[Federal Register Volume 81, Number 235 (Wednesday, December 7, 2016)]
[Rules and Regulations]
[Pages 88412-88523]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26956]



[[Page 88411]]

Vol. 81

Wednesday,

No. 235

December 7, 2016

Part IV





 National Credit Union Administration





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12 CFR Part 701





Chartering and Field of Membership Manual; Final Rule

  Federal Register / Vol. 81 , No. 235 / Wednesday, December 7, 2016 / 
Rules and Regulations  

[[Page 88412]]


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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 is comprehensively amending its chartering and 
field of membership rules to maximize access to federal credit union 
services to the extent permitted by law, and to organize the rules in a 
more efficient framework. The amendments will implement changes in 
policy affecting: The definition of a local community, a rural 
district, and an underserved area; the chartering and expansion of a 
multiple common bond credit union; the expansion of a single common 
bond credit union that serves a trade, industry or profession; and the 
process for applying to charter, or to expand, a federal credit union.

DATES: The effective date of this final rule is February 6, 2017.

FOR FURTHER INFORMATION CONTACT: Matthew Biliouris, Deputy Director, or 
Robert Leonard, Director, Division of Consumer Access, or Rita Woods, 
Director, Division of Consumer Access South, Office of Consumer 
Protection, at the above address or telephone (703) 518-1140; or Senior 
Staff Attorney Steven Widerman, or Staff Attorney Marvin Shaw, Office 
of General Counsel, at the above address or telephone (703) 518-6540.

SUPPLEMENTARY INFORMATION:

I. Background
II. Summary of Comments on Proposed Rule
III. Regulatory Procedures

I. Background

    NCUA's Chartering and Field of Membership Manual, incorporated as 
Appendix B to part 701 of its regulations (``Chartering Manual''),\1\ 
implements the field of membership (``FOM'') requirements and 
limitations established by the Federal Credit Union Act (``the Act'') 
for federal credit unions (each an ``FCU'').\2\ As amended by the 
Credit Union Membership Access Act of 1998 (``CUMAA''), the Act 
provides a choice among three charter types: a single common bond 
consisting of a group whose members all share the same occupational or 
associational common bond; \3\ a multiple common bond in which each 
group has a distinct occupational or associational common bond among 
its own members; \4\ and a community common bond among persons or 
organizations within a well-defined local community, neighborhood, or a 
rural district.\5\
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    \1\ Appendix B to 12 CFR part 701 (``Appendix B'').
    \2\ 12 U.S.C. 1759.
    \3\ Id. Sec.  1759(b)(1).
    \4\ Id. Sec.  1759(b)(2)(A).
    \5\ Id. Sec.  1759(b)(3).
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    To facilitate consumer access to credit unions and to enhance their 
delivery of services as the Act contemplates, the Board periodically 
modifies and updates the Chartering Manual to advance certain 
objectives. Among these are relief from undue burdens and restrictions 
on an FCU's ability to provide services to consumers who are eligible 
for FCU membership, especially to benefit those of modest means; 
enhancement of the menu of strategic options for FOM expansions; and 
maximization of competitive parity between federal and state charters 
to the extent allowed by law, while respecting the national system of 
dual chartering. To serve those objectives, the Board published a 
proposed rule in December 2015 requesting public comment on fifteen 
substantive modifications to the rules affecting each of the three FOM 
types that the Act authorizes.\6\
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    \6\ 80 FR 76748 (December 10, 2015).
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    As explained below, this final rule will implement proposed 
modifications to the rule affecting: The definition of a local 
community, a rural district, and an underserved area; the expansion of 
a multiple common bond credit union; the expansion of a single common 
bond credit union that serves a trade, industry or profession; and the 
type and extent of information that must be submitted to support an 
application to charter or expand an FCU's FOM.

II. Summary of Comments on Proposed Rule

    NCUA received approximately 11,380 comments on the proposed rule: 
31 from national and regional credit union trade associations and 
leagues; 99 from individual FCUs; 14 from federally-insured state-
chartered credit unions; 8291 from individual credit union members; 14 
from national and regional bank trade associations; 6 from individual 
banks; 2925 from individual bank customers; and 6 from other 
commenters.\7\ The commenters generally supported the proposed rule by 
a ratio of approximately 3 to 1, mostly without reference to a specific 
proposal and without suggesting alternatives or modifications.
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    \7\ Among credit union- and bank-affiliated commenters combined, 
98 percent of the 11,380 comments consisted of form letters, with 
minimal original content and often submitted by a third party vendor 
on the commenter's behalf.
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A. Community Common Bond

    The Act limits membership in a community credit union to 
``[p]ersons or organizations within a well-defined local community, 
neighborhood, or rural district,'' \8\ directing the Board to establish 
criteria defining those terms for purposes of ``making any 
determination'' regarding such a credit union,\9\ and to establish 
applicable criteria for any such determination.\10\ The Act does not 
impose for any of the three community categories a maximum limitation 
on population or geographic size, thus supporting the Board's 
observation that ``there is no statutory requirement or economic 
rationale that compels the Board to charter only the smallest [well-
defined local community] in a particular area.'' \11\
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    \8\ 12 U.S.C. 1759(b).
    \9\ Id. Sec.  1759(g)(1)(A).
    \10\ Id. Sec.  1759(g)(1)(B).
    \11\ 74 FR 68722, 68725 (Dec. 29, 2009).
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    To qualify as a well-defined local community (``WDLC'') or as a 
rural district, the Board requires a proposed area to have ``specific 
geographic boundaries,'' \12\ and for residents within those boundaries 
to interact or share common interests that signify a cohesive 
community. Since 2010, the Board has offered two ``presumptive 
community'' options that by definition meet the statutory criteria of a 
WDLC. Each is based on uniform, objective geographic units. One is a 
``Single Political Jurisdiction . . . or any individual portion 
thereof'' (each an ``SPJ''), regardless of population.\13\ The other is 
a single Core Based Statistical Area (``CBSA'' or ``a statistical 
area,'' or a portion thereof) as designated by the U.S. Census Bureau 
(``Census''), or a Metropolitan Division within a CBSA, subject in 
either case to a 2.5 million population limit.\14\
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    \12\ Appendix B, Ch. 2, Sec.  V.A.2.
    \13\ Appendix B, Ch. 2, Sec.  V.A.2.
    \14\ Appendix B, Ch. 2, Sec.  V.A.2. According to the Census, 
``the term `core-based statistical area' became effective in 2003 
and refers collectively to metropolitan statistical areas and 
micropolitan statistical areas.'' https://www.census.gov/geo/reference/gtc/gtc_cbsa.html#md.
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    1. ``Core Based Statistical Area'' Population Limit. The existing 
2.5 million population limit that applies to a community consisting of 
a CBSA, or a Metropolitan Division or other portion within, conforms to 
the population threshold by which the Office of Management and Budget 
(``OMB'') designates Metropolitan Divisions

[[Page 88413]]

within a CBSA.\15\ The proposed rule retained the 2.5 million limit, 
but solicited public comment on whether to adjust it, to what amount, 
and for what specific reasons.
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    \15\ https://www.whitehouse.gov/sites/default/files/omb/bulletins/2015/15-01.pdf (at page 62).
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    The vast majority of commenters urged the Board to eliminate the 
population cap on statistical areas altogether because the Act does not 
mandate it. They maintained that an area's population is unrelated to 
what should be the paramount considerations in identifying a local 
community, namely, interaction or common interests among residents, and 
the FCU's ability and commitment to serve the area. The commenters also 
contended that, by imposing a population limit, the Board is 
substituting its judgment for Census data, by which CBSAs are 
designated without regard to population, and that population alone is 
not a source of undue risk to an FCU or to the National Credit Union 
Share Insurance Fund (``the Insurance Fund''). Finally, some commenters 
protested that a population cap on statistical areas puts FCUs at a 
competitive disadvantage compared to communities consisting of an SPJ, 
which are not limited by population.
    Some commenters advocated increasing the present cap from 2.5 
million to between 3.5 million and as much as 5 million, respectively, 
to ensure the long-term growth and viability of FCUs in general. Others 
urged increasing the population limit to match that of the most 
populous SPJ the Board has approved (Los Angeles County, CA, at 10 
million), or that of the nation's most populous Metropolitan 
Statistical Area (New York-Newark-Jersey City, NY-NJ-PA Metro Area at 
20 million). One commenter recommended linking the population limit to 
an appropriate index that would trigger periodic reevaluation and 
possible adjustment of the existing limit.
    In contrast, dozens of commenters criticized the existing 2.5 
million cap as being too high, urging that it be reduced. One insisted 
that the 2.5 million cap is not a credible ``indicator of common, 
close-knit interaction.'' Another predicted that an area as populous as 
10 million could qualify as a local community as long as its residents 
``interact in some way . . . within lines drawn by NCUA.'' Yet another 
criticized the Board for implying that the existing 2.5 million cap is 
too low only by comparison to the most populous SPJs the Board has 
approved (e.g., Los Angeles County, CA, and Harris County, TX).
    The Board finds considerable merit in commenters' suggestions to 
eliminate the population cap, increase the present population cap to a 
given amount, tie the cap to the population of a certain geographic 
unit, or administer any cap according to a framework of oversight and 
internal controls. Out of concern that the public should have notice 
and an opportunity to address such recommendations, as the 
Administrative Procedure Act requires,\16\ the Board has decided to 
make no change to the existing 2.5 million population cap at this time. 
Instead, the Board will issue a proposal soliciting public comment on 
alternatives to modify the cap, and an alternative to the ``presumptive 
community'' options to form a WDLC.
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    \16\ 5 U.S.C. 553(c).
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    2. ``Core Area'' Service Requirement. Since 2010, the Board has 
required a community consisting of a portion of a CBSA to include the 
CBSA's ``core area,'' \17\ defined in practice as the most populated 
county or named municipality in a CBSA's title. The Act itself does not 
mandate any such requirement for a community. The proposed rule 
repealed the ``core area'' service requirement in favor of relying on 
NCUA's practice of annually reviewing an FCU's business and marketing 
plans, for the first three years following approval of a community 
charter expansion or conversion, to assess whether the credit union is 
adequately serving the intended beneficiaries of the requirement--
namely low-income and underserved populations within an original or an 
expanded community.\18\
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    \17\ 75 FR 36257, 36260 (June 25, 2010).
    \18\ 80 FR at 76749.
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    The majority of commenters favored repeal of the ``core area'' 
service requirement, primarily because it is not mandated by the Act 
and thus unnecessarily imposes an additional constraint on who credit 
unions can serve. They further speculated that relief from an 
obligation to serve a ``core area'' will give FCUs the flexibility to 
adapt to the specific area each initially is able to reasonably and 
safely serve, allowing it to establish and maintain a ``marketplace 
footprint'' there. Other commenters criticized the ``core area'' 
service requirement for dividing an otherwise viable community or 
excluding portions that would enhance its viability; for causing an FCU 
to sacrifice service to other areas within the chosen portion of a 
CBSA; and as a disincentive to serve populated urban areas due to the 
additional cost and resources of serving a ``core area.''
    A few commenters suggested alternatives in lieu of applying a 
``core area'' service requirement to a portion of a CBSA. One is to 
permit an FCU to develop a presence, reputation and services to enable 
it to later expand into the ``core area'' of a CBSA. The other is to 
defer to the National Federation of Community Development Credit Unions 
and to the Community Development Financial Institutions Fund regarding 
how best to identify and to provide service to low-income and 
underserved populations.\19\
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    \19\ For Underserved Area purposes, the Act, at 12 U.S.C. 
1759(c)(2)(A)(i), relies on the Community Development Banking and 
Financial Institutions Act, id. Sec.  4702(16)(A), to define an 
``investment area,'' which, among other things, can consist of an 
``empowerment zone'' or ``enterprise community'' as defined by 26 
U.S.C. 1391.
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    In contrast, bank-affiliated commenters generally favored retaining 
the ``core area'' service requirement. One predicted that its absence 
would effectively permit ``redlining'' through formation of a community 
primarily consisting of wealthier areas within a CBSA, while excluding 
areas where low-income and minority populations are concentrated. 
Another urged the Board to retain the ``core area'' service requirement 
given that, unless expressly required by state law, credit unions 
typically are not subject to the Community Reinvestment Act, which 
requires financial institutions other than credit unions to publicly 
document service to people of modest means.\20\
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    \20\ 12 U.S.C. 2902(2)
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    What critics of repealing the ``core area'' service requirement 
overlook is that NCUA has in place a supervisory process to assess 
management's efforts to offer service to the entire community an FCU 
seeks to serve. NCUA holds credit union management accountable for the 
results of an annual evaluation that encompasses a community FCU's 
implementation of its business and marketing plans,\21\ extending for 
three years after the credit union either is chartered, converts or 
expands. Experience confirms that the agency's evaluations are a more 
effective means of ensuring that the low-income and underserved 
populations are fairly served compared to the rest of the community, in 
contrast to a requirement forcing a credit union to serve the ``core 
area'' of the portion of a CBSA that comprises its community. The Board 
considered extending this review period to five years, but has declined 
to do so,

