[Federal Register Volume 80, Number 87 (Wednesday, May 6, 2015)]
[Rules and Regulations]
[Pages 25924-25931]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-10548]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

RIN 3133-AE31


Chartering and Field of Membership Manual

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: The NCUA Board (Board) is issuing a final regulation to amend 
the associational common bond provisions of NCUA's chartering and field 
of membership requirements. Specifically, the amendments establish a 
threshold requirement which provides that, in order for an association 
to qualify to be part of a federal credit union's (FCU) field of 
membership (FOM), the association must not have been formed primarily 
for the purpose of expanding credit union membership. The amendments 
also expand the criteria in NCUA's current totality of the 
circumstances test, which is a regulatory tool used to determine if an 
association, after satisfying the above-referenced threshold 
requirement, also satisfies the associational common bond requirements 
necessary to qualify for inclusion in an FCU's FOM. The amendments will 
better ensure that FCUs comply with established membership 
requirements. Additionally, NCUA is granting automatic membership 
qualification under the associational common bond requirements to 
certain categories of associations that NCUA has routinely approved for 
FCU membership in the past. For ease of reading, NCUA uses the terms 
``association'' and ``group'' interchangeably in this rulemaking.

DATES: This rule is effective July 6, 2015.

FOR FURTHER INFORMATION CONTACT: Robert Leonard, Director, Division of 
Consumer Access, and Rita Woods, Director, Division of Consumer 
Access--South, Office of Consumer Protection, at 1775 Duke Street, 
Alexandria, VA 22314, or by telephone (703) 518-1140; or Frank 
Kressman, Associate General Counsel, Office of General Counsel, at the 
above address, or by telephone (703) 518-6540.

SUPPLEMENTARY INFORMATION:

I. Legal Background and Summary of the April 2014 Proposal
II. Summary of the Public Comments and the Final Rule
III. Regulatory Procedures

[[Page 25925]]

I. Legal Background and Summary of the April 2014 Proposal

A. Legal Background

    NCUA has implemented the Federal Credit Union Act's (FCU Act) FOM 
requirements \1\ in NCUA's Chartering and Field of Membership Manual 
(Chartering Manual), which is incorporated as Appendix B to part 701 of 
NCUA's regulations.\2\ NCUA also has published the Chartering Manual as 
an Interpretative Ruling and Policy Statement (IRPS), the current 
version of which is published as IRPS 08-2, as amended by IRPS 10-1.
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    \1\ 12 U.S.C. 1759.
    \2\ 12 CFR part 701, appendix B.
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    Section 109 of the FCU Act provides for three types of FCU 
charters: (1) Single common bond (occupational or associational); (2) 
multiple common bond (multiple groups); and (3) community.\3\ Section 
109 of the FCU Act also describes the individual membership criteria 
for each of these three types of charters.\4\ Further, each type of 
charter is subject to, and shaped by, certain applicable limitations.
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    \3\ 12 U.S.C. 1759(b).
    \4\ Id.
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    An FOM consists of those persons and entities eligible for 
membership for each type of charter, respectively. The Chartering 
Manual provides that a single common bond FCU consists of one group 
having a common bond of occupation or association.\5\ A multiple common 
bond FCU consists of more than one group, each of which has a common 
bond of occupation or association.\6\
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    \5\ 12 CFR part 701, appendix B (Chapter 2, Section I.A.1). A 
community FCU consists of persons or organizations within a well-
defined local community, neighborhood, or rural district.
    \6\ Id. This final rule does not affect the current requirements 
for occupational common bond FCUs.
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Associational Common Bond
    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.\7\ Separately chartered associational groups can establish a 
single common bond relationship with each other if those groups are 
integrally related and share common goals and purposes.\8\ The 
Chartering Manual more specifically enumerates the individuals and 
groups eligible for membership in a single associational common bond 
credit union. Eligible individuals and groups are natural and non-
natural person members of the association, employees of the 
association, and the association itself.\9\
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    \7\ 12 CFR part 701, appendix B (Chapter 2, Section III.A.1).
    \8\ Id.
    \9\ Id.
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    Under NCUA's current FOM regulations, NCUA determines if a group 
satisfies the associational common bond requirements, for purposes of 
qualifying for membership in an FCU, by applying the below factors, 
commonly referred to as the totality of the circumstances test.\10\ The 
test consists of the following seven factors: \11\
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    \10\ Id.
    \11\ Id.
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    (1) Whether members pay dues;
    (2) Whether members participate in the furtherance of the goals of 
the association;
    (3) Whether the members have voting rights; \12\
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    \12\ To meet this requirement, members do not have to vote 
directly for an officer, but may vote for a delegate who in turn 
represents the members' interests.
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    (4) Whether the association maintains a membership list;
    (5) Whether the association sponsors other activities;
    (6) The association's membership eligibility requirements; and
    (7) The frequency of meetings.
    Additionally, the Chartering Manual specifies certain examples of 
associations that may or may not qualify as having an associational 
common bond. It states that educational groups, student groups, and 
consumer groups may qualify as having an associational common bond.\13\ 
Associations based primarily on a client-customer relationship, 
however, do not satisfy the associational common bond requirements.\14\
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    \13\ 12 CFR part 701, appendix B (Chapter 2, Section III.A.1).
    \14\ Id.
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B. Summary of the April 2014 Proposal

