[Federal Register Volume 63, Number 177 (Monday, September 14, 1998)]
[Proposed Rules]
[Pages 49164-49238]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-24285]



[[Page 49163]]

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Part II





National Credit Union Administration





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12 CFR Part 701



Organization and Operations of Federal Credit Unions; Proposed Rule

  Federal Register / Vol. 63, No. 177 / Monday, September 14, 1998 / 
Proposed Rule  

[[Page 49164]]



NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701


Organization and Operations of Federal Credit Unions

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

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SUMMARY: The recently enacted Credit Union Membership Access Act 
modified NCUA's chartering and field of membership authority. 
Accordingly, NCUA is proposing a number of amendments to its policies 
to update them consistent with the recent legislation. Additionally, 
this proposal revises and updates NCUA's chartering and field of 
membership policy to reflect the advances and changes in chartering 
requirements since the promulgation of IRPS 94-1. The majority of the 
revisions reflect NCUA's policy on the types of federal credit union 
charters and the criteria necessary to amend a credit union's field of 
membership. The legislation authorizes three types of credit union 
charters. These charter types include a single occupational or 
associational common bond, a multiple common bond, or a local 
community, neighborhood, or rural district serving a well defined area.
    Along with a comprehensive update of chartering policy, the format 
of the chartering manual has been changed to make it more user-
friendly. The proposal further clarifies multiple common bond policies, 
overlap issues, mergers, low-income policies regarding low income 
charters and service of low income areas, the definition of immediate 
family members, and the ``once a member always a member'' policy.

DATES: Comments must be postmarked or received by November 13, 1998.

ADDRESSES: Comments should be directed to Becky Baker, Secretary of the 
Board. Mail or hand deliver comments to: National Credit Union 
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. Fax 
comments to (703) 518-6319. E-Mail comments to [email protected]. 
Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: J. Leonard Skiles, Chairman, Field of 
Membership Task Force, 4807 Spicewood Springs Road, Suite 5100, Austin, 
Texas 78759, or telephone (512) 231-7900; Michael J. McKenna, Senior 
Staff Attorney, Office of General Counsel, 1775 Duke Street, 
Alexandria, Virginia 22314 or telephone (703) 518-6540; Lynn K. 
McLaughlin, Program Officer, Office of Examination and Insurance, 1775 
Duke Street, Alexandria, Virginia, or telephone (703) 518-6360.

SUPPLEMENTARY INFORMATION:

    In 1982, the changing economic environment created safety and 
soundness concerns which prompted the NCUA Board to revise its 
chartering policy to permit membership in a federal credit union to 
consist of multiple groups, provided each group possessed a common 
bond. Such membership could be accomplished through the chartering 
process, through charter amendments, or by way of merger to form a 
single credit union. This policy change strengthened the federal credit 
union system by enabling NCUA to merge credit unions that otherwise 
would have failed because of loss of sponsor or other financial or 
operational downturns. The policy also enabled federal credit unions to 
diversify their membership and become less dependent on the financial 
success of one sponsoring company or group. An additional advantage of 
the policy change was to provide access to credit union service for 
small groups of people who did not have the resources to charter their 
own credit unions. The NCUA Board issued subsequent changes to 
chartering policy in 1984, 1989, 1994, 1996, and 1998, most of which 
addressed the multiple group policy.
    In First National Bank and Trust Co., et al. v. National Credit 
Union Administration, 90 F.3d 525 (D.C. Cir. 1996), the U.S. Court of 
Appeals for the District of Columbia Circuit invalidated certain select 
group additions to the field of membership of a North Carolina credit 
union (the ``Decision''). In that case, the Court ruled that groups 
with unlike common bonds could not be joined to form a single credit 
union. Furthermore, in the consolidated cases of First National Bank 
and Trust Co., et al. v. NCUA and the American Bankers Association, et 
al. v. NCUA, et al., the U.S. District Court issued a nationwide 
injunction prohibiting federal credit unions from adding new select 
groups to their fields of membership that did not share a common bond 
(the ``Order''). The Decision and Order affected the operations of 
approximately 3,600 multiple group federal credit unions serving 
approximately 158,000 select groups.
    On February 25, 1998, the U.S. Supreme Court ruled that NCUA's 
multiple group policy was impermissible under the Federal Credit Union 
Act. National Credit Union Administration v. First National Bank & 
Trust Co. et al., 118 S. Ct. 927 (1998). The Supreme Court stated that 
groups with unlike common bonds could not be joined to form a single 
occupational credit union. Congress addressed this issue and recently 
enacted legislation reinstating NCUA's multiple group policy with some 
modifications. This is the first time since 1934 that Congress has 
updated the statutory common bond rules. Accordingly, the NCUA Board is 
updating its chartering policies by proposing IRPS 98-3.
    The purposes of this proposed rule are to:
     First, replace IRPS 94-1, as amended by IRPS 96-1 and 98-
1, to bring NCUA's field of membership and chartering policy into 
compliance with the Credit Union Membership Access Act. Modifications 
are necessary regarding single occupational/associational common bonds, 
multiple common bonds, community charters, as well as policies 
regarding service to low-income areas.
     Second, update NCUA's field of membership and chartering 
policies since the issuance of IRPS 94-1, as amended by IRPS 96-1 and 
IRPS 98-1.
     Third, rewrite and reformat the chartering manual to make 
it more user-friendly.
    The NCUA Board is proposing a number of changes to its chartering 
policies, but the following are the most significant:
     First, issuance of a new multiple group policy. This 
includes numerical limitations for a select group addition, five 
statutory criteria for adding a select group to a multiple common bond 
credit union, mergers of multiple group credit unions, and overlaps.
     Second, an update of the definition of single occupational 
and associational common bonds.
     Third, a revised policy on the requirements to charter, 
expand, or convert to a community charter.
     Fourth, a separate chapter on low-income credit unions 
which addresses the ability of a multiple group credit union to add an 
underserved area to its field of membership.
     Fifth, a definition of immediate family member for 
purposes of credit union eligibility.
     Sixth, a discussion of the statutory authorization for the 
``once a member, always a member'' policy.

A. Chapter and Section Analysis

I. Chapter 1 of the Chartering Manual

    This chapter sets forth the goals of NCUA's chartering policy, and 
the requirements and procedures for chartering a new federal credit 
union.

[[Page 49165]]

NCUA's definition of economic advisability is set forth in this 
chapter. The Board wishes to emphasize that when NCUA charters a new 
credit union, the Agency evaluates the economic advisability of the 
proposed institution as well as its effect on other credit unions. 
While NCUA has not set a minimum field of membership size for 
chartering a federal credit union, experience has suggested that a 
credit union with fewer than 3,000 primary potential members (e.g., 
employees of a corporation or members of an association) may not be 
economically advisable. Therefore, a charter applicant with a proposed 
field of membership of fewer than 3,000 primary potential members will 
have to provide significantly more support than a proposed credit union 
with a larger field of membership. This change not only more accurately 
reflects the economic reality necessitating increased numbers of 
primary potential members in order for most groups to meet the economic 
advisability requirement, but it also recognizes that some groups, even 
though less than 3,000, can be economically viable as a separate credit 
union. This modification also makes it operationally consistent with 
the multiple group expansion requirements. Comments are specifically 
requested on whether the economic advisability number should be set at 
a lower or higher level.
    The chapter also addresses the issue of member support as well as 
the marketing plan and is generally directed to those groups wishing to 
charter a new credit union.
    This chapter encourages the formation of newly chartered federal 
credit unions and the use of mentor relationships with existing, well-
managed credit unions. NCUA believes that experienced credit unions are 
a valuable resource to newly chartered credit unions and can provide 
needed guidance and assistance.
    Chapter 1 discusses the various field of membership designations 
available to prospective and existing credit unions. These designations 
include single occupational, single associational, multiple group, or 
community.
    Finally, this chapter sets forth NCUA's long-standing policy 
prohibiting the establishment of a federal credit union for the primary 
purpose of serving the citizens of a foreign nation. As always, federal 
credit unions are permitted to serve foreign nationals within the field 
of membership when they reside or work in the United States. Foreign 
nationals may also be served if they reside in a foreign country, but 
only when the primary purpose of the credit union's foreign service 
facility is to serve United States citizens who are credit union 
members residing in the foreign country.

II. Chapter 2 of the Chartering Manual

    Chapter 2 sets forth the field of membership requirements for a 
federal credit union. This chapter is divided into the following 
comprehensive sections: (1) single occupational charters, (2) single 
associational charters, (3) multiple group charters, and (4) community 
charters. Although some basic information applicable to all charters is 
repeated in the individual sections addressing each charter type, which 
increased the overall length of the chartering manual, the new format 
will be more user-friendly by making information easier to locate.
a. Single Occupational Common Bond Credit Union
    The NCUA Board is proposing that a federal credit union may include 
in a single occupational common bond all persons and entities who share 
that common bond without regard to geographic location. The Board 
believes eligibility for membership in an occupational common bond can 
be established in four 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 of not less than 10 percent in or by another legal 
entity makes that person part of an occupational common bond of 
employees of the two legal 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; or
     Employment or attendance at a school.

Occupational Common Bond Amendments

    There are a number of ways an occupational credit union can amend 
its field of membership. The proposed rule sets forth when NCUA may 
approve an amendment to expand a credit union's field of membership.
    One instance requiring an amendment is when the sponsor 
organization is involved in a corporate restructuring. A credit union 
can continue to provide service to a group that is spun-off only if it 
otherwise qualifies as part of the single occupational common bond, or 
if the credit union converts to a multiple group credit union.
    A second instance requiring an amendment is when the entire field 
of membership is acquired by another corporation. The credit union can 
serve the employees of the new corporation, including any subsidiaries 
of the acquiring corporation, after receiving NCUA approval. In this 
instance the credit union remains a single common bond credit union.
Overlaps
    As a general rule, NCUA will not charter two or more credit unions 
to serve the same single occupational group. Consequently, overlap 
protection is provided for single occupational credit unions. However, 
an overlap may be permitted when two or more credit unions are 
attempting to serve the same group if the overlap's beneficial effect 
in meeting the convenience and needs of the members of the group 
proposed to be included in the field of membership clearly outweighs 
any adverse effect on the overlapped credit union.
    The proposal sets forth when NCUA will permit an overlap of an 
occupational credit union and what NCUA considers in reviewing an 
overlap. However, an occupational credit union will rarely, if ever, be 
protected from overlap by a community charter. Where a federally 
insured state credit union's field of membership is broadly stated, 
NCUA will exclude its field of membership from overlap protection.
b. Single Associational Common Bond Credit Union
    The proposal sets forth the definition of associational common 
bond. An associational common bond consists of individuals (natural 
persons) and/or groups (non natural persons) whose members participate 
in activities developing common loyalties, mutual benefits, and mutual 
interests. This proposal permits an associational common bond to 
include members of the association, groups which are not comprised 
primarily of natural person members but are members of the association, 
and employees of the association, as well as the association. NCUA may 
grant an associational charter without regard to the geographic 
location of the association's members or headquarters. This means a 
credit union can serve a widely dispersed membership base if NCUA 
determines that it has the ability to serve the area.

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    Associations based primarily on a client-customer relationship do 
not meet associational common bond requirements. For example, members 
of an automobile club, such as the American Automobile Association, 
which primarily sells services, would not qualify as an associational 
common bond.
    If an association subsequently changes its bylaws, the credit union 
cannot serve the new members of the association until the revised 
charter and bylaws are approved by NCUA through a field of membership 
amendment.
Overlaps
    As a general rule, NCUA will not charter two or more credit unions 
to serve the same single associational group. Consequently, overlap 
protection is provided for single associational credit unions. However, 
an overlap may be permitted when two or more credit unions are 
attempting to serve the same group if the overlap's beneficial effect 
in meeting the convenience and needs of the members of the group 
proposed to be included in the field of membership clearly outweighs 
any adverse effect on the overlapped credit union.
    The proposal sets forth when NCUA will permit an overlap of an 
associational credit union and what NCUA considers in reviewing an 
overlap. An associational credit union will rarely, if ever, be 
protected from overlap by a community charter. Where a federally 
insured state credit union's field of membership is broadly stated, 
NCUA will exclude its field of membership from any overlap protection.
c. Multiple Common Bond Credit Union
    The Credit Union Membership Access Act reinstated NCUA's multiple 
common bond policy with some modifications. A multiple common bond 
credit union may serve a combination of distinct, definable, 
occupational and/or associational common bonds.
    Multiple common bond credit unions can add groups with dissimilar 
common bonds, which are called select groups. These groups must be 
within reasonable proximity of the credit union. That is, the groups 
must be within the service area of one of the credit union's service 
facilities. A service facility is defined as a place where shares are 
accepted for members' accounts, loan applications are accepted, and 
loans are disbursed. This definition includes a credit union owned 
branch, a shared branch, or a credit union owned electronic facility 
that meets, at a minimum, these requirements. This definition does not 
include an ATM.
Multiple Group Amendments
    Before a credit union can add a new occupational or associational 
select group, NCUA must determine in writing that five statutory 
criteria have been met.
    The first criteria is that the credit union did not engage in any 
unsafe or unsound practice which is material during the one year period 
preceding the filing of the application. The NCUA Board defines an 
unsafe or unsound practice for this criteria to mean any action, or 
lack of action, which would result in an abnormal risk or loss to the 
credit union, its members, or the Naitonal Credit Union share Insurance 
Fund. The determination of an unsafe and unsound practice will be 
decided by the regional director.
    The second criteria is that the credit union is adequately 
capitalized. NCUA defines adequately capitalized to mean the credit 
union has a net worth ratio of not less than 6 percent. NCUA is 
requesting comment on what criteria should be considered when defining 
``adequately capitalized'' for newly chartered credit unions.
    The third criteria is that the credit union has the administrative 
capability and the financial resources to serve the proposed group. To 
determine whether the credit union has met this criteria, NCUA will 
review the credit union's most recent examination report or, if 
necessary, contact the credit union directly.
    The fourth criteria is that the credit union must demonstrate that 
any potential harm the expansion may have on any other credit union and 
its members is clearly outweighed by the probable beneficial effect of 
the expansion. NCUA will perform an overlap analysis as set forth in 
Chapter 2, Section IV.E of NCUA's Chartering and Field of Membership 
Manual to determine whether this criteria has been met.
    The fifth criteria is that NCUA must determine that the formation 
of a separate credit union is not practical or does not meet the 
economic advisability criteria set forth in Chapter 1 of NCUA's 
Chartering and Field of Membership Manual.
    The proposal also sets forth the documentation requirements to add 
a select group and NCUA's procedures for amending the field of 
membership. This proposal does not include any provisions for the 
Streamlined Expansion Procedure because NCUA must make a written 
determination on all multiple group expansions.
Corporate Restructuring
    Due to a corporate restructuring of a select group, a credit union 
may be required to request an amendment to its field of membership if 
it wishes to continue to provide service to that group. NCUA permits a 
multiple common bond credit union to retain in its field of membership 
a sold or spun-off group to which it has been providing service, 
without regard to location, if the original group is clearly 
identifiable and requests continued service. NCUA views this as a 
housekeeping amendment and not a field of membership expansion.
Mergers
    The proposed rule sets forth the requirements for the merger into, 
and by, a multiple common bond credit union. Generally, the 
requirements applicable to field of membership expansions apply to a 
credit union merging into a multiple common bond credit union. If the 
continuing credit union in a proposed merger is federally chartered and 
the merging credit union has a select group of 3,000 or more persons 
(excluding family members), the merger can be approved if NCUA's 
expansion requirements are met. If the expansion requirements are not 
met, this may require a credit union to spin-off a select group of 
3,000 or more persons from the merging credit union.
    The proposal also clarifies requirements applicable to mergers of 
multiple group credit unions for safety and soundness reasons and 
emergency situations. The numerical limitation does not apply to 
mergers where there are safety and soundness concerns or the emergency 
criteria exist.
Overlaps
    NCUA will generally not approve an overlap unless the expansion's 
beneficial effect in meeting the convenience and needs of the members 
of the group proposed to be included in the field of membership clearly 
outweighs any adverse effect on the overlapped credit union. The 
proposal sets forth the issues NCUA will consider in reviewing the 
overlap. In general, if the overlapped credit union does not object, 
and NCUA determines that there are no safety and soundness problems, 
the overlap will be permitted. If, however, the overlapped credit union 
objects to the overlap, a thorough review as set forth in the proposal 
is required. Generally, NCUA will permit overlaps between multiple 
common bond credit unions and community chartered credit unions without 
performing an overlap analysis, since NCUA has determined

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that in these types of overlaps the benefit of the overlap to the 
member will always outweigh the harm to either credit union. A multiple 
common bond credit union will rarely, if ever, be protected from 
overlap by a community charter.
d. Community Charters
    NCUA's current community chartering policy is addressed by the 
recent legislation and accordingly must be modified. The legislation 
requires that a community charter be based on ``a well-defined local 
community, neighborhood, or rural district.'' The NCUA Board believes 
that the addition of the word ``local'' by Congress means that review 
of what constitutes a community is required. NCUA's most recent policy 
has been to limit the community to a single, geographically well-
defined area, where residents interact. The NCUA Board believes that 
while the current criteria remain applicable and are essential in 
determining what constitutes a community for chartering purposes, the 
addition of the word ``local'' in the statutory language in the 
community chartering requirements requires NCUA to reevaluate how it 
views community. Furthermore, due to the evolving nature of communities 
and the intent evidenced in the legislation, NCUA is proposing to 
require that the residents either have common interests or interaction. 
It will be up to the charter applicant to decide and provide evidence 
on whether the individuals in the geographic area interact or have 
common interests. Either or both will be sufficient for community 
chartering requirements.
    NCUA continues to recognize four types of affinity on which a 
community common bond can be based--persons who live, work, worship, or 
attend school in the community. Businesses and other legal entities 
within the community boundaries may also qualify for membership. 
However, community credit unions can not serve persons who are paid 
from or supervised from a business located within the community, if the 
employees do not live, work, worship or attend school in the community. 
Given the diversity of community characteristics throughout the 
country, the intent of the legislation, and NCUA's goal of making 
credit union service available to all eligible groups who wish to have 
it, NCUA has established the following requirements for community 
charters:
     The geographic area's boundaries must be clearly defined;
     The charter applicant must establish that the area is a 
well-defined ``local community, neighborhood, or rural district;'' and
     The residents must have common interests or interact.
    ``Well-defined'' means the proposed area has specific geographic 
boundaries. ``Local community, neighborhood, or rural district'' 
encompasses several factors including interaction and/or common 
interests. Simply being able to draw a boundary around an area does not 
meet the requirements for a well-defined local community as that term 
is used in the new legislation. The meaning of well-defined local 
community includes a variety of factors including, but not limited to, 
a geographic limitation. Most prominent is the criteria that the 
residents of the well-defined local community interact and/or have 
common interests. Although the chartering manual does not precisely 
define interaction, it does suggest that a greater burden needs to be 
met when either the geographic size or the population of the area is 
large. In determining interaction and/or common interests, a number of 
factors become relevant. For example, the existence of a single major 
trade area, shared governmental facilities, local festivals, area 
newspapers, among others, are significant indicia of community 
interaction and/or common interests. Conversely, an area which has 
numerous trade areas, multiple taxing authorities, or multiple 
political jurisdictions tend to diminish the factors that demonstrate 
the existence of a local community.
    In general, a large population in a small geographic area or a 
small population in a large geographic area, may meet NCUA community 
chartering requirements. For example, an ethnic neighborhood, a rural 
area, a county, or a political subdivision within the county, with less 
than 300,000 residents will often have sufficient interaction and/or 
common interests to meet community charter requirements.
    Conversely, a large population in a large geographic area will not 
normally meet NCUA community chartering requirements. It is unlikely 
that an entire state, a major metropolitan city, a densely populated 
county, or an area covering multiple counties with significant 
population, will have sufficient interaction and/or common interests. 
Therefore, if the credit union is interested in serving this type of 
expanded area as a community charter, the burden of demonstrating 
interaction and/or common interests will be significantly greater than 
the evidence necessary for a smaller area. For example, the proposed 
community charter requirements make it difficult for a state or a large 
city such as New York, Boston, Dallas, or Los Angeles, to meet the 
requirements of a local community.
    The well defined local community, neighborhood, or rural district 
will most easily be met if the area to be served is a recognized 
political jurisdiction, not greater than a county or its equivalent, 
and if the population of the requested well-defined area does not 
exceed 300,000. Generally, the single jurisdiction will most often 
coincide with a county, or its political equivalent. Multiple smaller 
political subdivisions within a county or its equivalent, such as a 
``city'' or a ``school district,'' would also qualify. For this type of 
community charter, the applicant must only submit a letter 
demonstrating how the area meets the indicia for community interaction 
or common interests. In addition, the applicant must provide evidence 
of the political jurisdiction and size of the population. At its 
discretion, NCUA may request more documentation demonstrating the area 
is a well-defined local community, neighborhood, or rural district. If 
the requested area is not a single political jurisdiction or exceeds 
300,000, more extensive and detailed documentation, as discussed in 
this proposal, must be provided to support that the proposed area is a 
well-defined local community. This proposal does not limit community 
charters to a recognized single political jurisdiction, or to a 
proposed area where the population is 300,000 or less. Simply, 
additional documentation is required if the proposed community charter 
exceeds an area greater than a county or 300,000 in population. 
Specific comments are requested as to whether a streamlined approach 
for community charter approval is appropriate and, if so, in accordance 
with what criteria.
    The NCUA Board believes that a low-income area meeting the low-
income definition found in Section 701.34 of NCUA's Rules and 
Regulations, has many of the common characteristics and demographics of 
a local community, and generally lacks the basic financial services 
found in more affluent communities. When reviewing low-income community 
charter applications, NCUA's documentation requirements are more 
flexible. A new charter applicant applying to serve a low-income 
neighborhood of 300,000 residents in a major metropolitan city will 
have fewer documentation requirements than would be required in a 
standard community charter package. For example, an applicant seeking 
to serve such a low-income community need only provide evidence

[[Page 49168]]

demonstrating well-defined community boundaries and that the area meets 
the low-income definition.
Overlaps
    A credit union seeking a community charter must contact all 
federally insured credit unions with a service facility in the proposed 
service area. A community credit union can overlap any other type of 
credit union charter. If safety and soundness concerns exist, NCUA may, 
on rare occasions, provide overlap protection from a community charter 
for a limited period of time, generally 12 to 24 months. Extensions 
will be granted for continued serious safety and soundness concerns. 
The timeframe for the duration of the exclusionary clause will be 
specifically listed in Section 5 of the community credit union's 
charter.
    In the past, exclusionary clauses have been permitted for reasons 
other than for safety and soundness, such as when there is an agreement 
between the overlapping credit unions. An exclusionary clause, under 
circumstances other than for safety and soundness, would not be 
permitted under the current proposal if the overlapping credit union is 
a community charter. Specific comments are requested as to whether 
exclusionary clauses are appropriate for community charters, and, if 
so, under what circumstances.
    A credit union that converts to a community charter may continue to 
serve existing members of the credit union who are not within the 
community, pursuant to the statutory provision that once a person 
becomes a credit union member, he or she can remain a member. A 
community credit union may not, however, add new members, or serve 
groups outside the community.
e. Changes Applicable to All Federal Credit Unions
Emergency Mergers
    NCUA is issuing clarifying language regarding emergency mergers and 
purchase and assumption agreements for occupational, associational and 
community charters. Among other minor modifications, NCUA is removing 
the 12 month period within which insolvency must occur, since it is not 
required by the Federal Credit Union Act.
Definition of Immediate Family Member
    As required by the new legislation, the proposed regulation defines 
an individual who is eligible for membership in a credit union on the 
basis of the relationship of such individual to another person who is 
eligible for membership in such credit union. This is commonly referred 
to as immediate family members. Members of their immediate families is 
defined as related persons i.e., blood, marriage, or other recognized 
family relationships in the same household (under the same roof), or if 
not in the same household, as a grandparent, parent, spouse, sibling, 
child, or grandchild. For the purposes of this definition, immediate 
family member includes stepparents, stepchildren, and stepsiblings. The 
immediate family member must be related to the credit union member. In 
other words, once a person becomes a member, then that person's 
immediate family could join.
Once a Member Always a Member
    The statute authorizes that once a person becomes a member of the 
credit union, such a person or organization may remain a member until 
the person chooses to withdraw from the credit union, unless the person 
is expelled as provided in Section 118 of the Federal Credit Union Act. 
This provision codifies the ``once a member, always a member'' policy.

III. Chapter 3 of the Chartering Manual

    Low-income credit unions play an especially important part in the 
credit union movement. Therefore, NCUA has developed a separate chapter 
setting forth special policies for low-income credit unions and special 
chartering policies for underserved areas. The intent of these policies 
is to encourage the formation of new credit unions and the expansion of 
existing credit unions into underserved and low-income areas.
    The Credit Union Membership Access Act authorizes credit union 
service to people of modest means and the addition of underserved areas 
to the field of membership of a multiple common bond credit union with 
the approval of NCUA. The legislation defines an underserved area as a 
local community, neighborhood, or rural district that is an 
``investment area'' as defined in Section 103(16) of the Community 
Development Banking and Financial Institutions Act of 1994.
    An investment area includes any of the following:
     An area encompassed or located in an Enpowerment Zone or 
Enterprise Community designated under section 1391 or the Internal 
Revenue Code of 1996 (26 U.S.C. 1391);
     An area where the percentage of the population living in 
poverty is at least 20 percent and the area has significant unmet needs 
for loans or equity investments;
     An area in a Metropolitan Area where the median family 
income is at or below 80 percent of the Metropolitan Area median family 
income or the national Metropolitan Area median family income, 
whichever is greater; and the area has significant unmet needs for 
loans or equity investments;
     An area outside of a Metropolitan Area, where the median 
family income is at or below 80 percent of the statewide non-
Metropolitan Area median family income or the national non-Metropolitan 
Area median family income, whichever is greater; and the area has 
significant unmet needs for loans or equity investments;
     An area where the unemployment rate is at least 1.5 times 
the national average and the area has significant unmet needs for loans 
or equity investments;
     An area where the percentage of occupied distressed 
housing (as indicated by lack of complete plumbing and occupancy of 
more than one person per room) is at least 20 percent and the area has 
significant unmet needs for loans or equity investments;
     An area located outside of a Metropolitan Area with a 
county population loss between 1980 and 1990 of at least 10 percent and 
the area has significant unmet needs for loans or equity investments.
    Although the new legislation specifically authorizes flexible 
policies regarding multiple group credit unions providing service to 
underserved areas, it is NCUA's determination that previous Agency 
policies allowing similar service to poor and disadvantaged areas 
should also be permitted. Accordingly, the criteria established for 
multiple group credit unions will also apply to single occupational, 
single associational, and community credit unions desiring to serve 
underserved areas. The charter type of the credit union will not change 
based on service to underserved area.
    In addition, the area must be underserved based on data considered 
by the NCUA Board and the Federal Banking Agencies. Once an underserved 
area has been added to a multiple group credit union's field of 
membership with NCUA's approval, the credit union must establish and 
maintain an office or facility in the community.
    Prior to approving an underserved area to a multiple group credit 
union's field of membership, NCUA will evaluate current service to 
groups within the field of membership by analyzing the credit union's 
penetration rates. If the credit union has a low penetration rate of 
existing groups, it will have a greater burden of showing

[[Page 49169]]

that it can adequately serve the requested underserved area.

IV. Chapter 4 of the Chartering Manual

    This chapter discusses the requirements and procedures for 
conversion of a state credit union to a federal credit union and 
conversion of a federal credit union to a state credit union. The 
proposed policy for charter conversions is basically the same as 
current policy. The major change concerns changing the credit union's 
name on all signs, records, accounts, investments, stationery and other 
documents. The new policy establishes that the credit union has 180 
days from the effective date of the conversion to change its signs, 
records, accounts, investments, and stationery. The credit union may 
reissue, with its new name, its outstanding debit cards, ATM cards, 
credit cards, at the time of renewal. Share drafts with the credit 
union's name can be used by the member until depleted. This provision 
applies to both types of conversions, state-to-federal and federal-to-
state. If the state credit union is not federally insured, it must 
change its name and must immediately cease using any credit union 
documents referencing federal insurance and a federal name, including 
checks and credit cards.

V. Items in Process

    Until this rule is finalized, NCUA must operate under interim 
policies. These policies primarily affect the chartering and conversion 
to a community charter, the approval of field of membership amendments 
for multiple common bond credit unions, and the eligibility of 
immediate family members. If NCUA received a community charter 
application, including conversions and expansions, prior to the 
enactment of the Credit Union Membership Access Act, NCUA will process 
the application under IRPS 94-1, as amended by IRPS 96-1 and IRPS 98-1, 
as required by Section 103 of the statutory amendments. If the 
application is denied by NCUA during the interim period after passage 
of the legislation, and the credit union subsequently submits a new 
application, the new rules contained in this proposal, if finalized, 
apply.
    Amendments to multiple common bond credit unions cannot be approved 
until this rule is finalized. If NCUA receives amendment requests 
during this interim period, it will return the request to the credit 
union. However, amendments to single occupational/assocational common 
bond credit unions will continue to be processed.
    Under IRPS 94-1, credit unions have the ability to define immediate 
family through a credit union adopted bylaw amendment. Congress is 
requiring NCUA to specifically define immediate family member and 
submit the rule to Congress for review. Therefore, those immediate 
family members who are defined in the credit union's bylaws are 
eligible to join the credit union until notified by NCUA.

VI. Grandfather Provision

    The Credit Union Membership Access Act permits any person or 
organization, who is a member of any federal credit union at the date 
of enactment, unless expelled under Section 118 of the Federal Credit 
Union Act, to maintain membership in the credit union. The Act also 
permits a member, or subsequent new member, of any group, whose members 
constituted a portion of the membership of any federal credit union at 
the date of enactment, to continue to be eligible for membership in the 
credit union. For example, an employee of a select group who was 
eligible for membership prior to August 7, 1998, but did not join the 
credit union, is still eligible to join the credit union. This also 
applies to new employees hired subsequent to the date of enactment.

B. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a regulation may have on a 
substantial number of small credit unions (primarily those under $1 
million in assets). The proposed rule will not have a significant 
economic impact on a substantial number of small credit unions and 
therefore, a regulatory flexibility analysis is not required.

Paperwork Reduction Act

    NCUA has determined that several requirements of this proposal 
constitute collections of information under the Paperwork Reduction 
Act. The requirements are that federal credit unions: (1) complete a 
charter application or conversion application; and (2) provide written 
requests for changes in a credit union's field of membership. These 
documents are necessary to ensure the safety and soundness of credit 
unions as well as ensuring that the legal requirements of the Act have 
been met. Other aspects of this proposal reduce the paperwork 
requirements from the current rule.
    It is NCUA's view that some aspects of the time it takes a credit 
union to complete a charter application, charter amendment, or a 
community conversion or expansion application is not a burden created 
by this regulation but is the usual and customary practice in the 
normal operations of a business entity. However, NCUA estimates that it 
should take a credit union an average of 80 hours to develop a written 
charter or conversion request. NCUA estimates that it will receive 80 
charter or conversion requests in any given year. The annual reporting 
burden would be 6,400 hours to comply with this requirement. NCUA also 
estimates that it should take a credit union an average of two hours to 
provide a written request for changes in a credit union's field of 
membership. NCUA estimates that it will receive 9,000 of these requests 
in any given year. The annual reporting burden would be 18,000 hours to 
comply with this requirement. The total annual burden hours imposed by 
the proposed rule is 24,400 hours.
    The Paperwork Reduction Act of 1995 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 the burden of the collection of 
information.
    The NCUA Board invites comment on: (1) whether the collection of 
the 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, including the validity of the 
methodology and assumptions used; (3) ways to enhance the quality, 
utility, and clarity of the information to be collected; and (4) ways 
to minimize the burden of collection of information on those who are to 
respond, including through the use of appropriate automated electronic, 
mechanical, or other technological collection techniques or other forms 
of information technology; e.g., permitting electronic submission of 
responses.
    OMB is required to make a decision concerning the collection of 
information contained in these proposed regulations between 30 and 60 
days after publication of this document in the Federal Register. 
Therefore, a comment to OMB is best assured of having its full effect 
if OMB receives it within 30 days of publication. This does not affect 
the deadline for the public to comment to the NCUA Board on the 
proposed regulation.
    Organizations and individuals desiring to submit comments on the 
information collection requirements should direct them to the Office of

[[Page 49170]]

Information and Regulatory Affairs, OMB, Room 10235, New Executive 
Office Building, Washington, D.C. 20503; Attention: Alex Hunt, Desk 
Officer for NCUA. Comments must also be sent to NCUA, 1775 Duke Street, 
Alexandria, VA 22314-3428; Attention: Jim Baylen, Director, office of 
Administration, Telephone No. (703) 518-6410; Fax No. (703) 518-6433. 
Comments should be postmarked by November 13, 1998. All comments 
submitted in response to these proposed regulations will be available 
for public inspection, during and after the comment period, at NCUA's 
Central Office, 6th Floor, Law Library, 1775 Duke Street, Alexandria, 
VA between the hours of 9 a.m. and 1 p.m., Monday through Friday of 
each week except federal holidays, and by appointment through the Law 
Librarian at telephone no. (703) 518-6540.

Executive Order 12612

    Executive Order 12612 requires NCUA to consider the effect of its 
actions on state interests. This proposed rule makes no significant 
changes with respect to state credit unions and therefore, will not 
materially affect state interests.

Congressional Review

    Congress, by statute, has determined that NCUA's definition of 
``immediate family or household'' as well as NCUA's definition of a 
``well-defined local community, neighborhood, or rural district,'' 
shall be treated as a major rule for purposes of chapter 8 of title 5 
United States Code.

List of Subjects in 12 CFR Part 701

    Credit, Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on August 31, 
1998.
Becky Baker,
Secretary of the Board.
    Accordingly, NCUA proposes to amend 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 
12 U.S.C. 1601 et seq., 42 U.S.C. 1981 and 3601-3610. Section 701.35 
is also authorized by 12 U.S.C. 4311-4312.

    2. Section 701.1 is revised to read as follows:


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

    National Credit Union Administration policies concerning 
chartering, field of membership modifications, and conversions are set 
forth in Interpretive Ruling and Policy Statement 98-3, Chartering and 
Field of Membership Policy. Copies may be obtained by contacting NCUA 
at the address found in Sec. 792.2(g)(1) of this chapter. The IRPS is 
incorporated into this section.

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

IRPS 98-3--[Added]

    Note: The text of the Interpretive Ruling and Policy Statement 
(IRPS 98-3) does not appear in the Code of Federal Regulations.

    3. IRPS 98-3 is added to read as follows:

Chapter 1--Federal Credit Union Chartering

I--Goals of NCUA Chartering Policy

    The National Credit Union Administration's (NCUA) chartering and 
field of membership policies are directed toward achieving the 
following goals:
     To encourage the formation of credit unions;
     To uphold the provisions of the Federal Credit Union Act;
     To promote thrift and credit extension;
     To promote credit union safety and soundness; and
     To make quality credit union service available to all 
eligible persons.
    NCUA may grant a charter to single occupational/associational 
groups, multiple groups, or communities if:
     The occupational, associational, or multiple groups 
possess an appropriate common bond or the community represents a well-
defined local community, neighborhood, or rural district;
     The subscribers are of good character and are fit to 
represent the proposed credit union; and
     The establishment of the credit union is economically 
advisable.
    Generally, these are the primary criteria that NCUA will consider. 
In unusual circumstances, however, NCUA may examine other factors, such 
as other federal law or public policy, in deciding if a charter should 
be approved.

II--Types of Charters

    The Federal Credit Union Act recognizes three types of federal 
credit union charters--single common bond (occupational and 
associational), multiple common bond (more than one group each having a 
common bond of occupation or association), and community.
    The requirements that must be met to charter a single occupational/
associational group, multiple groups, or a community federal credit 
union are described in Chapter 2. Special rules for credit unions 
serving low-income groups are described in Chapter 3.
    If a federal credit union charter is granted, Section 5 of the 
charter will describe the credit union's field of membership, which 
defines those persons and entities eligible for membership. Generally, 
federal credit unions are only able to grant loans and provide services 
to persons within the field of membership who have become members of 
the credit union.

III--Subscribers

    Federal credit unions are generally organized by persons who 
volunteer their time and resources and are responsible for determining 
the interest, commitment, and economic advisability of forming a 
federal credit union. The organization of a successful federal credit 
union takes considerable planning and dedication.
    Persons interested in organizing a federal credit union should 
contact one of the credit union trade associations or the NCUA regional 
office serving the state in which the credit union will be organized. 
Lists of NCUA offices and credit union trade associations are shown in 
the appendices. NCUA will provide information to groups interested in 
pursuing a federal charter and will assist them in contacting an 
organizer.
    While anyone may organize a credit union, a person with training 
and experience in chartering new federal credit unions is generally the 
most effective organizer. However, extensive involvement by the group 
desiring credit union service is essential.
    The functions of the organizer are to provide direction, guidance, 
and advice on the chartering process. The organizer also provides the 
group with information about a credit union's functions and purpose as 
well as technical assistance in preparing and submitting the charter 
application. Close communication and cooperation between the organizer 
and the proposed members are critical to the chartering process.
    The Federal Credit Union Act requires that seven or more natural 
persons--the ``subscribers''--present to NCUA for approval a sworn 
organization certificate stating at a minimum:

[[Page 49171]]

     The name of the proposed federal credit union;
     The location of the proposed federal credit union and the 
territory in which it will operate;
     The names and addresses of the subscribers to the 
certificate and the number of shares subscribed by each;
     The initial par value of the shares;
     The detailed proposed field of membership; and
     The fact that the certificate is made to enable such 
persons to avail themselves of the advantages of the Federal Credit 
Union Act.
    False statements on any of the required documentation filed in 
obtaining a federal credit union charter may be grounds for federal 
criminal prosecution.

IV--Economic Advisability

IV.A--General

    Before chartering a federal credit union, NCUA must be satisfied 
that the institution will be viable and that it will provide needed 
services to its members. Economic advisability is essential in order to 
qualify for a credit union charter.
    NCUA will conduct an independent on-site investigation of each 
charter application to ensure that the proposed credit union can be 
successful. In general, the success of any credit union depends on: (a) 
the character and fitness of management; (b) the depth of the members' 
support; and (c) present and projected market conditions.

IV.B--Proposed Management's Character and Fitness

    The Federal Credit Union Act requires NCUA to ensure that the 
subscribers are of good ``general character and fitness.'' Prospective 
officials and employees will be the subject of credit and background 
investigations. The investigation report must demonstrate each 
applicant's ability to effectively handle financial matters. Employees 
and officials should also be competent, experienced, honest and of good 
character. Factors that may lead to disapproval of a prospective 
official or employee include criminal convictions, indictments, and 
acts of fraud and dishonesty. Further, factors such as serious or 
unresolved past due credit obligations and bankruptcies disclosed 
during credit checks may disqualify an individual.
    NCUA also needs reasonable assurance that the management team will 
have the requisite skills--particularly in leadership and accounting--
and the commitment to dedicate the time and effort needed to make the 
proposed federal credit union a success.
    Section 701.14 of NCUA's Rules and Regulations set forth the 
procedures for NCUA approval of officials of newly chartered credit 
unions. If the application of a prospective official or employee to 
serve is not acceptable to the regional director, the group can propose 
an alternate to act in that individual's place. If the charter 
applicant feels it is essential that the disqualified individual be 
retained, the individual may appeal the regional director's decision to 
the NCUA Board. If an appeal is pursued, action on the application may 
be delayed. If the appeal is denied by the NCUA Board, an acceptable 
new applicant must be provided before the charter can be approved.

IV.C--Member Support

    While NCUA has not set a minimum field of membership size for 
chartering a federal credit union, experience has demonstrated that a 
credit union with fewer than 3,000 primary potential members (e.g., 
employees of a corporation or members of an association) generally is 
not economically advisable. Therefore, a charter applicant with a 
proposed field of membership of fewer than 3,000 primary potential 
members will have to provide significantly more support than a proposed 
credit union with a larger field of membership. For example, a small 
occupational group should demonstrate a commitment for significant 
long-term support from the employer.
    Economic advisability is a major factor in determining whether the 
credit union will be chartered. An important consideration is the 
degree of support from the field of membership. The charter applicant 
must be able to demonstrate that membership support is sufficient to 
ensure viability.

