[Federal Register Volume 73, Number 232 (Tuesday, December 2, 2008)]
[Rules and Regulations]
[Pages 73392-73492]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-28085]



[[Page 73391]]

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Part II





National Credit Union Administration





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12 CFR Part 701



Organization and Operations of Federal Credit Unions; Underserved Areas 
(IRPS 08-2); Final Rule

  Federal Register / Vol. 73, No. 232 / Tuesday, December 2, 2008 / 
Rules and Regulations  

[[Page 73392]]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

RIN 3133-AD48


Organization and Operations of Federal Credit Unions; Underserved 
Areas (IRPS 08-2)

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: NCUA is adopting a final rule implementing four modifications 
to its Chartering and Field of Membership Manual to update and clarify 
the process of approving credit union service to ``underserved areas.'' 
First, the rule clarifies the procedure for establishing that an 
``underserved area'' qualifies as a local community. Second, it makes 
explicit the process for applying the economic distress criteria that 
determine whether an area combining multiple geographic units is 
sufficiently ``distressed'' to qualify as ``underserved.'' Third, it 
updates the documentation and clarifies the scope requirements for 
demonstrating that a proposed area has ``significant unmet needs'' for 
loans and financial services. Finally, the rule utilizes data provided 
by NCUA on the location of depository institution facilities to 
determine whether an area is ``underserved by other depository 
institutions'' according to the presence of their facilities within the 
area.

DATES: This rule is effective January 2, 2009.

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: In this preamble, the version of Chapter 3, 
section III, of the Chartering and Field of Membership Manual, entitled 
``Service to Underserved Communities,'' that is presently in effect is 
referred to as ``the existing rule,'' cited as ``IRPS 06-1,'' and 
located at 71 FR 36667 (June 28, 2006). The version of Chapter 3, 
section III, as modified in the proposed rule is referred to as ``the 
proposed rule,'' cited as ``Prop. Rule,'' and located at 73 FR 34366 
(June 17, 2008). The version of Chapter 3, section III, adopted in this 
rule is referred to as ``the final rule,'' cited as ``App. B, Ch. 3, 
Sec.  III.,'' and located in Appendix B infra.
    The rest of the Chartering and Field of Membership Manual presently 
in effect (i.e., other than Chapter 3, section III) is referred to in 
the preamble as ``the Chartering Manual,'' cited as ``IRPS 03-1,'' and 
published in Appendix B to the proposed rule, 73 FR at 34371 et seq.

I. Background

A. Authority To Serve Underserved Areas

    1. Credit Union Membership Access Act. In 1998, Congress enacted 
the Credit Union Membership Access Act (``CUMAA''), Public Law 105-219, 
112 Stat. 914 (1998), authorizing 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 the area is: (1) A ``local 
community'' that (2) qualifies as an ``investment area'' as defined in 
the Community Development Banking and Financial Institutions Act of 
1994 (``CDFI Act''), id. Sec.  4702(16), and (3) is ``underserved * * * 
by other depository institutions.'' \1\ Id. Sec.  1759(c)(2)(A). By 
incorporating the CDFI Act's definition of an ``investment area,'' 
CUMAA's ``underserved area'' authority also incorporated the 
regulations implementing that definition.
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    \1\ By definition, a ``depository institution'' is insured and 
includes credit unions. 12 U.S.C. 461(b)(1)(A)(iv).
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    The CDFI Act defines an ``investment area'' as a geographic area 
that, unless it is presently designated an Empowerment Zone or 
Enterprise Community,\2\ ``meets the objective criteria of economic 
distress developed by the [Community Development Financial 
Institutions] Fund'' (``CDFI Fund'' or ``Fund'') and also ``has 
significant unmet needs for loans or equity investments.'' Id. Sec.  
4702(16). By regulation, the CDFI Fund adopted a definition of 
``investment area'' that established ``criteria of economic distress'' 
and implemented the ``significant unmet needs'' criterion. 12 CFR 
1805.201(b)(3)(ii) (2008). The regulation dictates that ``[a]n 
Investment Area shall meet specific geographic and other criteria'' 
prescribed in the CDFI Fund's ``investment area'' definition. Id. 
Sec. Sec.  1805.201(b)(3)(i), 1805.104(dd). Further, the regulation 
gives the Fund sole discretion to determine whether these criteria are 
fulfilled. Id. Sec.  1805.201(a)(5).
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    \2\ A proposed area that is currently designated an Empowerment 
Zone or Enterprise Community automatically qualifies as an 
``investment area''; no further ``investment area'' criteria must be 
met. 12 U.S.C. 4702(16)(B). Unexpired Empowerment Zones and 
Enterprise Communities are identified at: http://www.hud.gov/offices/cpd/economicdevelopment/programs/rc/tour/index.cfm. a ``CDFI 
Worksheet'' produced as explained infra by the ``My CDFI Fund'' Web 
site is not a reliable source for current Empowerment Zone or 
Enterprise Community designations.
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    2. CDFI ``Investment Area'' Definition. Under the CDFI Fund's 
distress criteria, a proposed ``investment area's'' location within or 
outside a designated Metropolitan Area (a ``Metro'' or ``Non-Metro'' 
area, respectively) determines the ``geographic unit(s)'' into which 
the area must be translated in order to apply the economic distress 
criteria. Id. Sec.  1805.104(ff). For a Metro area, the permissible 
geographic units are limited to: A census tract; a block group; and an 
American Indian or Alaskan Native area. Id. Sec.  
1805.201(b)(3)(ii)(B). For a Non-Metro area, the permissible geographic 
units are limited to: ``A county (or equivalent area); minor civil 
division that is a unit of local government; incorporated place; census 
tract; block numbering area; block group; and an American Indian or 
Alaskan Native area.'' Id.
    The CDFI regulation designates as ``distressed'' a proposed area 
that meets the applicable economic distress criteria as reported by the 
most recent decennial U.S. Census. Id. Sec.  1805.201(b)(3)(ii)(D). How 
the distress criteria apply in each case depends on which geographic 
units are permitted (based on the area's designation as Metro or Non-
Metro) and whether the area consists of a single geographic unit or 
multiple contiguous units. A Metro proposed area consisting of a single 
census tract, for example, must meet the distress criterion for either 
unemployment, poverty, or median family income. Id. Sec.  
1805.201(b)(3)(ii)(D)(1) and (3). A Non-Metro proposed area consisting 
of a single county, for example, must meet the distress criterion for 
either unemployment, poverty, median family income or, if the area is a 
county, population loss or migration loss. Id. Sec.  
1805.201(b)(3)(ii)(D)(1), (3), (4) and (5).
    A proposed area consisting of multiple contiguous geographic units 
(e.g., adjoining census tracts in a Metro area or adjoining counties in 
a Non-Metro area) may combine ``distressed'' and non-``distressed'' 
units. However, that area must satisfy a population threshold requiring 
the ``distressed'' units--those that ``together meet one of the 
[applicable distress] criteria''--to represent at least 85 percent of 
the area's total population (``85% population threshold''). Id. Sec.  
1805.201(b)(3)(ii)(C)(2).
    Finally, to qualify as an ``investment area,'' the proposed area 
also must ``have significant unmet needs for loans or equity 
investments.'' 12 U.S.C.