    In April 2014, NCUA issued a proposal to amend the associational 
common bond requirements in the Chartering Manual.\15\ The following is 
a summary of the proposed amendments.
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    \15\ 79 FR 24623 (May 1, 2014).
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Threshold Requirement Regarding the Purpose for Which an Association Is 
Formed
    The proposal established a threshold requirement that, in order for 
an association to qualify to be part of an FCU's FOM, the association 
must not have been formed primarily for the purpose of expanding credit 
union membership. As part of the chartering analysis, NCUA would 
determine if an association has been formed primarily for the purpose 
of expanding credit union membership. If NCUA determines it has, then 
the association is denied inclusion in the FCU's FOM. If NCUA 
determines that the association was formed to serve some other 
organizational function, not primarily to expand credit union 
membership, then NCUA will continue the analysis by applying the 
totality of the circumstances test to determine if the association 
satisfies the associational common bond requirements. As part of 
satisfying the threshold requirement, the proposal would have required 
that the association being reviewed must have been operating as an 
independent organization for at least one year prior to the request to 
add the association to the FCU's FOM.
    As discussed more fully below in the section summarizing the public 
comments and the final rule, NCUA, as a result of the comments, is 
amending the threshold requirement to provide additional regulatory 
relief to FCUs.
Totality of the Circumstances Test
    NCUA proposed to amend the totality of the circumstances test, as 
discussed more fully below. The proposal noted that by clarifying and 
expanding the test, NCUA would be better able to ensure that only an 
association that satisfies the associational common bond requirements 
would be eligible for inclusion in an FCU's FOM.
    More specifically, NCUA proposed to enhance the totality of the 
circumstances test by adding to it an additional factor regarding 
corporate separateness. NCUA would review whether corporate 
separateness exists between an FCU and the association the FCU wishes 
to add to its FOM. To satisfy this proposed additional factor, the FCU 
and the association must operate in a way that demonstrates the 
separate corporate existence of each entity. NCUA proposed to consider 
the degree to which the following factors are present to determine if 
corporate separateness exists:
     The FCU's and the association's respective business 
transactions, accounts, and records are not intermingled;
     Each observes the formalities of its separate corporate 
procedures;
     Each is adequately financed as a separate entity in light 
of normal obligations reasonably foreseeable in a business of its size 
and character;
     Each is held out to the public as a separate enterprise; 
and
     The association maintains a separate physical location, 
which does not include a P.O. Box or other mail drop, and not on 
premises owned or

[[Page 25926]]

leased by the FCU. Acknowledged exceptions to this factor include 
associations located on the premises of a labor union or church.
    The presence or absence of any one of these factors is not 
determinative.
    The proposed rule stated that qualified associations already within 
an FCU's FOM are grandfathered and would not be subject to the 
corporate separateness factor.
    As discussed more fully below in the section summarizing the public 
comments and the final rule, NCUA, as a result of the comments, is 
amending the totality of the circumstances test with respect to the 
corporate separateness factor to provide additional regulatory relief 
to FCUs.
    While NCUA proposed to add this additional factor to the totality 
of the circumstances test, NCUA did not propose to remove any of the 
current criteria from the test. However, the Board clarified in the 
proposal that, after examining an association's purpose as a threshold 
matter, NCUA's primary focus under the totality of the circumstances 
test will be on the following factors: (1) Whether the association 
provides opportunities for its members to participate in the 
furtherance of the goals of the association; \16\ (2) whether the 
association maintains a membership list; (3) whether the association 
sponsors other activities; and (4) whether the association's membership 
eligibility requirements are authoritative.\17\
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    \16\ With respect to this factor, the underlined portion is 
additional language that clarifies that the factor is satisfied if 
the association provides a member with opportunities to participate 
in the furtherance of the association's goals even if the member 
does not choose to participate. This change in language is simply a 
clarification reflecting how NCUA interprets this provision. This 
also provides additional flexibility to an association that wishes 
to be included in an FCU's FOM.
    \17\ Prior to this final rule, the factor regarding an 
association's membership eligibility requirements did not contain 
the word ``authoritative.'' However, NCUA has long interpreted this 
factor to assess if an association's membership eligibility 
requirements are authoritative. The addition of the word 
``authoritative'' to this factor is simply a clarification of NCUA's 
longstanding interpretation and practices, and not the imposition of 
any new requirement.
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    As part of applying the totality of the circumstances test, NCUA 
also proposed to consider whether an FCU enrolls a member in an 
association without the member's knowledge or consent. This practice 
would reflect negatively on the association's qualification for FCU 
membership because it suggests that the members do not truly support 
the goals and mission of the association given they may not even know 
they are members. However, an FCU may pay a member's associational dues 
if the member has given his or her consent to do so.
Automatic Approval of Certain Categories of Associations
    Historically, NCUA has approved certain categories of associations 
almost without exception because their structures, practices, and 
functions so clearly demonstrate compliance with the Chartering 
Manual's associational common bond requirements. By their very nature, 
these categories of associations are comprised of members who 
consistently participate in activities developing common loyalties, 
mutual benefits, and mutual interests to further the goals and purposes 
of the associations.
    Accordingly, the proposed rule provided for the automatic 
membership approval of the following categories of associations into an 
FCU's FOM, if the FCU chooses to add one or more to its FOM: (1) 
Religious organizations including churches; (2) homeowner associations; 
(3) scouting groups; (4) electric cooperatives; (5) alumni 
associations; and (6) labor unions. Additionally, for the reasons 
stated above, NCUA proposed to automatically approve associations that 
have a mission based on preserving or furthering the culture of a 
particular national or ethnic origin. However, with respect to all of 
these associations, NCUA proposed not to include in the automatic 
approval those individuals who are considered to be honorary members or 
other classes of non-regular members of the associations.
    The automatic approval of the above-referenced associations will 
provide regulatory relief for FCUs, as they will no longer be required 
to devote resources to the regular approval process. It also will 
enable NCUA to more efficiently use its own resources. This aspect of 
the proposed rule is adopted as proposed, and as discussed below, 
additional categories of associations are to be automatically approved.
Grandfathering Members
    NCUA proposed to grandfather in existing FCU members who attained 
FCU membership by virtue of their membership in an association 
currently part of an FCU's FOM.

