[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





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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.

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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

[[Page 72003]]

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
     The group's proximity to credit union's nearest service 
facility.
     If the group is eligible for membership in any other 
credit union, documentation must be provided to support inclusion of 
the group under the overlap standards set forth in Section IV.E of this 
Chapter; and
     The most recent copy of the group's charter and bylaws or 
equivalent documentation (for associational groups).
    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 or 
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 group's proximity to credit union's nearest service 
facility.
     The most recent copy of the group's charter and bylaws or 
equivalent documentation (for associational groups).

IV.B.4--Corporate Restructuring

    If a select group within a federal credit union's field of 
membership undergoes a substantial restructuring, a change to the 
credit union's field of membership may be required if the credit union 
is to continue to provide service to the select group. NCUA permits a 
multiple common bond credit union to maintain in its field of 
membership a sold or spun-off select group to which it has been 
providing service, without regard to location, if the original group is 
clearly identifiable. This type of amendment to the credit union's 
charter is not considered an expansion, therefore the criteria relating 
to adding new groups are not applicable.

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

IV.C.1--General

    All requests for approval to amend a federal credit union's charter 
must be submitted to the appropriate regional director.

IV.C.2--Regional Director's Decision

    All amendment requests will be reviewed by NCUA staff in order to 
ensure conformance to NCUA policy.
    In some cases, an on-site review by a staff member may be required 
by the regional director before acting on a proposed amendment. In 
addition, the regional director may, after taking into

[[Page 72034]]

account the significance of the proposed field of membership amendment, 
require the applicant to submit a business plan addressing specific 
issues.
    The financial and operational condition of the requesting credit 
union will be considered in every instance. An expanded field of 
membership may provide the basis for reversing adverse trends. In such 
cases, an amendment to expand the field of membership may be granted 
notwithstanding the credit union's adverse trends. The applicant credit 
union must clearly establish that the approval of the expanded field of 
membership meets the requirements of Section IV.B.2 of this Chapter and 
will not increase the risk to the NCUSIF.

IV.C.3--Regional Director Approval

    If the requested amendment is approved by the regional director, 
the credit union will be issued an amendment to Section 5 of its 
charter.

IV.C.4--Regional Director Disapproval

    When a regional director disapproves any application, in whole or 
in part, to amend the field of membership under this chapter, the 
applicant will be informed in writing of the:
     Specific reasons for the action;
     If appropriate, options or suggestions that could be 
considered for gaining approval; and
     Appeal procedure.

IV.C.5--Appeal of Regional Director Decision

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

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

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

IV.D.1--Voluntary Mergers

    a. All select groups in the merging credit union's field of 
membership have less than 3,000 primary potential members.
    A voluntary merger of two or more federal credit unions is 
permissible as long as each select group in the merging credit union's 
field of membership has less than 3,000 primary potential members. 
While the merger requirements outlined in Section 205 of the Federal 
Credit Union Act must still be met, the requirements of Chapter 2, 
Section IV.B.2 of this manual are not applicable.
    b. One or more select groups in the merging credit union's field of 
membership has 3,000 or more primary potential members.
    If the merging credit union has any groups consisting of 3,000 or 
more primary potential members, special requirements apply. NCUA will 
analyze each group of 3,000 or more primary potential members to 
determine whether the formation of a separate credit union by such a 
group is practical. If the formation of a separate credit union by such 
a group is not practical because the group lacks sufficient volunteer 
and other resources to support the efficient and effective operations 
of a credit union or does not meet the economic advisable criteria 
outlined in Chapter 1, the group may be merged into a multiple common 
bond credit union. If the formation of a separate credit union is 
practical, the group must be spun-off before the merger can be 
approved.
    c. Merger of a single common bond credit union into a multiple 
common bond credit union.
    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.
    d. Merger Approval.
    If the merger is approved, the qualifying groups within the merging 
credit union's field of membership will be transferred intact to the 
continuing credit union and can continue to be served.
    Where the merging credit union is state-chartered, the field of 
membership rules applicable to a federal credit union apply.
    Mergers must be approved by the NCUA regional director where the 
continuing credit union is headquartered, with the concurrence of the 
regional director of the merging credit union, and, as applicable, the 
state regulators.

IV.D.2--Supervisory Mergers

    The NCUA may approve the merger of any federally insured credit 
union when safety and soundness concerns are present without regard to 
the 3,000 numerical limitation. The credit union need not be insolvent 
or in danger of insolvency for NCUA to use this statutory authority.

IV.D.3--Emergency Mergers

    An emergency merger may be approved by NCUA without regard to field 
of membership rules, the 3,000 numerical limitation, 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

[[Page 72035]]

continuing federal credit union without regard to any field of 
membership restrictions including numerical limitation requirements and 
without changing the character of the continuing federal credit union 
for future amendments. Under this authority, any single occupational/
associational common bond, multiple common bond, or community charter 
may merger into a multiple common bond credit union and that credit 
union can continue to serve the merging credit union's field of 
membership. Subsequent field of membership expansions of the continuing 
multiple common bond credit union must be consistent with multiple 
common bond policies.
    Emergency mergers involving federally insured credit unions in 
different NCUA regions must be approved by the regional director where 
the continuing credit union is headquartered, with the concurrence of 
the regional director of the merging credit union and, as applicable, 
the state regulators.

IV.D.4--Purchase and Assumptions (P&As)

    Another alternative for acquiring the field of membership of a 
failing credit union is through a consolidation known as a P&A. 
Generally, the requirements applicable to field of membership 
expansions found in this chapter apply to purchase and assumptions 
where the purchasing credit union is a federal charter.
    A P&A has limited application because, in most cases, the failing 
credit union must be placed into involuntary liquidation. However, in 
the few instances where a P&A may occur, the assuming federal credit 
union, as with emergency mergers, may acquire the entire field of 
membership if the emergency criteria are satisfied. Specified loans, 
shares, and certain other designated assets and liabilities, without 
regard to field of membership restrictions, may also be acquired 
without changing the character of the continuing federal credit union 
for purposes of future field of membership amendments. Subsequent field 
of membership expansions must be consistent with multiple common bond 
policies.
    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.

IV.D.5--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 charter or goes to an existing federal charter.
    The request for approval of a spun-off group must be supported with 
a plan that addresses, at a minimum:
     Why the spin-off is being requested;
     What part of the field of membership is to be spun off;
     Which assets, liabilities, shares, and capital are to be 
transferred;
     The financial impact the spin-off will have on the 
affected credit unions;
     The ability of the acquiring credit union to effectively 
serve the new members;
     The proposed spin-off date; and
     Disclosure to the members of the requirements set forth 
above.
    The spin-off request must also include current financial statements 
from the affected credit unions and the proposed voting ballot.
    For federal credit unions spinning off a group, membership notice 
and voting requirements and procedures are the same as for mergers (see 
Part 708 of the NCUA Rules and Regulations), except that only the 
members directly affected by the spin-off--those whose shares are to be 
transferred--are permitted to vote. Members whose shares are not being 
transferred will not be afforded the opportunity to vote. Voting 
requirements for federally insured state credit unions are governed by 
state law.
    Spin-offs involving federally insured credit unions in different 
NCUA regions must be approved by all regional directors where the 
credit unions are headquartered and the state regulators, as 
applicable. Spin-offs in the same region also require approval by the 
state regulator, as applicable.