[[Page 88414]]

believing that three years is sufficient time to gauge a credit union's 
commitment to serve an original or expanded area, and that the 
additional two years of projections would be too stale to be probative.
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    \21\ The results of an annual evaluation of an FCU's 
implementation of its business and marketing plans typically would 
be reflected in the ``findings'' or ``overview'' sections of an 
examination report, or in a ``Document of Resolution'' issued 
following an examination.
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    Another relevant part of the supervisory process is the agency's 
mandate to consider member complaints alleging discriminatory practices 
affecting low-income and underserved populations, such as redlining, 
and to respond as necessary when such practices are shown to exist.
    Having considered the comments addressing repeal of the ``core 
area'' service requirement, and because it is not a requirement 
mandated by the Act, the Board has decided to repeal it in view of 
credit unions' success in providing financial services to low-income 
and underserved populations without regard to where they are located 
within a community, i.e., beyond its ``core area.'' This assessment is 
based on the periodic evaluations, overseen or conducted by the Office 
of Consumer Protection since 2010, of FCUs' implementation of their 
business and marketing plans.\22\ In place of the ``core area'' service 
requirement, the final rule requires NCUA to continue these evaluations 
to ensure fair and adequate service to the low-income and underserved 
populations within a community consisting of a portion of a CBSA.
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    \22\ For communities with a population of less than 1 million, 
NCUA regional offices conduct the review of business and marketing 
plans to assess an FCU's service to the community as a whole, 
including low-income and underserved populations within. They report 
the results to the Office of Consumer Protection semi-annually. For 
communities with a population of 1 million or greater, the Office of 
Consumer Protection itself conducts the review and assessment.
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    3. Population Limit as Applied to a Portion of a ``Core Based 
Statistical Area''. The existing rule disqualifies a portion of a CBSA 
as a WDLC when the population of the CBSA as a whole exceeds the 2.5 
million population cap, even when the population of the portion by 
itself does not exceed that limit--an unintended consequence.\23\ To 
correct this oversight, the proposed rule modified the ``statistical 
area'' definition to specify that in the case of a community consisting 
of a portion of either a CBSA or a Metropolitan Division within, the 
portion by itself must have a population of 2.5 million or fewer, 
regardless whether the CBSA or Metropolitan Division as a whole exceeds 
the limit.
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    \23\ Appendix B, Ch. 2, Sec.  V.A.2. (``statistical area'' 
definition).
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    The majority of commenters supported this technical remedy in order 
to prevent the unintended disqualification of a portion of a CBSA that 
falls within the population cap solely because the CBSA as a whole 
exceeds it. In that event, an FCU would have no recourse but to serve 
an area smaller than the portion it seeks to serve (e.g., an SPJ 
consisting of a city or town). Although many commenters opposed the 
existing 2.5 million population cap as excessive, none opposed this 
proposal to narrowly apply the cap exclusively to the portion of a CBSA 
that an FCU designates as its community.
    Having considered the comments addressing this proposal, the Board 
considers it an appropriate remedial initiative to limit to the 
population cap adopted in the final rule the portion of a CBSA a credit 
union seeks to serve.
    4. ``Combined Statistical Area'' as a Well-Defined Local Community. 
The existing rule designates two ``presumptive communities'' that by 
definition qualify as a WDLC--an SPJ regardless of population, and a 
CBSA subject to a 2.5 million population limit.\24\ The proposed rule 
added a third ``presumptive community'': A Combined Statistical Area as 
designated by OMB,\25\ subject to the same population limit. The 174 
Combined Statistical Areas that OMB has designated each combine ``two 
or more adjacent CBSAs that have substantial employment interchange.'' 
\26\ As with any community an FCU seeks to serve, a Combined 
Statistical Area would be subject to NCUA's practice of periodically 
reviewing the FCU's implementation of its business and marketing plans 
to assess its capability of, and success in, serving its original or 
previously expanded community.
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    \24\ 75 FR 36257 (June 25, 2010).
    \25\ OMB Bulletin No. 15-01 to Heads of Executive Departments 
and Establishments (July 15, 2015) at: https://www.whitehouse.gov/sites/default/files/omb/bulletins/2015/1-01.pdf.
    \26\ U.S. Census Bureau, Geographic Terms and Concepts, at: 
https://www.census.gov/geo/reference/gtc/gtc_cbsa.html#md.
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    Scores of commenters supported the proposal to recognize Combined 
Statistical Areas as ``presumptive communities,'' concurring that OMB's 
approach in designating Combined Statistical Areas is consistent with 
NCUA's long-standing consideration of factors such as employment, 
commuting patterns and economic interaction to identify a WDLC. These 
commenters further contended that Combined Statistical Areas are 
appropriate ``presumptive communities'' according to social and 
economic integration among residents within them, apart from strict 
population and density numbers, because Combined Statistical Areas 
represent the same ``commonality of substantial employment 
interchange'' that an individual CBSA's residents must have.
    In addition, commenters cited certain benefits of recognizing 
Combined Statistical Areas as ``presumptive communities.'' One is the 
flexibility to serve multiple counties located within a single Combined 
Statistical Area, or to expand a community beyond an individual CBSA's 
boundaries. Another is the opportunity for an FCU serving a single CBSA 
with a population less than 2.5 million to further expand in scope up 
to that limit. Another benefit is the addition of Combined Statistical 
Areas to the menu of safe and sound strategic options for an FCU to 
grow and survive once it reaches a saturation level within its present 
FOM.
    Finally, one commenter supported the recognition of Combined 
Statistical Areas as ``presumptive'' communities as a ``welcomed change 
that is obviously within the confines [of the Act].'' Another cited an 
OMB pronouncement in support of Government agency use of Metropolitan 
and Micropolitan Statistical Area or Combined Statistical Area 
delineations to develop a non-statistical program, as long as the 
agency seeks public comment on the proposed use \27\--as the Board did 
in this rulemaking through the proposed rule.
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    \27\ OMB Bulletin No. 15-01 supra note 24.
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    Bank trade associations opposed recognizing Combined Statistical 
Areas as ``presumptive communities.'' One criticized the proposal as 
exceeding the reasonable definition of ``local.'' Others contended that 
a Combined Statistical Area necessarily is too expansive to be 
``local'' because it ``represents larger regions'' that can encompass 
thousands of square miles crossing county and state borders. One 
opponent predicted that Combined Statistical Areas would be used to 
create state-wide FOMs, believing that this was not what Congress 
intended. Another claimed that Congress sought to impose narrow limits 
on areas a community credit union serves.
    These commenters overlook certain facts that contradict the notion 
that a Combined Statistical Area is too expansive to be ``local.'' 
First, of the 174 designated Combined Statistical Areas, the 22 largest 
would not qualify as a WDLC because each, as a whole, exceeds the 2.5 
million population cap. Second, the average geographic size among the 
152 Combined Statistical Areas that would each qualify as a WDLC, at 
4553 square miles, is comparable to the average geographic

[[Page 88415]]

size among the 243 individual CBSAs the Board has approved since 2010, 
at 4572 square miles.
    Having considered the comments addressing the proposal to recognize 
a Combined Statistical Areas as a ``presumptive community,'' the Board 
adopts the proposal given that a Combined Statistical Area simply 
unifies, as a single community, two or more contiguous CBSAs that each 
independently meet the existing rule's definition of a ``statistical 
area'' that presumptively qualifies as a WDLC. Accordingly, subject to 
the existing 2.5 million population limit for a CBSA, the rule adds to 
the ``statistical area'' definition ``all or an individual portion of . 
. . a Combined Statistical Area designated by the U.S. Office of 
Management and Budget.'' \28\
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    \28\ Appendix B, Ch. 2, Sec.  V.A.2.
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    5. Addition of an Adjacent Area to a Well-Defined Local Community. 
The existing rule does not, for general use, give credit unions the 
option to submit a narrative, supported by objective documentation, 
that an FCU contends will demonstrate common interests or interaction 
among residents of a proposed community (the ``narrative model'').\29\ 
The proposed rule allows credit unions to once again use a narrative 
approach supported by objective documentation to demonstrate that an 
area adjacent to a community consisting of an SPJ, a CBSA or a Combined 
Statistical Area qualifies as part of that local community. The credit 
union, using objective documentation, must demonstrate that the 
adjacent area is logically part of a WDLC that includes an SPJ, CBSA, 
or Combined Statistical Area due to common interests or interaction 
among residents on both sides of the perimeter. The expanded community 
still is subject to the applicable population limit. Any FCU has the 
option of pursuing a community charter that combines an adjacent area 
with all or a portion of an SPJ, CBSA or Combined Statistical Area. To 
support such an expansion, an FCU with a proven track record in serving 
an existing FOM may be permitted to use an agency-prescribed set of 
relaxed business plan requirements, as set forth in the final rule.\30\ 
However, a credit union without an established track record of serving 
a community, such as a credit union converting to a community charter, 
will need to provide a full business and marketing plan.
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    \29\ In 2010, the Board abandoned the narrative model in favor 
of giving credit unions an option among ``presumptive communities'' 
that each by definition qualifies as a WDLC. 75 FR 36257, 36260 
(June 25, 2010).
    \30\ 80 FR at 76750; Appendix B, Ch. 2, Sec.  V.B.
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    Most credit union-affiliated commenters supported the proposal to 
permit a community credit union to add an adjacent area upon narrative 
proof of common interests or interaction among residents of the 
expanded community. They recommended that option as a logical advance 
in business development because it would allow an FCU to add an 
adjacent area without requiring it to discontinue serving its existing 
community. However, several commenters opposed the requirement that an 
FCU must support its application to add an adjacent area with a 
business plan demonstrating its post-expansion commitment and ability 
to serve the entire community.
    Bank trade associations opposed the concept of permitting adjacent 
area additions to a community, regardless how common interests or 
interaction among residents is demonstrated, and in a few cases opposed 
it conditionally. Without specifying a substantive or procedural 
objection, some commenters asserted that the Board lacks statutory 
authority to implement the proposal. Another contended that, due to the 
breadth and scope of the banking industry, the adjacent areas the 
proposal addresses do not lack sufficient access to financial services. 
Still another complained that approval of an adjacent area addition on 
the basis of NCUA's qualitative assessment of a narrative would render 
the process non-transparent.
    Two critical commenters conditioned their opposition to the 
proposal to allow adjacent area additions on certain modifications. The 
first would be to require the Board develop a complete record 
confirming that the proposed adjacent area meets six interaction or 
common interest characteristics among its residents, rather than 
accepting on its face the supporting information the credit union 
provides. The second would be, in each case, to require the Board to 
then publish a notice in the Federal Register inviting public comment 
on whether the proposed adjacent area is a WDLC.
    The Act gives the Board broad discretion to define a WDLC for 
purposes of ``making any determination'' regarding a community credit 
union,\31\ and to establish criteria to apply to any such 
determination.\32\ Under that authority, the Board proposed a set of 
criteria that a narrative should address, and which NCUA staff would 
consider in evaluating an application to add an adjacent area to an 
existing community.\33\ In contrast, the Act did not require NCUA to 
effectively subject each such application to a referendum by means of 
notice and an opportunity for the public to comment. In that event, the 
volume of community charter, conversion and expansion applications the 
agency's staff receives each year (an annual average of eighty-seven 
since 2010) would make it impracticable to seek public comment on each 
proposed adjacent area addition, and would needlessly consume agency 
resources. Further, a notice and opportunity to comment on each 
application, followed by agency review of the comments, would delay 
credit union service to the residents of the adjacent area in each 
case.
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    \31\ 12 U.S.C. 1759(g)(1)(A) (emphasis added).
    \32\ Id. Sec.  1759(g)(1)(B).
    \33\ 80 FR at 76772 (referring to the presence of an economic 
hub, quasi-governmental agencies, Government designated programs, 
shared public services and facilities, and colleges and 
universities).
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    Having considered the comments addressing the proposal to permit an 
adjacent area addition to a community and, for that limited purpose, to 
accept narrative proof of common interests and interaction among 
residents, the Board has decided to adopt the proposal in the final 
rule.\34\ In addition, the Office of Consumer Protection, or its 
successor, will separately issue guidance on the criteria introduced in 
the proposed rule that a narrative should address to support the 
addition of an adjacent area, and which the Board will consider in 
deciding an FCU's application to do so. The guidance may specify a 
certain number of criteria that, if met, would presumptively qualify an 
adjacent area for approval.
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    \34\ Appendix B, Ch. 2, Sec.  V.A.2.
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    6. Individual Congressional District as a Well-Defined Local 
Community. Although not prohibited by statute, since 1999 the Board has 
maintained that Congressional districts and whole states do not qualify 
as a WDLC, even though both are well-defined.\35\ In the December 2015 
proposed rule, the Board reconsidered its policy and, as a result, 
proposed to recognize an individual Congressional district as a SPJ, 
thus qualifying each as a ``presumptive community'' without regard to 
population.\36\ As with any other community charter application, the 
proposal required an FCU to support its application to serve a 
Congressional district with a business and marketing plan demonstrating 
its ability and

[[Page 88416]]

commitment to serve the entire community.
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    \35\ 63 FR 72012, 72013, 72037 (Dec. 30, 1998); Appendix B, Ch. 
2, Sec.  V.A.2. See also 75 FR at 36258 (affirming that entire state 
is not acceptable as WDLC).
    \36\ Appendix B, Ch. 2, Sec.  V.A.1.
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    At least a thousand credit union-affiliated commenters supported 
the proposal to recognize Congressional districts as SPJs; only one 
opposed it.\37\ The supporters emphasized that the Act never restricted 
Congressional districts from qualifying as a WDLC, thus giving the 
Board latitude to reconsider its original policy disqualifying them. 
One commenter characterized Congressional districts as the ``ultimate 
political jurisdictions'' because their average population of about 
710,000 is far less than that of many SPJs, and less than the 
population threshold by which OMB may divide a CBSA into Metropolitan 
Divisions (2.5 million). Another suggested that a community consisting 
of an individual Congressional district should be allowed to encompass 
a certain radius of miles beyond the district's boundaries. In 
contrast, hundreds of bank-affiliated commenters opposed recognition of 
individual Congressional districts as SPJs.
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    \37\ The single credit union-affiliated opponent alleged a lack 
of ``commonality'' among residents of a Congressional district 
because it is ``skewed for political reasons to enable election of a 
certain party's candidates.''
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    The Board has considered the comments addressing the proposal to 
recognize an individual Congressional district as a ``presumptive 
community.'' Notwithstanding certain merits of the proposal, the Board 
has decided to defer action on it at this time, consistent with an 
incremental approach to introducing, and permitting credit unions to 
acclimate to, other significant community common bond enhancements 
adopted in the final rule (e.g., Combined Statistical Areas, adjacent 
area additions, and an increased population limit and a new multi-state 
expansion limit on Rural Districts). As a result, the final rule does 
not designate an individual Congressional district as a ``presumptive 
community.''
    7. Commenters' Recommendations in Response to the Proposed Rule. 
Several commenters initiated community common bond recommendations that 
the Board did not propose. The first commenter-initiated recommendation 
was that the Board accept as a ``presumptive community'' (in addition 
to CBSA and SPJ that the existing rule permits) any ``Federal, state or 
other statistical model'' an FCU chooses to designate as its community. 
The second recommendation was that the Board extend membership 
eligibility to non-profit organizations that provide services to the 
community a credit union serves, regardless whether the organization is 
headquartered or located there (as the existing rule requires). The 
third recommendation was that the Board accept for general use a 
narrative to demonstrate interaction or common interests among 
residents to support any application to charter, expand or to convert 
to a community credit union (not just in support of an adjacent area 
addition, as the final rule provides). The fourth recommendation was 
that the Board, by regulation, permit a multiple common bond credit 
union that converts to a community charter to add and serve new members 
from its pre- conversion select employee groups (``SEGs'') now located 
outside its community boundaries. This proposal would interpret the 
Act's ``grandfathered members and groups'' exception \38\ to permit 
what would effectively be a ``once a SEG, always a SEG regardless of 
common bond'' policy allowing a multiple common bond credit union to 
retain those outside SEGs after it converts to a community charter.
---------------------------------------------------------------------------

    \38\ The ``grandfathered members and groups'' exception provides 
that ``Notwithstanding [section 1759(b)]--(i) any person or 
organization that is a member of any Federal credit union as of 
August 7, 1998, may remain a member of the credit union after August 
7, 1998; and (ii) a member of any group whose members constituted a 
portion of the membership of any Federal credit union as of August 
7, 1998, shall continue to be eligible to become a member of that 
credit union, by virtue of membership in that group, after August 7, 
1998.'' 12 U.S.C. 1759(c)(1)(A).
---------------------------------------------------------------------------

    The Administrative Procedure Act (``APA'') prohibits the Board from 
adopting these four recommendations in the final rule because the 
proposed rule did not introduce them for public comment, thus not 
``provid[ing] sufficient factual detail and rationale for the rule to 
permit interested parties to comment meaningfully.'' \39\ Nor is any of 
the four recommendations a logical outgrowth of a proposal that was 
introduced for public comment in the December 2015 proposed rule. As a 
result, the public was not given reasonable notice and an opportunity 
to address these commenters' recommendations.
---------------------------------------------------------------------------

    \39\ 5 U.S.C. 553(b)(3), 706(2)(A); United States Telecom Ass'n 
v. Federal Communications Commission, 2016 WL 3251234 (slip op. page 
10); CSX Transp., Inc. v. Surface Transp. Bd., 584 F.3d 1076 (D.C. 
Cir. 2009); Ass'n of Private Sector Colleges and Univ. v. Duncan, 
681 F.3d 427 (D.C. Cir. 2012).
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B. Rural District Definition

    The Act does not mandate a population limit for a Rural District. 
However, to qualify as a Rural District, the existing rule restricts 
the area's total population to the greater of either 250,000 people or 
3 percent of the population of the state in which the majority of the 
proposed Rural District's residents would be located.\40\ In addition, 
either at least 50 percent of the proposed Rural District's population 
must reside in geographic units the Census designates as ``rural,'' or 
the proposed Rural District's population density cannot exceed 100 
persons per square mile.\41\
---------------------------------------------------------------------------

    \40\ Appendix B, Ch. 2, Sec.  V.A.2.
    \41\ Id.
---------------------------------------------------------------------------

    1. Population Limit. The proposed rule modified the present Rural 
District definition to increase the population limit from 250,000 to 1 
million persons to ensure that the population of a Rural District is 
sufficient to provide a level of operating efficiencies and scale that 
would make the area attractive as a strategic option, and to facilitate 
credit unions' statutory responsibility to provide consumers, including 
persons of modest means who may reside in rural areas, with access to 
our national system of cooperative credit. The proposed rule also 
omitted as redundant the alternative population limitation of 3 percent 
of the population of the state in which the majority of the Rural 
District's residents would be located.
    Nearly all of the credit union-affiliated commenters who addressed 
the proposed population increase to 1 million supported it, provided 
the Board does not eliminate the population cap on Rural Districts 
altogether. They dismissed the cap as superfluous in view of other 
qualifying criteria--the existing minimum population density and 
``rural'' designation options and, if it were adopted, the multi-state 
expansion limit. They further contend that the characteristics of a 
Rural District do not change much as its population fluctuates. 
Conversely, one commenter conditioned its support for a 1 million 
population cap on elimination of the population density criterion, 
arguing that (at 100 persons per square mile) it is unduly low in any 
case.
    Others believed that the sole criterion to qualify as a Rural 
District should be a credit union's ability to serve the area, as 
demonstrated by business and marketing plans, including via online 
services to members. To expand a Rural District, these commenters urged 
that the decisive factor should be evidence of the contiguous area's 
economic and social ties to the pre-expansion Rural District. One 
commenter suggested permitting an area to qualify as a Rural District 
so long as the Census does not classify it as either an ``urban area'' 
or

[[Page 88417]]

an ``urban cluster.'' \42\ Instead of relying on ``rural'' versus 
``urban'' distinctions, another commenter urged the Board to treat a 
Rural District the same as the final rule treats an adjacent area 
addition to a community, i.e., allow the use of a narrative to 
demonstrate interaction and common interests among proposed Rural 
District residents.
---------------------------------------------------------------------------

    \42\ For Census identification of ``urban areas'' and ``urban 
clusters,'' see https://www.census.gov/geo/reference/ua/urban-rural-2010.html.
---------------------------------------------------------------------------

    Apart from the preference to eliminate the Rural District 
population cap, several commenters predicted that a 1 million 
population cap would open up consumer choice for a cooperative form of 
financial institution, helping credit unions to serve the low wage 
workers who dominate certain rural markets. Others emphasized the 
difficulty of delineating the borders of a Rural District versus an 
urban community, due to scattered population hubs and widely dispersed 
individuals and businesses, and urged the Board to modify its rules to 
facilitate credit union service to those areas.
    Six bank-affiliated trade associations objected to the proposal 
because it quadrupled the Rural District population cap. These 
commenters stated that the proposal was an unreasonable interpretation 
of the statutory terms ``rural'' and ``local.'' They expressed concern 
that credit unions will exploit the increased population cap to combine 
densely populated and thinly populated areas into a single area to meet 
the population density limit, and to create state-wide fields of 
membership.
    To limit Rural District expansions, one commenter urged NCUA to 
require the majority of persons within a proposed Rural District to 
reside in geographic units the Census designates as ``rural.'' Another 
commenter opposed the use of similar Consumer Financial Protection 
Bureau (``CFPB'') designations of ``rural'' counties, which would 
qualify approximately 3 out of 4 counties in the commenter's state for 
a Rural District expansion, believing that such a result would exceed a 
reasonable interpretation of ``local'' and ``rural.'' On the assumption 
that the Act requires a Rural District to be ``local,'' a commenter 
maintained that ``a Rural District encompassing a large region 
inherently would lack interaction or common interests among residents 
and thus inconsistent with the Act.''
    These views rely on a pair of misconceptions: That ``local'' as 
used in section 1759(b) and (g) modifies ``rural district,'' when in 
fact it does not; and that a ``local'' area and a ``rural'' area 
necessarily share similar characteristics, which they inherently do 
not. In any case, a Rural District by its very nature typically covers 
an area that is too large to be considered ``local.''
    As the proposed rule explained, a Rural District must have a 
population sufficient to enable it to provide a level of operating 
efficiencies and scale that will make it attractive to credit unions as 
a strategic option. In that regard, a commenter questioned why a 
population of 1 million is needed to achieve that objective when, 
according to the commenter, community banks manage to serve far fewer 
than 1 million people located in rural areas. Another commenter 
expressed concern that NCUA will exploit the need for ``operating 
efficiencies'' to raise the Rural District population cap beyond 1 
million.
    Having considered the comments addressing the Rural District 
population cap, the Board has decided to set the rural district 
population cap at 1 million, as proposed. The Board believes this 
higher limit will achieve a ``balance . . . between permitting rural 
districts to be large enough to be economically viable but not 
unreasonably large taking into account the purpose of the rural 
district,'' \43\ and will bring affordable financial services to 
portions of the country that would not otherwise meet the requirements 
of a WDLC.
---------------------------------------------------------------------------

    \43\ 78 FR 13460, 13462 (Feb. 28, 2013).
---------------------------------------------------------------------------

    A higher population cap is supported by the Board's experience 
since 2013 with eight credit unions, in four different states, serving 
Rural Districts with an average population of 536,646.\44\ The ability 
of these credit unions to bring affordable financial services to more 
populated areas has convinced the Board that a population cap should 
permit additional growth opportunities in rural areas. These 
opportunities would assist credit unions located in areas where 
residents are unable to readily interact or share common interests to 
support a WDLC--which is subject to a much higher population cap--even 
though these residents need access to affordable financial services.
---------------------------------------------------------------------------

    \44\ Each of these eight Rural Districts was approved under the 
existing rule despite a population in excess of 250,000 because, in 
each case, its population was less than 3 percent of the population 
of the state in which the majority of the Rural District's residents 
were located.
---------------------------------------------------------------------------

    The existing rule provides an alternative population limit of 3 
percent of the population of the state in which a majority of a rural 
districts residents are located. Under that alternative, the Board has 
approved 8 rural districts above the general population limit of 
250,000. Moreover, that alternative already allows a rural district 
with a population of at least 1 million in one state, and of at least 
800,000 in another. Having set a 1 million precedent in one state, the 
purpose of the alternative limit also justifies a fixed 1 million 
population cap for the other 49 states--a high enough cap to 
accommodate not only the hub area within a rural district, but also the 
surrounding population of potential members, to support the rural 
district's economic viability.
    In view of this objective, a 1 million cap is appropriate because 
it strikes an appropriate balance between economic viability and an 
excessive population. It also leaves credit unions that already serve a 
Rural District, as well as those that would consider doing so, 
sufficient flexibility going forward to maintain economic viability and 
to maximize penetration of the potential membership base.
    Most importantly, an increased cap will enhance consumer access to 
our national system of cooperative credit, particularly those of modest 
means in rural areas, who may otherwise lack access to a not-for-profit 
cooperative credit union. In this regard, the Board finds it compelling 
that in 97 percent of non-metropolitan counties, more than 50 percent 
of the population is either low, moderate, or middle income.\45\ 
Accordingly, the final rule increases the Rural District population cap 
to 1 million, while still requiring credit unions to demonstrate an 
intent and ability to serve the entire area.
---------------------------------------------------------------------------

    \45\ https://www.ffiec.gov/geocode/help3.aspx
---------------------------------------------------------------------------

    Bank-associated commenters speculated that larger regions would 
lack interaction or common interests among their residents. What these 
commenters overlook is that these defining characteristics of a WDLC do 
not apply to a Rural District. Rather, primarily due to the sparsely 
distributed population in rural areas,\46\ the defining characteristic 
of a Rural District necessarily is population density.
---------------------------------------------------------------------------

    \46\ 74 FR 68722, 68723 (December 29, 2009).
---------------------------------------------------------------------------

    The Board believes that increasing the population limit on rural 
districts is warranted by the contemporary economic realities of 
serving sparsely populated areas. The penetration rate among community 
charters typically is five percent. As a result, for a credit union 
serving a rural district to thrive, a sufficiently large population 
base is essential to enable it to offer financial services 
economically. Although some commenters believe that the higher limit 
would give credit unions an unfair

[[Page 88418]]

competitive advantage, the reality is that credit unions in rural 
districts are subject to restrictions on who they may serve, unlike 
other types of financial institutions. The Board believes that the 
objective of expanding opportunities for credit unions to serve more 
consumers in rural areas outweighs any perceived impact on competition. 
The Board's concern about excessive expansion of rural districts is 
addressed below.
    2. Multi-State Expansion Limit. The existing rule permits the 
expansion of a Rural District beyond the boundaries of the state in 
which the FCU maintains its headquarters. To achieve consistency with 
Census recognition of expansive rural areas while appropriately 
limiting multi- state expansion, the proposed rule revised the present 
Rural District definition (population limit plus either sparse 
population density or a ``rural'' designation) to confine a Rural 
District's expansion to the boundaries of the states that are 
immediately contiguous to the state in which the FCU approved to serve 
the Rural District is headquartered (i.e., not to exceed the outer 
perimeter of the layer of states immediately bordering the headquarters 
state).
    Relatively few commenters addressed the proposed multi-state 
expansion limit. Some of the credit union-affiliated commenters opposed 
the multi-state expansion limit as redundant, suggesting that it should 
be eliminated in view of the population cap, which would function as an 
appropriate check on overexpansion. Conversely, others advocated 
retaining the multi-state expansion limit, provided the population cap 
on Rural Districts is eliminated. One commenter urged that the sole 
criterion for approving a Rural District should be the credit union's 
ability to serve an area lacking in access to credit union service, 
including by technological means. The few bank commenters who addressed 
the proposed multi-state expansion limit opposed the concept of multi-
state Rural Districts altogether, dismissing it as a means to 
effectively allow state-wide and multi-state FOMs.
    In contrast to these comments, the Board's purpose is to have dual 
limitations that each serve a unique purpose--one on population, the 
other on geographic area size. Therefore, having considered the 
comments addressing the proposed multi-state limit on Rural District 
expansions, the Board has decided to adopt it without alteration in the 
final rule. Accordingly, the final rule provides that, to qualify as a 
Rural District, an area's boundaries must ``not exceed the outer 
boundaries of the states that are immediately contiguous to the state 
in which the credit union maintains its headquarters (i.e., not to 
exceed the outer perimeter of the layer of states immediately 
surrounding the headquarters state).'' \47\
---------------------------------------------------------------------------

    \47\ Appendix B, Ch. 2, Sec.  V.A.2.
---------------------------------------------------------------------------

C. Underserved Areas

    The Act authorizes the Board to allow multiple common bond credit 
unions to serve members residing in an ``underserved area,'' provided 
the FCU establishes and maintains a facility ``in'' the area.\48\ To 
qualify as ``underserved,'' an area must, among other criteria, be 
``underserved . . . by other depository institutions . . ., based on 
data of the Board and the Federal banking agencies.'' \49\ In the 
absence of a specific test or criteria to assess such ``underservice,'' 
the Board developed a ``concentration of facilities ratio'' (``COF 
ratio'') \50\ that it has relied upon to determine whether a proposed 
area is underserved by other depository institutions.
---------------------------------------------------------------------------

    \48\ 12 U.S.C. 1759(c)(2).
    \49\ Id. Sec.  1759(c)(2)(A) citing id. Sec.  461(b)(1)(A). The 
Act relies on the Community Development Banking and Financial 
Institutions Act to define ``depository institution.'' Id. Sec.  
4702(16). By definition, a ``depository institution'' is insured and 
includes credit unions. Id. Sec.  461(b)(1)(A)(iv).
    \50\ 73 FR 73392 (Dec. 2, 2008). Using census tracts as the unit 
of measure, the concentration of facilities ratio compares the 
concentration of depository institution facilities among the 
population within the non-``distressed'' portions of the proposed 
area against the concentration of such facilities among the 
population of the area as a whole. 73 FR at 73396. Appendix B, Ch.3, 
Sec.  III.B.3. An area qualifies as underserved by other depository 
institutions when the concentration of facilities ratio within its 
non-``distressed'' census tracts exceeds the concentration of 
facilities ratio within the census tracts of the area as a whole.
---------------------------------------------------------------------------

    1. Exclusion of Non-Depository Institutions and Non-Community 
Credit Unions from Concentration of Facilities Ratio. To prevent 
dilution and distortion of the COF ratio, as well as to strictly adhere 
to the letter and the spirit of the ``depository institutions'' 
definition,\51\ the proposed rule excluded non-depository banks (e.g., 
trust companies, which do not accept deposits from the general public) 
\52\ and non-community credit unions (e.g., multiple common bond credit 
unions other than those already serving an Underserved Area) from the 
COF ratio. By definition or in practice, neither is capable of serving 
the general public of a proposed Underserved Area.
---------------------------------------------------------------------------

    \51\ 12 U.S.C. 461(b)(1)(A).
    \52\ As identified in FDIC's ``Summary of Deposits Survey,'' 
e.g., https://www.fdic.gov/news/news/financial/2015/fil15024.pdf.
---------------------------------------------------------------------------

    Of the commenters who specifically addressed the proposed non-
depository bank and non-community credit union exclusions from the COF 
ratio, most opposed the COF concept altogether, denouncing it as: 
Flawed, unduly cumbersome and incapable of producing a meaningful 
analysis; the cause of unnecessary disapprovals; and a disincentive to 
serve an Underserved Area.\53\ However, assuming the Board would retain 
the COF ratio, 41 credit union-affiliated commenters supported both 
exclusions.
---------------------------------------------------------------------------

    \53\ As the Board explained when it proposed the COF ratio: 
``CUMAA did not specify a methodology for determining whether a 
proposed area meets the `underserved . . . by other depository 
institutions' test; instead, it broadly refers to unspecified `data 
of the [NCUA] Board and the Federal banking agencies.' 12 U.S.C. 
1759(c)(2)(A)(ii). In the decade since CUMAA, raw data has 
accumulated within government on branch locations and the volume of 
business in certain products and services, but meaningful and 
reliable data on these points has only recently become readily 
accessible. This data makes it possible to quantify and compare the 
presence of financial institution facilities in a given area. The 
proposed rule suggests [the COF ratio as] a flexible methodology 
that relies on publicly available population data and data on the 
location of financial institution branches.'' 73 FR 34366, 34369 
(June 17, 2008). See also 73 FR 73392, 73396 (Dec. 2, 2008).
---------------------------------------------------------------------------

    Other commenters urge that once a Government agency designates an 
area as ``underserved,'' the Board should not require the FCU to also 
demonstrate that the area is ``underserved by other depository 
institutions'' (even though the Act mandates exactly that); should 
disregard the number of depository institutions already serving the 
area (even though the Act mandates the opposite); and should exempt 
underserved areas from the population cap that applies to a CBSA. These 
commenters maintained that greater flexibility concerning Underserved 
Area criteria would reduce burden--presently a disincentive for credit 
unions to expand service to an Underserved Area. However, these 
commenters overlooked the Act's explicit requirement that an area be 
``underserved by other depository institutions'' \54\ regardless of the 
other statutory criteria, in order to qualify as an Underserved Area.
---------------------------------------------------------------------------

    \54\ 12 U.S.C. 1759(c)(2)(A)(ii).
---------------------------------------------------------------------------

    One commenter asked the Board to clarify how shared branches would 
count to determine whether an area is ``underserved by other depository 
institutions'' (i.e., whether each shared branch participant counts as 
an individual depository institution, or the shared branch as a whole 
counts as a single depository institution regardless of the number of 
participating institutions). As an incentive to serve Underserved 
Areas, another commenter asked the Board to develop and make public a 
list of Underserved Areas that qualify under the applicable criteria 
(effectively pre-approving them) in

[[Page 88419]]

order to conserve the resources credit unions otherwise must devote to 
identifying Underserved Areas.
    Although many bank-affiliated commenters opposed the concept of the 
COF ratio altogether, one supported the proposed exclusions. Having 
considered the comments addressing the proposed exclusions from the COF 
ratio, the Board considers the proposal an appropriate improvement and, 
therefore, implements both exclusions in the final rule.
    2. Alternatives to Identify Areas ``Underserved by Other Depository 
Institutions.'' As alternatives to using the COF ratio to assess 
whether a proposed area is underserved by other depository 
institutions, the proposed rule permitted use of ``underserved county'' 
designations by the CFPB,\55\ as well as a metric of a credit union's 
own choosing provided it is based on NCUA or other Federal banking 
agency data.\56\ In addition, the proposed rule invited commenters to 
identify other methodologies and Federal banking agency data that would 
be useful to objectively determine whether an area is ``underserved by 
other depository institutions.''
---------------------------------------------------------------------------

    \55\ CFPB's annual ``Rural or underserved counties list'' does 
not segregate ``rural'' and ``underserved'' counties. Therefore, 
NCUA will use the data collected by CFPB to produce and make 
available a list that identifies ``underserved areas'' exclusively.
    \56\ E.g., FDIC ``Summary of Deposits Survey,'' supra note 51.
---------------------------------------------------------------------------

    Credit union-affiliated commenters suggested various metrics to use 
in addition to, or instead of, the COF ratio to assess the existing 
level of service by depository institutions already present in a 
proposed Underserved Area. These included the CFPB's ``underserved'' 
county designations, and Home Mortgage Disclosure Act (``HMDA'') data 
indicating the number of depository institutions that meet a minimum 
ratio of mortgage loans extended to residents within an area versus 
borrowers from outside, and to persons below a certain credit score 
limit. In many cases, the suggested metric is generic because the 
commenter did not specify the data the metric would rely on and/or the 
source of the data.\57\ A single bank commenter opposed the use of 
alternative metrics altogether, finding it inappropriate to allow 
credit unions to rely on a metric of their own choosing.
---------------------------------------------------------------------------

    \57\ E.g., U.S. Department of Agriculture data; Pew Research 
Center reports; changes in an area's characteristics between 
decennial Censuses; local economic factors; local poverty rates; 
local unemployment rate; local median family income; and reports and 
surveys an applicant credit union itself develops.
---------------------------------------------------------------------------

    Having considered the comments suggesting alternative metrics to 
determine whether a proposed area is underserved by other depository 
institutions, the Board has decided to accept the CFPB's ``underserved 
county'' designations as a proxy for a determination of 
``underservice.'' The Board also will consider an FCU-chosen metric, 
provided it is based on NCUA or Federal banking agency data. An example 
of such a metric would be relevant data from the publicly available 
reports of Community Reinvestment Act examinations conducted by the 
Federal Deposit Insurance Corporation (``FDIC''), the Office of the 
Comptroller of the Currency or the Board of Governors of the Federal 
Reserve System, or from HMDA data collected by these agencies.\58\
---------------------------------------------------------------------------

    \58\ 12 U.S.C. 2902(2)
---------------------------------------------------------------------------

    Accordingly, the final rule provides that ``a proposed area will 
qualify as `underserved by other depository institutions' if it is 
designated as, or is within, an `underserved county' according to data 
produced by the CFPB. . . . NCUA will make a list of `underserved 
counties' available on its Web site.'' \59\ Alternatively, the final 
rule permits a credit union to submit for approval ``a metric of its 
own choosing that is based on NCUA or other Federal banking agency 
data, [that] establishes to NCUA that the proposed area is `underserved 
by other depository institutions.' \60\
---------------------------------------------------------------------------

    \59\ Appendix B, Ch. 2, Sec.  III.B.3.
    \60\ Id.
---------------------------------------------------------------------------

    3. Commenters' Recommendations in Response to the Proposed Rule. In 
response to the proposed rule, a few commenters initiated Underserved 
Area recommendations of their own. The Board can adopt a regulatory 
proposal only when, and to the extent, it is authorized by law, and 
then only if it is supported by rational and reasonable policy 
conclusions as reflected in the rulemaking record.\61\
---------------------------------------------------------------------------

    \61\ 5 U.S.C. 706(2)(A).
---------------------------------------------------------------------------

    The first commenter recommendation was that the Board, by 
regulation, permit any charter type to add an Underserved Area, whereas 
the existing rule permits only a multiple common bond credit union to 
do so. To allow any charter type to serve an Underserved Area would 
require Congress to amend the Act, which presently limits Underserved 
Area additions to FCUs in the ``the field of membership category of 
which is described in [section 1759(b)(2)],'' i.e., exclusively a 
``multiple common-bond credit union.'' \62\ Pending such an amendment 
to the Act, the Board lacks the authority to adopt the recommendation 
to allow any charter type to add an Underserved Area.
---------------------------------------------------------------------------

    \62\ 12 U.S.C. 1759(c)(2).
---------------------------------------------------------------------------

    The second commenter recommendation was that the Board permit 
``other technical means,'' beyond what the existing ``service 
facility'' definition permits, to meet the Act's explicit mandate that 
a credit union ``establish and maintain an office or facility in'' the 
Underserved Area it is approved to serve.\63\ For the Board to depart 
from this statutory mandate would require Congress to amend the Act to, 
for example, substitute ``to serve'' for the word ``in.'' Pending such 
an amendment to the Act, the Board lacks the authority to adopt the 
recommendation to permit a transactional Web site to qualify as a valid 
service facility within an Underserved Area.
---------------------------------------------------------------------------

    \63\ Id. Sec.  1759(c)(2)(B) (emphasis added). The Board 
authorized video teller machines in an opinion letter dated August 
6, 2012, at: https://www.ncua.gov/regulation-supervision/Pages/rules/legal-opinions/2012/0965.aspx.
---------------------------------------------------------------------------

D. Multiple Common Bond

    As amended in 1998, the Act restored the Board's multiple common 
bond policy, permitting a multiple common bond credit union to serve a 
combination of distinct, definable occupational and/or associational 
groups, provided each has its own common bond among group members.\64\
---------------------------------------------------------------------------

    \64\ 63 FR 71998, Dec. 30, 1998; 12 U.S.C. 1759(b)(2)(A). See 
NCUA v. First National Bank & Trust Co., 522 U.S. 479 (1988).
---------------------------------------------------------------------------

    1. Credit Union's ``Reasonable Proximity'' via Members' Online 
Access to Services. When it is either impracticable or inconsistent 
with reasonable standards of safety and soundness for a group to form a 
stand-alone single common bond credit union, the Act requires 
``inclusion of [a new] group in the [FOM] of a credit union that is 
within reasonable proximity to the location of the group whenever 
practicable and consistent with reasonable standards for the safe and 
sound operation of the credit union.'' \65\ Solely to meet the 
``reasonable proximity'' requirement, the Board proposed revising the 
definition of a ``service facility'' to include online internet access 
in the form of a transactional Web site that gives members of added 
occupational or associational groups access to their credit union's 
products and services.\66\

[[Page 88420]]

The Board noted the significant benefits of access via an electronic 
service facility, namely that it would put multiple common bond credit 
unions in parity with their depository institution competitors, and 
would permit them to keep pace with advances in technology that enable 
more efficient delivery of products and services to their members.
---------------------------------------------------------------------------

    \65\ 12 U.S.C. 1759(f)(1)(B) (emphasis added).
    \66\ The revised definition would not permit an individual to 
qualify remotely for membership in a community credit union based on 
electronic access to it from outside its well-defined local 
community. Nor would the revised definition apply to meet the 
requirement that a credit union serving an Underserved Area ``must 
establish and maintain an office or facility in [the Underserved 
Area].''
    \66\ 12 U.S.C. 1759(c)(1)(B).
---------------------------------------------------------------------------

    Scores of credit union commenters supported the proposal to modify 
the definition of service facility to permit use of a transactional Web 
site to achieve reasonable proximity between a multiple common bond 
credit union and members of its added groups. These commenters 
contented that the proposal is within the Board's authority to 
interpret the Act. As a practical matter, the commenters asserted that 
online proximity reflects the large and growing role of modern 
financial technology, making geographic location and physical branches 
less representative of the scope of a credit union's service area. 
Online access would allow FCUs to efficiently meet their members' needs 
and expectations.
    Commenters stated that while an FCU's physical presence 
conveniently close to the groups it served may have been a practical 
necessity in the past, evolving technology has expanded the menu of 
options members have to interact with their financial institution, 
effectively putting them in close proximity regardless of geographic 
location. In contrast, scores of bank commenters opposed the proposal 
to amend the definition of service facility to include online access. 
They claimed that the proposal exceeds the Board's statutory authority 
and is inconsistent with Congressional intent, in that an online 
internet channel would ``effectively remove the statutory requirement 
that a multiple common bond FCU be in a `reasonable proximity to the 
location of the group.'' Moreover, they criticized the proposal as 
inconsistent with NCUA's prior interpretation of ``reasonable 
proximity'' as mandating an FCU branch office or mobile office 
physically near the group to be added. One commenter recommended that 
NCUA study the effect of the proposal on the wider financial services 
industry.
    The Board has considered the comments addressing the proposal to 
modify the definition of service facility to permit use of a 
transactional Web site to achieve ``reasonable proximity'' between a 
multiple common bond credit union and members of its added groups. 
Notwithstanding certain merits of the proposal, the Board has decided 
to defer action on it at this time, consistent with an incremental 
approach to introducing the other FOM modifications adopted in the 
final rule, thus permitting credit unions to acclimate to them. The 
Board will further study the impact of the proposal.\67\ However, this 
decision does not detract from the Board's belief in the utility of on-
line access to facilitate transactions between credit unions and their 
members generally.
---------------------------------------------------------------------------

    \67\ The Board notes that a shared branch or other facility can 
be used as an alternative to meet the ``reasonable proximity'' 
requirement.
---------------------------------------------------------------------------

    2. Inclusion of Select Employee Group Contractors in a Multiple 
Common Bond. The proposed rule extended to multiple occupational common 
bond credit unions the ability (that single common bond credit unions 
already have) \68\ to add persons who work regularly for an entity that 
is under contract to any of the SEG sponsors listed in a credit union's 
charter, provided there is a ``strong dependency relationship'' between 
the contractor and the SEG sponsor in each case.
---------------------------------------------------------------------------

    \68\ Appendix B, Ch. 2 Sec.  II.A.1.
---------------------------------------------------------------------------

    Scores of FCU commenters supported this proposal, believing that it 
better reflects today's modern workforce, in which it is not uncommon 
for businesses to outsource work to contractors whose employees, 
although not directly employed by a SEG sponsor, are integral to the 
sponsor's functioning and operations. In some cases, the employees of 
an independent contractor have worked for a SEG sponsor longer than 
many of the sponsor's own employees, who were eligible for membership 
from the outset of their employment. As many commenters pointed out, 
there is no functional distinction between a single and multiple common 
bond credit union for purposes of recognizing the occupational common 
bond between a SEG sponsor's own employees and those of its contractors 
with whom they work.
    These commenters noted that the proposal would allow greater 
flexibility for potential members to join an FCU, thus easing or 
eliminating unnecessary administrative burdens and restrictions on 
FCUs. As a result, they claimed that this proposal would help to expand 
the multiple common bond membership base nationally, thereby making 
affordable financial services available to more American consumers.
    In contrast, bank commenters opposed the contractor eligibility 
proposal, arguing that it is inconsistent with the Act and its 
legislative history to include within a SEG the employees of its 
sponsor's contractors. They asserted that the Act favors the formation 
of single common bond credit unions.
    Having considered the comments addressing inclusion of SEG 
contractors in a multiple common bond, the Board has determined that 
the proposal not only is consistent with the statute, but reflects the 
modern economy's increasing reliance on contractors. Specifically, the 
Board notes the proposal's consistency with the Act's provisions 
requiring a stand-alone feasibility assessment above the 3000 member 
threshold. The strong mutual dependency of a SEG sponsor and its 
contractor on each other effectively cements the single common bond the 
sponsor's employees and the contractor's employees share with each 
other.
    Despite the Act's preference for the formation of single common 
bond credit unions, the Act expressly permits a multiple common bond 
addition when a group cannot reasonably establish a single common bond 
credit union, or likely would be unable to successfully manage and 
sustain such a credit union.\69\ The addition of a contractor's 
employees to a SEG consisting of the sponsor's employees with whom they 
work is consistent with that approach. Accordingly, the final rule 
provides that a multiple occupational common bond credit union may add 
persons who work regularly for an entity that is under contract to any 
of the SEG sponsors listed in the credit union's charter, provided 
there is a ``strong dependency relationship'' between the contractor 
and sponsor. To extend to multiple common bond credit unions the 
ability that single common bond credit unions already have to add 
persons who work regularly for an entity under contract to its sponsor 
advances the Board's goal to enable parallel functioning between single 
and multiple common bond credit unions whenever feasible and consistent 
with the Act.
---------------------------------------------------------------------------

    \69\ 12 U.S.C. 1759(f)(1)(B).
---------------------------------------------------------------------------

    Some commenters requested the Board to define what constitutes a 
``strong dependency relationship'' between a SEG sponsor and its 
contractor, but cautioned against requiring either SEG sponsors or 
their contractors to disclose trade secrets or confidential financial 
information. Some suggested permitting an FCU to pledge in good faith 
that it can

[[Page 88421]]

document a ``strong dependency relationship'' between each SEG's 
sponsor and the sponsor's contractor in accordance with the particulars 
of the industry in which they operate. Reflecting the Board's 
preference for a more objective standard, the final rule defines a 
``strong dependency relationship'' between a SEG sponsor and the 
sponsor's contractor to mean that both rely on each other as measured 
by a pattern of regularly doing business with each other, for example, 
as documented by the number, the term length and the dollar volume of 
prior and pending contracts between them. The Board intends the 
``strong dependency'' standard to be determined by credit unions 
themselves, so as to create a rebuttable presumption that the sponsor's 
employees and those of the contractor share a single common bond, as 
the Act requires. NCUA's Office of Consumer Protection, or its 
successor, anticipates issuing further guidance to clarify what 
documentation will be acceptable to confirm a contractual relationship 
based on a pattern of regularly doing business.
    3. Multiple Common Bond of Office/Industrial Park Employees. The 
existing rule expressly permits a community charter to consist of 
persons who are employed within an office or industrial park.\70\ As an 
alternative to such a community charter, the proposed rule expressly 
permitted a multiple common bond credit union to combine in a single 
SEG all the employees of a park's business and retail tenants (e.g., 
within a shopping mall, an office building or an office complex), 
provided each tenant has fewer than 3000 employees working regularly at 
a facility within the park--effectively a SEG consisting of park 
tenants themselves rather than their employees.
---------------------------------------------------------------------------

    \70\ Appendix B, ch. 2 Sec.  V.A.7.
---------------------------------------------------------------------------

    About a dozen credit union commenters specifically addressed the 
tenants' SEG proposal, generally favoring it as an enhancement of an 
FCU's ability to serve multiple businesses within an office/industrial 
park by leveraging its resources to provide more value to its 
membership. Specifically, the proposal enabled an FCU to use a park's 
tenant base to more efficiently identify and offer services to 
employees of businesses within the park.
    Critics of the proposal included some credit unions and several 
banks that believed the proposal would create an impermissible 
``hybrid'' charter that combined community and occupational common bond 
characteristics. Specifically, these commenters believed such a charter 
would make a SEG out of a group (i.e., employees of a park's retail and 
business tenants) that is more properly characterized simply as persons 
who work in a geographically based community. These commenters 
emphasized that the Act prescribes distinct criteria for groups sharing 
an occupational versus an associational common bond.\71\ The opponents 
also questioned the justification for this proposal beyond 
administrative convenience.
---------------------------------------------------------------------------

    \71\ As set forth in the Chartering Manual, the criteria of an 
occupational common bond are: (1) Employment in a single 
corporation, (2) employment in a corporation with a controlling 
interest in or by another legal entity, (3) employment in a 
corporation which is related to another legal entity (such as a 
company under contract and possessing a strong dependency 
relationship with another company); (4) employment or attendance in 
a school, or (5) employment in the same Trade, Industry or 
Profession. Appendix B, ch. 2, Sec.  II.A.1.
---------------------------------------------------------------------------

    Having considered the comments addressing the tenants' SEG 
proposal, the Board believes it is appropriate to give the employees of 
a park's tenants the option to join a multiple common bond credit 
union. However, a SEG sponsored by a landlord and consisting of its 
tenants (as opposed to the landlord's own employees) unequivocally 
lacks the essential occupational common bond due to the lack of an 
employment relationship between the landlord and each tenant. 
Notwithstanding this structural flaw, the existing rule's language and 
its application in practice have convinced the Board that the rule 
already permits a park's tenants, in each one's capacity as an 
employer, to form a multiple occupational common bond credit union 
combining each one's individual SEG.\72\
---------------------------------------------------------------------------

    \72\ Appendix B, ch. 1 Sec.  XI.
---------------------------------------------------------------------------

    Accordingly, in lieu of the tenant SEG proposal, the final rule 
clarifies the current availability of the multiple common bond option 
for employers within an industrial park, shopping mall, office park, or 
office building (each a ``park'') by expressly specifying it as an 
example within the rule; no rule change is required.\73\ Consistent 
with the Act's stand-alone feasibility exemption for groups with fewer 
than 3000 members,\74\ each park tenant's SEG must have fewer than 3000 
employees who work at a facility within the park, each of whom would be 
eligible for FCU membership only for so long as he/she regularly works 
there.\75\ This existing multiple common bond option creates neither a 
new charter type nor an impermissible hybrid community/multiple group 
charter; rather, it gives FCUs a choice between either distinct charter 
type to serve an office/industrial park.
---------------------------------------------------------------------------

    \73\ To facilitate the formation of multiple SEGs among a park's 
retail and business tenants, a multiple common bond credit union 
could rely on a letter from an authorized representative of the 
park, such as its leasing agent, to identify each incoming tenant 
capable of forming its own SEG, and to give notice of the departure 
of an existing SEG's sponsor from the park, thus discontinuing its 
SEG.
    \74\ 12 U.S.C. 1759(d)(2)(A).
    \75\ Appendix B, ch. 2, Sec.  IV.A.1.
---------------------------------------------------------------------------

    4. Streamlined Documentation to Assess Stand-Alone Feasibility of 
Groups of 3000 or Greater. The proposed rule streamlined NCUA's process 
for assessing the stand-alone feasibility of a group of 3000 or more 
members (``>=3000 group'') that seeks to be added to the FOM of an 
existing multiple common bond credit union, instead of forming a single 
common bond credit union. A group of fewer than 3000 members (``<3000 
group'') is subject to the existing process under the Application for 
Field of Membership (NCUA form 4015 EZ). A group between 3000 and 5000 
is required to document its inability to form a credit union of its own 
based on evidence of a lack of available subsidies, disinterest among 
the group's members, and an overall lack of sufficient resources (NCUA 
form 4015-A). Groups with more than 5000 members are subject to the 
existing standard application process, requiring a group to fully 
describe its inability to establish a new single common bond credit 
union (NCUA form 4015). The proposed rule invited comments on whether 
to increase the 5000 member threshold that triggers the standard 
application process.
    Scores of comments, both in support and in opposition, addressed 
the proposal to streamline the documentation requirement to assess the 
stand-alone feasibility of >=3000 groups. Credit union commenters 
generally favored the proposal, but requested modifications, 
particularly to increase the membership threshold and the method of 
quantifying group size. Most commenters recommended increasing the 
threshold to 5000, while others recommended increasing it to as many as 
20,000 members. One commenter recommended eliminating a numerical 
threshold completely. Further, many credit union commenters recommended 
evaluating the stand-alone feasibility criteria using the number of 
actual rather than potential members. Acknowledging the Board's initial 
rationale for the streamlined approach--that 80 percent of failures 
occur among FCUs with fewer than