IV.D--Present and Future Market Conditions--Business Plan

    The ability to provide effective service to members, compete in the 
marketplace, and to adapt to changing market conditions is key to the 
survival of any enterprise. Before NCUA will charter or convert a 
credit union, a business plan based on realistic and supportable 
projections and assumptions must be submitted.
    The business plan should contain, at a minimum, the following 
elements:
     Mission statement;
     Analysis of market conditions, including if applicable, 
geographic, demographic, employment, income, housing, and economic 
data;
     Identify any overlapped credit unions (discussed in 
Chapter 2);
     Evidence of member support;
     Goals for shares, loans, and for number of members;
     Financial services needed/desired;
     Financial services to be provided to members of all 
segments within the field of membership;
     How/when services are to be implemented;
     Organizational/management plan addressing qualification 
and planned training of officials/employees;
     Plan for continuity--directors, committee members and 
management staff;
     Operating facilities, to include office space/equipment 
and supplies, safeguarding of assets, insurance coverage, etc.;
     Type of record keeping system, including consideration of 
a data processing system;
     Detailed semiannual pro forma financial statements 
(balance sheet, income and expense projections) for 1st and 2nd year, 
including assumptions--e.g., loan and dividend rates;
     Plans for operating independently and adequately 
accumulating capital;
     Written policies (shares, lending, investments, funds 
management, capital accumulation, dividends, collections, etc.);
     Source of funds to pay expenses during initial months of 
operation, including any subsidies, assistance, etc., and terms or 
conditions of such resources; and
     Evidence of sponsor commitment (or other source of 
support) if subsidies are critical to success of the federal credit 
union. Evidence may be in the form of letters, contracts, financial 
statements from the sponsor, and any other such document on which the 
proposed federal credit union can substantiate its projections.
    While the business plan may be prepared with outside assistance, 
the subscribers and proposed officials must understand and support the 
submitted business plan.

V--Steps in Organizing a Federal Credit Union

V.A--Getting Started

    Following the guidance contained throughout this policy, the 
organizers should submit wording for the proposed field of membership 
(the persons, organizations and other legal entities the credit union 
will serve) to NCUA early in the application process for written 
preliminary approval. The proposed field of membership must meet all 
common bond or community requirements.
    Once the field of membership has been given preliminary approval, 
and

[[Page 49172]]

the organizer is satisfied the application has merit, the organizers 
should conduct an organizational meeting to elect seven to ten persons 
to serve as subscribers. The subscribers should locate willing 
individuals capable of serving on the board of directors, credit 
committee, supervisory committee, and as chief operating officer/
manager of the proposed credit union.
    Subsequent organizational meetings may be held to discuss the 
progress of the charter investigation, to announce the proposed slate 
of officials, and to respond to any questions posed at these meetings.
    If NCUA approves the charter application, the subscribers, as their 
final duty, will elect the board of directors of the proposed federal 
credit union. The new board of directors will then appoint the 
supervisory committee.

V.B--Charter Application Documentation

V.B.1--General
    As discussed previously in this Chapter, the organizers of a 
federal credit union charter must, at a minimum, provide evidence that:
     The group(s) possesses an appropriate common bond or the 
geographical area to be served is a well-defined local community, 
neighborhood, or rural district;
     The subscribers, prospective officials, and employees are 
of good character and fitness; and
     The establishment of the credit union is economically 
advisable.
    As part of the application process, the organizers must submit the 
following forms, which are available in Appendix D of this Manual:
     Federal Credit Union Investigation Report, NCUA 4001;
     Organization Certificate, NCUA 4008;
     Report of Official and Agreement to Serve, NCUA 4012;
     Applications and Agreements for Insurance of Accounts, 
NCUA 9500; and Certification of Resolutions, NCUA 9501.
    Each of these forms is described in more detail in the following 
sections.
V.B.2--Federal Credit Union Investigation Report, NCUA 4001
    The application for a new federal credit union will be submitted on 
NCUA 4001. (State-chartered credit unions applying for conversion to 
federal charter will use NCUA 4000. See Chapter 4 for a full 
discussion.) The organizer is required to certify the information and 
recommend approval or disapproval, based on the investigation of the 
request. Instructions and guidance for completing the form are provided 
on the reverse side of the form.
V.B.3--Organization Certificate, NCUA 4008
    This document, which must be completed by the subscribers, includes 
the seven criteria established by the Federal Credit Union Act. NCUA 
staff assigned to the case will assist in the proper completion of this 
document.
V.B.4--Report of Official and Agreement to Serve, NCUA 4012
    This form documents general background information of each official 
and employee of the proposed federal credit union. Each official and 
employee must complete and sign this form. The organizers must review 
each of the NCUA 4012s for elements that would prevent the prospective 
official or employee from serving. Further, such factors as serious, 
unresolved past due credit obligations and bankruptcies disclosed 
during credit checks may disqualify an individual.
V.B.5--Application and Agreements for Insurance of Accounts, NCUA 9500
    This document contains the agreements with which federal credit 
unions must comply in order to obtain National Credit Union Share 
Insurance Fund (NCUSIF) coverage of member accounts. The document must 
be completed and signed by both the chief executive officer and chief 
financial officer. A federal credit union must qualify for federal 
share insurance.
V.B.6--Certification of Resolutions, NCUA 9501
    This document certifies that the board of directors of the proposed 
federal credit union has resolved to apply for NCUSIF insurance of 
member accounts and has authorized the chief executive officer and 
chief recording 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.

VI--Name Selection

    It is the responsibility of the federal credit union organizers or 
officials of an existing credit union to ensure that the proposed 
federal credit union name or federal credit union name change does not 
constitute an infringement on the name of any corporation in its trade 
area. This responsibility also includes researching any service marks 
or trademarks used by any other corporation (including credit unions) 
in its trade area. NCUA will ensure, to the extent possible, that the 
credit union's name:
     Is not already being officially used by another federal 
credit union;
     Will not be confused with NCUA or another federal or state 
agency, or with another credit union; and
     Does not include misleading or inappropriate language.
    The last three words in the name of every credit union chartered by 
NCUA must be ``Federal Credit Union.''
    The word ``community,'' while not required, can only be included in 
the name of federal credit unions that have been granted a community 
charter.

VII--NCUA Review

VII.A--General

    NCUA may provide preliminary 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. At some point 
during the review process, a staff member will be assigned to perform 
an on-site contact with the proposed officials and others having an 
interest in the proposed federal credit union.
    NCUA staff will review the application package and verify its 
accuracy and reasonableness. A staff member will inquire into the 
financial management experience, and the suitability and commitment of 
the proposed officials and employees and will make an assessment of 
economic advisability. The staff member will also provide guidance to 
the subscribers in the proper completion of the Organization 
Certificate, NCUA 4008.
    The staff member will analyze the prospective credit union's 
business plan for realistic projections, attainable goals, adequate 
service to all segments of the field of membership, sufficient start-up 
capital, and time commitment by the proposed officials and employees. 
Any concerns will be reviewed with the organizers and discussed with 
the prospective credit union's officials. Additional on-site contacts 
by NCUA staff may be necessary. The organizers and subscribers will be 
expected to take the steps necessary to resolve any issues or concerns. 
Such resolution efforts may delay processing the application.
    NCUA staff will then make a recommendation to the regional director

[[Page 49173]]

regarding the charter application. The recommendation may include 
specific provisions to be included in a Letter of Understanding and 
Agreement. In most cases, NCUA will require the prospective officials 
to adhere to certain operational guidelines. Generally, the agreement 
is for a limited term of two to four years. A sample Letter of 
Understanding and Agreement is found in Appendix B.

VII.B--Regional Director Approval

    Once approved, the board of directors of the newly formed federal 
credit union will receive a signed charter and standard bylaws from the 
regional director. Additionally, the officials will be advised of the 
name of the examiner assigned responsibility for supervising and 
examining the credit union.

VII.C--Regional Director Disapproval

    When a regional director disapproves any charter application, in 
whole or in part, the organizers will be informed in writing of the 
specific reasons for the disapproval. Where applicable, the regional 
director will provide information concerning options or suggestions 
that the applicant could consider for gaining approval or otherwise 
acquiring credit union service. The letter of denial will include the 
procedures for appealing the decision.

VII.D--Appeal of Regional Director Decision

    If the regional director denies a charter application, in whole or 
in part, that decision may be appealed to the NCUA Board. An appeal 
must be sent to the appropriate regional office within 60 days of the 
date of denial and must address the specific reasons for denial. The 
regional director will then forward the appeal to the NCUA Board. NCUA 
central office staff will make an independent review of the facts and 
present the appeal with a recommendation to the NCUA Board.
    Before appealing, the prospective group may, within 30 days of the 
denial, provide supplemental information to the regional director for 
reconsideration. The request will not be considered as an appeal, but 
as a request for reconsideration by the regional director. The regional 
director will have 30 days from the date of the receipt of the request 
for reconsideration to make a final decision. If the charter 
application is again denied, the group may proceed with the appeal 
process within 60 days of the date of the last denial.

VII.E--Commencement of Operations

    Assistance in commencing operations is generally available through 
the various credit union trade organizations listed in Appendix E.
    All new federal credit unions are also encouraged to establish a 
mentor relationship with a trained, experienced credit union individual 
or an existing credit union. The mentor should provide guidance and 
assistance to the new credit union through attendance at meetings and 
general oversight review. Upon request, NCUA will provide assistance in 
finding a qualified mentor.

VIII--Future Supervision

    Each federal credit union will be examined regularly by NCUA to 
determine that it remains in compliance with applicable laws and 
regulations and to determine that it does not pose undue risk to the 
National Credit Union Share Insurance Fund. The examiner will contact 
the credit union officials shortly after approval of the charter in 
order to arrange for the initial examination (usually within the first 
six months of operation).
    The examiner will be responsible for monitoring the progress of the 
credit union and providing the necessary advice and guidance to ensure 
it is in compliance with applicable laws and regulations. The examiner 
will also monitor compliance with the terms of any required Letter of 
Understanding and Agreement. Typically, the examiner will require the 
credit union to submit copies of monthly board minutes and financial 
statements.
    The Federal Credit Union Act requires all newly chartered credit 
unions, up to two years after the charter anniversary date, to obtain 
NCUA approval prior to appointment of any new board member, credit or 
supervisory committee member, or senior executive officer. Section 
701.14 of the NCUA Rules and Regulations sets forth the notice and 
application requirements. If NCUA issues a Notice of Disapproval, the 
newly chartered credit union is prohibited from making the change.
    NCUA may disapprove an individual serving as a director, committee 
member or senior executive officer if it finds that the competence, 
experience, character, or integrity of the individual indicates it 
would not be in the best interests of the members of the credit union 
or of the public to permit the individual to be employed by or 
associated with the credit union. If a Notice of Disapproval is issued, 
the credit union may appeal the decision to the NCUA Board.

IX--Corporate Federal Credit Unions

    A corporate federal credit union is one that is operated primarily 
for the purpose of serving other credit unions. Corporate federal 
credit unions operate under and are administered by the NCUA Office of 
Corporate Credit Unions.

X--Groups Seeking Credit Union Service

    NCUA will attempt to assist any group in chartering a credit union 
or joining an existing credit union. If the group is not eligible for 
federal credit union service, NCUA will refer the group to the 
appropriate state supervisory authority where different requirements 
may apply.

XI--Field of Membership Designations

    For monitoring purposes, NCUA will designate a credit union based 
on the following criteria:
    Single Occupational: If a credit union serves a single occupational 
sponsor, such as ABC Corporation, it will be designated as an 
occupational credit union, followed by the name, ABC Corporation.
    Single Associational: If a credit union serves a single 
associational sponsor, such as the Knights of Columbus, it will be 
designated as an associational credit union.
    Multiple Group: If a credit union serves more than one group, each 
of which has a common bond of occupation and/or association, it will be 
designated as a multiple group credit union.
    Community: All community credit unions will be designated as such, 
followed by a description of their geographic boundaries (e.g. city or 
county). More than one credit union may serve the same community.

XII--Serving Foreign Nationals

    The Federal Credit Union Act authorizes a federal credit union to 
serve foreign nationals within the field of membership when they reside 
in or work in the United States. Foreign nationals may also be served 
if they reside in a foreign country, but only when the primary purpose 
of the credit union's foreign service facility is to serve United 
States citizens who are credit union members residing in the foreign 
country. In order to be served, the foreign nationals must be within 
the field of membership of the group for which the credit union 
maintains an office on foreign soil.
    NCUA policy prohibits the establishment of a federal credit union 
on foreign soil for the primary purpose

[[Page 49174]]

of serving the citizens of a foreign nation.

Chapter 2--Field of Membership Requirements for Federal Credit Unions

I--Introduction

I.A.1--General
    As set forth in Chapter 1, the Federal Credit Union Act provides 
for three types of federal credit union charters--single common bond 
(occupational or associational), multiple common bond (multiple 
groups), and community. Section 109 (12 U.S.C. 1759) of the Federal 
Credit Union Act sets forth the membership criteria for each of these 
three types of credit unions.
    The field of membership, which is specified in Section 5 of the 
charter, defines those persons and entities eligible for membership. A 
single common bond federal credit union consists of one group which has 
a common bond of occupation or association. A multiple common bond 
federal credit union consists of more than one group, each of which has 
a common bond of occupation or association. A community federal credit 
union consists of persons or organizations within a well defined local 
community, neighborhood, or rural district.
    Once chartered, a federal credit union can amend its field of 
membership; however, the same common bond or community requirements for 
chartering the credit union must be satisfied. Since there are 
differences in the three types of charters, special rules, which are 
fully discussed in the following sections of this Chapter may apply to 
each.
I.A.2--Special Low-Income Rules
    Generally, federal credit unions can only grant loans and provide 
services to persons who have joined the credit union. The Federal 
Credit Union Act states that one of the purposes of federal credit 
unions is ``to serve the productive and provident credit needs of 
individuals of modest means.'' Although field of membership 
requirements are applicable, special rules set forth in Chapter 3 may 
apply to low-income designated credit unions and those credit unions 
assisting low-income groups or to a federal credit union that adds an 
underserved community to its field of membership.

II--Occupational Common Bond

II.A.--General

    A single occupational common bond federal credit union may include 
in its field of membership all persons and entities who share that 
common bond. NCUA permits a person's membership eligibility in a single 
occupational common bond group to be established in four 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 single occupational common bond;
     Employment in a corporation or other legal entity with a 
controlling ownership interest (which shall not be less than 10 
percent) in or by another legal entity makes that person part of a 
single occupational common bond;
     Employment in a corporation or other legal entity which is 
related to another legal entity (such as a company under contract and 
possessing a strong dependency relationship with another company) makes 
that person part of a single occupational common bond; or
     Employment or attendance at a school makes that person 
part of a single occupational common bond.
    A geographic limitation is not a requirement for a single 
occupational common bond. However, for purposes of describing the field 
of membership, the geographic areas being served will be included in 
the charter. For example:
     Employees, officials, and persons who work regularly under 
contract in Miami, Florida for ABC Corporation or the subsidiaries 
listed below;
     Employees of ABC Corporation who are paid from * * *;
     Employees of ABC Corporation who are supervised from * * 
*;
     Employees of ABC Corporation who are headquartered in * * 
*; and/or
     Employees of ABC Corporation who work in the United 
States.
    So that NCUA may monitor any potential field of membership 
overlaps, each group to be served (e.g., employees of subsidiaries, 
franchisees, and contractors) must be separately listed in Section 5 of 
the charter.
    The corporate or other legal entity (i.e., the employer) may also 
be included in the common bond--e.g., ``ABC Corporation.'' The 
corporation or legal entity will be defined in the last clause in 
Section 5 of the credit union's charter.
    A charter applicant must provide documentation to establish that 
the single occupational common bond requirement has been met.
    Some examples of a single occupational common bond are:
     Employees of the Hunt Manufacturing Company who work in 
West Chester, Pennsylvania. (common bond--same employer with geographic 
definition);
     Employees of the Buffalo Manufacturing Company who work in 
the United States. (common bond--same employer with geographic 
definition);
     Employees, elected and appointed officials of municipal 
government in Parma, Ohio. (common bond--same employer with geographic 
definition);
     Employees of Johnson Soap Company and its majority owned 
subsidiary, Johnson Toothpaste Company, who work in, are paid from, are 
supervised from, or are headquartered in Augusta and Portland, Maine. 
(common bond--parent and subsidiary company with geographic 
definition);
     Employees of those contractors who work regularly at the 
U.S. Naval Shipyard in Bremerton, Washington. (common bond--employees 
of contractors with geographic definition);
     Employees, doctors, medical staff, technicians, medical 
and nursing students who work in or are paid from the Newport Beach 
Medical Center, Newport Beach, California. (single corporation with 
geographic definition);
     Employees of JLS, Incorporated and MJM, Incorporated 
working for the LKM Joint Venture Company in Catalina Island, 
California. (common bond--same employer--ongoing dependent 
relationship); or
     Employees of and students attending Georgetown University. 
(common bond--same occupation).
    Some examples of insufficiently defined single occupational common 
bonds are:
     Employees of manufacturing firms in Seattle, Washington. 
(no defined sponsor or industry);
     Persons employed or working in Chicago, Illinois. (no 
occupational common bond); or
     Employees of all colleges and universities in the State of 
Texas. (not a single occupational common bond).

II.B--Occupational Common Bond Amendments

II.B.1--General
    Section 5 of every single occupational federal credit union's 
charter defines the field of membership, i.e., common bond groups the 
credit union can legally serve. Only those persons or legal entities 
specified in the field of membership can be served. There are a number 
of instances in which Section 5 must be amended by NCUA.
    First, a new group sharing the credit union's common bond is added 
to the field of membership. This may occur through agreement between 
the group and the credit union directly, or through a merger, corporate 
acquisition, purchase and assumption (P&A), or spin-off.

[[Page 49175]]

    Second, if the entire field of membership is acquired by another 
corporation, the credit union can serve the employees of the new 
corporation and any subsidiaries after receiving NCUA approval.
    Third, a federal credit union qualifies to change its common bond 
from:
     A single occupational common bond to a single 
associational common bond;
     A single occupational common bond to a community charter; 
or
     A single occupational common bond to a multiple common 
bond.
    Fourth, a federal credit union removes a group from its field of 
membership through agreement with the group, a spin-off, or because the 
group is no longer in existence.
    An existing single occupational common bond federal credit union 
that submits a request to amend its charter must provide documentation 
to establish that the occupational common bond requirement has been 
met.
    All amendments to an occupational common bond credit union's field 
of membership must be approved by the regional director. The regional 
director may approve an amendment to expand the field of membership if:
     The common bond requirements of this section are 
satisfied;
     The group to be added has provided a written request for 
service to the credit union;
     The change is economically advisable; and
     The group presently does not have credit union service 
available other than through a community charter (if non community 
credit union service is available, the region must conduct an overlap 
analysis).
II.B.2--Corporate Restructuring
    If the single common bond group that comprises a federal credit 
union's field of membership undergoes a substantial restructuring, the 
result is often that portions of the group are sold or spun off. This 
is an event which requires a change to the credit union's field of 
membership. NCUA will not permit a single common bond credit union to 
maintain in its field of membership a sold or spun-off group to which 
it has been providing service unless the group otherwise qualifies for 
membership in the credit union or if the credit union converts to a 
multiple common bond credit union.
II.B.3--Economic Advisability
    Prior to granting a common bond expansion, NCUA will examine the 
amendment's likely effect on the credit union's operations and 
financial condition, and its likely impact on other credit unions. In 
most cases, the information needed for analyzing the effect of adding a 
particular group will be available to NCUA through the examination and 
financial and statistical reports; however, in particular cases, a 
regional director may require additional information prior to making a 
decision. With respect to a proposed expansion's effect on other credit 
unions, the requirements on overlapping fields of membership set forth 
in Section II.E are also applicable.
II.B.4--Documentation Requirements
    A federal credit union requesting a common bond expansion must 
submit a formal written request, using the Application for Field of 
Membership Amendment (NCUA 4015), 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 (NCUA 4015) must 
be accompanied by the following:
     A letter signed by an authorized representative of the 
group to be added. Wherever possible, this letter must be submitted on 
the group's letterhead stationery. The regional director may accept 
such other documentation or certification as deemed appropriate. This 
letter must indicate:
     How the group shares the credit union's occupational 
common bond;
     That the group wants to be added to the applicant federal 
credit union's field of membership;
     Whether the group presently has other credit union service 
available; and
     The number of persons currently included within the group 
to be added and their locations.
     If the group is eligible for membership in any other 
credit union, documentation must be provided to support inclusion of 
the group under the overlap standards set forth in Section II.E.

II.C--NCUA'S Procedures for Amending the Field of Membership

II.C.1--General
    All requests for approval to amend a federal credit union's charter 
must be submitted to the appropriate regional director.
II.C.2--Regional Director's Decision
    All amendment requests will be reviewed by NCUA staff in order to 
ensure conformance to NCUA policy.
    In some cases, an on-site review by a staff member 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 addressing specific issues.
    The financial and operational condition of the requesting credit 
union will be considered in every instance. NCUA will carefully 
consider the economic advisability of expanding the field of membership 
of a credit union with financial or operational problems.
    In most cases, field of membership amendments will only be approved 
for credit unions that are operating satisfactorily. Generally, if a 
federal credit union is having difficulty providing service to its 
current membership, or is experiencing financial or other operational 
problems, it may have more difficulty serving an expanded field of 
membership.
    Occasionally, however, an expanded field of membership may provide 
the basis for reversing current financial problems. In such cases, an 
amendment to expand the field of membership may be granted 
notwithstanding the credit union's financial or operational problems. 
The applicant credit union must clearly establish that the expanded 
field of membership is in the best interest of the members and will not 
increase the risk to the NCUSIF.
II.C.3--Regional Director Approval
    If the requested amendment is approved by the regional director, 
the credit union will be issued an amendment to Section 5 of its 
charter.
II.C.4--Regional Director Disapproval
    When a regional director disapproves any application, in whole or 
in part, to amend the field of membership under this chapter, the 
applicant will be informed in writing of the:
     Specific reasons for the action;
     If appropriate, options or suggestions that could be 
considered for gaining approval; and
     Appeal procedure.
II.C.5--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. An appeal must be sent to the appropriate 
regional office within 60 days of the date of denial, and must address 
the specific reason(s) for the denial. The regional director will then 
forward the appeal to the NCUA Board. NCUA central office staff will 
make an independent review of the facts and

[[Page 49176]]

present the appeal to the Board with a recommendation.
    Before appealing, the credit union may, within 30 days of the 
denial, provide supplemental information to the regional director for 
reconsideration. The request will not be considered as an appeal, but 
as a request for reconsideration by the regional director. The regional 
director will have 30 days from the date of the receipt of the request 
for reconsideration to make a final decision. If the request is again 
denied, the credit union may proceed with the appeal process to the 
NCUA Board within 60 days of the date of the last denial by the 
regional director.

II.D--Mergers, Purchase and Assumptions, and Spin-Offs

    In general, other than the addition of common bond groups, there 
are three additional ways a federal credit union with a single 
occupational common bond can expand its field of membership:
     By taking in the field of membership of another credit 
union through a common bond or emergency merger;
     By taking in the field of membership of another credit 
union through a common bond or emergency purchase and assumption (P&A); 
or
     By taking a portion of another credit union's field of 
membership through a common bond spin-off.
II.D.1--Common Bond Mergers
    Generally, the requirements applicable to field of membership 
expansions found in this chapter apply to mergers where the continuing 
credit union has a federal charter. That is, the two credit unions must 
share a common bond.
    Where the merging credit union is state-chartered, the common bond 
rules applicable to a federal credit union apply.
    Mergers must be approved by the NCUA regional director where the 
continuing credit union is located, with the concurrence of the 
regional director of the merging credit union, and, as applicable, the 
state regulators.
II.D.2--Emergency Mergers
    An emergency merger may be approved by NCUA without regard to 
common bond or other legal constraints. An emergency merger involves 
NCUA's direct intervention and approval. The credit union to be merged 
must either be insolvent or likely to become insolvent, and NCUA must 
determine that:
     An emergency requiring expeditious action exists;
     Other alternatives are not reasonably available; and
     The public interest would best be served by approving the 
merger.
    If not corrected, conditions that could lead to insolvency include, 
but are not limited to:
     Abandonment by management;
     Loss of sponsor;
     Serious and persistent record keeping problems; or
     Serious and persistent operational concerns.
    In an emergency merger situation, NCUA will take an active role in 
finding a suitable merger partner (continuing credit union). NCUA is 
primarily concerned that the continuing credit union has the financial 
strength and management expertise to absorb the troubled credit union 
without adversely affecting its own financial condition and stability.
    As a stipulated condition to an emergency merger, the field of 
membership of the merging credit union may be transferred intact to the 
continuing federal credit union without regard to any common bond 
restrictions and without changing the character of the continuing 
federal credit union for future amendments. Under this authority, 
therefore, a single occupational common bond federal credit union may 
take into its field of membership any dissimilar charter type.
    The common bond characteristic of the continuing credit union in an 
emergency merger does not change. That is, even though the merging 
credit union is a multiple common bond or community, the continuing 
credit union will remain a single common bond credit union. Similarly, 
if the merging credit union is also an unlike single common bond, the 
continuing credit union will remain a single common bond credit union. 
Future common bond expansions will be based on the continuing credit 
union's original single common bond.
    Emergency mergers involving federally insured credit unions in 
different NCUA regions must be approved by the regional director where 
the continuing credit union is located, with the concurrence of the 
regional director of the merging credit union and, as applicable, the 
state regulators.
II.D.3--Purchase and Assumptions (P&As)
    Another alternative for acquiring the field of membership of a 
failing credit union is through a consolidation known as a P&A. If the 
P&A is the result of insolvency or danger of insolvency, then the 
emergency merger provisions apply and it is not necessary to meet 
common bond requirements.
    A P&A has limited application because, in most cases, the failing 
credit union must be placed into involuntary liquidation. However, in 
the few instances where a P&A may be appropriate, the assuming federal 
credit union, as with emergency mergers, may acquire the entire field 
of membership if the emergency merger criteria are satisfied. Specified 
loans, shares, and certain other designated assets and liabilities, 
without regard to common bond restrictions, may also be acquired 
without changing the character of the continuing federal credit union 
for purposes of future field of membership amendments.
    If the purchased and/or assumed credit union's field of membership 
does not share a common bond with the purchasing and/or assuming credit 
union, then the continuing credit union's original common bond will be 
controlling for future common bond expansions.
    P&As involving federally insured credit unions in different NCUA 
regions must be approved by all regional directors where the continuing 
credit union is located, with the concurrence of the regional director 
of the purchased and/or assumed credit union and, as applicable, the 
state regulators.
II.D.4--Spin-Offs
    A spin-off occurs when, by agreement of the parties, a portion of 
the field of membership, assets, liabilities, shares, and capital of a 
credit union are transferred to a new or existing credit union. A spin-
off is unique in that usually one credit union has a field of 
membership expansion and the other loses a portion of its field of 
membership.
    All common bond requirements apply regardless of whether the spin-
off becomes a new credit union or goes to an existing federal charter.
    The request for approval of a spin-off must be supported with a 
plan that addresses, at a minimum:
     Why the spin-off is being requested;
     What part of the field of membership is to be spun off;
     Whether the affected credit unions have a common bond 
(applies only to single occupational credit unions);
     Which assets, liabilities, shares, and capital are to be 
transferred;
     The financial impact the spin-off will have on the 
affected credit unions;
     The ability of the acquiring credit union to effectively 
serve the new members;
     The proposed spin-off date; and

[[Page 49177]]

     Disclosure to the members of the requirements set forth 
above.
    The spin-off request must also include current financial statements 
from the affected credit unions and the proposed voting ballot.
    For federal credit unions spinning off a group, membership notice 
and voting requirements and procedures are the same as for mergers (see 
Part 708 of the NCUA Rules and Regulations), except that only the 
members directly affected by the spin-off--those whose shares are to be 
transferred--are permitted to vote. Members whose shares are not being 
transferred will not be afforded the opportunity to vote. Voting 
requirements for federally insured state credit unions are governed by 
state law.
    Spin-offs involving federally insured credit unions in different 
NCUA regions must be approved by all regional directors where the 
credit unions are located and the state regulators, as applicable. 
Spin-offs in the same region also require approval by the state 
regulator, as applicable.

II.E--Overlaps

II.E.1--General
    An overlap exists when a group of persons is eligible for 
membership in two or more credit unions. As a general rule, NCUA will 
not charter two or more credit unions to serve the same single 
occupational group. An overlap is permitted when the expansion's 
beneficial effect in meeting the convenience and needs of the members 
of the group proposed to be included in the field of membership clearly 
outweighs any adverse effect on the overlapped credit union. However, 
when two or more credit unions are attempting to serve the same 
occupational group, an overlap can be permitted.
    Proposed or existing credit unions must only investigate the 
possibility of an overlap with federally insured credit unions prior to 
submitting an application for a proposed charter or expansion.
    When an overlap situation does arise, officials of the involved 
credit unions must attempt to resolve the overlap issue. If the matter 
is resolved between the affected credit unions, 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 or the overlapped credit union fails 
to provide a letter, an application for a new charter or field of 
membership expansion may still be submitted, but must also include 
information regarding the overlap and documented attempts at 
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.
    An overlap will not be considered adverse to the overlapped credit 
union if:
     The overlapped credit union does not object to the 
overlap;
     The overlap is incidental in nature--the group of persons 
in question is so small as to have no material effect on the original 
credit union; or
     there is limited participation by members or employees of 
the group in the original credit union after the expiration of a 
reasonable period of time.
    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);
     Whether the original credit union fails to provide 
requested service;
     The desire of the sponsor organization; and
     The best interests of the affected group and the credit 
union members involved.
    Potential overlaps of a federally insured state credit union's 
field of membership by a federal credit union will generally be 
analyzed in the same way as if two federal credit unions were involved. 
Where a federally insured state credit union's field of membership is 
broadly stated, NCUA will exclude its field of membership from any 
overlap protection.
    New charter applicants and every single occupational common bond 
group which comes before the regional director for affiliation with an 
existing federal credit union must advise the regional director in 
writing whether the group is included within the field of membership of 
any other credit union. If cases arise where the assurance given to a 
regional director concerning unavailability of credit union service is 
inaccurate, the misinformation is grounds for removal of the group from 
the federal credit union's charter.
    Generally, NCUA will permit single occupational federal credit 
unions to overlap community charters without performing an overlap 
analysis.
II.E.2--Overlap Issues as a Result of Organizational Restructuring
    A federal credit union's field of membership will always be 
governed by the common bond descriptions contained in Section 5 of its 
charter. Where a sponsor organization expands its operations 
internally, by acquisition or otherwise, the credit union may serve 
these new entrants to its field of membership if they are part of the 
common bond described in Section 5. Where acquisitions are made which 
add a new subsidiary, the group cannot be served until the subsidiary 
is included in the field of membership.
    Overlaps may occur as a result of restructuring or merger of the 
parent organization. Credit unions affected by organizational 
restructuring or merger should attempt to resolve overlap issues among 
themselves. If an agreement is reached, they must apply to NCUA for a 
modification of their fields of membership to reflect the groups each 
will serve. 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.
    In addition, credit unions must submit to NCUA documentation 
explaining the restructuring and providing information regarding the 
new organizational structure. To help in future monitoring of overlaps, 
the credit union must identify divisions and subsidiaries and the 
locations of each. Where the sponsor and its employees desire to 
continue service, NCUA may use wording such as the following:
     Employees of Lucky Corporation, formerly a subsidiary of 
Tool, Incorporated, located in Charleston, South Carolina.
II.E.3--Exclusionary Clauses
    An exclusionary clause is a limitation which precludes the credit 
union from serving the primary members of a portion of a group 
otherwise included in its field of membership.
    When two credit unions agree and/or NCUA has determined that 
overlap protection is appropriate for safety and soundness reasons, an 
exclusionary clause will be included in the expanding federal credit 
union's charter.
    Exclusionary clauses are very difficult for credit unions and NCUA 
to monitor properly. Additionally, 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 a co-worker may 
not. If, for safety and soundness reasons, an exclusionary clause is 
appropriate, the overlap protection only applies to primary members, 
which may only provide limited protection.

[[Page 49178]]

    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 independently serve their respective groups as 
they had prior to their sponsors' consolidation. The 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 define:
     The identity of the group;
     Whether the exclusion is to apply to the entire group or 
only to those who are actually members of another credit union;
     Whether the exclusion is to apply only to the current 
members of the group or to future members as well; and
     Whether the exclusion is to apply for a limited time 
period.
    Examples of exclusionary wording are:
     Persons who work for Pearl Jam Company, except those who 
work in, are paid from, or are supervised from San Francisco, 
California.
     Persons who work for the Fastball Co., except those 
employed by the Ranger Division as of June 30, 1996.
     Persons who work for CAT Co., except those who were 
members of the St. Bonaventure Federal Credit Union as of June 30, 
1996.
    Exclusionary clauses granted prior to the adoption of this new 
chartering manual will remain in effect unless the two credit unions 
agree to remove them. This requires NCUA approval.

II.F--Charter Conversion

    A single common bond federal credit union may apply to convert to 
any other type of charter provided the field of membership requirements 
of the new charter type are met. A group currently within the field of 
membership of the converting credit union which would not otherwise 
qualify as a group with the new charter cannot be served by the 
converting credit union; however, members of record can continue to be 
served.
    In order to support a case for a conversion, the applicant federal 
credit union may be required to develop a detailed business plan as 
specified in Chapter 1, Section IV.D.

II.G--Removal of Groups from the Field of Membership

    A credit union may request removal of a group from its field of 
membership for various reasons. The most common reasons for this type 
of amendment are:
     The group is within the 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; or
     The group initiates action to be removed from the field of 
membership.
    When a federal credit union requests an amendment to remove a group 
from its field of membership, the regional director will determine why 
the credit union wishes to remove the group and whether the existing 
members of the group will continue membership. If the regional director 
concurs with the request, membership may continue for those who are 
already members under the ``once a member, always a member'' provision 
of the Federal Credit Union Act.

II.H--Other Persons 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;
     Volunteers;
     Members of their immediate families; and
     Organizations of such persons.
    Members of their immediate families is defined as related persons 
i.e., blood, marriage, or other recognized family relationships in the 
same household (under the same roof), or if not in the same household, 
as a grandparent, parent, spouse, sibling, child, or grandchild. For 
the purposes of this definition, immediate family member includes 
stepparents, stepchildren, and stepsiblings. The immediate family 
member must be related to the credit union member.
    Volunteers, by virtue of their close relationship with a sponsor 
group, may be included. Examples include volunteers working at a 
hospital or church.
    Under the Federal Credit Union Act, once a person becomes a member 
of the credit union, such person may remain a member of the credit 
union until the person chooses to withdraw or is expelled from the 
membership of the credit union. This is commonly referred to as ``once 
a member, always a member.''

III--Associational

Common Bond

III.A.1--General
    A single associational federal credit union may include in its 
field of membership, regardless of location, all members and employees 
of a recognized association. A single associational common bond 
consists of individuals (natural persons) and/or groups (non natural 
persons) whose members participate in activities developing common 
loyalties, mutual benefits, and mutual interests.
    Individuals and groups eligible for membership in a single 
associational credit union can include the following:
     Natural person members of the association (for example, 
members of a union or church members);
     Non-natural person members of the association;
     Employees of the association (for example, employees of 
the labor union or employees of the church); and
     The association.
    Generally, a single associational common bond does not include a 
geographic definition. However, a proposed or existing federal credit 
union may limit its field of membership to a single association or 
geographic area. NCUA may impose a geographic limitation if it is 
determined that the applicant credit union does not have the ability to 
serve a larger group or there are other operational concerns. All 
single associational common bonds will include a definition of the 
group that may be served based on the effective date of the 
association's charter and bylaws. If the associational charter crosses 
NCUA regional boundaries, each of the affected regional directors must 
be consulted prior to NCUA action on the charter.
    Qualifying associational groups must hold meetings open to all 
members, must sponsor other activities which demonstrate that the 
members of the group meet to accomplish the objectives of the 
association, and must have an authoritative definition of who is 
eligible for membership. Usually, this will be found in the 
association's charter and bylaws.
    The common bond for an associational group cannot be established 
simply on the basis that the association exists. In determining whether 
a group satisfies associational common bond requirements for a federal 
credit union charter, NCUA will

[[Page 49179]]

consider the totality of the circumstances, such as:
     Whether members pay dues;
     Whether members participate in the furtherance of the 
goals of the association;
     Whether the members have voting rights;
     Whether the association maintains a membership list;
     The clarity of the association's definition and 
compactness of its membership; and
     The frequency of meetings.
    A support group whose members are continually changing or whose 
duration is temporary may not meet the single associational common bond 
criteria. Individuals or honorary members who only make donations to 
the association are not eligible to join the credit union. Other 
classes of membership that do not meet to accomplish the goals of the 
association would not qualify.
    Educational groups--for example, parent-teacher organizations, 
alumni associations, and student organizations in any school--and 
church groups constitute associational common bonds and may qualify for 
a federal credit union charter. Homeowner associations, tenant groups, 
co-ops, consumer groups, and other groups of persons having an 
``interest in'' a particular cause and certain consumer cooperatives 
may also qualify as an association.
    The terminology ``Alumni of Jacksonville State University'' is 
insufficient to demonstrate an associational common bond. To qualify as 
an association, the alumni association must meet the requirements for 
an associational common bond. The alumni of a school must first join 
the alumni association, and not merely be alumni of the school to be 
eligible for membership.
    Associations based primarily on a client-customer relationship do 
not meet associational common bond requirements. However, having an 
incidental client-customer relationship does not preclude an 
associational charter as long as the associational common bond 
requirements are met. For example, a fraternal association that offers 
insurance, which is not a condition of membership, may qualify as a 
valid associational common bond.
    Applicants for a single associational common bond federal credit 
union charter or a field of membership amendment to include an 
association must provide, at the request of the regional director, a 
copy of the association's charter, bylaws, or other equivalent 
documentation, and any legal documentation required by the state or 
other governing authority.
    The associational sponsor itself may also be included in the field 
of membership--e.g., ``Sprocket Association''--and will be shown in the 
last clause of the field of membership.
III.A.2--Subsequent Changes to Association's Bylaws
    If the association's membership or geographical definitions in its 
charter and bylaws are changed subsequent to the effective date stated 
in the field of membership, the credit union must submit the revised 
charter or bylaws for NCUA's consideration and approval prior to 
serving members of the association added as a result of the change.
III.A.3--Sample Single Associational Common Bonds
    Some examples of associational common bonds are:
     Regular members of Locals 10 and 13, IBEW, in Florida, who 
qualify for membership in accordance with their charter and bylaws in 
effect on May 20, 1997;
     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, 1997;
     Members of the Shalom Congregation in Chevy Chase, 
Maryland;
     Regular members of the Corporate Executives Association, 
located in Westchester, New York, who qualify for membership in 
accordance with its charter and bylaws in effect on December 1, 1997;
     Members of the University of Wisconsin Alumni Association, 
located in Green Bay, Wisconsin; or
     Members of the Marine Corps Reserve Officers Association.
    Some examples of insufficiently defined single associational common 
bonds are:
     All Lutherans in the United States. (too broadly defined); 
or
     Veterans of U.S. military service. (group is too broadly 
defined; no formal association of all members of the group).
    Some examples of unacceptable single associational common bonds 
are:
     Alumni of Amos University. (no formal association); or
     Customers of Fleetwood Insurance Company. (policyholders 
or primarily customer/client relationships do not meet associational 
standards).
     Employees of members of the Reston, Virginia Chamber of 
Commerce. (not a sufficiently close tie to the associational common 
bond).

