[Federal Register Volume 67, Number 234 (Thursday, December 5, 2002)]
[Proposed Rules]
[Pages 72444-72550]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-30400]



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Part II





National Credit Union Administration





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12 CFR Part 701



Organization and Operations of Federal Credit Unions; Proposed Rule

  Federal Register / Vol. 67, No. 234 / Thursday, December 5, 2002 / 
Proposed Rules  

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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: Proposed rule.

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SUMMARY: The NCUA Board is proposing amendments to its chartering and 
field of membership manual to update chartering policies and streamline 
documentation. These proposed amendments are in response to NCUA's 
almost four years of experience with existing chartering and field of 
membership policies.

DATES: Comments must be postmarked or received by February 3, 2003.

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. You 
are encouraged to fax comments to (703) 518-6319 or e-mail comments to 
[email protected] instead of mailing or hand-delivering them. 
Whatever method you choose, please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: Michael J. McKenna, Senior Staff 
Attorney, Office of General Counsel, 1775 Duke Street, Alexandria, 
Virginia 22314, or telephone (703) 518-6540; Lynn K. Markgraf, Program 
Officer, Office of Examination and Insurance, 1775 Duke Street, 
Alexandria, Virginia 22314, or telephone (703) 518-6396.

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 00-1 and IRPS 02-2. 
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.
    In 1998, Congress updated the laws on field of membership with the 
passage of the Credit Union Membership Access Act (``CUMAA''). On 
December 17, 1998, in response to CUMAA, the NCUA Board issued a final 
rule on chartering and field of membership. 63 FR 73022, Dec. 30, 1998. 
When the NCUA Board issued its final rule it instructed the Field of 
Membership Taskforce to coordinate and monitor implementation of the 
new chartering policies and make necessary recommendations for policy 
clarifications and amendments to IRPS 99-1. Accordingly, 
recommendations were made, and final amendments to NCUA's chartering 
policy were issued by the NCUA Board in 2000 and again in 2002. 65 FR 
64512, Oct. 27, 2000, and 67 FR 20013, Apr. 24, 2002.
    Over the past four years, NCUA's Field of Membership Taskforce has 
continued to monitor and review the implementation of IRPS 99-1 and its 
amendments in an effort to improve consistency and provide a basis, if 
necessary, for further clarifications and modifications. In response to 
this continued oversight, the Field of Membership Taskforce provided a 
report to the Board this year. The findings and recommendations 
contained in that report and which are the basis for these amendments, 
are in response to issues that either arose during the past four years 
or were identified by the NCUA Board as issues that needed 
clarification.

A. Proposed Amendments

1. Overlaps

    The NCUA Board believes overlaps should generally be permitted and 
believes it is now appropriate to eliminate overlap protection to the 
maximum extent feasible. The Board has found no empirical evidence to 
indicate that overlaps have an adverse impact on credit unions. In 
fact, past reports to the NCUA Board, and staff experience, indicate 
that overlaps do not harm credit unions. Overlap protection generally 
harms the credit union member. Overlaps will allow members to have more 
choice in credit union financial services and allows members to obtain 
the service that best meet their individual needs. Therefore, except 
for select group expansions for multiple group credit unions, the Board 
proposes to eliminate overlap protection and provide the option to all 
credit unions to remove any existing exclusionary clauses in its 
charter.
    Under the Federal Credit Union Act (the ``Act''), the agency must 
do an overlap analysis on select group expansions for multiple group 
credit unions so no significant change can be made in this area. On 
select group expansions, however, the NCUA Board believes that overlaps 
of groups of less than 3000 should be classified as an incidental 
overlap and no overlap analysis should be required.
    The NCUA Board believes that if two credit unions want to retain an 
exclusionary clause that is a business decision for them to make. If, 
however, one credit union wants the exclusionary clause removed, then 
it should be approved since, as stated above, the NCUA Board believes 
there will be no harm to the overlapped credit union. The NCUA Board 
also believes that the removal of such an exclusionary clause should be 
treated as a housekeeping amendment.
    Therefore, the NCUA Board is proposing to amend Chapter 1, Section 
IV.D, Chapter 2, Sections II.A. II.B.,II.E, II.G, III.B, III.E, III.G., 
IV.B, IV.E. and V.E. to accomplish this change in policy.

2. Reasonable Proximity and Service Facility for Select Group 
Expansions

    In addressing the issue of reasonable proximity and service 
facility, the question was raised whether NCUA's view of this issue was 
unduly restrictive. This issue is particularly important in view of the 
continued advancement in electronic delivery systems and alternative 
methods of providing credit union service. To restate current policy, 
the NCUA Board does not have any mileage limitations for adding select 
groups and defines reasonable proximity on a case-by-case basis as was 
previously discussed in the preamble to IRPS 99-1. 63 FR 71988, 72002-
72003, Dec. 30, 1998. The NCUA Board, however, has reconsidered the 
definition of a service facility for the purpose of the reasonable 
proximity analysis.
    Under CUMAA, if the formation of a separate credit union is not 
practicable or consistent with the standards set forth in the statute, 
then a select group can be included in the ``field of membership of a 
credit union that is within reasonable proximity to the location of the 
group.'' 12 U.S.C. 1759 (f)(1)(B). The statute then delineates a number 
of approval criteria that must be satisfied before a select group can 
be added. The statute does not define a service facility for the 
purpose of analyzing reasonable proximity.
    In defining reasonable proximity, the Board has continually stated 
that the group to be added must be within the ``service area'' of a 
``service facility'' of the credit union. After reviewing CUMAA and its 
legislative history again, the NCUA Board has concluded that its 
current definition of service facility for the purpose of reasonable 
proximity is overly restrictive. The Board believes that for a multiple 
group credit union a service facility should be defined as a place 
where shares are

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accepted for members' accounts, loan applications are accepted, or 
loans are disbursed. The Board is proposing that ATMs that are wholly-
owned by the credit union should be included within the scope of the 
definition. Furthermore, shared service centers, as long as there is an 
ownership interest by the credit union, will meet NCUA's service 
facility definition for select group expansions. The rationale for this 
position is statutory; that is, wholly-owned ATMs and shared service 
facilities constitute a credit union for the purpose of the reasonable 
proximity analysis. It is the Board's intent that select groups that 
are within reasonable proximity to a credit union, as it is ultimately 
defined here, may be added to a credit union's field of membership.
    Therefore, the Board is amending Chapter 2, Section IV.A.1 of the 
Chartering Manual to modify the definition of a service facility and to 
explicitly include ATMs and shared service facilities that a credit 
union has an ownership interest in as within the definition of a 
service facility.

3. Associational Common Bond

    Under IRPS 99-1, as amended, associational common bonds must have 
the following three indicia. The group must: (1) Hold meetings open to 
all members; (2) sponsor other activities which demonstrate that the 
members of the group meet to accomplish the objectives of the 
association; and (3) have an authoritative definition of who is 
eligible for membership. The Chartering Manual then lists other factors 
that NCUA may consider in determining whether a proper associational 
common bond exists.
    The NCUA Board believes that some groups may have been denied 
credit union membership because they did not have all three of the 
required indicia for an associational common bond, although they did 
possess many of the other factors of a legitimate association. 
Therefore, the NCUA Board is proposing that the three mandatory 
requirements be eliminated and be merged into the list of factors to be 
considered by the agency. The agency will look at the totality of the 
circumstances when determining whether an associational common bond 
exists. The Board is also explicitly stating in the Chartering Manual 
that national associations qualify for credit union service in their 
entirety if the headquarters are within reasonable proximity to the 
credit union.
    Therefore, the Board is proposing to amend Chapter 2, Section III 
A.1, to reflect these above cited changes.

4. Occupational Common Bond

    The NCUA Board is proposing a fifth definition of occupational 
common bond. Under existing policy, an occupational common bond is 
based on:
    [sbull] Employment, or a long-term contractual relationship 
equivalent to employment, in a single corporation or other legal 
entity;
    [sbull] 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;
    [sbull] 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; and
    [sbull] Employment or attendance at a school.
    The Board has stated previously that an occupational common bond 
can also legally include designations based on employment in a trade, 
industry or profession (TIP), but has not implemented such an approach 
based on agency operational concerns. 65 FR 64512, 64519, Oct. 27, 
2000. The Board has continued to review this issue and believes that 
staff has developed a proposal that will minimize these concerns.
    Pursuant to this proposed policy, an occupational common bond could 
be based on TIP. This type of common bond can include employment at any 
number of corporations or other legal entities, that while not under 
common ownership, share a common bond by virtue of producing similar 
products, providing similar services, or sharing the same profession or 
trade. For obvious reasons, this type of occupational common bond would 
not require a letter from the sponsor to charter or convert to this 
type of occupational common bond credit union. However, when a credit 
union is chartered or converts to a TIP it must submit a business plan 
that addresses how it will serve the TIP and how it will verify an 
individual is part of that TIP. Verification may include a state 
license, professional license, payroll statements or any other 
documentation that indicates that an individual is a member of the 
specified TIP.
    The common bond of a TIP credit union is not based on a 
relationship with a single employer, but rather, on the commonality of 
interests or characteristics of those groups comprising the TIP. 
Individuals in those groups will share the same purpose, interests, or 
endeavors as a result of their employment. If the persons in the 
different groups possess common interests that are reasonably tied to a 
common endeavor or purpose, then the groups can be combined to form a 
single field of membership and, thus, a single common bond credit 
union. For example, previously, a teachers' credit union could only be 
chartered to serve a specific school or school district. In fact, all 
teachers share a unique and strong common purpose. They have common 
interests and share a common endeavor. This significant commonality of 
interest constitutes a common bond of profession and meets the 
statutory requirement of ``one group that has a common bond of 
occupation.'' Similarly, all members of the U.S. armed forces share a 
strong commonality of interest beyond the single employer concept of a 
particular military branch or military installation. The NCUA Board 
recognizes that because of this commonality of interest it may be 
easier to define a TIP based on a trade or profession than it may be 
for defining a TIP for an entire industry.
    The TIP common bond charter can be similar to, but distinguishable 
from, a common bond based on a single corporation or employer. For 
example, all Navy personnel would qualify as a single common group or 
TIP, but all teachers would only qualify as a TIP. Therefore, in some 
instances, a TIP might, for all practical purposes, be the same as a 
traditional occupational common bond.
    While there is some latitude in defining trade, industry, or 
profession, the groups must have a close nexus and must be narrowly 
defined. NCUA will evaluate such factors as the nature, size and 
diversity of the trade, industry, or profession. For example, all 
manufacturing enterprises in Seattle, Washington, would not qualify 
since manufacturing, in and of itself, is overly broad and would 
include manufacturing of all types of products. All television 
manufacturers in Seattle, however, would qualify, since this relates to 
a specific type of manufactured product. This TIP, however, would not 
also include all television retailers.
    The TIP must be narrowly defined and in most cases, will contain a 
geographic limitation. The geographic limitation will generally 
correspond to the credit union's current or planned service area.
    Since a TIP must be narrowly defined it cannot include third-party 
vendors and other suppliers. In this regard, a TIP might be more 
limiting than the traditional definition of an occupational common 
bond. For example, a certified public accountant (CPA) TIP would not 
include clerical and other