[[Page 73393]]

4702(16)(A)(ii). The CDFI regulation deems this criterion to be 
fulfilled when ``a narrative analysis * * * adequately demonstrates a 
pattern of [such] unmet needs'' within the proposed area. 12 CFR 
1805.201(b)(3)(ii)(E).
    3. Chartering Manual. Following the enactment of CUMAA in 1998, 
NCUA revised its Chartering Manual to implement its new authority to 
allow service to ``underserved areas.'' Id. Sec.  701.1 (1999). As then 
revised, Chapter 3, section III of the Chartering Manual incorporated 
the statutory definition of ``underserved area,'' including the then-
existing CDFI ``distress'' criteria and the CUMAA criterion requiring 
the area to be ``underserved by other depository institutions.'' 63 FR 
71998 (December 30, 1998). In the event of periodic revisions to the 
then-existing distress criteria, the Chartering Manual incorporated by 
reference revised or additional criteria that the CDFI Fund might adopt 
in the future. 67 FR 20013, 20017 (April 24, 2002).

B. Comments on Proposed Rule

    The NCUA Board published its proposed rule (Interpretive Ruling and 
Policy Statement 08-2) updating and clarifying the process for 
approving service to ``underserved areas,'' with a 60-day comment 
period that closed on August 18, 2008. 73 FR 34366. NCUA received 
comments from 23 commenters in response to the proposed rule--nine were 
federally-chartered credit unions, two were state-chartered credit 
unions, eight were state credit union leagues, two were credit union 
industry trade associations, and two were banking industry trade 
associations. The comments from credit union industry participants were 
opposed to the proposed rule, while comments from banking industry 
trade associations supported it. The comments on the proposed rule are 
addressed below.

II. Discussion of Comments on Proposed Rule

A. Local Community

    1. ``Local Community'' Prerequisite. To be eligible for approval as 
an ``underserved area,'' the rule requires a proposed area to qualify 
as a ``local community, neighborhood or rural district'' (``local 
community''). IRPS 06-1, 71 FR at 36670-36671. The proposed rule 
clarified, but did not alter, this requirement. It simply incorporated 
by reference the sections of the Chartering Manual (Ch. 2, sections 
V.A.1. and V.A.2.) where the existing ``local community'' criteria are 
located, replacing the rule's summary of those criteria. Prop. Rule, 73 
FR at 34385, 34388.
    Clarification of the ``local community'' prerequisite generated 
nine comments. The commenters insisted that interaction among residents 
of a proposed area is irrelevant to whether an area is ``underserved'' 
and, in fact, undermines the ``underserved'' concept; that being 
``underserved'' in and of itself is evidence of sufficient interaction 
to bind the residents together as a ``local community''; and that 
meeting the CDFI definition of an ``investment area'' establishes that 
an area is a ``local community.'' One commenter claimed that there is 
``neither a requirement in the statutes, nor in NCUA regulations'' that 
an area must be a ``local community.'' The gist of these comments is 
that an area otherwise qualifying as ``underserved'' should not be 
subject to the ``local community'' definition that applies to a 
community charter.
    What these comments overlook is that CUMAA expressly imposes the 
``local community'' requirement as an independent criterion for 
approval as ``underserved.'' CUMAA authorizes a multiple common bond 
credit union to include in its field of membership (``FOM'') ``any 
person within a local, community, neighborhood or rural district if--
(A) the Board determines that the local, community, neighborhood or 
rural district'' otherwise meets CUMAA's definition of an ``underserved 
area.'' 12 U.S.C. 1759(c)(2)(A) (emphasis added). The final rule 
affirms this long-standing statutory requirement, modifying it only to 
incorporate by reference the ``local community'' criteria set forth in 
the Chartering Manual's chapter on community chartering. App. B, Ch. 3, 
Sec.  III.B.1.
    2. Supplemental Letter. Under the Chartering Manual's chapter on 
community chartering, among the ways an area may qualify as a ``local 
community'' is if it either consists of multiple political 
jurisdictions with a total population of 500,000 or less, or is located 
within a Metropolitan Statistical Area (``MSA'') that has a population 
of 1 million or less (in either case a ``multi-jurisdiction/MSA 
community''). IRPS 03-1, 73 FR at 34385. In such cases, the chapter on 
community chartering requires a credit union to submit a supplemental 
letter ``describing how the area meets the standards for community 
interaction and/or common interests'' within the proposed area.\3\ Id. 
In contrast, the Chartering Manual's chapter on ``underserved areas'' 
does not require an equivalent letter to establish that a proposed area 
is a multi-jurisdiction/MSA community. IRPS 06-1, 71 FR at 36670-36671.
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    \3\ There are two instances in when a credit union must provide 
a full analysis to establish that a proposed area is a well-defined 
``local community.'' The first is when an area is unable to qualify 
as a community under either the ``single political jurisdiction'' 
criterion or the multi-jurisdiction/MSA criteria in section V.A.2. 
The second is when the area does qualify as a community under the 
multi-jurisdiction/MSA criteria, but the supplemental letter fails 
to present sufficient evidence of community interaction and/or 
common interests. IRPS 03-1, 73 FR at 34385.
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    The supplemental letter's purpose is to reinforce the ``local 
community'' criterion with qualitative evidence of interaction and 
common interests within the community. The proposed rule invited public 
comment on whether the letter is needed at all to fortify a multi-
jurisdiction/MSA community in either the community chartering or 
``underserved area'' contexts. Prop. Rule, 73 FR at 3467. The 
invitation to comment on the supplemental letter requirement attracted 
eleven comments--those who oppose the requirement in either context, 
and those who oppose extending it to proposed ``underserved areas.'' 
Among those who oppose the letter altogether, several commenters felt 
that it was unnecessarily burdensome, insisting that NCUA should assume 
responsibility for assembling qualitative evidence of interaction and 
common interests to support the multi-jurisdiction/MSA community. 
Another commenter pronounced the supplemental letter requirement 
redundant because it demands proof of what already is seemingly 
presumed, making the presumption conditional and thus not truly a 
presumption.
    Among those who commented that ``underserved areas'' should remain 
exempt from the supplemental letter requirement, nearly all objected 
that it would be unnecessarily burdensome to comply. For that reason, 
one commenter suggested making the requirement optional for 
``underserved areas.'' Another insisted that ensuring consistency with 
community charters does not justify burdening ``underserved areas'' 
that qualify as multi-jurisdiction/MSA communities. Yet another 
predicted that equalizing the burden between community charters and 
``underserved areas'' would encourage credit unions to choose 
conversion to a community charter over adding an ``underserved area.'' 
Concerned primarily with uniformity, one commenter recommended an all-
or-none approach: Either require the supplemental letter for multi-