III.B--Associational Common Bond Amendments

III.B.1--General
    Section 5 of every associational federal credit union's charter 
defines the field of membership, i.e., common bond groups, the credit 
union can legally serve. Only those persons who, or legal entities 
that, join the credit union and are specified in the field of 
membership can be served. There are three instances in which Section 5 
must be amended by NCUA.
    First, a new group that shares the credit union's common bond is 
added to the field of membership. 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 qualifies to change its common bond 
from:
     A single associational common bond to a single 
occupational common bond;
     A single associational common bond to a community charter; 
or
     A single associational common bond to a multiple common 
bond.
    Third, a federal credit union removes a group from its field of 
membership through agreement with the group, a spin-off, or the group 
is no longer in existence.
    An existing single associational federal credit union that submits 
a request to amend its charter must provide documentation to establish 
that the associational common bond requirement has been met.
    All amendments to an associational common bond credit union's field 
of membership must be approved by the regional director. The regional 
director may approve an amendment to expand the field of membership if:
     The common bond requirements of this section are 
satisfied;
     The group to be added has provided a written request for 
service to the credit union;
     The change is economically advisable; and
     The group presently does not have credit union service 
available other than through a community credit union (if non community 
credit union service is available, the region must conduct an overlap 
analysis.)
III.B.2--Organizational Restructuring
    If the single common bond group that comprises a federal credit 
union's field of membership undergoes a substantial restructuring, the 
result is often that portions of the group are sold or spun-off. This 
is an event which requires a

[[Page 49180]]

change to the credit union's field of membership. NCUA may not permit a 
single associational credit union to maintain in its field of 
membership a sold or spun-off group to which it has been providing 
service unless the group otherwise qualifies for membership in the 
credit union or the credit union converts to a multiple common bond 
credit union.
III.B.3--Economic Advisability
    Prior to granting a common bond expansion, NCUA will examine the 
amendment's likely impact on the credit union's operations and 
financial condition and its likely effect on other credit unions. In 
most cases, the information needed for analyzing the effect of adding a 
particular group will be available to NCUA through the examination and 
financial and statistical reports; however, in particular cases, a 
regional director may require additional information prior to making a 
decision. With respect to a proposed expansion's effect on other credit 
unions, the requirements on overlapping fields of membership set forth 
in Section III.E are also applicable.
III.B.4--Documentation Requirements
    A federal credit union requesting a common bond expansion must 
submit a formal written request, using the Application for Field of 
Membership Amendment, NCUA 4015, or its equivalent, to the appropriate 
NCUA regional director. The request must be signed by an authorized 
credit union representative.
    NCUA 4015, must be accompanied by the following:
     A letter signed by an authorized representative of the 
group to be added. Wherever possible, this letter must be submitted on 
the group's letterhead stationery. The regional director may accept 
such other documentation or certification as deemed appropriate. This 
letter must indicate:
     How the group shares the credit union's associational 
common bond;
     That the group wants to be added to the applicant federal 
credit union's field of membership;
     Whether the group presently has other credit union service 
available; and
     The number of persons currently included within the group 
to be added and their locations.
     The most recent copy of the group's charter and bylaws or 
equivalent documentation.
     If the group is eligible for membership in any other 
credit union, documentation must be provided to support inclusion of 
the group under the overlap standards set forth in Section III.E.

III.C--NCUA Procedures for Amending the Field of Membership

III.C.1--General
    All requests for approval to amend a federal credit union's charter 
must be submitted to the appropriate regional director.
III.C.2--Regional Director's Decision
    All amendment requests will be reviewed by NCUA staff in order to 
ensure conformance to NCUA policy.
    In some cases, an on-site review by a staff member 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 addressing specific issues.
    The financial and operational condition of the requesting credit 
union will be considered in every instance. The economic advisability 
of expanding the field of membership of a credit union with financial 
or operational problems must be carefully considered.
    In most cases, field of membership amendments will only be approved 
for credit unions that are operating satisfactorily. Generally, if a 
federal credit union is having difficulty providing service to its 
current membership, or is experiencing financial or other operational 
problems, it may have more difficulty serving an expanded field of 
membership.
    Occasionally, however, an expanded field of membership may provide 
the basis for reversing current financial problems. In such cases, an 
amendment to expand the field of membership may be granted 
notwithstanding the credit union's financial or operational problems. 
The applicant credit union must clearly establish that the expanded 
field of membership is in the best interest of the members and will not 
increase the risk to the NCUSIF.
III.C.3--Regional Director Approval
    If the requested amendment is approved by the regional director, 
the credit union will be issued an amendment to Section 5 of its 
charter.
III.C.4--Regional Director Disapproval
    When a regional director disapproves any application, in whole or 
in part, to amend the field of membership under this chapter, the 
applicant will be informed in writing of the:
     Specific reasons for the action;
     If appropriate, options or suggestions that could be 
considered for gaining approval; and
     Appeal procedures.
III.C.5--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. An appeal must be sent to the appropriate 
regional office within 60 days of the date of denial and must address 
the specific reason(s) for the denial. The regional director will then 
forward the appeal to the NCUA Board. NCUA central office staff will 
make an independent review of the facts and present the appeal to the 
NCUA Board with a recommendation.
    Before appealing, the credit union may, within 30 days of the 
denial, provide supplemental information to the regional director for 
reconsideration. The request will not be considered as an appeal, but 
as a request for reconsideration by the regional director. The regional 
director will have 30 days from the date of the receipt of the request 
for reconsideration to make a final decision. If the request is again 
denied, the credit union may proceed with the appeal process to the 
NCUA Board within 60 days of the date of the last denial by the 
regional director.

III.D--Mergers, Purchase and Assumptions, and Spin-Offs

    In general, other than the addition of common bond groups, there 
are three additional ways a federal credit union with a single 
associational common bond can expand its field of membership:
     By taking in the field of membership of another credit 
union through a common bond or emergency merger;
     By taking in the field of membership of another credit 
union through a common bond or emergency purchase and assumption (P&A); 
or
     By taking a portion of another credit union's field of 
membership through a common bond spin-off.
III.D.1--Common Bond Mergers
    Generally, the requirements applicable to field of membership 
expansions found in this section apply to mergers where the continuing 
credit union is a federal charter. That is, the two credit unions must 
share a common bond.
    Where the merging credit union is state-chartered, the common bond 
rules applicable to a federal credit union apply.

[[Page 49181]]

    Mergers must be approved by the NCUA regional director where the 
continuing credit union is located, with the concurrence of the 
regional director of the merging credit union, and, as applicable, the 
state regulators.
III.D.2--Emergency Mergers
    An emergency merger may be approved by NCUA without regard to 
common bond or other legal constraints. An emergency merger involves 
NCUA's direct intervention and approval. The credit union to be merged 
must either be insolvent or likely to become insolvent, and NCUA must 
determine that:
     An emergency requiring expeditious action exists;
     Other alternatives are not reasonably available; and
     The public interest would best be served by approving the 
merger.
    If not corrected, conditions that could lead to insolvency include, 
but are not limited to:
     Abandonment by management;
     Loss of sponsor;
     Serious and persistent record keeping problems; or
     Serious and persistent operational concerns.
    In an emergency merger situation, NCUA will take an active role in 
finding a suitable merger partner (continuing credit union). NCUA is 
primarily concerned that the continuing credit union has the financial 
strength and management expertise to absorb the troubled credit union 
without adversely affecting its own financial condition and stability.
    As a stipulated condition to an emergency merger, the field of 
membership of the merging credit union may be transferred intact to the 
continuing federal credit union without regard to any common bond 
restrictions and without changing the character of the continuing 
federal credit union for future amendments. Under this authority, 
therefore, a single associational common bond federal credit union may 
take into its field of membership any dissimilar charter type.
    The common bond characteristic of the continuing credit union in an 
emergency merger does not change. That is, even though the merging 
credit union is a multiple common bond or community, the continuing 
credit union will remain a single common bond credit union. Similarly, 
if the merging credit union is an unlike single common bond, the 
continuing credit union will remain a single common bond credit union. 
Future common bond expansions will be based on the continuing credit 
union's single common bond.
    Emergency mergers involving federally insured credit unions in 
different NCUA regions must be approved by the regional director where 
the continuing credit union is located, with the concurrence of the 
regional director of the merging credit union and, as applicable, the 
state regulators.
III.D.3--Purchase and Assumptions (P&As)
    Another alternative for acquiring the field of membership of a 
failing credit union is through a consolidation known as a P&A. If the 
P&A is the result of insolvency or danger of insolvency, then the 
emergency merger provisions apply and it is not necessary to meet 
common bond requirements.
    A P&A has limited application because, in most cases, the failing 
credit union must be placed into involuntary liquidation. However, in 
the few instances where a P&A may be appropriate, the assuming federal 
credit union, as with emergency mergers, may acquire the entire field 
of membership if the emergency merger criteria are satisfied. Specified 
loans, shares, and certain other designated assets and liabilities, may 
also be acquired without regard to common bond restrictions and without 
changing the character of the continuing federal credit union for 
purposes of future field of membership amendments.
    If the purchased and/or assumed credit union's field of membership 
does not share a common bond with the purchasing and/or assuming credit 
union, then the continuing credit unions' original common bond will be 
controlling for future common bond expansions.
    If the P&A is not the result of an insolvency or danger of 
insolvency, then the common bond rules apply to those assets purchased 
and liabilities assumed.
    P&As involving federally insured credit unions in different NCUA 
regions must be approved by all regional directors where the continuing 
credit union is located, with the concurrence of the regional director 
of the purchased and/or assumed credit union and, as applicable, the 
state regulators.
III.D.4--Spin-Offs
    Generally, a spin-off occurs when, by agreement of the parties, a 
portion of the field of membership, assets, liabilities, shares and 
capital of a credit union, are transferred to a new or existing credit 
union. A spin-off is unique in that usually one credit union has a 
field of membership expansion and the other loses a portion of its 
field of membership.
    All single associational common bond requirements apply regardless 
of whether the spin-off becomes a new credit union or goes to an 
existing federal charter.
    The request for approval of a spin-off must be supported with a 
plan that addresses, at a minimum:
     Why the spin-off is being requested;
     What part of the field of membership is to be spun off;
     Whether the affected credit unions have the same common 
bond (applies only to single associational credit unions);
     Which assets, liabilities, shares, and capital are to be 
transferred;
     The financial impact the spin-off will have on the 
affected credit unions;
     The ability of the acquiring credit union to effectively 
serve the new members;
     The proposed spin-off date; and
     Disclosure to the members of the requirements set forth 
above.
    The spin-off request must also include current financial statements 
from the affected credit unions and the proposed voting ballot.
    For federal credit unions spinning off a group, membership notice 
and voting requirements and procedures are the same as for mergers (see 
Part 708 of the NCUA Rules and Regulations), except that only the 
members directly affected by the spin-off--those whose shares are to be 
transferred--are permitted to vote. Members whose shares are not being 
transferred will not be afforded the opportunity to vote. Voting 
requirements for federally insured state credit unions are governed by 
state law.
    Spin-offs involving federally insured credit unions in different 
NCUA regions must be approved by all regional directors where the 
credit unions are located and the state regulators, as applicable. 
Spin-offs in the same region also require approval by the state 
regulator, as applicable.

III.E--Overlaps

III.E.1--General
    An overlap exists when a group of persons is eligible for 
membership in two or more credit unions. As a general rule, NCUA will 
not charter two or more credit unions to serve the same single 
associational group. An overlap is permitted when the expansion's 
beneficial effect in meeting the convenience and needs of the members 
of the group proposed to be included in the field of membership clearly 
outweighs any adverse effect on the overlapped credit union. However, 
when two or more credit unions are attempting to serve the same

[[Page 49182]]

associational group, an overlap can be permitted.
    Proposed or existing credit unions must only investigate the 
possibility of an overlap with federally insured credit unions prior to 
submitting an application for a proposed charter or expansion.
    When an overlap situation does arise, officials of the involved 
credit unions must attempt to resolve the overlap issue. If the matter 
is resolved between the credit unions, 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 or the overlapped credit union fails 
to provide a letter, an application for a new charter or field of 
membership expansion may still be submitted, but must also include 
information regarding the overlap and documented attempts at 
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.
    An overlap will not be considered adverse to the overlapped credit 
union if:
     The overlapped credit union does not object to the 
overlap;
     The overlap is incidental in nature--the group of persons 
in question is so small as to have no material effect on the original 
credit union;
     There is limited participation by members of the group in 
the original credit union after the expiration of a reasonable period 
of time; or
     The field of membership is broadly stated, such as a 
national association.
    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);
     Whether the original credit union fails to provide 
requested service;
     The desire of the sponsor organization; and
     The best interests of the affected group and the credit 
union members involved.
    Potential overlaps of a federally insured state credit union's 
field of membership by a federal credit union will generally be 
analyzed in the same way as if two federal credit unions were involved. 
Where a federally insured state credit union's field of membership is 
broadly stated, NCUA will exclude its field of membership from any 
overlap protection.
    New charter applicants and every single associational common bond 
group which comes before the regional director for affiliation with an 
existing federal credit union must advise the regional director in 
writing whether the group is included within the field of membership of 
any other credit union. If cases arise where the assurance given to a 
regional director concerning unavailability of credit union service is 
inaccurate, the misinformation is grounds for removal of the group from 
the federal credit union's charter.
    Generally, NCUA will permit single associational federal credit 
unions to overlap community charters without performing an overlap 
analysis.
III.E.2--Overlap Issues as a Result of Organizational Restructuring
    A federal credit union's field of membership will always be 
governed by the common bond descriptions contained in Section 5 of its 
charter. Where a sponsor organization expands its operations 
internally, by acquisition or otherwise, the credit union may serve 
these new entrants to its field of membership if they are part of the 
common bond described in Section 5.
    Overlaps may occur as a result of restructuring or merger of the 
parent organization. Credit unions affected by organizational 
restructuring or merger should attempt to resolve overlap issues among 
themselves. If an agreement is reached, they must apply to NCUA for a 
modification of their fields of membership to reflect the groups each 
will serve. 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.
III.E.3--Exclusionary Clauses
    An exclusionary clause is a limitation which precludes the credit 
union from serving the primary members of a portion of a group 
otherwise included in its field of membership.
    When two credit unions agree and/or NCUA has determined that 
overlap protection is appropriate for safety and soundness reasons, an 
exclusionary clause will be included in the expanding federal credit 
union's charter.
    Exclusionary clauses are very difficult for credit unions and NCUA 
to monitor properly. Additionally, 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 
member may be eligible for credit union service while another may not. 
If, for safety and soundness reasons, an exclusionary clause is 
appropriate, the overlap protection only applies to primary members, 
which may only provide limited protection.
    One example of an appropriate use of an exclusionary clause may be 
where there is a merger of two labor unions served by two credit unions 
which will continue to serve their groups as they had prior to their 
sponsors' consolidation. The 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 define:
     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;
     Whether the exclusion is to apply only to the current 
members of the group or to future members as well; and
     Whether the exclusion is to apply for a limited time 
period.
    Examples of exclusionary wording are:
     Members of K of C Council #10, except members of the XYZ 
Federal Credit Union as of June 30, 1996; or
     Members of the American Bar Association, except those 
located in Washington, D.C.
    Exclusionary clauses granted prior to the adoption of this new 
chartering manual will remain in effect unless the two credit unions 
agree to remove them. This requires NCUA approval.

III.F--Charter Conversions

    A single common bond associational federal credit union may apply 
to convert to any other type of charter. A conversion is no different 
than applying for a charter or expanding the field of membership--field 
of membership requirements must be met. A group currently within the 
field of membership of the converting credit union, but which would not 
otherwise qualify as a member of the new charter, cannot be served by 
the converting credit union; however, members of record can continue to 
be served.
    In order to support a case for a conversion, the applicant federal 
credit union must develop a detailed business plan as specified in 
Chapter 1, Section IV.D.

III.G--Removal of Groups From the Field of Membership

    A credit union may request removal of a group from its field of 
membership for various reasons. The most common reasons for this type 
of amendment are:

[[Page 49183]]

     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; or
     The group initiates action to be removed from the field of 
membership.
    When a federal credit union requests an amendment to remove a group 
from its field of membership, the regional director will determine why 
the credit union wishes to remove the group and whether the existing 
members of the group will continue membership. If the regional director 
concurs with the request, membership may continue for those who are 
already members under the ``once a member, always a member'' provision 
of the Federal Credit Union Act.

III.H--Other Persons 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;
     Volunteers;
     Members of their immediate families; and
     Organizations of such persons.
    ``Members of their immediate families'' is defined as related 
persons i.e., blood, marriage, or other recognized family relationships 
in the same household (under the same roof), or if not in the same 
household, as a grandparent, parent, spouse, sibling, child, or 
grandchild. For the purposes of this definition, immediate family 
member includes stepparents, stepchildren, and stepsiblings. The 
immediate family member must be related to the credit union member.
    Volunteers, by virtue of their close relationship with a sponsor 
group, may be included. One example is volunteers working at a church.
    Under the Federal Credit Union Act, once a person becomes a member 
of the credit union, such person may remain a member of the credit 
union until the person chooses to withdraw or is expelled from the 
membership of the credit union. This is commonly referred to as ``once 
a member, always a member.''

IV--Multiple Occupational/Associational Common Bonds

IV.A.1--General
    A federal credit union may be chartered to serve a combination of 
distinct, definable single occupational and/or associational common 
bonds. This type of credit union is called a multiple common bond 
credit union. Each group in the field of membership must have its own 
occupational or associational common bond. For example, a multiple 
common bond credit union may include two unrelated employers, or two 
unrelated associations, or a combination of two or more employers or 
associations. Additionally, these groups must be within reasonable 
proximity of the credit union. That is, the groups must be within the 
service area of one of the credit union's service facilities. These 
groups are referred to as select groups.
    A federal credit union's service area is the area that can 
reasonably be served by the service facilities accessible to the groups 
within the field of membership. The service area will most often 
coincide with that geographic area primarily served by the service 
facility. Additionally, the groups served by the credit union must have 
access to the service facility. A service facility is defined as a 
place where shares are accepted for members' accounts, loan 
applications are accepted, and loans are disbursed. This definition 
includes a credit union owned branch, a shared branch, or a credit 
union owned electronic facility that meets, at a minimum, these 
requirements. This definition does not include an ATM.
    The select group as a whole will be considered to be within a 
credit union's service area when:
     A majority of the persons in a select group live, work, or 
gather regularly within the service area;
     The group's headquarters is located within the service 
area; or
     The group's ``paid from'' or ``supervised from'' location 
is within the service area.
IV.A.2--Sample Multiple 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 Teltex Corporation who work in Wilmington, 
Delaware;
    2. Partners and employees of Smith & Jones, Attorneys at Law, who 
work in Wilmington, Delaware;
    3. Members of the M&L Association who live in Wilmington, Delaware, 
and qualify for membership in accordance with its charter and bylaws in 
effect on December 31, 1997.''

IV.B--Multiple Group Amendments

IV.B.1--General
    Section 5 of every multiple group federal credit union's charter 
defines the field of membership and select groups the credit union can 
legally serve. Only those persons or legal entities specified in the 
field of membership can be served. There are a number of instances in 
which Section 5 must be amended by NCUA.
    First, a new select group is added to the field of membership. This 
may occur through agreement between the group and the credit union 
directly, or through a merger, corporate acquisition, purchase and 
assumption (P&A), or spin-off.
    Second, a federal credit union qualifies to change its charter 
from:
     A single occupational/associational charter to a multiple 
group charter;
     A multiple group to a single occupational/associational 
charter;
     A multiple group to a community charter; or
     A community to a multiple group charter.
    Third, a federal credit union removes a group from its field of 
membership through agreement with the group, a spin-off, or because the 
group is no longer in existence.
IV.B.2--Numerical Limitation of Select Groups
    An existing multiple group federal credit union that submits a 
request to amend its charter must provide documentation to establish 
that the multiple group requirements have been met. All amendments to a 
multiple group credit union's field of membership must be approved by 
the regional director.
    NCUA will approve groups of less than 3,000 persons (excluding 
family members) to a credit union's field of membership, if the agency 
determines in writing that the following criteria are met:
     The credit union has not engaged in any unsafe or unsound 
practice, as determined by the regional director, which is material 
during the one year period preceding the filing to add the group;
     The credit union is ``adequately capitalized.'' NCUA 
defines adequately capitalized to mean if the credit union has a net 
worth of not less than 6 percent;

[[Page 49184]]

     The credit union has the administrative capability to 
serve the proposed group and the financial resources to meet the need 
for additional staff and assets to serve the new group;
     Any potential harm the expansion may have on any other 
credit union and its members is clearly outweighed by the probable 
beneficial effect of the expansion. With respect to a proposed 
expansion's effect on other credit unions, the requirements on 
overlapping fields of membership set forth in Section IV.E are also 
applicable; and
     If the formation of a separate credit union by such group 
is not practical or consistent with safety and soundness standards.
    NCUA encourages the formation of separately chartered credit unions 
for groups consisting of 3,000 or more persons (excluding family 
members). If the formation of a separate credit union by such a group 
is not practical because the group lacks sufficient volunteer and other 
resources to support the efficient and effective operations of a credit 
union or does not meet the economic advisability criteria outlined in 
Chapter 1, the group may be added to a multiple common bond credit 
union's field of membership. However, NCUA must determine in writing 
that all the requirements set forth above are met and the group must be 
within the credit union's service area.
IV.B.3.--Documentation Requirements
    A multiple group credit union requesting a select group expansion 
must submit a formal written request, using the Application for Field 
of Membership Amendment (NCUA 4015), 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 (NCUA 4015) must 
be accompanied by the following:
     A letter signed by an authorized representative of the 
group to be added. Wherever possible, this letter must be submitted on 
the group's letterhead stationery. The regional director may, accept 
such other documentation or certification as deemed appropriate. This 
letter must indicate:
     The group's occupational or associational common bond;
     That the group wants to be added to the federal credit 
union's field of membership;
     Whether the group presently has other credit union service 
available;
     The number of persons currently included within the group 
to be added and their locations; and
     Evidence that the groups are within reasonable proximity 
of the credit union.
     If the group is eligible for membership in any other 
credit union, documentation must be provided to support inclusion of 
the group under the overlap standards set forth in Section IV.E.
IV.B.4--Corporate Restructuring
    If a select group within a federal credit union's field of 
membership undergoes a substantial restructuring, a change to the 
credit union's field of membership may be required if the credit union 
is to continue to provide service to the select group. NCUA permits a 
multiple common bond credit union to maintain in its field of 
membership a sold or spun-off select group to which it has been 
providing service, without regard to location, if the original group is 
clearly identifiable, and the group requests continued service, 
documented by a letter from an official representative of the group. 
This type of amendment to the credit union's charter is not considered 
an expansion, therefore the criteria relating to adding new groups are 
not applicable.