II. Summary of the Public Comments and the Final Rule

    NCUA received forty-three comments on the proposed rule. The 
comments were received from one bankers association, twenty-three FCUs, 
three federally insured, state-chartered credit unions, three law 
firms, and thirteen credit union trade associations. Most of the 
commenters supported the intent of the proposed rule, but, for various 
reasons, did not agree with the substance of the rule.

General Comments

    Five commenters generally supported the proposed rule as written. 
These commenters noted that the rule is consistent with the intent of 
the FCU Act and reinforces the common bond relationship that is central 
to credit union membership. In addition, these commenters stated that 
the proposed amendments, if strictly enforced, would thwart any attempt 
to expand an FCU's FOM beyond appropriate limits.
    About half of the commenters articulated strong concerns with some 
aspect of the proposed rule. Four commenters recommended that NCUA 
enforce the proposed chartering provisions through guidance or as part 
of the supervisory process, rather than by rulemaking. Eight commenters 
stated that NCUA should withdraw the proposed rule. These commenters 
maintained that the proposed rule is a reaction to the behavior of only 
a few FCUs, but that it will cause unintended and undue hardship on all 
FCUs. A number of commenters urged NCUA to provide further 
clarification on certain aspects of the proposal and/or to reconsider 
them. Additionally, several commenters asked NCUA to consider changes 
outside of the scope of the proposed rule. The Board will consider such 
changes as part of its broader initiative to review policies and 
procedures governing FOM expansions and conversions.

Automatic Approval of Certain Categories of Associations

    In the proposed rule, NCUA asked commenters to recommend certain 
categories of associations, in addition to those NCUA specifically 
identified in the proposal, which NCUA could consider for automatic 
approval. Almost thirty commenters were supportive of NCUA's proposal 
to automatically approve certain associations. In response to NCUA's 
request, a majority of these commenters suggested other categories of 
associations to be added to the list of automatically approved 
associations. Some of the most common examples include:
     Groups formed for support of school-based, school-
sponsored, or community-based sports teams; extracurricular club 
activities; fraternal organizations; and social clubs.

[[Page 25927]]

     Parent-teacher associations, military-affiliated 
associations, and 501(c)(3) nonprofits.
     Historical societies, library associations, and museum 
associations.
     YMCAs, local chamber and rotary affiliates (and other 
civic organizations), and industry groups.
     Farmer cooperatives.
    The Board appreciates the suggestions made by the commenters. After 
considering the recommendations and further evaluating the agency's 
history of approving associational groups, the Board has determined to 
include additional types of groups that will automatically satisfy the 
associational common bond requirements. The Board clarifies that when a 
group ``automatically'' satisfies the associational common bond 
requirements, it means that the group will not be reviewed under the 
totality of the circumstances test. The Chartering Manual's other 
prerequisites for an FCU's charter expansion, including an FCU's 
capitalization level and safety and soundness record, must still be 
satisfied.\18\
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    \18\ Chartering Manual, Chapter 2, IV.B.2--Numerical Limitation 
of Select Groups. An existing multiple common bond FCU that submits 
a request to amend its charter must provide documentation to 
establish that the multiple common bond requirements have been met. 
The NCUA 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 NCUA, 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 six percent. For low-income credit 
unions or credit unions chartered less than ten years, the NCUA may 
determine that a net worth ratio of less than six percent is 
adequate if the credit union is making reasonable progress toward 
meeting the six percent net worth requirement. For any other credit 
union, the NCUA may determine that a net worth ratio of less than 
six percent is adequate if the credit union is making reasonable 
progress toward meeting the six 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 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.
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    The following additional types of groups will automatically satisfy 
the associational common bond provisions:
     Parent teacher associations (PTAs) organized at the local 
level to serve a single school district;
     Chamber of commerce groups (members only and not employees 
of members);
     Athletic booster clubs whose members have voting rights;
     Fraternal organizations or civic groups with a mission of 
community service whose members have voting rights; and
     Organizations promoting social interaction or educational 
initiatives among persons sharing a common occupational profession.
    The table below provides samples of the types of groups that will 
and will not automatically satisfy the associational common bond 
requirements:

------------------------------------------------------------------------
                                                           Will not
          Type of group           Will automatically     automatically
                                        qualify             qualify
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Parent Teacher Association......  Anytown Chapter of  National Council
                                   the Parent          of Parent Teacher
                                   Teacher             Associations in
                                   Association of      Anytown,
                                   Anytown, Virginia.  Virginia.
Chamber of Commerce.............  Members of the      Employees of
                                   Jonesboro,          Members of the
                                   Georgia Chamber     Liverpool, New
                                   of Commerce.        York Chamber of
                                                       Commerce.
Athletic Booster Club...........  Voting members of   Members of PDQ
                                   the XYZ High        Booster Club who
                                   School Booster      become members by
                                   Club in Hometown,   paying onetime
                                   Florida.            dues and do not
                                                       have voting
                                                       rights.
Fraternal Organization..........  Members of the ABC  Persons becoming
                                   Fraternal           members of ABC
                                   Organization who    Fraternal
                                   have voting         Association who
                                   rights.             do not have
                                                       voting rights.
Professional Organization.......  Voting members of   Members of the
                                   the National        National
                                   Association of      Association of
                                   XYZ Profession.     XYZ Profession
                                                       who do not have
                                                       voting rights.
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    Further, commenters suggested some groups for automatic approval 
that NCUA has not regularly approved. For instance, NCUA has long held 
that health clubs, such as YMCAs, do not meet the associational common 
bond requirements because they are based primarily on a client-customer 
relationship.\19\ While fraternal organizations with broad missions or 
museum associations may, under some circumstances, satisfy the 
associational common bond criteria, these groups often are not 
structured in a way that would warrant automatic approval into an FCU's 
FOM.
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    \19\ 79 FR 24623, 24625 (May 1, 2014).
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    The Board received several comments recommending that NCUA consider 
automatically approving farmer cooperatives. After fully considering 
the agency's experience with farmer cooperatives, the Board has 
determined not to include them as a category of associations receiving 
automatic approval. The Board is concerned that farmer cooperatives are 
not as easily identifiable as other associations, such as religious 
groups or labor unions. While there is a National Association of Farmer 
Cooperatives, both it and the United States Department of Agriculture 
acknowledge that there are a variety of types of farmer cooperatives. 
The Board does not believe farmer cooperatives can be objectively 
classified and sufficiently described to support automatic approval as 
associations that satisfy the associational common bond requirements.
    Further, NCUA has approved numerous farmer cooperatives as 
occupational groups, but has only approved one farmer cooperative as an 
associational group. Farmer cooperatives also often have 
characteristics of a customer-client relationship. In many cases, 
farmer members pay for the services the cooperative provides and the 
members do not typically interact with one another. As a result, farmer 
cooperatives will not be automatically approved, but NCUA welcomes the 
opportunity to evaluate FCU requests to serve

[[Page 25928]]

individual farm cooperatives on a case-by-case basis.
    It is important to highlight that a credit union interested in 
serving a group which does not fall under the automatic approval 
categories can still submit documentation to NCUA to support how the 
group is a valid association. This provides for flexibility in 
considering unique circumstances when appropriate and may help to 
identify other groups which may automatically qualify in the future.

Service Areas and Reasonable Proximity

    Thirteen commenters strongly suggested that NCUA should revisit the 
definitions of ``service areas'' and ``reasonable proximity'' as those 
terms relate to multiple common bond credit unions. These commenters 
suggested that NCUA should reconsider its interpretation of both 
definitions in light of the technological advancements now available to 
credit unions. These comments relate to multiple common bond expansion, 
an issue not addressed by the April 2014 proposed rulemaking, and which 
is outside the scope of this final rule. Therefore, this issue will not 
be part of the final rule but will be considered as part of NCUA's 
current review of FOM policies.

Threshold Requirement and Independent Organization for One Year

    Twenty-six commenters expressed concern with the proposed threshold 
requirement. As described above, at the beginning of NCUA's 
associational evaluation process, NCUA would determine if the 
association was formed primarily for the purpose of expanding credit 
union membership. These commenters were concerned that NCUA was not 
specific enough about how it would apply the threshold requirement. 
These commenters also strongly urged NCUA to provide additional 
guidance in this regard.
    Eleven commenters specifically stated their opposition to the 
proposed threshold requirement. These commenters posited that the 
threshold requirement seems particularly arbitrary, overly restrictive, 
and unnecessary. Some of these commenters believed that the NCUA could 
use its current totality of the circumstances test, or a modified 
version of that test, to determine if an association was or was not 
formed primarily for the purpose of expanding credit union membership.
    The Board disagrees with the commenters' characterization of the 
threshold requirement. The threshold requirement will serve as an 
effective gatekeeper to prevent unqualified associations from joining 
FCUs. The Board emphasizes that only those groups that are formed 
primarily to expand credit union membership will fail to satisfy the 
threshold requirement. In addition, as discussed in the preamble to the 
proposed rule, NCUA is concerned that the current totality of the 
circumstances test may not be sufficiently filtering out those groups 
that do not meet the associational common bond requirements.
    Six commenters expressed concern about the use of the term 
``primarily'' in the phrase ``primarily for the purpose of expanding 
credit union membership'' in the proposed threshold requirement. These 
commenters noted that the term ``primarily'' is subjective and 
undefined in NCUA's regulations. Four of these commenters recommended 
NCUA change ``primarily'' to ``solely.'' The Board intends for the word 
``primarily'' to be given its plain English definition. For purposes of 
this rule ``primarily'' means: For the most part; essentially; mostly; 
chiefly; principally.\20\
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    \20\ See Dictionary.com and m-w.com (Merriam-Webster online).
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    Twenty commenters had questions or expressed concern about the 
``one-year'' requirement. In the proposed rule, as part of the 
discussion of the threshold requirement, NCUA stated that ``[i]n 
furtherance of this [threshold] requirement, the association must have 
been operating as an organization independent from the requesting FCU 
for at least one year prior to the request to add the group to the 
FCU's FOM.'' \21\ These commenters questioned NCUA's reasoning for the 
one-year requirement and requested further clarification on what this 
requirement means. In addition, eleven of these commenters specifically 
stated their opposition to the one-year requirement. These commenters 
stated that NCUA did not provide a basis for this minimum time 
requirement, and the commenters did not believe that it should matter 
how long the association has been in existence if it serves its members 
and meets the criteria of the totality of the circumstances test.
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    \21\ 79 FR 24625 (footnote 17) (May 1, 2014).
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    Almost half of the commenters who opposed the one-year requirement 
believed the requirement would have adverse effects on FCU membership. 
These commenters maintained that it would cause the unintended 
consequence of preventing FCUs from being able to serve and support 
their communities. They also believed that this would create a 
competitive disadvantage for FCUs.
    While the Board continues to believe that associations that have 
operated independently for at least one year are more likely to be 
associations that exist for organizational purposes beyond primarily 
expanding credit union membership,\22\ the Board acknowledges the 
concerns raised by the commenters in this regard. Accordingly, the 
Board is taking action to relieve the regulatory burden that commenters 
associated with the one-year requirement. Specifically, the Board is 
eliminating the one-year requirement from the threshold test so that 
the one-year requirement is no longer a condition of satisfying the 
threshold test. This change will provide additional flexibility and 
opportunity for an association to qualify under the totality of the 
circumstances test. For example, even if an association has not 
operated independently for at least one year, the association may still 
qualify for FCU membership under the totality of the circumstances 
test.
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    \22\ 59 FR 29066, 29076 (June 3, 1994).
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Totality of the Circumstances Test

    As discussed in more detail below, eighteen commenters expressed 
various concerns with the proposed amendments to the totality of the 
circumstances test. These commenters generally found the current 
totality of the circumstances test sufficient. In addition, four 
commenters requested that NCUA publish guidance to further explain how 
NCUA will apply the totality of the circumstances test in practice.
    Four commenters had concerns with the criterion that assesses the 
degree to which an association's membership eligibility requirements 
are authoritative. NCUA clarified this criterion in the proposed rule 
to emphasize the importance that an association's particular membership 
requirements be authoritative. These commenters stated that the term 
``authoritative'' was ambiguous and requested further clarification. 
The Board added the term ``authoritative'' to this criterion in the 
proposal to further stress NCUA's long held position that it is 
important for an association to avoid having lax enrollment standards, 
as that undercuts its ability to satisfy the associational common bond 
requirements.
    Three commenters supported the criterion that an FCU may pay a 
member's associational dues if the member has given consent. Two 
commenters expressed concern with this criterion, suggesting that this 
transaction could indicate a lack of corporate separateness or that 
NCUA

[[Page 25929]]

should not dictate what an association's business model should look 
like.
    The Board believes it is important to continue the policy of 
allowing an FCU to pay its member's associational dues, if the member 
has given his or her consent. The Board believes this policy helps to 
facilitate the appropriate use of qualified associations by providing 
FCUs with this additional flexibility. If an association is 
automatically approved or approved because it satisfies the totality of 
the circumstances test, then this practice is permissible for FCUs, but 
is not mandatory.

Corporate Separateness

    There was little support among the commenters for the proposed 
corporate separateness requirement, although there was support for 
grandfathering a qualified association already within an FCU's FOM so 
it would not need to satisfy the corporate separateness requirement.
    Two commenters had specific concerns about this criterion. One 
commenter believed that this provision would have the unintended 
consequence of discouraging qualified associations from seeking FCU 
membership. Another commenter suggested that smaller credit unions and 
their affiliated associations generally do not have the resources to 
meet these additional requirements, which could unfairly restrict their 
membership base. In addition, seven commenters maintained that it is 
inappropriate to measure the independence of an association by 
evaluating whether it maintains a separate physical location. These 
same seven commenters stated that the physical location of an 
association has no bearing on its separate corporate existence from an 
FCU.
    The Board has carefully considered these concerns and agrees with 
commenters that the corporate separateness criterion may be too 
burdensome as presented in the proposed rule. The Board still believes 
that an association's degree of corporate separateness is a reasonable 
factor to consider in determining if an association satisfies the 
associational common bond requirements and that it is a useful 
indicator of the true purpose of an association. However, the Board 
acknowledges that the numerous factors comprising the corporate 
separateness criterion, as listed in the proposed rule, may be too 
difficult for some FCUs and associations to demonstrate. Accordingly, 
as a result of the comments, to simplify the final rule and provide 
regulatory relief to FCUs, the Board is reducing the multiple corporate 
separateness factors listed in the proposed rule to just one factor in 
the final rule. The sole factor to be included in the final rule, which 
is an easier standard for FCUs and associations to meet, is if an FCU's 
and an association's respective business transactions, accounts, and 
records are not intermingled. Also, in the final rule, the Board is 
adding the word ``corporate'' to describe what records are not to be 
intermingled. This addition is purely for clarification and adds no new 
burden.
    The Board reiterates that, in reviewing this less burdensome 
corporate separateness factor along with the other seven factors that 
constitute the totality of the circumstances test, no one factor is 
determinative. Additionally, as noted above, the April 2014 proposed 
rule stated that qualified associations already within an FCU's FOM are 
grandfathered in this regard and will not be subject to the corporate 
separateness factor.

Quality Assurance Reviews

    Over half of the commenters expressed concern about the quality 
assurance reviews that NCUA's Office of Consumer Protection (OCP) is 
conducting on currently approved associations. As discussed in the 
proposed rule, these reviews are intended to ensure that an association 
currently included in an FCU's FOM continues to satisfy the 
associational common bond requirements that are required for continued 
membership. These commenters noted specific concerns about how the 
reviews are being and will be conducted and what could result from 
them. The commenters requested that NCUA ensure these reviews are 
conducted using objective and transparent standards. In addition, some 
of these commenters noted they did not support NCUA reviewing currently 
approved associations.
    Four commenters specifically questioned if NCUA would allow 
associations, determined to be out of compliance with the associational 
common bond requirements, the opportunity to get back into compliance, 
and, if so, how long would those associations have to do so. They also 
asked if NCUA's OCP would provide any assistance in that regard. Six 
commenters also asked if there would be a process by which an FCU could 
appeal an action by NCUA to remove an association from an FCU's FOM. 
These commenters recommended such an appeals process. These commenters 
suggested that an appeals process should establish time frames in which 
certain actions must be taken and that an FCU should be able to 
continue to add new members during the appeals process.
    Ten commenters recommended that NCUA clearly articulate that, 
regardless of the outcome of a quality assurance review, existing FCU 
members, including those who qualified for FCU membership through 
membership in the subject qualified association, would be grandfathered 
and their memberships unaffected. The Board has long held the position 
that once a person attains membership in an FCU, he or she always 
remains a member of that FCU, unless expelled by the FCU or upon 
voluntary withdrawal.\23\ Accordingly, the Board confirms that all 
existing FCU members discussed above are grandfathered and their 
memberships are unaffected by the results of any quality assurance 
review.
---------------------------------------------------------------------------

    \23\ 12 U.S.C. 1759(e).
---------------------------------------------------------------------------