IV.E--Overlaps

IV.E.1--General

    An overlap exists when a group of persons is eligible for 
membership in two or more credit unions, including state charters. An 
overlap is permitted when the expansion's beneficial effect in meeting 
the convenience and needs of the members of the group proposed to be 
included in the field of membership clearly outweighs any adverse 
effect on the overlapped credit union.
    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. An overlap analysis is not 
required for groups with 200 or less primary potential members.
    When an overlap situation requiring analysis does arise, officials 
of the expanding credit union must ascertain the views of the 
overlapped credit union. If the overlapped credit union does not 
object, the applicant must submit a letter or other documentation to 
that effect. If the overlapped credit union does not respond, the 
expanding credit union must notify NCUA in writing of its attempt to 
obtain the overlapped credit union's comments.
    NCUA will generally not approve an overlap unless the expansion's 
beneficial effect in meeting the convenience and needs of the members 
of the group proposed to be included in field of membership clearly 
outweighs any adverse effect on the overlapped credit union.
    In reviewing the overlap, the regional director will consider:
     The view of the overlapped credit union(s);
     Whether the overlap is incidental in nature--the group of 
persons in question is so small as to have no material effect on the 
original credit union;
     Whether there is limited participation by members or 
employees of the group in the original credit union after the 
expiration of a reasonable period of time;
     Whether the original credit union fails to provide 
requested service;
     Financial effect on the overlapped credit union;
     The desires of the group(s);
     The desire of the sponsor organization; and
     The best interests of the affected group and the credit 
union members involved.
    Generally, if the overlapped credit union does not object, and NCUA 
determines that there is no safety and soundness problem, the overlap 
will be permitted.
    Potential overlaps of a federally insured state credit union's 
field of membership by a federal credit union will generally be 
analyzed in the same way as if two federal credit unions were involved. 
Where a federally insured state credit union's field of membership is 
broadly stated, NCUA will exclude its

[[Page 72036]]

field of membership from any overlap protection.
    New charter applicants and every select group which comes before 
the regional director for affiliation with an existing federal credit 
union must advise the regional director in writing whether the group is 
included within the field of membership of any other credit union. This 
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 multiple common bond federal credit unions to 
overlap community charters without performing an overlap analysis.

IV.E.2--Overlap Issues as a Result of Organizational Restructuring

    A federal credit union's field of membership will always be 
governed by the field of membership descriptions contained in Section 5 
of its charter. Where a sponsor organization expands its operations 
internally, by acquisition or otherwise, the credit union may serve 
these new entrants to its field of membership if they are part of any 
select group listed in Section 5. Where acquisitions are made which add 
a new subsidiary, the group cannot be served until the subsidiary is 
included in the field of membership.
    Overlaps may occur as a result of restructuring or merger of the 
parent organization. When such overlaps occur, each credit union must 
request a field of membership amendment to reflect the new groups each 
wishes to serve. NCUA will review these requests as it does any select 
group addition. The credit union can continue to serve any current 
group in its field of membership that is acquiring a new group or has 
been acquired by a new group. The new group cannot be served by the 
credit union until the field of membership amendment is approved by 
NCUA.
    In addition, credit unions must submit to NCUA documentation 
explaining the restructuring and providing information regarding the 
new organizational structure. To help in future monitoring of overlaps, 
the credit union must identify divisions and subsidiaries and the 
locations of each. Where the sponsor and its employees desire to 
continue service, NCUA may use wording such as the following:
     Employees of MHS Corporation, formerly a subsidiary of 
Tool, Incorporated, located in Charleston, South Carolina.

IV.E.3--Exclusionary Clauses

    An exclusionary clause is a limitation which precludes the credit 
union from serving the primary members of a portion of a group 
otherwise included in its field of membership.
    When NCUA determines that overlap protection is appropriate for 
safety and soundness reasons, an exclusionary clause will be included 
in the expanding federal credit union's charter.
    Exclusionary clauses are very difficult for credit unions and NCUA 
to monitor properly. Additionally, exclusionary clauses can be 
ineffective or create obvious inequities--one spouse may be eligible 
for membership in a federal credit union while the other may not; one 
employee may be eligible for credit union service while a co-worker may 
not. If, for safety and soundness reasons, an exclusionary clause is 
appropriate, the overlap protection only applies to primary members, 
which may only provide limited protection.
    One example of an appropriate use of an exclusionary clause may be 
where there is a merger of two corporations served by two credit unions 
which will continue to serve their groups as they had prior to their 
sponsors' consolidation. The addition of an exclusionary clause to the 
field of membership of one or both of the credit unions may be the best 
way to clarify the division of service responsibility within the new 
corporate entity.
    When an exclusionary clause is included in a federal credit union's 
field of membership, NCUA will define:
     The identity of the group;
     Whether the exclusion is to apply to the entire group or 
only to those who are actually members of another credit union;
     Whether the exclusion is to apply only to the current 
members of the group or to future members as well; and
    Whether the exclusion is to apply for a limited time period.
    Examples of exclusionary wording are:
     Persons who work for Monty Sugar Company, except those who 
work in, are paid from, or are supervised from San Francisco, 
California.
     Persons who work for the EWJ Co., except those employed by 
the JEC Division as of June 30, 1997.
     Persons who work for KLB Co., except those who were 
members of the St. Bonaventure Federal Credit Union as of June 30, 
1997.
    Exclusionary clauses granted prior to the adoption of this new 
chartering manual will remain in effect unless the two credit unions 
agree to remove them, 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.

IV.F--Charter Conversion

    A multiple 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 multiple common bond federal credit union may apply to convert to 
a single occupational or associational common bond charter provided the 
field of membership requirements of the new 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.
    Once a multiple common bond credit union converts to a single 
occupational or associational credit union, it cannot convert back to a 
multiple common bond credit union for a period of three years, unless 
there are safety and soundness concerns.

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

    A credit union may request removal of a group from its field of 
membership for various reasons. The most common reasons for this type 
of amendment are:
     The group is within the overlapping field of membership of 
two credit unions and one wishes to discontinue service;
     The federal credit union cannot continue to provide 
adequate service to the group;
     The group has ceased to exist;
     The group does not respond to repeated requests to contact 
the credit union or refuses to provide needed support;

[[Page 72037]]

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

IV.H--Other Persons Sharing Common Bond

    A number of persons, by virtue of their close relationship to a 
common bond group, may be included, at the charter applicant's option, 
in the field of membership. These include the following:
     Spouses of persons who died while within the field of 
membership of this credit union;
     Employees of this credit union;
     Persons retired as pensioners or annuitants from the above 
employment;
    Volunteers;
     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.

V--Community Charter Requirements

V.A.1--General

    Community charters must be based on ``a well-defined local 
community, neighborhood, or rural district.'' NCUA policy is to limit 
the community to a single, geographically well-defined area where 
individuals have common interests or interact.
    NCUA recognizes four types of affinity on which a community charter 
can be based--persons who live in, worship in, attend school in, or 
work in the community. Businesses and other legal entities within the 
community boundaries may also qualify for membership. More than one 
credit union may serve the same community. Given the diversity of 
community characteristics throughout the country and NCUA's goal of 
making credit union service available to all eligible groups who wish 
to have it, NCUA has established the following requirements for 
community charters:
     The geographic area's boundaries must be clearly defined;
     The charter applicant must establish that the area is a 
``well-defined local, community, neighborhood, or rural district;'' and
     The residents must have common interests or interact.