IV.C--NCUA's Procedures for Amending the Field of Membership

IV.C.1--General
    All requests for approval to amend a federal credit union's charter 
must be submitted to the appropriate regional director.
IV.C.2--Regional Director's Decision
    All amendment requests will be reviewed by NCUA staff in order to 
ensure conformance to NCUA policy.
    In some cases, an on-site review by a staff member 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 addressing specific issues.
    The financial and operational condition of the requesting credit 
union will be considered in every instance. An expanded field of 
membership may provide the basis for reversing adverse trends. In such 
cases, an amendment to expand the field of membership may be granted 
notwithstanding the credit union's adverse trends. The applicant credit 
union must clearly establish that the approval of the expanded field of 
membership meets the requirements of IV.B.2 and will not increase the 
risk to the NCUSIF.
IV.C.3--Regional Director Approval
    If the requested amendment is approved by the regional director, 
the credit union will be issued an amendment to Section 5 of its 
charter.
IV.C.4--Regional Director Disapproval
    When a regional director disapproves any application, in whole or 
in part, to amend the field of membership under this chapter, the 
applicant will be informed in writing of the:
     Specific reasons for the action;
     If appropriate, options or suggestions that could be 
considered for gaining approval; and
     Appeal procedure.
IV.C.5--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. An appeal must be sent to the appropriate 
regional office within 60 days of the date of denial, and must address 
the specific reason(s) for the denial. The regional director will then 
forward the appeal to the NCUA Board. NCUA central office staff will 
make an independent review of the facts and present the appeal to the 
Board with a recommendation.
    Before appealing, the credit union may, within 30 days of the 
denial, provide supplemental information to the regional director for 
reconsideration. The regional director will have 30 days from the date 
of the receipt of the request for reconsideration to make a final 
decision. 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 credit union may proceed with the appeal process to 
the NCUA Board within 60 days of date of the last denial by the 
regional director.

IV.D--Mergers, Purchase and Assumptions, and Spin-Offs

    In general, other than the addition of select groups, there are 
three additional ways a multiple group federal credit union can expand 
its field of membership:
     By taking in the field of membership of another credit 
union through a merger;
     By taking in the field of membership of another credit 
union through an purchase and assumption (P&A); or
     By taking a portion of another credit union's field of 
membership through a spin-off.

[[Page 49185]]

    With the exception of emergency mergers and P&As, in all cases the 
requirements of IV.B.2 must be met. If the merger, spin-off, or P&A is 
the result of safety and soundness concerns or an emergency situation 
as described in IV.D.2 and IV.D.3, the numerical limitation does not 
apply.
IV.D.1--Mergers of Multiple Group Credit Unions
    Generally, the requirements applicable to field of membership 
expansions found in this section apply to mergers where the continuing 
credit union is a federal charter. If the requirements of IV.B.2 are 
not met, the merger will not be approved by NCUA.
    If the merger is approved, the merging credit union's field of 
membership will be transferred intact to the continuing credit union 
and can continue to be served.
    Where the merging credit union is state-chartered, the field of 
membership rules applicable to a federal credit union apply.
    Mergers must be approved by the NCUA regional director where the 
continuing credit union is located, with the concurrence of the 
regional director of the merging credit union, and, as applicable, the 
state regulators.
IV.D.2--Emergency Mergers
    An emergency merger may be approved by NCUA without regard to field 
of membership rules or other legal constraints. An emergency merger 
involves NCUA's direct intervention and approval. The credit union to 
be merged must either be insolvent or likely to become insolvent, and 
NCUA must determine that:
     An emergency requiring expeditious action exists;
     Other alternatives are not reasonably available; and
     The public interest would best be served by approving the 
merger.
    If not corrected, conditions that could lead to insolvency include, 
but are not limited to:
     Abandonment by management;
     Loss of sponsor;
     Serious and persistent record keeping problems; or
     Serious and persistent operational concerns.
    In an emergency merger situation, NCUA will take an active role in 
finding a suitable merger partner (continuing credit union). NCUA is 
primarily concerned that the continuing credit union has the financial 
strength and management expertise to absorb the troubled credit union 
without adversely affecting its own financial condition and stability.
    As a stipulated condition to an emergency merger, the field of 
membership of the merging credit union may be transferred intact to the 
continuing federal credit union without regard to any field of 
membership restrictions including numerical limitation requirements and 
without changing the character of the continuing federal credit union 
for future amendments. Under this authority, a multiple common bond 
credit union may merge with any single occupational/associational, 
multiple common bond, or community charter and that credit union can 
continue to serve the merging credit union's field of membership. 
Subsequent field of membership expansions must be consistent with 
multiple group policies.
    Emergency mergers involving federally insured credit unions in 
different NCUA regions must be approved by the regional director where 
the continuing credit union is located, with the concurrence of the 
regional director of the merging credit union and, as applicable, the 
state regulators.
IV.D.3--Purchase and Assumptions (P&As)
    Another alternative for acquiring the field of membership of a 
failing credit union is through a consolidation known as a P&A. 
Generally, the requirements applicable to field of membership 
expansions found in this chapter apply to purchase and assumptions 
where the purchasing credit union is a federal charter.
    A P&A has limited application because, in most cases, the failing 
credit union must be placed into involuntary liquidation. However, in 
the few instances where a P&A may occur, the assuming federal credit 
union, as with emergency mergers, may acquire the entire field of 
membership if the emergency merger criteria are satisfied. Specified 
loans, shares, and certain other designated assets and liabilities, 
without regard to field of membership restrictions, may also be 
acquired without changing the character of the continuing federal 
credit union for purposes of future field of membership amendments. 
Subsequent field of membership expansions must be consistent with 
multiple group policies.
    P&As involving federally insured credit unions in different NCUA 
regions must be approved by all regional directors where the continuing 
credit union is located, with the concurrence of the regional director 
of the purchased and/or assumed credit union and, as applicable, the 
state regulators.
IV.D.4--Spin-Offs
    A spin-off occurs when, by agreement of the parties, a portion of 
the field of membership, assets, liabilities, shares, and capital of a 
credit union are transferred to a new or existing credit union. A spin-
off is unique in that usually one credit union has a field of 
membership expansion and the other loses a portion of its field of 
membership.
    All requirements of IV.B.2 and IV.B.3 apply if the spun-off group 
goes to an existing federal charter.
    The request for approval of a spin-off must be supported with a 
plan that addresses, at a minimum:
     Why the spin-off is being requested;
     What part of the field of membership is to be spun off;
     Which assets, liabilities, shares, and capital are to be 
transferred;
     The financial impact the spin-off will have on the 
affected credit unions;
     The ability of the acquiring credit union to effectively 
serve the new members;
     The proposed spin-off date; and
     Disclosure to the members of the requirements set forth 
above.
    The spin-off request must also include current financial statements 
from the affected credit unions and the proposed voting ballot.
    For federal credit unions spinning off a group, membership notice 
and voting requirements and procedures are the same as for mergers (see 
Part 708 of the NCUA Rules and Regulations), except that only the 
members directly affected by the spin-off--those whose shares are to be 
transferred--are permitted to vote. Members whose shares are not being 
transferred will not be afforded the opportunity to vote. Voting 
requirements for federally insured state credit unions are governed by 
state law.
    Spin-offs involving federally insured credit unions in different 
NCUA regions must be approved by all regional directors where the 
credit unions are located and the state regulators, as applicable. 
Spin-offs in the same region also require approval by the state 
regulator, as applicable.

IV.E--Overlaps

IV.E.1--General
    An overlap exists when a group of persons is eligible for 
membership in two or more credit unions, including state charters. An 
overlap is permitted when the expansion's beneficial effect in meeting 
the convenience and needs of the members of the group proposed to be 
included in the field of membership clearly outweighs any adverse 
effect on the overlapped credit union.

[[Page 49186]]

    Proposed or existing credit unions must investigate the possibility 
of an overlap prior to submitting an application for a proposed charter 
or expansion.
    When an overlap situation does arise, officials of the expanding 
credit union must ascertain the views of the overlapped credit union. 
If the overlapped credit union does not object, the applicant must 
submit a letter or other documentation to that effect. If the 
overlapped credit union does not respond, the expanding credit union 
must notify NCUA in writing of its attempt to obtain the overlapped 
credit union's comments.
    NCUA will generally not approve an overlap unless the expansion's 
beneficial effect in meeting the convenience and needs of the members 
of the group proposed to be included in field of membership clearly 
outweighs any adverse effect on the overlapped credit union.
    In reviewing the overlap, the regional director will consider:
     The view of the overlapped credit union(s);
     Whether the overlap is incidental in nature--the group of 
persons in question is so small as to have no material effect on the 
original credit union;
     Whether there is limited participation by members or 
employees of the group in the original credit union after the 
expiration of a reasonable period of time;
     Whether the original credit union fails to provide 
requested service;
     Financial effect on the overlapped credit union;
     The desires of the group(s);
     The desire of the sponsor organization; and
     The best interests of the affected group and the credit 
union members involved.
    Generally, if the overlapped credit union does not object, and NCUA 
determines that there is no safety and soundness problem, the overlap 
will be permitted.
    Potential overlaps of a federally insured state credit union's 
field of membership by a federal credit union will generally be 
analyzed in the same way as if two federal credit unions were involved. 
Where a federally insured state credit union's field of membership is 
broadly stated, NCUA will exclude its field of membership from any 
overlap protection.
    New charter applicants and every select group which comes before 
the regional director for affiliation with an existing federal credit 
union must advise the regional director in writing whether the group is 
included within the field of membership of any other credit union. If 
cases arise where the assurance given to a regional director concerning 
unavailability of credit union service is inaccurate, the 
misinformation is grounds for removal of the group from the federal 
credit union's charter.
    Generally, NCUA will permit multiple group federal credit unions to 
overlap community charters without performing an overlap analysis.
IV.E.2--Overlap Issues as a Result of Organizational Restructuring
    A federal credit union's field of membership will always be 
governed by the field of membership descriptions contained in Section 5 
of its charter. Where a sponsor organization expands its operations 
internally, by acquisition or otherwise, the credit union may serve 
these new entrants to its field of membership if they are part of any 
select group listed in Section 5. Where acquisitions are made which add 
a new subsidiary, the group cannot be served until the subsidiary is 
included in the field of membership.
    Overlaps may occur as a result of restructuring or merger of the 
parent organization. When such overlaps occur, each credit union must 
request a field of membership amendment to reflect the new groups each 
wishes to serve. NCUA will review these requests as it does any select 
group addition. The credit union can continue to serve any current 
group in its field of membership that is acquiring a new group or has 
been acquired by a new group. The new group cannot be served by the 
credit union until the field of membership amendment is approved by 
NCUA.
    In addition, credit unions must submit to NCUA documentation 
explaining the restructuring and providing information regarding the 
new organizational structure. To help in future monitoring of overlaps, 
the credit union must identify divisions and subsidiaries and the 
locations of each. Where the sponsor and its employees desire to 
continue service, NCUA may use wording such as the following:
     Employees of MHS Corporation, formerly a subsidiary of 
Tool, Incorporated, located in Charleston, South Carolina.
IV.E.3--Exclusionary Clauses
    An exclusionary clause is a limitation which precludes the credit 
union from serving the primary members of a portion of a group 
otherwise included in its field of membership.
    When NCUA determines that overlap protection is appropriate for 
safety and soundness reasons, an exclusionary clause will be included 
in the expanding federal credit union's charter.
    Exclusionary clauses are very difficult for credit unions and NCUA 
to monitor properly. Additionally, 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 a co-worker may 
not. If, for safety and soundness reasons, an exclusionary clause is 
appropriate, the overlap protection only applies to primary members, 
which may only provide limited protection.
    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. The 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 define:
     The identity of the group;
     Whether the exclusion is to apply to the entire group or 
only to those who are actually members of another credit union;
     Whether the exclusion is to apply only to the current 
members of the group or to future members as well; and
     Whether the exclusion is to apply for a limited time 
period.
    Examples of exclusionary wording are:
     Persons who work for Monty Sugar Company, except those who 
work in, are paid from, or are supervised from San Francisco, 
California.
     Persons who work for the EWJ Co., except those employed by 
the JEC Division as of June 30, 1997.
     Persons who work for KLB Co, except those who were members 
of the St. Bonaventure Federal Credit Union as of June 30, 1997.
    Exclusionary clauses granted prior to the adoption of this new 
chartering manual will remain in effect unless the two credit unions 
agree to remove them. This requires NCUA approval.

IV.F--Charter Conversion

    A multiple common bond federal credit union may apply to convert to 
any other type of charter provided the field of membership requirements 
of the new charter type are met. Groups within the existing charter 
which cannot

[[Page 49187]]

qualify in the new charter can not be served except for members of 
record.
    In order to support a case for a conversion, the applicant federal 
credit union may be required to develop a detailed business plan as 
specified in Chapter 1, Section IV.D.

IV.G--Removal of Groups From the Field of Membership

    A credit union may request removal of a group from its field of 
membership for various reasons. The most common reasons for this type 
of amendment are:
     The group is within the 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; or
     The group initiates action to be removed from the field of 
membership.
    When a federal credit union requests an amendment to remove a group 
from its field of membership, the regional director will determine why 
the credit union wishes to remove the group and whether the existing 
members of the group will continue membership. If the regional director 
concurs with the request, membership may continue for those who are 
already members under the ``once a member, always a member'' provision 
of the Federal Credit Union Act.

IV.H--Other Persons 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;
     Volunteers;
     Members of their immediate families; and
     Organizations of such persons.
    ``Members of their immediate families'' is defined as related 
persons i.e., blood, marriage, or other recognized family relationships 
in the same household (under the same roof), or if not in the same 
household, as a grandparent, parent, spouse, sibling, child, or 
grandchild. For the purposes of this definition, immediate family 
member includes stepparents, stepchildren, and stepsiblings. The 
immediate family member must be related to the credit union member.
    Volunteers, by virtue of their close relationship with a sponsor 
group, may be included. Examples include volunteers working at a 
hospital or church.
    Under the Federal Credit Union Act, once a person becomes a member 
of the credit union, such person may remain a member of the credit 
union until the person chooses to withdraw or is expelled from the 
membership of the credit union. This is commonly referred to as ``once 
a member, always a member.''

V--Community Charter Requirements

V.A.1--General
    Community charters must be based on ``a well-defined local 
community, neighborhood, or rural district.'' NCUA policy is to limit 
the community to a single, geographically well-defined area where 
individuals have common interests or interact.
    NCUA recognizes four types of affinity on which a community charter 
can be based--persons who live in, worship in, attend school in, or 
work in the community. Businesses and other legal entities within the 
community boundaries may also qualify for membership. More than one 
credit union may serve the same community area provided there are no 
safety and soundness concerns and it is economically feasible. 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 
requirements for community charters:
     The geographic area's boundaries must be clearly defined;
     The charter applicant must establish that the area is a 
``well-defined local, community, neighborhood, or rural district;'' and
     The residents must have common interests or interact.
V.A.2 --Documentation Requirements
    In addition to the documentation requirements set forth in Chapter 
1 to charter a credit union, a community credit union applicant must 
provide special documentation addressing the proposed area to be served 
and community service policies.
    A community credit union is unique in that it must meet the 
statutory requirements that the proposed community area is (1) well-
defined, and (2) a local community, neighborhood, or rural district.
    ``Well-defined'' means the proposed area has specific geographic 
boundaries. Geographic boundaries may include a city, township, county 
(or its political equivalent), or clearly identifiable neighborhood. 
Although congressional districts or other political boundaries which 
are subject to occasional change, and state boundaries are well-defined 
areas, they do not meet the second requirement that the proposed area 
be a local community, neighborhood, or rural district.
    The meaning of local community, neighborhood, or rural district 
includes a variety of factors. Most prominent is the requirement that 
the residents of the proposed community area interact or have common 
interests. In determining interaction and/or common interests, a number 
of factors become relevant. For example, the existence of a single 
major trade area, shared governmental or civic facilities, or area 
newspaper is significant evidence of community interaction and/or 
common interests. Conversely, numerous trade areas, multiple taxing 
authorities, and multiple political jurisdictions, tend to diminish the 
characteristics of a local area.
    Population and geographic size are also significant factors in 
determining whether the area is local in nature. A large population in 
a small geographic area or a small population in a large geographic 
area, may meet NCUA community chartering requirements. For example, an 
ethnic neighborhood, a rural area, a city, and a county with less than 
300,000 residents will generally have sufficient interaction and/or 
common interests to meet community charter requirements.
    Conversely, a larger population in a large geographic area may not 
meet NCUA community chartering requirements. It is more difficult for a 
major metropolitan city, a densely populated county, or an area 
covering multiple counties with significant population to have 
sufficient interaction and/or common interests, and to therefore 
demonstrate that these areas meet the requirement of being ``local.'' 
In such cases, the burden of demonstrating interaction and/or common 
interests will be greater than the evidence necessary for a smaller and 
less densely populated area.
    In most cases, for a community credit union, the ``well-defined 
local community, neighborhood, or rural district'' requirement will be 
met if the area to be served is in a recognized single political 
jurisdiction, i.e., a county or its political equivalent or any