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administrative staff. Another example is the airline service industry. 
Such a TIP would not include airline manufacturers, but simply the 
employees involved in airline transport.
    Certain generic terms, by their very nature, are overly broad and 
subject to confusion in defining a TIP. Like manufacturing, the 
electronics, telecommunications, energy, and entertainment industries 
are examples of industries that include all types of services and 
products. It is NCUA's present intent that a TIP should be limited to a 
specific service or product within that industry, which could also 
include the exclusive retail outlet for that product or service. For 
example, the consumer electronics industry includes televisions, 
cameras, watches, computers, radios, etc. A qualifying TIP in the 
consumer electronics industry, however, would be limited to, for 
example, the production, manufacturing, and marketing of computers. As 
another example, a healthcare TIP would include hospitals, physicians' 
offices, home healthcare providers, medical & diagnostic labs, clinics 
and surgery centers. However, a healthcare TIP would not include 
pharmacies, retail establishments selling healthcare products or dual 
use services such as therapeutic massages.
    As a general rule, if a corporation manufactures multiple products, 
that corporation's employees could not be included in a manufacturing 
TIP. Of course, that corporation's employees could be eligible for a 
single occupational common bond credit union based on employment by a 
single employer.
    The retail business, by its very nature, is difficult to define as 
a TIP because, in most circumstances, it lacks a close nexus in 
providing similar products or services. The NCUA Board is seeking 
comment on how to structure an industry-based, occupational common bond 
involving the retail business. The NCUA Board is also seeking comment 
on whether the final version of this rule should contain a preapproved 
list of acceptable TIPs.
    Because of the relative complexity of this TIP policy, it is the 
Board's intent to allow a TIP to be the occupational common bond only 
for a single common bond credit union. In addition, as stated above, a 
TIP credit union will also have a geographic limitation. The proposal 
also allows multiple common bond credit unions to convert to a TIP 
credit union based on a single occupational common bond. Upon such a 
conversion, the credit union can retain its members of record. 
Accordingly, the Board is proposing to amend Chapter 1, Section XI and 
Chapter 2, Section II to incorporate the TIP concept.

5. Economic Advisability and the Process for Select Group Expansions of 
Less than 3000

    Economic advisability is critically important both in the 
chartering process and in the addition of select groups to a multiple 
common bond credit union. In the first instance, chartering, NCUA has 
long taken the position that it will not grant a charter unless it 
determines that the credit union ``will be viable and that it will 
provide needed services to its members,'' and will have a ``reasonable 
opportunity to succeed.'' Ignoring this basic, yet very important, 
chartering requirement would create unnecessary and undue risks to the 
National Credit Union Share Insurance Fund. Perhaps equally important 
is the fact that members of a credit union with no reasonable chance of 
success are needlessly harmed. Therefore, NCUA's responsibility is to 
assure that if a credit union is chartered, it has, at a minimum, a 
reasonable opportunity to succeed in today's financial marketplace. 
This issue was thoroughly discussed in the preambles to IRPS 99-1 and 
IRPS 00-1.
    Second, NCUA also takes into consideration economic advisability, 
as well as other criteria, when determining whether to approve the 
addition of groups to a multiple common bond credit union. CUMAA 
requires that before NCUA approves the addition of any group, NCUA must 
determine, in writing, that:
    (1) The applicant credit union has not committed any material 
unsafe and unsound practices within the preceding 1-year period,
    (2) The applicant credit union is adequately capitalized,
    (3) The applicant credit union has the administrative capability to 
serve the proposed membership,
    (4) The benefit to the members outweighs any potential harm the 
expansion may have on another credit union, and
    (5) The applicant credit union has met such additional requirements 
as the Board may prescribe.
    In effect, an administrative process must be established to address 
these issues, particularly since the statute requires that the 
determination must be in writing.
    Another essential element NCUA must consider before a group can be 
added to a multiple common bond credit union is economic advisability 
relative to whether a group can form a separate credit union. The 
statute clearly sets forth this standard. It states:

    [T]he Board shall--(A) encourage the formation of separately 
chartered credit unions instead of approving an application to 
include an additional group within the field of membership of an 
existing credit union whenever practicable and consistent with 
reasonable standards for the safe and sound operation of the credit 
union.

    Consequently, NCUA must determine in writing not only that the five 
statutory criteria are met, but also must determine that the group is 
not economically advisable for the purposes of forming a separate 
credit union. The burden, as it should be, is on NCUA to make this 
determination. This assessment is essentially the same one that NCUA 
would make if the group requested a separate charter: would a new 
credit union consisting only of this group have a reasonable chance of 
survival? In other words, regardless of the group's size, NCUA must 
determine if the group could stand on its own as a separate credit 
union. If the group could safely form its own credit union, then the 
statute requires that it not be considered a group for expansion 
purposes.
    As set forth in the preamble to IRPS 99-1, it remains the intent of 
the Board that every group being added to a multiple common bond credit 
union should be analyzed to determine whether the group has the 
capability and desire to support an independent operation. 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 the group's success in establishing and managing a new credit union 
in today's marketplace.
    To ease the regulatory burden of establishing a new credit union, 
the NCUA Board adopted an express chartering procedure in 2000. 
However, to restate the discussion in IRPS 99-1, it is the Board's 
intent that a group desiring a separate charter should have every 
reasonable opportunity to form a new credit union, but this must be 
balanced with known economic hurdles and start-up operational 
requirements. Similarly, a group not wanting to form a separate credit 
union should be analyzed closely since desire and initiative are 
critical to successfully chartering a new credit union.
    In 1999, in addressing these requirements in relation to the 
historical data related to chartering new credit unions, the Board 
developed an expedited process for groups of 200 or less primary 
potential members.

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Although a written determination regarding the various statutory 
criteria was still required, the expedited process allowed for the 
processing of groups of 200 or less since it was the Board's view that 
a group of 200 or less would not be economically advisable. Thus, until 
October 2000, applicant credit unions applying to add a group of 200 or 
less simply had to complete the Form 4015-EZ. Additionally, no overlap 
analysis was required for these small groups. After further study, in 
2000, the Board increased the number to 500 in IRPS 00-1.
    Empirical experience strongly suggests that the expedited 
processing number should again be raised. In 2001, a substantial 
majority of the multiple group expansions approved, 95 percent, were 
groups of 500 or less. Further, less than one percent of the approved 
expansions consisted of groups of 3,000 or more. Overall, less than one 
percent of all applications for multiple group expansions were denied. 
More importantly though, no group less than 3,000 was denied for the 
reason it was economically viable to form its own credit union; that 
is, every group requesting to be added to the field of membership of an 
existing credit union was determined to not be economically advisable.
    NCUA's experience supports the view that only in rare circumstances 
will a primary potential membership of less than 3,000 be economically 
advisable. In fact, 3,000 is the same number at or above which Congress 
requires the agency to look at more closely to determine if the group 
can form its own credit union. In some circumstances, a smaller number 
of potential members may be economically advisable, but that appears to 
be the exception. These smaller groups can be easily identified and 
processed on a case by case basis.
    The NCUA Board believes that, considering the agency's historical 
experience since 1999, the expedited process number for adding groups 
should be changed to less than 3,000. In conjunction with this proposed 
change, it is also proposed that the overlap analysis required of 
groups of 500 or more should also be changed to 3,000 or more. Again, 
this is the number at or above which Congress requires the agency to 
look at more closely to determine if the group can form its own credit 
union.

6. Community Charters

    Over the years, the Board has approved numerous community charter 
conversions. During this time, the Board has had vast experience in 
reviewing what constitutes a local community. Because of this 
experience, the Board is proposing three different definitions of what 
constitutes a local community.
    First, the NCUA Board is proposing that any city, county, or 
smaller political jurisdiction, regardless of population size, meets 
the definition of a local community. This has been borne out again and 
again in community charter packages that the Board has reviewed. 
Therefore, any credit union that wants to serve such an area would no 
longer need to provide a letter demonstrating how the area is a 
community or any other type of documentation demonstrating that the 
area is a community. This is an irrebutable presumption, regardless of 
population size. Credit unions can also request an area that comprises 
only a portion of a county or city and still use the presumption.
    Second, the Board has had a vast experience in reviewing local 
communities that are in multiple jurisdictions. The Board, in an 
attempt to streamline the conversion process, has reviewed the 
definition of a metropolitan statistical area and, in general, believes 
such an area within a certain population size meets the definition of a 
local community as required by CUMAA and articulated in the Chartering 
Manual.
    The Office of Management and Budget defines a metropolitan 
statistical area (MSA) as an area that has at least one urbanized area 
of at least 50,000 and ``comprises the central county or counties 
containing the core, plus adjacent outlying counties having a high 
degree of social and economic integration with the central county as 
measured through commuting.'' 65 FR 82228, 82238, Dec 27, 2000.
    The Board believes that any area that is an MSA (or its 
equivalent), or a portion thereof, having up to a million residents may 
meet the definition of a local community. This view is based on Board 
experience and the very definition of an MSA. Although the Board is not 
legally required to limit the population size for this presumption, the 
Board's experience is more limited for areas with more than one million 
residents.
    If the proposed community meets the MSA criteria and population 
limits, the credit union must submit a letter describing how the area 
meets the standards for community interaction and/or common interests. 
If NCUA does not find sufficient evidence of a community interaction 
and/or common interests, more detailed documentation will be necessary 
to support that the proposed area is a well-defined local community. 
The credit union must also provide evidence of the political 
jurisdictions and population. A credit union can also request a local 
community that exceeds the population limits but more detailed 
documentation will be necessary to support that the proposed area is a 
well-defined local community.
    Third, based on its historical experience, the Board is increasing 
the presumption of a local community from 200,000 residents to 500,000 
residents for multiple political jurisdictions that are not part of a 
single MSA. If the credit union meets this criterion, the credit union 
must submit a letter describing how the area meets the standards for 
community interaction and/or common interests. If NCUA does not find 
sufficient evidence of a community interaction and/or common interests, 
more detailed documentation will be necessary to support that the 
proposed area is a well-defined local community. The credit union must 
also provide evidence of the political jurisdictions and population. A 
credit union can also request a local community that exceeds the 
population limits but more detailed documentation will be necessary to 
support that the proposed area is a well-defined local community.
    Therefore, the Board is proposing to amend Section V.A.2 of the 
Chartering Manual to incorporate the three definitions of a local 
community and the process to obtain each type of community charter.
    The Chartering Manual is silent on whether a community charter can 
apply to convert to serve a different community area. Sometimes a 
credit union is interested in such a conversion when it serves an area 
that qualifies as an underserved area and can be added to the field of 
membership of other credit unions. The NCUA Board believes such a 
conversion process should be clearly articulated in the Chartering 
Manual. Therefore, the Board is proposing to amend Section V.F of the 
Chartering Manual to clearly recognize this unique type of community 
conversion.
    Finally, the Board is clarifying that persons or organizations that 
regularly do business in the community can be included in the 
community's charter and are then eligible for membership.

7. Common Bond Conversions

    In the sections regarding federal charter conversions for 
occupational common bond credit unions, associational common bond 
credit unions, and multiple group common bond credit unions, there is a 
general three-year prohibition on converting to

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another type of charter, except a community charter. The NCUA Board 
believes this prohibition unduly limits the flexibility needed for 
federal credit unions to serve their members and make well-reasoned, 
business decisions. The Board has not been provided any compelling 
rationale to retain this prohibition so it is proposing to delete this 
requirement. Therefore, the NCUA Board is proposing to amend Chapter 2, 
Sections II.F, III.F, and IV.F to delete this restriction.

8. Charter Conversions

    If a state charter wants to convert to federal charter and obtained 
a group or area through a procedure equivalent to NCUA's emergency 
merger provision, the credit union can retain that field of membership 
when it converts to a federal charter. Therefore, the Board is 
proposing that Chapter IV, Section II should be amended to state that a 
state charter that converts to a federal charter may retain any groups 
obtained through a state's emergency field of membership provision. Any 
subsequent expansions or amendments to the field of membership of the 
federal charter must comply with federal field of membership policies.
    Currently, a multiple group state chartered credit union can 
convert to a multiple group federal charter and generally retain its 
multiple groups. Is there a compelling rationale to permit other types 
of state charters to retain their state fields of membership when 
converting to federal charters? The NCUA Board is also seeking comment 
on other ways to streamline the procedure for converting from a state 
charter to federal charter.

9. The Appeal Process

    The Board is aware that some credit unions have become confused 
about the use of a request for reconsideration during the appeal 
process. To alleviate this confusion, the Board is clarifying that if a 
credit union seeks a second reconsideration of an issue, and it is 
still not approved by the region, it will be treated as an appeal and 
sent to the central office so that it can be prepared for a Board 
decision. As a reminder, a reconsideration should provide new evidence 
and should address any deficiencies cited by the regional director in 
the disapproval letter.
    Chapter 3 on underserved areas does not have a separate appeals 
section. It has been the practice of the agency to follow the appeals 
procedure detailed in chapters 1 and 2 of the Chartering Manual. In any 
case, to alleviate any concern, the NCUA Board is adding an appeal 
provision to this section.

10. Miscellaneous Clarifications

    The NCUA Board is also proposing three other amendments to conform 
to other proposals made by the NCUA Board or to clarify existing 
policy. First, Chapter 1, Section XII needs to be amended to conform to 
the Board's proposal on foreign branching. Any existing or proposed 
branches on United States military installations or United States 
embassies are unaffected by this proposal.
    Second, the Board is clarifying how corporate accounts can be cited 
in a credit union's charter by adding them to the list of groups in 
``Other Persons Eligible for Credit Union Membership.'' The Board has 
permitted community charters to adopt standard language which allows 
corporations or other legal entities within the community to become 
members without the need for the credit union to request permission 
from NCUA in each instance. The Board now wishes to streamline this 
process for single and multiple group charters by allowing them to 
adopt a standard clause which would permit membership for their 
corporate and other business sponsors.
    The Board wants to clarify an issue involving spin-offs. A spin-off 
is an affirmative decision to terminate membership. As such, all 
members of the group to be spun off, regardless of how they voted, will 
be transferred if the spin-off is approved by the voting membership. 
Since the group is being removed from the original credit union's field 
of membership, all accounts must be transferred to the new credit 
union. The original credit union cannot maintain members of record.
    Finally, the NCUA Board is proposing some technical wording changes 
to all of the chapters in the Chartering Manual and updating the forms 
in the Appendix. Most of these changes are necessary to conform the 
language of the Chartering Manual to the proposals described above or 
to make a section easier to understand. These remaining changes are not 
substantive.

B. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a regulation may have on a 
substantial number of small credit unions, primarily those under one 
million dollars in assets. The proposed 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 Office of Management and Budget control number assigned to 
Sec.  701.1 is 3133-0015, and to the forms included in appendix D is 
3133-0016. NCUA has determined that the proposed amendments will not 
increase paperwork requirements and a paperwork reduction analysis is 
not required.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their 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. The proposed rule would not have substantial 
direct effects on the states, on the connection 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 the proposed rules do not constitute a policy that has 
federalism implications for purposes of the executive order.

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that the proposed rules would not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act of 1999, Public Law 105-277, 112 
Stat. 2681 (1998).

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 record keeping requirements.


    By the National Credit Union Administration Board on November 
21, 2002.
Becky Baker,
Secretary of the Board.
    Accordingly, NCUA proposes to amend 12 CFR part 701 as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

    1. The authority citation for part 701 continues to read as 
follows:


[[Page 72449]]


    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 02-5, Chartering and 
Field of Membership Policy (IRPS 02-5). Copies may be obtained by 
contacting NCUA at the address found in Section 792.2(g)(1) of this 
chapter.


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

    Note: The text of the Interpretive Ruling and Policy Statement 
(IRPS 02-5) does not appear in the Code of Federal Regulations.


    3. IRPS 02-5 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:
    [sbull] To encourage the formation of credit unions;
    [sbull] To uphold the provisions of the Federal Credit Union Act;
    [sbull] To promote thrift and credit extension;
    [sbull] To promote credit union safety and soundness; and
    [sbull] 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:
    [sbull] The occupational, associational, or multiple groups possess 
an appropriate common bond or the community represents a well-defined 
local community, neighborhood, or rural district;
    [sbull] The subscribers are of good character and are fit to 
represent the proposed credit union; and
    [sbull] 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.
    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:
    [sbull] The name of the proposed federal credit union;
    [sbull] The location of the proposed federal credit union and the 
territory in which it will operate;
    [sbull] The names and addresses of the subscribers to the 
certificate and the number of shares subscribed by each;
    [sbull] The initial par value of the shares;
    [sbull] The detailed proposed field of membership; and
    [sbull] 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

[[Page 72450]]

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. 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:
    [sbull] Mission statement;
    [sbull] Analysis of market conditions, including if applicable, 
geographic, demographic, employment, income, housing, and other 
economic data;
    [sbull] Evidence of member support;
    [sbull] Goals for shares, loans, and for number of members;
    [sbull] Financial services needed/desired;
    [sbull] Financial services to be provided to members of all 
segments within the field of membership;
    [sbull] How/when services are to be implemented;
    [sbull] Organizational/management plan addressing qualification and 
planned training of officials/employees;
    [sbull] Continuity plan for directors, committee members and 
management staff;
    [sbull] Operating facilities, to include office space/equipment and 
supplies, safeguarding of assets, insurance coverage, etc.;
    [sbull] Type of record keeping and data processing system;
    [sbull] Detailed semiannual pro forma financial statements (balance 
sheet, income and expense projections) for 1st and 2nd year, including 
assumptions--e.g., loan and dividend rates;
    [sbull] Plans for operating independently;
    [sbull] Written policies (shares, lending, investments, funds 
management, capital accumulation, dividends, collections, etc.);
    [sbull] Source of funds to pay expenses during initial months of 
operation, including any subsidies, assistance, etc., and terms or 
conditions of such resources; and
    [sbull] 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:
    [sbull] The group(s) possess an appropriate common bond or the 
geographical area to be served is a well-defined local community, 
neighborhood, or rural district;
    [sbull] The subscribers, prospective officials, and employees are 
of good character and fitness; and
    [sbull] 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:
    [sbull] Federal Credit Union Investigation Report, NCUA 4001;
    [sbull] Organization Certificate, NCUA 4008;
    [sbull] Report of Official and Agreement to Serve, NCUA 4012;
    [sbull] Application and Agreements for Insurance of Accounts, NCUA 
9500; and

[[Page 72451]]

    [sbull] 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.
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. Both the chief executive officer and recording 
officer of the proposed federal credit union must sign this form.

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:
    [sbull] Is not already being officially used by another federal 
credit union;
    [sbull] Will not be confused with NCUA or another federal or state 
agency, or with another credit union; and
    [sbull] 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 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. A reconsideration must address the reasons for the 
initial denial. The request will not be considered as an appeal, but as 
a request for

[[Page 72452]]

reconsideration by the regional director. A request for reconsideration 
will contain new and material evidence. 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. A second request for reconsideration will be 
treated as an appeal to the NCUA Board.

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. A single occupational common bond credit 
union may also serve a trade, industry, or profession (TIP), such as 
all teachers.
    Single Associational: If a credit union serves a single 
associational sponsor, such as the Knights of Columbus, it will be 
designated as an associational credit union.
    Multiple 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--Foreign Branching

    Federal credit unions are permitted to serve foreign nationals 
within their fields of membership wherever they reside provided they 
have the ability, resources, and management expertise to serve such 
persons. Before a credit union opens a branch outside the United 
States, it must submit an application to do so and have prior written 
approval of the regional director. A federal credit union may establish 
a service facility on a United States military installation or United 
States embassy without prior NCUA approval. Refer to Section 741.11 of 
NCUA's Rules and Regulations for application and business plan 
requirements.

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 having 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

[[Page 72453]]

union that adds an underserved community to its field of membership.

II--Occupational Common Bond

II.A.1--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 five ways:
    [sbull] Employment (or a long-term contractual relationship 
equivalent to employment) in a single corporation or other legal entity 
makes that person part of a single occupational common bond;
    [sbull] 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;
    [sbull] 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;
    [sbull] Employment or attendance at a school makes that person part 
of a single occupational common bond (see Chapter 2, Section III.A.1); 
or
    [sbull] Employment in the same Trade, Industry, or Profession (TIP) 
(see Chapter 2, Section II.A.2).
    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 may be included in the 
charter. For example:
    [sbull] Employees, officials, and persons who work regularly under 
contract in Miami, Florida for ABC Corporation and subsidiaries;
    [sbull] Employees of ABC Corporation who are paid from * * *;
    [sbull] Employees of ABC Corporation who are supervised from * * *;
    [sbull] Employees of ABC Corporation who are headquartered in * * 
*; and/or
    [sbull] Employees of ABC Corporation who work in the United States.
    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 single occupational common bonds are:
    [sbull] Employees of the Hunt Manufacturing Company who work in 
West Chester, Pennsylvania. (common bond--same employer with geographic 
definition);
    [sbull] Employees of the Buffalo Manufacturing Company who work in 
the United States. (common bond--same employer with geographic 
definition);
    [sbull] Employees, elected and appointed officials of municipal 
government in Parma, Ohio. (common bond--same employer with geographic 
definition);
    [sbull] 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);
    [sbull] Employees of MMLLJS contractor who work regularly at the 
U.S. Naval Shipyard in Bremerton, Washington. (common bond--employees 
of contractors with geographic definition);
    [sbull] 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);
    [sbull] 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);
    [sbull] Employees of and students attending Georgetown University. 
(common bond--same occupation);
    [sbull] Employees of all the schools supervised by the Timbrook 
Board of Education in Timbrook, Georgia. (common bond--same employer); 
or
    [sbull] All licensed nurses in Fairfax County (occupational common 
bond TIP).
    Some examples of insufficiently defined single occupational common 
bonds are:
    [sbull] Employees of manufacturing firms in Seattle, Washington. 
(no defined occupational sponsor; overly broad TIP);
    [sbull] Persons employed or working in Chicago, Illinois. (no 
occupational common bond);

II.A.2--Trade, Industry, or Profession

    A common bond based on employment in a trade, industry, or 
profession can include employment at any number of corporations or 
other legal entities that--while not under common ownership--have a 
common bond by virtue of producing similar products or providing 
similar services.
    In general, a geographic limitation is required for a TIP credit 
union. The geographic limitation will be part of the credit union's 
charter. More than one federal credit union may serve the same trade, 
industry, or profession, even if both credit unions are in the same 
geographic location.
    This type of occupational common bond is only available to single 
common bond credit unions. A TIP cannot be added to a multiple common 
bond or community field of membership.
    To obtain a TIP designation, the proposed or existing credit union 
must submit a request to the regional director. New charter applicants 
must follow the documentation requirements in Chapter 1. A business 
plan on how the credit union will serve the group must be submitted 
with the request to serve the TIP. The business plan also must address 
how the credit union will verify the TIP. Examples of such verification 
include state licenses, professional licenses, organizational 
memberships, pay statements, union membership, or employer 
certification. The regional director must approve this type of field of 
membership before a credit union can convert to a TIP. After 
conversion, a credit union can retain members of record but cannot add 
new members from its previous group or groups, unless its part of the 
TIP.
    While proposed or existing single common bond credit unions have 
some latitude in defining a trade, industry, or profession occupational 
common bond, it cannot be defined so broadly as to include groups in 
fields which are not closely related. For example, all textile workers, 
all nurses, all airline employees, or all U.S. military personnel may 
qualify under this category. However, employees of all manufacturing 
companies would not. The common bond relationship must be one that 
demonstrates a narrow commonality of interests within a specific trade, 
industry, or profession. If a credit union wants to serve a physician 
TIP, they can serve all physicians but that does not mean they can also 
serve all clerical staff in the office. However, if the TIP is based on 
the health care industry then clerical staff would be able to be served 
by the credit union. Clients or customers of the TIP are not eligible 
for credit union membership (e.g., patients in hospitals).
    Any company that is involved in more than one industry cannot be 
included in an industry TIP (e.g., a company that makes tobacco 
products, food products, and electronics). However, employees of these 
companies may be eligible for membership in a

[[Page 72454]]

trade/professional occupational common bond.
    Section II.B on Occupational Common Bond amendments does not apply 
to a TIP common bond. Unless NCUA has safety and soundness concerns, 
removing or changing a geographical limitation can be processed as a 
housekeeping amendment. If safety and soundness concerns are present, 
the regional director may require additional information before the 
request can be processed.
    Section II.H applies to TIP designated credit unions except for 
retirees and corporate accounts.
    If a TIP designated credit union wishes to convert to a different 
TIP or employer-based occupational common bond, or different charter 
type, it only retains members of record after the conversion.

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:
    [sbull] A single occupational common bond to a single associational 
common bond;
    [sbull] A single occupational common bond to a community charter; 
or
    [sbull] 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.
    The regional director must approve all amendments to an 
occupational common bond credit union's field of membership. The 
regional director may approve an amendment to expand the field of 
membership if:
    [sbull] The common bond requirements of this section are satisfied;
    [sbull] The group to be added has provided a written request for 
service to the credit union; and
    [sbull] The change is economically advisable.
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 
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 the credit union converts to a multiple common bond 
credit union.
    If the group comprising the single common bond of the credit union 
merges with, or is acquired by, another group, the credit union can 
serve the new group resulting from the merger or acquisition after 
receiving a housekeeping amendment.
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. 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.
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-EZ) to the appropriate NCUA regional 
director. An authorized credit union representative must sign the 
request.
    The NCUA 4015-EZ must be accompanied by the following:
    [sbull] 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:
    [sbull] How the group shares the credit union's occupational common 
bond;
    [sbull] That the group wants to be added to the applicant federal 
credit union's field of membership;
    [sbull] The number of persons currently included within the group 
to be added and their locations.

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
    NCUA staff will review all amendment requests in order to ensure 
conformance to NCUA policy.
    Before acting on a proposed amendment, the regional director may 
require an on-site review. 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 regional director approves the requested amendment, the 
credit union will be issued an amendment to Section 5 of its charter.

[[Page 72455]]

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:
    [sbull] Specific reasons for the action;
    [sbull] Options to consider, if appropriate, for gaining approval; 
and
    [sbull] Appeal procedure.
II.C.5--Appeal of Regional Director Decision
    If a field of membership expansion request, 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. A reconsideration must address the reasons for the 
initial denial. The request will not be considered as an appeal, but as 
a request for reconsideration by the regional director. A request for 
reconsideration will contain new and material evidence. 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. A second request for reconsideration, will be 
treated as an appeal to the NCUA Board.

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:
    [sbull] By taking in the field of membership of another credit 
union through a common bond or emergency merger;
    [sbull] By taking in the field of membership of another credit 
union through a common bond or emergency purchase and assumption (P&A); 
or
    [sbull] 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:
    [sbull] An emergency requiring expeditious action exists;
    [sbull] Other alternatives are not reasonably available; and
    [sbull] 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:
    [sbull] Abandonment by management;
    [sbull] Loss of sponsor;
    [sbull] Serious and persistent record keeping problems; or
    [sbull] Serious and persistent operational concerns.
    In an emergency merger situation, NCUA will take an active role in 
finding a suitable merger partner (continuing credit union). NCUA is 
primarily concerned that the continuing credit union has the financial 
strength and management expertise to absorb the troubled credit union 
without adversely affecting its own financial condition and stability.
    As a stipulated condition to an emergency merger, the field of 
membership of the merging credit union may be transferred intact to the 
continuing federal credit union without regard to any common bond 
restrictions and without changing the character of the continuing 
federal credit union for future amendments. Under this authority, 
therefore, a single occupational common bond federal credit union may 
take into its field of membership any dissimilar charter type.
    The common bond characteristic of the continuing credit union in an 
emergency merger does not change. That is, even though the merging 
credit union is a multiple common bond or community, the continuing 
credit union will remain a single common bond credit union. Similarly, 
if the merging credit union is also an unlike single common bond, the 
continuing credit union will remain a single common bond credit union. 
Future common bond expansions will be based on the continuing credit 
union's original single common bond.
    Emergency mergers involving federally insured credit unions in 
different NCUA regions must be approved by the regional director where 
the continuing credit union is headquartered, with the concurrence of 
the regional director of the merging credit union and, as applicable, 
the state regulators.
II.D.3--Purchase and Assumption (P&A)
    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

[[Page 72456]]

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:
    [sbull] Why the spin-off is being requested;
    [sbull] What part of the field of membership is to be spun off;
    [sbull] Whether the affected credit unions have a common bond 
(applies only to single occupational credit unions);
    [sbull] Which assets, liabilities, shares, and capital are to be 
transferred;
    [sbull] The financial impact the spin-off will have on the affected 
credit unions;
    [sbull] The ability of the acquiring credit union to effectively 
serve the new members;
    [sbull] The proposed spin-off date; and
    [sbull] 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. All members 
of the group to be spun off (whether they voted in favor, against, or 
not at all) will be transferred if the spin-off is approved by the 
voting membership. 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. NCUA will permit single 
occupational federal credit unions to overlap any other charter without 
performing an overlap analysis.
II.E.2--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. NCUA will permit a complete overlap 
of the credit unions' fields of membership.
    If a sponsor organization sells off a group, new members can no 
longer be served unless they otherwise qualify for membership in the 
credit union.
    Credit unions must submit documentation explaining the 
restructuring and providing information regarding the new 
organizational structure.
II.E.3--Exclusionary Clauses
    An exclusionary clause is a limitation precluding the credit union 
from serving the primary members of a portion of a group otherwise 
included in its field of membership. NCUA no longer grants exclusionary 
clauses. Those granted prior to the adoption of this new chartering 
manual will remain in effect unless the credit unions agree to remove 
them or one of the affected credit unions submits a housekeeping 
amendment to have it removed.

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 2, Section V.A.3.
    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.

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:
    [sbull] The group is within the field of membership of two credit 
unions and one wishes to discontinue service;
    [sbull] The federal credit union cannot continue to provide 
adequate service to the group;
    [sbull] The group has ceased to exist;
    [sbull] The group does not respond to repeated requests to contact 
the credit union or refuses to provide needed support; or
    [sbull] 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 Eligible for Credit Union Membership

    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:
    [sbull] Spouses of persons who died while within the field of 
membership of this credit union;
    [sbull] Employees of this credit union;
    [sbull] Persons retired as pensioners or annuitants from the above 
employment;
    [sbull] Volunteers;
    [sbull] Member of the immediate family or household;
    [sbull] Organizations of such persons; and
    [sbull] Corporate or other legal entities in this charter.
    Immediate family is defined as spouse, child, sibling, parent,

[[Page 72457]]

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:
    [sbull] Natural person members of the association (for example, 
members of a union or church members);
    [sbull] Non-natural person members of the association;
    [sbull] Employees of the association (for example, employees of the 
labor union or employees of the church); and
    [sbull] 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 should include a definition of the 
group that may be served based on the effective date of the 
association's charter, bylaws, and any other equivalent documentation.
    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:
    [sbull] Whether members pay dues;
    [sbull] Whether members participate in the furtherance of the goals 
of the association;
    [sbull] Whether the members have voting rights. To meet this 
requirement, members need not vote directly for an officer, but may 
vote for a delegate who in turn represents the members' interests;
    [sbull] Whether the association maintains a membership list;
    [sbull] Whether the association sponsors other activities;
    [sbull] The association's membership eligibility requirements; and
    [sbull] 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.
    Student groups (e.g. students enrolled at a public, private, or 
parochial school) may constitute either an associational or 
occupational common bond. For example, students enrolled at a church 
sponsored school could share a single associational common bond with 
the members of that church and may qualify for a federal credit union 
charter. Similarly, students enrolled at a university, as a group by 
itself, or in conjunction with the faculty and employees of the school, 
could share a single occupational common bond and may qualify for a 
federal credit union charter (see Chapter 2,II.A).
    Homeowner associations, tenant groups, co-ops, consumer groups, 
national associations, and other groups of persons having an ``interest 
in'' a particular cause and certain consumer cooperatives may also 
qualify as an association.
    The terminology ``Alumni of Jacksonville State University'' is 
insufficient to demonstrate an associational common bond. To qualify as 
an association, the alumni association must meet the requirements for 
an associational common bond. The alumni of a school must first join 
the alumni association, and not merely be alumni of the school to be 
eligible for membership.
    Associations based primarily on a client-customer relationship do 
not meet associational common bond requirements. However, having an 
incidental client-customer relationship does not preclude an 
associational charter as long as the associational common bond 
requirements are met. For example, a fraternal association that offers 
insurance, which is not a condition of membership, may qualify as a 
valid associational common bond.
    Applicants for a single associational common bond federal credit 
union charter or a field of membership amendment to include an 
association must provide, at the request of the regional director, a 
copy of the association's charter, bylaws, or other equivalent 
documentation, including any legal documents 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

[[Page 72458]]

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:
    [sbull] 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, 2001;
    [sbull] Members of the Hoosier Farm Bureau 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;
    [sbull] Members of the Shalom Congregation in Chevy Chase, 
Maryland;
    [sbull] 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;
    [sbull] Members of the University of Wisconsin Alumni Association, 
located in Green Bay, Wisconsin;
    [sbull] Members of the Marine Corps Reserve Officers Association; 
or
    [sbull] 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:
    [sbull] All Lutherans in the United States (too broadly defined); 
or
    [sbull] 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:
    [sbull] Alumni of Amos University (no formal association);
    [sbull] Customers of Fleetwood Insurance Company (policyholders or 
primarily customer/client relationships do not meet associational 
standards);
    [sbull] Employees of members of the Reston, Virginia Chamber of 
Commerce (not a sufficiently close tie to the associational common 
bond); or
    [sbull] 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:
    [sbull] A single associational common bond to a single occupational 
common bond;
    [sbull] A single associational common bond to a community charter; 
or
    [sbull] 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.
    The regional director must approve all amendments to an 
associational common bond credit union's field of membership. The 
regional director may approve an amendment to expand the field of 
membership if:
    [sbull] The common bond requirements of this section are satisfied;
    [sbull] The group to be added has provided a written request for 
service to the credit union; and
    [sbull] The change is economically advisable.
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 requiring 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.
    If the group comprising the single common bond of the credit union 
merges with, or is acquired by, another group, the credit union can 
serve the new group resulting from the merger or acquisition after 
receiving a housekeeping amendment.
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. 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.
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-EZ) to the appropriate NCUA regional 
director. An authorized credit union representative must sign the 
request.
    The NCUA 4015-EZ must be accompanied by the following:
    [sbull] 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:
    [sbull] How the group shares the credit union's associational 
common bond;
    [sbull] That the group wants to be added to the applicant federal 
credit union's field of membership;
    [sbull] The number of persons currently included within the group 
to be added and their locations.

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
    NCUA staff will review all amendment requests in order to ensure 
conformance to NCUA policy.
    Before acting on a proposed amendment, the regional director may 
require an on-site review. In addition,

[[Page 72459]]

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 regional director approves the requested amendment, 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:
    [sbull] Specific reasons for the action;
    [sbull] Options to consider, if appropriate, for gaining approval; 
and
    [sbull] Appeal procedures.
III.C.5--Appeal of Regional Director Decision
    If a field of membership expansion request, 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. A reconsideration must address the reasons for the 
initial denial. The request will not be considered as an appeal, but as 
a request for reconsideration by the regional director. A request for 
reconsideration will contain new and material evidence. 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. A second request for reconsideration will be treated 
as an appeal to the NCUA Board.