[[Page 73394]]

jurisdiction/MSA communities in both the community charter and 
``underserved area'' contexts or require it in neither. These 
objections raised the issue of whether the burden of submitting a 
supplemental letter is justified to support the approval of a multi-
jurisdiction/MSA community as ``underserved.''
    CUMAA imposes the ``local community'' criterion on community 
charters and ``underserved areas'' alike, but in fact there is a 
distinction between them that makes a difference. As a commenter 
correctly pointed out, with a community charter, the ``local 
community'' is the essential criterion of the common bond among all of 
the credit union's members. It signifies a level of interaction and/or 
common interests sufficient to sustain the viability of the credit 
union itself. In contrast, the ``local community'' comprising an 
``underserved area'' is an accessory to an already viable credit union 
whose FOM is based entirely on a pre-existing multiple group common 
bond.
    This distinction highlights a meaningful difference in scope and 
significance between the ``local community'' that comprises a community 
credit union's whole FOM, and the ``local community'' that represents 
only a segment of a multiple group credit union's FOM--its 
``underserved area.'' The differing role of a ``local community'' in 
each context has convinced the Board that the demand for qualitative 
proof to meet the ``local community'' criterion is greater for a 
community charter than for an ``underserved area.'' For that reason, 
the final rule preserves the existing rule's exemption of a proposed 
``underserved area'' from the requirement to submit a supplemental 
letter explaining interaction and common interests within a multi-
jurisdiction/MSA community. App. B, Ch. 3, Sec.  III.B.1.

B. Economic Distress Criteria

    1. Geographic Units. The rule implies, but does not expressly 
indicate, that the CDFI Fund's geographic unit(s) and 85% population 
threshold apply when implementing the economic distress criteria. As 
the proposed rule explains, there is a fundamental incompatibility 
between an ``underserved area'' and a CDFI ``investment area.'' Prop. 
Rule, 73 FR at 34367. A proposed ``underserved area'' comes to the CDFI 
Fund's economic distress criteria already pre-packaged in its own 
``geographic unit''--a single, well defined ``local community'' 
consisting of a single jurisdiction or integrating multiple contiguous 
jurisdictions--whereas an ``investment area'' is not similarly pre-
defined. 65 FR 37065, 37072, 37082 (June 13, 2000). This suggests that 
it would be redundant to dissolve a single, already well-defined 
``local community'' into the applicable CDFI-designated geographic 
unit(s), thus implicating a population threshold, to determine whether 
the community is sufficiently ``distressed.''
    For these reasons, the Board is concerned that the existing rule is 
not explicit enough to ensure that the prescribed geographic unit(s) 
and population threshold are implemented when applying the distress 
criteria to a proposed area. IRPS 06-1, 71 FR at 36670-36671. Further, 
in the decade since CUMAA, convenient on-line access to relevant data 
has considerably simplified the task of translating an ``underserved 
area'' into the geographic units the CDFI Fund prescribes for applying 
the economic distress criteria that define an ``investment area.''
    The proposed rule addressed this concern by updating and clarifying 
the Chartering Manual in two significant respects to explicitly reflect 
the CDFI Fund's ``investment area'' definition. For purposes of the 
economic distress criteria, the proposed rule expressly required that a 
proposed area must conform to the geographic unit(s) prescribed by 
CDFI, and that an area combining ``distressed'' and non-``distressed'' 
geographic units must comply with the 85% population threshold.
    NCUA received thirteen comments opposing the requirement to conform 
a proposed area into CDFI-prescribed geographic units. Most stated for 
one reason or another that a ``local community's'' own geographic and 
political boundaries should trump the CDFI-designated geographic units. 
Other commenters noted that the geographic unit(s) and population 
threshold requirements do not apply to ``underserved areas'' in the 
first place. One commenter stated that ``the language in [CUMAA] 
directs [NCUA] to use the community as the geographic basis for 
determining whether an underserved area exists.'' Another commenter 
felt that census tracts are an impractical measure because residents 
typically cannot identify what census tract each resides in, and credit 
unions typically do not market their products and services according to 
tract boundaries. Yet another commenter confirmed that credit unions 
uniformly develop their business plans according to geographic and 
political boundaries, not census tract boundaries. One commenter 
predicted that conforming proposed areas to census tracts will result 
in fewer and smaller ``underserved area'' approvals.\4\ Nearly all of 
the commenters' criticism addressed the use of census tracts. 
Recognizing that ``underserved areas'' typically comprise an entire 
city or county located within an MSA, the consensus of commenters 
advocated that such a whole city or county should be treated as a 
single geographic unit for purposes assessing whether a proposed area 
is ``distressed.''
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    \4\ It is not necessarily true that conforming the boundaries of 
a proposed area to census tracts will result in fewer and smaller 
approvals. For example, a credit union recently added an 
``underserved area'' comprising a large part of Los Angeles County, 
CA, which when conformed to census tracts, qualified as distressed 
under population threshold.
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    NCUA received four comments opposing the imposition of the 85% 
population threshold on a proposed area combining ``distressed'' and 
non-``distressed'' units. One dismissed the population threshold as a 
``technical correction,'' while another objected that it departs from 
the notion that a proposed ``underserved area'' already is a single 
entity. To enhance the ``distressed'' population, a credit union trade 
association proposed counting not only the residents of the 
``distressed'' units, but also the people who work, worship or go to 
school there, even though the CDFI Fund limits a unit's population to 
its ``residents.'' 12 CFR 1805.201(b)(ii)(C)(2). Another commenter 
believed the population threshold does not go far enough, and would 
require each and every geographic unit within a proposed area to be 
``distressed,'' even though the 85% population threshold allows some 
entirely non-``distressed'' units among a group of contiguous units. 
Id.
    Notwithstanding the comments, the final rule is explicit in 
requiring a proposed area to conform to the geographic unit(s) 
prescribed by CDFI according to whether an area is located within or 
outside a Metro area. Id. Sec.  1805.104(ff). For this purpose, the 
rule follows the CDFI Fund's practice of deeming a proposed area 
located in a designated MSA\5\ to be within a Metro area, and vice 
versa. App. B, Ch. 3, Sec.  III.B.2.a. The rule then prescribes the 
corresponding applicable CDFI

[[Page 73395]]

geographic units--``Metro units'' when a proposed area is located 
within an MSA, and ``Non-Metro units'' when the area is located outside 
an MSA. 12 CFR 1805.201(b)(3)(ii)(B).
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    \5\ To ensure consistency with the CDFI Fund's distress 
criteria, which are measured according to the most recent decennial 
Census, the final rule relies solely on the MSA designations that 
correspond to the same decennial census, rather than on the Office 
of Management and Budget's updated annual designations. 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.
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    A proposed area that is partly within and partly outside an MSA 
(i.e., straddles an MSA's boundary) is deemed to be entirely within a 
Metro area because the corresponding geographic units include ones that 
are permissible for areas located either within or outside an MSA 
(e.g., a census tract). Further, regardless of its location, a proposed 
area must be comprised entirely of whole geographic units of single 
kind; it cannot have fractional units (e.g., half of a census tract or 
half of a county). To avoid fractional units, the proposed area should 
be conformed to the next smallest applicable geographic unit (e.g., 
block groups).
    In the case of a proposed area consisting of multiple contiguous 
geographic units (e.g., a group of adjoining census tracts inside an 
MSA or a group of adjoining counties outside an MSA), the final rule 
expressly imposes the 85% population threshold. Id. Thus, when a 
proposed area combines ``distressed'' and non-``distressed'' geographic 
units, the ``distressed'' units must represent at least 85 percent of 
the area's total population. Id. Sec.  1805.201(b)(3)(ii)(C)(2) (2008). 
The final rule follows the CDFI Fund's practice of allowing each 
``distressed'' unit within a group to qualify as such under any one of 
the criteria; they do not all have to qualify under the same criterion. 
App. B, Ch. 3, Sec.  III.B.2.a.
    2. CDFI Fund Web site. The rule is designed to work in coordination 
with the CDFI Fund's ``My CDFI Fund'' Web site--an invaluable resource 
for determining whether a proposed area is ``distressed.'' The Web site 
is equipped to analyze the most commonly used geographic units: A 
census tract, a county or an independent city (which is treated as 
equivalent to a county).\6\ The ``My CDFI Fund'' Web site's 
``Information and Mapping System'' feature allows the user to select 
and enter geographic units that it then analyzes, individually and as a 
single proposed area, using the most recent decennial Census data.\7\ 
The results are displayed on a comprehensive ``Investment Area/Hot Zone 
Worksheet'' (``CDFI Worksheet'').
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    \6\ 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.ncarea.gov/CreditUnionDevelopment//Underserved/underserved.html. Under the ``Expanding into Investment Areas'' 
section is a link entitled ``Instructions to Use the CDFI Web 
site.''
    \7\ 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.
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    The CDFI Worksheet shows whether an individual geographic unit is 
located within an MSA; its total population; its poverty rate; the 
percent of benchmark MFI; \8\ the unemployment rate; and most 
importantly, whether in the end the unit qualifies as ``distressed.'' 
\9\ For a proposed area that combines contiguous ``distressed'' and 
non-``distressed'' units, the CDFI Worksheet applies the 85% population 
threshold to determine if the area's population is sufficiently 
represented in the ``distressed'' units (which the decennial Census 
itself does not do), determines that the combined units are contiguous, 
and shows the tract-by-tract population. Compared to manually 
downloading census data, the ``My CDFI Fund'' Web site's analysis of 
census tracts and counties is a more expeditious way to establish that 
a proposed area is sufficiently ``distressed,'' thus conserving credit 
union resources.
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    \8\ The ``My CDFI Fund'' Web site apparently does not compare a 
geographic unit's MFI against the national MFI for Metro Areas and 
Non-Metro Areas, as the case may be, which is a prescribed 
alternative. 12 CFR 1805.201(b)(ii)(D)(2). The CDFI Fund is working 
to fix this flaw, but in the meantime a credit union can compare a 
unit's MFI against the national MFI as determined by the U.S. Census 
to determine if that changes the area's initial non-``distressed'' 
result. Current national MFI data is available from the U.S. Census 
at: http://censtats.census.gov/pub/Profiles.shtml. (Enter ``U.S. 
Summary'' and then ``metro'').
    \9\ The ``My CDFI Fund'' Web site implies that it determines 
whether a proposed area ``qualifies as an investment area.'' It does 
not. The Web site determines only whether a proposed area's 
geographic units are ``distressed.'' An applicant still must 
independently demonstrate the proposed area's ``significant unmet 
needs for loans,'' etc., in order to qualify as an ``investment 
area.''
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C. Significant Unmet Needs for Loans or Financial Services

    In addition to determining that a proposed area is ``distressed,'' 
the CDFI Act's definition of an ``investment area'' requires the area 
to have ``significant unmet needs for loans or equity investments.'' 12 
U.S.C. 4702(16)(A)(ii). To meet this criterion, the CDFI Fund requires 
``a narrative analysis * * * adequately demonstrat[ing] a pattern of 
unmet needs'' for financial products and services within the proposed 
area. 12 CFR 1805.201(b)(3)(ii)(E). Further, the Fund retains sole 
discretion to determine whether this criterion is met. Id. Sec.  
1805.201(a)(5).
    The existing rule addresses this requirement through the business 
plan that must be developed by a credit union seeking to add an 
``underserved area.'' The business plan must ``identify the credit and 
depository needs of the community and detail how the credit union plans 
to serve those needs.'' IRPS 06-1, 71 FR at 36671. To ensure a sound 
record, the proposed rule followed the CDFI Fund's practice of 
requiring a credit union to submit a one-page ``narrative statement'' 
demonstrating a pattern of ``significant unmet needs'' in the proposed 
area for one or more of the following financial products and services 
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 similar 
services (``authorized credit union services'').\10\ Prop. Rule, 73 FR 
at 34389.
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    \10\ 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). To 
these financial services, the Fund also added certain ``financial 
products'' that, except for loans, credit unions do not offer to 
their members. Id. Sec.  1805.104(u) (2008).
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    To support the narrative statement, the proposed rule required 
relevant, objective statistical data and allowed objective testimonial 
evidence. The proposed rule then required the business plan to 
``explain how the credit union plans to fulfill the unmet needs for 
loans and credit union services identified in its Narrative 
Statement.'' Id. Commenters were invited to indicate whether the 
narrative statement should be integrated into the business plan a 
credit union is already required to submit, and to identify statistical 
data that would help to establish unmet needs for loans and authorized 
credit union services.
    NCUA received fourteen comments addressing the proposal to require 
a narrative statement on ``significant unmet needs.'' Nearly all of the 
commenters felt the narrative statement was redundant of the CDFI 
distress criteria, contending that by definition a ``distressed'' area 
must have ``significant unmet needs'' for loans and financial services. 
They believed the requirement would be a costly, burdensome duplication 
of effort. The information to establish ``significant unmet needs,'' 
the commenters further maintained, is too difficult to find, too 
subjective to quantify, too difficult to organize by census tracts, and 
too difficult to

[[Page 73396]]

document other than by what one characterized as ``documents on 
steroids.''
    To alleviate these difficulties, the commenters urged NCUA to 
specify the information that would establish ``significant unmet 
needs,'' to specify how and where to find it, to put it on the NCUA Web 
site, and to suggest what kind of testimonial evidence would support 
it. Alternatively, some commenters advocated that the narrative 
statement either should be made optional or NCUA itself should assume 
responsibility for documenting an area's ``significant unmet needs.'' 
Two commenters challenged the substance of the requirement. One 
observed that the availability of financial services within an area 
doesn't establish that they are accessible to all residents. The other 
believed that only a comprehensive ``broad-based study'' of all 
financial services would suffice to establish `significant unmet needs' 
within a proposed area. Finally, the commenters were split on the 
question whether the narrative statement should stand alone or be 
included in the business plan for the proposed area.
    As noted in the proposed rule, 73 FR at 34389, the CDFI Fund itself 
accepts a one-page narrative statement describing the significant unmet 
capital or financial services within a proposed area. ``CDFI 
Certification Application'' (June 2007) at 11. The analysis must be 
supported by relevant, objective reasons or statistical data. There are 
no definitive standards of evaluation; the statements are evaluated on 
a case-by-case basis.
    Neither the ``distress'' criterion nor the ``significant unmet 
needs'' criterion can be interpreted as redundant of the other because 
both criteria are set forth independently within the CDFI Act's 
``investment area'' definition. 12 U.S.C. 4702(16)(A). The existing 
requirement that the business plan ``identify the credit and depository 
needs of the community and detail how the credit union plans to serve 
those needs'' (IRPS 06-1, 71 FR at 36671) is the functional equivalent 
of ``demonstrating a pattern of `significant unmet needs' for one or 
more [authorized credit union services],'' as the proposed rule would 
require. Prop. Rule, 73 FR at 34389. For this reason, the existing 
``credit and depository needs'' standard is a legitimate measure of 
``significant unmet needs,'' provided it addresses authorized credit 
union services.
    Upon consideration of the comments and further inquiry into the 
CDFI Fund's practices regarding fulfillment of the ``significant unmet 
needs'' criterion, the final rule modifies the proposed narrative 
statement requirement in the following respects. First, a credit union 
may meet the ``significant unmet needs'' criterion by fulfilling the 
existing requirement to ``identify the credit and depository needs of 
the community and detail how the credit union plans to serve those 
needs.'' App. B, Ch. 3, Sec.  III.B.2.b. Second, a stand-alone 
narrative statement is not required. Instead, a section of the business 
plan, one page in length, and entitled ``Significant Unmet Needs for 
Credit Union Services,'' must address the existing ``credit and 
depository needs'' criterion. Id. Finally, no supporting statistical 
data is required. Instead, the existence of each of the ``credit and 
depository needs'' the credit union identifies and plans to serve must 
be supported by objective reasons and/or accompanying documentation 
derived from an identified, authoritative source of the credit union's 
choice. Third party documentation is generally the most compelling. 
Anecdotal evidence will not suffice. Id.

D. Underserved by Other Depository Institutions

    Independent of the CDFI Fund's ``significant unmet needs'' test, 
CUMAA requires a proposed area to be ``underserved * * * by other 
[insured] depository institutions.'' CUMAA did not specify a 
methodology for making this determination other than to provide that it 
must rely on unspecified ``data of the [NCUA] Board and the Federal 
banking agencies.'' 12 U.S.C. 1759(c)(2)(A)(ii). To the extent such 
relevant and meaningful data existed in raw form, it was not distilled 
and made readily accessible until recently.
    To determine whether a proposed area is underserved by other 
depository institutions, the proposed rule compares the concentration 
of depository institution facilities within the non-``distressed'' 
portions of the proposed area against the concentration of such 
facilities in the area as a whole. Prop. Rule, 73 FR at 34389. 
Regardless of the geographic units used to determine whether the 
proposed area is ``distressed,'' this comparison uses the area's census 
tracts as the unit of measure.
    A comparison of two ratios determines a proposed area's 
concentration of facilities. The first is the ratio of depository 
institution facilities within a proposed area's non-``distressed'' 
tracts (regardless whether they are contiguous) to the combined 
population of those tracts. This establishes a benchmark level of 
adequate service. The second is the ratio of depository institution 
facilities among all the tracts of the proposed to the combined 
population of those tracts.
    As shown below, if the facilities-to-population ratio (the 
benchmark) within the non-``distressed'' tracts (column A below) 
exceeds the same facilities-to population ratio within the combined 
tracts of the proposed area as a whole (column B below), the rule deems 
the area to be ``underserved by other depository institutions,'' and 
vice versa (column C below).

                               Concentration of Depository Institution Facilities
----------------------------------------------------------------------------------------------------------------
                                                  A                        B                        C
----------------------------------------------------------------------------------------------------------------
                                          Non-``distressed''      All census tracts in     All census tracts in
                                          census tracts only         proposed area            proposed area
----------------------------------------------------------------------------------------------------------------
Population (numerator)...............  15,000.................  100,000................  100,000.
Facilities (denominator).............  100....................  571....................  800.
Ratio of facilities to population      1:150 (1 facility for    1:175 (1 facility for    1:125 (1 facility for
 (concentration).                       every 150 persons).      every 175 persons).      every 125 persons).
Example of:                            Benchmark ratio........  ``Underserved''........  Not ``Underserved''.
----------------------------------------------------------------------------------------------------------------

    The seventeen comments on this criterion were critical of using the 
concentration of facilities to assess whether a proposed area is 
``underserved by other depository institutions.'' Four commenters 
criticized this methodology as a cumbersome, complex, time consuming 
and labor intensive exercise. Others objected to the use of any 
methodology not specifically prescribed by CUMAA (even though CUMAA 
didn't prescribe

[[Page 73397]]

any methodology). One commenter was concerned that an area without even 
a single credit union facility still could be deemed not 
``underserved'' due to the concentration of non-credit union 
facilities. In such cases, this commenter urged, the area should be 
deemed ``underserved'' by definition. In contrast, a commenter argued 
that the presence of even a single depository intuition facility (even 
a credit union's) should render the area not ``underserved'' by such 
institutions.
    Several commenters emphasized that the physical presence of 
depository institutions is not a reliable indicator of the 
availability, cost and quality of products and services that would 
benefit an area's underserved residents. They proposed various 
alternative methodologies involving: The ratio of ``banked'' consumers 
or households to the population of the ``distressed'' tracts compared 
to the whole area's combined tracts; the distance of travel required to 
reach a facility; the area's income and unemployment levels; a 
subjective ``fact-sensitive inquiry''; a market analysis of current 
depository institution services; an analysis of competitive market 
factors; and residents' use of branches and ATMs. Regarding ATMs, two 
commenters noted the irony in the possibility of counting them among 
depository institution facilities while refusing to recognize them as a 
credit union ``service facility'' for an ``underserved area.''
    Finally, two commenters believed that the ``underserved by other 
depository institutions'' criterion is misconceived in the first place. 
In their view, an ``underserved area'' can never be too ``overserved'' 
by other depository institutions because their increasing presence 
expands consumer choice among products and services, thereby 
stimulating competition and ultimately reducing the price of those 
products and services for the area's residents.
    For the following reasons, the final rule adopts the concentration 
of facilities methodology as proposed to assess whether a proposed area 
is ``underserved by other depository institutions.'' App. B, Ch. 3, 
Sec.  III.B.3. First, the ``significant unmet needs'' criterion 
addresses the need for products and services within a proposed area. In 
order not to duplicate that, the concentration of facilities, by 
design, addresses the presence of facilities that dispense those 
products and services. Second, although there is merit to the 
alternative methodologies suggested by the commenters, CUMAA requires 
the determination that an area is ``underserved by other depository 
institutions'' to be ``based on data of the [NCUA] and the Federal 
banking agencies.'' 12 U.S.C. 1759(c)(2)(A)(ii). Therefore, in making 
this determination, NCUA is compelled to rely on the limited, relevant 
data it and the banking agencies have collected, to the exclusion of 
third party data.
    Finally, taking into consideration the comments on the burden of 
obtaining and organizing the data needed to calculate the facilities 
versus population ratios, the final rule relaxes any such burden. For 
the denominator of each ratio, the proposed rule required credit unions 
to obtain current tract-by-tract population data. For the numerator of 
each ratio, however, it required credit unions to also obtain the 
tract-by-tract totals of the depository institution facilities using 
several on-line resources.
    Under the final rule, credit unions still are responsible for 
obtaining tract-by-tract population data (from either the ``My CDFI 
Fund'' Web site or the decennial Census). However, upon request to a 
regional office, NCUA will be responsible for providing credit unions 
with tract-by-tract totals of the number of insured depository 
institutions. Using proprietary software, NCUA regional offices will be 
equipped to determine and provide the total number of depository 
institution facilities in each of the census tracts of a proposed area. 
The total for each tract will combine not only credit union facilities 
(based on a credit union's annual ``Report of Officials'') but non-
credit union facilities, and will exclude the ATMs of both. As a 
result, credit unions can easily obtain the data needed to calculate 
the facilities-to-population ratio of the ``distressed'' tracts and 
compare it to the facilities-to-population ratio of the tracts of the 
area as a whole.

E. Approval To Serve an Already Approved ``Underserved Area''

    The statement in the existing rule that ``More than one multiple 
common bond federal credit union can serve the same underserved area'' 
is accurate but not complete. IRPS 06-1, 71 FR at 36670. The rule is 
vague about whether an area must be requalified as ``underserved'' each 
time an additional credit union seeks approval to serve it. The 
proposed rule makes it clear that a credit union that was approved to 
serve an ``underserved area'' is ``grandfathered,'' but the 
``underserved area'' itself is not. App. B, Ch. 3, Sec.  III.D.
    The distinction is that once a credit union receives approval to 
serve an area that qualified as ``underserved'' at the time it was 
approved, the credit union will be able to continue serving that area 
if and when it no longer qualifies as ``underserved.'' In contrast, if 
another credit union subsequently seeks approval to serve the same 
``underserved area,'' the subsequent applicant must demonstrate that 
the area still qualifies as ``underserved,'' i.e., is still 
``distressed,'' has ``significant unmet needs,'' and is ``underserved 
by other depository institutions'' at the time it applies.
    Ten commenters addressed the ``grandfathering'' issue. All of them 
praised the ``grandfathering'' of credit unions that had been approved 
to serve an ``underserved area,'' but advocated ``grandfathering'' the 
already approved ``underserved areas'' themselves as well so that other 
credit unions would be free to serve them. One commenter criticized the 
reapproval requirement as an unnecessary duplication of effort while 
another charged that it was a ``back-door return'' to NCUA's old 
overlap protection policy. One commenter proposed a compromise: If the 
final rule will not permit ``grandfathering'' of ``underserved areas'' 
themselves once it becomes effective, then the rule should expressly 
``grandfather'' all ``underserved areas'' approved under the existing 
rule prior to the final rule's effective date under the rule. 
Recognizing the possibility that an ``undeserved area'' may not remain 
underserved forever, one commenter proposed limiting the 
``grandfathering'' of ``underserved areas'' themselves to a period of 5 
years from the date each was first approved. Another acknowledged that 
the greater the number of credit unions serving an already approved 
``underserved area,'' the sooner the area's ``significant unmet needs'' 
for credit unions services will be met.
    What all the commenters but one fail to consider is that, with the 
passage of time, an ``underserved area'' may not continue to meet the 
definition of an ``investment area.'' Once a new decennial Census is 
published, the area may no longer be ``distressed'' according to CDFI 
criteria. Over time, the credit union(s) approved to serve the area may 
succeed in meeting some or all of the area's ``significant unmet 
needs'' for credit union services. As more depository institutions 
locate facilities within the area, the concentration ratio may shift to 
reflect that the area finally is adequately served by other depository 
institutions.
    At the time of approval as ``underserved,'' a proposed area must 
meet the CDFI definition of an ``investment area.'' For that reason, 
the final rule cannot assume that a once approved ``underserved area'' 
remains frozen in time regardless of changing

