/retiree groups that do not meet standard 
associational requirements do constitute a collection of information 
under the Paperwork Reduction Act. The Paperwork Reduction Act and 
regulations of the Office of Management and Budget (OMB) require that 
the public be provided an opportunity to comment on information 
collection requirements, including an agency's estimate of burden of 
the collection of information.
    NCUA estimates that it should take an average of 15 minutes for an 
FCU to prepare and submit the required charter amendment. NCUA 
estimates that approximately 300 FCUs will need to submit the charter 
amendment, resulting in a total of 75 burden hours. This increase in 
burden will only occur once.
    The NCUA Board invites comment on (1) whether the collection of 
information is necessary for the proper performance of the functions of 
NCUA including whether the information will have practical utility; (2) 
the accuracy of NCUA's estimate of the burden of the collection of 
information; (3) ways to enhance the quality, utility, and clarity of 
the information to be collected; and (4) ways to minimize the burden of 
the collection on respondents, including through the use of automated 
collection techniques or other forms of information technology. Send 
comments to Suzanne Beauchesne, National Credit Union Administration, 
1775 Duke Street, Alexandria, VA 22314-3428. Comments should be 
postmarked by May 21, 1996.

Executive Order 12612

    Executive Order 12612 requires NCUA to consider the effect of its 
actions on state interests. The proposed amendments apply to federal 
credit unions as well as state chartered credit unions that seek to 
become federal credit unions. Therefore, the actions will not affect 
state interests.

List of Subjects in 12 CFR Part 701

    Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on March 13, 
1996.
Becky Baker,
Secretary of the Board.

    Accordingly, NCUA amends 12 CFR part 701 as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

    1. The authority citation for part 701 continues to read as 
follows:

    Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 
1761b, 1766, 1767, 1782, 1784, 1787, 1789. Section 701.6 is also 
authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by 
15 U.S.C 1601 et seq.;

[[Page 11726]]
42 U.S.C. 1981 and 3601-3610. Section 701.35 is also authorized by 
42 U.S.C 4311-4312.

    2. Section 701.1 is revised to read as follows:


Sec. 701.1  Federal credit union chartering, field of membership 
modifications, and conversions.

    National Credit Union Administration 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), as amended 
by IRPS 96-1. Both IRPS are incorporated into this section.

(Approved by the Office of Management and Budget under control 
number 3133-0015)

    Note: The text of the interpretive ruling and policy statement 
(IRPS 94-1) does not and the following amendments will not appear in 
the Code of Federal Regulations.

    3. In IRPS 94-1, Chapter 1, Section II.C.2 is revised to read as 
follows:

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; and
     In general, what causes 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 or rural 
counties.
    The following information must be provided to support a need for 
a community credit union or community field of membership expansion:
     A list of credit unions presently in the area and those 
credit union's positions regarding a new charter or field of 
membership expansion; and
     A list of other financial institutions (for example, 
banks, savings and loan associations) that service the area.
     Written documentation reflecting support for the 
application for the charter, field of membership expansion or 
conversion to a community credit union may be in the form of 
letters, surveys, studies, pledges, or a petition. Other types of 
evidence may also be acceptable. If a survey is used it should 
reflect the following:
     For the residents of the community:

-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 in the community:

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 community organizations (including churches):

Number in area 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 be 
served as, or be included in, the field of membership--for example, 
``DEF Township, Kansas'' or ``GHI County, Minnesota.''

    4. In IRPS 94-1, Chapter 1, Section V.A.2 is revised to read as 
follows:

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. The Regional Director will determine 
whether the applicants have provided sufficient evidence to 
demonstrate the need for a low-income community charter. Such 
evidence must establish that the geographic area's boundaries are 
clearly defined and that the area is recognized as a distinct 
neighborhood, community, or rural district. 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 are currently permitted for 
determining whether a community is low-income under Part 701.32 of 
NCUA's Regulations.
    In addition, a proposed or existing low-income federal credit 
union whether community or associationally based, may include in its 
field of membership, without regard to location, one or more groups 
constituting an occupational, associational or community common 
bond. Except for the operational area requirements, the proposed or 
existing credit union must meet all the requisites for including the 
group in its charter. Moreover, the proposed or existing credit 
union must take care to ensure that it will continue to meet the 
requirements for low-income status.

    5. In IRPS 94-1, Chapter 1, Section V.A.3 is revised to read as 
follows:

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. The 
Regional Director will ensure that the proposed low-income community 
addition is sufficient to establish a community common bond. 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 to regularly 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

[[Page 11727]]
to the low-income community and may review the credit union's 
service to low-income persons during examinations.

    6. In IRPS 94-1, Chapter 1, Section V.B is deleted and Sections 
V.C. and V.D. are redesignated V.B and V.C, respectively.
    7. In IRPS 94-1, Chapter 1, Section VIII.D is revised to read as 
follows:

VIII.D--Appeal of Regional Director's Decision

    If the Regional Director denies a charter application, the group 
may appeal the decision to the NCUA Board. If not included with the 
denial notice, a copy of these procedures may be obtained from the 
appropriate region. An appeal will be sent to the regional office 
within sixty days of the denial. The Regional Director will then 
forward the appeal to the NCUA Board. NCUA central office staff will 
make an independent review of the facts and present the appeal with 
recommendations to the Board.
    Before appealing, the prospective group may, within thirty days 
of the denial, provide supplemental 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.
    8. In IRPS 94-1, Chapter 2, Section II.A.3.a is revised to read as 
follows:

II.A.3.a--General

    The special rules for credit unions serving low-income persons 
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.

