[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]]
_______________________________________________________________________
Part II
National Credit Union Administration
_______________________________________________________________________
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.
[[Page 49166]]
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
[[Page 49167]]
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
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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:
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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
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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: