[Federal Register Volume 73, Number 117 (Tuesday, June 17, 2008)]
[Proposed Rules]
[Pages 34366-34464]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-12946]



[[Page 34365]]

-----------------------------------------------------------------------

Part II





National Credit Union Administration





-----------------------------------------------------------------------



12 CFR Part 701



Organization and Operations of Federal Credit Unions; Proposed Rule

  Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / 
Proposed Rules  

[[Page 34366]]


-----------------------------------------------------------------------

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

RIN 3133-AD48


Organization and Operations of Federal Credit Unions

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: NCUA seeks public comment on four proposals to modify its 
Chartering and Field of Membership Manual to update and clarify the 
process of approving credit union service to ``underserved areas.'' The 
first proposal clarifies the procedure for establishing that an 
``underserved area'' qualifies as a local community. The second 
addresses the application of the economic distress criteria that 
determine whether an area combining multiple geographic units is 
sufficiently ``distressed'' to qualify as ``underserved.'' The third 
would update the documentation and clarify the scope requirements for 
demonstrating that a proposed area has ``significant unmet needs'' for 
loans and applicable financial services. The final proposal recognizes 
that meaningful data from NCUA and the federal banking agencies will be 
available to assess whether an area is ``underserved by other 
depository institutions.''

DATES: Comments must be received on or before August 18, 2008.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web Site: http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the 
instructions for submitting comments.
     E-mail: Address to [email protected]. Include ``[Your 
name] Comments on Proposed Rule Part 701.1'' in the e-mail subject 
line.
     Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.

FOR FURTHER INFORMATION CONTACT: Michael J. McKenna, Deputy General 
Counsel; John K. Ianno, Associate General Counsel; or Steven W. 
Widerman, Trial Attorney, Office of General Counsel, 1775 Duke Street, 
Alexandria, Virginia 22314 or telephone (703) 518-6540.

SUPPLEMENTARY INFORMATION:

I. Background

    In 1998, Congress enacted the Credit Union Membership Access Act 
(CUMAA), Public Law 105-219, 112 Stat. 914 (1998). Among other things, 
CUMAA authorized the NCUA Board to allow multiple common bond credit 
unions to serve members residing in ``underserved areas,'' provided the 
credit union establishes and maintains a facility there. 12 U.S.C. 
1759(c)(2). For an area to be ``underserved,'' CUMAA requires the NCUA 
Board to determine that a local community, neighborhood or rural 
district is an ``investment area'' as defined in the Community 
Development Banking and Financial Institutions Act of 1994 (``CDFI 
Act''), 12 U.S.C. 4702(16), and also that it is ``underserved * * * by 
other depository institutions.'' \1\ 12 U.S.C. 1759(c)(2)(A).
---------------------------------------------------------------------------

    \1\ A ``depository institution'' is defined to include insured 
credit unions. 12 U.S.C. 461(b)(1)(A)(iv).
---------------------------------------------------------------------------

    The CDFI Act defines an ``investment area'' as a geographic area 
that ``encompasses or is located in an empowerment zone or enterprise 
community designated under [26 U.S.C. 1391]''; or that ``meets the 
objective criteria of economic distress developed by the [Community 
Development Financial Institutions] Fund'' (``CDFI Fund'') and also 
``has significant unmet needs for loans or equity investments.'' 12 
U.S.C. 4702(16). The Fund established ``criteria of economic distress'' 
and implemented the ``significant unmet needs'' criterion by 
regulation. 12 CFR 1805.201(d) and (e) (1998); 12 CFR 1805.104(dd) 
(1998).
    To reflect the enactment of CUMAA and its introduction of 
``underserved areas,'' NCUA revised its Chartering and Field of 
Membership Manual (``Chartering Manual'') in 1998, replacing the 
previous authority to serve low-income communities and associations. 12 
CFR 701.1 (1999). As revised, the Chartering Manual implemented the 
statutory definition of ``underserved area'' and incorporated the then-
existing CDFI criteria for establishing a ``distressed'' area. 63 FR 
71998 (December 30, 1998). Those criteria addressed median family 
income, poverty, unemployment, distressed housing, county population 
loss, and significant unmet needs for loans and equity investments. 63 
FR at 72015, 72042.
    Anticipating the possibility of periodic additions to the then-
existing distress criteria, the Chartering Manual incorporated by 
reference other criteria that the CDFI Fund might establish in the 
future. 67 FR 20013, 20017 (April 24, 2002). The distress criteria that 
apply today are the same ones that applied in 1998, except that the 
``distressed housing'' criterion has been replaced by county ``net 
migration loss.'' 12 CFR 1805.201(b)(3)(D)(5) (2008).
    The proposed rule (Interpretive Ruling and Policy Statement 08-2) 
is intended to update and clarify the existing process of approving 
credit union service to ``underserved areas.'' Public comments on the 
proposed modifications are welcome. To facilitate the consideration of 
these comments, the NCUA Board urges commenters to organize and label 
their comments to correspond to the topics and issues discussed below.

II. Discussion of Proposed Rule

A. Definition of a Local Community

    To be eligible for approval as an ``underserved area,'' a proposed 
area first must qualify as a ``local community, neighborhood or rural 
district'' (``local community''). 12 U.S.C. 1759(c)(2)(A); S. Rep. No. 
193, 105th Cong., 2d Sess. 6 (1998); H.R. Rep. No. 105-472, 105th 
Cong., 2d Sess. 19 (1998). The Chartering Manual's criteria for 
establishing a ``local community'' for ``underserved area'' purposes 
deviates somewhat from the ``well-defined local community'' criteria 
elsewhere in the Manual.
    When a proposed area qualifies as a ``presumptive community'' 
(multiple political jurisdictions with a total population of 500,000 or 
less; or an area within a Metropolitan Statistical Area with a 
population of 1 million or less) the Chartering Manual's chapter on 
community chartering requires a credit union to complete the 
presumption by submitting a letter ``describing how the area meets the 
standards for community interaction and/or common interests'' within in 
the proposed area.\2\ Id. Ch. 2, Sec.  V.A.1. The chapter on 
``underserved areas'' does not require an equivalent letter to 
establish that a proposed ``underserved area'' is a ``presumptive 
community.'' Manual, Ch. 3, Sec.  III.A.
---------------------------------------------------------------------------

    \2\ When the letter supporting a ``presumptive community'' fails 
to present sufficient evidence of community interaction and/or 
common interests, the credit union may be required to provide a full 
analysis to support that the area is a well-defined local community. 
Manual, Ch. 2 Sec.  V.A.1.
---------------------------------------------------------------------------

    The disparity concerning the letter supporting a ``presumptive 
community'' provides an opportunity to reconsider

[[Page 34367]]

whether the letter is needed at all to establish a local community in 
the context of either a community charter or an ``underserved area.'' 
The original purpose of the letter in the community charter context was 
to supplement the record with qualitative evidence of interaction and 
common interests within the community. The NCUA Board invites public 
comment on whether a supporting letter is necessary to further that 
purpose when a multiple group credit union seeks to add an 
``underserved area.'' To ensure consistency, the proposed rule revises 
the chapter on ``underserved areas'' to incorporate the definition of 
``well defined local community'' set forth in the chapter on community 
chartering. That definition will be revised depending on the Board's 
evaluation of the comments received on the letter requirement.

B. Criteria of Economic Distress

    The proposed rule addresses the practical incompatibility between 
credit union service to a local community and the CDFI Fund's economic 
distress criteria that apply to determine whether a proposed area is an 
``investment area,'' thus qualifying it as ``underserved.'' To qualify 
as a ``local community, neighborhood or rural district,'' the proposed 
area must be a ``single, well-defined'' area so as to facilitate the 
mandatory interaction and common interests that signify a common bond 
among its residents. 65 FR 37065, 37072, 37082 (June 13, 2000). This 
has always meant that the parts of a proposed area must be contiguous, 
regardless of any other prerequisites for credit union service that 
apply. Because of this restriction, NCUA evaluates a ``local community, 
neighborhood or rural district''--whether seeking approval as an 
``underserved area'' or otherwise--strictly as a single, unified 
entity.
    In several respects, the ``single unified entity'' approach is 
incompatible with the ``geographic units'' the CDFI Fund utilizes to 
apply its economic distress criteria. First, the areas that the CDFI 
Fund is asked to certify as ``investment areas'' conform from the 
outset to prescribed census units (e.g., tracts or blocks) or political 
subdivisions, allowing each such geographic unit or group of units to 
be treated as a separate ``investment area.'' 12 CFR 
1805.201(b)(3)(ii)(B) (2008). In contrast, an ``underserved area'' that 
a credit union proposes to add may be drawn without regard to 
prescribed geographic units or political boundaries, reflecting the 
area's status as a single unified entity (i.e., a well-defined 
community). Second, the proposed area's boundaries may be 
nontraditional, consisting of a riverbank, a railroad line or an 
interstate highway, for example. 63 FR at 72038-72039. Further, the 
proposed area may even bisect the traditional geographic units and 
political subdivisions upon which the CDFI Fund relies. Finally, when 
evaluating an ``investment area,'' the CDFI Fund considers only the 
number of persons who reside there. In contrast, when deciding whether 
to add a proposed area to its field of membership, a credit union 
considers potential membership from among the persons who reside, work, 
worship or attend school there. These distinctions tend to complicate 
the translation of a proposed ``underserved area'' into the geographic 
units envisioned by the CDFI Fund's economic distress criteria.
    In the decade since CUMAA, a plethora of economic and demographic 
data has become available over the Internet, and there has been a 
manifold increase in the number of people who have Internet access. 
Convenient on-line access to relevant data has considerably simplified 
the task of translating an ``underserved area'' into the geographic 
units that the CDFI Fund uses to apply the economic distress criteria 
that define an ``investment area.'' Therefore, this proposed rule 
revisits NCUA's rules for qualifying an ``underserved area'' primarily 
to update and conform its approach to present circumstances.
    As a preliminary matter, a proposed area qualifies as an 
``investment area'' without regard to the economic distress and 
``significant unmet needs'' criteria if it is presently designated an 
``Empowerment Zone'' or an ``Enterprise Community.'' 12 CFR 
1805.201(b)(3)(ii)(A)(3). Empowerment Zones and Enterprise Communities 
were designated by the U.S. Department of Housing and Urban Development 
and the U.S. Department of Agriculture between 1993 and 1996. These 
designations have since largely expired,\3\ so most proposed areas will 
not be able to bypass the economic distress and ``significant unmet 
needs'' criteria of an ``investment area.''
---------------------------------------------------------------------------

    \3\ Unexpired Empowerment Zones and Enterprise Communities are 
identified at: http://www.hud.gov/offices/cpd/economicdevelopment/programs/rc/tour/index.cfm. At this link, select a state from the 
map or list, then select from the ``RC/EZ/EC Communities'' shown to 
generate a map of the designated areas.
---------------------------------------------------------------------------

    For proposed areas that do not benefit from an Empowerment Zone or 
Enterprise Community designation, the availability of certain on-line 
resources will make it easier to apply the economic distress criteria. 
The on-line resources that correspond to each step are discussed below 
and the internet address of each is cited in the footnotes. In any 
case, it is useful to understand in a step-by-step progression how the 
economic distress criteria operate.
    Metro or Non-Metro Location. The initial step is to determine 
whether a proposed area is located within or outside a ``Metropolitan 
Area'' as designated by the Office of Management and Budget (``OMB''). 
12 CFR 1805.104(ff). In practice, the CDFI Fund deems a proposed area 
to be located within a Metropolitan Area if it is located within an 
OMB-designated ``Metropolitan Statistical Area'' (``MSA''), and vice 
versa. 44 U.S.C. 3504(e)(3)(E). OMB updates its MSA designations 
annually; however, to ensure consistency with the CDFI Fund's distress 
criteria, which are measured according to the most recent decennial 
Census, the proposed rule relies solely on the MSA designations that 
correspond to the same decennial census, rather than on updated 
designations.\4\
---------------------------------------------------------------------------

    \4\ For MSA designations that correspond to the 2000 decennial 
Census, see ``Metropolitan Areas and Components, 1999, with FIPS 
Codes'' (6/30/99 revised 1/28/02) at: http://www.census.gov/population/estimates/metro-city/99mfips.txt
---------------------------------------------------------------------------

    The location within or outside a Metropolitan Area dictates the 
``geographic unit(s)'' into which the proposed area must be translated 
in order to apply the economic distress criteria. The geographic units 
prescribed for a Metropolitan area (``Metro units'') are a census 
tract, a block group, and an American Indian or Alaskan Native area. 12 
CFR 1805.201(b)(3)(ii)(B) (2008). The geographic units prescribed for a 
Non-Metropolitan area (``Non-Metro units'') are a county (or equivalent 
area), a ``minor civil division that is a unit of local government,'' 
an incorporated place, a census tract, a block numbering area, a block 
group, or an American Indian or Alaskan Native area. Id. In either 
case, the proposed area must consist entirely of whole Metro or Non-
Metro units; it cannot consist of fractional units (e.g., half of a 
census tract or half of a county). A proposed area that is partly 
within and partly outside a Metropolitan Area (e.g., that straddles an 
MSA's boundary) must be evaluated using Metro units because they are 
the largest permissible unit that is common to all parts of the area.
    Single Metro or Non-Metro Unit. To qualify as an ``investment 
area,'' a proposed area consisting of a single whole Metro unit (e.g., 
a single census tract) or a single whole Non-Metro unit (e.g., a single 
county) must as a whole meet one of the following distress criteria, as 
reported by the most recent

[[Page 34368]]

decennial census published by the U.S. Bureau of the Census 
(``decennial Census''):
     Unemployment. Unemployment rate at least 1.5 times the 
national average; or
     Poverty. At least 20 percent (20%) of the population lives 
in poverty. 12 CFR 1805.201(b)(3)(ii)(D)(1) and (3) (2008).
    If the proposed area consists of a single Metro unit of any kind, 
it may also meet the following criterion, as reported by the most 
recent decennial Census:
     Metro Area Median Family Income. Median family income 
(``MFI'') at or below 80 percent (80%) of either the Metro Area's MFI 
or the national Metro Area MFI, whichever is greater.
    If the proposed area consists of a single Non-Metro unit of any 
kind, it may also meet the following criterion, as reported by the most 
recent decennial Census:
     Non-Metro Area Median Family Income. MFI at or below 80 
percent (80%) of either the statewide Non-Metro Area's MFI or the 
national Non-Metro Area MFI, whichever is greater.
    12 CFR 1805.201(b)(3)(ii)(D)(2)(i) and (ii) (2008).
    Finally, if the proposed area consists of a single Non-Metro 
county, it may meet one of the following two additional criteria, as 
reported by the most recent decennial Census:
     County Population Loss. County's population loss of at 
least 10 percent (10%) between the most recent and the preceding 
decennial census; or
     County Migration Loss. County's net migration loss of at 
least 5 percent (5%) in the 5-year period preceding the most recent 
decennial census.
    12 CFR 1805.201(b)(3)(ii)(D)(4) and (5) (2008).
    Multiple Contiguous Metro or Non-Metro Units. If a proposed area 
consists of multiple contiguous Metro units (e.g., a group of adjoining 
census tracts) or multiple contiguous Non-Metro units (e.g., a group of 
adjoining counties), the area is subject to a population threshold that 
does not apply to a proposed area consisting of a single unit. Thus, 
when a proposed area consists of multiple contiguous units, at least 85 
percent (85%) of the area's total population must reside within the 
units that ``together meet one of the [applicable distress] criteria'' 
set forth above (``the 85% population threshold''). 12 CFR 
1805.201(b)(3)(ii)(C)(2) (2008).
    The language of the 85% population threshold suggests that all of 
the ``distressed'' units must qualify as such under the same criterion, 
but in practice, the CDFI Fund allows each ``distressed'' tract within 
a group to qualify under any one of the criteria. Also, the decennial 
Census itself does not apply the 85% population threshold to a proposed 
area consisting of multiple contiguous units; it only reports whether 
an individual unit meets an applicable distress criterion.
    A proposed area consisting either of a single Metro or Non-Metro 
unit, or of multiple contiguous units in which the ``distressed'' units 
represent at least 85 percent of the area's population, will meet the 
definition of an ``investment area'' provided that, as explained below, 
it also has ``significant unmet needs'' for loan products and 
applicable financial services.
    Resources for Determining If Distress Criteria Are Met. The CDFI 
Fund's ``My CDFI Fund'' Web site is an invaluable resource for 
determining whether a proposed area is ``distressed,'' but only if the 
area's unit(s) conform to one or more census tracts or counties, or to 
an independent city (which is treated as equivalent to a county); the 
site is not equipped to analyze any other kind of geographic unit.\5\ 
Using its ``Information and Mapping System'' feature, the ``My CDFI 
Fund'' Web site allows the user to enter selected units that it then 
analyzes individually and as a proposed area. The analysis reflects the 
most recent decennial Census data.\6\ The results are displayed on a 
comprehensive ``Investment Area/Hot Zone Worksheet'' (``IA 
Worksheet'').
---------------------------------------------------------------------------

    \5\ The ``My CDFI Fund'' Web site's ``Information and Mapping 
System'' (``CIMS'') is available at: https://www.cdfifund.gov/myCDFI/Organization/Mapping/Mapping.asp The ``Welcome to CIMS'' page 
explains the options for identifying ``CDFI Investment Areas'' and a 
``Mapping System Overview and Tutorial.'' The ``My CDFI Fund'' Web 
site is accessible to registered users through an organizational 
account holder. For instructions on how to become a registered user, 
see http://www.ncua.gov/CreditUnionDevelopment//Underserved/underserved.html. Under the ``Expanding into Investment Areas'' 
section is a link entitled ``Instructions to Use the CDFI Web 
site.''
    \6\ Typically, there is an 18-month lag between the taking of a 
decennial U.S. Census and the publication of the results. Thus, for 
example, the results of the 2000 census became available when 
published in 2002 and will remain the most recent census until the 
results of the 2010 census are published.
---------------------------------------------------------------------------

    For each unit individually, the IA Worksheet shows: Whether it is 
located within an MSA; its total population; its poverty rate; the 
percent of benchmark MFI; the unemployment rate; and most importantly, 
whether the unit is ``distressed'' under the distress criteria.\7\ For 
the proposed area as a whole, the IA Worksheet shows: Whether the 
population of the non-``distressed'' units is less than 15 percent of 
the whole area's population (i.e., applies the 85% population 
threshold); the exact percentage of the area's population that resides 
in the non-``distressed'' units; the total population of the non-
``distressed'' units; and whether the combined units are contiguous. 
When the IA Worksheet indicates that a proposed area does not qualify 
as ``distressed,'' none of these details is provided.
---------------------------------------------------------------------------

    \7\ The ``My CDFI Fund'' Web site implies that it determines 
whether a proposed area ``qualifies as an investment area.'' If so, 
it would not be necessary for an applicant to meet a further 
criterion--demonstrating ``significant unmet needs for loans,'' 
etc., within the proposed area. In fact, it is apparent that the Web 
site determines only whether a unit or proposed area is 
``distressed,'' meaning that an applicant still must independently 
demonstrate the proposed area's ``significant unmet needs for 
loans,'' etc., in order to qualify as an ``investment area.''
---------------------------------------------------------------------------

    At present, the ``My CDFI Fund'' Web site's analysis is the most 
expeditious means of establishing that a proposed area is sufficiently 
``distressed,'' thus conserving credit union resources. To benefit from 
the convenience of the ``My CDFI Fund'' Web site, the NCUA Board 
encourages credit unions to conform their proposed ``underserved 
areas'' to the ``geographic units'' the site is limited to--census 
tracts and county boundaries, as the case may be.
    Approval to Serve an Already Approved ``Underserved Area''. Once a 
credit union is initially approved to serve an area that qualifies as 
``underserved,'' other credit unions may be approved to serve the area 
provided it is ``underserved'' at the time they apply. The proposed 
rule ``grandfathers'' all credit unions approved to serve an area while 
it qualifies as ``underserved,'' allowing them to continue serving that 
area in the event it no longer qualifies. To terminate the approval to 
serve an area that no longer is ``underserved'' would penalize the 
credit union for its efforts to bring an adequate level of service to 
the area.
    An area that previously was approved as ``underserved'' may still 
qualify as ``distressed'' when the proposed rule is applied using the 
decennial Census in effect when the new applicant applies. When that is 
the case, the new applicant must show at the time it applies that the 
area still has ``significant unmet needs for loans and financial 
services'' (to qualify as an ``investment area'') and still is 
``underserved by other depository institutions'' (to qualify as 
``underserved''). These criteria may become more difficult to meet as 
the number of depository institutions serving the area increases.
    Issues for Comment. The NCUA Board invites public comment on the 
application of the economic distress

[[Page 34369]]

criteria, including whether a proposed area should be required to 
conform to county or census tract boundaries, as the case may be, so 
that census tracts apply uniformly to areas located within a 
Metropolitan Area, and counties apply uniformly to areas located 
outside a Metropolitan Area.

C. Significant Unmet Needs for Loans or Financial Services

    Apart from applying the economic distress criteria, the CDFI Fund 
definition of an ``investment area'' requires a showing of 
``significant unmet needs for loans or equity investments'' within the 
proposed area. 12 U.S.C. 4702(16)(A)(ii). Because credit unions are not 
authorized to offer equity investments, the scope of this ``unmet 
needs'' test initially was limited by definition to the unmet needs for 
loans.\8\ In implementing the ``significant unmet needs test,'' the 
CDFI Fund added the alternative of addressing the unmet needs for a 
range of financial services including many that credit unions are 
authorized to offer: Checking accounts, savings accounts, check 
cashing, money orders, certified checks, automated teller machines, 
deposit taking, safe deposit box services, and other similar 
services.\9\ 12 CFR 1805.102(b)(3)(ii)(A)(2).
---------------------------------------------------------------------------

    \8\ Credit unions are not authorized to offer ``equity 
investments,'' which are defined to include ``a stock purchase, a 
purchase of a partnership interest, a purchase of a limited 
liability company membership interest, a loan made on such terms 
that it has sufficient characteristics of equity [and] a purchase of 
secondary capital.'' 12 CFR 1805.104(t) (2008).
    \9\ The financial services credit unions are authorized to offer 
are drawn from the CDFI Fund's definition of ``financial services'' 
that institutions generally offer. 12 CFR 1805.104(v) (2008). To 
these financial services, the Fund also added certain ``financial 
products'' that, except for loans, credit unions do not offer to 
their members. 12 CFR 1805.104(u) (2008).
---------------------------------------------------------------------------

    From 1998 through 2000, NCUA permitted the ``significant unmet 
needs'' showing to be made through the Business Plan required to be 
developed by a credit union seeking to add an ``underserved area.'' 63 
FR at 72042. The Business Plan already was required to ``identify the 
credit and depository needs of the community and detail how the credit 
union plans to serve those needs.'' Id. For that reason, NCUA revised 
its policy to recognize that a proposed area that is ``distressed'' is 
presumed to have ``significant unmet needs.'' 65 FR 64512, 64518 (Oct. 
27, 2000).
    Since the enactment of CUMAA, the CDFI Fund has modified the 
documentation and scope requirements for a proposed area to meet the 
``significant unmet needs'' test. ``Studies or other analyses'' were 
originally required to ``adequately demonstrate a pattern of unmet 
needs for loans and equity investments.'' 12 CFR 1805.301(e) (1998). As 
modified, a ``narrative analysis'' is the only supporting documentation 
now required. 12 CFR 1805.201(b)(3)(ii)(E) (2008). In practice, the 
CDFI Fund accepts a one-page Narrative Statement describing the 
significant unmet capital or financial services of a proposed area. 
``CDFI Certification Application'' (June 2007) at 11. The analysis must 
be supported by relevant statistical evidence. There are no definitive 
standards of evaluation; the statements are evaluated on a case-by-case 
basis.
    Instead of a presumption of ``significant unmet needs,'' the 
proposed rule revises the Chartering Manual to require a credit union 
to support its ``underserved area'' application with a one-page 
``Narrative Statement'' demonstrating a pattern of ``significant unmet 
needs'' in the proposed area for loans or for one or more of the 
financial services that credit unions are authorized to offer. However, 
a credit union may choose which of these services to address and need 
not address all of them.
    Under the proposed rule, the Narrative Statement on ``significant 
unmet needs'' must be supported by relevant, objective statistical data 
reflecting, among other things, loan and financial services activity in 
the proposed area--much of which is now publicly available over the 
Internet. The Narrative Statement also may be supplemented by objective 
testimonial evidence. The supporting data and evidence should be 
appended to the Narrative Statement.
    In addressing a proposed area's unmet needs, for example, a credit 
union might focus on the need for cash operations to replace check 
cashing outlets and on the need for personal loans at reasonable rates 
to replace pawn brokers, payday lenders and rent-a-centers. To support 
such a Narrative Statement, the credit union might rely on statistics 
and conclusions about these needs published by the proposed area's 
Chamber of Commerce.
    Issues for Comment. Public commenters are invited to address the 
``significant unmet needs'' criterion, including whether the Narrative 
Statement should be integrated into the Business Plan a credit union is 
already required to submit. Further, the NCUA Board asks commenters to 
identify available statistical data that would assist credit unions in 
demonstrating the unmet needs for loans and credit union services in a 
proposed area.

D. Underserved by Other Depository Institutions

    The CDFI Fund's ``significant unmet needs'' test focuses on the 
need for products and services within a proposed area. In contrast, 
CUMAA's demand that a proposed area be ``underserved * * * by other 
depository institutions'' focuses on the presence of providers of 
products and services within the area. CUMAA did not specify a 
methodology for determining whether a proposed area meets this test; 
instead, it broadly refers to unspecified ``data of the [NCUA] Board 
and the Federal banking agencies.'' 12 U.S.C. 1759(c)(2)(A)(ii).
    In the decade since CUMAA, raw data has accumulated within 
government on branch locations and the volume of business in certain 
products and services, but meaningful and reliable data on these points 
has only recently become readily accessible. This data makes it 
possible to quantify and compare the presence of financial institution 
facilities in a given area. The proposed rule suggests a flexible 
methodology that relies on publicly available population data and data 
on the location of financial institution branches.
    Concentration of Facilities. The proposed methodology compares two 
measures to determine whether an area is adequately served according to 
the concentration of depository institution facilities within the area. 
The first measure--which sets a benchmark level of adequate service--is 
the ratio of depository institution facilities to the population of the 
non-``distressed'' tracts in a proposed area, regardless whether those 
tracts are contiguous. In cases where there are no non-``distressed'' 
tracts within a proposed area, a non-``distressed'' tract or larger 
unit immediately adjoining the proposed area (e.g., county or city) may 
be used to set the benchmark ratio. The second measure is the ratio of 
facilities to the combined population of all of the tracts within the 
proposed area.
    As shown in the example below, if the benchmark ratio of facilities 
within the non-``distressed'' tracts (column A below) exceeds the ratio 
of facilities within all the tracts of the proposed area as a whole 
(column B below), the proposed rule deems the area to be ``underserved 
by other depository institutions,'' and vice versa (column C below):

[[Page 34370]]

[GRAPHIC] [TIFF OMITTED] TP17JN08.000

    The proposed methodology does not distinguish between Metro and 
Non-Metro locations, and need not be limited to census tracts as its 
unit of measure for each ratio. Census tracts are proposed as the unit 
of measure, however, because most credit unions are likely to have 
already used them in determining whether the proposed area is 
sufficiently ``distressed,'' and thus will be familiar with the data 
and data sources associated with the tracts within the area.
    Data on Population and Location of Facilities. Current tract-by-
tract population data is available on-line from the ``My CDFI Fund'' 
Web site's IA Worksheet or from the most recent decennial Census 
itself. Current data on the location of facilities of institutions 
insured by the Federal Deposit Insurance Corporation (``FDIC'') or 
regulated by the Office of Thrift Supervision is available on-line on 
the FDIC's ``Summary of Deposits'' webpage sorted by state, county and 
MSA.\10\ Current data on the location of credit union facilities is 
collected by NCUA annually from a credit union's ``Report of 
Officials.'' NCUA plans to organize that data and make it available on-
line at the NCUA Web site. This data can be sorted manually on a tract-
by-tract basis.
---------------------------------------------------------------------------

    \10\ FDIC Summary of Deposits webpage: http://www2.fdic.gov/sod/sodSummary.asp?baritem=3.
---------------------------------------------------------------------------

    Issues for Comment. Public commenters are invited to address the 
``underserved by other depository institutions'' criterion, including 
whether the facilities of such institutions should be defined to 
include ATMs and shared branches. Further, the NCUA Board asks 
commenters to suggest methodologies other than the concentration of 
facilities to assess whether a proposed area is ``underserved by other 
depository institutions,'' and to identify sources of data on the 
location depository institution facilities that is sorted by census 
tract.

E. Service Status Reports

    The current rule authorizes NCUA's regional directors to obtain 
from FCUs adding ``underserved areas'' reports on their success in 
serving members in these areas. Manual, Ch. 3, Sec.  III.A. Some 
commenters have in the past recommended that NCUA affirmatively require 
these reports. That issue is not addressed in this proposed rulemaking 
because the Board is as a separate matter considering recommendations 
of NCUA's Outreach Task Force that would call for NCUA to obtain 
information from credit unions on member income levels and products and 
services offered to members, and to organize the data by census tract. 
Consideration of the issue in this rulemaking would therefore be an 
unnecessary duplication.

F. Pending Applications To Serve an ``Underserved Area''

    If, as a result of its review of public comments on this proposed 
rule, the NCUA Board adopts a final rule modifying the current 
Chartering Manual, the modifications will apply prospectively. Pending 
applications for approval to serve an ``underserved area'' and 
applications received after the date of publication of this rule will 
be deferred until the rulemaking process is completed.

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 $10 
million 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

    This proposed rule imposes a requirement that any multiple common 
bond federal credit union that wishes to add an underserved area must 
apply for the NCUA Board's written approval to do so. This proposed 
rule mandates certain specific information that must be included in the 
application. NCUA requests public comment on all aspects of the 
collection of information in this proposed rule. Based upon past 
experience NCUA anticipates approximately 100 applications per year. 
Given the type of information required to be included in the 
application, NCUA estimates a burden of 8 hours per application and 
will revisit this estimate in light of the comments NCUA receives.
    NCUA will submit the collection of information requirements 
contained in this proposed rule to the Office of Management and Budget 
(OMB) in accordance with the Paperwork Reduction Act of 1995. 44 U.S.C. 
3507. NCUA will use any comments received to develop its new burden 
estimates. Comments on the collections of information should be sent to 
Office of

[[Page 34371]]

Management and Budget, Reports Management Branch, New Executive Office 
Building, NCUA Desk Officer, Room 10202, 725 17th St., NW., Washington, 
DC 20503; or by fax to (202) 395-6974; Attention: Desk Officer for 
NCUA. Please send NCUA a copy of any comments you submit to OMB.
    NCUA made the following assumptions about this proposed rule:
     The likely respondents are multiple common bond federal 
credit unions.
     Estimated annual number of respondents: 100.
     Estimated average annual burden hours per respondent: 8 
hours.
     Estimated total annual disclosure and recordkeeping 
burden: 800 hours.
    In addition to comments on the proposed rule, NCUA invites comment 
on:
     The accuracy of NCUA's estimate of the burden of the 
information collections;
     Ways to minimize the burden of the information collections 
on Federal credit unions, including the use of automated collection 
techniques or other forms of information technology; and
     Estimates of capital or start-up costs and costs of 
operation, maintenance, and purchase of services to provide 
information.
    Recordkeepers are not required to respond to this collection of 
information unless it displays a currently valid OMB control number. 
NCUA is currently requesting a control number for this information 
collection from OMB.

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 this proposed rule does not constitute a policy that 
has federalism implications for purposes of the executive order.

The Treasury and General Government Appropriations Act, 1999

    The NCUA has determined that this proposed rule 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).

List of Subjects in 12 CFR Part 701

    Credit, Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on May 29, 
2008.
Mary Rupp,
Secretary of the Board.

    For the reasons stated above, 12 CFR Part 701 is proposed to be 
amended as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

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

    Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 
1761b, 1766, 1767, 1782, 1784, 1787, 1789. Section 701.6 is also 
authorized by 15 U.S.C. 3717. Section 701.31 is also authorized by 
15 U.S.C. 1601, et seq., 42 U.S.C. 1981 and 3601-3610. Section 
701.35 is also authorized by 12 U.S.C. 4311-4312.

    2. Section 701.1 is revised to read as follows:


Sec.  701.1  Federal credit union chartering, field of membership 
modifications, and conversions.

    National Credit Union Administration policies concerning 
chartering, field of membership modifications, and conversions are set 
forth in Interpretive Ruling and Policy Statement 08-2, Chartering and 
Field of Membership Manual (IRPS 08-2) published as Appendix B to this 
part. The Chartering and Field of Membership Manual also is available 
on-line at http://www.ncua.gov.
    3. Appendix B to 12 CFR Part 701 is added to read as follows:

Appendix B To Part 701--Chartering and Field of Membership Manual

Chapter 1

Federal Credit Union Chartering

I--Goals of NCUA Chartering Policy

    The National Credit Union Administration's (NCUA) chartering and 
field of membership policies are directed toward achieving the 
following goals:
     To encourage the formation of credit unions;
     To uphold the provisions of the Federal Credit Union 
Act;
     To promote thrift and credit extension;
     To promote credit union safety and soundness; and
     To make quality credit union service available to all 
eligible persons.
    NCUA may grant a charter to single occupational/associational 
groups, multiple groups, or communities if:
     The occupational, associational, or multiple groups 
possess an appropriate common bond or the community represents a 
well-defined local community, neighborhood, or rural district;
     The subscribers are of good character and are fit to 
represent the proposed credit union; and
     The establishment of the credit union is economically 
advisable.
    Generally, these are the primary criteria that NCUA will 
consider. In unusual circumstances, however, NCUA may examine other 
factors, such as other federal law or public policy, in deciding if 
a charter should be approved.
    Unless otherwise noted, the policies outlined in this manual 
apply only to federal credit unions.

II--Types of Charters

    The Federal Credit Union Act recognizes three types of federal 
credit union charters--single common bond (occupational and 
associational), multiple common bond (more than one group each 
having a common bond of occupation or association), and community.
    The requirements that must be met to charter a federal credit 
union are described in Chapter 2. Special rules for credit unions 
serving low-income groups are described in Chapter 3.
    If a federal credit union charter is granted, Section 5 of the 
charter will describe the credit union's field of membership, which 
defines those persons and entities eligible for membership. 
Generally, federal credit unions are only able to grant loans and 
provide services to persons within the field of membership who have 
become members of the credit union.

III--Subscribers

    Federal credit unions are generally organized by persons who 
volunteer their time and resources and are responsible for 
determining the interest, commitment, and economic advisability of 
forming a federal credit union. The organization of a successful 
federal credit union takes considerable planning and dedication.
    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

[[Page 34372]]

communication and cooperation between the organizer and the proposed 
members are critical to the chartering process.
    The Federal Credit Union Act requires that seven or more natural 
persons--The ``subscribers''--present to NCUA for approval a sworn 
organization certificate stating at a minimum:
     The name of the proposed federal credit union;
     The location of the proposed federal credit union and 
the territory in which it will operate;
     The names and addresses of the subscribers to the 
certificate and the number of shares subscribed by each;
     The initial par value of the shares;
     The detailed proposed field of membership; and
     The fact that the certificate is made to enable such 
persons to avail themselves of the advantages of the Federal Credit 
Union Act.
    False statements on any of the required documentation filed in 
obtaining a federal credit union charter may be grounds for federal 
criminal prosecution.

IV--Economic Advisability

IV.A--General

    Before chartering a federal credit union, NCUA must be satisfied 
that the institution will be viable and that it will provide needed 
services to its members. Economic advisability, which is a 
determination that a potential charter will have a reasonable 
opportunity to succeed, is essential in order to qualify for a 
credit union charter.
    NCUA will conduct an independent on-site investigation of each 
charter application to ensure that the proposed credit union can be 
successful. In general, the success of any credit union depends on: 
(a) The character and fitness of management; (b) the depth of the 
members' support; and (c) present and projected market conditions.

IV.B--Proposed Management's Character and Fitness

    The Federal Credit Union Act requires NCUA to ensure that the 
subscribers are of good ``general character and fitness.'' 
Prospective officials and employees will be the subject of credit 
and background investigations. The investigation report must 
demonstrate each applicant's ability to effectively handle financial 
matters. Employees and officials should also be competent, 
experienced, honest and of good character. Factors that may lead to 
disapproval of a prospective official or employee include criminal 
convictions, indictments, and acts of fraud and dishonesty. Further, 
factors such as serious or unresolved past due credit obligations 
and bankruptcies disclosed during credit checks may disqualify an 
individual.
    NCUA also needs reasonable assurance that the management team 
will have the requisite skills--particularly in leadership and 
accounting--and the commitment to dedicate the time and effort 
needed to make the proposed federal credit union a success.
    Section 701.14 of NCUA's Rules and Regulations sets forth the 
procedures for NCUA approval of officials of newly chartered credit 
unions. If the application of a prospective official or employee to 
serve is not acceptable to the regional director, the group can 
propose an alternate to act in that individual's place. If the 
charter applicant feels it is essential that the disqualified 
individual be retained, the individual may appeal the regional 
director's decision to the NCUA Board. If an appeal is pursued, 
action on the application may be delayed. If the appeal is denied by 
the NCUA Board, an acceptable new applicant must be provided before 
the charter can be approved.

IV.C--Member Support

    Economic advisability is a major factor in determining whether 
the credit union will be chartered. An important consideration is 
the degree of support from the field of membership. The charter 
applicant must be able to demonstrate that membership support is 
sufficient to ensure viability.
    NCUA has not set a minimum field of membership size for 
chartering a federal credit union. Consequently, groups of any size 
may apply for a credit union charter and be approved if they 
demonstrate economic advisability. However, it is important to note 
that often the size of the group is indicative of the potential for 
success. For that reason, a charter application with fewer than 
3,000 primary potential members (e.g., employees of a corporation or 
members of an association) may not be economically advisable. 
Therefore, a charter applicant with a proposed field of membership 
of fewer than 3,000 primary potential members may have to provide 
more support than an applicant with a larger field of membership. 
For example, a small occupational or associational group may be 
required to demonstrate a commitment for long-term support from the 
sponsor.

IV.D--Present and Future Market Conditions--Business Plan

    The ability to provide effective service to members, compete in 
the marketplace, and to adapt to changing market conditions are key 
to the survival of any enterprise. Before NCUA will charter a credit 
union, a business plan based on realistic and supportable 
projections and assumptions must be submitted.
    The business plan should contain, at a minimum, the following 
elements:
     Mission statement;
     Analysis of market conditions, including if applicable, 
geographic, demographic, employment, income, housing, and other 
economic data;
     Evidence of member support;
     Goals for shares, loans, and for number of members;
     Financial services needed/desired;
     Financial services to be provided to members of all 
segments within the field of membership;
     How/when services are to be implemented;
     Organizational/management plan addressing qualification 
and planned training of officials/employees;
     Continuity plan for directors, committee members and 
management staff;
     Operating facilities, to include office space/equipment 
and supplies, safeguarding of assets, insurance coverage, etc.;
     Type of record keeping and data processing system;
     Detailed semiannual pro forma financial statements 
(balance sheet, income and expense projections) for 1st and 2nd 
year, including assumptions--e.g., loan and dividend rates;
     Plans for operating independently;
     Written policies (shares, lending, investments, funds 
management, capital accumulation, dividends, collections, etc.);
     Source of funds to pay expenses during initial months 
of operation, including any subsidies, assistance, etc., and terms 
or conditions of such resources; and
     Evidence of sponsor commitment (or other source of 
support) if subsidies are critical to success of the federal credit 
union. Evidence may be in the form of letters, contracts, financial 
statements from the sponsor, and any other such document on which 
the proposed federal credit union can substantiate its projections.
    While the business plan may be prepared with outside assistance, 
the subscribers and proposed officials must understand and support 
the submitted business plan.

V--Steps in Organizing a Federal Credit Union

V.A--Getting Started

    Following the guidance contained throughout this policy, the 
organizers should submit wording for the proposed field of 
membership (the persons, organizations and other legal entities the 
credit union will serve) to NCUA early in the application process 
for written preliminary approval. The proposed field of membership 
must meet all common bond or community requirements.
    Once the field of membership has been given preliminary 
approval, and the organizer is satisfied the application has merit, 
the organizer should conduct an organizational meeting to elect 
seven to ten persons to serve as subscribers. The subscribers should 
locate willing individuals capable of serving on the board of 
directors, credit committee, supervisory committee, and as chief 
operating officer/manager of the proposed credit union.
    Subsequent organizational meetings may be held to discuss the 
progress of the charter investigation, to announce the proposed 
slate of officials, and to respond to any questions posed at these 
meetings.
    If NCUA approves the charter application, the subscribers, as 
their final duty, will elect the board of directors of the proposed 
federal credit union. The new board of directors will then appoint 
the supervisory committee.

V.B--Charter Application Documentation

V.B.1--General

    As discussed previously in this Chapter, the organizer of a 
federal credit union charter must, at a minimum, provide evidence 
that:
     The group(s) possess an appropriate common bond or the 
geographical area to be served is a well-defined local community, 
neighborhood, or rural district;

[[Page 34373]]

     The subscribers, prospective officials, and employees 
are of good character and fitness; and
     The establishment of the credit union is economically 
advisable.
    As part of the application process, the organizer must submit 
the following forms, which are available in Appendix 4 of this 
Manual:
     Federal Credit Union Investigation Report, NCUA 4001;
     Organization Certificate, NCUA 4008;
     Report of Official and Agreement to Serve, NCUA 4012;
     Application and Agreements for Insurance of Accounts, 
NCUA 9500; and
     Certification of Resolutions, NCUA 9501.
    Each of these forms is described in more detail in the following 
sections.

V.B.2--Federal Credit Union Investigation Report, NCUA 4001

    The application for a new federal credit union will be submitted 
on NCUA 4001. State-chartered credit unions applying for conversion 
to a 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:
     Is not already being officially used by another federal 
credit union;
     Will not be confused with NCUA or another federal or 
state agency, or with another credit union; and
     Does not include misleading or inappropriate language.
    The last three words in the name of every credit union chartered 
by NCUA must be ``Federal Credit Union.''
    The word ``community,'' while not required, can only be included 
in the name of federal credit unions that have been granted a 
community charter.

VII--NCUA REVIEW

VII.A--General

    Once NCUA receives a complete charter application package, an 
acknowledgment of receipt will be sent 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 
2.

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 will contain new and 
material evidence addressing 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. If the 
request is again denied, the applicant 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 5.
    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. 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

[[Page 34374]]

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.

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 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:
     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;
     Employment in a corporation or other legal entity with 
a controlling ownership interest (which shall not be less than 10 
percent) in or by another legal entity makes that person part of a 
single occupational common bond;
     Employment in a corporation or other legal entity which 
is related to another legal entity (such as a company under contract 
and possessing a strong dependency relationship with another 
company) makes that person part of a single occupational common 
bond;
     Employment or attendance at a school makes that person 
part of a single occupational common bond (see Chapter 2, Section 
III.A.1); or
     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:
     Employees, officials, and persons who work regularly 
under contract in Miami, Florida, for ABC Corporation and 
subsidiaries;
     Employees of ABC Corporation who are paid from * * *;
     Employees of ABC Corporation who are supervised from * 
* *;
     Employees of ABC Corporation who are headquartered in * 
* *; and/or
     Employees of ABC Corporation who work in the United 
States.
    The corporation 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:
     Employees of the Hunt Manufacturing Company who work in 
West Chester, Pennsylvania (common bond--same employer with 
geographic definition);
     Employees of the Buffalo Manufacturing Company who work 
in the United States (common bond--same employer with geographic 
definition);
     Employees, elected and appointed officials of municipal 
government in Parma,

[[Page 34375]]

Ohio (common bond--same employer with geographic definition);
     Employees of Johnson Soap Company and its majority 
owned subsidiary, Johnson Toothpaste Company, who work in, are paid 
from, are supervised from, or are headquartered in Augusta and 
Portland, Maine (common bond--parent and subsidiary company with 
geographic definition);
     Employees of MMLLJS contractor who work regularly at 
the U.S. Naval Shipyard in Bremerton, Washington (common bond--
employees of contractors with geographic definition);
     Employees, doctors, medical staff, technicians, medical 
and nursing students who work in or are paid from the Newport Beach 
Medical Center, Newport Beach, California (single corporation with 
geographic definition);
     Employees of JLS, Incorporated and MJM, Incorporated 
working for the LKM Joint Venture Company in Catalina Island, 
California (common bond--same employer--ongoing dependent 
relationship);
     Employees of and students attending Georgetown 
University (common bond--same occupation);
     Employees of all the schools supervised by the Timbrook 
Board of Education in Timbrook, Georgia (common bond--same 
employer); or
     All licensed nurses in Fairfax County, Virginia 
(occupational common bond TIP).
    Some examples of insufficiently defined single occupational 
common bonds are:
     Employees of manufacturing firms in Seattle, Washington 
(no defined occupational sponsor; overly broad TIP);
     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, providing 
similar services, or participating in the same type of business.
    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, 
the manufacturing industry, energy industry, communications 
industry, retail industry, or entertainment industry would not 
qualify as a TIP because each industry lacks the necessary 
commonality. However, textile workers, realtors, nurses, teachers, 
police officers, or U.S. military personnel are closely related and 
each would qualify as a TIP.
    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, it 
can serve all physicians, but that does not mean it can also serve 
all clerical staff in the physicians' offices. However, if the TIP 
is based on the health care industry, then clerical staff would be 
able to be served by the credit union because they work in the same 
industry and have the same commonality of interests.
    If a credit union wants to include the airline services 
industry, it can serve airline and airport personnel but not 
passengers. 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 variety of trade/profession 
occupational common bond TIPs.
    Since a TIP must be narrowly defined, it cannot include third 
party vendors and other suppliers. For example, the steel suppliers 
to the automobile industry would not be part of the automobile 
industry TIP. However, the automobile industry includes 
manufacturers and their automobile dealerships.
    In general, except for credit unions currently serving a 
national field of membership or operating in multiple states, a 
geographic limitation is required for a TIP credit union. The 
geographic limitation will be part of the credit union's charter and 
generally correspond to its current or planned operational area. 
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. 
New charter applicants and existing credit unions must submit a 
business plan on how the credit union will serve the group 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 serve a TIP. Credit unions 
converting to a TIP can retain members of record but cannot add new 
members from its previous group or groups, unless it is part of the 
TIP.
    Section II.B on Occupational Common Bond Amendments does not 
apply to a TIP common bond. Removing or changing a geographical 
limitation will 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, on Other Persons Eligible for Credit Union 
Membership, applies to TIP based credit unions except for the 
corporate account provision which only applies to industry based 
TIPs. Credit unions with industry based TIPs may include 
corporations as members because they have the same commonality of 
interests as all employees in the industry. For example, an airline 
service TIP (industry) can serve an airline carrier (corporate 
account); however, a nurses TIP (profession) could not serve a 
hospital (corporate account) because not everyone working in the 
hospital shares the same profession.
    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. The regional director, for safety and soundness reasons, 
may approve a TIP designated credit union to convert to its original 
field of membership.

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 group sharing the credit union's common bond is added 
to the field of membership. This may occur through various ways 
including agreement between the group and the credit union directly, 
or through a merger, corporate acquisition, purchase and assumption 
(P&A), or spin-off.
    Second, if the entire field of membership is acquired by another 
corporation, the credit union can serve the employees of the new 
corporation and any subsidiaries after receiving NCUA approval.
    Third, a federal credit union qualifies to change its common 
bond from:
     A single occupational common bond to a single 
associational common bond;
     A single occupational common bond to a community 
charter; or
     A single occupational common bond to a multiple common 
bond.
    Fourth, a federal credit union removes a portion of the group 
from its field of membership through agreement with the group, a 
spin-off, or because a portion of the group is no longer in 
existence.
    An existing single occupational common bond federal credit union 
that submits a request to amend its charter must provide 
documentation to establish that the occupational common bond 
requirement has been met. The regional director must approve all 
amendments to an occupational common bond credit union's field of 
membership.

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.

[[Page 34376]]

    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 an Application for Field of Membership Amendment (NCUA 4015-
EZ) to the appropriate NCUA regional director. An authorized credit 
union representative must sign the request.

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 
compliance with 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.

II.C.4--Regional Director Disapproval

    When a regional director disapproves any application, in whole 
or in part, to amend the field of membership under this chapter, the 
applicant will be informed in writing of the:
     Specific reasons for the action;
     Options to consider, if appropriate, for gaining 
approval; and
     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 will contain new and material 
evidence addressing 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. If the request 
is again denied, the applicant 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.

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

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

II.D.1--Mergers

    Generally, the requirements applicable to field of membership 
expansions found in this chapter apply to mergers where the 
continuing credit union has a federal charter. That is, the two 
credit unions must share a common bond.
    Where the merging credit union is state-chartered, the common 
bond rules applicable to a federal credit union apply.
    Mergers must be approved by the NCUA regional director where the 
continuing credit union is headquartered, with the concurrence of 
the regional director of the merging credit union, and, as 
applicable, the state regulators.
    If a single occupational credit union wants to merge into a 
multiple common bond or community credit union, Section IV.D or 
Section V.D of this Chapter, respectively, should be reviewed.

II.D.2--Emergency Mergers

    An emergency merger may be approved by NCUA without regard to 
common bond or other legal constraints. An emergency merger involves 
NCUA's direct intervention and approval. The credit union to be 
merged must either be insolvent or likely to become insolvent, and 
NCUA must determine that:
     An emergency requiring expeditious action exists;
     Other alternatives are not reasonably available; and
     The public interest would best be served by approving 
the merger.
    If not corrected, conditions that could lead to insolvency 
include, but are not limited to:
     Abandonment by management;
     Loss of sponsor;
     Serious and persistent record keeping problems; or
     Serious and persistent operational concerns.
    In an emergency merger situation, NCUA will take an active role 
in finding a suitable merger partner (continuing credit union). NCUA 
is primarily concerned that the continuing credit union has the 
financial strength and management expertise to absorb the troubled 
credit union without adversely affecting its own financial condition 
and stability.
    As a stipulated condition to an emergency merger, the field of 
membership of the merging credit union may be transferred intact to 
the continuing federal credit union without regard to any common 
bond restrictions. 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

[[Page 34377]]

instances where a P&A may be appropriate, the assuming federal 
credit union, as with emergency mergers, may acquire the entire 
field of membership if the emergency merger criteria are satisfied. 
However, if the P&A does not meet the emergency merger criteria, it 
must be processed under the common bond requirements.
    In a P&A processed under the emergency criteria, specified 
loans, shares, and certain other designated assets and liabilities, 
without regard to common bond restrictions, may also be acquired 
without changing the character of the continuing federal credit 
union for purposes of future field of membership amendments.
    If the purchased and/or assumed credit union's field of 
membership does not share a common bond with the purchasing and/or 
assuming credit union, then the continuing credit union's original 
common bond will be controlling for future common bond expansions.
    P&As involving federally insured credit unions in different NCUA 
regions must be approved by the regional director where the 
continuing credit union is headquartered, with the concurrence of 
the regional director of the purchased and/or assumed credit union 
and, as applicable, the state regulators.

II.D.4--Spin-Offs

    A spin-off occurs when, by agreement of the parties, a portion 
of the field of membership, assets, liabilities, shares, and capital 
of a credit union are transferred to a new or existing credit union. 
A spin-off is unique in that usually one credit union has a field of 
membership expansion and the other loses a portion of its field of 
membership.
    All common bond requirements apply regardless of whether the 
spun-off group becomes a new credit union or goes to an existing 
federal charter.
    The request for approval of a spin-off must be supported with a 
plan that addresses, at a minimum:
     Why the spin-off is being requested;
     What part of the field of membership is to be spun off;
     Whether the affected credit unions have a common bond 
(applies only to single occupational credit unions);
     Which assets, liabilities, shares, and capital are to 
be transferred;
     The financial impact the spin-off will have on the 
affected credit unions;
     The ability of the acquiring credit union to 
effectively serve the new members;
     The proposed spin-off date; and
     Disclosure to the members of the requirements set forth 
above.
    The spin-off request must also include current financial 
statements from the affected credit unions and the proposed voting 
ballot.
    For federal credit unions spinning off a group, membership 
notice and voting requirements and procedures are the same as for 
mergers (see Part 708 of the NCUA Rules and Regulations), except 
that only the members directly affected by the spin-off--those whose 
shares are to be transferred--are permitted to vote. Members whose 
shares are not being transferred will not be afforded the 
opportunity to vote. 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 or it converts to a multiple common bond charter.
    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:
     The group is within the field of membership of two 
credit unions and one wishes to discontinue service;
     The federal credit union cannot continue to provide 
adequate service to the group;
     The group has ceased to exist;
     The group does not respond to repeated requests to 
contact the credit union or refuses to provide needed support; or
     The group initiates action to be removed from the field 
of membership.
    When a federal credit union requests an amendment to remove a 
group from its field of membership, the regional director will 
determine why the credit union desires to remove the group. If the 
regional director concurs with the request, membership will 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:
     Spouses of persons who died while within the field of 
membership of this credit union;
     Employees of this credit union;
     Persons retired as pensioners or annuitants from the 
above employment;
     Volunteers;
     Members of the immediate family or household;
     Organizations of such persons; and
     Corporate or other legal entities in this charter.
    Immediate family is defined as spouse, child, sibling, parent, 
grandparent, or grandchild. This 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

[[Page 34378]]

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 school.
    Under the Federal Credit Union Act, once a person becomes a 
member of the credit union, such person may remain a member of the 
credit union until the person chooses to withdraw or is expelled 
from the membership of the credit union. This is commonly referred 
to as ``once a member, always a member.'' The ``once a member, 
always a member'' provision does not prevent a credit union from 
restricting services to members who are no longer within the field 
of membership.

III--Associational Common Bond

III.A.1--General

    A single associational federal credit union may include in its 
field of membership, regardless of location, all members and 
employees of a recognized association. A single associational common 
bond consists of individuals (natural persons) and/or groups (non-
natural persons) whose members participate in activities developing 
common loyalties, mutual benefits, and mutual interests. Separately 
chartered associational groups can establish a single common bond 
relationship if they are integrally related and share common goals 
and purposes. For example, two or more churches of the same 
denomination, Knights of Columbus Councils, or locals of the same 
union can qualify as a single associational common bond.
    Individuals and groups eligible for membership in a single 
associational credit union can include the following:
     Natural person members of the association (for example, 
members of a union or church members);
     Non-natural person members of the association;
     Employees of the association (for example, employees of 
the labor union or employees of the church); and
     The association.
    Generally, a single associational common bond does not include a 
geographic definition and can operate nationally. 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 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, which includes:
     Whether members pay dues;
     Whether members participate in the furtherance of the 
goals of the association;
     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;
     Whether the association maintains a membership list;
     Whether the association sponsors other activities;
     The association's membership eligibility requirements; 
and
     The frequency of meetings.
    A support group whose members are continually changing or whose 
duration is temporary may not meet the single associational common 
bond criteria. Each class of member will be evaluated based on the 
totality of the circumstances. Individuals or honorary members who 
only make donations to the association are not eligible to join the 
credit union.
    Educational groups--for example, parent-teacher organizations, 
alumni associations, and student organizations in any school--and 
church groups may constitute associational common bonds.
    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.
    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.
    Homeowner associations, tenant groups, consumer groups, and 
other groups of persons having an ``interest in'' a particular cause 
and certain consumer cooperatives may also qualify as an 
association.
    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 and bylaws are changed subsequent to the effective date 
stated in the field of membership, the credit union must submit the 
revised charter or bylaws for NCUA's consideration and approval 
prior to serving members of the association added as a result of the 
change.

III.A.3--Sample Single Associational Common Bonds

    Some examples of associational common bonds are:
     Regular members of Locals 10 and 13, IBEW, in Florida, 
who qualify for membership in accordance with their charter and 
bylaws in effect on May 20, 2001;
     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;
     Members of the Shalom Congregation in Chevy Chase, 
Maryland;
     Regular members of the Corporate Executives 
Association, located in Westchester, New York, who qualify for 
membership in accordance with its charter and bylaws in effect on 
December 1, 1997;
     Members of the University of Wisconsin Alumni 
Association, located in Green Bay, Wisconsin;
     Members of the Marine Corps Reserve Officers 
Association; or
     Members of St. John's Methodist Church and St. Luke's 
Methodist Church, located in Toledo, Ohio.
    Some examples of insufficiently defined single associational 
common bonds are:
     All Lutherans in the United States (too broadly 
defined); or
     Veterans of U.S. military service (group is too broadly 
defined; no formal association of all members of the group).
    Some examples of unacceptable single associational common bonds 
are:
     Alumni of Amos University (no formal association);
     Customers of Fleetwood Insurance Company (policyholders 
or primarily customer/client relationships do not meet associational 
standards);
     Employees of members of the Reston, Virginia Chamber of 
Commerce (not a sufficiently close tie to the associational common 
bond); or
     Members of St. John's Lutheran Church and St. Mary's 
Catholic Church located in Anniston, Alabama (churches are not of 
the same denomination).

III.B--Associational Common Bond Amendments

III.B.1--General

    Section 5 of every associational federal credit union's charter 
defines the field of

[[Page 34379]]

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 group that shares the credit union's common bond is 
added to the field of membership. This may occur through various 
ways including agreement between the group and the credit union 
directly, or through a merger, purchase and assumption (P&A), or 
spin-off.
    Second, a federal credit union qualifies to change its common 
bond from:
     A single associational common bond to a single 
occupational common bond;
     A single associational common bond to a community 
charter; or
     A single associational common bond to a multiple common 
bond.
    Third, a federal credit union removes a portion of the group 
from its field of membership through agreement with the group, a 
spin-off, or a portion of the group is no longer in existence.
    An existing single associational federal credit union that 
submits a request to amend its charter must provide documentation to 
establish that the associational common bond requirement has been 
met. The regional director must approve all amendments to an 
associational common bond credit union's field of membership.

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 an Application for Field of Membership Amendment (NCUA 4015-
EZ) to the appropriate NCUA regional director. An authorized credit 
union representative must sign the request.

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, 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:
     Specific reasons for the action;
     Options to consider, if appropriate, for gaining 
approval; and
     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 will contain new and material 
evidence addressing 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. If the request 
is again denied, the applicant 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.

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

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

III.D.1--Mergers

    Generally, the requirements applicable to field of membership 
expansions found in this section apply to mergers where the 
continuing credit union is a federal charter. That is, the two 
credit unions must share a common bond.
    Where the merging credit union is state-chartered, the common 
bond rules applicable to a federal credit union apply.
    Mergers must be approved by the NCUA regional director where the 
continuing credit union is headquartered, with the concurrence of 
the regional director of the merging credit union, and, as 
applicable, the state regulators.
    If a single associational credit union wants to merge into a 
multiple common bond or community credit union, Section IV.D or 
Section V.D of this Chapter, respectively, should be reviewed.

III.D.2--Emergency Mergers

    An emergency merger may be approved by NCUA without regard to 
common bond or other legal constraints. An emergency merger involves 
NCUA's direct intervention and approval. The credit union to be 
merged must either be insolvent or likely to become insolvent, and 
NCUA must determine that:
     An emergency requiring expeditious action exists;
     Other alternatives are not reasonably available; and
     The public interest would best be served by approving 
the merger.
    If not corrected, conditions that could lead to insolvency 
include, but are not limited to:
     Abandonment by management;
     Loss of sponsor;
     Serious and persistent record keeping problems; or
     Serious and persistent operational concerns.

[[Page 34380]]

    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. Under this authority, therefore, a single 
associational common bond federal credit union may take into its 
field of membership any dissimilar charter type.
    The common bond characteristic of the continuing credit union in 
an emergency merger does not change. That is, even though the 
merging credit union is a multiple common bond or community, the 
continuing credit union will remain a single common bond credit 
union. Similarly, if the merging credit union is an unlike single 
common bond, the continuing credit union will remain a single common 
bond credit union. Future common bond expansions will be based on 
the continuing credit union's single common bond.
    Emergency mergers involving federally insured credit unions in 
different NCUA regions must be approved by the regional director 
where the continuing credit union is headquartered, with the 
concurrence of the regional director of the merging credit union 
and, as applicable, the state regulators.

III.D.3--Purchase and 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:
     Why the spin-off is being requested;
     What part of the field of membership is to be spun off;
     Whether the affected credit unions have the same common 
bond (applies only to single associational credit unions);
     Which assets, liabilities, shares, and capital are to 
be transferred;
     The financial impact the spin-off will have on the 
affected credit unions;
     The ability of the acquiring credit union to 
effectively serve the new members;
     The proposed spin-off date; and
     Disclosure to the members of the requirements set forth 
above.
    The spin-off request must also include current financial 
statements from the affected credit unions and the proposed voting 
ballot.
    For federal credit unions spinning off a group, membership 
notice and voting requirements and procedures are the same as for 
mergers (see Part 708 of the NCUA Rules and Regulations), except 
that only the members directly affected by the spin-off--those whose 
shares are to be transferred--are permitted to vote. Members whose 
shares are not being transferred will not be afforded the 
opportunity to vote. 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 or 
it converts to a multiple common bond.
    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:
     The group is within the field of membership of two 
credit unions and one wishes to discontinue service;
     The federal credit union cannot continue to provide 
adequate service to the group;
     The group has ceased to exist;
     The group does not respond to repeated requests to 
contact the credit union or refuses to provide needed support; or
     The group initiates action to be removed from the field 
of membership.
    When a federal credit union requests an amendment to remove a 
group from its field

[[Page 34381]]

of membership, the regional director will determine why the credit 
union desires to remove the group. If the regional director concurs 
with the request, membership will 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:
     Spouses of persons who died while within the field of 
membership of this credit union;
     Employees of this credit union;
     Volunteers;
     Members of the immediate family or household;
     Organizations of such persons; and
     Corporate or other legal entities in this charter.
    Immediate family is defined as spouse, child, sibling, parent, 
grandparent, or grandchild. This 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 for multiple common bond credit unions 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 or a shared branch network if either: (1) 
The credit union has an ownership interest in the service facility 
either directly or through a CUSO or similar organization; or (2) 
the service facility is local to the credit union and the credit 
union is an authorized participant in the service center. This 
definition does not include the credit union's Internet Web site.
    The select group as a whole will be considered to be within a 
credit union's service area when:
     A majority of the persons in a select group live, work, 
or gather regularly within the service area;
     The group's headquarters is located within the service 
area; or
     The group's ``paid from'' or ``supervised from'' 
location is within the service area.

IV.A.2--Sample Multiple Common Bond Field of Membership

    An example of a multiple common bond field of membership is: 
``The field of membership of this federal credit union shall be 
limited to the following:
    1. Employees of Teltex Corporation who work in Wilmington, 
Delaware;
    2. Partners and employees of Smith & Jones, Attorneys at Law, 
who work in Wilmington, Delaware;
    3. Members of the M&L Association 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:
     A Single occupational or associational charter to a 
multiple common bond charter;
     A multiple common bond to a single occupational or 
associational charter;
     A multiple common bond to a community charter; or
     A community to a multiple common bond charter.
    Third, a federal credit union removes a group from its field of 
membership through agreement with the group, a spin-off, or because 
the group 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:
     The credit union has not engaged in any unsafe or 
unsound practice, as determined by the regional director, which is 
material during the one year period preceding the filing to add the 
group;
     The credit union is ``adequately capitalized.'' NCUA 
defines adequately capitalized to mean 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;
     The credit union has the administrative capability to 
serve the proposed group and the financial resources to meet the 
need for additional staff and assets to serve the new group;
     Any potential harm the expansion may have on any other 
credit union and its members is clearly outweighed by the

[[Page 34382]]

probable beneficial effect of the expansion. With respect to a 
proposed expansion's effect on other credit unions, the requirements 
on overlapping fields of membership set forth in Section IV.E of 
this Chapter are also applicable; and
     If the formation of a separate credit union by such 
group is not practical and consistent with reasonable standards for 
the safe and sound operation of a credit union.
    A 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:
     A letter, or equivalent documentation, from the group 
requesting credit union service. This letter must indicate:
    [cir] That the group wants to be added to the applicant federal 
credit union's field of membership;
    [cir] The number of persons currently included within the group 
to be added and their locations; and
    [cir] The group's proximity to credit union's nearest service 
facility.
     The most recent copy of the group's charter and bylaws 
or equivalent documentation (for associational groups).
    The NCUA 4015 (for groups of 3,000 or more primary potential 
members) must be accompanied by the following:
     A letter, or equivalent documentation, from the group 
requesting credit union service. This letter must indicate:
    [cir] That the group wants to be added to the federal credit 
union's field of membership;
    [cir] Whether the group presently has other credit union service 
available;
    [cir] The number of persons currently included within the group 
to be added and their locations;
    [cir] The group's proximity to credit union's nearest service 
facility; and
    [cir] Why the formation of a separate credit union for the group 
is not practical or consistent with safety and soundness standards. 
A credit union need not address every item on the list, simply those 
issues that are relevant to its particular request:
    Member location--whether the membership is widely dispersed or 
concentrated in a central location.
    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.
    Market competition--the availability of other financial 
services.
    Desired services and products--the type of services the group 
desires in comparison to the type of services a new credit union 
could offer.
    Sponsor subsidies--the availability of operating subsidies.
    The desire of the sponsor--the extent of the sponsor's interest 
in supporting a credit union charter.
    Employee interest--the extent of the employees' interest in 
obtaining a credit union charter.
    Evidence of past failure--whether the group previously had its 
own credit union or previously filed for a credit union charter.
    Administrative capacity to provide services--will the group have 
the management expertise to provide the services requested.
     If the group is eligible for membership in any other 
credit union, documentation must be provided to support inclusion of 
the group under the overlap standards set forth in Section IV.E of 
this Chapter; and
     The most recent copy of the group's charter and bylaws 
or equivalent documentation (for associational groups).

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; 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 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 Disapproval

    When a regional director disapproves any application, in whole 
or in part, to amend the field of membership under this chapter, the 
applicant will be informed in writing of the:
     Specific reasons for the action;
     Options to consider, if appropriate, for gaining 
approval; and
     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 will contain new and material 
evidence addressing 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. If the request 
is again denied, the applicant 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.

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:
     By taking in the field of membership of another credit 
union through a merger;
     By taking in the field of membership of another credit 
union through a purchase and assumption (P&A); or
     By taking a portion of another credit union's field of 
membership through a spin-off.

[[Page 34383]]

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 a separate credit union 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, 
unless the continuing credit union already serves the same group.

d. Merger Approval.

    If the merger is approved, the qualifying groups within the 
merging credit union's field of membership will be transferred 
intact to the continuing credit union and can continue to be served.
    Where the merging credit union is state-chartered, the field of 
membership rules applicable to a federal credit union apply.
    Mergers must be approved by the NCUA regional director where the 
continuing credit union is headquartered, with the concurrence of 
the regional director of the merging credit union, and, as 
applicable, the state regulators.

IV.D.2--Supervisory Mergers

    The NCUA may approve the merger of any federally insured credit 
union when safety and soundness concerns are present without regard 
to the 3,000 numerical limitation. The credit union need not be 
insolvent or in danger of insolvency for NCUA to use this statutory 
authority. 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:
     An emergency requiring expeditious action exists;
     Other alternatives are not reasonably available; and
     The public interest would best be served by approving 
the merger.
    If not corrected, conditions that could lead to insolvency 
include, but are not limited to:
     Abandonment by management;
     Loss of sponsor;
     Serious and persistent record keeping problems; or
     Serious and persistent operational concerns.
    In an emergency merger situation, NCUA will take an active role 
in finding a suitable merger partner (continuing credit union). NCUA 
is primarily concerned that the continuing credit union has the 
financial strength and management expertise to absorb the troubled 
credit union without adversely affecting its own financial condition 
and stability.
    As a stipulated condition to an emergency merger, the field of 
membership of the merging credit union may be transferred intact to 
the continuing federal credit union without regard to any field of 
membership restrictions including numerical limitation requirements. 
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:
     Why the spin-off is being requested;
     What part of the field of membership is to be spun off;
     Which assets, liabilities, shares, and capital are to 
be transferred;
     The financial impact the spin-off will have on the 
affected credit unions;
     The ability of the acquiring credit union to 
effectively serve the new members;
     The proposed spin-off date; and
     Disclosure to the members of the requirements set forth 
above.
    The spin-off request must also include current financial 
statements from the affected credit unions and the proposed voting 
ballot.
    For federal credit unions spinning off a group, membership 
notice and voting requirements and procedures are the same as for 
mergers (see Part 708 of the NCUA Rules and Regulations), except 
that only the members directly affected by the spin-off--those whose 
shares are to be transferred--are permitted to vote. Members whose 
shares are not being transferred will not be afforded the 
opportunity to vote. 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.

[[Page 34384]]

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 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:
     The view of the overlapped credit union(s);
     Whether the overlap is incidental in nature--the group 
of persons in question is so small as to have no material effect on 
the original credit union;
     Whether there is limited participation by members or 
employees of the group in the original credit union after the 
expiration of a reasonable period of time;
     Whether the original credit union fails to provide 
requested service;
     Financial effect on the overlapped credit union;
     The desires of the group(s);
     The desire of the sponsor organization; and
     The best interests of the affected group and the credit 
union members involved.
    Generally, if the overlapped credit union does not object, and 
NCUA determines that there is no safety and soundness problem, the 
overlap will be permitted.
    Potential overlaps of a federally insured state credit union's 
field of membership by a federal credit union will generally be 
analyzed in the same way as if two federal credit unions were 
involved. Where a federally insured state credit union's field of 
membership is broadly stated, NCUA will exclude its 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 is 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:
     The group is within the field of membership of two 
credit unions and one wishes to discontinue service;
     The federal credit union cannot continue to provide 
adequate service to the group;
     The group has ceased to exist;
     The group does not respond to repeated requests to 
contact the credit union or refuses to provide needed support;
     The group initiates action to be removed from the field 
of membership; or
     The federal credit union wishes to convert to a single 
common bond.
    When a federal credit union requests an amendment to remove a 
group from its field of membership, the regional director will 
determine why the credit union desires to remove the group. If the 
regional director concurs with the request, membership will continue 
for those who are already members under the ``once a member, always 
a member'' provision of the Federal Credit Union Act.

IV.H--Other Persons 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:
     Spouses of persons who died while within the field of 
membership of this credit union;
     Employees of this credit union;
     Persons retired as pensioners or annuitants from the 
above employment;
     Volunteers;
     Members of the immediate family or household;
     Organizations of such persons; and
     Corporate or other legal entities in this charter.
    Immediate family is defined as spouse, child, sibling, parent, 
grandparent, or grandchild. This 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

[[Page 34385]]

``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:
     The geographic area's boundaries must be clearly 
defined;
     The area is a ``well-defined local, community, 
neighborhood, or rural district;'' and
     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:
     The area to be served is in a recognized single 
political jurisdiction, i.e., a city, county, or their political 
equivalent, or any contiguous portion thereof.
    The well-defined local community, neighborhood, or rural 
district requirement may be met if:
     The area to be served is in multiple contiguous 
political jurisdictions, i.e., a city, county, or their political 
equivalent, or any contiguous portion thereof and if the population 
of the requested well-defined area does not exceed 500,000; or
     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 and/or common interests. For example, simply listing 
newspapers and organizations in the area is not sufficient to 
demonstrate that the area is a local community, neighborhood, or 
rural district.
    Examples of acceptable documentation may include:
     The defined political jurisdictions;
     Major trade areas (shopping patterns and traffic 
flows);
     Shared/common facilities (for example, educational, 
medical, police and fire protection, school district, water, etc.);
     Organizations and clubs within the community area;
     Newspapers or other periodicals published for and about 
the area;
     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
     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 since IRPS 99-1, as amended. 
Applicants may contact the appropriate regional office to find out 
if the area they are interested in has already been determined to 
meet the community requirements. If the area is the same as a 
previously approved area, an applicant need only include a statement 
to that effect in the application. Applicants may be required to 
submit their own summary and documentation regarding the community 
requirements if NCUA has reason to believe that prior submissions 
are 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. 
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:
     Pro forma financial statements for the first two years 
after the proposed conversion, including assumptions--e.g., member, 
share, loan, and asset growth;
     Marketing plan addressing how the community will be 
served;
     Financial services to be provided to members;
     A local map showing current and proposed service 
facilities; and
     Anticipated financial impact on the credit union in 
terms of need for additional employees and fixed assets.

[[Page 34386]]

    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 usually be 
defined using political borders, streets, rivers, railroad tracks, 
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:
     Persons who live, work, worship, or attend school in, 
and businesses located in the area of Johnson City, Tennessee, 
bounded by Fern Street on the north, Long Street on the east, Fourth 
Street on the south, and Elm Avenue on the west;
     Persons who live or work in Green County, Maine;
     Persons who live, worship, or work in and businesses 
and other legal entities located in Independent School District No. 
1, DuPage County, Illinois;
     Persons who live, worship, work (or regularly conduct 
business in), or attend school on the University of Dayton campus, 
in Dayton, Ohio;
     Persons who work for businesses located in Clifton 
Country Mall, in Clifton Park, New York; or
     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:
     Persons who live or work within and businesses located 
within a 10-mile radius of Washington, DC (using a radius does not 
establish a well-defined area);
     Persons who live or work in the industrial section of 
New York, New York. (not a well-defined neighborhood, community, or 
rural district); or
     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:
     Persons who live or work in the State of California. 
(does not meet the definition of local community, neighborhood, or 
rural district).
     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 and/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. The economic 
advisability of expanding the field of membership of a credit union 
with financial or operational problems must be carefully considered.
    In most cases, field of membership amendments will only be 
approved for credit unions that are operating satisfactorily. 
Generally, if a federal credit union is having difficulty providing 
service to its current membership, or is experiencing financial or 
other operational problems, it may have more difficulty serving an 
expanded field of membership.
    Occasionally, however, an expanded field of membership may 
provide the basis for reversing current financial problems. In such 
cases, an amendment to expand the field of membership may be granted 
notwithstanding the credit union's financial or operational 
problems. The applicant credit union must clearly establish that the 
expanded field of membership is in the best interest of the members 
and will not increase the risk to the NCUSIF.

V.C.3--NCUA Approval

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

V.C.4--NCUA Disapproval

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

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

    If a field of membership expansion request, 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 will contain new and material 
evidence addressing 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. If the request 
is again denied, the applicant 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.

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

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

V.D.1--Standard Mergers

    Generally, the requirements applicable to field of membership 
expansions apply to mergers where the continuing credit union is a 
community federal charter.
    Where both credit unions are community charters, the continuing 
credit union must meet the criteria for expanding the community 
boundaries. A community credit union cannot merge into a single 
occupational/associational, or multiple common bond credit union, 
except in an emergency merger. However, a single occupational 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 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.

[[Page 34387]]

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

V.D.3--Purchase and 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:
     Why the spin-off is being requested;
     What part of the field of membership is to be spun off;
     Whether the field of membership requirements are met;
     Which assets, liabilities, shares, and capital are to 
be transferred;
     The financial impact the spin-off will have on the 
affected credit unions;
     The ability of the acquiring credit union to 
effectively serve the new members;
     The proposed spin-off date; and
     Disclosure to the members of the requirements set forth 
above.
    The spin-off request must also include current financial 
statements from the affected credit unions and the proposed voting 
ballot.
    For federal credit unions spinning off a portion of the 
community, membership notice and voting requirements and procedures 
are the same as for mergers (see Part 708 of the NCUA Rules and 
Regulations), except that only the members directly affected by the 
spin-off--those whose shares are to be transferred--are permitted to 
vote. Members whose shares are not being transferred will not be 
afforded the opportunity to vote. 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

    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.
    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:
     Spouses of persons who died while within the field of 
membership of this credit union;
     Employees of this credit union;
     Volunteers in the community;
     Members of the immediate family or household; and
     Organizations of such persons.
    Immediate family is defined as spouse, child, sibling, parent, 
grandparent, or grandchild. This 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

[[Page 34388]]

primary member to join the credit union in order for the immediate 
family or household member of the primary member to join, provided 
the immediate family or household clause is included in the field of 
membership. However, it is necessary for the immediate family member 
or household member to first join in order for that person's 
immediate family member or household member to join the credit 
union. A credit union can adopt a more restrictive definition of 
immediate family or household.
    Under the Federal Credit Union Act, once a person becomes a 
member of the credit union, such person may remain a member of the 
credit union until the person chooses to withdraw or is expelled 
from the membership of the credit union. This is commonly referred 
to as ``once a member, always a member.'' The ``once a member, 
always a member'' provision does not prevent a credit union from 
restricting services to members who are no longer within the field 
of membership.

Chapter 3

Low-Income Credit Unions and Credit Unions Serving Underserved Areas

I--Introduction

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

II--Low-Income Credit Union

II.A--Defined

    A 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:
     Who make less than 80 percent of the average for all 
wage earners as established by the Bureau of Labor Statistics; or
     Whose annual household income falls at or below 80 
percent of the median household income for the nation 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. 
A low-income designation for a new credit union charter may be based 
on a majority of the potential membership.

II.B--Special Programs

    A credit union with a low-income designation has greater 
flexibility in accepting nonmember 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 designated 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 attend school in the community, a low-income community federal 
credit union may also serve persons who participate in programs to 
alleviate poverty or distress, or who participate in associations 
headquartered in the community.
    Examples of a low-income designated community and an 
associational-based low-income federal credit union are as follows:
     Persons who live in [the target area]; persons who 
work, worship, attend school, or participate in associations 
headquartered in [the target area]; persons participating in 
programs to alleviate poverty or distress which are located in [the 
target area]; incorporated and unincorporated organizations located 
in [the target area] or maintaining a facility in [the target area]; 
and organizations of such persons.
     Members of the Canarsie Economic Assistance League, in 
Brooklyn, NY, an association whose members all meet the low-income 
definition of Section 701.34 of the NCUA Rules and Regulations.

III--Service to Underserved Communities

    A multiple common bond federal credit union may include in its 
field of membership, without regard to location, an ``underserved 
area'' as defined by the Federal Credit Union Act. 12 U.S.C. 
1759(c)(2). The addition of an ``underserved area'' will not change 
the charter type of the multiple common bond federal credit union. 
More than one multiple common-bond federal credit union can serve 
the same ``underserved area,'' if approved as provided below.
    The Federal Credit Union Act defines an ``underserved area'' as 
(1) a ``local community, neighborhood, or rural district'' that (2) 
meets the definition of an ``investment area'' under section 103(16) 
of the Community Development Banking and Financial Institutions Act 
of 1994 (``CDFI''), 12 U.S.C. 4702(16), and (3) is ``underserved by 
other depository institutions'' based on data of the NCUA Board and 
the federal banking agencies.
    (1) Local Community. To be eligible for approval as 
``underserved,'' a proposed area must be a well-defined local 
community, neighborhood, or rural district as defined in Chapter 2, 
sections V.A.1. and V.A.2. of this Manual.
    (2) Investment Area. To be approved as an ``underserved area,'' 
the proposed area must

[[Page 34389]]

meet the CDFI definition of an ``investment area.'' 12 U.S.C. 
4702(16). A proposed area that, at the time the credit union 
applies, is designated in its entirety as an Empowerment Zone or 
Enterprise Community (12 U.S.C. 1391) automatically qualifies as an 
``investment area''; no further criteria must be met. 12 U.S.C. 
4702(16)(B).
    Otherwise, to qualify as an ``investment area,'' the proposed 
area must meet ``the objective criteria of economic distress'' 
developed by the CDFI Fund (``distress criteria''), and also must 
demonstrate that the area has ``significant unmet needs'' for loans 
and financial services credit unions are authorized to offer to 
their members. 12 U.S.C. 4702(16)(A).
    (3) Location of Proposed ``Underserved Area''. The location of a 
proposed area either within or outside of a Metropolitan Area 
determines the geographic unit(s) a credit union must apply to 
determine whether the area meets the distress criteria. An area is 
deemed to be Metropolitan if it is located, in whole or in part, 
within a ``metropolitan statistical area'' (``MSA'') that 
corresponds to the most recent completed decennial census published 
by the U.S. Bureau of the Census (``decennial Census''); an area 
that is located entirely outside such an MSA is deemed to be Non-
Metropolitan.
    For a Metropolitan proposed area, the permissible units (``Metro 
units'') for implementing the economic distress criteria are: a 
census tract, a block group, and an American Indian or Alaskan 
Native area. 12 CFR 1805.201(b)(3)(ii)(B) (2008). For a Non-
Metropolitan proposed area, the permissible units (``Non-Metro 
units'') are: a county (or equivalent area), a minor civil division 
that is a unit of local government, an incorporated place, a census 
tract, a block numbering area, a block group, or an American Indian 
or Alaskan Native area. Id. When possible, it is advisable to use a 
census tract as the proposed area's Metro unit and either a census 
tract or county as its Non-Metro unit, as the case may be.
    (4) Proposed Area Consisting of a Single Metro Unit. A proposed 
area consisting of a single whole unit, either Metro (e.g., a single 
census tract) or Non-Metro (e.g., a single county), must meet one of 
the following distress criteria, as reported by the most recent 
decennial Census:
     Unemployment. Unemployment rate at least 1.5 times the 
national average; or
     Poverty. At least 20 percent (20%) of the population 
lives in poverty.
     Other Criterion. Any other economic distress criterion 
the CDFI Fund may adopt in the future.

12 CFR 1805.201(b)(3)(ii)(D)(1) and (3) (2008).

    If the proposed area consists of a single Metro unit of any 
kind, it may also meet the following criterion, as reported by the 
most recent decennial Census:
     Metro Area Median Family Income. Median family income 
(``MFI'') at or below 80 percent (80%) of either the Metro Area's 
MFI or the national Metro Area MFI, whichever is greater.
    If the proposed area consists of a single Non-Metro unit of any 
kind, it may also meet the following criterion, as reported by the 
most recent decennial Census:
     Non-Metro Area Median Family Income. MFI at or below 80 
percent (80%) of either the statewide Non-Metro Area's MFI or the 
national Non-Metro Area MFI, whichever is greater.
     12 CFR 1805.201(b)(3)(ii)(D)(2)(i) and (ii) (2008).
    Finally, if a Non-Metro proposed area consists of a single 
county, it may meet one of the following two criteria, as reported 
by the decennial Census:
     County Population Loss. County's population loss of at 
least 10 percent (10%) between the most recent and the preceding 
decennial census; or
     County Migration Loss. County's net migration loss of 
at least 5 percent (5%) in the 5-year period preceding the most 
recent decennial census.

12 CFR 1805.201(b)(3)(ii)(D)(4)-(5) (2008).

    (5) Proposed Area Consisting of Multiple Contiguous Units. A 
proposed area consisting of multiple contiguous units, either Metro 
(e.g., a group of adjoining census tracts) or Non-Metro (e.g., a 
group of adjoining counties), is subject to a population threshold 
when implementing the economic distress criteria. At least 85 
percent (85%) of the area's total population must reside within the 
units that are ``distressed,'' i.e, meet one of the applicable 
economic distress criteria above, as reported by the decennial 
Census (Unemployment, Poverty and MFI for census tracts plus, for 
counties only, Population Loss and Migration Loss). The population 
threshold is met, and the whole proposed area qualifies as 
``distressed,'' when the ``distressed'' units represent at least 85 
percent of the area's total population.
    (6) Proposed Area's ``Significant Unmet Needs'' for Loans and 
Financial Services. A proposed area that is ``distressed'' also must 
display ``significant unmet needs'' for loans or one or more of the 
following financial services credit unions are authorized to offer: 
Share draft accounts, savings accounts, check cashing, money orders, 
certified checks, automated teller machines, deposit taking, safe 
deposit box services, and other similar services (``credit union 
services''). To meet this criterion, the credit union must submit 
for NCUA approval a one-page ``Narrative Statement of Unmet Needs'' 
(``Narrative Statement'') indicating a pattern of unmet needs in the 
proposed area for loans or one or more credit union services. The 
credit union may choose which credit union services to address and 
need not address all of them.
    The Narrative Statement must be supported by relevant, objective 
statistical data reflecting, among other things, financial, 
demographic, economic or loan activity pertaining to the proposed 
area. The supporting statistical data (which should be appended to 
the Narrative Statement) may be supplemented by objective 
testimonial evidence.
    (7) Underserved by Other Depository Institutions. A proposed 
area that meets the CDFI definition of an ``investment area'' (i.e, 
is ``distressed'' and has ``significant unmet needs'') must also be 
underserved by other depository institutions, including credit 
unions. 12 U.S.C. 1759(c)(2)(A)(ii). This statutory criterion is met 
when the concentration of depository institution facilities among 
the population of the proposed area's non-``distressed'' tracts--
which sets a benchmark level of adequate service--is greater than 
the concentration of facilities among the population of all of the 
proposed area's census tracts combined. If there are no non-
``distressed'' tracts within a proposed area, an immediately 
adjoining non-``distressed'' census tract or larger unit (e.g., city 
or county) may be used to set the benchmark concentration ratio.
    Without regard to a proposed area's location, this process 
compares two ratios: The ratio of facilities to the population of 
the non-``distressed'' tracts (the benchmark) versus the same ratio 
in the proposed area as a whole. If the benchmark ratio is greater 
than the whole area's ratio, then the area meets the ``underserved 
by other depository institutions'' criterion, and vice versa.
    (8) Approval To Serve an Area Already Approved as 
``Underserved''. Once a credit union is initially approved to serve 
an ``underserved area,'' other credit unions that subsequently apply 
may be approved to serve the same area. To be approved, the area 
must qualify as ``underserved'' at the time the new applicant 
applies. Thus, that applicant will have to demonstrate as provided 
above that the area still is ``distressed'' according to the 
decennial Census then in effect, and still has ``significant'' unmet 
needs for loans or credit union services (to qualify as an 
``investment area''). Finally, the new applicant must demonstrate 
that the area still is ``underserved by other depository 
institutions'' (to qualify as ``underserved'').
    (9) Service Facility. Once an ``underserved area'' has been 
added to a federal credit union's field of membership, the credit 
union must establish within two years, and maintain, an office or 
service facility in the community. A service facility is defined as 
a place where shares are accepted for members' accounts, loan 
applications are accepted and loans are disbursed. By definition, a 
service facility includes a credit union-owned branch, a shared 
branch, a mobile branch, or an office operated on a regularly 
scheduled weekly basis or a credit union owned electronic facility 
that meets, at a minimum, the above requirements. This definition 
does not include an ATM or the credit union's Internet Web site.
    (10) Business Plan. 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 explain how the 
credit union plans to fulfill the unmet needs for loans and credit 
union services identified in its Narrative Statement. 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 
community are being met as well as requiring such reports before 
NCUA allows a multiple common bond federal credit union to add an 
additional ``underserved area.''
    (11) Low Income Benefits. A multiple common bond federal credit 
union that

[[Page 34390]]

serves an ``underserved area'' will not be able to receive the 
benefits afforded to low-income designated credit unions, such as 
expanded use of nonmember deposits and access to the Community 
Development Revolving Loan Program for Credit Unions.

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:
     Specific reasons for the action;
     Options to consider, if appropriate, for gaining 
approval; and
     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 will contain new and material 
evidence addressing 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. If the request 
is again denied, the applicant 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.

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 4.

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

II.A--General Requirements

    Any state-chartered credit union may apply to convert to a 
federal credit union. In order to do so it must:
     Comply with state law regarding conversion and file 
proof of compliance with NCUA;
     File the required conversion application, proposed 
federal credit union organization certificate, and other documents 
with NCUA;
     Comply with the requirements of the Federal Credit 
Union Act, e.g., chartering and reserve requirements; and
     Be granted federal share insurance by NCUA.
    Conversions are treated the same as any initial application for 
a federal charter, including 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.
    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 
of this manual. 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.
    The converting credit union, regardless of charter type, 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.

II.B--Submission of Conversion Proposal to NCUA

    The following documents must be submitted with the conversion 
proposal:
     Conversion of State Charter to Federal Charter (NCUA 
4000);
     Organization Certificate (NCUA 4008). Only Part (3) and 
the signature/notary section should be completed and, where 
applicable, signed by the credit union officials.
     Report of Officials and Agreement To Serve (NCUA 4012);
     The Application to Convert From State Credit Union To 
Federal Credit Union (NCUA 4401);
     The Application and Agreements for Insurance of 
Accounts (NCUA 9500);
     Certification of Resolution (NCUA 9501);
     Written evidence regarding whether the state regulator 
is in agreement with the conversion proposal; and
     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, Section V.A.2 of this manual.

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:
     Specific reasons for the action;
     Options to consider, if appropriate, for gaining 
approval; and
     Appeal procedures.

[[Page 34391]]

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

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

II.D--Action by Board of Directors

II.D.1--General

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

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

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

II.E.5--Reports to NCUA

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

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

III.A--General Requirements

    Any federal credit union may apply to convert to a state credit 
union. In order to do so, it must:
     Notify NCUA prior to commencing the process to convert 
to a state charter and state the reason(s) for the conversion;
     Comply with the requirements of Section 125 of the 
Federal Credit Union Act that enable it to convert to a state credit 
union and to cease being a federal credit union; and
     Comply with applicable state law and the requirements 
of the state regulator.
    It is important that the credit union provide an accurate 
disclosure of the reasons for the conversion. These reasons should 
be stated in specific terms, not as generalities. 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 
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:
     A current financial report;
     A current delinquent loan schedule;
     An explanation and appropriate documents relative to 
any changes in insurance of member accounts;
     A resolution of the board of directors;
     A proposed Notice of Special Meeting of the Members 
(NCUA 4221);
     A copy of the ballot to be sent to all members (NCUA 
4506);
     If the credit union intends to continue with federal 
share insurance, an application for insurance of accounts (NCUA 
9600);
     Evidence that the state regulator is in agreement with 
the conversion proposal; and
     A statement of reasons supporting the request to 
convert.

III.D--Approval of Proposal To Convert

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

    The proposal will be reviewed to determine that it is complete 
and is in compliance with Section 125 of the Federal

[[Page 34392]]

Credit Union Act. The regional director may make further 
investigation into the proposal and require the submission of 
additional information to support the request.

III.D.2--Conditions to the Approval

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

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

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

III.D.4--Notification

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

III.D.5--NCUA Disapproval

    When NCUA disapproves any application to convert to a state 
charter, the applicant will be informed in writing of the:
     Specific reasons for the action;
     If appropriate, options or suggestions that could be 
considered for gaining approval; and
     Appeal procedures.

III.D.6--Appeal of Regional Director Decision

    If 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:
     The proposal must be submitted to the members for 
approval and a date set for a meeting to vote on the proposal. The 
proposal may be acted on at the annual meeting or at a special 
meeting for that purpose. The members must also be given the 
opportunity to vote by written ballot to be filed by the date set 
for the meeting.
     Members must be given advance notice (NCUA 4221) of the 
meeting at which the proposal is to be submitted. The notice must:
    [cir] Specify the purpose, time and place of the meeting;
    [cir] 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;
    [cir] 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.;
    [cir] 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;
    [cir] Be accompanied by a Federal to State Conversion--Ballot 
for Conversion Proposal (NCUA 4506); and
    [cir] State in bold face type that the issue will be decided by 
a majority of members who vote.
     The proposed conversion must be approved by a majority 
of all of the members who vote on the proposal, a quorum being 
present, in order for the credit union to proceed further with the 
proposition, provided federal insurance is maintained. If the 
proposed state-chartered credit union will not be federally insured, 
20 percent of the total membership must participate in the voting, 
and of those, a majority must vote in favor of the proposal. Ballots 
cast by members who did not attend the meeting but who submitted 
their ballots in accordance with instructions above will be counted 
with votes cast at the meeting. In order to have a suitable record 
of the vote, the voting at the meeting should be by written ballot 
as well.
     The board of directors shall, within 10 days, certify 
the results of the membership vote to the regional director. The 
statement shall be verified by affidavits of the Chief Executive 
Officer and the Recording Officer on NCUA 4505.

III.F--Compliance With State Laws

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

III.G--Completion of Conversion

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

[[Page 34393]]

     If the state credit union is to be federally insured, 
the regional director will issue a new insurance certificate.

(Approved by the Office of Management and Budget under control 
numbers 3133-0015 and 3133-0116)
BILLING CODE 7535-01-P
[GRAPHIC] [TIFF OMITTED] TP17JN08.001


[[Page 34394]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.002


[[Page 34395]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.003


[[Page 34396]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.004


[[Page 34397]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.005


[[Page 34398]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.006


[[Page 34399]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.007


[[Page 34400]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.008


[[Page 34401]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.009


[[Page 34402]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.010


[[Page 34403]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.011


[[Page 34404]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.012


[[Page 34405]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.013


[[Page 34406]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.014


[[Page 34407]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.015


[[Page 34408]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.016


[[Page 34409]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.017


[[Page 34410]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.018


[[Page 34411]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.019


[[Page 34412]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.020


[[Page 34413]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.021


[[Page 34414]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.022


[[Page 34415]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.023


[[Page 34416]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.024


[[Page 34417]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.025


[[Page 34418]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.026


[[Page 34419]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.027


[[Page 34420]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.028


[[Page 34421]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.029


[[Page 34422]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.030


[[Page 34423]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.031


[[Page 34424]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.032


[[Page 34425]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.033


[[Page 34426]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.034


[[Page 34427]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.035


[[Page 34428]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.036


[[Page 34429]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.037


[[Page 34430]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.038


[[Page 34431]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.039


[[Page 34432]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.040


[[Page 34433]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.041


[[Page 34434]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.042


[[Page 34435]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.043


[[Page 34436]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.044


[[Page 34437]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.045


[[Page 34438]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.046


[[Page 34439]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.047


[[Page 34440]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.048


[[Page 34441]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.049


[[Page 34442]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.050


[[Page 34443]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.051


[[Page 34444]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.052


[[Page 34445]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.053


[[Page 34446]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.054


[[Page 34447]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.055


[[Page 34448]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.056


[[Page 34449]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.057


[[Page 34450]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.058


[[Page 34451]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.059


[[Page 34452]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.060


[[Page 34453]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.061


[[Page 34454]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.062


[[Page 34455]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.063


[[Page 34456]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.064


[[Page 34457]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.065


[[Page 34458]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.066


[[Page 34459]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.067


[[Page 34460]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.068


[[Page 34461]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.069


[[Page 34462]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.070


[[Page 34463]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.071


[[Page 34464]]


[GRAPHIC] [TIFF OMITTED] TP17JN08.072

[FR Doc. E8-12946 Filed 6-16-08; 8:45 am]
BILLING CODE 7535-01-C