[[Page 49188]]

political subdivisions contained therein, and if the population of the 
requested well-defined area does not exceed 300,000. If the proposed 
area meets this criteria, the credit union must only submit a letter 
describing how the area meets the standards for community interaction 
or common interests. If NCUA does not find sufficient evidence of 
community interaction or common interests, more detailed documentation 
will be necessary to support that the proposed area is a well-defined 
community. The credit union must also provide evidence of the political 
jurisdiction and population.
    If the area to be served is not contained within a recognized 
single political jurisdiction or if the population of the area to be 
served exceeds 300,000, or if required by NCUA, the application must 
include documentation to support that it is a well-defined local 
community, neighborhood, or rural district. Some of that documentation 
may include:
     The defined political jurisdictions;
     Major trade areas (shopping patterns and traffic flows);
     Shared/common facilities (for example, educational, 
medical, police and fire protection, school district, water, etc.);
     Organizations and clubs within the community area;
     Newspapers or other periodicals published for and about 
the area;
     Maps designating the area to be served. One map must be a 
regional or state map with the proposed community outlined. The other 
map must outline the proposed community and the identifying geographic 
characteristics of the surrounding areas;
     Common characteristics and background of residents (for 
example, income, religious beliefs, primary ethnic groups, similarity 
of occupations, household types, primary age group, etc.); or
     Other documentation that demonstrates that the area is a 
community where individuals have common interests or interact.
    A new or converting credit union must provide a list of federally 
insured credit unions presently in the area and evidence that these 
credit unions were contacted regarding the community charter.
    A community credit union is frequently more susceptible to 
competition from other local financial institutions and generally does 
not have substantial support from any single sponsoring company or 
association. As a result, a community credit union will often encounter 
financial and operational factors that differ from an occupational or 
associational charter. Its diverse membership may require special 
marketing programs targeted to different segments of the community. For 
example, the lack of payroll deduction creates special challenges in 
the development of savings promotional programs and in the collection 
of loans.
    Accordingly, it is essential for the proposed community credit 
union to develop a detailed and practical business plan for at least 
the first two years of operation. The proposed credit union must not 
only address the documentation requirements set forth in Chapter 1, but 
also focus on the accomplishment of the unique financial and 
operational factors of a community charter.
    Community credit unions will be expected to follow, to the fullest 
extent economically possible, the marketing and/or business plan 
submitted with their application. The community credit union will be 
expected to regularly review its business plan as well as membership 
and loan penetration rates throughout the community to determine if the 
entire community is being adequately served.
V.A.3--Special Documentation Requirements for a Converting Credit Union
    An existing federal credit union may apply to convert to a 
community charter. Groups currently in the credit union's field of 
membership but outside the new community credit union's boundaries may 
not be included in the new community charter.
    The documentation requirements set forth in section V.A.2 must be 
met before a community charter can be approved. Demonstrating community 
support, as discussed in Chapter 1, is not required for converting 
credit unions. In order to support a case for a conversion to community 
charter, the applicant federal credit union must develop a business 
plan incorporating the following data:
     Current financial statements, including the income 
statement and a summary of loan delinquency;
     Pro forma financial statements for the first two years 
after the proposed conversion, including assumptions--e.g., member, 
share, loan, and asset growth;
     Financial services to be provided to members;
     Location of service facilities;
     Anticipated financial impact on the credit union in terms 
of need for additional employees and fixed assets; and
     Anticipated financial impact on the credit union of not 
being able to serve new members of existing groups that are located 
outside of the community boundaries. The credit union should also 
identify alternative financial services available to those groups.
    Before approval of an application to convert to a community credit 
union, NCUA must be satisfied that the institution will be viable and 
that it will provide needed services to its members.
V.A.4--Community Boundaries
    The geographic boundaries of a community federal credit union are 
the areas defined in its charter, usually with north, east, south, and 
west boundaries.
    A community that is a recognized legal entity, may be stated in the 
field of membership--for example, ``Gus Township, Texas'' or ``Kristi 
County, Virginia.''
V.A.5--Special Community Charters
    A community field of membership may include persons who work or 
attend school in a particular industrial park, shopping mall, office 
complex, or similar development. The proposed field of membership must 
have clearly defined geographic boundaries.
V.A.6--Sample Community Fields of Membership
    A community charter does not have to include all four affinities 
(i.e., residing, working, worshipping, or going to school in a 
community). Some examples of community fields of membership are:
     Persons who live, work, worship, or attend school in, and 
businesses located in the area of Johnson City, Tennessee, bounded by 
Fern Street on the north, Long Street on the east, Fourth Street on the 
south, and Elm Avenue on the west;
     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, worship, work, or attend school at the 
University of Dayton, in Dayton, Ohio; or
     Persons who work for businesses located in Clifton Country 
Mall, in Clifton Park, New York.
    Some examples of insufficiently defined community field of 
membership definitions are:
     Persons who live or work within and businesses located 
within a ten-mile radius of Washington, D.C. (using a radius does not 
establish a well-defined area); or
     Persons who live or work in the industrial section of New 
York, New York. (not a well-defined neighborhood, community, or rural 
district).

[[Page 49189]]

    Some examples of unacceptable local communities, neighborhoods, or 
rural districts are:
     Persons who live or work in the Greater Boston 
Metropolitan Area. (does not meet the definition of local community, 
neighborhood, or rural district).
     Persons who live or work in the State of California. (does 
not meet the definition of local community, neighborhood, or rural 
district).

V.B--Field of Membership Amendments

    A community credit union may amend its field of membership by 
redefining its geographic boundaries, including additional affinities, 
or removing exclusionary clauses. Persons who live, work, worship, or 
attend school within the proposed well-defined local community, 
neighborhood or rural district must have common interests or interact. 
The burden of proof for establishing existence of the community is 
placed upon the applicant credit union.
    Prior to granting a field of membership expansion, NCUA will 
examine the expansion's potential effect on the credit union's 
operations and financial condition and its likely impact on other 
credit unions.
    Generally, if a community credit union applies to amend its 
geographic boundaries, or an occupational or associational credit union 
applies to convert to a community charter, an NCUA staff member will 
make an on-site evaluation of the proposal.

V.C--NCUA Procedures for Amending the Field of Membership

V.C.1--General
    All requests for approval to amend a community credit union's 
charter must be submitted to the appropriate regional director. If a 
decision cannot be made within a reasonable period of time, the 
regional director will notify the credit union.
V.C.2--NCUA's Decision
    The financial and operational condition of the requesting credit 
union will be considered in every instance. The economic advisability 
of expanding the field of membership of a credit union with financial 
or operational problems must be carefully considered.
    In most cases, field of membership amendments will only be approved 
for credit unions that are operating satisfactorily. Generally, if a 
federal credit union is having difficulty providing service to its 
current membership, or is experiencing financial or other operational 
problems, it may have more difficulty serving an expanded field of 
membership.
    Occasionally, however, an expanded field of membership may provide 
the basis for reversing current financial problems. In such cases, an 
amendment to expand the field of membership may be granted 
notwithstanding the credit union's financial or operational problems. 
The applicant credit union must clearly establish that the expanded 
field of membership is in the best interest of the members and will not 
increase the risk to the NCUSIF.
V.C.3--NCUA Approval
    If the requested amendment is approved by NCUA, the credit union 
will be issued an amendment to Section 5 of its charter.
V.C.4--NCUA Disapproval
    When NCUA disapproves any application to amend the field of 
membership, in whole or in part, under this chapter, the applicant will 
be informed in writing of the:
     Specific reasons for the action;
     If appropriate, options or suggestions that could be 
considered for gaining approval; and
     Appeal procedures.
V.C.5--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. An appeal must be sent to the appropriate 
regional office within 60 days of the date of denial and must address 
the specific reason(s) for the denial. The regional director will then 
forward the appeal to the NCUA Board. NCUA central office staff will 
make an independent review of the facts and present the appeal to the 
NCUA Board with a recommendation.
    Before appealing, the credit union may, within 30 days of the 
denial, provide supplemental information to the regional director for 
reconsideration. The request will not be considered as an appeal, but a 
request for reconsideration by the regional director. The regional 
director will have 30 business days from the date of the receipt of the 
request for reconsideration to make a final decision. If the charter 
amendment is again denied, the credit union may proceed with the appeal 
process to the NCUA Board within 60 days of the date of the last denial 
by the regional director.

V.D--Mergers, Purchase and Assumptions, and Spin-Offs

    There are three additional ways a community federal credit union 
can expand its field of membership:
     By taking in the field of membership of another credit 
union through a standard or emergency merger;
     By taking in the field of membership through a standard or 
emergency purchase and assumption (P&A); or
     By taking a portion of another credit union's field of 
membership through a spin-off.
V.D.1--Standard Mergers
    Generally, the requirements applicable to field of membership 
expansions apply to mergers where the continuing credit union is a 
community federal charter.
    Where both credit unions are community charters, the continuing 
credit union must meet the criteria for expanding the community 
boundaries. A community credit union can not merge into a single 
occupational/associational, or multiple common bond credit union, 
except in an emergency merger. However, a single occupational/
associational, or multiple common bond credit union can merge into a 
community charter as long as the merging credit union has a service 
facility within the community boundaries or a majority of the merging 
credit union's field of membership would qualify for membership in the 
new community charter. While a community charter may take in an 
occupational, associational, or multiple group credit union in a 
merger, it will remain a community charter.
    Groups within the merging credit union's field of membership 
located outside of the community boundaries may not continue to be 
served. However, the credit union may continue to serve members of 
record.
    Where a state credit union is merging into a community federal 
credit union, the continuing federal credit union's field of membership 
will be worded in accordance with NCUA policy. Any subsequent field of 
membership expansions must comply with applicable amendment procedures.
    Mergers must be approved by the NCUA regional director where the 
continuing credit union is located, with the concurrence of the 
regional director of the merging credit union, and, as applicable, the 
state regulators.
V.D.2--Emergency Mergers
    An emergency merger may be approved by NCUA without regard to

[[Page 49190]]

field of membership requirements or other legal constraints. An 
emergency merger involves NCUA's direct intervention and approval. The 
credit union to be merged must either be insolvent or likely to become 
insolvent, and NCUA must determine that:
     An emergency requiring expeditious action exists;
     Other alternatives are not reasonably available; and
     The public interest would best be served by approving the 
merger.
    If not corrected, conditions that could lead to insolvency include, 
but are not limited to:
     Abandonment by management;
     Loss of sponsor;
     Serious and persistent record keeping; or
     Serious and persistent operational concerns.
    In an emergency merger situation, NCUA will take an active role in 
finding a suitable merger partner (continuing credit union). NCUA is 
primarily concerned that the continuing credit union has the financial 
strength and management expertise to absorb the troubled credit union 
without adversely affecting its own financial condition and stability.
    As a stipulated condition to an emergency merger, the field of 
membership of the merging credit union may be transferred intact to the 
continuing federal credit union without regard to any field of 
membership restrictions, including the service facility requirement, 
without changing the character of the continuing federal credit union 
for future amendments. Under this authority, a federal credit union may 
take in any dissimilar field of membership.
    Even though the merging credit union is a single common bond credit 
union or multiple common bond credit union or community credit union, 
the continuing credit union will remain a community charter. Future 
community expansions will be based on the continuing credit union's 
original community area.
    Emergency mergers involving federally insured credit unions in 
different NCUA regions must be approved by the regional director where 
the continuing credit union is located, with the concurrence of the 
regional director of the merging credit union and, as applicable, the 
state regulator.
V.D.3--Purchase and Assumptions (P&As)
    Another alternative for acquiring the field of membership of a 
failing credit union is through a consolidation known as a P&A. If the 
P&A is the result of insolvency or danger of insolvency, then the 
emergency merger provisions apply and it is not necessary to meet field 
of membership requirements.
    A P&A has limited application because, in most instances, 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. Specified loans, shares, and certain other 
designated assets and liabilities may also be acquired without regard 
to field of membership restrictions and without changing the character 
of the continuing federal credit union for purposes of future field of 
membership amendments.
    If the P&A does not meet the emergency criteria, then only members 
of record can be obtained unless they otherwise qualify for membership 
in the community charter.
    P&As involving federally insured credit unions in different NCUA 
regions must be approved by the regional director where the continuing 
credit union is located, with the concurrence of the regional director 
of the merging credit union and, as applicable, the state regulator.
V.D.4--Spin-Offs
    Generally, a spin-off occurs when, by agreement of the parties, a 
portion of the field of membership, assets, liabilities, shares and 
capital of a credit union, are transferred to a new or existing credit 
union. A spin-off is unique in that usually one credit union has a 
field of membership expansion and the other loses a portion of its 
field of membership.
    All field of membership requirements apply regardless of whether 
the spin-off goes to a new or existing federal charter.
    The request for approval of a spin-off must be supported with a 
plan that addresses, at a minimum:
     Why the spin-off is being requested;
     What part of the field of membership is to be spun off;
     Whether the field of membership requirements are met;
     Which assets, liabilities, shares, and capital are to be 
transferred;
     The financial impact the spin-off will have on the 
affected credit unions;
     The ability of the acquiring credit union to effectively 
serve the new members;
     The proposed spin-off date; and
     Disclosure to the members of the requirements set forth 
above.
    The spin-off request must also include current financial statements 
from the affected credit unions and the proposed voting ballot.
    For federal credit unions spinning off a portion of the community, 
membership notice and voting requirements and procedures are the same 
as for mergers (see Part 708 of the NCUA Rules and Regulations), except 
that only the members directly affected by the spin-off--those whose 
shares are to be transferred--are permitted to vote. Members whose 
shares are not being transferred will not be afforded the opportunity 
to vote. Voting requirements for federally insured state credit unions 
are governed by state law.

V.E--Overlaps

V.E.1--General
    Generally, an overlap exists when a group of persons is eligible 
for membership in two or more credit unions, including state charters. 
In general, no overlap protection will be provided to single 
occupational and associational, multiple group, and community credit 
unions from another community charter.
    If safety and soundness concerns exist, NCUA may, on rare 
occasions, provide overlap protection from a community charter for a 
limited period of time, generally 12 to 24 months. Extensions may be 
granted for persistent safety and soundness problems.
    A proposed credit union, an expanding credit union, or credit 
unions converting to a community charter, must identify any overlapped 
credit unions prior to submitting an application for a new proposed 
charter or expansion. A list of overlapped federally insured credit 
unions must be provided to NCUA.
    A newly chartered community credit union that has been in existence 
less than two years (as opposed to a credit union converting to a 
community charter), proposing to serve an area where there is no other 
community credit union service, can not be overlapped by another 
federal community charter for a period of one year from the effective 
date of charter. If safety and soundness concerns persist, overlap 
protection can be extended by the regional director for an additional 
period of time, generally 12 to 24 months. This one year moratorium, 
and possible extension, will provide an opportunity for the new charter 
to become economically viable. New community credit unions chartered 
after the date of the original community charter for the same community 
are not entitled to overlap protection.
V.E.2--Exclusionary Clauses
    Exclusionary clauses are rarely appropriate for inclusion in a

[[Page 49191]]

community credit union's field of membership and may only be granted if 
there are safety and soundness concerns. Exclusionary clauses granted 
prior to the adoption of this new chartering manual will remain in 
effect unless the two credit unions agree to remove them, or a credit 
union petitions NCUA to remove an exclusionary clause and NCUA 
determines that removal is in the best interests of the members.
    Where NCUA has determined that for safety and soundness reasons an 
exclusionary clause must be included in the field of membership of a 
community charter, the exclusionary clause will be for a limited period 
of time generally 12 to 24 months. Extensions can only be granted for 
continued serious safety and soundness concerns. The timeframe for the 
duration of the exclusionary clause will be specifically listed in 
Section 5, of the credit union's charter.

V.F--Charter Conversions

    Although rare, a community federal credit union may convert to a 
single occupational or associational, or multiple group credit union. 
The converting credit union must meet all occupational, associational, 
and multiple group common bond requirements as applicable. The 
converting credit union may continue to serve members of record of the 
prior field of membership as of the date of the conversion. A change to 
the credit union's field of membership and designated common bond will 
be necessary.

V.G--Other Persons With a Relationship to the Community

    A number of persons who have a close relationship to the community 
may be included, at the charter applicant's option, in the field of 
membership. These include the following:
     Spouses of persons who died while within the field of 
membership of this credit union;
     Employees of this credit union;
     Volunteers in the community;
     Members of their immediate families; and
     Organizations of such persons.
    ``Members of their immediate families'' is defined as related 
persons i.e., blood, marriage, or other recognized family relationships 
in the same household (under the same roof), or if not in the same 
household, as a grandparent, parent, spouse, sibling, child, or 
grandchild. For the purposes of this definition, immediate family 
member includes stepparents, stepchildren, and stepsiblings. The 
immediate family member must be related to the credit union member.
    Under the Federal Credit Union Act, once a person becomes a member 
of the credit union, such person may remain a member of the credit 
union until the person chooses to withdraw or is expelled from the 
membership of the credit union. This is commonly referred to as ``once 
a member, always a member.''

Chapter 3--Low-Income Credit Unions and Credit Unions Serving 
Underserved Areas

I--Introduction

    One of the primary reasons for the creation of federal credit 
unions is to make credit available to people of modest means for 
provident and productive purposes. To help NCUA fulfill this mission, 
the agency has established special operational policies for federal 
credit unions that serve low-income groups and underserved areas. The 
policies provide a greater degree of flexibility that will enhance and 
invigorate capital infusion into low-income groups, low-income 
communities, and underserved areas. These unique policies are necessary 
to provide credit unions serving low-income groups with financial 
stability and potential for controlled growth.

II--Low-Income Credit Union

II.A--Defined

    A low-income credit union is defined in Section 701.34 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 
household income falls at or below 80 percent of the median household 
income for the nation. The term ``low income'' also includes members 
who are full-time or part-time students in a college, university, high 
school, or vocational school.
    To obtain a low-income designation from NCUA, an existing credit 
union must establish that a majority of its members meet the low-income 
definition. An existing community credit union that serves a geographic 
area where a majority of residents meet the annual income standard is 
presumed to be serving predominantly low-income members. A low-income 
designation for a new credit union charter may be based on a majority 
of the potential membership. The low-income qualification must be 
maintained in order to retain the low-income designation.

II.B--Special Programs

    Credit unions with a low-income designation (except student credit 
unions) have greater flexibility in accepting non member deposits 
insured by the NCUSIF, and may offer secondary capital accounts to 
strengthen its capital base. It also may participate in special funding 
programs such as the Community Development Revolving Loan Program for 
Credit Unions (CDRLP) if it is involved in the stimulation of economic 
development and community revitalization efforts.
    The CDRLP provides both loans and grants for technical assistance 
to low-income credit unions. The requirements for participation in the 
revolving loan program are in Part 705 of the NCUA Rules and 
Regulations. Only operating credit unions are eligible for 
participation in this program.

II.C--Low-Income Documentation

    A federal credit union charter applicant or existing credit union 
wishing to receive a low-income designation should forward a separate 
request for the designation to the regional director, along with 
appropriate documentation supporting the request.
    For community charter applicants, the supporting material should 
include the median household income or annual wage figures for the 
community to be served. If this information is unavailable, the 
applicant should identify the individual zip codes or census tracts 
that comprise the community and NCUA will assist in obtaining the 
necessary demographic data.
    Similarly, if single occupational or associational or multiple 
group common bond charter applicants can not supply income data on its 
potential members, they should provide the regional director with a 
list which includes the number of potential members, sorted by their 
residential zip codes, and NCUA will assist in obtaining the necessary 
demographic data.
    An existing credit union can perform a loan or membership survey to 
determine if the credit union is primarily serving low-income members.

II.D--Third Party Assistance

    A low-income federal credit union charter applicant may contract 
with a third party to assist in the chartering and low-income 
designation process. If the charter is granted, a low-income credit 
union may contract with a third party to provide necessary management 
services. Such contracts should not exceed the duration of one year 
subject to renewal.

[[Page 49192]]

II.E--Special Rules for Low-Income Federal Credit Unions

    In recognition of the unique efforts needed to help make credit 
union service available to low-income groups, NCUA has adopted special 
rules that pertain only to low-income credit union charters, as well as 
field of membership additions for low-income credit unions. These 
special rules provide additional latitude to enable underserved, low-
income individuals to gain access to credit union service.
    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 of its members will meet the 
low-income definition of Section 701.34 of the NCUA Rules and 
Regulations. Any multiple group credit union can add low-income 
associations to their fields of membership.
    A low-income community federal credit union has additional latitude 
in serving persons who are affiliated with the community. In addition 
to serving members who live, work, worship, or go to school in the 
community, a low-income community federal credit union may also serve 
persons who perform volunteer services, participate in programs to 
alleviate poverty or distress, or who participate in associations 
headquartered in the community.
    Examples of a low-income community and an associational based low-
income federal credit union are as follows:
     Persons who live in [the target area]; persons who 
regularly work, worship, attend school, 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.
     Members of the Canarsie Economic Assistance League, in 
Brooklyn, NY, an association whose members all meet the low-income 
definition of Section 701.34 of the NCUA Rules and Regulations.