V.A.2--Documentation Requirements

    In addition to the documentation requirements set forth in Chapter 
1 to charter a credit union, a community credit union applicant must 
provide special documentation addressing the proposed area to be served 
and community service policies.
    A community credit union is unique in that it must meet the 
statutory requirements that the proposed community area is (1) well-
defined, and (2) a local community, neighborhood, or rural district.
    ``Well-defined'' means the proposed area has specific geographic 
boundaries. Geographic boundaries may include a city, township, county 
(or its political equivalent), or clearly identifiable neighborhood. 
Although congressional districts or other political boundaries which 
are subject to occasional change, and state boundaries are well-defined 
areas, they do not meet the second requirement that the proposed area 
be a local community, neighborhood, or rural district.
    The meaning of local community, neighborhood, or rural district 
includes a variety of factors. Most prominent is the requirement that 
the residents of the proposed community area interact or have common 
interests. In determining interaction and/or common interests, a number 
of factors become relevant. For example, the existence of a single 
major trade area, shared governmental or civic facilities, or area 
newspaper is significant evidence of community interaction and/or 
common interests. Conversely, numerous trade areas, multiple taxing 
authorities, and multiple political jurisdictions, tend to diminish the 
characteristics of a local area.
    Population and geographic size are also significant factors in 
determining whether the area is local in nature. A large population in 
a small geographic area or a small population in a large geographic 
area, may meet NCUA community chartering requirements. For example, an 
ethnic neighborhood, a rural area, a city, and a county with 300,000 or 
less residents will generally have sufficient interaction and/or common 
interests to meet community charter requirements. While this may most 
often be true, it does not preclude community charters consisting of 
multiple counties or local areas with populations of any size from 
meeting community charter requirements.
    Conversely, a larger population in a large geographic area may not 
meet NCUA community chartering requirements. It is more difficult for a 
major metropolitan city, a densely populated county, or an area 
covering multiple counties with significant population to have 
sufficient interaction and/or common interests, and to therefore 
demonstrate that these areas meet the requirement of being ``local.'' 
In such cases, documentation supporting the interaction and/or common 
interests will be greater than the evidence necessary for a smaller and 
less densely populated area.
    In most cases, the ``well-defined local community, neighborhood, or 
rural district'' requirement will be met if (1) the area to be served 
is in a recognized single political jurisdiction, i.e., a county or its 
political equivalent or any contiguous political subdivisions contained 
therein, and if the population

[[Page 72038]]

of the requested well-defined area does not exceed 300,000, or (2) the 
area to be served is in multiple contiguous political jurisdictions, 
i.e. a county or its political equivalent or any political subdivisions 
contained therein and if the population of the requested well-defined 
area does not exceed 200,000. If the proposed area meets either of 
these this criteria, the credit union must only submit a letter 
describing how the area meets the standards for community interaction 
or common interests.
    If NCUA does not find sufficient evidence of community interaction 
or common interests, more detailed documentation will be necessary to 
support that the proposed area is a well-defined community. The credit 
union must also provide evidence of the political jurisdiction(s) and 
population. Evidence of the political jurisdiction(s) should include 
maps designating the area to be served. One map must be a regional or 
state map with the proposed community outlined. The other map must 
outline the proposed community and the identifying geographic 
characteristics of the surrounding areas.
    If the area to be served does not meet the political 
jurisdiction(s) and population requirements of the preceding paragraph, 
or if required by NCUA, the application must include documentation to 
support that it is a well-defined local community, neighborhood, or 
rural district. It is the applicant's responsibility to demonstrate the 
relevance of the documentation provided in support of the application. 
This must be provided in a narrative summary. The narrative summary 
must explain how the documentation demonstrates interaction or common 
interests. For example, simply listing newspapers and organizations in 
the area is not sufficient to demonstrate that the area is a local 
community, neighborhood, or rural district.
    Examples of acceptable documentation may include:
     The defined political jurisdictions;
     Major trade areas (shopping patterns and traffic flows);
     Shared/common facilities (for example, educational, 
medical, police and fire protection, school district, water, etc.);
     Organizations and clubs within the community area;
     Newspapers or other periodicals published for and about 
the area;
     Maps designating the area to be served. One map must be a 
regional or state map with the proposed community outlined. The other 
map must outline the proposed community and the identifying geographic 
characteristics of the surrounding areas;
     Common characteristics and background of residents (for 
example, income, religious beliefs, primary ethnic groups, similarity 
of occupations, household types, primary age group, etc.); or
     Other documentation that demonstrates that the area is a 
community where individuals have common interests or interact.
    A community credit union is frequently more susceptible to 
competition from other local financial institutions and generally does 
not have substantial support from any single sponsoring company or 
association. As a result, a community credit union will often encounter 
financial and operational factors that differ from an occupational or 
associational charter. Its diverse membership may require special 
marketing programs targeted to different segments of the community. For 
example, the lack of payroll deduction creates special challenges in 
the development of savings promotional programs and in the collection 
of loans.
    Accordingly, it is essential for the proposed community credit 
union to develop a detailed and practical business and marketing plan 
for at least the first two years of operation. The proposed credit 
union must not only address the documentation requirements set forth in 
Chapter 1, but also focus on the accomplishment of the unique financial 
and operational factors of a community charter.
    Community credit unions will be expected to regularly review and to 
follow, to the fullest extent economically possible, the marketing and 
business plan submitted with their application.

V.A.3--Special Documentation Requirements for a Converting Credit Union

    An existing federal credit union may apply to convert to a 
community charter. Groups currently in the credit union's field of 
membership but outside the new community credit union's boundaries may 
not be included in the new community charter. Therefore, the credit 
union is required to notify groups that will be removed from the field 
of membership as a result of the conversion. Members of record can 
continue to be served.
    The documentation requirements set forth in Section V.A.2 of this 
Chapter must be met before a community charter can be approved. 
Demonstrating community support, as discussed in Chapter 1, is not 
required for converting credit unions. In order to support a case for a 
conversion to community charter, the applicant federal credit union 
must develop a business plan incorporating the following data:
     Current financial statements, including the income 
statement and a summary of loan delinquency;
     Pro forma financial statements for the first two years 
after the proposed conversion, including assumptions--e.g., member, 
share, loan, and asset growth;
     Marketing plan addressing how the community will be 
served;
     Financial services to be provided to members;
     Location of service facilities; and
     Anticipated financial impact on the credit union in terms 
of need for additional employees and fixed assets.
    Before approval of an application to convert to a community credit 
union, NCUA must be satisfied that the institution will be viable and 
capable of providing services to its members.

V.A.4--Community Boundaries

    The geographic boundaries of a community federal credit union are 
the areas defined in its charter, usually with north, east, south, and 
west boundaries.
    A community that is a recognized legal entity, may be stated in the 
field of membership--for example, ``Gus Township, Texas'' or ``Kristi 
County, Virginia.''

V.A.5--Special Community Charters

    A community field of membership may include persons who work or 
attend school in a particular industrial park, shopping mall, office 
complex, or similar development. The proposed field of membership must 
have clearly defined geographic boundaries.

V.A.6--Sample Community Fields of Membership

    A community charter does not have to include all four affinities 
(i.e., live, work, worship, or attend school in a community). Some 
examples of community fields of membership are:
     Persons who live, work, worship, or attend school in, and 
businesses located in the area of Johnson City, Tennessee, bounded by 
Fern Street on the north, Long Street on the east, Fourth Street on the 
south, and Elm Avenue on the west;
     Persons who live or work in Green County, Maine;
     Persons who live, worship, or work in and businesses and 
other legal entities located in Independent School District No. 1, 
DuPage County, Illinois;
     Persons who live, worship, work, or attend school at the 
University of Dayton, in Dayton, Ohio; or

[[Page 72039]]

     Persons who work for businesses located in Clifton Country 
Mall, in Clifton Park, New York.
    Some examples of insufficiently defined community field of 
membership definitions are:
     Persons who live or work within and businesses located 
within a ten-mile radius of Washington, DC (using a radius does not 
establish a well-defined area); or
     Persons who live or work in the industrial section of New 
York, New York (not a well-defined neighborhood, community, or rural 
district).
    Some examples of unacceptable local communities, neighborhoods, or 
rural districts are:
     Persons who live or work in the Greater Boston 
Metropolitan Area (does not meet the definition of local community, 
neighborhood, or rural district).
     Persons who live or work in the State of California (does 
not meet the definition of local community, neighborhood, or rural 
district).

