[Federal Register Volume 63, Number 250 (Wednesday, December 30, 1998)]
[Rules and Regulations]
[Pages 71998-72089]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-34032]
[[Page 71997]]
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Part II
National Credit Union Administration
_______________________________________________________________________
12 CFR Part 701
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Organization and Operations of Federal
Credit Unions; Final Rule
Federal Register / Vol. 63, No. 250 / Wednesday, December 30, 1998 /
Rules and Regulations
[[Page 71998]]
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
Organization and Operations of Federal Credit Unions
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
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SUMMARY: The Credit Union Membership Access Act modified NCUA's
chartering and field of membership authority. Accordingly, NCUA is
finalizing a number of amendments to its policies to update them
consistent with the recent legislation.
Additionally, the final rule 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 final rule further clarifies overlap issues, mergers,
low-income policies regarding low income charters and service of
underserved areas, the definition of immediate family member or
household, and the ``once a member, always a member'' policy.
DATES: Effective date: January 1, 1999.
Applicability date: IRPS 99-1 will be applicable January 1, 1999,
except for the provisions on the definition of ``local community,
neighborhood or rural district, and ``immediate family member or
household,'' which will be applicable March 5, 1999, unless disapproved
by Congress under the major rule provisions.
ADDRESSES: National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428.
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 negative economic
environment created safety and soundness concerns that prompted the
Board to revise its chartering policy to permit membership in a federal
credit union to consist of multiple common bonds, 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 the loss of a 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 important advantage of the policy change was that it provided access
to credit union service for small groups of people who did not have the
resources to charter their own credit unions. The Board issued
subsequent changes to the 1982 chartering policy in 1984, 1989, 1994,
1996, and 1998, most of which addressed the multiple common bond
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 common bond federal credit unions serving
approximately 158,000 select groups.
On February 25, 1998, the U.S. Supreme Court ruled that NCUA's
multiple common bond policy was impermissible under the Federal Credit
Union Act (FCUA). National Credit Union Administration v. First
National Bank & Trust Co. et al., 118 S. Ct. 927 (1998). The Supreme
Court affirmed the lower court's finding that groups with unlike common
bonds could not be joined to form a single occupational credit union.
As a result, Congress addressed the multiple common bond and other
field of membership issues and recently enacted legislation reinstating
NCUA's multiple common bond policy with some modifications. The Credit
Union Membership Access Act (``CUMAA''), Public Law 105-219. CUMAA
updated the statutory common bond rules for the first time since 1934.
Accordingly, on August 31, 1998, the Board issued a proposed rule
that revised and updated NCUA's chartering and field of membership
policies with a sixty day comment period. 62 FR 49164 (September 14,
1998). The policy was issued as proposed IRPS 98-3. Three hundred and
sixty-nine comments were received. Comments were received from one
hundred and eighty-one federal credit unions, twenty-three state
chartered credit unions, thirty state credit union leagues, four
national credit union trade associations, two congressmen, seventy-two
banks, thirty bank trade associations, twenty credit union members, two
law firms, one credit union sponsor, one certified public accountant,
one consulting firm, one advocacy group and one other individual.
Except for the bank and bank trade associations, most commenters were
very supportive of the proposed chartering and field of membership
policies, although most commenters suggested ways they would modify the
final rule. Except for the section on mergers, the bank and bank trade
association comments are summarized in a separate section. Although a
separate section is devoted to the comments received from the bankers
and bank associations, the issues they raised are addressed throughout
the preamble in response to other similar comments.
The comments received were varied and addressed virtually every
field of membership issue. All the comments were carefully reviewed,
particularly those that expressed concern or that were in opposition to
the proposed field of membership provisions, and a response to most of
the issues raised is set forth in the section by section analysis of
the comments. There were, however, five issues that generated numerous
comments and either were confusing or proved somewhat controversial to
the commenters. They were: (1) overlaps and exclusionary clauses; (2)
economic advisability (the
[[Page 71999]]
numerical threshold for member support to charter a new credit union);
(3) reasonable proximity and service facility requirements for select
group additions to multiple common bond credit unions; (4) voluntary
mergers of financially healthy multiple common bond credit unions; and,
(5) the definition of immediate family member or household.
Accordingly, these five issues are separately addressed in the
preamble.
A. Overlaps and Exclusionary Clauses
Occupational and Associational Single Common Bond Credit Unions
The Board proposed that, as a general rule, NCUA will not charter
two or more credit unions to serve the same single occupational or
associational group. Consequently, the proposal provided overlap
protection for single occupational or associational credit unions.
However, the Board further proposed that an overlap would 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. This language parallels the statutory requirement for
multiple common bond credit unions.
The proposal set forth when NCUA would permit an overlap of an
occupational or associational credit union and what NCUA considers in
reviewing an overlap. The Board stated that an occupational or
associational credit union will rarely, if ever, be protected from
overlap by a community charter. The Board also stated that where a
federally insured state credit union's field of membership is broadly
stated, NCUA will exclude its field of membership from overlap
protection. NCUA defines ``broadly stated'' to mean either a statewide
field of membership or a field of membership that would not comport
with or is inconsistent with federal field of membership policies.
Multiple Common Bond Credit Unions
The Board proposed that 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 proposed overlap policy restated the statutory
requirement for addressing overlap issues affecting multiple common
bond credit unions. The proposal also set forth the issues NCUA would
consider in reviewing the overlap. In general, if the overlapped credit
union did not object, and NCUA determines that there are no safety and
soundness problems, the overlap would be permitted. If, however, the
overlapped credit union objected to the overlap, a more detailed
overlap analysis would be required.
The Board proposed that overlaps between multiple common bond
credit unions and community chartered credit unions would be permitted
without performing an overlap analysis, since NCUA has determined that,
in these types of overlaps, the benefit of the overlap to the member
will always outweigh the harm to either credit union. The Board stated
that a multiple common bond credit union would rarely, if ever, be
protected from overlap by a community charter.
Community Charters
The Board proposed that a credit union seeking a community charter
contact all federally insured credit unions with a service facility in
the proposed service area. Notwithstanding the requirement to contact
all credit unions within the proposed service area, the proposal
permitted a community credit union to overlap any other type of credit
union charter. The Board stated that a community charter would rarely,
if ever, be protected from overlap by a single occupational, single
associational or multiple common bond credit union. If safety and
soundness concerns existed, the Board proposed providing overlap
protection from a community charter for a limited period of time,
generally 12 to 24 months.
In the past, exclusionary clauses were permitted for reasons other
than for safety and soundness, such as when there was an agreement
between the overlapping credit unions. An exclusionary clause, under
circumstances other than for safety and soundness, would not be
permitted under the proposal if the overlapping credit union was a
community charter. The Board requested specific comment as to whether
exclusionary clauses are appropriate for community charters and, if so,
under what circumstances.
Comments
There were numerous comments on overlaps and how NCUA should
address this issue. For example, seventeen commenters objected to
overlap protection for any credit union regardless of the reason.
Eleven commenters objected to overlap protection, except if the overlap
causes significant harm to the existence of another credit union. Five
commenters approved of NCUA's proposed policy on overlaps. One
commenter stated that overlap procedures should be the same for all
types of credit unions. Five commenters recommended overlap protection
for small credit unions. One commenter recommended that NCUA carefully
review any overlaps of small credit unions. Two commenters recommended
overlap protection. Many other commenters suggested different methods
of addressing overlap issues.
There were also numerous comments on exclusionary clauses. For
example, forty-two commenters suggested that NCUA provide a procedure
to allow one credit union to petition to remove existing exclusionary
clauses, regardless of charter type. A number of these commenters
suggested that exclusionary clauses are almost impossible to police and
frustrate the consumer. One commenter stated that NCUA should rarely
impose exclusionary clauses. Seven commenters believed the removal of
an exclusionary clause should be approved only if both credit unions
agreed. Three commenters opposed a process to remove exclusionary
clauses. Many other commenters addressed the use of exclusionary
clauses.
Three commenters approved of the overlap rules for community
charters. Three commenters stated that exclusionary clauses should
never be a part of a community charter's field of membership. One
commenter stated that exclusionary clauses should rarely be used. Five
commenters requested overlap protection from community credit unions.
Three commenters requested overlap protection for community credit
unions. Three commenters recommended exclusionary clauses for small
credit unions that are overlapped by community charters. Three
commenters stated that only one credit union should be chartered per
community.
Forty-two commenters supported the proposal to provide a process
for removing existing exclusionary clauses from community charters.
Many of these commenters did not believe that two credit unions should
be required to agree to remove the exclusionary clause. Seven
commenters believed that an exclusionary clause should be removed only
if the two affected credit unions agreed. A number of these commenters
suggested that exclusionary clauses are almost impossible to police and
frustrate the consumer. Three commenters opposed a process to remove
exclusionary clauses.
[[Page 72000]]
NCUA Board Analysis and Decision on Overlaps and Exclusionary Clauses
In formulating its opinion on overlaps, NCUA considered not only
the comments in response to the current proposal, but also the
information gathered in the internal review of the overlap policies
permitted under IRPS 94-1 and previous field of membership policies. In
the internal review of 58 overlapped credit unions, no long-term
adverse financial trends were discovered. The information tended to
support the contention that overlaps have not caused any credit union
to fail, even though there was, in a limited number of cases, a
temporary loss in market share. This finding was consistent with other
studies on overlaps, including a recent analysis by the Office of
Examination and Insurance on 14 overlapped credit unions where the
original recommendation to include an exclusionary clause was not
approved by the Board. Overall, the overlapped credit unions did not
suffer any harm and reported positive financial trends. Most credit
unions experienced an increase in shares, assets, and loans.
Delinquency declined and share and loan growth improved. The earlier
research was supplemented by a random survey of federally insured
credit unions that obtained a response rate of 57 percent. Of the 642
responding credit unions, 284 were overlapped and 34 overlapped other
credit unions. In summary, 52 percent of the responding credit unions
viewed field of membership overlaps as harmful for credit unions while
48 percent reported overlaps were beneficial. Interestingly, however,
when viewed as harmful or beneficial for the credit union members, the
opinions were decidedly different. In response to this issue, 82
percent indicated that overlaps benefit members.
The proposed policy on overlaps took into consideration NCUA's
experience, the internal review and the survey. The final rule also
considered the commenters' opinions. The Board's opinion remains that
the overlap policy, as enunciated in the proposal for single
occupational and associational credit unions, is supportable and in the
best interests of credit unions. In general, credit unions will not be
chartered to serve the same common bond group, but incidental overlaps,
as defined below, would be permitted. The final rule includes a
provision that allows a credit union that has an existing exclusionary
clause to petition NCUA to have the exclusionary clause removed.
A decision on whether the clause will be removed will be based on
an analysis of the impact of removing the clause on the overlapped
credit union.
This same concept adopted for single common bond credit unions also
applies to multiple common bond credit unions in that an overlap
analysis, except for incidental overlaps, will be required before a
group will be added to a credit union's field of membership. This is a
statutory requirement. An overlap will not be permitted 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 final rule includes the same criteria set forth in
the proposed rule relative to what the regional director will consider
in determining whether an overlap will be permitted.
The final rule, however, clarifies that an overlap analysis will
not be required if the group to be added has 200 primary potential
members or less. In view of the fact that approximately one-third of
the primary potential members join a credit union, the Board believes a
group of 200 primary potential members or less will be considered
incidental. That is, the benefit to the members will always outweigh
the harm to the credit union. Accordingly, a credit union applying to
add a group of 200 or less primary potential members will only have to
complete the 4015-EZ, which is a shortened version of the standard 4015
(the application for a field of membership amendment). No overlap
analysis is required if the group being added is 200 or less.
The overlap policy for community credit unions recognizes the
operational difficulty in enforcing exclusionary clauses. Additionally,
it recognizes that credit union members will benefit if additional
credit union choices are made available. Accordingly, it is the Board's
view that community credit unions should be allowed to overlap, with a
minor exception for newly chartered single common bond or multiple
common bond credit unions, any credit union within the community.
Consequently, no overlap analysis will be required for any credit union
within a proposed community credit union's well defined area unless it
is a newly chartered credit union (chartered less than 2 years).
Although the commenters requested a longer time frame for protection
from a newly chartered community charter (by way of conversion or a new
credit union charter), the Board is only providing protection through
the inclusion of an exclusionary clause for a period of 12 to 24 months
from the date of the overlapped credit union's charter for a new single
common bond or multiple common bond credit union. If safety and
soundness concerns exist, the regional director may extend the
exclusionary clause protection for a period that does not exceed 60
months from the date the overlapped credit union was chartered. Unlike
the proposed rule, no overlap protection will be provided any community
charter.
B. Economic Advisability
NCUA's proposed provisions on new charters and charter expansions
emphasized that NCUA will evaluate the economic advisability of the
proposed institution or expansion as well as its effect on other credit
unions. While NCUA did not set a minimum field of membership size for
chartering a federal credit union, the Board suggested, based on
historical data and evidence of economic viability, 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 may have to
provide more support than a proposed credit union with a larger field
of membership in order to demonstrate that it is economically advisable
and that it will have a reasonable chance to succeed. The 3,000 primary
potential member threshold number is also operationally consistent with
the multiple common bond expansion requirements. The Board specifically
requested comments on whether the economic advisability number should
be set at a lower or higher level.
Comments
Fifty-one commenters supported the 3,000 primary potential member
number as a useful threshold for defining the viability of a new credit
union. A few commenters stated that the 3,000 minimum presumption
promotes consistency with the statutorily required 3,000 member cap for
the addition of a new select group in a multiple common bond credit
union. A number of these commenters stated that NCUA should be flexible
in determining how many people are necessary to start a new credit
union. These commenters suggested that NCUA consider other factors in
determining viability such as the ability to obtain adequate
capitalization and the level of resources. Fourteen commenters believed
the economic advisability number is low and six suggested a number in
excess of
[[Page 72001]]
5,000 primary potential members as a threshold for viability. A few
commenters stated that the 3,000 threshold is almost meaningless in
today's economy. These commenters stated that consumers are not going
to wait for a credit union to grow to offer financial services.
Twenty-one commenters did not agree with the economic advisability
number. Ten commenters believed the economic advisability number is too
high. A number of these commenters stated that NCUA should be flexible
with any numerical member threshold. A number of commenters further
stated that, if a smaller group is financially sound, NCUA should
charter the credit union. Conversely, if a larger group is not
financially sound, then NCUA should not charter the credit union. One
commenter believed the 3,000 threshold may soon become a requirement
which will be particularly onerous to the chartering of faith-based
credit unions. Some commenters requested that NCUA provide the
rationale for choosing the 3,000 number threshold.
NCUA Board Analysis and Decision on Economic Advisability
The Board is adopting the 3,000 primary potential member threshold
in the final rule. This position is consistent with congressional
intent as well as NCUA experience. This threshold is not intended to
undermine the statutory requirement to encourage the formation of new
credit unions. Rather, it has been established to provide potential new
charters necessary advice and guidance to charter a successful credit
union. Any group desiring to form its own credit union will be given
every opportunity to demonstrate it has met the economic advisability
requirements. Additionally, any group not desiring to charter its own
credit union will be reviewed to determine if in fact it can be
separately chartered.
IRPS 94-1 established the economic advisability threshold as 500
primary potential members. Notwithstanding this threshold number of
500, the Board's opinion has long been that the 500 primary potential
members threshold was extremely low, particularly in view of the fact
that only approximately one-third of the primary potential members
join. Accordingly, there have been numerous recommendations that the
500 threshold number should be increased.
Since 1996, NCUA has chartered 29 new credit unions. Only one of
these new charters had a primary potential membership that was less
than 3,000. While there are many factors impacting why the number of
new charters since 1996 is low, experience has indicated that one
critical factor is the financial service expectation of the potential
members. That is, what type of financial service will the new credit
union provide? If the financial service is limited, then it will not
meet the members' financial service expectations and, as a result, the
credit union will not be fully supported. The analysis of whether a new
group can form a new credit union must take the members reasonable
expectations into consideration. Failure to do so would put the
National Credit Union Share Insurance Fund (``NCUSIF'') at risk.