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:
    [sbull] By taking in the field of membership of another credit 
union through a common bond or emergency merger;
    [sbull] By taking in the field of membership of another credit 
union through a common bond or emergency purchase and assumption (P&A); 
or
    [sbull] 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 
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:
    [sbull] An emergency requiring expeditious action exists;
    [sbull] Other alternatives are not reasonably available; and
    [sbull] 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:
    [sbull] Abandonment by management;
    [sbull] Loss of sponsor;
    [sbull] Serious and persistent record keeping problems; or
    [sbull] 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

[[Page 72460]]

credit union and, as applicable, the state regulators.
III.D.3--Purchase and Assumption (P&A)
    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
    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:
    [sbull] Why the spin-off is being requested;
    [sbull] What part of the field of membership is to be spun off;
    [sbull] Whether the affected credit unions have the same common 
bond (applies only to single associational credit unions);
    [sbull] Which assets, liabilities, shares, and capital are to be 
transferred;
    [sbull] The financial impact the spin-off will have on the affected 
credit unions;
    [sbull] The ability of the acquiring credit union to effectively 
serve the new members;
    [sbull] The proposed spin-off date; and
    [sbull] 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. All members 
of the group to be spun off (whether they voted in favor, against, or 
not at all) will be transferred if the spin-off is approved by the 
voting membership. 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. NCUA will permit single 
associational federal credit unions to overlap any other charters 
without performing an overlap analysis.
III.E.2--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. NCUA will permit a complete overlap 
of the credit unions' fields of membership. If a sponsor organization 
sells off a group, new members can no longer be served unless they 
otherwise qualify for membership in the credit union.
    Credit unions must submit documentation explaining the 
restructuring and providing information regarding the new 
organizational structure.
III.E.3--Exclusionary Clauses
    An exclusionary clause is a limitation precluding the credit union 
from serving the primary members of a portion of a group otherwise 
included in its field of membership. NCUA no longer grants exclusionary 
clauses. Those granted prior to the adoption of this new chartering 
manual will remain in effect unless the credit unions agree to remove 
them or one of the affected credit unions submits a housekeeping 
amendment to have it removed.

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 2, Section V.A.3.
    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 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.

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:
    [sbull] The group is within the field of membership of two credit 
unions and one wishes to discontinue service;

[[Page 72461]]

    [sbull] The federal credit union cannot continue to provide 
adequate service to the group;
    [sbull] The group has ceased to exist;
    [sbull] The group does not respond to repeated requests to contact 
the credit union or refuses to provide needed support; or
    [sbull] 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 Eligible for Credit Union Membership

    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:
    [sbull] Spouses of persons who died while within the field of 
membership of this credit union;
    [sbull] Employees of this credit union;
    [sbull] Volunteers;
    [sbull] Member of the immediate family or household;
    [sbull] Organizations of such persons; and
    [sbull] Corporate or other legal entities in this charter.
    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 include a TIP or 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. The non-availability of other credit 
union service is a factor to be considered in determining whether the 
group is within reasonable proximity of a credit union wishing to add 
the group to its field of membership.
    A service facility is defined as a place where shares are accepted 
for members' accounts, loan applications are accepted or loans are 
disbursed. This definition includes a credit union owned branch, a 
mobile branch, an office operated on a regularly scheduled weekly 
basis, a credit union owned ATM, or a credit union owned electronic 
facility that meets, at a minimum, these requirements. A service 
facility also includes a shared branch network that a credit union has 
an ownership interest in.
    The select group as a whole will be considered to be within a 
credit union's service area when:
    [sbull] A majority of the persons in a select group live, work, or 
gather regularly within the service area;
    [sbull] The group's headquarters is located within the service 
area; or
    [sbull] 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 in Wilmington, Delaware, who 
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 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:
    [sbull] A single occupational or associational charter to a 
multiple common bond charter;
    [sbull] A multiple common bond to a single occupational or 
associational charter;
    [sbull] A multiple common bond to a community charter; or
    [sbull] A community to a multiple common bond charter.

[[Page 72462]]

    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 no longer exists.
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. The regional 
director must approve all amendments to a multiple common bond credit 
union's field of membership.
    NCUA will approve groups to a credit union's field of membership if 
the agency determines in writing that the following criteria are met:
    [sbull] 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;
    [sbull] The credit union is ``adequately capitalized.'' NCUA 
defines adequately capitalized to mean the credit union has a net worth 
ratio of not less than 6 percent. For low-income credit unions or 
credit unions chartered less than ten years, the regional director may 
determine that a net worth ratio of less than 6 percent is adequate if 
the credit union is making reasonable progress toward meeting the 6 
percent net worth requirement. For any other credit union, the regional 
director may determine that a net worth ratio of less than 6 percent is 
adequate if the credit union is making reasonable progress toward 
meeting the 6 percent net worth requirement, and the addition of the 
group would not adversely affect the credit union's capitalization 
level.
    [sbull] 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;
    [sbull] 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
    [sbull] 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 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 or NCUA 4015-EZ) to the 
appropriate NCUA regional director. An authorized credit union 
representative must sign the request.
    The NCUA 4015-EZ (for groups less than 3,000 potential members) 
must be
    accompanied by the following:
    [sbull] 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:

 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.

    [sbull] The most recent copy of the group's charter and bylaws or 
equivalent documentation (for associational groups).
    The NCUA 4015 (for groups of 3,000 or more primary potential 
members) must be accompanied by the following:
    [sbull] 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;
--The group's proximity to credit union's nearest service facility, and
--Why the formation of a separate credit union for the group is not 
practical or consistent with safety and soundness standards, and 
provide comments on as many of the following factors as are applicable. 
A credit union need not address every item on the list, simply those 
issues that are relevant to its particular request:

    [sbull] Member location--whether the membership is widely dispersed 
or concentrated in a central location.
    [sbull] Demographics--the employee turnover rate, economic status 
of the group's members, and whether the group is more apt to consist of 
savers and/or borrowers.
    [sbull] Market competition--the availability of other financial 
services.
    [sbull] Desired services and products--the type of services the 
group desires in comparison to the type of services a new credit union 
could offer.
    [sbull] Sponsor subsidies--the availability of operating subsidies.
    [sbull] The desire of the sponsor.
    [sbull] Employee interest--the extent of the employees' interest in 
obtaining a credit union charter.
    [sbull] Evidence of past failure--whether the group previously had 
its own credit union or previously filed for a credit union charter.
    [sbull] Administrative capacity to provide services--will the group 
have the management expertise to provide the services requested.
    [sbull] 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
    [sbull] 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, spun-off, or merged select group to which it has 
been providing service. This type of amendment to the credit union's 
charter is not considered an expansion;

[[Page 72463]]

therefore, the criteria relating to adding new groups are not 
applicable.
    When two groups merge and each is in the field of membership of a 
credit union, then both (or all affected) credit unions can serve the 
resulting merged group, subject to any existing geographic limitation 
and without regard to any overlap provisions. However, the credit 
unions cannot serve the other multiple groups that may be in the field 
of membership of the other credit union.

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
    NCUA staff will review all amendment requests in order to ensure 
conformance to NCUA policy.
    Before acting on a proposed amendment, the regional director may 
require an on-site review. In addition, the regional director may, 
after taking into account the significance of the proposed field of 
membership amendment, require the applicant to submit a business plan 
addressing specific issues.
    The financial and operational condition of the requesting credit 
union will be considered in every instance. An expanded field of 
membership may provide the basis for reversing adverse trends. In such 
cases, an amendment to expand the field of membership may be granted 
notwithstanding the credit union's adverse trends. The applicant credit 
union must clearly establish that the approval of the expanded field of 
membership meets the requirements of Section IV.B.2 of this Chapter and 
will not increase the risk to the NCUSIF.
IV.C.3--Regional Director's Approval
    If the regional director approves the requested amendment, the 
credit union will be issued an amendment to Section 5 of its charter.
IV.C.4--Regional Director's 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:
    [sbull] Specific reasons for the action;
    [sbull] Options to consider, if appropriate, for gaining approval; 
and
    [sbull] Appeal procedure.
IV.C.5--Appeal of Regional Director Decision
    If a field of membership expansion request, 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. A reconsideration must address the reasons for the 
initial denial. 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. A request for 
reconsideration will contain new and material evidence. 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. A second request for reconsideration will be treated 
as an appeal to the NCUA Board.

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

    In general, other than the addition of select groups, there are 
three additional ways a multiple common bond federal credit union can 
expand its field of membership:
    [sbull] By taking in the field of membership of another credit 
union through a merger;
    [sbull] By taking in the field of membership of another credit 
union through a purchase and assumption (P&A); or
    [sbull] 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 unions serve the same group, and the group 
consists of 3,000 or more primary potential members, then the ability 
to form analysis is not required for that group. If the merging credit 
union has any other 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, except as noted 
above, 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 of 3,000 or more 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

[[Page 72464]]

insolvency for NCUA to use this statutory authority. Examples 
constituting appropriate reasons for using this authority are: 
abandonment of the management and/or officials and an inability to find 
replacements, loss of sponsor support, serious and persistent record 
keeping problems, sustained material decline in financial condition, or 
other serious or persistent circumstances.
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:
    [sbull] An emergency requiring expeditious action exists;
    [sbull] Other alternatives are not reasonably available; and
    [sbull] 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:
    [sbull] Abandonment by management;
    [sbull] Loss of sponsor;
    [sbull] Serious and persistent record keeping problems; or
    [sbull] Serious and persistent operational concerns.
    In an emergency merger situation, NCUA will take an active role in 
finding a suitable merger partner (continuing credit union). NCUA is 
primarily concerned that the continuing credit union has the financial 
strength and management expertise to absorb the troubled credit union 
without adversely affecting its own financial condition and stability.
    As a stipulated condition to an emergency merger, the field of 
membership of the merging credit union may be transferred intact to the 
continuing federal credit union without regard to any field of 
membership restrictions including numerical limitation requirements and 
without changing the character of the continuing federal credit union 
for future amendments. Under this authority, any single occupational or 
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 Assumption (P&A)
    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:
    [sbull] Why the spin-off is being requested;
    [sbull] What part of the field of membership is to be spun off;
    [sbull] Which assets, liabilities, shares, and capital are to be 
transferred;
    [sbull] The financial impact the spin-off will have on the affected 
credit unions;
    [sbull] The ability of the acquiring credit union to effectively 
serve the new members;
    [sbull] The proposed spin-off date; and
    [sbull] 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. All members 
of the group to be spun off (whether they voted in favor, against, or 
not at all) will be transferred if the spin-off is approved by the 
voting membership. 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.
    Credit unions must investigate the possibility of an overlap with 
federally insured credit unions prior to submitting an expansion 
request if the group has 3,000 or more primary potential members. If 
cases arise where the assurance given to a regional director concerning 
the unavailability of credit union service is inaccurate, the