V.B--Field of Membership Amendments

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

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

V.C.1--General

    All requests for approval to amend a community credit union's 
charter must be submitted to the appropriate regional director. If a 
decision cannot be made within a reasonable period of time, the 
regional director will notify the credit union.

V.C.2--NCUA's Decision

    The financial and operational condition of the requesting credit 
union will be considered in every instance. The economic advisability 
of expanding the field of membership of a credit union with financial 
or operational problems must be carefully considered.
    In most cases, field of membership amendments will only be approved 
for credit unions that are operating satisfactorily. Generally, if a 
federal credit union is having difficulty providing service to its 
current membership, or is experiencing financial or other operational 
problems, it may have more difficulty serving an expanded field of 
membership.
    Occasionally, however, an expanded field of membership may provide 
the basis for reversing current financial problems. In such cases, an 
amendment to expand the field of membership may be granted 
notwithstanding the credit union's financial or operational problems. 
The applicant credit union must clearly establish that the expanded 
field of membership is in the best interest of the members and will not 
increase the risk to the NCUSIF.

V.C.3--NCUA Approval

    If the requested amendment is approved by NCUA, the credit union 
will be issued an amendment to Section 5 of its charter.

V.C.4--NCUA Disapproval

    When NCUA disapproves any application to amend the field of 
membership, in whole or in part, under this chapter, the applicant will 
be informed in writing of the:
     Specific reasons for the action;
     If appropriate, options or suggestions that could be 
considered for gaining approval; and
     Appeal procedures.

V.C.5--Appeal of Regional Director Decision

    If a field of membership expansion, 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 a 
request for reconsideration by the regional director. The regional 
director will have 30 business days from the date of the receipt of the 
request for reconsideration to make a final decision. If the charter 
amendment is again denied, the credit union may proceed with the appeal 
process to the NCUA Board within 60 days of the date of the last denial 
by the regional director.

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

    There are three additional ways a community federal credit union 
can expand its field of membership:
     By taking in the field of membership of another credit 
union through a merger;
     By taking in the field of membership through a purchase 
and assumption (P&A); or
     By taking a portion of another credit union's field of 
membership through a spin-off.

V.D.1--Standard Mergers

    Generally, the requirements applicable to field of membership 
expansions apply to mergers where the continuing credit union is a 
community federal charter.
    Where both credit unions are community charters, the continuing 
credit union must meet the criteria for expanding the community 
boundaries. A community credit union cannot merge into a single 
occupational/associational, or multiple common bond credit union, 
except in an emergency merger. However, a single occupational/
associational, or multiple common bond credit union can merge into a 
community charter as long as the merging credit union has a service 
facility within the community boundaries or a majority of the merging 
credit union's field of membership would qualify for membership in the 
new community charter. While a community charter may take in an 
occupational, associational, or multiple common bond credit union in a 
merger, it will remain a community charter.
    Groups within the merging credit union's field of membership 
located outside of the community boundaries may not continue to be 
served. The merging credit union must nofify groups that will be 
removed from the field of membership as a result of the merger. 
However, the credit union may continue to serve members of record.
    Where a state credit union is merging into a community federal 
credit union, the continuing federal credit union's

[[Page 72040]]

field of membership will be worded in accordance with NCUA policy. Any 
subsequent field of membership expansions must comply with applicable 
amendment procedures.
    Mergers must be approved by the NCUA regional director where the 
continuing credit union is headquartered, with the concurrence of the 
regional director of the merging credit union, and, as applicable, the 
state regulators.

V.D.2--Emergency Mergers

    An emergency merger may be approved by NCUA without regard to field 
of membership requirements or other legal constraints. An emergency 
merger involves NCUA's direct intervention and approval. The credit 
union to be merged must either be insolvent or likely to become 
insolvent, and NCUA must determine that:
     An emergency requiring expeditious action exists;
     Other alternatives are not reasonably available; and
     The public interest would best be served by approving the 
merger.
    If not corrected, conditions that could lead to insolvency include, 
but are not limited to:
     Abandonment by management;
     Loss of sponsor;
     Serious and persistent record keeping; or
     Serious and persistent operational concerns.
    In an emergency merger situation, NCUA will take an active role in 
finding a suitable merger partner (continuing credit union). NCUA is 
primarily concerned that the continuing credit union has the financial 
strength and management expertise to absorb the troubled credit union 
without adversely affecting its own financial condition and stability.
    As a stipulated condition to an emergency merger, the field of 
membership of the merging credit union may be transferred intact to the 
continuing federal credit union without regard to any field of 
membership restrictions, including the service facility requirement, 
without changing the character of the continuing federal credit union 
for future amendments. Under this authority, a federal credit union may 
take in any dissimilar field of membership.
    Even though the merging credit union is a single common bond credit 
union or multiple common bond credit union or community credit union, 
the continuing credit union will remain a community charter. Future 
community expansions will be based on the continuing credit union's 
original community area.
    Emergency mergers involving federally insured credit unions in 
different NCUA regions must be approved by the regional director where 
the continuing credit union is headquartered, with the concurrence of 
the regional director of the merging credit union and, as applicable, 
the state regulators.

V.D.3--Purchase and Assumptions (P&As)

    Another alternative for acquiring the field of membership of a 
failing credit union is through a consolidation known as a P&A. 
Generally, the requirements applicable to community expansions found in 
this chapter apply to purchase and assumptions where the purchasing 
credit union is a federal charter.
    A P&A has limited application because, in most instances, the 
failing credit union must be placed into involuntary liquidation. 
However, in the few instances where a P&A may occur, the assuming 
federal credit union, as with emergency mergers, may acquire the entire 
field of membership if the emergency criteria are satisfied.
    In a P&A processed under the emergency criteria, specified loans, 
shares, and certain other designated assets and liabilities may also be 
acquired without regard to field of membership restrictions and without 
changing the character of the continuing federal credit union for 
purposes of future field of membership amendments.
    If the P&A does not meet the emergency criteria, then only members 
of record can be obtained unless they otherwise qualify for membership 
in the community charter.
    P&As involving federally insured credit unions in different NCUA 
regions must be approved by the regional director where the continuing 
credit union is headquartered, with the concurrence of the regional 
director of the purchased and/or assumed credit union and, as 
applicable, the state regulators.

V.D.4--Spin-Offs

    Generally, a spin-off occurs when, by agreement of the parties, a 
portion of the field of membership, assets, liabilities, shares and 
capital of a credit union, are transferred to a new or existing credit 
union. A spin-off is unique in that usually one credit union has a 
field of membership expansion and the other loses a portion of its 
field of membership.
    All field of membership requirements apply regardless of whether 
the spun-off group goes to a new or existing federal charter.
    The request for approval of a spin-off must be supported with a 
plan that addresses, at a minimum:
     Why the spin-off is being requested;
     What part of the field of membership is to be spun off;
     Whether the field of membership requirements are met;
     Which assets, liabilities, shares, and capital are to be 
transferred;
     The financial impact the spin-off will have on the 
affected credit unions;
     The ability of the acquiring credit union to effectively 
serve the new members;
     The proposed spin-off date; and
     Disclosure to the members of the requirements set forth 
above.
    The spin-off request must also include current financial statements 
from the affected credit unions and the proposed voting ballot.
    For federal credit unions spinning off a portion of the community, 
membership notice and voting requirements and procedures are the same 
as for mergers (see Part 708 of the NCUA Rules and Regulations), except 
that only the members directly affected by the spin-off--those whose 
shares are to be transferred--are permitted to vote. Members whose 
shares are not being transferred will not be afforded the opportunity 
to vote. Voting requirements for federally insured state credit unions 
are governed by state law.