    Twelve commenters stated that they did not support NCUA taking 
action to remove a currently approved association for any reason. Three 
of these commenters argued that any new associational common bond 
standards must only apply to associations seeking membership subsequent 
to the effective date of this final rule. In addition, six of these 
commenters requested that NCUA provide guidance on the process for 
removing an association from an FCU's FOM, including notice, timing, 
and appeals information. The Board agrees that such guidance is 
appropriate and has directed OCP to publish guidance in the near 
future. As noted below, however, NCUA considers removal of an 
association from an FCU's FOM a last resort.
    Four commenters argued that a quality assurance review could usurp 
the rights of a currently approved association because the review could 
result in NCUA removing the association from an FCU's FOM without due 
process. These commenters noted that NCUA failed to cite to or 
reference the statutory authority on which NCUA relies to conduct these 
reviews. These commenters also stated that NCUA failed to provide 
sufficient notice to associations and FCUs that the agency continues to 
monitor associations' compliance with NCUA associational common bond 
requirements. In addition, these commenters argued that NCUA lacks the 
direct authority to remove an association from an FCU's FOM.
    Many commenters have misinterpreted the purpose of the quality 
assurance reviews. They are intended to protect the integrity of NCUA's 
FOM requirements, not disrupt an FCU's ability to serve its members or

[[Page 25930]]

to hamper an FCU's ability to thrive. NCUA will work cooperatively with 
FCUs and associations to ensure FOM compliance. Further, the Board 
emphasizes that quality assurance reviews are not a new phenomenon. 
NCUA's regional offices conducted them for many years and only ceased 
doing so once OCP assumed responsibility for field of membership 
processing and chartering activities after its inception in 2010.
    OCP currently has in place quality control processes to review 
associations added to an FCU's FOM. OCP does not plan to change these 
processes following the adoption of this final rule. OCP's current 
quality assurance processes require its staff to review for compliance 
with NCUA's chartering regulations all new FCU requests, including 
required documentation, to serve groups prior to OCP making a final 
decision on the request. Specifically for associational groups, OCP has 
established a checklist for reviewing an association's bylaws and other 
associational documentation to ensure that OCP reviews all requests in 
a consistent manner. This process includes reviewing groups added 
through the Field of Membership Internet Application (FOMIA) 
system.\24\ OCP staff reviews data entered by FCU officials, and, if 
necessary, OCP staff contacts FCU officials for additional 
documentation. Through the FOMIA system, OCP also randomly selects 
certain groups with no red flags for review. This sampling process 
helps ensure that FCU officials using the FOMIA system are using it as 
it was intended to be used.
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    \24\ FOMIA is an online system that multiple common bond credit 
unions can use to add associational and/or occupational groups of 
2,999 potential members or less as well as the non-natural person 
corporate account associated with that group.
---------------------------------------------------------------------------

    NCUA does not envision the referenced processes or the quality 
assurance processes will change following the adoption of the final 
rule. In addition, whether with respect to a new request for an FOM 
addition or as part of a post-approval quality assurance review, OCP 
will work closely with FCU officials to determine if there are 
compliance problems and, if so, how to satisfactorily address those 
problems. NCUA considers the removal of an association from an FCU's 
FOM an action of last resort.

Geographic Limitation

    Thirteen commenters raised concerns that certain language in the 
preamble to the proposed rule appeared to indicate that NCUA was 
seeking to impose a geographic limitation on associational groups, 
similar to the geographic limitation placed on multiple common bond 
FCUs. The Board clarifies that nothing in the preamble to the proposed 
rule was intended to impose such a geographic limitation. The Board 
reiterates that the Chartering Manual clearly states that single 
associational common bond FCUs do not have a geographic limitation.\25\
---------------------------------------------------------------------------

    \25\ 12 CFR part 701, appendix B (Chapter 2, Section III.A.1).
---------------------------------------------------------------------------

III. Regulatory Procedures

A. 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 entities.\26\ For purposes of this 
analysis, NCUA considers small credit unions to be those having under 
$50 million in assets.\27\ This rule focuses on the structure and 
operations of independent associations who wish to join an FCU's FOM. 
To the extent there is any cost to small entities to voluntarily 
participate in the determination of whether the association satisfies 
NCUA's associational common bond requirements, those costs are minimal 
and they are incurred infrequently. Because this final rule would 
affect relatively few small entities and the associated costs are 
minimal, NCUA certifies the rule will not have a significant economic 
impact on small entities.
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    \26\ 5 U.S.C. 603(a).
    \27\ Interpretive Ruling and Policy Statement 03-2, 68 FR 31949 
(May 29, 2003), as amended by Interpretative Ruling and Policy 
Statement 13-1, 78 FR 4032 (Jan. 18, 2013).
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B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency by rule creates a new paperwork burden on regulated 
entities or modifies an existing burden.\28\ For purposes of the PRA, a 
paperwork burden may take the form of either a reporting or a 
recordkeeping requirement, both referred to as information collections. 
This final rule amends the criteria NCUA will use to evaluate if an 
association satisfies NCUA's associational common bond requirements, 
but it requires essentially the same information from an FCU that was 
previously required and changes none of the relevant forms identified 
in the Chartering Manual. Therefore, this final rule will not create 
new paperwork burdens or modify any existing paperwork burdens.
---------------------------------------------------------------------------

    \28\ 44 U.S.C. 3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------

C. 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. This rule applies only to federally chartered 
credit unions. It does not apply to state-chartered credit unions, 
which are subject to the FOM requirements of their respective states. 
Accordingly, this rule will not have a substantial direct effect 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 this rule does not 
constitute a policy that has federalism implications for purposes of 
the executive order.