The Board's view is that the 3,000 primary potential membership
threshold is an economically advisable number for potential new
charters, but not an absolute requirement. This distinction is
important. For example, there are approximately 3,100 federal credit
unions with primary potential members of less than 3,000. Approximately
700 of those have primary potential members of 500 or less. For the
most part, however, at the time of their charter, economic conditions
and the financial service expectations of the credit union members were
different. These differences provided the credit unions an opportunity
to become established and develop a loyalty base under marketplace
expectations that significantly differ from those of today. The Board
must consider the evolving nature of the financial marketplace. It
would be remiss simply to say that, since a lower threshold number
worked in the past, there is no need to change the economic
advisability number requirement today.
The Board's intent is that every group being added to a multiple
common bond credit union should be analyzed to determine whether it has
the capability and desire to support an independent operation. Indeed,
that is the intent of the legislation. This requirement, however, must
be balanced with operational feasibility. To overlook the complexities
of providing financial services will only lead to additional
supervisory problems. The regulatory approach, therefore, should
incorporate known economic factors and the likelihood of success in
establishing and managing a new credit union in today's marketplace. To
this end, the Board's intent is that a group desiring a separate
charter should have every reasonable opportunity to form a new credit
union. As stated earlier, the 3,000 primary potential member threshold
is not an absolute, but simply a threshold. There are numerous examples
where smaller groups can and should have a separate credit union. For
example, faith based credit unions, as one commenter suggested, may be
uniquely positioned to be separately chartered.
The expectation is that those groups above the threshold of 3,000
primary potential members must be able to demonstrate why they cannot
satisfactorily form a separate credit union if they want to be added to
another credit union. Statutorily, there is a presumption that, unless
certain exceptions apply, a group larger than 3,000 should form its own
credit union. That is, the exception criteria will be closely
evaluated. Groups below the 3,000 threshold, however, must be able to
demonstrate why they can successfully operate a credit union. In other
words, the emphasis shifts based on the size of the group. For example,
a group of 525 may have more difficulty demonstrating economic
advisability than a group of 3,000. This is a balanced approach to the
financial service expectations of the members, the intent of Congress
that all groups should be analyzed to determine if the formation of a
separately chartered credit union is practicable and consistent with
economic advisability criteria, and those factors that are historically
important in evaluating a new charter applicant from a regulatory
standpoint. This is an economically and operationally sound approach to
chartering new credit unions. The Board believes it must not only
encourage new charters, but also ensure to the fullest extent possible
that those groups receiving a separate charter will have a reasonable
basis for success and thereby avoid unnecessary risks to the NCUSIF.
Accordingly, the field of membership rules on economic advisability
must reflect known economic factors and the potential risks to the
NCUSIF. It is essential, therefore, that the approval process
incorporate the necessary regulatory analysis to make these
determinations.
The question was raised concerning the standard that will be used
in determining what level of services is adequate in determining the
separate charter analysis vis-a-vis an already established credit
union. That is, if a new charter can only offer limited services, but
an existing charter offers a full service menu, will that fact in of
itself be sufficient to determine that a separate charter is not
required. One commenter stated that ``the economic advisability does
not take into consideration whether the group would be able to have
similar services.'' The Board's opinion is that such a standard would
circumvent the intent of the statute and, if adopted, the potential for
new charters would be drastically
[[Page 72002]]
reduced. Except in very rare circumstances, no new credit union charter
can offer the same financial services of an established credit union.
Accordingly, a similar service criterion cannot be a factor in
determining whether a new group will meet that standard. However, if
the group is already in the field of membership of a credit union and
has been receiving expanded financial services, it is reasonable to
consider that factor. This may occur in voluntary merger situations.
For that reason, out of fairness to such a group, the failure to
provide similar or equal services is more important, but not
necessarily dispositive of the issue.
It is also incumbent on the Board to establish rules that are not
unnecessarily burdensome. For that reason, it has adopted the
presumptive factor of 3,000 in determining what criteria will be
applicable. In adopting the 3,000 primary potential member threshold
factor, the Board recognizes that newly chartered credit unions in
today's financial marketplace have unique challenges. Those groups that
can or should be able to meet those challenges, regardless of size,
will be required to form a separate credit union unless they meet the
common bond requirements. As the legislation directs, the Board will
encourage the formation of separately chartered credit unions if it is
prudent and economically advisable. Important factors in making this
determination, however, are the desire and intent of the group and the
sponsor support. In other words, to ignore the group's administrative
capability may lead to unnecessary supervisory problems in the future.
While the intent of the group and sponsor support cannot be ignored and
will carry great weight, they are not the sole factors. The final
decision must be based on an independent regulatory analysis in
consideration of the remaining factors specified in the regulation.
Four commenters recommended that NCUA include in its definition of
economic advisability the statutory language from CUMAA that encourages
the formation of separately chartered credit unions ``whenever
practicable and consistent with reasonable standards for the safe and
sound operation of the credit union.'' 12 U.S.C. 1759(f)(1)(A). The
Board agrees with these commenters and has incorporated this change
into the final rule in the discussion on multiple common bond charter
expansions.
C. Reasonable Proximity and Service Facility Requirements for
Select Group Additions
CUMAA reinstated NCUA's multiple common bond policy, as set forth
in IRPS 94-1, with significant 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.
Comments
Twenty-five commenters agreed with NCUA's definition of reasonable
proximity, although a number of these commenters stated NCUA should
give consideration to accessibility via the internet and home banking.
Six commenters were unsure as to what is meant by ``within the
service area'' and questioned how that term will be applied. Ten
commenters stated that the reasonable proximity standard should not be
applied in a blanket fashion. For example, some of these commenters
stated that the distance should be farther in rural areas for the
purpose of determining what constitutes reasonable proximity.
Fifty-two commenters disagreed with NCUA's definition of reasonable
proximity. Most of these commenters believed it is not necessary,
legally or for safety and soundness reasons, since credit unions can
automatically and electronically deliver services around the globe.
Some commenters stated that NCUA's definition of reasonable proximity
goes well beyond congressional intent. These commenters stated that
Congress intended that groups be located within a close geographic area
to the credit union.
The Board defined a service facility as a place where shares are
accepted for members' accounts, loan applications are accepted, and
loans are disbursed. This definition included a credit union owned
branch, a shared branch, or a credit union owned electronic facility
that meets, at a minimum, these requirements. This definition did not
include an ATM. Thirty-one commenters agreed with NCUA's definition of
service facility. One commenter requested that NCUA specifically state
that a mobile branch is a service facility for multiple common bond
expansions.
Thirty-one commenters did not approve of NCUA's definition of
service facility. Most of these commenters believed that, with the
advent of electronic services, a ``brick and mortar'' facility is
obsolete. Nineteen commenters requested that ATMs be included as a
service facility. Some of these commenters recommended deleting parts
of the definition that requires the facility to be a place where
deposits are made, loan applications are accepted and funds disbursed.
A few commenters stated that NCUA's definition of service facility goes
well beyond congressional intent.
NCUA Board Analysis and Decision on Reasonable Proximity
As indicated above, there were numerous comments on the proposed
definition of ``reasonable proximity.'' Suggestions ranged from mileage
to electronic limitations. Reasonable proximity is an essential factor
in determining whether a group can be added to a multiple common bond
credit union. The Board's view is that CUMAA and its legislative
history sets forth the requirement that reasonable proximity should be
a geographic limitation. That is, the group to be added must be within
reasonable proximity geographically to the credit union. Therefore, the
advantages acquired from advancing technologies do not undermine what
the Board considers is the congressionally mandated requirement that
the group to be added must be within ``reasonable proximity'' to the
credit union.
However, it is not the Board's view that the location of the group
must be within reasonable proximity to the main credit union office
only. This would be an overly restrictive requirement. Since reasonable
proximity is not specifically defined in the legislation, the terms
service area and service facility were proposed in an effort to
establish the limits of a geographic reasonable proximity. That is, the
group to be added must be within the service area of a service facility
of the credit union. As specified in the final rule, service facility
does not include an ATM. The legislative history of CUMAA is clear that
NCUA should not treat ATMs as service facilities for select group
expansions. Therefore, the final rule excludes an ATM as a service
facility. A service facility will include, however, a credit union
owned branch, a shared branch, a mobile branch that goes to the same
location on a weekly basis, or a credit union owned electronic
facility. Additionally, the Board's view is that an office that is open
on a regularly scheduled weekly basis will also qualify as a service
facility. This will enhance the development of credit union
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services in low income and underserved areas. At a minimum, to qualify
as a service facility, the member must be able to deposit funds, apply
for a loan, and obtain funds on approved loans.
Past experience with mileage limitations indicates that using
distance factors to define reasonable proximity would create numerous
inequities. Rural areas obviously differ from urban areas. Small towns
differ from large cities. The vast geographic territory combined with
the sparse population in the southwest and western mountain areas
differ from the rural areas of the east. While mileage limitations
often facilitate regulatory decisions, frequently, they are artificial
and cause unfair results simply because of small geographic
differences. Accordingly, mileage limitations were deemed inappropriate
and not advisable. Essentially, the service area means that a member
can reasonably access the service facility. In rural areas this may
include distances encompassing several counties. In a densely populated
area, it may be a portion of a city.
D. Voluntary Mergers of Financially Healthy Multiple Common Bond
Credit Unions
The proposal set forth the requirements for the merger into, and
by, a multiple common bond credit union. In making the proposal, the
Board was mindful of the historic importance of mergers to the
financial stability of credit unions and of the importance of credit
unions to independently determine what is in the best interests of
their members. Often in today's marketplace, membership diversity and
growth are essential ingredients to financially strong credit unions.
Merging credit unions is crucial to the entire credit union system and
helps reduce the risk to the NCUSIF. Generally, credit union officials
are best suited to judge when a healthy credit union's membership and
financial strength will be enhanced by a merger. In making its
proposal, the Board sought to balance these realities against its
responsibility to assure mergers are consistent with the statutory
requirements of CUMAA and that they do not weaken credit unions or
increase the risk to the NCUSIF.
The Board proposed, that generally, the requirements applicable to
field of membership expansions apply to a credit union merging into a
multiple common bond credit union. That is, 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 only if NCUA's expansion
requirements are met. If the expansion requirements are not met, this
would require a credit union to spin-off a select group of 3,000 or
more persons from the merging credit union or the merger could not be
approved. In all cases, the individual groups in the merging credit
union would have to meet the multiple common bond policies.
Comments
Only one commenter supported the proposed merger process. Sixty-two
commenters believed financially healthy multiple common bond credit
unions should be permitted to merge without the constraints of the
proposed 3,000 limitation approval process. Twenty-two of these
commenters stated that CUMAA did not change NCUA's existing merger
authority under Section 205(b) of the Federal Credit Union Act
(``FCUA'') and that the 3,000 numerical limitations only applies to
field of membership expansions and not mergers. Generally, all bank and
bank trade organizations opposed the proposal. They argued that CUMAA
and its legislative history require that the statutory standards,
including the 3,000 numerical limitation, apply whether a single group
is being added to a credit union or whether a voluntary merger of a
credit union with many groups is being contemplated.
NCUA Board Analysis and Decision on Voluntary Mergers of Multiple
Common Bond Credit Unions
In response to the comments raised by credit union trade
organizations and bank trade organizations, as well as a further review
of the statutory language and legislative history, the Board has
decided to amend its proposal. Recognizing the importance of mergers to
a stable healthy credit union system, the final rule permits the
voluntary merger of healthy multiple common bond credit unions
containing select employee groups of less than 3,000 primary potential
members without regard to the statutory analysis that is required when
non-affiliated groups of less than 3,000 members seek to join an
existing credit union. In credit unions seeking to merge containing
groups with 3,000 or more members, the provisions of Section
101(d)(2)(A) of CUMAA must be met or the groups in excess of 3,000 will
have to be spun off in order for the merger to proceed. All credit
unions seeking a voluntary merger will still be required to comply with
the requirements of Section 205(b) of the FCUA, 12 U.S.C. 205(b).
However, because of statutory requirements, a financially healthy
single common bond credit union with a primary potential membership in
excess of 3,000 primary potential members cannot merge into a multiple
common bond credit union, absent supervisory reasons.
In making this change the Board is mindful of its obligation to be
faithful to the statutory language. In doing so, ``the starting point
must be the language of the statute itself.'' Int'l Brotherhood of
Electrical Workers v. NLRB, 814 F.2d 697, 710 (D.C. Cir. 1987) (quoting
Lewis v. United States, 445 U.S. 55, 60 (1980). Frequently, the ``best
guide to what a statute means is what it says.'' Stewart v. National
Shopmen Pension Fund, 730 F.2d 1552, 1561 (D.C. Cir.) cert. denied 469
U.S. 834 (1984) (emphasis in original). Section 101(b)(2) of CUMAA
authorizes multiple common bond credit unions. Section 101(d)(1)
provides that groups of fewer than 3,000 members can generally be added
to a multiple common bond credit union provided certain criteria are
met. Section 102 sets forth the statutory criteria that must be met.
Taken together, these provisions address the chartering of new multiple
common bond credit unions and the addition of non-affiliated groups of
less than 3,000 members to existing institutions. Though Congress could
have done so, it did not include any language discussing or limiting
NCUA's ability to authorize the merger of existing multiple common bond
credit unions containing groups with less than 3,000 members.
A merger involves the combination of pre-existing corporations, a
process different both legally and practically from the addition of a
group to a credit union. Mergers of multiple common bond credit unions
after adoption of this rule will involve groups already added to the
merging credit unions, either after consideration of the criteria set
forth in Section 102 of CUMAA, or through the grandfather provision in
Section 101(c). In either case, they would already be contained within
the field of membership of an existing multiple common bond credit
union. Had Congress expected each such group to be evaluated again in
accordance with the criteria set forth in Section 102, it could easily
have said so.
Congress next provided two exceptions to the 3,000 member
limitation in Sections 101(d)(2)(A) and (B) of CUMAA. The first allows
the addition of groups of 3,000 or more members if the Board finds that
such a group could not reasonably establish its own credit union
because: (1) the group lacks sufficient support to form a credit union;
(2) it is unlikely to be successful in establishing and managing a
credit
[[Page 72004]]
union; and (3) the group would be unlikely to operate a safe and sound
credit union.
The next exception contains the first mention of mergers in the
statute. Section 101(d)(2)(B) expressly eliminates any restriction on
the addition of groups of 3,000 or more if the group is being
transferred as part of a merger for safety and soundness reasons. By
implication, it is the Board's view that, if there are no safety and
soundness concerns, groups of 3,000 or more cannot be included as part
of a merger unless the statutory criteria of Section 101(d)(2)(A) are
met. The Report of the Committee on Banking and Financial Services
supports this conclusion. In discussing the exceptions provided in
Section 101(d)(2), the report states ``the Board may merge or
consolidate a group with over 3,000 members with another credit union
for supervisory reasons. The Committee does not intend for these
exceptions to provide broad discretion to the Board to permit larger
groups to be incorporated within or merged with other credit unions.
The exceptions are intended to apply where the Board has sufficient
evidence to support a finding that creation of a separately chartered
credit union, or the continued operation of an existing credit union,
present safety and soundness concerns.'' H.R. Rep. No. 105-472, 105th
Cong., 2nd Sess. 19 (1998). Notably absent from this discussion is any
mention of limitations on mergers of credit unions containing groups of
less than 3,000 members.
In Section 101(d)(2)(C), Congress created an exception applicable
to a limited number of cases where a merger was in process, but not
completed, under the NCUA's previous field of membership policy. That
policy was enjoined in the litigation that led to the passage of CUMAA.
The Board believes this provision was intended as a one time
authorization to complete a limited number of in process mergers
without regard to the size of the groups in the institutions involved.
Finally, the Board does not believe that Congress' failure to amend
Section 205(b)(2)-(3) of the FCUA supports a conclusion that Congress
intended no limitation on voluntary mergers of credit unions. Section
205(b) does not provide independent statutory authority to allow
mergers, but rather permits the Board to regulate voluntary mergers
that are otherwise authorized by law. In contrast, Section 205(h)
allows the Board to authorize mergers in emergency situations
``[n]otwithstanding any other provision of law.'' Thus, the Board may
regulate and approve mergers under 205(b) only if they do not conflict
with the limited restrictions, discussed above, provided by CUMAA's
amendments to the FCUA.