V.E--Overlaps

V.E.1--General

    Generally, an overlap exists when a group of persons is eligible 
for membership in two or more credit unions, including state charters. 
In general, no overlap protection will be provided to single 
occupational and associational common bond, multiple common bond, and 
community credit unions from another community charter.
    A newly chartered single or multiple common bond credit union that 
has been in existence less than two years will be provided overlap 
protection from a newly chartered or converted federal community 
charter for a period of 12 to 24 months from the effective date of the 
overlapped credit union's charter. If safety and soundness concerns 
exist, overlap protection can be extended by the regional director for 
a period not to exceed 60 months from the date of charter. This 
moratorium will provide an opportunity for the new charter to remain 
economically viable. An exclusionary clause is not required if the 
overlapped credit union agrees to the overlap.

[[Page 72041]]

V.E.2--Exclusionary Clauses

    Exclusionary clauses are rarely appropriate for inclusion in a 
community credit union's field of membership and may only be granted 
for newly chartered single and multiple common bond credit unions. 
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 one of the affected credit unions petitions 
NCUA to remove an exclusionary clause and NCUA determines that removal 
is in the best interests of the members.

V.F--Charter Conversions

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

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

    A number of persons who have a close relationship to the community 
may be included, at the charter applicant's option, in the field of 
membership. These include the following:
     Spouses of persons who died while within the field of 
membership of this credit union;
     Employees of this credit union;
     Volunteers in the community;
     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.
    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.

CHAPTER 3--LOW-INCOME CREDIT UNIONS AND CREDIT UNIONS SERVING 
UNDERSERVED AREAS

I--Introduction

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

II--Low-Income Credit Union

II.A--Defined

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

II.B--Special Programs

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

II.C--Low-Income Documentation

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

[[Page 72042]]

    An existing credit union can perform a loan or membership survey to 
determine if the credit union is primarily serving low-income members.

II.D--Third Party Assistance

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

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

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

III--Service to Underserved Communities

    All federal credit unions may include in their fields of 
membership, without regard to location, communities satisfying the 
definition for serving underserved areas in the Federal Credit Union 
Act. More than one federal credit union can serve the same underserved 
area. The Federal Credit Union Act defines an underserved area as a 
local community, neighborhood, or rural district that is an 
``investment area'' as defined in Section 103(16) of the Community 
Development Banking and Financial Institutions Act of 1994.
    An investment area includes any of the following:
     An area encompassed or located in an 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.
    In addition, the local community, neighborhood, or rural district 
must be underserved, based on data considered by the NCUA Board and the 
Federal banking agencies.
    Once an underserved area has been added to a federal credit union's 
field of membership, the credit union must establish and maintain an 
office or facility in the community. A service facility is defined as a 
place where shares are accepted for members' accounts, loan 
applications are accepted and loans are disbursed. This definition 
includes a credit union owned branch, a shared branch, a mobile branch, 
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 federal credit union adding the underserved community must 
document that the community meets the definition for serving 
underserved areas in the Federal Credit Union Act. The charter type of 
a federal credit union adding such a community will not change and 
therefore the credit union will not be able to receive the benefits 
afforded to low-income designated credit unions, such as expanded use 
of non member deposits and access to the Community Development 
Revolving Loan Program for Credit Unions.
    A federal credit union that desires to include an underserved 
community in its field of membership must first develop a business plan 
specifying how it will serve the community. The business plan, at a 
minimum, must identify the credit and depository needs of the community 
and detail how the credit union plans to serve those needs. The credit 
union will be expected to regularly review the business plan, to 
determine if the community is being adequately served. 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 are being met as well as requiring such reports before 
NCUA allows a federal credit union to add an additional underserved 
area.

CHAPTER 4--CHARTER CONVERSIONS

I--Introduction

    A charter conversion is a change in the jurisdictional authority 
under which a credit union operates.
    Federal credit unions receive their charters from NCUA and are 
subject to its supervision, examination, and regulation.

[[Page 72043]]

    State-chartered credit unions are incorporated in a particular 
state, receiving their charter from the state agency responsible for 
credit unions and subject to the state's regulator. If the state-
chartered credit union's deposits are federally insured it will also 
fall under NCUA's jurisdiction.
    A federal credit union's power and authority are derived from the 
Federal Credit Union Act and NCUA Rules and Regulations. State-
chartered credit unions are governed by state law and regulation. 
Certain federal laws and regulations also apply to federally insured 
state chartered credit unions.
    There are two types of charter conversions: federal charter to 
state charter and state charter to federal charter. Common bond and 
community requirements are not an issue from NCUA's standpoint in the 
case of a federal to state charter conversion. The procedures and forms 
relevant to both types of charter conversion are included in Appendix 
D.

II--Conversion of a State Credit Union to a Federal Credit Union

II.A--General Requirements

    Any state-chartered credit union may apply to convert to a federal 
credit union. In order to do so it must:
     Comply with state law regarding conversion;
     File proof of compliance with NCUA;
     File the required conversion application, proposed federal 
credit union organization certificate, and other documents with NCUA;
     Comply with the requirements of the Federal Credit Union 
Act, e.g., chartering and reserve requirements; and
     Be granted federal share insurance by NCUA.
    Conversions are treated the same as any initial application for a 
federal charter, including mandatory on-site examination by NCUA. NCUA 
will also consult with the appropriate state authority regarding the 
credit union's current financial condition, management expertise, and 
past performance. Since the applicant in a conversion is an ongoing 
credit union, the economic advisability of granting a charter is more 
readily determinable than in the case of an initial charter applicant.
    A converting state credit union's field of membership must conform 
to NCUA's chartering policy. The field of membership will be phrased in 
accordance with NCUA chartering policy. Subsequent changes must conform 
to NCUA chartering policy in effect at that time. The converting credit 
union may continue to serve members of record.
    If the converting credit union is a community charter and the new 
federal charter is community-based, it must meet the community field of 
membership requirements set forth in Chapter 2, Section V. If the state 
chartered credit union's community boundary is more expansive than the 
approved federal boundary, only members of record outside of the new 
community boundary may continue to be served.

II.B--Submission of Conversion Proposal to NCUA

    The following actions must be taken before submitting a conversion 
proposal:
     The credit union board must approve a proposal for 
conversion.
     The Application to Convert (NCUA 4401) must be completed. 
Its purpose is to provide the regional director with information on the 
present operating policies and financial condition of the credit union 
and the reasons why the conversion is desired. A continuation sheet may 
be used if space on the form is inadequate. Particular attention should 
be given to answering the question on the reasons for conversion. These 
reasons should be stated in specific terms, not as generalities.
     The application must be accompanied by all required 
attachments including the following:
     Written evidence regarding whether the state regulator is 
in agreement with the conversion proposal;
     The Application and Agreements for Insurance of Accounts 
(NCUA 9500);
     The Federal Credit Union Investigation Report, Conversion 
of State Charter to Federal Charter (NCUA 4000);
     The most current financial report and delinquent loan 
schedule; and
     The Organization Certificate (NCUA 4008). Only Part (3) 
and the signature/notary section of page 4 should be completed and, 
where applicable, signed by the credit union officials. The NCUA 
regional office will complete the other sections of this document.
    If the state charter is applying to become a federal community 
charter, it must also comply with the documentation requirements 
included in Chapter 2, Sections V.A.2 and V.A.3.

II.C--NCUA Consideration of Application to Convert

II.C.1--Review by the Regional Director

    The application will be reviewed to determine that it is complete 
and that the proposal is in compliance with Section 125 of the Federal 
Credit Union Act. This review will include a determination that the 
state credit union's field of membership is in compliance with NCUA's 
chartering policies. The regional director may make further 
investigation into the proposal and may require the submission of 
additional information to support the request to convert. At this 
point, NCUA will conduct an on-site review of the credit union.

II.C.2--On-Site Review

    NCUA will conduct an on-site examination of the books and records 
of the credit union. Non-federally insured credit unions will be 
assessed an insurance application fee.