[[Page 72465]]

misinformation may be grounds for removal of the group from the federal 
credit union's charter.
    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 approve an overlap if the expansion's beneficial effect 
in meeting the convenience and needs of the members of the group 
clearly outweighs any adverse effect on the overlapped credit union.
    In reviewing the overlap, the regional director will consider:
    [sbull] The view of the overlapped credit union(s);
    [sbull] 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;
    [sbull] 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;
    [sbull] Whether the original credit union fails to provide 
requested service;
    [sbull] Financial effect on the overlapped credit union;
    [sbull] The desires of the group(s);
    [sbull] The desire of the sponsor organization; and
    [sbull] The best interests of the affected group and the credit 
union members involved.
    Generally, if the overlapped credit union does not object, and NCUA 
determines that there is no safety and soundness problem, the overlap 
will be permitted.
    Potential overlaps of a federally insured state credit union's 
field of membership by a federal credit union will generally be 
analyzed in the same way as if two federal credit unions were involved. 
Where a federally insured state credit union's field of membership is 
broadly stated, NCUA will exclude its field of membership from any 
overlap protection.
    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 through a housekeeping amendment.
    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. 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.
    Credit unions affected by organizational restructuring or merger 
should attempt to resolve overlap issues among themselves. Unless an 
agreement is reached limiting the overlap resulting from the corporate 
restructuring, NCUA will permit a complete overlap of the credit 
unions' fields of membership. When two groups merge, or one group is 
acquired by the other, and each is in the field of membership of a 
credit union, both (or all affected) credit unions can serve the 
resulting merged or acquired group, subject to any existing geographic 
limitation and without regard to any overlap provisions. This can be 
accomplished through a housekeeping amendment.
    Credit unions must submit to NCUA documentation explaining the 
restructuring and provide information regarding the new organizational 
structure.
IV.E.3--Exclusionary Clauses
    An exclusionary clause is a limitation precluding the credit union 
from serving the primary members of a portion of a group otherwise 
included in its field of membership. NCUA no longer grants exclusionary 
clauses. Those granted prior to the adoption of this new chartering 
manual will remain in effect unless the credit unions agree to remove 
them or one of the affected credit unions submits a housekeeping 
amendment to have it removed.

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 2, Section 
V.A.3.
    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 do not 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.

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:
    [sbull] The group is within the field of membership of two credit 
unions and one wishes to discontinue service;
    [sbull] The federal credit union cannot continue to provide 
adequate service to the group;
    [sbull] The group has ceased to exist;
    [sbull] The group does not respond to repeated requests to contact 
the credit union or refuses to provide needed support;
    [sbull] The group initiates action to be removed from the field of 
membership; or
    [sbull] 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.

[[Page 72466]]

IV.H--Other Persons Eligible for Credit Union Membership

    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:
    [sbull] Spouses of persons who died while within the field of 
membership of this credit union;
    [sbull] Employees of this credit union;
    [sbull] Persons retired as pensioners or annuitants from the above 
employment;
    [sbull] Volunteers;
    [sbull] Member of the immediate family or household;
    [sbull] Organizations of such persons; and
    [sbull] Corporate or other legal entities in this charter.
    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 single, geographically well-
defined local community, neighborhood, or rural district where 
individuals have common interests and/or interact. More than one credit 
union may serve the same community.
    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.
    NCUA has established the following requirements for community 
charters:
    [sbull] The geographic area's boundaries must be clearly defined;
    [sbull] The area is a ``well-defined local, community, 
neighborhood, or rural district;'' and
    [sbull] Individuals must have common interests and/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 additional documentation addressing the proposed area to be 
served and community service policies.
    A community credit union 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 a clearly identifiable neighborhood. 
Although congressional districts and state boundaries are well-defined 
areas, they do not meet the requirement that the proposed area be a 
local community.
    The well-defined local community, neighborhood, or rural district 
requirement is met if:
    [sbull] The area to be served is in a recognized single political 
jurisdiction, i.e., a city, county, or its political equivalent, or any 
contiguous political subdivisions contained therein.
    The well-defined local community, neighborhood, or rural district 
requirement may be met if:
    [sbull] The area to be served is in multiple contiguous political 
jurisdictions, i.e. a city, county, or its political equivalent, or any 
political subdivisions contained therein and if the population of the 
requested well-defined area does not exceed 500,000; or
    [sbull] The area to be served is a Metropolitan Statistical Area 
(MSA) or its equivalent, or a portion thereof, where the population of 
the MSA or its equivalent does not exceed 1,000,000.
    If the proposed area meets either the multiple political 
jurisdiction or MSA criteria, the credit union must submit a letter 
describing how the area meets the standards for community interaction 
and/or common interests.
    If NCUA does not find sufficient evidence of community interaction 
and/or common interests or if the area to be served does not meet the 
MSA or multiple political jurisdiction requirements of the preceding 
paragraph, 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:
    [sbull] The defined political jurisdictions;
    [sbull] Major trade areas (shopping patterns and traffic flows);
    [sbull] Shared/common facilities (for example, educational, 
medical, police and fire protection, school district, water, etc.);
    [sbull] Organizations and clubs within the community area;
    [sbull] Newspapers or other periodicals published for and about the 
area;
    [sbull] A local map designating the area to be served and locations 
of current and proposed service facilities and a regional or state map 
with the proposed community outlined; or
    [sbull] Other documentation that demonstrates that the area is a 
community where individuals have common interests and/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 under IRPS 99-1, as amended. Applicants may contact the 
appropriate regional office to find out if the area

[[Page 72467]]

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 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 
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:
    [sbull] Pro forma financial statements for the first two years 
after the proposed conversion, including assumptions--e.g., member, 
share, loan, and asset growth;
    [sbull] Marketing plan addressing how the community will be served;
    [sbull] Financial services to be provided to members;
    [sbull] Location of service facilities; and
    [sbull] 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. The boundaries can be defined using 
streets, rivers, railroads, etc.
    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.''
    A community that is a recognized MSA must state in the field of 
membership the political jurisdiction(s) that comprise the MSA.

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:
    [sbull] 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;
    [sbull] Persons who live or work in Green County, Maine;
    [sbull] Persons who live, worship, or work in and businesses and 
other legal entities located in Independent School District No. 1, 
DuPage County, Illinois;
    [sbull] Persons who live, worship, work, or attend school on the 
University of Dayton campus, in Dayton, Ohio; or
    [sbull] Persons who work for businesses located in Clifton Country 
Mall, in Clifton Park, New York.
    [sbull] Persons who live, work, or worship in the Binghamton, New 
York, MSA, consisting of Broome and Tioga Counties, New York.
    Some examples of insufficiently defined community field of 
membership definitions are:
    [sbull] Persons who live or work within and businesses located 
within a ten-mile radius of Washington, D.C. (using a radius does not 
establish a well-defined area); or
    [sbull] Persons who live or work in the industrial section of New 
York, New York. (not a well-defined neighborhood, community, or rural 
district).
    [sbull] Persons who live or work in the greater Boston area. (not a 
well-defined neighborhood, community, or rural district).
    Some examples of unacceptable local communities, neighborhoods, or 
rural districts are:
    [sbull] Persons who live or work in the State of California. (does 
not meet the definition of local community, neighborhood, or rural 
district).
    [sbull] Persons who live in the first congressional district of 
Florida. (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 
adding additional affinities or removing exclusionary clauses. This can 
be accomplished with a housekeeping amendment.
    A community credit union also may expand its geographic boundaries. 
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 credit union must follow the 
requirements of Section V.A.3 of this chapter.

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.

[[Page 72468]]

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:
    [sbull] Specific reasons for the action;
    [sbull] If appropriate, options or suggestions that could be 
considered for gaining approval; and
    [sbull] Appeal procedures.
V.C.5--Appeal of Regional Director Decision
    If a field of membership expansion request, 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. A reconsideration must address the reasons for the 
initial denial. The regional director will not consider the request as 
an appeal, but a request for reconsideration. A request for 
reconsideration will contain new and material evidence. 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 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. A second request for reconsideration will be treated 
as an appeal to the NCUA Board.