The limitation on voluntary mergers applicable to multiple common
bond credit unions does not apply to the mergers of single common bond
credit unions or community charter mergers. The Board recognizes that
the numerical limitation in the voluntary merger rule for multiple
common bond charters may, in rare circumstances, encourage a federal
credit union to seek a state charter credit union as a merger partner
if the state rules are more permissive.
The proposal also clarified requirements for mergers of multiple
common bond credit unions for safety and soundness reasons and
emergency situations. The numerical limitation would not apply to
mergers where there are safety and soundness concerns or the emergency
criteria exist. Four commenters requested that NCUA expand the
discussion on supervisory mergers. Two commenters recommended that NCUA
state that the numerical limitation does not apply for safety and
soundness mergers even if the credit union is not insolvent or in
danger of insolvency. One commenter stated that, when merging two
credit unions for supervisory reasons, nonmember employees of the
merging credit union would still be eligible for membership in the
continuing credit union. The Board has expanded the discussion on
mergers for safety and soundness reasons and has specifically stated
that the credit union need not be insolvent or in danger of insolvency
for NCUA to use this statutory authority. In a supervisory merger, the
continuing credit union is able to serve all of the groups from the
discontinuing credit union and not just members of record.
Twelve commenters stated that supervisory mergers and emergency
mergers should require all credit unions in the area of the merging
credit union to be notified so that they have an opportunity to be
considered as a merger partner. One commenter stated that when NCUA is
seeking out merger partners for a credit union, it should give credit
unions in the same state the right of first refusal. NCUA will attempt
to find local merger partners for a credit union that is involved in
supervisory or emergency mergers. However, the Board is not requiring
notification of all local credit unions. The Board believes such a
requirement would be a needless bureaucratic hurdle and cause
unnecessary delay. The delay could exacerbate existing problems for the
soon to be merged credit union. The Board believes that in such cases
it could create losses for the NCUSIF, as well as the credit union that
accepts the troubled credit union as a merger partner. However, the
Board is reemphasizing that it will expect the regions to look first to
local merger partners before considering other credit unions. If the
Board is notified that the regions are not conducting the process in
this way, the Board may consider a more formalized process.
E. Immediate Family Member or Household
As mandated by CUMAA, the Board is required to define ``immediate
family member or household.'' The definition of these terms is
designated as a major rule and must be submitted to Congress for
approval. Accordingly, the Board proposed to define ``members of their
immediate families'' 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 included stepparents, stepchildren,
and stepsiblings, and, although not specifically stated, adopted
children or any other legally recognized family relationship. The Board
also stated that 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. The proposed definition
was controversial and generated numerous comments.
Comments
Thirty-seven commenters generally approved of NCUA's definition of
``immediate family member.'' Seven commenters further stated that it
will have a positive effect on a credit union's ability to grow. Five
commenters believed NCUA's proposed definition of ``immediate family
member'' would have a neutral effect on their credit unions.
One hundred and seven commenters generally disagreed with NCUA's
definition of ``immediate family member'' and twenty-three of these
commenters further stated that it would have a negative effect on a
credit union's ability to grow. Twenty-seven of these commenters stated
that a credit union should be able to define ``immediate family
members.'' Twenty-six commenters requested that in-laws, aunts, uncles
and cousins outside the household be included in the definition of
``immediate family member.'' Fifteen commenters suggested that NCUA
define ``immediate family member'' to
[[Page 72005]]
include all relatives by blood or marriage. Five commenters suggested
that NCUA should limit the definition of ``immediate family member'' to
those persons directly related by blood, marriage, or other recognized
family relationship. Two commenters requested that any existing
immediate family member definition as described in the existing charter
of a credit union be grandfathered.
Twenty-four commenters questioned whether adopted children were
part of the ``immediate family member'' definition and requested they
be included within the definition. Two commenters requested that NCUA
specifically state that custodial and guardianship arrangements are
encompassed by the ``immediate family'' definition.
Nine commenters requested one definition for immediate family
member and one definition for household member. These commenters
believed that persons living under the same roof, even if not in the
same immediate family, are still eligible for membership. Twenty-one
commenters requested domestic partners and other nontraditional family
relationships be included in the definition of ``immediate family
member.'' Thirty-two commenters asked for clarification on the
definition of what is a recognized family relationship. One commenter
specifically did not want clarification. A number of commenters
requested that the final rule clarify what sources, such as state laws
or regulations credit union may use as a reference to determine other
family recognized relationships, as well as who does the recognizing--
the credit union, the credit union's sponsor, or the state where the
credit union is located.
Forty-nine commenters stated that the immediate family member
should be able to join, even if the primary member has not joined. Most
of these commenters stated that this interpretation is permitted by
CUMAA. Thirty-nine commenters requested that credit unions have the
ability to adopt a more restrictive definition. Three commenters
requested that NCUA provide guidance as to what procedures, if any,
credit unions need to follow to conform to the new immediate family
member definition.
NCUA Board Analysis and Decision on Immediate Family Member or
Household
In initially addressing the issue of immediate family member or
household, the Board combined the eligibility requirements for the
immediate family and household members into one inclusive definition
based on traditional relationships of blood, marriage or other
recognized family relationship. Within a household, any person related
by blood, marriage or other recognized family relationship would
qualify. Outside the household, which included those family
relationships not living in the same residence, the Board proposed that
the immediate family member relationship would be limited to a spouse,
child, sibling, parent, grandparent or grandchild.
The initial proposed definition was narrowly construed by the
Board. The Board considered the fact that the statute specifically
states that ``[n]o individual shall be eligible for membership in a
credit union on the basis of the relationship of the individual to
another person who is eligible for membership in the credit union''
unless the individual is ``a member of the immediate family or
household.'' For that reason, the Board required that, except for the
immediate family member of the primary member, the ability of an
immediate family member to join be based on that person's immediate
family member having joined, as opposed to simply being eligible to
join. In other words, before an immediate family member of a member's
child could join, the child would first have to join the credit union.
In proposing the definition of immediate family member, the Board
took notice of the fact that Congress intended some limitation of the
definition of family member since it defined that term with the
qualifier ``immediate.'' Accordingly, an open-ended definition of
family member would not be consistent with the statutory language and,
therefore, was deemed inappropriate. A definition that included any
family member related by blood or marriage was considered unduly
expansive. Consequently, the proposed definition followed a more narrow
meaning of immediate family member as applied to fields of membership
and the common bond concept.
Many commenters, however, took strong issue with the Board's
proposed definition and approach to defining immediate family member.
In consideration of those comments, the Board is adopting a modified
definition which, while being more expansive than the proposed
definition, retains the essential requirement that the definition
cannot be defined by the credit union. After again reviewing the
statutory language, the Board has determined that membership
eligibility based on family relationships or household should be
segregated and defined separately. The proposed definition of
``immediate family member'' is retained. That is, immediate family
member eligibility is limited to a spouse, child, sibling, parent,
grandparent or grandchild if not living in the same residence.
Stepchildren, stepparents, stepsiblings and adopted children, as
previously proposed and intended, are included in this definition. Once
an immediate family member joins, then that person's immediate family
would be eligible to join.
Household is defined as persons living in the same residence and
who maintain a single economic unit. Included in this definition is any
person who is a permanent member of and participates in the maintenance
of the household. For example, two people sharing an apartment would be
considered a household. In turn, the immediate family member of each
member of the household who joins could also join because eligibility
is then tied to the member. However, a fraternity, sorority, or
condominium complex would not be considered a single economic unit.
Individual residences in a condominium or apartment complex would
qualify as a single economic unit. The definition of household
contemplates or intends some permanency and not simply someone who is
visiting for a short period. Domestic partners would be included in the
household definition, since they share a residence and qualify as a
single economic unit, as would anyone who lives in the household and
demonstrate a degree of permanency. Legal guardian relationships are
considered part of the household definition.
CUMAA does not permit NCUA to grandfather existing definitions or
allow credit unions to define ``immediate family or household.'' CUMAA
requires NCUA to define ``immediate family or household and although a
credit union can adopt a more restrictive definition than NCUA's, it
cannot establish a more expansive definition. The flexibility to adopt
a more restrictive definition results from potential operational
concerns. For example, a sponsor may restrict accessibility to the
credit union office located on the sponsor's property.
Unless a federal credit union adopts a more restrictive definition
of an ``immediate family or household'' through a board policy, NCUA's
definition will automatically apply. That is, absent a board of
directors' policy stating otherwise, a credit union may use NCUA's
definition without taking any other action. However, a credit union
should update its bylaws to
[[Page 72006]]
delete its prior definition of immediate family member. The Board
believes that its definition of ``immediate family member or
household'' is reasonable, and judging from the commenters, more
restrictive than the definition used by many credit unions.
The proposal did not explicitly address whether the primary member
must first join the credit union before the immediate family member can
join. NCUA's intent was that the primary member need not join before
the immediate member joins. Thus, the final rule sets forth NCUA's
long-standing policy that the immediate family or household member may
join the credit union even if the eligible primary member has not
joined. However, once the primary member leaves the field of
membership, the individual's immediate family or household members are
no longer eligible to join through that person.
F. Section-by-Section Analysis
I. Chapter 1 of the Chartering Manual
Chapter 1 set forth the goals of NCUA's chartering policy and the
requirements and procedures for chartering a new federal credit union.
One commenter stated that NCUA should have an additional goal ``to
support the continuing success of existing credit unions.'' The Board
is not specifically stating this as a chartering goal since it is
already part of NCUA's continuing regulatory mission. One commenter
recommended that NCUA state an additional goal to preserve and foster
the cooperative nature of credit unions. Likewise, the Board does not
need to explicitly state this goal since it is inherently part of the
credit union system.
Chapter 1 encouraged the formation of newly chartered federal
credit unions and the use of mentor relationships with existing, well-
managed credit unions. The Board stated that experienced credit unions
are a valuable resource to newly chartered credit unions and can
provide needed guidance and assistance. Forty-one commenters expressed
support for credit unions mentoring new credit unions. One commenter
opposed mentoring relationships. Three commenters stated that NCUA
should state that mentoring is not required. Three commenters stated
that NCUA should provide incentives for credit unions to engage in
mentoring relationships. The Board, in the final regulation, continues
to encourage mentoring relationships. However, mentoring is not a
regulatory requirement. The main incentive for mentoring is the
cooperative nature of credit unions and the social benefit of a healthy
credit union system.
On the issue of name selection, the proposal stated that the word
``community'' can only be included in the name of federal credit unions
that have been granted a community charter. One commenter opposed this
limitation. The Board has revisited this issue and will grandfather
existing non-community charters with the word ``community'' in their
names. However, to avoid confusion, NCUA will not grant a new charter
or a name change with the word ``community'' in the name, unless the
credit union is a community charter.
Chapter 1 also set forth the various field of membership
designations available to prospective and existing credit unions. These
designations included single occupational, single associational,
multiple common bond, or community. Four commenters asked how an
existing credit union obtains a charter type designation. Two
commenters requested that the credit union be allowed to make its own
designation. One commenter requested that a credit union not
immediately make a designation, but be provided some latitude until its
next examination or when it requests a charter amendment. The Board
encourages credit unions to review their charters to determine which
designation is most appropriate. NCUA will provide a designation for a
credit union when the credit union asks for its first charter expansion
under this policy, or upon request by the credit union. If a credit
union is unsure of its designation it should contact the regional
office. If a credit union disagrees with the designation approved by
the region, the credit union can appeal the decision to the Board.
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. The Board stated
that federal credit unions are permitted to serve foreign nationals
within the field of membership when they reside or work in the United
States and that 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. Five
commenters disagreed with this policy. They believe federal credit
unions should be able to serve foreign nationals from the United States
who are within their field of membership, even if the foreign national
has never resided in the United States. The Board finds these comments
persuasive. The Board is retaining its policy of limiting branches
outside the United States to locations on U.S. military installations
or in U.S. embassies. However, the Board believes that a credit union
should be able to serve its entire field of membership no matter where
the individual resides. Although there is no legal restriction on such
service, there are often legitimate safety and soundness concerns when
a federal credit union serves foreign nationals outside the United
States. For this reason, the Board is requiring that a federal credit
union, wishing to serve foreign nationals within its field of
membership and who have never resided in the United States, obtain
written approval from the regional director. The credit union will
address in its business plan the loan quality, collection and
collateral policies involving individuals residing outside the United
States. If there are safety and soundness concerns, the regional
director may restrict the services a federal credit union may provide
to foreign nationals residing overseas. If a credit union is currently
serving foreign nationals, they can continue such service until the
regional director renders a decision. The credit union has 60 days from
the effective date of the manual to send in its request to continue to
serve foreign nationals.
II. Chapter 2 of the Chartering Manual
Chapter 2 set forth the field of membership requirements for a
federal credit union. This chapter was divided into the following
comprehensive sections: (1) single occupational charters, (2) single
associational charters, (3) multiple common bond charters, and (4)
community charters.
Twelve commenters believed that an occupational group and
associational group can be included in a single common bond credit
union. One of these commenters believed that the final regulation
should expressly authorize that individuals with a common employer can
rely on that mutuality of outlook to join the same credit union as
individuals belonging to an association which is derived from that
employment. One commenter stated that the regulation inconsistently
uses the term ``group.'' This commenter stated that, since a single
common bond credit union consists of one group, then if NCUA is
addressing a subset of a common bond group it should refer to that
entity as a subgroup. Eight commenters believed that multiple common
bond credit unions should be able to have common bond additions for
each group in the credit union's field of
[[Page 72007]]
membership. For example, the commenters would argue that, if a multiple
common bond credit union has an occupational group in New York in its
field of membership and wishes to add a division of that occupational
group located in California, then the select group criteria do not
apply.
The Board believes that a credit union consisting of an
occupational group and a closely tied associational group should be
treated as a multiple common bond credit union. Any other
interpretation would appear to violate the intent of CUMAA which
defines a single common bond credit union as ``one group that has a
common bond of occupation or association.'' The Board's intent is that
any expansion of a multiple common bond credit union must comply with
the multiple common bond rules. It is not intended that a group that
has a common bond with a group in a multiple common bond credit union
can be added based on the common bond rules. The criteria relative to
numerical limitation, reasonable proximity, economic advisability,
etc., remain applicable when any new group not previously analyzed is
requested to be added. For example, an occupational group with a
primary potential membership of 1,000 was previously added to a
multiple common bond credit union. The credit union now wants to add
all the subsidiaries of the occupational group. In order to add the
subsidiaries, they must be independently evaluated to determine
compliance with the multiple common bond criteria. Finally, multiple
common bond credit unions will not be allowed to circumvent the
multiple common bond requirements by repeatedly and methodically adding
separate groups within the same common bond.
a. Single Occupational Common Bond Credit Union
The Board proposed 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 stated
that 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.
Thirteen commenters were satisfied with an ownership interest of 10
percent. Sixteen commenters recommended the ownership interest should
be reduced from 10 percent to 5 percent. Six commenters stated that
there should be no limits on ownership interest. The Board is retaining
the 10 percent ownership interest requirement. There are other federal
regulations setting forth 10 percent ownership as a rationale
presumption for control of another entity. For example, the Federal
Reserve Board presumes that when one company owns 10 percent of the
voting securities of a state member bank or bank holding company, the
10 percent ownership constitutes the acquisition of control under the
Bank Control Act. 12 CFR Section 225.41(c)(2).
Thirty-three commenters suggested that NCUA's approach to
occupational common bond cover other possible relationships among
corporations such as franchise relationships. Five commenters opposed
including franchisee relationships as part of an occupational common
bond. Franchise relationships may be part of an occupational common
bond depending on whether there is any contractual or dependency
relationship with the occupational group. However, this test is fact
specific so NCUA cannot set forth a general rule that all franchises
are part of a single occupational group.
Thirty-one commenters recommended that NCUA's approach to common
bond include other types of common bonds, such as all schools in an
area, or all health care facilities, or public safety employees and one
of these commenters stated that these common bond groups be
specifically named in the credit union's charter. A majority of these
commenters stated that NCUA should be more flexible in defining an
occupational common bond. For example, one commenter requested that
occupational groups such as electricians, plumbers, and taxicab drivers
should be defined as an occupational group. Seven commenters opposed
expanding the occupational common bond to include all schools in the
area, or all health care facilities or public safety employees. It
appeared that a majority of these commenters requested that NCUA
establish a policy that was first promulgated in IRPS 96-2. That policy
recognized a fourth definition of occupational common bond based on a
trade, industry or profession (''TIP'').
In First National Bank and Trust Co., et al. v. NCUA, the U.S.
Court of Appeals for the District of Columbia Circuit recognized that
in some respects NCUA's chartering and field of membership policies may
be more restrictive than required by the FCUA. That is, NCUA may
identify and approve interpretations that provide broader common bonds
than presently permitted. Moreover, given the Court of Appeals
determination that the mere element of ``resemblance or common
characteristic'' in the definition of groups is the equivalent of a
common bond, NCUA clearly has very broad discretion in defining what
constitutes a common bond for purposes of federal credit union
membership.
CUMAA defines a single common bond credit union as ``one group that
has a common bond of occupation or association.'' While the term
``occupation'' is consistent with the Court of Appeals finding, for the
purposes of this rule, the Board has decided to again adopt a
definition that is more restrictive than that permitted by statute. For
the most part, a single occupational credit union is based on
employment and any contractual, ownership and dependency relationships
to that employment. The decision to not propose a TIP policy is based
on operational concerns and the fact that when credit unions were
allowed to expand using multiple common bond policies it did not appear
that a broader definition was necessary. However, while the Board is
not adopting a TIP definition of occupational common bond at this time,
the Board's view is that such a policy is legal and may again be
proposed after evaluating the impact and effectiveness of the current
multiple common bond policy.
One commenter stated that employees and students at a school do not
share an occupational common bond. Three commenters stated the
occupational common bond for a school should be expanded to include
multiple schools. Although the Board believes that employees and
students at a school clearly share the same common bond, it does not
believe the same is true for multiple schools. Each school is
separately organized and chartered and the employees and students at
one school may not necessarily share the
[[Page 72008]]
same common bond with another school. For example, the employees and
students at the University of Buffalo do not share a common bond with
the employees and students at the University of Texas. However,
employees in schools supervised by the same school district or board of
education may share an occupational common bond.
Two commenters requested that a group that has a contractual
relationship with an occupational group be considered part of one
occupational group. One commenter stated that government contractors of
government agencies should be considered part of the occupational
common bond. The Board, as stated above, permits contractors to be part
of a single occupational common bond provided they have a contractual
and strong dependency relationship with the group.
Five commenters requested that the tenants of individual parks,
shopping malls and office complexes and their employees should be
considered to have a common bond of employment. NCUA cannot define an
occupational common bond based on location--it must be based on the
statutory requirement of occupation. Therefore, the final rule does not
include this type of occupational common bond. However, industrial
parks, shopping malls, etc., may qualify as a community charter.
A few commenters questioned whether a single occupational common
bond credit union, after adding one new group, could still serve its
sponsor group outside the service area. The Board believes the credit
union can continue to serve its sponsor group outside the service area.
However, the credit union then becomes a multiple common bond credit
union and service area requirements apply to any new groups the credit
union wishes to add.
A number of commenters objected to providing a geographical
description for single occupational common bond credit unions. NCUA has
historically provided a geographic definition for single occupational
common bond credit unions because more than one credit union may be
serving different divisions of the same company. Additionally, overlap
concerns, other than incidental overlaps, still must be resolved. While
there are no geographical limitations for federal credit unions, a
federal credit union must still specify its geographic definition,
which can be located throughout the United States.
Occupational Common Bond Amendments. The proposed rule set forth
when NCUA would approve an amendment to expand a credit union's field
of membership. Specifically, the Board addressed the situation where
the sponsor organization is involved in a corporate restructuring. The
Board stated that a credit union could 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 common bond credit union. Six commenters stated that, if a
business sells or spins off an operating unit or subsidiary, both
current and future employees of the operating unit or subsidiary should
remain eligible for membership in the occupational credit union without
having to convert to a multiple common bond credit union. The Board
does not find these comments persuasive. If a company spins off a group
that the credit union was serving, the credit union will be able to
continue to serve the group if the credit union converts to a multiple
common bond charter. If the credit union wishes to expand, it must
follow the multiple common bond expansion policies.
The Board set forth a second instance requiring an amendment 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. The Board stated that, in this instance, the credit union
remains a single common bond credit union.
One commenter opposed a conversion process if a single common bond
credit union wishes to become a multiple common bond credit union. This
commenter believed that, if a credit union added an unlike group to its
field of membership the credit union has converted to a multiple common
bond credit union. The Board believes that a credit union that wants to
serve multiple common bonds should formally convert its charter.
Accordingly, the final regulation sets forth this process.
b. Single Associational Common Bond Credit Union
The proposal set forth the definition of associational common bond.
The Board stated that 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 would permit 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. The proposal also stated that an associational charter may
be granted without regard to the geographic location of the
association's members or headquarters. This means a credit union could
serve a widely dispersed membership base if NCUA determines that it has
the ability to serve the area.
One commenter requested that public housing residents be treated as
an associational common bond. Public housing residents, who simply are
in the same location, do not meet NCUA's associational common bond
requirements. Public housing residents must be part of a bona fide
association to be considered an associational group.
The Board also stated that associations based primarily on a
client-customer relationship would 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. The Board is adopting this
policy in the final regulation.
The Board further stated that the alumni of a school must first
join the alumni association, and not merely be alumni of the school to
be eligible for membership. One commenter objected to this provision
because in some schools the graduates are automatically members of the
alumni association. If an alumnus is automatically a member of the
alumni association because the individual graduated from that college,
then the person is considered part of the associational common bond.
However, in most cases, the person must satisfy membership requirements
of the alumni association, such as paying dues or participate in alumni
activities, to be eligible for credit union membership based on an
associational common bond. One commenter stated that an alumni group
and a college group share the same associational common bond. The Board
disagrees. The interests of the alumni association and the interests of
the students at the university are often divergent.
Finally, the Board stated that, if an association subsequently
changes its bylaws, the credit union cannot serve the new members of
the association until NCUA approves the revised charter and bylaws
through a field of membership amendment. The Board is adopting this
policy in the final regulation.
Corporate Restructuring. Due to a corporate restructuring of a
select group,
[[Page 72009]]
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.
The Board proposed to permit an associational credit union to continue
to serve the group if it was still part of the associational common
bond or the credit union converts to a multiple common bond credit
union. Three commenters stated that the associational credit union
should be able to continue to serve the group regardless of common bond
requirements. The Board does not find these comments persuasive. If an
association spins off a group that the credit union was serving, the
credit union will be able to continue to serve the group if the credit
union converts to a multiple common bond charter. If the credit union
wishes to expand, it must follow the multiple common bond expansion
policies.
One commenter stated that, if an associational common bond spun-off
part of the association, the final rule should clarify that relatives
of existing members of the credit union belonging to the sold or spun-
off group could continue to be eligible for membership in the credit
union. Immediate family members of existing credit union members are
still eligible for membership even if the group is no longer in the
credit union's field of membership provided that the credit union does
not further restrict family member eligibility. This rationale has
universal application to all charter types.
c. Multiple Common Bond Credit Union
Five Statutory Criteria. 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 criterion
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 Board defined an unsafe or unsound
practice for this criterion 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 NCUSIF. The Board stated that the determination of an
unsafe and unsound practice would be decided by the regional director.
Two commenters requested further guidance on what is an unsafe and
unsound practice. The Board's view is that additional clarification may
unduly restrict the regional director's ability to properly ascertain
if a safety and soundness concern exists. Obviously, what is a safety
and soundness concern for one credit union may not be for another
credit union because of a credit union's size, resources, management
expertise, etc.
The second criterion is that the credit union is adequately
capitalized. The Board defined adequately capitalized to mean the
credit union has a net worth ratio of not less than 6 percent. The
Board also specifically requested comment on what criteria should be
considered when defining ``adequately capitalized'' for newly chartered
credit unions.
Thirty-four commenters stated that they approved of the definition
or that requiring a net worth of 6 percent in order to add select
groups would not place an unreasonable burden on their credit unions.
One commenter stated that there should be no minimum capital adequacy
requirements for new or low-income credit unions wishing to expand
their charters.
Twenty-five commenters opposed the definition and some of these
commenters stated that requiring a net worth of 6 percent would place
an unreasonable burden on credit unions. Many of these commenters
stated that CUMAA does not require the 6 percent level. Two commenters
stated that, if the Board determines that it is necessary to retain the
6 percent capital requirements for group additions then they encourage
the Board to consider as part of its economic advisability
determination whether the addition will actually raise the credit
union's capital. These commenters stated that such an addition should
be permitted if the expansion increases capital to at least 6 percent
within a reasonable period of time. These commenters also stated that a
credit union with a capital of less than 6 percent should be allowed to
bring in a group as part of a sanctioned net worth restoration plan.
Twelve commenters stated that adding new groups may be the best way for
an undercapitalized credit union to obtain an adequate capitalization
level. Three commenters stated that NCUA should be flexible in defining
adequately capitalized.
In 1982, the Board decided that multiple groups could be joined
together through the chartering process, amendment of the charter, or
by way of merger to form a single credit union. A major reason for the
policy change was to provide small groups of people, who did not have
the ability to charter their own credit unions, access to credit union
service. Another reason for the policy change was to assist credit
unions in diversifying their fields of membership for safety and
soundness reasons. The rationale applicable in 1982 remains applicable
today. For that reason, the Board included in the final rule for single
common bond and community credit unions the possibility that an
expansion could be approved notwithstanding the credit union's
financial or operational problems.
CUMAA, however, requires a different standard for multiple common
bond credit unions in that it requires the credit union to be
adequately capitalized before an expansion can be approved. As of June
1998, the average net worth ratio for all federal credit unions was
13.55 percent. Of the 6,907 federal credit unions, 39 percent were
above the average and 61 percent were below. More importantly, only 4
percent, or 269 federal credit unions, would not now meet the 6 percent
adequate capitalization requirement. It is the Board's view that a 6
percent capitalization for field of membership expansions for multiple
common bond credit unions chartered more than 10 years is reasonable
and establishes a standard that, while not meeting the average
capitalization level of federal credit unions, is indicative of a
credit union that generally is managed in a safe and sound manner.
Additionally, although not required by CUMAA to set the capitalization
level at 6 percent, such a percentage ties to the capitalization level
established for prompt corrective action. However, the Board believes
that a newly chartered multiple common bond credit union, chartered
less than 10 years, or a low-income credit union, may obtain a field of
membership expansion even though its capitalization level is less than
6 percent if the credit union, as determined by the regional director,
is making reasonable progress toward meeting the 6 percent
capitalization level.
The Board believes that a restoration capitalization plan, which
was a basis for the 1982 policy and which remains operationally
desirable, is not consistent with the statutory requirement in CUMAA
that, before an expansion can be granted, the credit union must be
adequately capitalized. A capitalization restoration plan, while
operationally desirable, could essentially render the statutory
requirement that the credit union be adequately capitalized
meaningless. A ten-year window to obtain a capitalization level of 6
percent is reasonable, obtainable and consistent with prudent safety
and soundness goals.
The third criterion 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 criterion, the Board
stated that it would review
[[Page 72010]]
the credit union's most recent examination report or, if necessary,
contact the credit union directly. Two commenters stated that there
should not be any undue requirement under this criterion for small
groups. The Board simply expects a credit union adding new groups,
regardless of the size of the group, to demonstrate how it will serve
the group. The larger the group, the greater the burden the credit
union has to show that it can serve that group. In approving new select
groups, the regional director has the discretion in requesting
documentation on how well the credit union is serving its current field
of membership.
The fourth criterion 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. The Board stated that the agency will perform an overlap
analysis to determine whether this criterion has been met.
Thirty-two commenters believed this test is useful. Most of these
commenters believed overlaps help the consumer. Twelve commenters
opposed this statutory criteria. Most of these commenters believed
overlaps are good for the member. A number of these commenters
requested NCUA to base decisions on potential harm on objective
criteria. Twelve commenters questioned how the convenience and needs of
the members will be quantified and measured. One commenter stated that
if the two credit unions agree to the overlap, then NCUA should find no
harm to the overlapped credit union. Some of these commenters suggested
that a measurement of ``convenience and needs of the members'' should
include new or expanded products/services which are not offered by the
other credit union as well as increased access to the credit union
through fixed service sites, mobile sites, extended service hours and
24 hour electronic media. In response to the comments regarding the
measure of the convenience and needs of the members, NCUA will review
the products, services and service delivery methods offered by the
overlapping credit union. NCUA will measure potential harm to the
overlapped credit union as a threat to its solvency. A recent NCUA
study determined that overlaps, as a general rule, will not adversely
affect the overlapped credit union. Therefore, in most cases, NCUA will
probably find that the convenience and needs of the members will
outweigh the harm to the overlapped credit union. This suggestion of
probability, while not conclusive, is based on experience.
An expanding credit union has the duty to investigate whether an
overlap exists. Many of the commenters that opposed the criterion did
not believe the credit union should investigate whether an overlap
exists. A few commenters suggested that an expanding credit union
discharges this duty by asking the group whether it receives services
from other credit unions. The Board agrees with these comments. As long
as the expanding credit union has, in good faith, documented that the
group does not have other credit union service, it will not be
penalized if an overlap is discovered at some later time. However, the
group may be removed from the expanding credit union's field of
membership.
The fifth criterion is that NCUA must determine that the formation
of a separate credit union is not practical or does not meet the
economic advisability criteria. Four commenters requested more guidance
on how to determine whether forming a separate credit union is
practical. A few commenters suggested that when evaluating this
criterion, NCUA should determine whether the independent credit unions
can be full service and offer share drafts, ATM cards, etc. The Board
will look at the desire of the group, the services it can provide and
its economic advisability before deciding whether to allow a group with
under 3,000 primary potential members to join the credit union. If the
group does not wish to form its own credit union, does not have the
volunteers and resources to charter a credit union, and is otherwise
not economically advisable, NCUA will allow the group to join an
existing credit union. Although some commenters did not believe this
criterion was necessary for groups under 3,000, it is consistent with
the statutory language and congressional intent. If the group is 3,000
or more primary potential members, the desire of the group, while
important, must be weighed against the statutory criterion that the
group cannot feasibly or reasonably establish a single common bond
credit union.
One commenter asked whether NCUA has to make a formal determination
on all five criteria when adding a group to a credit union's field of
membership. Four commenters stated that a written determination is not
always required, as in the case of ``successor'' groups. The Board
believes it does not have the discretion to waive a written
determination. However, in those cases where there is no overlap and
the group is small, the written determination should be processed
expeditiously. A ``successor'' group would not be treated as a select
group expansion, rather it is treated as a housekeeping amendment and,
therefore, a written determination is not necessary.
While all federal credit unions are encouraged to expand their
service to underserved areas, the Board especially encourages multiple
common bond credit unions that add new groups to consider service to
underserved areas. The Board believes that multiple common bond credit
unions are uniquely positioned, because of their service delivery
systems, to provide credit union service to such areas.
3,000 Numerical Limitation. The proposal also set forth the
requirements for adding a group in excess of 3,000 primary potential
members to a credit union's field of membership. One commenter asked
whether it is permissible to add the employees of a sponsor (which has
total employees exceeding 3,000) working in a specific geographic area,
if the number of employees in that area is less than 3,000 (i.e., can
sponsors be segmented to meet the requirement applicable to the number
of employees). Two commenters supported NCUA's interpretation of the
numerical limitation. One commenter questioned whether the 3,000 number
is potential new members or that the group itself has no more than
3,000 total members. The 3,000 numerical limitation is based on the
current number of employees or members of the group. Five commenters
stated that the wishes of the group and sponsor should be key factors
for NCUA to review in making its determination as to whether a group
can be added. Although NCUA agrees with these comments that these are
key factors, they are not conclusive.
Three commenters opposed the statutory 3,000 numerical limitation.
Some commenters requested more specific criteria on when a group of
3,000 or more would be approved as an addition to an existing multiple
common bond credit union. The Board believes that such an addition is
determined on a case-by-case basis consistent with the statutory
requirements. NCUA will look at the size of the group (is the group
100,000 or 3,000), desires of the group, the volunteers and resources
to support the efficient and effective operations of the credit union,
whether the group meets the economic advisability criteria and the
demographics of the group. A few commenters asked whether a letter from
the CEO of the company stating that it does not wish to form a new
credit union and does not have volunteers and
[[Page 72011]]
resources to start a new credit union is sufficient. Although such a
letter is persuasive evidence, NCUA will look at the totality of the
evidence surrounding the request.
Documentation Requirements. The proposal set forth the
documentation requirements to add a select group and NCUA's procedures
for amending the field of membership. One commenter believed that NCUA
should not require a letter from an authorized representative of the
group to be added. This commenter suggested that if the credit union
cannot get a letter from an authorized representative that a petition
from the group should be acceptable. NCUA agrees and the final rule
allows the regional director to accept other documentation as
appropriate.
Streamlined Procedures. Seventy-three commenters requested NCUA
adopt a streamlined application program for the addition of small
employee groups. Two commenters did not support a streamlined approach.
Twenty commenters requested that NCUA reinstate the Streamlined
Expansion Procedure (SEP). The Board cannot reinstitute SEP because
CUMAA requires a written determination by NCUA before a group is added
to a credit union's field of membership. Three commenters stated that
groups added under SEP be included in the credit union's current
charter. The Board agrees and the SEP log will be made part of the
official credit union charter.
The Board has developed an expedited process for groups of 200 or
less primary potential members. Although a written determination
regarding the listed regulatory and statutory criteria is still
required, the processing of small groups will be accomplished more
expeditiously by the region through the use of the Form 4015-EZ.
Eighteen commenters requested that the regional director respond to
multiple common bond expansion requests within a specific time frame.
Although the Board is not setting a definitive time frame for rendering
a decision, it expects the regions to make a decision expeditiously
upon receipt of a completed application.
Distressed Designation. Under IRPS 94-1, a credit union could apply
for a distressed designation that eliminated certain field of
membership restrictions for the applicant credit union. No credit union
ever applied for the designation. Two commenters requested that NCUA
reinstitute the distressed designation so that a credit union could add
groups regardless of location or common bond. The Board does not
believe there is a need for such a policy. Additionally, the Board
believes that CUMAA does not provide NCUA with the latitude to
institute such a policy.
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. The Board proposed to permit 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.
The Board stated that it views this as a housekeeping amendment and not
a field of membership expansion. Eight commenters specifically
supported this position. Two commenters stated that the policy should
encourage a company to provide a signed letter requesting service but
that it doesn't need to be a requirement. Two commenters stated that in
a corporate restructuring no new overlap analysis is necessary. The
Board agrees with all these comments and will treat such corporate
restructuring amendment requests as a housekeeping amendment and no
overlap analysis is required. Furthermore, the Board is no longer
requiring a letter from the company requesting service. Finally, a name
change is not a corporate restructuring, but the credit union should
obtain a housekeeping amendment to update its charter.
Branching. Under IRPS 94-1, a credit union could justify a new
branch by adding groups within the branch's operational area as long as
a significant portion of the total number of persons to be served by
the facility when it opened were from the field of membership that
existed prior to adding the select groups. Although ``significant
portion'' of the field of membership was not defined, the intent behind
the policy was not to encourage federal credit unions to establish
branches simply for the purpose of adding groups. In practice, NCUA
viewed as few as 300 members to be a significant portion of the field
of membership for the purpose of branching. NCUA's current proposal
does not have any limitations on when and where a credit union could
branch. Hypothetically, a multiple common bond credit union could
branch in an area where it has no current members. One commenter
disagreed with this provision and stated credit unions can only branch
where they have existing members. Seven commenters requested that NCUA
allow groups to be added to a credit union's field of membership before
they even establish a service facility in the area. Although the Board
does not have many restrictions on branching, the Board does not agree
with these commenters. The Board's view is that CUMAA requires a
service facility be established before a credit union adds a group not
currently within its service area. Groups cannot be added in
anticipation that a service facility will be established. That is, a
credit union that intends to expand into a geographical area not
currently served by the credit union, must first establish a service
facility. Once the service facility is established, then the credit
union can add groups that are within the service area of that service
facility.
Conversions. The proposal stated that a multiple common bond
federal credit union may apply to convert to another type of charter
provided the field of membership requirements of the new charter type
are met. Groups that do not qualify in the new charter type cannot be
served, only members of record from those groups. Furthermore, the
Board has established a process for multiple common bond credit unions
converting to single common bond credit unions. One such requirement
would not permit the credit union to convert to another type of
charter, except a community charter, for 3 years after approval, unless
the regional director determines that a charter conversion is necessary
to resolve safety and soundness concerns. Additionally, the credit
union must notify the groups that will no longer be served. This
notification requirement also applies to single common bond credit
unions converting to community charters. Community credit unions
converting to single or multiple common bond charters are exempt from
the notification requirements.
One commenter suggested that groups acquired through an emergency
merger can continue to be served after the charter is converted. The
Board agrees and the final regulation exempts groups or communities
that were acquired through an emergency merger or purchase and
assumption agreements.
d. Community Charters
CUMAA requires that a community charter be based on ``a well-
defined local community, neighborhood, or rural district.'' The Board
set forth the following requirements for a community charter:
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.
[[Page 72012]]
The Board proposed that ``well-defined'' means the proposed area
has specific geographic boundaries. The Board also stated that a
``local community, neighborhood, or rural district'' encompasses
several factors including interaction and/or common interests. Although
the proposal did not precisely define interaction or common interests,
it did suggest that a greater burden needs to be met when either the
geographic size or the population of the area is large. The Board
stated that 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, would be significant indicia
of community interaction and/or common interests. Conversely, an area
which has numerous trade areas, multiple taxing authorities, or
multiple political jurisdictions would tend to diminish the factors
that demonstrate the existence of a local community, neighborhood or
rural district.
Comments. It was clear that many of the commenters confused the
standard community chartering policy with the requirements for a
streamlined approach to obtaining a community charter. Thirty-five
commenters stated that NCUA's approach to the definition of ``local
community'' provides sufficient guidance for credit unions that might
be seeking a community charter. Seven commenters specifically approved
of the requirement that the residents of the proposed community either
interact or have common interests. One commenter requested further
standards for interaction. One commenter opposed the interaction and
common interest standards. One commenter stated that the interaction
requirement does not take into account sparsely populated rural areas.
One commenter encouraged the Board to strengthen the language in the
final rule that concentrates on interaction and confluence of interest
within an area as the most important test of whether the requirements
for a community have been met, rather than the size of any particular
area. A number of commenters provided suggested definitions for a local
community.
Six commenters stated that NCUA's community policy should be
flexible for sparsely populated areas. For example, these commenters
stated that a rural multiple-county area should be considered a local
community. Two commenters stated that the definition needs to be
flexible when drawing the boundaries of a well-defined community. A few
commenters suggested that the Board should recognize that what
constitutes a community in California might be significantly different
from what constitutes a community in South Carolina or Alaska.
Thirteen commenters disagreed with NCUA's approach to the
definition of ``local community.'' Five commenters stated the
definition is too restrictive. Four commenters stated NCUA's definition
of local community needs to be more specific. Three commenters stated
that large metropolitan cities should be considered as local
communities. One commenter stated that a state might qualify as a local
community. Two commenters stated that multiple counties should not
constitute a local community.
NCUA Board Analysis and Decision on Community Charters. CUMAA
modified NCUA's community chartering policy. It requires that a
community charter be based on ``a well-defined local community,
neighborhood, or rural district.'' Although Congress did not provide
specific guidance on what constituted a ``local community, neighborhood
or rural district,'' the Board concluded that the addition of the word
``local'' to the previous statutory language was intended as a limiting
factor and that additional clarification was required relative to what
would qualify as a community charter. The Board further concluded that
a more circumspect and restricted approach to chartering community
credit unions appeared to be the congressional intent. Accordingly,
recognizing that ``local'' was a limiting factor, NCUA staff reviewed
those community charter applications approved by the Board in the last
three years in an effort to more narrowly define what will constitute a
community charter based not only on operational feasibility, but also
historical data that tended to support whether a particular well-
defined area would qualify as a local community, neighborhood or rural
district.
Although the proposal did not completely define interaction or
common interests, the Board stated that in determining interaction and/
or common interests, a number of factors, are relevant. The Board
continues to believe those factors remain valid. These factors are
limiting in the sense that they clearly require a community charter
applicant proposing to serve multiple trade areas, etc., to demonstrate
more definitively how it meets the local requirement. The Board
believes that increased documentation requirements need to be met when
either the geographic size or the population of the area is large.
The Board stated that, in general, a large population in a small
geographic area or a small population in a large geographic area, may
meet community chartering requirements. Conversely, the Board stated
that a large population in a large geographic area will not normally
meet community chartering requirements. In so doing, however, the Board
has not summarily dismissed or prejudged any potential application.
While an area with a large population may require additional
documentation, it still may meet the definition of a local community.
Similarly, multiple counties, particularly in rural areas, may qualify
for a community charter.
One commenter stated, ``[t]herefore, no geographic size area and no
population size is ruled out--all are fair game, subject only to NCUA's
discretion. So, effectively, there is no geographic or population size
limitation for the chartering of community credit unions in the NCUA
proposal.'' The commenter correctly interpreted the proposal relative
to geographic and size limitations, but failed to acknowledge the
overriding requirement that, regardless of the size, the proposed
community area must meet the ``local'' standard that Congress directed
NCUA to develop. NCUA's responsibility is to review community charter
applications to ensure this statutory requirement is satisfied.
Accordingly, the Board believes the proposed definition properly
incorporates the congressional intent with the need to provide
opportunities for community charters. Except for the addition of some
clarifying language, the Board is adopting the proposed policy in
final.
Two commenters asked if multiple but separate, well-defined areas
could comprise a local community charter. This is not statutorily
permitted. The entire area must be a single well-defined location. Two,
noncontiguous, well-defined areas cannot be the basis for a community
charter.
The Board also stated that a low-income area meeting the low-income
definition found in Section 701.34 of NCUA's 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. 12 CFR 701.34. The Board proposed that, when reviewing
low-income community charter applications, NCUA's documentation
requirements would be more flexible and fewer documentation
requirements would be required than for a standard community charter
package. There was no significant objection to this provision.
[[Page 72013]]
The Board is adopting this proposal in the final regulation.
Presumptive Community. The Board also proposed a streamlined
community chartering process for a well-defined local community,
neighborhood, or rural district where the area to be served is a
recognized political jurisdiction, not greater than a county or its
equivalent, and the population of the requested well-defined area does
not exceed 300,000. The Board stated that, generally, the single
jurisdiction will most often coincide with a county, or its political
equivalent. Multiple contiguous smaller political subdivisions within a
county or its equivalent, such as a city, township or a school
district, would also qualify under this proposal. The Board proposed
that 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 would have
to provide evidence of the political jurisdiction and size of the
population.
The Board further stated that, 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 detailed
documentation would have to be provided to support that the proposed
area is a well-defined local community, neighborhood or rural district.
The Board also stated that community charters were not limited to a
recognized single political jurisdiction, or to a proposed area where
the population is 300,000 or less. Simply, additional documentation, as
required for standard community charters, would be required if the
proposed community charter exceeds an area greater than a county or
300,000 in population. In other words, the definition of local
community may include not only those that qualify under the presumptive
factor, but also other local well-defined areas meeting the community
charter requirements. The Board specifically requested comment as to
whether a streamlined approach for community charter approval is
appropriate and, if so, in accordance with what criteria.
Comments. As stated earlier, many commenters confused the
presumptive community with the standard community chartering policies.
Again, a local community is not limited to a single political
jurisdiction with a population of 300,000 or less.
Thirty-eight commenters approved of the limited documentation
requirements for community charter applications that are within a
single political jurisdiction and have 300,000 or less in population.
One commenter stated that the size of the population should not matter
and that the streamlined procedure should be available for any
community charter request that does not exceed a single political
jurisdiction not larger than a county or its political equivalent.
Nineteen commenters suggested that other types of communities should
also have limited documentation requirements, with many of these
commenters stating that multiple counties should also be a part of the
streamlined documentation requirements. Two commenters stated, that if
the community consists of multiple counties, then NCUA should lower the
population requirements.
Six commenters suggested a higher population threshold. One
commenter suggested that the population size be increased to 500,000.
Two commenters suggested that the population size be increased to one
million. One commenter stated that the population size should be up to
one million and include multiple counties. Six commenters would
eliminate any population size. Sixteen commenters generally disapproved
of the streamlined approach as proposed. Two of these commenters stated
that the population size and political jurisdiction should simply be
taken into account when considering the application but should not be
the deciding factors. Some commenters were opposed to the 300,000 limit
for a streamlined approach either because the number was too large or
too small.
One commenter wondered whether it was a concern if the proposed
community area was located in two different states. It depends on the
facts but, conceptually, a community could cross political
jurisdictional boundaries and still qualify for the streamlined
approach. For example, a town that is in parts of two counties and has
a population 300,000 or less would qualify for the streamlined
approach.
NCUA Board Analysis and Decision on Presumptive Community. The NCUA
Board is adopting the presumptive community as initially proposed.
Additionally, the Board is adopting a second method based on multiple
contiguous counties or multiple political subdivisions thereof with a
lesser population threshold by which a presumptive community can be
established. As to the initial proposal, the Board is limiting the
streamlined approach to communities contained in a single political
jurisdiction where the population does not exceed 300,000. The Board is
not raising the population threshold because experience has
demonstrated that a single political jurisdiction of this size, or
less, has the normal indicia for community chartering.
Relative to the second method, the Board is also of the opinion
that multiple contiguous counties, or multiple political subdivisions
thereof, will most likely have the normal indicia for community
chartering, particularly in rural localities, if the population of the
well defined area does not exceed 200,000. In both instances the
presumption is rebuttable, and the regional directors may require
additional evidence to support the local community, neighborhood or
rural district criteria. The Board may revisit this issue in the future
if more experience with larger communities is obtained by NCUA.
In setting forth the example of a ``county'' with a population of
300,000 or less as a presumptive community, the Board was simply
providing guidance and setting a maximum geographic limit for the
streamlined process. A state or a congressional district would not
qualify for a presumptive community. However, for purposes of the
streamlined approach, a political jurisdiction that is less than a
county would qualify. For example, a municipality or a city would
qualify as a single political jurisdiction for the streamlined approach
if the population of the municipality or city does not exceed 300,000.
Some commenters asked for NCUA's rationale for establishing the
presumptive community at 300,000. The Board's rationale for this number
is based on the Board's review of its historical actions in granting
community charters. In every case where the community was 300,000 or
less and contained in a single political jurisdiction, the Board found
that the particular area would qualify as a local community,
neighborhood or rural district.
Credit Unions Converting to Community Charters. The Board stated
that a credit union converting to a community charter must contact all
federally insured credit unions in the area regarding the potential
overlap. A few commenters requested that this requirement be eliminated
due to the burden placed on the community credit union. The Board
agrees, and it is no longer required.
The Board stated that a credit union that converts to a community
charter may continue to serve existing members
[[Page 72014]]
of the credit union who are not within the community, under the
statutory provision that once a person becomes a credit union member,
he or she can remain a member. However, the Board stated that a
community credit union would not be able to add new members from those
groups in the previous field of membership that are outside the
community boundaries or add new groups outside the community
boundaries. Members of record, outside the community boundaries, could
still be served by the community charter. Three commenters approved of
NCUA's position. Twenty commenters requested that all groups outside
the community boundary should continue to be served by the community
credit union. Two commenters requested that, in a conversion to a
community charter, NCUA permit the credit union to continue to serve
its original sponsor even if the original sponsor is outside the
community boundaries. The Board believes that when a credit union
converts to a community charter it should serve the community and not
select groups. Serving groups outside the community boundaries is not
indicative of a community charter. The only exception is for groups
obtained through an emergency merger or emergency purchase and
assumption. The grandfather provision in CUMAA is not applicable since
the credit union has changed its charter type.
The proposed rule on community charters specified that
``[c]ommunity credit unions will be expected to follow, to the fullest
extent economically possible, the marketing and/or business plan
submitted with their application. The community credit union will be
expected to regularly review its business plan as well as membership
and loan penetration rates throughout the community to determine if the
entire community is being adequately served.'' Four commenters believed
this requirement is reasonable. Six commenters stated that, in
reviewing a community credit union's business plan, NCUA should
consider the credit union's good faith efforts to comply with its plan
and not just focus on the extent to which the credit union is achieving
the plan. Thirteen commenters strongly objected to the inclusion of
this language, particularly the reference to membership and loan
penetration rates. It is their position that the language would impose
Community Reinvestment Act (CRA) standards, and that Congress clearly
has had no such intent. When this language was first developed in 1997,
it was not the intent to impose CRA standards. The intent was to simply
outline the expectation that community charters are chartered to serve
the entire community, just like any other charter type should attempt
to serve their field of membership, and not a portion of the approved
well-defined area, and that the business plans should reflect this
goal. That is the nature of a community charter. Finally, with respect
to the proposed language, it was never intended that additional
examination or supervisory controls would be required. At the time this
language was under consideration, there was considerable evidence that
the number of community charter applications would increase due to the
adverse court rulings. Again, the objective was to reiterate that
community charters should make every effort to serve the community, and
not just those groups already in the converting credit union's field of
membership. However, to further clarify the Board's position, the Board
has modified the language to read as follows: ``Community credit unions
will be expected to regularly review and to follow, to the fullest
extent economically possible, the marketing and business plan submitted
with their application.''
Mergers. The proposal stated that a community credit union cannot
merge into a multiple common bond credit union except in an emergency
merger. Three commenters stated that a community charter should be
allowed to merge with a multiple common bond credit union. It remains
the Board's view that community charters should not be allowed to merge
into multiple common bond charters, absent emergency merger criteria.
If a multiple common bond credit union merges into a community charter,
the community charter may only serve new members of groups that are
located within the community charter boundaries. Of course, the
continuing credit union can retain members of record under the ``once a
member, always a member'' policy.
Applications In Process. The Board has determined that all
community charter applications that were submitted prior to August 7,
1998, and are still outstanding, must be finally submitted with all
required documentation to the regions by June 30, 1999, in order to be
processed pursuant to the community policies set forth in IRPS 94-1. If
a completed community charter application package is not received by
the regions by June 30, 1999, then it will be necessary to process the
application consistent with IRPS 99-1.
e. Changes Applicable to All Federal Credit Unions
Removal of Groups. The proposal set forth the procedures for a
credit union, with NCUA approval, to remove groups from a credit
union's field of membership. One commenter stated that this section
needed to be clarified so that, if a group is removed from a credit
union's field of membership, current members retain membership. The
Board agrees. If a group is removed from a credit union's field of
membership, current members retain membership under the ``once a
member, always a member'' policy. This rationale applies to all charter
types.
Appeal Procedures. The regulation sets forth certain appeal
procedures. Unless the credit union is requesting reconsideration, it
has 60 days to appeal a denial. One commenter requested 90 days to
appeal and 60 days to provide supplemental information in a
reconsideration. Two commenters asked how long NCUA has to respond to
an appeal and one of these commenters stated that the appeal process
favors NCUA.
The Board believes that a 60-day time frame gives the credit union
sufficient time to appeal the region's determination. The Board's
recent experience leads it to believe flexibility is necessary in
deciding appeals. Although the appealing credit union may want an
expeditious decision, most importantly, it wants a correct decision.
The Board, therefore, is not setting a definitive time frame for
rendering a decision on appeal, but will attempt to notify the
appellant any time a decision cannot be reached within 90 days. The
Board is cognizant of the need for an appellant to receive a decision
as soon as reasonably possible. Accordingly, every effort will be made
to expeditiously process and consider all appeals.
In general, credit unions can appeal adverse decisions by the
regional director, including decisions regarding exclusionary clauses.
Except for this modification regarding exclusionary clauses, the Board
is adopting the proposal in final.
Emergency Mergers. The Board issued clarifying language regarding
emergency mergers and purchase and assumption agreements for
occupational, associational and community charters. Among other minor
modifications, the Board proposed to remove the 12 month period within
which insolvency must occur, since it is not required by the FCUA. One
commenter approved of this entire provision. One commenter approved of
the removal of the 12
[[Page 72015]]
month insolvency period. One commenter requested that a multiple common
bond or single common bond credit union that takes in a community area
as the result of an emergency merger or purchase and assumption should
be able to expand the community portion of its charter. The Board
disagrees with this suggestion and is adopting a policy that community
fields of membership acquired through emergency mergers cannot be the
basis of an expansion since the character of the acquiring credit union
has not changed. The Board is adopting the proposed emergency merger
provisions in final and would like to emphasize that, in the coming
year, consistent with legal advice, credit unions not making acceptable
progress in becoming Y2K compliant may be determined to have serious
and persistent operational problems requiring expeditious action.
Once a Member Always a Member. CUMAA 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 FCUA, to
maintain membership in the credit union. This provision codifies the
``once a member, always a member'' policy. 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.
Twelve commenters approved of the ``once a member, always a member''
policy.
Twenty-five commenters disapproved of the proposed ``once a member,
always a member'' policy. Several commenters discussed the practice of
some larger corporations, which provide sizable support for their
employee's credit union, and view membership in the credit union as a
company benefit. In other words, if an employee leaves the employ of
the company, the credit union also terminates the individual's
membership. These commenters believed CUMAA would allow continuation of
this practice. The observation was made that a credit union should be
able to divest members that have left the employment of the sponsor if
that is what the sponsor desires. The Board does not concur with this
observation. The Board's view is that Congress established a permanent
membership relationship with the credit union, and unless a member is
expelled under the provisions of Section 118 in this Act, membership
cannot be unilaterally terminated by the credit union. However, the
commenters raise a legitimate operational concern. To address this
issue, the Board determined that a credit union can limit the services
to members in those situations where membership would conflict with
sponsor policy and who are no longer in the field of membership. While
membership is retained, the delivery of member services can be
qualified. It is anticipated that this approach will adequately address
the problem.
Grandfather Provision. Section 101 of CUMAA established that
membership is grandfathered for persons: (1) in a single common bond
credit union; and (2) in groups comprising multiple common bond credit
unions as of the time of passage of the Act. It also indicates, that
where the groups comprising either the single or multiple common bond
credit unions are defined by any particular organization or business
entity, the grandfather provisions will ``continue to apply with
respect to any successor to the organization or entity.'' One commenter
stated that the final rule should state that successors are
automatically grandfathered and the statutory mandate is self-
executing. The Board does not believe that this provision is self-
executing. The regional director must still approve the housekeeping
amendment in the charter. Except for documentation from the credit
union explaining the new organizational structure, no further
documentation will be required. However, for credit unions undergoing a
charter conversion, once the charter type is converted, the protection
provided by the grandfather provision no longer applies.
III. Chapter 3 of the Chartering Manual
The Board proposed a separate chapter setting forth special
policies for low-income credit unions and special chartering policies
for underserved areas. The Board's intent was to encourage the
formation of new credit unions and the expansion of existing credit
unions into underserved and low-income areas.
One commenter supported NCUA's proposals concerning the chartering
of low-income credit unions. One commenter requested a new definition
of low-income credit unions. The Board believes the current definition
of low-income is satisfactory.
CUMAA authorizes credit union service to people of modest means.
This is particularly evident with the addition of underserved areas to
the field of membership of a federal 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. A credit union adding an
underserved area must establish a service facility in the area.
An investment area includes any of the following:
An area encompassed or located in an Empowerment 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.
Three commenters completely supported the proposal. One commenter
supported NCUA's definition of an underserved area. Three commenters
objected to placing a service facility in an underserved area that is
added to the credit union's field of membership. The definition of an
underserved area and the service facility requirement are statutory and
are incorporated into the
[[Page 72016]]
final rule. A few commenters requested that an ATM be treated as a
service facility. The legislative history of CUMAA clearly indicates
that for this provision an ATM is not a service facility.
Two commenters believed NCUA should define service facility in this
section to include a credit union's commitment to regular hours on a
periodic basis at a local facility, such as a church or community
center. The Board agrees with this comment and has incorporated it into
the final regulation. One commenter requested that the Board provide an
example of an area having ``significant unmet needs for loans or equity
investments.'' An example of ``significant unmet needs for loans or
equity investments'' is an area where there are few financial
institutions or a high ratio of residents in relation to traditional
financial institutions.
Although the new legislation specifically authorizes flexible
policies regarding multiple common bond credit unions providing service
to underserved areas, the Board has determined that previous agency
policies allowing similar service to poor and disadvantaged areas
should continue. Accordingly, the Board stated that the criteria
established for multiple common bond credit unions would also apply to
single occupational, single associational, and community credit unions
desiring to serve underserved areas. Thirteen commenters approved of
NCUA's decision to allow all types of credit union's to serve
underserved areas. The proposal has been adopted in the final
regulation.
The proposal stated that federal credit unions adding the
underserved community must first develop a business plan on how it will
serve the community and that NCUA would require periodic reviews on how
the credit union is serving the community. Four commenters stated that
to encourage credit unions to add underserved areas to their field of
membership, NCUA should avoid requiring burdensome reporting
requirements to credit unions attempting to service the
``underserved.'' These commenters stated that requiring loan
penetration rate and other community statistical information may
discourage credit unions from pursuing that important sector of the
market. The Board agrees. However, the Board believes it is necessary
first to have a business plan to address how financial services will be
provided to an underserved areas. Although not required by regulation,
the regional director may require periodic service status reports from
a credit union about the underserved area to ensure that the needs of
the underserved area being met as well as requiring reports before NCUA
allows a federal credit union to add an additional underserved area.
Although one commenter requested public hearings before adding an
underserved area, the Board believes such a requirement will simply add
another bureaucratic hurdle and impede service to the underserved.
One commenter questioned why a credit union that adds an
underserved area cannot participate in the Community Development
Revolving Loan Program (CDRLP). One commenter requested that the final
rule state that a credit union that adds an underserved area cannot
participate in the CDRLP. One commenter suggested that providing
service to an underserved area does not equate to a low-income
designation. Only a credit union with a low-income designation may
participate in the CDRLP under NCUA Regulations and the FCUA. If a
credit union that adds an underserved area qualifies for a low-income
designation, it may apply for the designation and be entitled to the
benefits of the CDRLP, and the Board encourages eligible credit unions
to do so.
Chapter 3 also permitted any multiple common bond credit union to
add a low-income association to its field of membership, if all members
of the association meet NCUA's definition of low-income. One commenter
stated that NCUA should not require that all members of this type of
association be low-income. The Board disagrees with this comment.
Because a low-income association has limited common bond requirements,
changing its membership criteria may invite abuse and vitiate the
Board's intent to allow credit unions to serve low-income people.
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 was basically the same as
current policy. The major change concerned changing the credit union's
name on all signs, records, accounts, investments, stationery and other
documents. The proposal allowed credit unions to have 180 days from the
effective date of the conversion to change its signage and promotional
material. The credit union would be able to 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 could be used by the
member until depleted. This proposal would apply to both types of
conversions, state-to-federal and federal-to-state. Under the proposal,
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.
Four commenters supported all of the provisions in this chapter.
One commenter requested a one year time frame to convert signage,
promotional materials, etc. One commenter requested that the regional
director have the authority to extend the time frame. The Board
believes the current time frames are adequate but has provided the
regional director with the discretion to extend the time frame for an
additional 180 days.
One commenter requested NCUA to exempt converting state credit
unions, whose fields of membership do not conform to federal standards,
from compliance with NCUA's community charter requirements. The Board
believes that this is not permitted under CUMAA. One commenter stated
that a state charter converting to a federal charter should be able to
continue to serve all of its existing members under the ``once a
member, always a member'' policy. The Board agrees with this commenter
and a credit union converting to a federal charter can continue to
serve members of record after the date of conversion.
One commenter stated that this section should address conversion to
a thrift or bank and provide citations to that information. Thrift and
bank conversions are addressed in Section 708a of NCUA's Regulations.
12 CFR 708a.
V. Glossary
Three commenters commended NCUA for removing the definition of
``secondary member'' from the glossary. The Board has decided that
there is no longer a need for this term and it will not be included in
the glossary of the final manual. Nine commenters recommended NCUA also
remove the definition of ``primary member'' from the glossary and any
other references to it in the final regulation. The Board believes the
term ``primary potential member'' is useful when addressing the issue
of economic advisability and select group additions and, therefore, is
not deleting the reference.
[[Page 72017]]
VI. Effective Date
One commenter requested that the manual be made effective six
months after publication so that credit unions would have an equitable
opportunity to apply for select group expansions, instead of a first-
come, first serve approach. The Board is establishing January 1, 1999,
as the effective date for this regulation, except for the definitions
of ``immediate family member or household'' and ``well-defined local
community, neighborhood or rural district,'' which Congress has
designated as major rules. The major rules are effective March 5, 1999.
The law contemplates an effective date at least 60 days after
publication or submission to Congress for major rule provisions. This
serves the public interest by providing all parties, including
Congress, an opportunity to review and analyze these provisions prior
to their effective date. The Board believes that credit unions are
continuing to be harmed by the inability to add new groups and any
benefit of delaying the effective date is outweighed by the harm to
credit unions. Accordingly, the Board for good cause, finds that
pursuant to 5 U.S.C. 553(d)(3) the rule shall be effective on January
1, 1999 and without 30 days advance notice of publication.
VII. General Comments on the Format of the Manual
The Board believed the new format of the manual would be more user-
friendly by making information easier to locate. Ten commenters stated
that the format of the manual is better and easier to read. Three
commenters commended NCUA for a well written proposal. Two commenters
commended NCUA for the comprehensiveness and clarity of the proposal. A
few commenters recommended consolidating parts of the manual. Two
commenters believed the format was difficult to use and recommended a
revision. A frequent criticism of the previous chartering manual was
that it was difficult to locate information quickly about a particular
topic as it related to the different types of charters. To eliminate
this problem and to ensure that each section was ``self contained,''
the manual segregates each type of charter into sections and addresses
all the various issues that may affect that charter type. In so doing,
some of the information applicable to all types of charters is repeated
in the different sections. Naturally, in repeating similar information,
the actual length of the manual is increased.
However, for the general public or the casual user, it makes for a
more user-friendly document and facilitates research on the various
types of charters.
VIII. Miscellaneous Comments
There were several comments received that did not directly address
specific issues in the manual. One commenter questioned whether NCUA
will change charters that do not meet the requirements of this
proposal. NCUA will not apply this regulation retroactively. CUMAA
grandfathered current credit union members and groups. However, NCUA
encourages credit unions to examine and update their charters because
it will be important for future credit union expansions or mergers. It
is always important for a credit union to maintain an accurate and
updated charter to ensure that it serve all eligible groups.
Two commenters are concerned that the proposed manual does not
include any specific enforcement provisions, examination procedures or
language that addresses the remedies for interested parties in the
event that a credit union allegedly fails to adhere to the provisions
of the manual. The Board believes that the normal examination
procedures should be used to ensure compliance with the regulation. If
a violation is discovered and cannot be handled at the regional level,
appropriate enforcement actions as set forth in NCUA's Regulations and
the FCUA will be initiated by the Board.
Two commenters requested that NCUA set forth procedures for
chartering a credit union for the primary purpose of making business
loans. A new credit union that wishes to be chartered for this purpose
will have it included in its charter if the regional director agrees
that the credit union can carry out that objective.
As a general observation, IRPS 99-1 applies only to federal credit
unions, unless otherwise specified.
IX. Comments From Banks and Bank Trade Organizations
Briefly summarized, the bank commenters argued that NCUA did not
interpret CUMAA correctly and that federal credit unions should be
subject to taxation like banks. In general, these commenters opposed
the definition of occupational common bond, reasonable proximity,
service facility, local community, the streamlined approach for
community charters with populations of 300,000 or less in a single
political jurisdiction, capital adequacy and the definition of low-
income credit unions. Some of these commenters supported NCUA's
definition of ``immediate family members'' while others opposed it.