II.C.3--Approval by the Regional Director and Conditions to the 
Approval

    The conversion will be approved by the regional director if it is 
in compliance with Section 125 of the Federal Credit Union Act and 
meets the criteria for federal insurance. Where applicable, the 
regional director will specify any special conditions that the credit 
union must meet in order to convert to a federal charter, including 
changes to the credit union's field of membership in order to conform 
to NCUA's chartering policies. Some of these conditions may be set 
forth in a Letter of Understanding and Agreement (LUA), which requires 
the signature of the officials and the regional director.

II.C.4--Notification

    The regional director will notify both the credit union and the 
state regulator of the decision on the conversion.

II.C.5--NCUA Disapproval

    When NCUA disapproves any application to convert to a federal 
charter, 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.

II.C.6--Appeal of Regional Director Decision

    If a conversion to a federal charter is denied by the regional 
director, the applicant 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

[[Page 72044]]

of the facts and present the appeal to the NCUA Board with a 
recommendation.
    Before appealing, the credit union may, within 30 days of the 
denial, provide supplemental information to the regional director for 
reconsideration. The request will not be considered as an appeal, but a 
request for reconsideration by the regional director. The regional 
director will have 30 business days from the date of the receipt of the 
request for reconsideration to make a final decision. If the 
application 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--Action by Board of Directors

II.D.1--General

    Upon being informed of the regional director's preliminary 
approval, the board must:
     Comply with all requirements of the state regulator that 
will enable the credit union to convert to a federal charter and cease 
being a state credit union;
     Obtain a letter or official statement from the state 
regulator certifying that the credit union has met all of the state 
requirements and will cease to be a state credit union upon its 
receiving a federal charter. A copy of this document must be submitted 
to the regional director;
     Obtain a letter from the private share insurer (includes 
excess share insurers), if applicable, certifying that the credit union 
has met all withdrawal requirements. A copy of this document must be 
submitted to the regional director; and
     Submit a statement of the action taken to comply with any 
conditions imposed by the regional director in the preliminary approval 
of the conversion proposal and, if applicable, submit the signed LUA.

II.D.2--Application for a Federal Charter

    When the regional director has received evidence that the board of 
directors has satisfactorily completed the actions described above, the 
federal charter and new Certificate of Insurance will be issued.
    The credit union may then complete the conversion as discussed in 
the following section. A denial of a conversion application can be 
appealed. (See Chapter 1, section VII.D)

II.E--Completion of the Conversion

II.E.1--Effective Date of Conversion

    The date on which the regional director approves the Organization 
Certificate and the Application and Agreements for Insurance of 
Accounts is the date on which the credit union becomes a federal credit 
union. The regional director will notify the credit union and the state 
regulator of the date of the conversion.

II.E.2--Assumption of Assets and Liabilities

    As of the effective date of the conversion, the federal credit 
union will be the owner of all of the assets and will be responsible 
for all of the liabilities and share accounts of the state credit 
union.

II.E.3--Board of Directors' Meeting

    Upon receipt of its federal charter, the board will hold its first 
meeting as a federal credit union. At this meeting, the board will 
transact such business as is necessary to complete the conversion as 
approved and to operate the credit union in accordance with the 
requirements of the Federal Credit Union Act and NCUA Rules and 
Regulations.
    As of the commencement of operations, the accounting system, 
records, and forms must conform to the standards established by NCUA.

II.E.4--Credit Union's Name

    Changing of the credit union's name on all signage, records, 
accounts, investments, and other documents should be accomplished as 
soon as possible after conversion. The credit union has 180 days from 
the effective date of the conversion to change its signage and 
promotional material. This requires the credit union to discontinue 
using any remaining stock of ``state credit union'' stationery 
immediately, and discontinue using credit cards, ATM cards, etc. within 
180 days after the effective date of the conversion, or the reissue 
date--whichever is later. The regional director has the discretion to 
extend the timeframe for an additional 180 days. Member share drafts 
with the state chartered name can be used by the member until depleted.

II.E.5--Reports to NCUA

    Within 10 business days after commencement of operations, the 
recently converted federal credit union must submit to the regional 
director the following:
     Report of Officials (NCUA 4501); and
     Financial and Statistical Reports, as of the commencement 
of business of the federal credit union.

III--Conversion of a Federal Credit Union to a State Credit Union

III.A--General Requirements

    Any federal credit union may apply to convert to a state credit 
union. In order to do so, it must:
     Notify NCUA prior to commencing the process to convert to 
a state charter and state the reason(s) for the conversion;
     Comply with the requirements of Section 125 of the Federal 
Credit Union Act that enable it to convert to a state credit union and 
to cease being a federal credit union; and
     Comply with applicable state law and the requirements of 
the state regulator.
    It is important that the credit union provide an accurate 
disclosure of the reasons for the conversion. These reasons should be 
stated in specific terms, not as generalities.

III.B--Special Provisions Regarding Federal Share Insurance

    If the federal credit union intends to continue federal share 
insurance after the conversion to a state credit union, it must submit 
an Application for Insurance of Accounts (NCUA 9600) to the regional 
director at the time it requests approval of the conversion proposal. 
The regional director has the authority to approve or disapprove the 
application.
    If the converting federal credit union does not intend to continue 
federal share insurance or if its application for continued insurance 
is denied, insurance will cease in accordance with the provisions of 
Section 206 of the Federal Credit Union Act.
    If, upon its conversion to a state credit union, the federal credit 
union will be terminating its federal share insurance or converting 
from federal to non-federal share insurance, it must comply with the 
membership notice and voting procedures set forth in Section 206 of the 
Federal Credit Union Act and Part 708 of NCUA's Rules and Regulations, 
and address the criteria set forth in Section 205(c) of the Federal 
Credit Union Act.
    Where the state credit union will be non-federally insured, federal 
insurance ceases on the effective date of the charter conversion. If it 
will be otherwise uninsured, then federal insurance will cease one year 
after the date of conversion subject to the restrictions in Section 
206(d)(1) of the Federal Credit Union Act. In either case, the state 
credit union will be entitled to a refund of the federal credit union's 
NCUSIF capitalization deposit after the

[[Page 72045]]

final date on which any of its shares are federally insured.
    The NCUA Board reserves the right to delay the refund of the 
capitalization deposit for up to one year if it determines that payment 
would jeopardize the NCUSIF.

III.C--Submission of Conversion Proposal to NCUA

    Upon approval of a proposition for conversion by a majority vote of 
the board of directors at a meeting held in accordance with the federal 
credit union's bylaws, the conversion proposal will be submitted to the 
regional director and will include:
     A current financial report;
     A current delinquent loan schedule;
     An explanation and appropriate documents relative to any 
changes in insurance of member accounts;
     A resolution of the board of directors;
     A proposed Notice of Special Meeting of the Members (NCUA 
4221);
     A copy of the ballot to be sent to all members (NCUA 
4506);
     Evidence that the state regulator is in agreement with the 
conversion proposal; and
     A statement of reasons supporting the request to convert.

III.D--Approval of Proposal to Convert

III.D.1--Review by the Regional Director

    The proposal will be reviewed to determine that it is complete and 
is in compliance with Section 125 of the Federal Credit Union Act. The 
regional director may make further investigation into the proposal and 
require the submission of additional information to support the 
request.

III.D.2--Conditions to the Approval

    The regional director will specify any special conditions that the 
credit union must meet in order to proceed with the conversion.

III.D.3--Approval by the Regional Director

    The proposal will be approved by the regional director if it is in 
compliance with Section 125 and, in the case where the state credit 
union will no longer be federally insured, the notice and voting 
requirements of Section 206 of the Federal Credit Union Act.

III.D.4--Notification

    The regional director will notify both the credit union and the 
state regulator of the decision on the proposal.