[[Page 73398]]

circumstances that may disqualify it as an ``investment area.'' 
Accordingly, the final rule continues to ``grandfather'' credit unions 
that are approved to serve ``underserved areas,'' but does not 
``grandfather'' the ``underserved areas'' themselves. App. B, Ch. 3, 
Sec.  III.D. However, the final rule does not require an applicant 
seeking to serve an already approved area to demonstrate that the area 
still is ``distressed'' if no new decennial Census has been published 
since the area was last determined to be ``distressed.''

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). These final amendments to the existing regulation 
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 final 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. Based upon past 
experience, NCUA anticipates approximately 100 applications per year. 
This rule mandates certain specific information that must be included 
in the application. NCUA solicited public comment on all aspects of the 
collection of information this rule entails. Having considered the 
comments and the type of information required to be obtained and 
included in the application, NCUA estimates a burden of 40 hours per 
application.

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 final rule will 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 final 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 final 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).

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub. L. 104-121) (SBREFA) provides generally for congressional review 
of agency rules. A reporting requirement is triggered in instances 
where NCUA issues a final rule as defined by section 551 of the APA. 5 
U.S.C. 551. The Office of Management and Budget has determined that 
this rule is not a major rule for purposes of SBREFA. As required by 
SBREFA, NCUA will file the appropriate reports with Congress and the 
General Accounting Office so this rule may be reviewed.

List of Subjects in 12 CFR Part 701

    Credit, Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on November 
20, 2008.
Mary Rupp,
Secretary of the Board.

0
For the reasons stated above, 12 CFR part 701 is amended as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

0
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.


0
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.

0
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

[[Page 73399]]

determining the interest, commitment, and economic advisability of 
forming a federal credit union. The organization of a successful 
federal credit union takes considerable planning and dedication.
    Persons interested in organizing a federal credit union should 
contact one of the credit union trade associations or the NCUA 
regional office serving the state in which the credit union will be 
organized. Lists of NCUA offices and credit union trade associations 
are shown in the appendices. NCUA will provide information to groups 
interested in pursuing a federal charter and will assist them in 
contacting an organizer.
    While anyone may organize a credit union, a person with training 
and experience in chartering new federal credit unions is generally 
the most effective organizer. However, extensive involvement by the 
group desiring credit union service is essential.
    The functions of the organizer are to provide direction, 
guidance, and advice on the chartering process. The organizer also 
provides the group with information about a credit union's functions 
and purpose as well as technical assistance in preparing and 
submitting the charter application. Close communication and 
cooperation between the organizer and the proposed members are 
critical to the chartering process.
    The Federal Credit Union Act requires that seven or more natural 
persons--the ``subscribers''--present to NCUA for approval a sworn 
organization certificate stating at a minimum:
     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

[[Page 73400]]

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;
     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

[[Page 73401]]

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 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 * 
* *;

[[Page 73402]]

     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, 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

[[Page 73403]]

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.
    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 recordkeeping 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

[[Page 73404]]

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 
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,

[[Page 73405]]

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 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;

[[Page 73406]]

     Members of the Marine Corps Reserve Officers 
Association; or
     Members of St. John's Methodist Church and St. Luke's 
Methodist Church, located in Toledo, Ohio.
    Some examples of insufficiently defined single associational 
common bonds are:
     All Lutherans in the United States (too broadly 
defined); or
     Veterans of U.S. military service (group is too broadly 
defined; no formal association of all members of the group).
    Some examples of unacceptable single associational common bonds 
are:
     Alumni of Amos University (no formal association);
     Customers of Fleetwood Insurance Company (policyholders 
or primarily customer/client relationships do not meet associational 
standards);
     Employees of members of the Reston, Virginia, Chamber 
of Commerce (not a sufficiently close tie to the associational 
common bond); or
     Members of St. John's Lutheran Church and St. Mary's 
Catholic Church located in Anniston, Alabama (churches are not of 
the same denomination).

III.B--Associational Common Bond Amendments

III.B.1--General

    Section 5 of every associational federal credit union's charter 
defines the field of membership the credit union can legally serve. 
Only those persons who, or legal entities that, join the credit 
union and are specified in the field of membership can be served. 
There are three instances in which Section 5 must be amended by 
NCUA.
    First, a 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 that 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

[[Page 73407]]

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.
    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

[[Page 73408]]

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 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

[[Page 73409]]

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 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.

[[Page 73410]]

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.

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

[[Page 73411]]

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.

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;

[[Page 73412]]

     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 ``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

[[Page 73413]]

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.
    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 ten-mile radius of Washington, D.C. (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

[[Page 73414]]

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.
    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

[[Page 73415]]

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 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

[[Page 73416]]

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

III.A--General

    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,'' provided each credit union is 
approved as provided below.
    By adding an ``underserved area,'' a multiple common bond 
federal credit union does not become eligible 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.

III.B--``Underserved Area'' Defined

    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.

III.B.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. However, if the proposed area qualifies as a community 
either because it consists of multiple political jurisdictions with 
a total population of 500,000 or less, or is within a Metropolitan 
Statistical Area (``MSA'') that has a population of 1 million or 
less, the applicant is not required to submit a supplemental letter 
describing how the area meets the standards for community 
interaction and/or common interests.

III.B.2--Investment Area

    To be approved as an ``underserved area,'' the proposed area 
must meet the CDFI definition of an ``investment area.'' Id. Sec.  
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 (id. Sec.  1391) automatically qualifies as an 
``investment area''; no further criteria of an ``investment area'' 
must be met. Id. Sec.  4702(16)(B). A proposed area that is not 
designated as such must qualify as an ``investment area'' under 
``the objective criteria of economic distress'' developed by the 
CDFI Fund (``distress criteria'') based on current decennial U.S. 
Census data, and also must have ``significant unmet needs'' for 
loans and financial services that credit unions are authorized to 
offer to their members. Id. Sec.  4702(16)(A).