[[Page 88422]]

5000 actual members \76\--certain supporters urged NCUA to consider the 
safety and soundness consequences and the risk to the Insurance Fund of 
insisting that groups between 3000 and 5000 members form their own 
credit unions. They suggested that NCUA's goal should be to charter 
FCUs that are most likely to survive.
---------------------------------------------------------------------------

    \76\ 80 FR at 76754.
---------------------------------------------------------------------------

    Several bank commenters criticized the proposal, claiming that it 
violates the Act and is inconsistent with the legislative history. 
These commenters stated that, with limited exceptions, the Act 
expressly limits to 3000 members the size of a group that can be added 
to an existing multiple common bond credit union. The commenters were 
concerned that the proposal's practical effect would be to unilaterally 
increase the numerical limitation prescribed by law.
    In contrast, credit union commenters insisted that the proposal is 
within the Act's statutory authority because it does not obviate the 
requirement that a >3000 group demonstrate its inability to establish a 
new single common bond FCU. In their view, it allows NCUA to accept a 
group's statement of inability to form a stand-alone credit union in 
lieu of full supporting documentation. To the extent such documentation 
is absent, they noted that NCUA retains the ability to reject or to 
further investigate a group's statement of inability to form a stand-
alone credit union.
    Having considered the comments addressing the streamlined 
documentation proposal for assessing the stand-alone feasibility of 
>3000 groups, it is clear that commenters opposing the proposal relied 
on a fundamental misconception--that the proposal would alter the 3000 
member stand-alone feasibility threshold mandated by the Act. On the 
contrary, the final rule merely reduces the documentation required, 
depending on group size, to support a stand-alone feasibility 
determination, while continuing to honor both the 3000 member 
feasibility threshold and the feasibility criteria that the Act 
prescribes. Further, streamlining the required documentation is a 
response to complaints to the agency from multiple common bond credit 
unions that the excessive paperwork demand on groups they seek to add 
has been a disincentive to those groups, causing them to withdraw in 
frustration.
    Certain credit unions urged the Board to increase the threshold 
above 5000, if based on potential members or, if left at 5000, to base 
it on actual members. These commenters did not provide a compelling 
justification for adjusting this amount at this time. On the contrary, 
the Board has determined that the proposed 5000 member threshold is 
appropriate at this time, believing that it represents the minimum 
number of potential members needed for a credit union to maintain long-
term economic viability.
    The process of applying the statutory stand-alone feasibility 
criteria is identical under both the streamlined documentation and the 
standard approaches. In either case, the Board would review a >3000 
group's application and determine whether to accept or reject it, or to 
request additional supporting information. Accordingly, the streamlined 
documentation proposal is consistent with the Act's stand-alone 
feasibility mandate.
    5. Commenter-initiated Emergency Merger Proposal. To facilitate 
mergers between credit unions with unlike common bonds, several 
commenters recommended a variety of approaches for relaxing, if not 
effectively disregarding, the statutory standard authorizing an 
emergency merger free of the FOM constraints the Act otherwise imposes. 
``Notwithstanding any other provision of law,'' including the FOM 
limitations it may impose, the Act permits the Board to authorize the 
merger of an insured credit union (or a purchase and assumption of its 
assets) provided the credit union is ``insolvent or is in danger of 
insolvency.'' \77\ Given that this explicit, objectively measurable 
``insolvency'' standard is expressly imposed by the Act, the Board is 
bound by it no matter what other circumstances it would consider to 
warrant a merger of unlike common bonds. Within that standard, the 
Board retains discretion to define ``danger of insolvency,'' e.g., in 
terms of imminence, as the existing rule does according to time 
increments (between 12 and 36 months) pending a credit union's 
declining net worth classification.\78\ The Board will, in a separate 
rulemaking, consider alternative approaches to define the ``danger of 
insolvency'' prerequisite for an emergency merger of unlike common 
bonds.
---------------------------------------------------------------------------

    \77\ 12 U.S.C. 1785(h).
    \78\ Appendix B, Ch. 2, section II.D.2. (glossary definition of 
``danger of insolvency'').
---------------------------------------------------------------------------

E. Other Persons Eligible for Credit Union Membership

    NCUA has historically recognized a variety of persons who, by 
virtue of their relationship to a common bond group, have been entitled 
to credit union membership eligibility.\79\ To recognize the 
contributions of those who have served in the United States Armed 
Forces, and to give them the benefit of access to credit union service 
following active duty, the proposed rule permitted a credit union to 
include as an affinity group within its common bond the honorably 
discharged veterans of any branch of the United States Armed Forces 
listed in its charter.
---------------------------------------------------------------------------

    \79\ Appendix B, Ch.2, sections II.H., IV.H., and Appendix 1 
(glossary definition of ``affinity'').
---------------------------------------------------------------------------

    Credit union commenters uniformly favored this proposal for 
recognizing not only the affinity that veterans share with their own 
active duty branch of service, but the affinity among active duty and 
retired military personnel generally. Some commenters supported the 
proposal as a means to protect military veterans from unscrupulous 
lenders. Another opposed it as too expansive, contending that it would 
justify membership eligibility for retirees of other organizations 
within an FOM. Conversely, yet another commenter advocated expanding 
the proposal to grant membership eligibility based upon the affinity 
of, for example, retired federal employees and retired teachers. The 
single bank commenter who addressed this proposal was concerned that it 
would enable individuals to use ``creative measures'' to join an FCU by 
group affinity generally.
    Having considered the comments addressing the proposal to extend 
membership eligibility to honorably discharged military members, the 
Board believes that it is appropriate due to the unique bond that 
discharged veterans typically retain with their former branch of 
service (e.g., via military-sponsored morale, welfare and recreational 
associations). The Board emphasizes that such an affinity applies 
exclusively to honorably discharged veterans; in contrast, membership 
eligibility would be available to retirees of other groups, such as 
teachers or federal employees within an FOM, only to the extent an 
individual credit union permits it in its charter. Accordingly, 
exclusively for ``Honorably discharged veterans who served in any of 
the Armed Services of the United States listed in [a credit union's] 
charter,'' the final rule automatically grants membership 
eligibility.\80\
---------------------------------------------------------------------------

    \80\ Appendix B, Ch. 2, Sec.  II.H.

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

[[Page 88423]]

F. Inclusion of ``Strong Dependency'' Vendors and Suppliers in a Single 
Common Bond Within a Trade, Industry or Profession

    A single occupational common bond within a trade, industry or 
profession (a ``TIP'') is based on employment by any number of 
separately owned corporations or other legal entities that share a 
common bond by reason of producing similar products, providing similar 
services, sharing the same profession or trade, or participating in the 
same industry.\81\ A TIP-based common bond requires a narrow 
commonality of interests among the TIP entities' employees and a close 
nexus among the entities themselves.\82\
---------------------------------------------------------------------------

    \81\ 68 FR 18334, 18336 (April 15, 2003); Appendix B, ch. 2, 
Sec.  IIA.2.
    \82\ Id.
---------------------------------------------------------------------------

    The proposed rule clarified that the existing definition of a TIP-
based single common bond of occupation includes employees of entities 
that have a strong dependency relationship on, and whose employees work 
directly with employees of, other entities within the same industry, to 
the extent that a significant, if not equal, economic impact is likely 
if one were unable to continue in its operations without doing business 
with the other.
    Several credit unions favored the proposal to include ``strong 
dependency'' vendors and suppliers in a TIP, stating that it would 
provide regulatory relief in allowing TIP credit unions to reach 
potential members more easily. One commenter welcomed the Board's 
recognition that current employment practices frequently involve 
outsourcing of work to independent vendors and suppliers under 
contract. No commenter opposed the proposal.
    Some commenters expressed a mistaken belief that the existing rule 
restricts a TIP charter from serving the entire nation. On the 
contrary, the existing rule imposes no geographic limitation on service 
to the groups within a TIP. In fact, NCUA has approved several TIPs 
whose groups span the whole nation.
    Having considered the comments addressing the proposal to include 
``strong dependency'' vendors and suppliers in a TIP, the Board has 
decided to adopt it in the final rule.\83\ Further, at the request of 
commenters, the final rule defines a ``strong dependency'' relationship 
between TIP entities and their vendors and suppliers as a relationship 
in which they rely on each other to the extent, for example, that the 
absence of one likely would cause the other to suffer a material 
decline in either revenue, functionality or productivity, among other 
consequences.\84\
---------------------------------------------------------------------------

    \83\ Appendix B, Ch. 2, section II.A.2.
    \84\ Id.
---------------------------------------------------------------------------

G. Technical Updates

    Since publishing the December 2015 proposed rule, the Board has 
renamed the agency's Office of Consumer Protection as the Office of 
Consumer Financial Protection and Access (``OCFPA''). Accordingly, the 
final rule updates the agency's Chartering Manual to substitute OCFPA 
in place of certain references to regional office and regional director 
chartering responsibilities, and to substitute the Board Secretary for 
the former Office of Consumer Protection in reference to appeals of 
chartering decisions.\85\ The final rule also corrects statutory and 
regulatory citations and cross-references in the Chartering Manual and 
its appendices, and updates those appendices to reflect current 
information and practices.
---------------------------------------------------------------------------

    \85\ Appendix B, Ch. 2, sections II.C., II.C.6., III.C., 
III.C.6., IV.B., IV.B.5., V.C. and VII.D.
---------------------------------------------------------------------------

III. 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 entities.\86\ For purposes of this 
analysis, NCUA considers small credit unions to be those having under 
$100 million in assets.\87\ This rule is anticipated to economically 
benefit FCUs that choose to expand their FOMs, but not to the extent 
that it will affect a substantial number of small entities. In any 
case, NCUA certifies that the rule will not have a significant economic 
impact on small credit unions.
---------------------------------------------------------------------------

    \86\ 5 U.S.C. 603(a).
    \87\ See 80 FR 57512 (Sept. 24, 2015).
---------------------------------------------------------------------------

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') \88\ applies to 
collections of information through which an agency creates a paperwork 
burden on regulated entities or the public, or revises existing 
burden.\89\ For purposes of the PRA, a paperwork burden may take the 
form of either a reporting, recordkeeping, or third-party disclosure 
requirement, also referred to as information collections.
---------------------------------------------------------------------------

    \88\ 44 U.S.C. 3501 et seq.
    \89\ Id. Sec.  3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------

    Notwithstanding any other provision of law, no person is required 
to respond to, nor shall any person be subject to a penalty for failure 
to comply with, a collection of information subject to the requirements 
of the PRA, unless that collection of information displays a currently 
valid OMB control number. This rule involves a collection of 
information approved under OMB control number 3133-0015--Chartering and 
Field of Membership Manual.
    The final rule creates new strategic options for FCUs, while 
requiring of them essentially the same information that the existing 
rule required to apply for and be granted a charter expansion or 
conversion, with two exceptions. It introduces a new form (NCUA 4015-A) 
within Appendix 4 to the Chartering and Field of Membership Manual that 
condenses the application process that otherwise would apply to the 
addition of certain groups to a multiple common bond FOM. Using this 
condensed version will streamline the application process and will no 
longer require completion of the Form 4015. By adding this option, no 
new burden is realized with the addition of NCUA 4015-A.
    Regarding a community common bond, the final rule permits a 
community FCU to add an area adjacent to the perimeter of an existing 
community consisting of a Single Political Jurisdiction, Core Based 
Statistical Area or Combined Statistical Area, based upon a narrative 
showing that residents on both sides of the perimeter interact or share 
common interests. For that purpose, the rule identifies compelling 
indicia of interaction or common interests that would be relevant in 
developing and supporting a narrative to establish that the residents 
of the expanded community meet the requirements of a well-defined local 
community.
    NCUA has determined that the procedure for an FCU to assemble such 
evidence of interaction or common interests, and to develop and submit 
a narrative summarizing the evidence to support its application to 
expand, would create a new information collection requirement. In the 
proposed rule, NCUA identified and described this new information 
collection requirement, estimating the time it would take to comply, 
and solicited commenters on the information collection aspects of the 
proposed rule. The sole commenter who addressed the information 
collection aspects of the proposed rule concluded without explanation 
that it would double the existing paperwork burden. The burden outlined 
in the December proposed rule revealed an increase of 26,160 hours due 
to the new and revised information collection requirements. With this 
estimated increase, the total burden

[[Page 88424]]

requested under OMB No. 3133-0015 is 44,223 hours.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. To 
adhere to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the Executive Order. Primarily because this rule applies to FCUs 
exclusively, it 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 13132.