III.D.5--NCUA Disapproval

    When NCUA disapproves any application to convert to a state 
charter, 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.D.6--Appeal of Regional Director Decision

    If a conversion to a state charter is denied by the regional 
director, the applicant credit union may appeal the decision to the 
NCUA Board. An appeal must be sent to the appropriate regional office 
within 60 days of the date of denial and must address the specific 
reason(s) for the denial. The regional director will then forward the 
appeal to the NCUA Board. NCUA central office staff will make an 
independent review of the facts and present the appeal to the NCUA 
Board with a recommendation.
    Before appealing, the credit union may, within 30 days of the 
denial, provide supplemental information to the regional director for 
reconsideration. The request will not be considered as an appeal, but a 
request for reconsideration by the regional director. The regional 
director will have 30 business days from the date of the receipt of the 
request for reconsideration to make a final decision. If the 
application 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.E--Approval of Proposal by Members

    The members may not vote on the proposal until it is approved by 
the regional director. Once approval of the proposal is received, the 
following actions will be taken by the board of directors:
     The proposal must be submitted to the members for approval 
and a date set for a meeting to vote on the proposal. The proposal may 
be acted on at the annual meeting or at a special meeting for that 
purpose. The members must also be given the opportunity to vote by 
written ballot to be filed by the date set for the meeting.
     Members must be given advance notice (NCUA 4221) of the 
meeting at which the proposal is to be submitted. The notice must:
     Specify the purpose, time and place of the meeting;
     Include a brief, complete, and accurate statement of the 
reasons for and against the proposed conversion, including any effects 
it could have upon share holdings, insurance of member accounts, and 
the policies and practices of the credit union;
     Specify the costs of the conversion, i.e., changing the 
credit union's name, examination and operating fees, attorney and 
consulting fees, tax liability, etc.;
     Inform the members that they have the right to vote on the 
proposal at the meeting, or by written ballot to be filed not later 
than the date and time announced for the annual meeting, or at the 
special meeting called for that purpose;
     Be accompanied by a Ballot for Conversion Proposal (NCUA 
4506); and
     State in bold face type that the issue will be decided by 
a majority of members who vote.
     The proposed conversion must be approved by a majority of 
all of the members who vote on the proposal, a quorum being present, in 
order for the credit union to proceed further with the proposition, 
provided federal insurance is maintained. If the proposed state 
chartered credit union will not be federally insured, 20 percent of the 
total membership must participate in the voting, and of those, a 
majority must vote in favor of the proposal. Ballots cast by members 
who did not attend the meeting but who submitted their ballots in 
accordance with instructions above will be counted with votes cast at 
the meeting. In order to have a suitable record of the vote, the voting 
at the meeting should be by written ballot as well.
     The board of directors shall, within 10 days, certify the 
results of the membership vote to the regional director. The statement 
shall be verified by affidavits of the Chief Executive Officer and the 
Recording Officer on NCUA 4505.

III.F--Compliance With State Laws

    If the proposal for conversion is approved by a majority of all 
members who voted, the board of directors will:
     Ensure that all requirements of state law and the state 
regulator have been accommodated;
     Ensure that the state charter or the license has been 
received within 90 days from the date the members approved the proposal 
to convert; and
     Ensure that the regional director is kept informed as to 
progress toward conversion and of any material delay or of substantial 
difficulties which may be encountered.
    If the conversion cannot be completed within the 90-day period, the 
regional director should be informed of the reasons for the delay. The 
regional director may set a new date for the conversion to be 
completed.

[[Page 72046]]

III.G--Completion of Conversion

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

Appendix A--Glossary

    These definitions apply only for use with this Manual. 
Definitions are not intended to be all inclusive or comprehensive. 
This Manual, the Federal Credit Union Act, and NCUA Rules and 
Regulations, as well as state laws, may be used for further 
reference.
    Adequately capitalized--A credit union is considered adequately 
capitalized when it has a net worth ratio of at least 6 percent. A 
multiple common bond credit union must be adequately capitalized in 
order to add new groups to its charter.
    Affinity--A relationship upon which a community charter is 
based. Acceptable affinities include living, working, worshiping, or 
attending school in a community.
    Appeal--The right of a credit union or charter applicant to 
request a formal review of a regional director's adverse decision by 
the National Credit Union Administration Board.
    Association common bond--A common bond comprised of members and 
employees of a recognized association. It includes individuals 
(natural persons) and/or groups (non natural persons) whose members 
participate in activities developing common loyalties, mutual 
benefits, and mutual interests.
    Business plan--Plan submitted by a charter applicant or existing 
federal credit union addressing the economy advisability of a 
proposed charter or field of membership addition.
    Charter--The document which authorizes a group to operate as a 
credit union and defines the fundamental limits of its operating 
authority, generally including the persons the credit union is 
permitted to accept for membership. Charters are issued by the 
National Credit Union Administration for federal credit unions and 
by the designated state chartering authority for credit unions 
organized under the laws of that state.
    Common bond--The Characteristic or combination of a 
characteristics which distinguishes a particular group of persons 
from the general public. There are two common bonds which can serve 
as a basis for a group forming a federal credit union or being 
included in an existing federal credit union's field of membership: 
occupational--employment by the same company or related companies; 
and associational--membership in the same association.
    Community credit union--A credit union whose field of membership 
consists of persons who live, work, worship, or attend school in the 
same well-defined local community, neighborhood, or rural district.
    Credit union--A member-owned, not-for-profit cooperative 
financial institution formed to permit those in the field of 
membership specified in the charter to save, borrow, and obtain 
related financial services.
    Economic advisability--An overall evaluation of the credit 
union's or charter applicant's ability to operate successfully.
    Emergency merger--Pursuant to Section 205(h) of the Federal 
Credit Union Act, authority of NCUA to merge two credit unions 
without regard to common bond policy.
    Exclusionary clause--A limitation, written in a credit union's 
charter, which precludes the credit union from serving a portion of 
a group which otherwise could be included in its field of 
membership. Exclusionary clauses are used to prevent certain 
overlaps of fields of membership between credit unions.
    Federal share insurance--Insurance coverage provided by the 
National Credit Union Share Insurance Fund and administered by the 
National Credit Union Administration. Coverage is provided for 
qualified accounts in all federal credit unions and participating 
state credit unions.
    Field of membership--The persons (including organizations and 
other legal entities) a credit union is permitted to accept for 
membership.
    Household--Persons living in the same residence maintaining a 
single economic unit.
    Immediate family member--A spouse, child, sibling, parent, 
grandparent, or grandchild. This includes stepparents, stepchildren, 
stepsiblings, and adoptive relationships.
    Letter of Understanding and Agreement--Agreement between NCUA 
and federal credit union officials not to engage in certain 
activities and/or to establish reasonable operational goals. These 
are normally entered into with new charter applicants for a limited 
time.
    Low income credit union--A low-income credit union is defined in 
Section 701.34 of the NCUA Rules and Regulations as one where a 
majority of its members either earn less than 80 percent of the 
average for all wage earners as established by the Bureau of Labor 
Statistics, or whose annual household income falls at or below 80 
percent of the median household income for the nation. The term 
``low income'' also includes members who are full-time or part-time 
students in a college, university, high school, or vocational 
school.

