[Federal Register Volume 66, Number 245 (Thursday, December 20, 2001)]
[Rules and Regulations]
[Pages 65625-65628]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-31290]



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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701


Organization and Operations of Federal Credit Unions

AGENCY: National Credit Union Administration (NCUA).

ACTION: Interim final rule with request for comments.

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SUMMARY: The NCUA Board is amending its chartering and field of 
membership manual to make two changes to ease regulatory burden on 
community charters and to update the requirements for a credit union to 
add an underserved area to its charter. First, an existing community 
charter need not document in writing how it plans on serving the entire 
community. Second, the Board is updating the definition of an 
investment area because of the release of new census data and updated 
Community Development Financial Institution Fund standards. These 
amendments will help reduce the costs for community charters and make 
it easier for credit unions to serve underserved areas.

DATES: Effective Date: This rule is effective December 20, 2001. 
Comment Date: Comments must be received on for before February 19, 
2002.

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

FOR FURTHER INFORMATION CONTACT: J. Leonard Skiles, Chairman, Field of 
Membership Task Force, at the above address or telephone: (703) 518-
6320 or Michael J. McKenna, Senior Staff Attorney, Division of 
Operations, Office of General Counsel, at the above address or 
telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:   

Background

    NCUA's chartering and field of membership policy is set out in 
Interpretive Ruling and Policy Statement 99-1, Chartering and Field of 
Membership Policy (IRPS 99-1), as amended by IRPS 00-01 and IRPS 01-01. 
The policy is incorporated by reference in NCUA's regulations at 12 CFR 
701.1. It is also published as NCUA's Chartering and Field of 
Membership Manual (Chartering Manual), which is the document most 
interested parties use and to which references in the following 
discussion are made.

Community Charters

    Last year, the NCUA Board required an existing community charter to 
address, in either its marketing or business plan or other appropriate 
separate documentation, how it plans on serving the entire community, 
including how the credit union will market to the community and what 
products and services the credit union will offer to assist underserved 
members in the community. Some in the credit union community refer to 
this as the community action plan requirement or as CAP, though the 
final rule does not use that term. The NCUA Board stated in the 
preamble to the final rule that ``existing credit unions will have 
until December 31, 2001 to have a plan in place addressing how the 
credit union will serve the entire community.'' 65 FR 64512, 64518 
(October 27, 2000). The Board implemented this rule even while 
recognizing that there was no tangible evidence that credit unions were 
not planning on serving their entire community. In fact, the NCUA Board 
stated that, based ``on the comments of community credit unions and the 
submissions some of them provided, many community credit unions already 
have adopted plans and offer products and services designed to serve 
the entire community.'' 65 FR 64512, 64517 (October 27, 2000).
    The NCUA Board notes that, while it certainly has the legal 
authority to impose this regulatory requirement, it has continued to 
review the necessity of imposing it on a specific type of federal 
credit union charter. The NCUA Board, after discussing this issue 
further with agency staff and the credit union community, has decided 
to repeal this regulatory requirement. This Board has determined that 
requiring only certain credit unions to adopt specific written policies 
addressing service to the entire community, where there is no evidence 
credit unions are not attempting to serve their entire communities, is 
not a reasonable regulatory practice, particularly when this regulatory 
requirement raises little, if any, safety and soundness concerns.
    This Board believes that a regulation that does not address a 
substantiated concern or a potential problem is unnecessary. In this 
case, absent evidence that community charters are not marketing their 
services to their entire communities, removing the regulatory 
requirement is prudent.