D. Assessment of Federal Regulations and Policies on Families

    NCUA has determined that this final rule will not affect family 
well-being within the meaning of Section 654 of the Treasury and 
General Government Appropriations Act, 1999.\29\
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    \29\ Public Law 105-277, 112 Stat. 2681 (1998).
---------------------------------------------------------------------------

E. Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 \30\ 
(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 Administrative Procedure 
Act.\31\ NCUA does not believe this final rule is a ``major rule'' 
within the meaning of the relevant sections of SBREFA. NCUA has 
submitted the rule to the Office of Management and Budget for its 
determination in that regard.
---------------------------------------------------------------------------

    \30\ Public Law 104-121, 110 Stat. 857 (1996).
    \31\ 5 U.S.C. 551.
---------------------------------------------------------------------------

List of Subjects in 12 CFR Part 701

    Credit, Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on April 30, 
2015.
Gerard S. Poliquin,
Secretary of the Board.

    For the reasons stated above, NCUA amends 12 CFR part 701, appendix 
B as follows:

[[Page 25931]]

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

0
1. The authority for part 701 continues to read as follows:

    Authority:  12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759, 
1761a, 1761b, 1766, 1767, 1782, 1784, 1786, 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 42 U.S.C. 4311-4312.

0
2. Section III.A.1 of Chapter 2 of appendix B to part 701 is revised to 
read as follows:

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

* * * * *
Chapter 2
* * * * *

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.
    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 NCUA, 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.1.a--Threshold Requirement Regarding the Purpose for Which an 
Associational Group Is Formed and the Totality of the Circumstances 
Criteria

    As a threshold matter, when reviewing an application to include 
an association in a federal credit union's field of membership, NCUA 
will determine if the association has been formed primarily for the 
purpose of expanding credit union membership. If NCUA makes such a 
determination, then the analysis ends and the association is denied 
inclusion in the federal credit union's field of membership. If NCUA 
determines that the association was formed to serve some other 
separate function as an organization, then NCUA will apply the 
following totality of the circumstances test to determine if the 
association satisfies the associational common bond requirements. 
The totality of the circumstances test consists of the following 
factors:
    1. Whether the association provides opportunities for members to 
participate in the furtherance of the goals of the association;
    2. Whether the association maintains a membership list;
    3. Whether the association sponsors other activities;
    4. Whether the association's membership eligibility requirements 
are authoritative;
    5. Whether members pay dues;
    6. 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;
    7. The frequency of meetings; and
    8. Separateness--NCUA reviews if there is corporate separateness 
between the group and the federal credit union. The group and the 
federal credit union must operate in a way that demonstrates the 
separate corporate existence of each entity. Specifically, this 
means the federal credit union's and the group's respective business 
transactions, accounts, and corporate records are not intermingled.
    No one factor alone is determinative of membership eligibility 
as an association. The totality of the circumstances controls over 
any individual factor in the test. However, NCUA's primary focus 
will be on factors 1-4.

III.A.1.b--Pre-Approved Groups

    NCUA automatically approves the below groups as satisfying the 
associational common bond provisions. NCUA only approves regular 
members of an approved group. Honorary, affiliate, or non-regular 
members do not qualify.
    These groups are:
    (1) Alumni associations;
    (2) Religious organizations, including churches or groups of 
related churches;
    (3) Electric cooperatives;
    (4) Homeowner associations;
    (5) Labor unions;
    (6) Scouting groups;
    (7) Parent teacher associations (PTAs) organized at the local 
level to serve a single school district;
    (8) Chamber of commerce groups (members only and not employees 
of members);
    (9) Athletic booster clubs whose members have voting rights;
    (10) Fraternal organizations or civic groups with a mission of 
community service whose members have voting rights;
    (11) Organizations having a mission based on preserving or 
furthering the culture of a particular national or ethnic origin; 
and
    (12) Organizations promoting social interaction or educational 
initiatives among persons sharing a common occupational profession.

III.A.1.d--Additional Information

    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.
    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.
    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. Health clubs are 
an example of a group not meeting associational common bond 
requirements, including YMCAs. 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.
* * * * *

[FR Doc. 2015-10548 Filed 5-5-15; 8:45 am]
 BILLING CODE 7535-01-P