Most of the commenters believe NCUA's definitions and standards are
vague and lack clarity. In general these commenters argued that the
proposal defeats the concept of ``meaningful affinity'' found in CUMAA.
The Board has considered all issues raised by these commenters and
has previously addressed the major issues in this preamble since other
commenters also opposed many of the same provisions. As to the question
of taxation, this issue was legislatively addressed in CUMAA at Section
2.(4), which states that ``[c]redit unions, unlike many other
participants in the financial services market, are exempt from Federal
and most State taxes. . . .''
Finally, many of the commenters stated that the proposed regulation
does nothing to encourage the formation of separate credit unions to
serve groups of fewer than 3,000 persons. The Board strongly disagrees
with this comment. In fact, it is the Board's intent that any group
that can meet the economic advisability requirements, should form its
own credit union. The Board has simply established criteria that
provides guidance based on historical experience relative to those
groups that may have the best opportunity to succeed. Every effort will
be made to encourage new charters, but operational feasibility and
requirements are valid factors and cannot be ignored in the decision
making process.
G. 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 final 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 previously determined that several requirements of this
final rule 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
[[Page 72018]]
ensuring that the legal requirements of the Act have been met. Other
aspects of this final rule 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 estimated 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. Two commenters stated that the
average of 80 hours to develop a charter conversion package was an
insufficient amount of time. The commenters seem to confuse paperwork
requirements with oral communications between the credit union and the
region. The Board disagrees with the commenters' analysis and believes,
on average, this time is sufficient. Furthermore, the Board believes
the number of community charter conversions requests and select group
expansion request is an accurate estimation.
The reporting requirements in IRPS 99-1 have been submitted to the
Office of Management and Budget for approval and the OMB number will be
published as soon as it received by NCUA. Under the Paperwork Reduction
Act of 1995, no persons are required to respond to a collection of
information unless it displays a valid OMB control number. The control
number will be displayed in the table at 12 CFR 795.
Executive Order 12612
Executive Order 12612 requires NCUA to consider the effect of its
actions on state interests. This final 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. OMB has determined that the remaining provisions of
IRPS 99-1 do not constitute a major rule.
List of Subjects in 12 CFR Part 701
Credit, Credit unions, Reporting and recordkeeping requirements.
By the National Credit Union Administration Board on December
17, and December 22, 1998.
Becky Baker,
Secretary of the Board.
Accordingly, NCUA amends 12 CFR part 701 as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
1. The authority citation for part 701 continues to read as
follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a,
1761b, 1766, 1767, 1782, 1784, 1787, 1789. Section 701.6 is also
authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by
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 99-1, Chartering and
Field of Membership Policy. Copies may be obtained by contacting NCUA
at the address found in Sec. 790.2 of this chapter. The IRPS is
incorporated into this section.
(Approved by the Office of Management and Budget under control number
3133-0015.)
IRPS 99-1--[Added]
Note: The text of the Interpretive Ruling and Policy Statement
(IRPS 99-1) does not appear in the Code of Federal Regulations.
3. IRPS 99-1 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.
Unless otherwise noted, the policies outlined in this manual apply
only to federal credit unions.
II--Types of Charters
The Federal Credit Union Act recognizes three types of federal
credit union charters--single common bond (occupational and
associational), multiple common bond (more than one group each having a
common bond of occupation or association), and community.
The requirements that must be met to charter a federal credit union
are described in Chapter 2. Special rules for credit unions serving
low-income groups are described in Chapter 3.
If a federal credit union charter is granted, Section 5 of the
charter will describe the credit union's field of membership, which
defines those persons and entities eligible for membership. Generally,
federal credit unions are only able to grant loans and provide services
to persons within the field of membership who have become members of
the credit union.
III--Subscribers
Federal credit unions are generally organized by persons who
volunteer their time and resources and are responsible for determining
the interest, commitment, and economic advisability of forming a
federal credit union. The organization of a successful federal credit
union takes considerable planning and dedication.
[[Page 72019]]
Persons interested in organizing a federal credit union should
contact one of the credit union trade associations or the NCUA regional
office serving the state in which the credit union will be organized.
Lists of NCUA offices and credit union trade associations are shown in
the appendices. NCUA will provide information to groups interested in
pursuing a federal charter and will assist them in contacting an
organizer.
While anyone may organize a credit union, a person with training
and experience in chartering new federal credit unions is generally the
most effective organizer. However, extensive involvement by the group
desiring credit union service is essential.
The functions of the organizer are to provide direction, guidance,
and advice on the chartering process. The organizer also provides the
group with information about a credit union's functions and purpose as
well as technical assistance in preparing and submitting the charter
application. Close communication and cooperation between the organizer
and the proposed members are critical to the chartering process.
The Federal Credit Union Act requires that seven or more natural
persons--the ``subscribers''--present to NCUA for approval a sworn
organization certificate stating at a minimum:
The name of the proposed federal credit union;
The location of the proposed federal credit union and the
territory in which it will operate;
The names and addresses of the subscribers to the
certificate and the number of shares subscribed by each;
The initial par value of the shares;
The detailed proposed field of membership; and
The fact that the certificate is made to enable such
persons to avail themselves of the advantages of the Federal Credit
Union Act.
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, which is a
determination that a potential charter will have a reasonable
opportunity to succeed, 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 sets forth the
procedures for NCUA approval of officials of newly chartered credit
unions. If the application of a prospective official or employee to
serve is not acceptable to the 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
Economic advisability is a major factor in determining whether the
credit union will be chartered. An important consideration is the
degree of support from the field of membership. The charter applicant
must be able to demonstrate that membership support is sufficient to
ensure viability.
NCUA has not set a minimum field of membership size for chartering
a federal credit union. Consequently, groups of any size may apply for
a credit union charter and be approved if they demonstrate economic
advisability. However, it is important to note, that often the size of
the group is indicative of the potential for success. For that reason,
a charter application with fewer than 3,000 primary potential members
(e.g., employees of a corporation or members of an association) may not
be economically advisable. This is particularly true for groups of 200
or less primary potential members. Therefore, a charter applicant with
a proposed field of membership of fewer than 3,000 primary potential
members may have to provide more support than an applicant with a
larger field of membership. For example, a small occupational or
associational group may be required to demonstrate a commitment for
long-term support from the sponsor.
IV.D--Present and Future Market Conditions--Business Plan
The ability to provide effective service to members, compete in the
marketplace, and to adapt to changing market conditions are key to the
survival of any enterprise. Before NCUA will charter a credit union, a
business plan based on realistic and supportable projections and
assumptions must be submitted.
The business plan should contain, at a minimum, the following
elements:
Mission statement;
Analysis of market conditions, including if applicable,
geographic, demographic, employment, income, housing, and other
economic data;
Identify any overlapped credit unions (discussed in
Chapter 2). This does not apply to community charter applicants;
Evidence of member support;
Goals for shares, loans, and for number of members;
Financial services needed/desired;
Financial services to be provided to members of all
segments within the field of membership;
How/when services are to be implemented;
Organizational/management plan addressing qualification
and planned training of officials/employees;
Continuity plan for directors, committee members and
management staff;
Operating facilities, to include office space/equipment
and supplies, safeguarding of assets, insurance coverage, etc.;
Type of record keeping and data processing system;
Detailed semiannual pro forma financial statements
(balance sheet,
[[Page 72020]]
income and expense projections) for 1st and 2nd year, including
assumptions--e.g., loan and dividend rates;
Plans for operating independently;
Written policies (shares, lending, investments, funds
management, capital accumulation, dividends, collections, etc.);
Source of funds to pay expenses during initial months of
operation, including any subsidies, assistance, etc., and terms or
conditions of such resources; and
Evidence of sponsor commitment (or other source of
support) if subsidies are critical to success of the federal credit
union. Evidence may be in the form of letters, contracts, financial
statements from the sponsor, and any other such document on which the
proposed federal credit union can substantiate its projections.
While the business plan may be prepared with outside assistance,
the subscribers and proposed officials must understand and support the
submitted business plan.
V--Steps in Organizing a Federal Credit Union
V.A--Getting Started
Following the guidance contained throughout this policy, the
organizers should submit wording for the proposed field of membership
(the persons, organizations and other legal entities the credit union
will serve) to NCUA early in the application process for written
preliminary approval. The proposed field of membership must meet all
common bond or community requirements.
Once the field of membership has been given preliminary approval,
and the organizer is satisfied the application has merit, the organizer
should conduct an organizational meeting to elect seven to ten persons
to serve as subscribers. The subscribers should locate willing
individuals capable of serving on the board of directors, credit
committee, supervisory committee, and as chief operating officer/
manager of the proposed credit union.
Subsequent organizational meetings may be held to discuss the
progress of the charter investigation, to announce the proposed slate
of officials, and to respond to any questions posed at these meetings.
If NCUA approves the charter application, the subscribers, as their
final duty, will elect the board of directors of the proposed federal
credit union. The new board of directors will then appoint the
supervisory committee.
V.B--Charter Application Documentation
V.B.1--General
As discussed previously in this Chapter, the organizer of a federal
credit union charter must, at a minimum, provide evidence that:
The group(s) 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 organizer 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;
Application and Agreements for Insurance of Accounts, NCUA
9500; and
Certification of Resolutions, NCUA 9501.
Each of these forms is described in more detail in the
following sections.
V.B.2--Federal Credit Union Investigation Report, NCUA 4001
The application for a new federal credit union will be submitted on
NCUA 4001. (State-chartered credit unions applying for conversion to
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 organizer must review
each of the NCUA 4012s for elements that would prevent the prospective
official or employee from serving. Further, such factors as serious,
unresolved past due credit obligations and bankruptcies disclosed
during credit checks may disqualify an individual.
V.B.5--Application and Agreements for Insurance of Accounts, NCUA 9500
This document contains the agreements with which federal credit
unions must comply in order to obtain National Credit Union Share
Insurance Fund (NCUSIF) coverage of member accounts. The document must
be completed and signed by both the chief executive officer and chief
financial officer. A federal credit union must qualify for federal
share insurance.
V.B.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
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
Once NCUA receives a complete charter application package, an
acknowledgment of receipt will be sent
[[Page 72021]]
to the organizer. 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.
Credit and background investigations may be conducted concurrently
by NCUA with other work being performed by the organizer and
subscribers to reduce the likelihood of delays in the chartering
process.
The staff member will analyze the prospective credit union's
business plan for realistic projections, attainable goals, adequate
service to all segments of the field of membership, sufficient start-up
capital, and time commitment by the proposed officials and employees.
Any concerns will be reviewed with the organizer and discussed with the
prospective credit union's officials. Additional on-site contacts by
NCUA staff may be necessary. The organizer and subscribers will be
expected to take the steps necessary to resolve any issues or concerns.
Such resolution efforts may delay processing the application.
NCUA staff will then make a recommendation to the regional director
regarding the charter application. The recommendation may include
specific provisions to be included in a Letter of Understanding and
Agreement. In most cases, NCUA will require the prospective officials
to adhere to certain operational guidelines. Generally, the agreement
is for a limited term of two to four years. A sample Letter of
Understanding and Agreement is found in Appendix 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 organizer 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 knowledgeable, experienced credit union
individual or an existing, well-operated credit union. The mentor
should provide guidance and assistance to the new credit union through
attendance at meetings and general oversight 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
NCUSIF. The examiner will contact the credit union officials shortly
after approval of the charter in order to arrange for the initial
examination (usually within the first six months of operation).
The examiner will be responsible for monitoring the progress of the
credit union and providing the necessary advice and guidance to ensure
it is in compliance with applicable laws and regulations. The examiner
will also monitor compliance with the terms of any required Letter of
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
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.
Single Associational: If a credit union serves a single
associational sponsor, such as the Knights of Columbus, it will
[[Page 72022]]
be designated as an associational credit union.
Multiple Common Bond: If a credit union serves more than one group,
each of which has a common bond of occupation and/or association, it
will be designated as a multiple common bond credit union.
Community: All community credit unions will be designated as such,
followed by a description of their geographic boundaries (e.g. city or
county).
Credit unions desiring to confirm or submit an application to
change their designations should contact the appropriate NCUA regional
office.
XII--Serving Foreign Nationals
Federal credit unions are permitted to serve foreign nationals
within their field of membership wherever they reside provided they
have the ability, resources, and management expertise to serve such
persons. Before a credit union serves foreign nationals outside the
United States it must submit a business plan and must have prior
written approval of the regional director. The business plan must
explain in detail the types of loan products that will be offered and
any written policies regarding collection and collateral involving
loans to foreign nationals residing overseas and any written
restrictions regarding loan repayment if a foreign national leaves the
field of membership. If safety and soundness concerns exist, the
regional director may limit a federal credit union's ability to offer
specific types of services to foreign nationals living overseas that
are within the credit union's field of membership.
A federal credit union can only establish a service facility
outside the United States as long as the service facility is located on
a United States military installation or United States embassy. NCUA
policy prohibits the establishment of a federal credit union on foreign
soil for the primary purpose 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 MMLLJS contractor who work regularly at the
U.S. Naval
[[Page 72023]]
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);
Employees of and students attending Georgetown University.
(common bond--same occupation); or
Employees of all the schools supervised by the Timbrook
Board of Education in Timbrook, Georgia. (common bond--same employer).
Some Examples of insufficiently defined single occupational common
bonds are:
Employees of manufacturing firms in Seattle, Washington.
(no defined occupational sponsor);
Persons employed or working in Chicago, Illinois. (no
occupational common bond);
Employees of all colleges and universities in the State of
Texas. (not a single occupational common bond); or
Employees of Timbrook School District and Swanbrook School
District, in Burns, Georgia. (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 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.
Second, if the entire field of membership is acquired by another
corporation, the credit union can serve the employees of the new
corporation and any subsidiaries after receiving NCUA approval.
Third, a federal credit union qualifies to change its common bond
from:
A single occupational common bond to a single
associational common bond;
A single occupational common bond to a community charter;
or
A single occupational common bond to a multiple common
bond.
Fourth, a federal credit union removes a portion of the group from
its field of membership through agreement with the group, a spin-off,
or because a portion of the group is no longer in existence.
An existing single occupational common bond federal credit union
that submits a request to amend its charter must provide documentation
to establish that the occupational common bond requirement has been
met.
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 in accordance with Section II.E of this Chapter).
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 of this Chapter 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) to the appropriate NCUA regional
director. If a credit union is adding a group of 200 or less primary
potential members, then the NCUA 4015-EZ should be used. The request
must be signed by an authorized credit union representative.
The NCUA 4015 (for groups in excess of 200 primary potential
members) 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 of this
Chapter.
The NCUA 4015-EZ (for groups of 200 or less primary potential
members) 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; and
The number of persons currently included within the group
to be added and their locations.
[[Page 72024]]
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, request to remove an
exclusionary clause, 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 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--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 headquartered, with the concurrence of the
regional director of the merging credit union, and, as applicable, the
state regulators.
If a single occupational credit union wants to merge into a
multiple common bond or community credit union, Section IV.D or Section
V.D of this Chapter, respectively, should be reviewed.
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
[[Page 72025]]
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 headquartered, 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. A P&A
has limited application because, in most cases, the failing credit
union must be placed into involuntary liquidation. In the few instances
where a P&A may be appropriate, the assuming federal credit union, as
with emergency mergers, may acquire the entire field of membership if
the emergency merger criteria are satisfied. However, if the P&A does
not meet the emergency merger criteria, it must be processed under the
common bond requirements.
In a P&A processed under the emergency criteria, specified loans,
shares, and certain other designated assets and liabilities, without
regard to common bond restrictions, may also be acquired without
changing the character of the continuing federal credit union for
purposes of future field of membership amendments.
If the purchased and/or assumed credit union's field of membership
does not share a common bond with the purchasing and/or assuming credit
union, then the continuing credit union's original common bond will be
controlling for future common bond expansions.