Underserved Areas

    The addition of underserved areas, as defined in Chapter 3 of the 
Chartering Manual, to the field of membership of operating credit 
unions is a continuing priority of the NCUA Board. Three criteria must 
be met before an underserved area can be added to any federal credit 
union's field of membership. First, the area must be a local community. 
Second, the area must also be classified as an investment area as 
defined in section 103(16) of the Community Development Banking and 
Financial Institutions Act of 1994, 12 U.S.C. 4703(16). Third, the 
credit union adding the underserved area must establish and maintain an 
office or facility in the local community.
    Last year, the NCUA Board made it less burdensome for federal 
credit unions to add underserved areas. 65 FR 64512 (October 27, 2000). 
The NCUA Board modified its policy by stating that a credit union would 
not have to demonstrate common interests or interaction for a local 
community if the underserved area to be served is (1) in a recognized 
political jurisdiction, i.e., a county or its political equivalent or 
any contiguous political subdivisions contained therein, and if the 
population of the requested well-defined area does not exceed 300,000, 
or (2) 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. The NCUA Board also stated that it presumed that an 
underserved area for purposes of the investment area criteria would 
have significant unmet needs for loans or equity investment if the area 
met the poverty, median family income, unemployment, distressed 
housing, or population loss criteria set forth in the Community 
Development Banking and Financial Institutions Act of 1994. Because of 
these changes and greater interest by the credit union community, the 
number of underserved areas added to federal credit union's field of 
membership increased from 50 in 2000 to 231 as of November 30, 2001.
    The NCUA Board is continuing to update this section of the 
Chartering Manual to encourage further development of credit unions in 
underserved areas and thereby improve financial services to those most 
in need. The primary reason for this update is the release of the 2000 
census.
    The Chartering Manual provides examples of what an investment area 
is for the purpose of adding an underserved area. The Federal Credit 
Union Act defines an underserved area

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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. The 1994 
law permits the Community Development Financial Institutions Fund of 
the United States Department of the Treasury (CDFI Fund) to further 
define investment areas. With the release of the 2000 census as well as 
further expansion of an investment area by CDFI, the Board is updating 
the definition of an investment area in Chapter 3 of the Chartering 
Manual. These changes will make the Chartering Manual consistent with 
the data in the 2000 census as well as the modifications promulgated by 
the CDFI Fund. These amendments will ultimately make it easier for 
credit unions to add underserved areas and thus serve more members of 
modest means.

Interim Final Rule

    Since issuance of the community service plan requirement, the 
credit union community has continued to debate its necessity and 
benefits. The Board notes that previous comment was overwhelmingly 
against this type of provision and wishes to consider further comment. 
The NCUA Board is issuing this amendment to its chartering regulation 
as an interim final rule because it removes a burdensome regulation and 
merely updates the agencies definition of an investment area for the 
purpose of adding underserved areas. The Board believes that both these 
actions are necessary and in the public interest because of the recent 
and sudden increase in credit union asset growth and the current 
uncertainty in the national economy. Furthermore, the Board believes 
the amendments further the public interest in removing a potentially 
costly and unnecessary regulatory burden and promotes the efficient use 
of agency resources and staff. Accordingly, for good cause, the Board 
finds that, pursuant to 5 U.S.C. 553(b)(3)(B), notice and public 
procedures are impracticable, unnecessary, and contrary to the public 
interest; and, pursuant to 5 U.S.C. 553(d)(3), the rule shall be 
effective immediately and without 30 days advance notice of 
publication. Although the rule is being issued as an interim final rule 
and is effective immediately, the NCUA Board encourages interested 
parties to submit comment on whether the community service plan 
requirement should be deleted from the Chartering Manual and the 
definition of investment area for the purpose of adding underserved 
areas should be finalized in the Chartering Manual.

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 amendments 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

    The NCUA Board has determined that this interim final rule does not 
increase, and will in fact reduce, paperwork requirements under the 
Paperwork Reduction Act and regulations of the Office of Management and 
Budget.