    9. In IRPS 94-1, Chapter 2, Section III.A is revised to read as 
follows:

III.A--Mergers

    Generally, the standards applicable to field of membership 
amendments found in Section II of this chapter apply to mergers 
where the continuing credit union is a federal charter. This 
requires analyzing each group in the merging credit union's field of 
membership. Groups in the merging credit union that are within the 
operating area of either credit union may be transferred intact into 
the continuing credit union. Merger applicants must provide NCUA 
with their own analysis of how the proposed field of membership of 
the continuing credit union conforms to this policy. For those 
groups from the merging credit union that do not meet operational 
area requirements, unless granted a waiver under the procedure for 
merging state chartered credit unions, only the members of record 
will be transferred to the continuing credit union.
    Where the merging credit union is state chartered, the field of 
membership rules for a credit union converting to a federal charter 
apply with the following differences:
     In 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.
     In a merger involving a select group addition:
    For the same reason as above, 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 if it can 
demonstrate that the group does not have other credit union service 
available and the credit union will continue to be able to provide 
quality credit union service to the group. In determining quality of 
services, NCUA will consider the number of members of the group who 
are using the credit union's services. The waiver is discretionary 
on the part of NCUA and will be strictly scrutinized. The waiver 
will only be granted if supported by clear and convincing evidence. 
Absent any waivers, only members of record of groups that do not 
meet operational area requirements will be transferred to the 
continuing 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.
     In 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 or where the continuing credit union is low-income, 
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 union, 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.

    10. In IRPS 94-1, Chapter 2, Section III.B. is revised to read as 
follows:

III.B--Emergency Mergers

    NCUA may approve emergency mergers without regard to field of 
membership or other legal constraints. An emergency merger involves 
NCUA's direct intervention. The credit union to be merged must 
either be insolvent or be likely to become insolvent within 12 
months and NCUA must determine that:
     An emergency requiring expeditious action exists;
     Other alternatives are not reasonably available; and
     The public interest would best be served by approving 
the merger.
    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. If a federal credit union which has added groups or communities 
under an emergency merger later proposes to merge with another 
federal credit union, the groups or communities added pursuant to 
the emergency merger will not be subject to operational area or 
field of membership analysis.

    11. In IRPS 94-1, Chapter 2, Section VIII.B is revised to read as 
follows:

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, other than through a community credit union, 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.

[[Page 11728]]

    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, 
NCUA 4015, 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 associational, occupational or multiple 
group credit union.
     The group must be located within 25 miles of one of the 
federal credit union's service facilities. The group will be 
considered to be within the 25 mile limit when: (1) a majority of 
the group's members live or work within the 25 mile limit; or (2) 
the group's headquarters is located within the 25 mile limit; or (3) 
the group's ``paid from'' or ``supervised from'' location is within 
the 25 mile limit.
     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 the SEP 
Control Log, NCUA 4016.
     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.
    If a federal credit union that has SEP in its charter merges 
with another federal credit union that does not have SEP, the 
continuing credit union, if it desires to have SEP, must submit a 
charter amendment and receive approval from NCUA to implement SEP. 
Otherwise, the groups obtained by the merging credit union through 
SEP must be listed specifically in the continuing credit union's 
field of membership or a reference to the merging credit union's SEP 
log must be made in the continuing credit union's field of 
membership as of the date of the merger.

    12. In IRPS 94-1, Chapter 2, Section VIII.G is revised to read as 
follows:

VIII.G--Appeal of Regional Director Decision

    If a field of membership expansion, merger, or spin-off is 
denied by the Regional Director, the federal credit union may appeal 
the decision to the NCUA Board. If not included with the denial 
notice, a copy of these procedures may be obtained from the Regional 
Director who made the decision. An appeal must be sent to the 
appropriate regional office within sixty days of the denial. The 
Regional Director will then forward the appeal to the NCUA Board. 
NCUA central office staff will make an independent review of the 
facts and present the appeal to the Board with a recommendation.
    The federal credit union may, within thirty days of the denial, 
request reconsideration and provide supplemental information to the 
regional director. The request for reconsideration will not be 
considered an appeal but will toll the sixty day requirement to file 
an appeal until a ruling is received on the request for 
reconsideration.

    13. In IRPS 94-1, Chapter 3, Section 3.H, is added as follows:

III.H--Appeal of Regional Director Decision

    If a conversion to a state charter is denied by the Regional 
Director, the credit union may appeal the decision to the NCUA 
Board. If not included with the denial notice, a copy of these 
procedures may be obtained from the Regional Director who made the 
decision. An appeal must be sent to the appropriate regional office 
within sixty days of the denial. The Regional Director will then 
forward the appeal to the NCUA Board. NCUA central office staff will 
make an independent review of the facts and present the appeal to 
the Board with a recommendation.
    The federal credit union may, within thirty days of the denial, 
request reconsideration and provide supplemental information to the 
regional director. The request for reconsideration will not be 
considered an appeal but will toll the sixty day requirement to file 
an appeal until a ruling is received on the request for 
reconsideration.

[FR Doc. 96-6701 Filed 3-21-96; 8:45 am]
BILLING CODE 7535-01-U