III--Service to Underserved Communities

    All federal credit unions may include in their fields of 
membership, without regard to location, communities satisfying the 
definition for serving underserved areas in the Federal Credit Union 
Act. The Act defines an underserved area as a local community, 
neighborhood, or rural district that is an ``investment area'' as 
defined in Section 103(16) of the Community Development Banking and 
Financial Institutions Act of 1994.
    An investment area includes any of the following:
     An area encompassed or located in an Enpowerment Zone or 
Enterprise Community designated under section 1391 or the Internal 
Revenue Code of 1996 (26 U.S.C. 1391);
     An area where the percentage of the population living in 
poverty is at least 20 percent and the area has significant unmet needs 
for loans or equity investments;
     An area in a Metropolitan Area where the median family 
income is at or below 80 percent of the Metropolitan Area median family 
income or the national Metropolitan Area median family income, 
whichever is greater; and the area has significant unmet needs for 
loans or equity investments;
     An area outside of a Metropolitan Area, where the median 
family income is at or below 80 percent of the statewide non-
Metropolitan Area median family income or the national non-Metropolitan 
Area median family income, whichever is greater; and the area has 
significant unmet needs for loans or equity investments;
     An area where the unemployment rate is at least 1.5 times 
the national average and the area has significant unmet needs for loans 
or equity investments;
     An area where the percentage of occupied distressed 
housing (as indicated by lack of complete plumbing and occupancy of 
more than one person per room) is at least 20 percent and the area has 
significant unmet needs for loans or equity investments;
    An area located outside of a Metropolitan Area with a county 
population loss between 1980 and 1990 of at least 10 percent and the 
area has significant unmet needs for loans or equity investments.
    In addition, the local community, neighborhood, or rural district 
must be underserved, based on data considered by the NCUA Board and the 
Federal banking agencies.
    Once an underserved area has been added to a federal credit union's 
field of membership, the credit union must establish and maintain an 
office or facility in the community. A service facility is defined as a 
place where shares are accepted for members' accounts, loan 
applications are accepted and loans are disbursed. This definition 
includes a credit union owned branch, a shared branch, a mobile branch, 
or a credit union owned electronic facility that meets, at a minimum, 
these requirements. This definition does not include an ATM.
    The federal credit union adding the underserved community must 
document that the community meets the definition for serving 
underserved areas in the Federal Credit Union Act. The charter type of 
a federal credit union adding such a community will not change and 
therefore the credit union will not be able to receive the benefits 
afforded to low-income designated credit unions, such as expanded use 
of non member deposits and access to the Community Development 
Revolving Loan Program for Credit Unions.
    A federal credit union that desires to include an underserved 
community in its field of membership must first develop a business plan 
specifying how it will serve the community. The business plan, at a 
minimum, must identify the credit and depository needs of the community 
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 
reports on its service to the underserved community and may review the 
credit union's service to persons in the community during examinations.

Chapter 4--Charter Conversions

I--Introduction

    A charter conversion is a change in the jurisdictional authority 
under which a credit union operates.
    Federal credit unions receive their charters from NCUA and are 
subject to its supervision, examination, and regulation.
    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. 
Certain federal laws and regulations also apply to federally insured 
state chartered credit unions.
    There are two types of charter conversions: federal charter to 
state charter and state charter to federal charter. Common bond and 
community requirements are not an issue from NCUA's standpoint in the 
case of a federal to state charter conversion. The

[[Page 49193]]

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., chartering and reserve requirements; and
     Be granted federal share insurance 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 financial 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 applicant.
    A converting state credit union's field of membership must conform 
to NCUA's chartering policy. The field of membership will be phrased in 
accordance with NCUA chartering policy. Subsequent changes must conform 
to NCUA chartering policy in effect at that time. The converting credit 
union may continue to serve members of record.
    If the converting credit union is a community charter and the new 
federal charter is community-based, it must meet the community field of 
membership requirements set forth in Chapter 2, Section V. If the state 
chartered credit union's community boundary is more expansive than the 
approved federal boundary, only members of record outside of the new 
community boundary may continue to be served.

II.B--Submission of Conversion Proposal to NCUA

    The following actions must 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 regarding whether the state regulator is 
in agreement with the conversion proposal;
     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; and
     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.
    If the state charter is applying to become a federal community 
charter, it must also comply with the documentation requirements 
included in Chapter 2, Sections V.A.2 and V.A.3.

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 conduct an on-site examination of the books and records 
of the credit union. 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 to 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 preliminary 
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 private share insurer (includes 
excess share insurers), if applicable, certifying that the credit union 
has met all withdrawal requirements. A copy of this document must be 
submitted to the regional director; and
     Submit a statement of the action taken to comply with any 
conditions imposed by the regional director in the preliminary 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 of 
directors has satisfactorily 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. A denial of a conversion application can be 
appealed. (See Chapter 1, section VII.D)

II.E--Completion of the Conversion

II.E.1--Effective Date of Conversion
    The date on which the regional director approves the Organization

[[Page 49194]]

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 of the conversion, 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.
    As of the commencement of operations, the accounting system, 
records, and forms must conform to the standards established by NCUA.
II.E.4--Change of the Credit Unions Name
    Changing of the credit union's name on all signage, records, 
accounts, investments, stationery, and other documents should be 
accomplished as soon as possible after conversion. The credit union has 
180 days from the effective date of the conversion to change its 
signage and promotional material. This requires the credit union to 
discontinue using any remaining stock of ``state credit union'' 
stationery immediately, and discontinue using credit cards, ATM cards, 
etc. within 180 days after the effective date of the conversion, or the 
reissue date--whichever is later. Member share drafts with the state 
chartered name can be used by the member until depleted.
II.E.5-- 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); and
     Financial and Statistical Reports, 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.
    It is important that the credit union provide an accurate 
disclosure of the reasons for the 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 intends 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 intend 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, 
and address the criteria set forth in Section 205(c) of the Federal 
Credit Union Act.
    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 all 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 investigation 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

    The members may not vote on the proposal until it is approved by 
the

[[Page 49195]]

regional director. Once approval of the proposal is received, 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 meeting to vote on the proposal. The proposal may 
be acted on at the annual meeting or at a special meeting for that 
purpose. The members must also be given the opportunity to vote by 
written ballot to be filed by the date set for the meeting.
     Members must be given advance notice (NCUA 4221) of the 
meeting at which the proposal is to be submitted. The notice must:
     Specify the purpose, time and place of the meeting;
     Include a brief, complete, 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;
     Specify the costs of the conversion, i.e., changing the 
credit union's name, examination and operating fees, attorney and 
consulting fees, tax liability, etc.;
     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.
     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, 
provided federal insurance is maintained. If the proposed state 
chartered credit union will not be federally insured, 20 percent of the 
total membership must participate in the voting, and of those, a 
majority must vote in favor of the proposal. 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 proposal for conversion is approved by a majority of all 
members who voted, the board of directors will:
     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; and
     Ensure that the regional director is kept informed as to 
progress toward conversion and of any material delay or of substantial 
difficulties which may be encountered.
    If the conversion cannot be completed within the 90-day period, the 
regional director should be informed of the reasons for the delay. The 
regional director may set a new date for the conversion to be 
completed.

III.G--Completion of Conversion

    In order for the conversion to be completed, the following steps 
are necessary:
     The board of directors will submit a copy of the state 
charter to the regional director within 10 days of its receipt. This 
will be accompanied by the federal charter and the federal insurance 
certificate. A copy of the financial reports as of the preceding month-
end should be submitted at this time.
     The regional director will notify the credit union and the 
state regulator in writing of the receipt of evidence that the credit 
union has been authorized to operate as a state credit union.
     The credit union shall cease to be a federal credit union 
as of the effective date of the state charter.
     If the regional director finds a material deviation from 
the provisions that would invalidate any steps taken in the conversion, 
the credit union and the state regulator shall be promptly notified in 
writing. This notice may be either before or after the copy of the 
state charter is filed with the regional director. The notice will 
inform the credit union as to the nature of the adverse findings. The 
conversion will not be effective and completed until the improper 
actions and steps have been corrected.
     Upon ceasing to be a federal credit union, the credit 
union shall no longer be subject to any of the provisions of the 
Federal Credit Union Act, except as may apply if federal share 
insurance coverage is continued. The successor state credit union shall 
be immediately vested with all of the assets and shall continue to be 
responsible for all of the obligations of the federal credit union to 
the same extent as though the conversion had not taken place. Operation 
of the credit union from this point will be in accordance with the 
requirements of state law and the state regulator.
     If the regional director is satisfied that the conversion 
has been accomplished in accordance with the approved proposal, the 
federal charter will be canceled.
     There is no federal requirement for closing the records of 
the federal credit union at the time of conversion or for the manner in 
which the records shall be maintained thereafter. The converting credit 
union is advised to contact the state regulator for applicable state 
requirements.
     The credit union shall neither use the words ``Federal 
Credit Union'' in its name nor represent itself in any manner as being 
a federal credit union.
     Changing of the credit union's name on all signage, 
records, accounts, investments, stationery, and other documents should 
be accomplished as soon as possible after conversion. Unless it 
violates state law, the credit has 180 days from the effective date of 
the conversion to change its signage and promotional material. This 
requires the credit union to discontinue using any remaining stock of 
``state credit union'' stationery immediately, and discontinue using 
credit cards, ATM cards, etc. within 180 days after the effective date 
of the conversion, or the reissue date--whichever is later Member share 
drafts with the federal chartered name can be used by the member until 
depleted. If the state credit union is not federally insured, it must 
change its name and must immediately cease using any credit union 
documents referencing federal insurance.
     If the state credit union is to be federally insured, the 
regional director will issue a new insurance certificate.

Appendix A--Glossary

    These definitions apply only for use with this Manual. 
Definitions are not intended to be all inclusive or comprehensive. 
This Manual, the Federal Credit Union Act, and NCUA Rules and 
Regulations, as well as state laws, may be used for further 
reference.
    Adequately capitalized--A credit union is considered adequately 
capitalized when it has a net worth ratio (capital-to-asset ratio) 
of at least 6 percent. A multiple common bond credit union must be 
adequately capitalized in order to add new groups to its charter.
    Affinity--A relationship upon which a community charter is 
based. Acceptable affinities include living, working, worshiping, or 
attending school in a community.
    Appeal--The right of a credit union or charter applicant to 
request a formal review

[[Page 49196]]

of a regional director's adverse decision by the National Credit 
Union Administration Board.
    Associational common bond--A common bond comprised of members 
and employees of a recognized association. It includes individuals 
(natural persons) and/or groups (non natural persons) whose members 
participate in activities developing common loyalties, mutual 
benefits, and mutual interests.
    Business plan--Plan submitted by a charter applicant or existing 
federal credit union addressing the economic advisability of a 
proposed charter or field of membership addition.
    Charter--The document which authorizes a group to operate as a 
credit union and defines the fundamental limits of its operating 
authority, generally including the persons the credit union is 
permitted to accept for membership. Charters are issued by the 
National Credit Union Administration for federal credit unions and 
by the designated state chartering authority for credit unions 
organized under the laws of that state.
    Common bond--The characteristic or combination of 
characteristics which distinguishes a particular group of persons 
from the general public. There are two common bonds which can serve 
as a basis for a group forming a federal credit union or being 
included in an existing federal credit union's field of membership: 
occupational--employment by the same company or related companies; 
and associational--membership in the same association.
    Community credit union--A credit union whose field of membership 
consists of persons who live, work, worship, or attend school in the 
same well-defined local community, neighborhood, or rural district.
    Credit union--A member-owned, not-for-profit cooperative 
financial institution formed to permit those in the field of 
membership specified in the charter to save, borrow, and obtain 
related financial services. Federal credit unions are chartered as 
corporations pursuant to the Federal Credit Union Act.
    Economic advisability--An overall evaluation of the credit 
union's or charter applicant's ability to operate successfully.
    Emergency merger--Pursuant to Section 205(h) of the Federal 
Credit Union Act, authority of NCUA to merge two credit unions 
without regard to common bond policy.
    Exclusionary clause--A limitation, written in a credit union's 
charter, which precludes the credit union from serving a portion of 
a group which otherwise could be included in its field of 
membership. Exclusionary clauses are used to prevent certain 
overlaps of fields of membership between credit unions.
    Federal share insurance--Insurance coverage provided by the 
National Credit Union Share Insurance Fund and administered by the 
National Credit Union Administration. Coverage is provided for 
qualified accounts in all federal credit unions and participating 
state credit unions.
    Field of membership--The persons (including organizations and 
other legal entities) a credit union is permitted to accept for 
membership.
    Immediate family member--Also referred to as ``members of their 
immediate families,'' this term is defined as related persons (i.e., 
blood, marriage or other recognized family relationships) in the 
same household (under the same roof), or if not in the same 
household, as a grandparent, parent, spouse, sibling, child, or 
grandchild.
    Letter of Understanding and Agreement--Agreement between NCUA 
and federal credit union officials not to engage in certain 
activities and/or to establish reasonable operational goals. These 
are normally entered into with new charter applicants for a limited 
time.
    Low income credit union--A low-income credit union is defined in 
Section 701.34 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 household income falls at or below 80 
percent of the median household income for the nation. The term 
``low income'' also includes members who are full-time or part-time 
students in a college, university, high school, or vocational 
school.
    Mentor--An individual who provides guidance and assistance to 
newly chartered, small, or low-income credit unions. All new federal 
credit unions are encouraged to establish a mentor relationship with 
a trained, experienced credit union individual or an existing credit 
union.
    Merger--Absorption by one credit union of all of the assets, 
liabilities and equity of another credit union. Mergers must be 
approved by the National Credit Union Administration and by the 
appropriate state regulator whenever a state credit union is 
involved.
    Multiple common bond credit union--A credit union whose field of 
membership consists of more than one group, each of which has a 
common bond of occupation or association.
    Occupational common bond--Employment by the same entity or 
related entities.
    Once a member, always a member--A provision of the Federal 
Credit Union Act which permits an individual to remain a member of 
the credit union until he or she chooses to withdraw or is expelled 
from the membership of the credit union. Under this provision, 
leaving a group that is named in the credit union's charter does not 
terminate an individual's membership in the credit union.
    Overlap--The situation which results when a group is eligible 
for membership in more than one credit union.
    Potential membership--Persons eligible to join a federal credit 
union.
    Primary members--Members or employees who belong to an 
associational or occupational group, or persons who live, work, 
worship, or attend school within a community chartered credit 
union's field of membership.
    Purchase and assumption--Purchase of all or part of the assets 
of and assumption of all or part of the liabilities of one credit 
union by another credit union. The purchased and assumed credit 
union must first be placed into involuntary liquidation.
    Service area--The area that can reasonably be served by the 
service facilities accessible to the groups within the field of 
membership.
    Service facility--A place where shares are accepted for members' 
accounts, loan applications are accepted, and loans are dispersed.
    Single associational common bond credit union--A credit union 
whose field of membership includes members and employees of a 
recognized association.
    Single common bond credit union--A credit union whose field of 
membership consists of one group which has a common bond of 
occupation or association.
    Single occupational common bond credit union--A credit union 
whose field of membership consists of employees of the same entity 
or related entities.
    Spin-off--The transfer of a portion of the field of membership, 
assets, liabilities, shares, and capital of one credit union to a 
new or existing credit union.
    Subscribers--For a federal credit union, at least seven 
individuals who sign the charter application and pledge at least one 
share.
    Underserved community--A local community, neighborhood, or rural 
district that is an ``investment area'' as defined in Section 
103(16) of the Community Development Banking and Financial 
Institutions Act of 1994. The area must also be underserved based on 
other NCUA and federal banking agency data.
    Unsafe or unsound practice--Any action, or lack of action, which 
would result in an abnormal risk or loss to the credit union, its 
members, or the National Credit Union Share Insurance Fund.

Appendix B--Letter of Understanding and Agreement

    To the Board of Directors and Other Officials
    ____________ Federal Credit Union

    Since the purposes of credit unions are to promote thrift and to 
make funds available for loans to credit union members for provident 
and productive purposes, and since newly chartered credit unions do 
not generally have sufficient reserves to cover large losses on 
loans or meet unduly large liquidity requirements, Federal insurance 
coverage of member accounts under the National Credit Union Share 
Insurance Fund will be granted to the above named credit union 
subject to the conditions listed in this Letter of Understanding and 
Agreement and in the Organization Certificate and Application and 
Agreements for Insurance of Accounts. These terms are listed below 
and are subject to acceptance by authorized credit union officials.
    1. The credit union will refrain from soliciting or accepting 
brokered fund deposits from any source without the prior written 
approval of the Regional Director.
    2. The credit union will refrain from the making of large loans, 
that is, loans in excess of 5 percent of unimpaired capital and 
surplus, to any one member or group of members without the prior 
written approval of the Regional Director.
    3. The credit union will not establish or invest in a Credit 
Union Service Organization

[[Page 49197]]

(CUSO) without the prior written approval of the Regional Director.
    4. The credit union will not enter into any insurance programs 
whereby the credit union member finances the payment of insurance 
premiums through loans from the credit union.
    5. Any special insurance plan/program, that is, insurance other 
than usual and normal surety bonding or casualty or liability or 
loan protection and life savings insurance coverage, which the 
credit union officials intend to undertake, will be submitted to the 
Regional Director of the National Credit Union Administration for 
written approval prior to the officials committing the credit union 
thereto.
    6. The credit union will prepare and mail to the district 
examiner financial and statistical reports as required by the 
Federal Credit Union Act and Bylaws by the 20th of each month 
following that for which the report is prepared.
    7. As the credit union's officials gain experience and the 
credit union achieves target levels of growth and profitability, the 
above terms and conditions may be renegotiated by the two parties.
    We, the undersigned officials of the ____________ Federal Credit 
Union, as authorized by the board of directors, acknowledge receipt 
of and agree to the attached Letter of Understanding and Agreement 
dated ____________.
    This Letter of Understanding and Agreement has been voluntarily 
entered into with the National Credit Union Administration. We agree 
to comply with all terms and conditions expressed in this Letter of 
Understanding and Agreement.
    Should the NCUA Board determine that these terms and conditions 
have not been complied with or that the board of directors or other 
officials have not conducted the affairs of the credit union in a 
sound and prudent manner, the NCUA Board may terminate insurance 
coverage of the credit union. If actions by the officials, in 
violation of this Letter of Understanding and Agreement, cause the 
credit union to become insolvent, the officials assume such personal 
liability as may result from their actions.
    The term of this Letter of Understanding and Agreement shall be 
for the period of at least 24 months from the date the credit union 
is insured. This Letter of Understanding and Agreement may, at the 
option of the Regional Director, be extended for an additional 24 
months at the end of the initial term of this agreement.
    Dated this ________ (day) of____________ (month) __________ 
(year).

NATIONAL CREDIT UNION ADMINISTRATION BOARD ON BEHALF OF THE NATIONAL 
CREDIT UNION SHARE INSURANCE FUND

----------------------------------------------------------------------
Regional Director

----------------------------------------------------------------------
Federal Credit Union

    By:
----------------------------------------------------------------------
Chief Executive Officer          Date

----------------------------------------------------------------------
Chief Financial Officer        Date

----------------------------------------------------------------------
Secretary                        Date

Appendix C--NCUA Offices

Central Office

1775 Duke Street, Alexandria, VA 22314-3428, Commercial: 703-518-
6300

Region I--Albany

9 Washington Square, Washington Avenue Extension, Albany, NY 12205-
5512, Commercial: 518-862-7400, FAX: 518-862-7420, Connecticut, 
Maine, Massachusetts, New Hampshire, New York, Rhode Island, Vermont

Region II--Capital

1775 Duke Street, Suite 4206, Alexandria, VA 22314-3437, Commercial: 
703-519-4600, FAX: 703-519-4620, Delaware, District of Columbia, 
Maryland, New Jersey, Pennsylvania, Virginia

Region III--Atlanta

7000 Central Parkway, Suite 1600, Atlanta, GA 30328-4598, 
Commercial: 678-443-3300, FAX: 678-443-3020, Alabama, Arkansas, 
Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, 
Puerto Rico, South Carolina, Tennessee, Virgin Islands

Region IV--Chicago

4225 Naperville Road, Suite 125, Lisle, IL 60532-3658, Commercial: 
630-955-4100, FAX: 630-955-4120, Illinois, Indiana, Michigan, 
Missouri, Ohio, Wisconsin, West Virginia

Region V--Austin

4807 Spicewood Springs Road, Suite 5200, Austin, TX 78759-8490, 
Commercial: 512-482-4500, FAX: 512-482-4511, Arizona, Colorado, 
Iowa, Kansas, Minnesota, Nebraska, New Mexico, North Dakota, 
Oklahoma, South Dakota, Texas

Region VI--Pacific

2300 Clayton Road, Suite 1350, Concord, CA 94520-2407, Commercial: 
925-363-6200, FAX: 925-363-6220, Alaska, California, Guam, Hawaii, 
Idaho, Montana, Nevada, Oregon, Utah, Washington, Wyoming

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Appendix E--Associations

Credit Union National Association (CUNA), P.O. Box 431, Madison, WI 
53701, 608-231-4000
National Association of Federal Credit Unions (NAFCU), 38 N. 10th 
Street, Suite 300, Arlington, VA 22201, 703-522-4770
National Association of State Credit Union Supervisors (NASCUS), 
1901 North Fort Myer Drive, Suite 201, Arlington, VA 22209, 703-528-
8351
National Federation of Community Development Credit Unions (NFCDCU), 
120 Wall Street, 10th Floor, New York, NY 10005-3902, 212-809-1850
[FR Doc. 98-24285 Filed 9-11-98; 8:45 am]
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