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub. L. 104-121) provides generally for congressional review of agency 
rules. A reporting requirement is triggered in instances where NCUA 
issues a final rule as defined by section 551 of the Administrative 
Procedures Act. 5 U.S.C. 551. The rule has been submitted to the Office 
of Management and Budget for its determination of whether this is a 
major rule.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their regulatory actions on state and local 
interests. In adherence to fundamental federalism principles, NCUA, an 
independent regulatory agency as defined in 44 U.S.C. 3502(5), 
voluntarily complies with the executive order. This final rule only 
applies to federal credit unions. It will not have substantial direct 
effect on the states, on the relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. NCUA has 
determined that this rule does not constitute a policy that has 
federalism implications for purposes of the executive order.

Agency Regulatory Goal

    NCUA's goal is clear, understandable regulations that impose a 
minimal regulatory burden. We request your comments on whether the 
proposed amendments are understandable and minimally intrusive if 
implemented as proposed.

List of Subjects in 12 CFR Part 701

    Credit, Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on December 
13, 2001.
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 15 U.S.C. 3717. Section 701.31 
is also authorized by 15 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 (IRPS 99-1), as amended by IRPS 00-1, IRPS 
01-1 and IRPS 01-3. Copies may be obtained by contacting NCUA at the 
address found in Sec. 792.2(g)(1) of this chapter. The combined IRPS 
are incorporated into this section.
    (Approved by the Office of Management and Budget under control 
number 3133-0015.)

    Note: The text of the Interpretive Ruling and Policy Statement 
(IRPS 99-1) does not, and the following amendments will not, appear 
in the Code of Federal Regulations.



    3. In IRPS 99-1, Chapter 2, Section V.A.2 is revised to read as 
follows:

    In addition to the documentation requirements set forth in 
Chapter 1 to charter a credit union, a community credit union 
applicant must provide additional 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.

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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 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 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;
     Other documentation that demonstrates that the area is 
a community where individuals have common interests or interact.
    An applicant need not submit a narrative summary or 
documentation to support a proposed community charter, amendment or 
conversion as a well-defined local community, neighborhood, or rural 
district if the NCUA has previously determined that the same exact 
geographic area meets that requirement in connection with 
consideration of a prior application. Applicants may contact the 
appropriate regional office to find out if the area they are 
interested in has already been determined to meet the community 
requirements. If the area is the same as a previously approved area, 
an applicant need only include a statement to that effect in the 
application. Applicants may be required to submit their own summary 
and documentation regarding the community requirements if NCUA has 
reason to believe that prior submissions are not sufficient or are 
no longer accurate.
    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 to serve the entire community 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.


    4. In IRPS 99-1, Chapter 3, Section III is revised to read as 
follows:

    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.
    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 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 
criteria and meets the definition of an investment area that is 
underserved, then it is presumed to be a local community, 
neighborhood, or rural district.
    An investment area includes any of the following (as reported in 
the most recently completed decennial census):
     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;
     An area in a Metropolitan Area where the median family 
income is at or below 80

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percent of the Metropolitan Area median family income or the 
national Metropolitan Area median family income, whichever is 
greater;
     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;
     An area where the unemployment rate is at least 1.5 
times the national average;
     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;
     An area located outside of a Metropolitan Area with a 
county population loss between the most recent decennial census and 
the previous decennial census of at least 10 percent;
     An area located outside of a Metropolitan Area with a 
county net migration loss (out-migration minus in-migration) over 
the five-year period preceding the most recent decennial census of 
at least 5 percent;
     An area meeting the criteria for economic distress that 
may be established by the Community Development Financial 
Institutions Fund (CDFI) of the United States Department of the 
Treasury.
    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 within two years. 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.
    If a credit union has a preexisting office within close 
proximity to the underserved area, then it will not be required to 
maintain an office or facility within the underserved area. Close 
proximity will be determined on a case-by-case basis, but the office 
must be readily accessible to the residents and the distance from 
the underserved area will not be an impediment to a majority of the 
residents to transact credit union business.
    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.

[FR Doc. 01-31290 Filed 12-19-01; 8:45 am]
BILLING CODE 7535-01-U