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:
    [sbull] By taking in the field of membership of another credit 
union through a merger;
    [sbull] By taking in the field of membership through a purchase and 
assumption (P&A); or
    [sbull] 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 or 
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 notify 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 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:
    [sbull] An emergency requiring expeditious action exists;
    [sbull] Other alternatives are not reasonably available; and
    [sbull] 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:
    [sbull] Abandonment by management;
    [sbull] Loss of sponsor;
    [sbull] Serious and persistent record-keeping; or
    [sbull] 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

[[Page 72469]]

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 Assumption (P&A)
    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
    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:
    [sbull] Why the spin-off is being requested;
    [sbull] What part of the field of membership is to be spun off;
    [sbull] Whether the field of membership requirements are met;
    [sbull] Which assets, liabilities, shares, and capital are to be 
transferred;
    [sbull] The financial impact the spin-off will have on the affected 
credit unions;
    [sbull] The ability of the acquiring credit union to effectively 
serve the new members;
    [sbull] The proposed spin-off date; and
    [sbull] 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. All members of the group to be spun off (whether they voted in 
favor, against, or not at all) will be transferred if the spin-off is 
approved by the voting membership. 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. NCUA will permit community 
credit unions to overlap any other charters without performing an 
overlap analysis.
V.E.2--Exclusionary Clauses
    An exclusionary clause is a limitation precluding the credit union 
from serving the primary members of a portion of a group or community 
otherwise included in its field of membership. NCUA no longer grants 
exclusionary clauses. Those granted prior to the adoption of this new 
chartering manual will remain in effect unless the credit unions agree 
to remove them or one of the affected credit unions submits a 
housekeeping amendment to have it removed.

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.
    Although rare, a community credit union may convert to serve a new 
geographical area provided the field of membership requirements of 
V.A.3 of this chapter are met. Members of record of the original 
community can continue to be served.

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:
    [sbull] Spouses of persons who died while within the field of 
membership of this credit union;
    [sbull] Employees of this credit union;
    [sbull] Volunteers in the community;
    [sbull] Member of the immediate family or household; and
    [sbull] 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.

[[Page 72470]]

    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 credit union serving predominantly low-income members may be 
designated as a low-income credit union. Section 701.34 of NCUA's Rules 
and Regulations defines the term ``low-income members'' as those 
members:
    [sbull] Who make less than 80 percent of the average for all wage 
earners as established by the Bureau of Labor Statistics; or
    [sbull] Whose annual household income falls at or below 80 percent 
of the median household income for the nation as established by the 
Census Bureau.
    The term ``low-income members'' 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.

II.B--Special Programs

    A credit union with a low-income designation (except student credit 
unions) has greater flexibility in accepting non-member deposits 
insured by the NCUSIF, are exempt from the aggregate loan limit on 
business loans, 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.
    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 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:
    [sbull] 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.
    [sbull] 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.

[[Page 72471]]

III--Service to Underserved Communities

III.A--General

    All federal credit unions may include in their fields of 
membership, without regard to location, communities satisfying the 
definition of underserved areas in the Federal Credit Union Act. Adding 
an underserved area will not change the charter type of a federal 
credit union. 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.
    For an underserved area, the well-defined local community, 
neighborhood, or rural district requirement is met if:
    [sbull] The area to be served is in a recognized single political 
jurisdiction, i.e., a city, county, or its political equivalent, or any 
contiguous political subdivisions contained therein;
    [sbull] The area to be served is in multiple contiguous political 
jurisdictions, i.e. a city, county, or its political equivalent, or any 
political subdivisions contained therein and if the population of the 
requested well-defined area does not exceed 500,000; or
    [sbull] The area to be served is located in a Metropolitan 
Statistical Area (MSA) or its equivalent where the population of the 
MSA or its equivalent does not exceed 1,000,000.
    If the area to be served does not meet the MSA or multiple 
political jurisdiction requirements outlined above, the application 
must include documentation to support that it is a well-defined local 
community, neighborhood, or rural district.
    For an underserved area, an investment area includes any of the 
following (as reported in the most recently completed decennial census 
or equivalent government data):
    [sbull] 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);
    [sbull] An area where the percentage of the population living in 
poverty is at least 20 percent;
    [sbull] 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;
    [sbull] 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
    [sbull] An area where the unemployment rate is at least 1.5 times 
the national average;
    [sbull] 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;
    [sbull] 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;
    [sbull] 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;
    [sbull] 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.
    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.

IV--Appeal Procedures for Underserved Areas

IV.A--NCUA Approval

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

IV.B--NCUA Disapproval

    When NCUA disapproves any application to add an underserved area, 
in whole or in part, under this chapter, the applicant will be informed 
in writing of the:
    [sbull] Specific reasons for the action;
    [sbull] Options to consider, if appropriate, for gaining approval; 
and
    [sbull] Appeal procedures.

IV.C--Appeal of Regional Director Decision

    If the regional director denies an underserved area request, 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. A reconsideration must address the reasons for the 
initial denial. The request will not be considered as an appeal, but a 
request for reconsideration by the regional director. A request for 
reconsideration will contain new and material evidence. The regional 
director will have 30 days from the date of the

[[Page 72472]]

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. A second request for 
reconsideration will be treated as an appeal to the NCUA Board.

Chapter 4--Charter Conversions

I--Introduction

    A charter conversion is a change in the jurisdictional authority 
under which a credit union operates.
    Federal credit unions receive their charters from NCUA and are 
subject to its supervision, examination, and regulation.
    State-chartered credit unions are incorporated in a particular 
state, receiving their charter from the state agency responsible for 
credit unions and subject to the state's regulator. If the state-
chartered credit union's deposits are federally insured it will also 
fall under NCUA's jurisdiction.
    A federal credit union's power and authority are derived from the 
Federal Credit Union Act and NCUA Rules and Regulations. State-
chartered credit unions are governed by state law and regulation. 
Certain federal laws and regulations also apply to federally insured 
state chartered credit unions.
    There are two types of charter conversions: federal charter to 
state charter and state charter to federal charter. Common bond and 
community requirements are not an issue from NCUA's standpoint in the 
case of a federal to state charter conversion. The 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:
    [sbull] Comply with state law regarding conversion and file proof 
of compliance with NCUA;
    [sbull] File the required conversion application, proposed federal 
credit union organization certificate, and other documents with NCUA;
    [sbull] comply with the requirements of the Federal Credit Union 
Act, e.g., chartering and reserve requirements; and
    [sbull] be granted federal share insurance by NCUA.
    Conversions are treated the same as any initial application for a 
federal charter, including an on-site examination by NCUA where 
appropriate. 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. However, if the converting 
credit union is a multiple group charter and the new federal charter is 
a multiple group, then the new federal charter may retain in its field 
of membership any group that the state credit union was serving at the 
time of conversion. Subsequent changes must conform to NCUA chartering 
policy in effect at that time. The converting credit union may continue 
to serve members of record. The converting credit union may retain in 
its field of membership any group or community added pursuant to state 
emergency provisions.
    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 documents must be submitted with the conversion 
proposal:
    [sbull] Conversion of State Charter to Federal Charter (NCUA 4000);
    [sbull] 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.
    [sbull] Report of Officials and Agreement to Serve (NCUA 4012);
    [sbull] The Application to Convert From State Credit Union to 
Federal Credit Union (NCUA 4401);
    [sbull] The Application and Agreements for Insurance of Accounts 
(NCUA 9500);
    [sbull] Certification of Resolution (NCUA 9501);
    [sbull] Written evidence of state regulator approval; and
    [sbull] Business plan, as appropriate, including the most current 
financial report and delinquent loan schedule.
    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.

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.
II.C.2--On-Site Review
    NCUA may 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:
    [sbull] Specific reasons for the action;
    [sbull] Options to consider, if appropriate, for gaining approval; 
and
    [sbull] 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

[[Page 72473]]

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.

II.D--Action by Board of Directors

II.D.1--General
    Upon being informed of the regional director's preliminary 
approval, the board must:
    [sbull] 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;
    [sbull] 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;
    [sbull] 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
    [sbull] 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. Refer to Section II.C.6 of this chapter.

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:
    [sbull] Report of Officials (NCUA 4501); and
    [sbull] 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:
    [sbull] Notify NCUA prior to commencing the process to convert to a 
state charter and state the reason(s) for the conversion;
    [sbull] 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
    [sbull] 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. The federal credit union 
converting to a state charter remains responsible for the entire 
operating fee for the year in which it converts.

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

[[Page 72474]]

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 
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:
    [sbull] A current financial report;
    [sbull] A current delinquent loan schedule;
    [sbull] An explanation and appropriate documents relative to any 
changes in insurance of member accounts;
    [sbull] A resolution of the board of directors;
    [sbull] A proposed Notice of Special Meeting of the Members (NCUA 
4221);
    [sbull] A copy of the ballot to be sent to all members (NCUA 4506);
    [sbull] Evidence that the state regulator is in agreement with the 
conversion proposal; and
    [sbull] 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:
    [sbull] Specific reasons for the action;
    [sbull] If appropriate, options or suggestions that could be 
considered for gaining approval; and
    [sbull] Appeal procedures.
III.D.6--Appeal of Regional Director Decision
    If the regional director denies a conversion to a state charter, 
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:
    [sbull] 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.
    [sbull] 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.

    [sbull] 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.
    [sbull] 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:
    [sbull] Ensure that all requirements of state law and the state 
regulator have been accommodated;
    [sbull] 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
    [sbull] 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.

[[Page 72475]]

    If the conversion cannot be completed within the 90-day period, the 
regional director should be informed of the reasons for the delay. The 
regional director may set a new date for the conversion to be 
completed.

III.G--Completion of Conversion

    In order for the conversion to be completed, the following steps 
are necessary:
    [sbull] 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.
    [sbull] 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.
    [sbull] The credit union shall cease to be a federal credit union 
as of the effective date of the state charter.
    [sbull] 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.
    [sbull] 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.
    [sbull] If the regional director is satisfied that the conversion 
has been accomplished in accordance with the approved proposal, the 
federal charter will be canceled.
    [sbull] 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.
    [sbull] 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.
    [sbull] 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 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 
``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.
    [sbull] If the state credit union is to be federally insured, the 
regional director will issue a new insurance certificate.

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[FR Doc. 02-30400 Filed 12-4-02; 8:45 am]
BILLING CODE 7535-01-C