P&As involving federally insured credit unions in different NCUA
regions must be approved by the regional director where the continuing
credit union is headquartered, 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 spun-
off group becomes a new credit union or goes to an existing federal
charter.
The request for approval of a spin-off must be supported with a
plan that addresses, at a minimum:
Why the spin-off is being requested;
What part of the field of membership is to be spun off;
Whether the affected credit unions have a common bond
(applies only to single occupational credit unions);
Which assets, liabilities, shares, and capital are to be
transferred;
The financial impact the spin-off will have on the
affected credit unions;
The ability of the acquiring credit union to effectively
serve the new members;
The proposed spin-off date; and
Disclosure to the members of the requirements set forth
above.
The spin-off request must also include current financial statements
from the affected credit unions and the proposed voting ballot.
For federal credit unions spinning off a group, membership notice
and voting requirements and procedures are the same as for mergers (see
Part 708 of the NCUA Rules and Regulations), except that only the
members directly affected by the spin-off--those whose shares are to be
transferred--are permitted to vote. Members whose shares are not being
transferred will not be afforded the opportunity to vote. 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 headquartered 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 investigate the possibility
of an overlap with federally insured credit unions prior to submitting
an application for a proposed charter or expansion if the group(s) is
greater than 200 primary potential members.
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 group has 200 or less primary potential members or the
overlap is otherwise incidental in nature--i.e., the group of persons
in question is so small as to have no material effect on the original
credit union;
The overlapped credit union does not object to the
overlap; 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
[[Page 72026]]
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 except a community charter. This notification
requirement is not applicable to groups with 200 or less primary
potential members. 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.
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.
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, or a credit union petitions NCUA to remove an
exclusionary clause. NCUA may remove the exclusionary clause if it
determines that removal is in the best interests of the members and
clearly outweighs any adverse effect on the overlapped credit union.
II.F--Charter Conversion
A single occupational common bond federal credit union may apply to
convert to a community charter provided the field of membership
requirements of the community charter are met. Groups within the
existing charter which cannot qualify in the new charter cannot be
served except for members of record, or groups or communities obtained
in an emergency merger or P&A. A credit union must notify all groups
that will be removed from the field of membership as a result of
conversion. Members of record can continue to be served. Also, in order
to support a case for a conversion, the applicant federal credit union
may be required to develop a detailed business plan as specified in
Chapter 1, Section IV.D.
A single occupational common bond federal credit union may apply to
convert to a multiple common bond charter by adding a non common bond
group that is within a reasonable proximity of a service facility.
Groups within the existing charter may be retained and continue to be
served. However, future amendments, including any expansions of the
original single common bond group, must be done in accordance with
multiple common bond policy.
A credit union will not be permitted to convert to another type of
charter, except community charter, for three years after approval,
unless the regional director determines that a charter conversion is
necessary to resolve safety and soundness concerns.
II.G--Removal of Groups From the Field of Membership
A credit union may request removal of a portion of the common bond
group from its field of membership for various reasons. The most common
reasons for this type of amendment are:
The group is within the 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
[[Page 72027]]
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;
Member of the immediate family or household; and
Organizations of such persons.
Immediate family is defined as spouse, child, sibling, parent,
grandparent, or grandchild. For the purposes of this definition,
immediate family member includes stepparents, stepchildren,
stepsiblings, and adoptive relationships.
Household is defined as persons living in the same residence
maintaining a single economic unit.
Membership eligibility is extended only to individuals who are
members of an ``immediate family or household'' of a credit union
member. It is not necessary for the primary member to join the credit
union in order for the immediate family or household member of the
primary member to join, provided the immediate family or household
clause is included in the field of membership. However, it is necessary
for the immediate family member or household member to first join in
order for that person's immediate family member or household member to
join the credit union. A credit union can adopt a more restrictive
definition of immediate family or household.
Volunteers, by virtue of their close relationship with a sponsor
group, may be included. Examples include volunteers working at a
hospital or church.
Under the Federal Credit Union Act, once a person becomes a member
of the credit union, such person may remain a member of the credit
union until the person chooses to withdraw or is expelled from the
membership of the credit union. This is commonly referred to as ``once
a member, always a member.'' The ``once a member, always a member''
provision does not prevent a credit union from restricting services to
members who are no longer within the field of membership.
III--Associational Common Bond
III.A.1--General
A single associational federal credit union may include in its
field of membership, regardless of location, all members and employees
of a recognized association. A single associational common bond
consists of individuals (natural persons) and/or groups (non natural
persons) whose members participate in activities developing common
loyalties, mutual benefits, and mutual interests. Separately chartered
associational groups can establish a single common bond relationship if
they are integrally related and share common goals and purposes. For
example, two or more churches of the same denomination, Knights of
Columbus Councils, or locals of the same union can qualify as a single
associational common bond.
Individuals and groups eligible for membership in a single
associational credit union can include the following:
Natural person members of the association (for example,
members of a union or church members);
Non-natural person members of the association;
Employees of the association (for example, employees of
the labor union or employees of the church); and
The association.
Generally, a single associational common bond does not include a
geographic definition. 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 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 association's membership eligibility requirements; 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
[[Page 72028]]
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;
Members of the Marine Corps Reserve Officers Association;
or
Members of St. John's Methodist Church and St. Luke's
Methodist Church, located in Toledo, Ohio.
Some examples of insufficiently defined single associational common
bonds are:
All Lutherans in the United States. (too broadly defined);
or
Veterans of U.S. military service. (group is too broadly
defined; no formal association of all members of the group).
Some examples of unacceptable single associational common bonds
are:
Alumni of Amos University. (no formal association);
Customers of Fleetwood Insurance Company. (policyholders
or primarily customer/client relationships do not meet associational
standards);
Employees of members of the Reston, Virginia Chamber of
Commerce. (not a sufficiently close tie to the associational common
bond); or
Members of St. John's Lutheran Church and St. Mary's
Catholic Church located in Anniston, Alabama. (churches are not of the
same denomination).
III.B--Associational Common Bond Amendments
III.B.1--General
Section 5 of every associational federal credit union's charter
defines the field of membership the credit union can legally serve.
Only those persons who, or legal entities that, join the credit union
and are specified in the field of membership can be served. There are
three instances in which Section 5 must be amended by NCUA.
First, a 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 portion of the group from
its field of membership through agreement with the group, a spin-off,
or a portion of 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 in accordance with Section III.E. of this Chapter.)
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 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 of this Chapter 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), to the appropriate NCUA regional
director. If a credit union is adding a group of 200 or less primary
potential members, then the NCUA 4015-EZ should be used. The
[[Page 72029]]
request must be signed by an authorized credit union representative.
NCUA 4015 (for groups in excess of 200 primary potential members)
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 of
this Chapter.
The NCUA 4015-EZ (for groups of 200 or less primary potential
members) 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;
The number of persons currently included within the group
to be added and their locations; and
The most recent copy of the group's charter and bylaws or
equivalent documentation.
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, request to remove an
exclusionary clause, 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--Mergers
Generally, the requirements applicable to field of membership
expansions found in this section apply to mergers where the continuing
credit union is a federal charter. That is, the two credit unions must
share a common bond.
Where the merging credit union is state-chartered, the common bond
rules applicable to a federal credit union apply.
Mergers must be approved by the NCUA regional director where the
continuing credit union is headquartered, with the concurrence of the
regional director of the merging credit union, and, as applicable, the
state regulators.
If a single associational credit union wants to merge into a
multiple common bond or community credit union, Section IV.D or Section
V.D of this Chapter, respectively, should be reviewed.
III.D.2--Emergency Mergers
An emergency merger may be approved by NCUA without regard to
[[Page 72030]]
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 headquartered, 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. A P&A
has limited application because, in most cases, the failing credit
union must be placed into involuntary liquidation. In the few instances
where a P&A may be appropriate, the assuming federal credit union, as
with emergency mergers, may acquire the entire field of membership if
the emergency merger criteria are satisfied. However, if the P&A does
not meet the emergency merger criteria, it must be processed under the
common bond requirements.
In a P&A processed under the emergency criteria, specified loans,
shares, and certain other designated assets and liabilities, without
regard to common bond restrictions, may also be acquired without
changing the character of the continuing federal credit union for
purposes of future field of membership amendments.
If the purchased and/or assumed credit union's field of membership
does not share a common bond with the purchasing and/or assuming credit
union, then the continuing credit union's original common bond will be
controlling for future common bond expansions.
P&As involving federally insured credit unions in different NCUA
regions must be approved by the regional director where the continuing
credit union is headquartered, 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 common bond requirements apply regardless of whether the spun-
off group becomes a new credit union or goes to an existing federal
charter.
The request for approval of a spin-off must be supported with a
plan that addresses, at a minimum:
Why the spin-off is being requested;
What part of the field of membership is to be spun off;
Whether the affected credit unions have the same common
bond (applies only to single associational credit unions);
Which assets, liabilities, shares, and capital are to be
transferred;
The financial impact the spin-off will have on the
affected credit unions;
The ability of the acquiring credit union to effectively
serve the new members;
The proposed spin-off date; and
Disclosure to the members of the requirements set forth
above.
The spin-off request must also include current financial statements
from the affected credit unions and the proposed voting ballot.
For federal credit unions spinning off a group, membership notice
and voting requirements and procedures are the same as for mergers (see
Part 708 of the NCUA Rules and Regulations), except that only the
members directly affected by the spin-off--those whose shares are to be
transferred--are permitted to vote. Members whose shares are not being
transferred will not be afforded the opportunity to vote. 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 headquartered 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
associational group, an overlap can be permitted.
Proposed or existing credit unions must investigate the possibility
of an overlap with federally insured credit unions prior to submitting
an application for a proposed charter or expansion if the group(s) is
greater than 200 primary potential members.
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
[[Page 72031]]
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 group has 200 or less primary potential members or the
overlap is otherwise incidental in nature--i.e., the group of persons
in question is so small as to have no material effect on the original
credit union;
The overlapped credit union does not object to the
overlap;
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 except a community charter. This notification
requirement is not applicable to groups with 200 or less primary
potential members. 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.
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, or a credit union petitions NCUA to remove an
exclusionary clause. NCUA may remove the exclusionary clause if it
determines that removal is in the best interests of the members and
clearly outweighs any adverse effect on the overlapped credit union.
III.F--Charter Conversions
A single associational common bond federal credit union may apply
to convert to a community charter provided the field of membership
requirements of the community charter are met. Groups within the
existing charter which cannot qualify in the new charter cannot be
served except for members of record, or groups or communities obtained
in an emergency merger or P&A. A credit union must notify all groups
that will be removed from the field of membership as a result of
conversion. Members of record can continue to be served. Also, in order
to support a case for a conversion, the applicant federal credit union
may be required to develop a detailed business plan as specified in
Chapter 1, Section IV.D.
A single associational common bond federal credit union may apply
to convert to a multiple common bond charter by adding a non common
bond group that is within a reasonable proximity of a service facility.
Groups
[[Page 72032]]
within the existing charter may be retained and continue to be served.
However, future amendments, including any expansions of the
original single common bond group, must be done in accordance with
multiple common bond policy.
A credit union will not be permitted to convert to another type of
charter, except community charter, for three years after approval,
unless the regional director determines that a charter conversion is
necessary to resolve safety and soundness concerns.
III.G--Removal of Groups From the Field of Membership
A credit union may request removal of a portion of the common bond
group from its field of membership for various reasons. The most common
reasons for this type of amendment are:
The group is within the 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;
Member of the immediate family or household; and
Organizations of such persons.
Immediate family is defined as spouse, child, sibling, parent,
grandparent, or grandchild. For the purposes of this definition,
immediate family member includes stepparents, stepchildren,
stepsiblings, and adoptive relationships.
Household is defined as persons living in the same residence
maintaining a single economic unit.
Membership eligibility is extended only to individuals who are
members of an ``immediate family or household'' of a credit union
member. It is not necessary for the primary member to join the credit
union in order for the immediate family or household member of the
primary member to join, provided the immediate family or household
clause is included in the field of membership. However, it is necessary
for the immediate family member or household member to first join in
order for that person's immediate family member or household member to
join the credit union. A credit union can adopt a more restrictive
definition of immediate family or household.
Volunteers, by virtue of their close relationship with a sponsor
group, may be included. One example is volunteers working at a church.
Under the Federal Credit Union Act, once a person becomes a member
of the credit union, such person may remain a member of the credit
union until the person chooses to withdraw or is expelled from the
membership of the credit union. This is commonly referred to as ``once
a member, always a member.'' The ``once a member, always a member''
provision does not prevent a credit union from restricting services to
members who are no longer within the field of membership.
IV--Multiple Occupational/Associational Common Bonds
IV.A.1--General
A federal credit union may be chartered to serve a combination of
distinct, definable single occupational and/or associational common
bonds. This type of credit union is called a multiple common bond
credit union. Each group in the field of membership must have its own
occupational or associational common bond. For example, a multiple
common bond credit union may include two unrelated employers, or two
unrelated associations, or a combination of two or more employers or
associations. Additionally, these groups must be within reasonable
geographic proximity of the credit union. That is, the groups must be
within the service area of one of the credit union's service
facilities. These groups are referred to as select groups. A multiple
common bond credit union cannot expand using single common bond
criteria.
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, a mobile branch,
an office operated on a regularly scheduled weekly basis, 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 Common Bond Field of Membership
An example of a multiple common bond field of membership is:
``The field of membership of this federal credit union shall be
limited to the following:
1. Employees of Teltex Corporation who work in Wilmington,
Delaware;
2. Partners and employees of Smith & Jones, Attorneys at Law, who
work in Wilmington, Delaware;
3. Members of the M&L Association 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 Common Bond Amendments
IV.B.1--General
Section 5 of every multiple common bond federal credit union's
charter defines the field of membership and select groups the credit
union can legally serve. Only those persons or legal entities specified
in the field of membership can be served. There are a number of
instances in which Section 5 must be amended by NCUA.
First, a new select group is added to the field of membership. This
may occur through agreement between the group
[[Page 72033]]
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
common bond charter;
A multiple common bond to a single occupational/
associational charter;
A multiple common bond to a community charter; or
A community to a multiple common bond charter.
Third, a federal credit union removes a group from its field of
membership through agreement with the group, a spin-off, or because the
group is no longer in existence.
IV.B.2--Numerical Limitation of Select Groups
An existing multiple common bond federal credit union that submits
a request to amend its charter must provide documentation to establish
that the multiple common bond requirements have been met. All
amendments to a multiple common bond credit union's field of membership
must be approved by the regional director.
NCUA will approve groups to a credit union's field of membership,
if the agency determines in writing that the following criteria are
met:
The credit union has not engaged in any unsafe or unsound
practice, as determined by the 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 ratio of not less than 6 percent. For low-income credit unions or
credit unions chartered less than ten years, the regional director may
determine that a net capital ratio of less than 6 percent is adequate
if the credit union is making reasonable progress toward meeting the 6
percent net worth requirement.
The credit union has the administrative capability to
serve the proposed group and the financial resources to meet the need
for additional staff and assets to serve the new group;
Any potential harm the expansion may have on any other
credit union and its members is clearly outweighed by the probable
beneficial effect of the expansion. With respect to a proposed
expansion's effect on other credit unions, the requirements on
overlapping fields of membership set forth in Section IV.E of this
Chapter are also applicable; and
If the formation of a separate credit union by such group
is not practical and consistent with reasonable standards for the safe
and sound operation of a credit union.
A more detailed analysis is required for groups of 3,000 or more
primary potential members requesting to be added to a multiple common
bond credit union. It is incumbent upon the credit union to demonstrate
that the formation of a separate credit union by such a group is not
practical. The group must provide evidence that it 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. If this can be demonstrated, the group
may be added to a multiple common bond credit union's field of
membership.
IV.B.3--Documentation Requirements
A multiple common bond credit union requesting a select group
expansion must submit a formal written request, using the Application
for Field of Membership Amendment (NCUA 4015) to the appropriate NCUA
regional director. If a credit union is adding a group of 200 or less
primary potential members, then the NCUA 4015-EZ should be used. The
request must be signed by an authorized credit union representative.
The NCUA 4015 (for groups in excess of 200 primary potential
members) 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