[[Page 72047]]

    Mentor--An individual who provides guidance and assistance to 
newly chartered, small, or low-income credit unions. All new federal 
credit unions are encouraged to establish a mentor relationship with 
a trained, experienced credit union individual or an existing credit 
union.
    Merger--Absorption by one credit union of all of the assets, 
liabilities and equity of another credit union. Mergers must be 
approved by the National Credit Union Administration and by the 
appropriate state regulator whenever a state credit union is 
involved.
    Multiple common bond credit union--A credit union whose field of 
membership consist of more than one group, each of which has a 
common bond of occupation or association.
    Occupational common bond--Employment by the same entity or 
related entities.
    Once a member, always a member--A provision of the Federal 
Credit Union Act which permits an individual to remain a member of 
the credit union until he or she chooses to withdraw or is expelled 
from the membership of the credit union. Under this provision, 
leaving a group that is named in the credit union's charter does not 
terminate an individual's membership in the credit union.
    Overlap--The situation which results when a group is eligible 
for membership in more than one credit union.
    Primary potential members--Members or employees who belong to an 
associational or occupational group, or persons who live, work, 
worship, or attend school within a community chartered credit 
union's field of membership.
    Purchase and assumption--Purchase of all or part of the assets 
of and assumption of all or part of the liabilities or one credit 
union by another credit union. The purchased and assumed credit 
union must first be placed into involuntary liquidation.
    Service area--The area that can reasonably be served by the 
service facilities accessible to the groups within the field of 
membership.
    Service facility--A place where shares are accepted for members' 
accounts, loan applications are accepted, and loans are dispersed.
    Single associational common bond credit union--A credit union 
whose field of membership includes members and employees of a 
recognized association.
    Single common bond credit union--A credit union whose field of 
membership consists of one group which has a common bond of 
occupation or association.
    Single occupational common bond credit union--A credit union 
whose field of membership consists of employees of the same entity 
or related entities.
    Spin-off--The transfer of a portion of the field of membership, 
assets, liabilities, shares, and capital of one credit union to a 
new or existing credit union.
    Subscribers--For a federal credit union, at least seven 
individuals who sign the charter application and pledge at least one 
share.
    Underserved community--A local community, neighborhood, or rural 
district that is an ``investment area'' as defined in Section 
103(16) of the Community Development Banking and Financial 
institutions Act of 1994. The area must also be underserved based on 
other NCUA and federal banking agency data.
    Unsafe or unsound practice--Any action, or lack of action, which 
would result in an abnormal risk or loss to the credit union, its 
members, or the National Credit Union Share Insurance Fund.

Appendix B--Letter of Understanding and Agreement

    To the Board of Directors and Other Officials 
____________________ Federal Credit Union
    Since the purposes of credit unions are to promote thrift and to 
make funds available for loans to credit union members for provident 
and productive purposes, and since newly chartered credit unions do 
not generally have a sufficient reserves to cover large losses on 
loans or meet unduly large liquidity requirements, Federal insurance 
coverage of member accounts under the National Credit Union Share 
Insurance Fund will be granted to the above named credit union 
subject to the conditions listed in this Letter of Understanding and 
Agreement and in the Organization Certificate and Application and 
Agreements for Insurance of Accounts. These terms are listed below 
and are subject to acceptance by authorized credit union officials.
    1. The credit union will refrain from soliciting or accepting 
brokered fund deposits from any source without the prior written 
approval of the Regional Director.
    2. The credit union will refrain from the marking of large 
loans, that is, loans in excess of 5 percent of unimpaired capital 
and surplus, to any one member or group of members without the prior 
written approval of the Regional Director.
    3. The credit union will not establish or invest in a Credit 
Union Service Organization (CUSO) without the prior written approval 
of the Regional Director.
    4. The credit union will not enter into any insurance programs 
whereby the credit union member finances the payment of insurance 
premiums through loans from the credit union.
    5. Any special insurance plan/program, that is, insurance other 
than usual and normal surety bonding or casualty or liability or 
loan protection and life savings insurance coverage, which the 
credit union officials intend to undertake, will be submitted to the 
Regional Director of the National Credit Union Administration for 
written approval prior to the officials committing the credit union 
thereto.
    6. The credit union will prepare and mail to the district 
examiner financial and statistical reports as required by the 
Federal Credit Union Act and Bylaws by the 20th of each month 
following that for which the report is prepared.
    7. As the credit union's officials gain experience and the 
credit union achieves target levels of growth and profitability, the 
above terms and conditions may be renegotiated by the two parties.
    We, the undersigned officials of the ____________________ 
Federal Credit Union, as authorized by the board of directors, 
acknowledge receipt of and agree to the attached Letter of 
Understanding and Agreement dated ____________________.
    This Letter of Understanding and Agreement has been voluntarily 
entered into with the National Credit Union Administration. We agree 
to comply with all terms and conditions expressed in this Letter of 
Understanding and Agreement.
    Should the NCUA Board determine that these terms and conditions 
have not been complied with or that the board of directors or other 
officials have not conducted the affairs of the credit union in a 
sound and prudent manner, the NCUA Board may terminate insurance 
coverage of the credit union. If actions by the officials, in 
violation of this Letter of Understanding and Agreement, cause the 
credit union to become insolvent, the officials assume such personal 
liability as may result from their actions.
    The term of this Letter of Understanding and Agreement shall be 
for the period of at least 24 months from the date the credit union 
is insured. This Letter of Understanding and Agreement may, at the 
option of the Regional Director, be extended for an additional 24 
months at the end of the initial term of this agreement.

    Dated this ______ of ________________ ________.
    National Credit Union Administration Board on behalf of the 
National Credit Union Share Insurance Fund.

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

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

By:

----------------------------------------------------------------------
Chief Executive Officer

----------------------------------------------------------------------
Date

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

----------------------------------------------------------------------
Date

----------------------------------------------------------------------
Secretary

----------------------------------------------------------------------
Date

Appendix C--NCUA Offices

Central Office

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

Region I--Albany

9 Washington Square, Washington Avenue Extension, Albany, NY 12205-
5512, Commercial: 518-862-7400, FAX: 518-862-7420

Connecticut
Massachusetts
New York
Vermont
Maine
New Hampshire
Rhode Island

Region II--Capital

1775 Duke Street, Suite 4206, Alexandria, VA 22314-3437, Commercial: 
703-519-4600, FAX: 703-519-4620


[[Page 72048]]


Delaware
Maryland
Pennsylvania
District of Columbia
New Jersey
Virginia

Region III--Atlanta

7000 Central Parkway, Suite 1600, Atlanta, GA 30328-4598, 
Commercial: 678-443-3300, FAX: 678-443-3020

Alabama
Florida
Kentucky
Mississippi
Puerto Rico
Tennessee
Arkansas
Georgia
Louisiana
North Carolina
South Carolina
Virgin Islands

Region IV--Chicago

4225 Naperville Road, Suite 125, Lisle, IL 60532-3658, Commercial: 
630-955-4100, FAX: 630-955-4120

Illinois
Michigan
Ohio
West Virginia
Indiana
Missouri
Wisconsin

Region V--Austin

4807 Spicewood Springs Road, Suite 5200, Austin, TX 78759-8490, 
Commercial: 512-482-4500, FAX: 512-482-4511

Arizona
Iowa
Minnesota
New Mexico
Oklahoma
Texas
Colorado
Kansas
Nebraska
North Dakota
South Dakota

Region VI--Pacific

2300 Clayton Road, Suite 1350, Concord, CA 94520-2407, Commercial: 
925-363-6200, FAX: 925-363-6220

Alaska
Guam
Idaho
Nevada
Utah
Wyoming
California
Hawaii
Montana
Oregon
Washington

BILLING CODE 4210-01-P

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Appendix E--Trade Associations

Credit Union National Association (CUNA), P.O. Box 431, Madison, WI 
53701, 608-231-4000
National Association of Federal Credit Unions (NAFCU), 3138 N. 10th 
Street, Suite 300, Arlington, VA 22201, 703-522-4770
National Association of State Credit Union Supervisors (NASCUS), 
1901 North Fort Myer Drive, Suite 201, Arlington, VA 22209, 703-528-
8351
National Federation of Community Development Credit Unions (NFCDCU), 
120 Wall Street, 10th Floor, New York, NY 10005-3902, 212-809-1850

[FR Doc. 98-34032 Filed 12-29-98; 8:45 am]
BILLING CODE 4210-01-P