III.B.2.a--Economic Distress Criteria

    Geographic Unit(s) By Proposed Area's Location. The location of 
a proposed ``underserved area'' either within or outside of an MSA 
corresponding to the most recent completed decennial census 
published by the U.S. Bureau of the Census (``decennial Census'') 
determines the geographic unit(s) that apply to determine whether 
the area meets the distress criteria.
    Within MSA. For a proposed area located, in whole or in part, 
within an MSA, the permissible geographic units (``Metro units'') 
for implementing the economic distress criteria are: (i) a census 
tract; (ii) a block group; and (iii) an American Indian or Alaskan 
Native area. 12 CFR 1805.201(b)(3)(ii)(B) (2008). For ease of 
implementation, it is advisable to use a census tract as the 
proposed area's Metro unit.
    Outside MSA. For a proposed area that is located entirely 
outside an MSA, the permissible units (``Non-Metro units'') for 
implementing the economic distress criteria are: (i) a county or 
equivalent area; (ii) a minor civil division that is a unit of local 
government; (iii) an incorporated place; (iv) a census tract; (v) a 
block numbering area; (vi) a block group; and (vii) an American 
Indian or Alaskan Native area. Id. For ease of implementation, it is 
advisable to use either a census tract or county, as the case may 
be, as the proposed area's Non-Metro unit.
    Proposed Area Consisting of a Single Metro Unit. A proposed area 
consisting of a single whole Metro unit (e.g., a single census tract 
located within an MSA) must meet one of the following distress 
criteria, as reported by the most recent decennial Census:
     Unemployment. The proposed area's unemployment rate is 
at least 1.5 times the national average; or
     Poverty. At least 20 percent (20%) of the proposed 
area's population lives in poverty; or
     Median Family Income. The proposed area's Median Family 
Income (``MFI'') is at or below 80 percent (80%) of either the MFI 
of the corresponding MSA, or of the national MFI for Metro Areas, 
whichever is greater; or
     Other Criterion. Any other economic distress criterion 
the CDFI Fund may adopt in the future.
    Id. Sec.  1805.201(b)(3)(ii)(D)(1), (2)(i) and (3) (2008).
    Proposed Area Consisting of a Single Non-Metro Unit. A proposed 
area consisting of a single whole Non-Metro unit (e.g., a single 
county located outside an MSA) must meet one of the following 
distress criteria, as reported by the most recent decennial Census:
     Unemployment. The proposed area's unemployment rate is 
at least 1.5 times the national average; or
     Poverty. At least 20 percent (20%) of the proposed 
area's population lives in poverty; or
     Median Family Income. The proposed area's MFI is at or 
below 80 percent (80%) of either the corresponding state's Non-Metro 
MFI or the national MFI for Non-Metro Areas, whichever is greater; 
or
     Other Criterion. Any other economic distress criterion 
the CDFI Fund may adopt in the future.
    Id. Sec.  1805.201(b)(3)(ii)(D)(1), (2)(ii) and (3) (2008). 
Alternatively, a proposed area consisting of a single Non-Metro 
county (located outside an MSA) may instead meet either 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.
    Id. Sec.  1805.201(b)(3)(ii)(D)(4)-(5) (2008).
    Proposed Area Consisting of Multiple Contiguous Units. When a 
proposed area consists of either 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), a population 
threshold applies 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, that 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 
balance of the area's population may reside in the non-
``distressed'' tract(s). 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.

III.B.2.b--Proposed Area's ``Significant Unmet Needs''

    A proposed area that is ``distressed'' also must display 
``significant unmet needs'' for loans or for one or more of the 
financial services credit unions are authorized to offer. To meet 
this criterion, the credit union must include within its Business 
Plan a section, one page in length, entitled ``Significant Unmet 
Needs for Credit Union Services'' (``SUN section'') that establishes 
the existence of such unmet needs by identifying the credit and 
depository needs of the community and detailing how the credit union 
plans to serve those needs. The credit union may choose which among 
the

[[Page 73417]]

following ``credit and depository needs'' to address in the SUN 
section: loans, share draft accounts, savings accounts, check 
cashing, money orders, certified checks, automated teller machines, 
deposit taking, safe deposit box services, and similar services. The 
existence of each ``credit and depository need'' the credit union 
identifies and plans to serve must be supported by objective reasons 
and/or accompanying documentation derived from an identified, 
authoritative source of the credit union's choice. Third party 
documentation generally is the most compelling.

III.B.3--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 insured 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, a 
non-``distressed'' census tract or larger geographic unit (e.g., 
city or county) of the credit union's choice that adjoins the 
proposed area may be used to set the benchmark concentration ratio.
    Without regard to a proposed area's location within or outside 
an MSA, this criterion compares two ratios: the ratio of facilities 
to the population of the non-``distressed'' tracts (the benchmark) 
versus the same facilities-to-population ratio among all the tracts 
of the proposed area as a whole. If the benchmark ratio is greater 
than the ratio for the whole area, then the area is ``underserved by 
other depository institutions,'' and vice versa.

III.C--NCUA Approval

    If NCUA approves the request to add an ``underserved area,'' the 
credit union will be issued an amendment to Section 5 of its 
charter.

III.D--Approval to Serve an Already Approved ``Underserved Area''

    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. An applicant must demonstrate the area continues to be 
``distressed'', as provided above, only if a new decennial Census 
has been published since the date the area was last approved. In any 
case, the applicant must demonstrate that the area still has 
``significant unmet needs'' for loans or credit union services (to 
qualify as an ``investment area''), and remains ``underserved by 
other depository institutions'' (to qualify as ``underserved'').

III.E--Business Plan

    A federal credit union that desires to include an underserved 
community in its field of membership must first develop, and submit 
for approval, a business plan specifying how it will serve the 
community. In addition, the business plan must include a SUN section 
as provided in section III.B.2.b. above. 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, and must require such reports before NCUA allows a 
multiple common bond federal credit union to add an additional 
``underserved area.''

III.F--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.

IV--Appeal Procedures for Denial of Underserved Area

IV.A--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.B--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

[[Page 73418]]

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.

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

[[Page 73419]]

     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 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.

[[Page 73420]]

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.
     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)

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[FR Doc. E8-28085 Filed 12-1-08; 8:45 am]
BILLING CODE 7535-01-C