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.\90\
---------------------------------------------------------------------------

    \90\ 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 Administrative Procedure Act.\91\ NCUA does not believe this final 
rule is a ``major rule'' within the meaning of the relevant sections of 
SBREFA, but as required, has submitted this final rule to OMB for its 
determination.
---------------------------------------------------------------------------

    \91\ 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 October 27, 
2016.
Gerard S. Poliquin,
Secretary of the Board.

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

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. Appendix B to part 701 is revised 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; \92\
---------------------------------------------------------------------------

    \92\ 12 U.S.C. 1751 et seq.
---------------------------------------------------------------------------

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

II--Types of Charters

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

III--Subscribers

    Federal credit unions are generally organized by persons who 
volunteer their time and resources and are responsible for 
determining the interest, commitment, and economic advisability of 
forming a federal credit union. The organization of a successful 
federal credit union takes considerable planning and dedication.
    Persons interested in organizing a federal credit union should 
contact one of the credit union trade associations or the NCUA 
regional office serving the state in which the credit union will be 
organized. Lists of NCUA offices and credit union trade associations 
are shown in the appendices. NCUA will provide information to groups 
interested in pursuing a federal charter and will assist them in 
contacting an organizer.
    While anyone may organize a credit union, a person with training 
and experience in chartering new federal credit unions is generally 
the most effective organizer. However, extensive involvement by the 
group desiring credit union service is essential.
    The functions of the organizer are to provide direction, 
guidance, and advice on the chartering process. The organizer also 
provides the group with information about a credit union's functions 
and purpose as well as technical assistance in preparing and 
submitting the charter application. Close 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.
    Willfully and knowingly making false statements on any of the 
required documentation filed in obtaining a federal credit union 
charter may be grounds for federal criminal prosecution under 18 
U.S.C. 1001.

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 key 
factor in determining whether a potential charter will have a 
reasonable opportunity to succeed, is

[[Page 88425]]

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 Office of Consumer Financial 
Protection and Access 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 Office of Consumer Financial Protection 
and Access 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, to 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, the organizer should conduct an organizational meeting to 
elect seven to ten persons to serve as subscribers. The subscribers 
should locate willing individuals capable of serving on the board of 
directors, credit committee, supervisory committee, and as chief 
operating officer/manager of the proposed credit union.
    Subsequent organizational meetings may be held to discuss the 
progress of the charter investigation, to announce the proposed 
slate of officials, and to respond to any questions posed at these 
meetings.
    If NCUA approves the charter application, the subscribers, as 
their final duty, will elect the board of directors of the proposed 
federal credit union. The new board of directors will then appoint 
the supervisory committee.

V. B--Charter Application Documentation

V.B.1--General

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

[[Page 88426]]

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. 5--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. 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 Office of 
Consumer Financial Protection and Access 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--Office of Consumer Financial Protection and Access 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 Office of Consumer Financial Protection and Access 
Director. Additionally, the officials will be advised of the name of 
the examiner assigned responsibility for supervising and examining 
the credit union.

VII.C--Office of Consumer Financial Protection and Access Director 
Disapproval

    When the Office of Consumer Financial Protection and Access 
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 Office of Consumer 
Financial Protection and Access 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 Office of Consumer Financial Protection and Access 
Director Decision

    If the Office of Consumer Financial Protection and Access 
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 NCUA Board Secretary within 60 days of the date of denial and 
must address the specific reasons for denial. The appeal must be 
clearly identified as such and address the specific reason(s) the 
prospective group disagrees with the denial. A copy of the appeal 
must be sent to the Office of Consumer Financial Protection and 
Access Director. 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 Office of 
Consumer Financial Protection and Access Director for 
reconsideration. A reconsideration will contain new and material 
evidence addressing the reasons for the initial denial. The Office 
of Consumer Financial Protection and Access Director will have 30 
days from the date of the receipt of the request for reconsideration 
to make a final decision. If the request is again denied, the 
applicant may proceed with the appeal process within 60 days of the 
date of the last denial. A second request for reconsideration will 
be treated as an appeal to the NCUA Board.

VII.E--Commencement of Operations

    Assistance in commencing operations is generally available 
through the various credit union trade organizations listed in 
appendix 5.
    All new federal credit unions are also encouraged to establish a 
mentor relationship with a knowledgeable, experienced credit union 
individual or an existing, well-operated credit union. The mentor 
should provide guidance and assistance to the new credit union 
through attendance at meetings and general oversight. Upon request, 
NCUA will provide assistance in finding a qualified mentor.

VIII--Future Supervision

    Each federal credit union will be examined regularly by NCUA to 
determine that it 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

[[Page 88427]]

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 are not governed by this manual, but instead 
operate under and are administered by the NCUA Office of National 
Examinations and Supervision.

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, 
including but not limited to city or county boundaries, roadways, 
rivers, transportation lines.
    Credit unions desiring to confirm or submit an application to 
change their designations should contact the Office of Consumer 
Financial Protection and Access.

XII--Foreign Branching

    A federal credit union is permitted to serve foreign nationals 
within its field of membership wherever such individuals reside if 
management has the ability and resources to serve them. 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 or Office of National Examinations and 
Supervision 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 addresses the membership requirements for each type 
of charter.
    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 apply to 
each, which are fully discussed in the following sections of this 
Chapter.

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 contractual relationship equivalent to 
employment) in a single corporation or other legal entity makes that 
person part of a single occupational common bond;
     Employment in a corporation or other legal entity with 
a controlling ownership interest (which shall not be less than 10 
percent) in or by another legal entity makes that person part of a 
single occupational common bond;
     Employment in a corporation or other legal entity which 
is related to another legal entity (such as a company under contract 
and possessing a strong dependency relationship with another 
company) makes that person part of a single occupational common 
bond;
     Employment or attendance at a school makes that person 
part of a single occupational common bond (see Chapter 2, Section 
III.A.1); or
     Employment in the same Trade, Industry, or Profession 
(TIP) (see Chapter 2, Section II.A.2).
    A geographic limitation is not a requirement for a single 
occupational common bond. However, for purposes of describing the 
field of membership, the geographic areas being served may be 
included in the charter. For example:
     Employees, officials, and persons who work regularly 
under contract in Miami, Florida for ABC Corporation and 
subsidiaries;
     Employees of ABC Corporation who are paid from * * *;
     Employees of ABC Corporation who are supervised from * 
* *;
     Employees of ABC Corporation who are headquartered in * 
* *; and/or
     Employees of ABC Corporation who work in the United 
States.
    The corporation or other legal entity (i.e., the employer) may 
also be included in the common bond--e.g., ``ABC Corporation.'' The 
corporation or legal entity will be defined in the last clause in 
Section 5 of the credit union's charter.
    A charter applicant must provide documentation to establish that 
the single occupational common bond requirement has been met.
    Some examples of valid 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

[[Page 88428]]

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).
    In contrast, 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.
    Although a TIP should be narrowly defined, and ordinarily would 
not include third-party vendors and other suppliers, it may include, 
on a case by case basis, employees of types of entities that have a 
``strong dependency relationship'' and work directly with other 
types of entities within the industry. In this context, a ``strong 
dependency relationship'' between a TIP entity and its supplier/
vendor must be demonstrated by their reliance on each other as 
measured by the presence of indicators of a likelihood that the 
absence of one would cause the other to suffer a material decline in 
either revenue, functionality or productivity.
    Under this definition, a firm whose employees are specially 
trained to protect nuclear facilities, and whose employees work 
primarily at such facilities, could be a part of a TIP based on the 
firm's participation in the nuclear energy industry.
    Other ``strong relationship'' indicators NCUA would consider 
include the regularity or frequency of work that employees of the 
entity perform at facilities directly related to the industry, or 
the degree to which employees must adjust their work practices to 
adapt to the needs of the industry. For example, a company's focus 
on producing specialized confectionary products for a hotel chain 
could add that company to a hospitality industry TIP. A credit union 
seeking to include a clause of this type in its TIP charter must 
provide a brief narrative identifying indicators that support the 
existence of a strong dependency relationship between the TIP entity 
and its individual supplier/vendors.
    Likewise, an FCU may serve employees of companies within the 
commercial airline industry that have a strong dependency 
relationship with airlines or airports, without the limitation that 
these employees work at an airport. However, these employees must 
work directly with the following: Air transportation of freight, air 
courier services; air passenger services; airport baggage handling; 
airport security; commercial airport janitorial services; 
maintenance, servicing, and repair services; and on board airline 
food services. The employees of those entities have a narrow 
commonality of interests, share the single occupational common bond, 
and can be included within the Air Transportation Industry field of 
membership.
    In general, except for credit unions 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 Office of Consumer Financial 
Protection and Access 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 Office of Consumer 
Financial Protection and Access 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 the group 
or groups are 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 Office of Consumer Financial 
Protection and Access 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 Office of Consumer Financial Protection and Access 
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

[[Page 88429]]

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

II.B.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, the Office of Consumer 
Financial Protection and Access Director may require additional 
information prior to making a decision.

II.B.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 Office of Consumer Financial Protection and Access 
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 Office of Consumer Financial 
Protection and Access Director.

II.C.2--Office of Consumer Financial Protection and Access Director 
Decision

    NCUA staff will review all amendment requests in order to ensure 
compliance with NCUA policy.
    Before acting on a proposed amendment, the Office of Consumer 
Financial Protection and Access Director may require an on-site 
review. In addition, the Office of Consumer Financial Protection and 
Access 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--Office of Consumer Financial Protection and Access Director 
Approval

    If the Office of Consumer Financial Protection and Access 
Director approves the requested amendment, the credit union will be 
issued an amendment to Section 5 of its charter.

II.C.4--Office of Consumer Financial Protection and Access Director 
Disapproval

    When the Office of Consumer Financial Protection and Access 
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 Office of Consumer Financial Protection and 
Access Director Decision

    If a field of membership expansion request, merger, or spin-off 
is denied by staff, the federal credit union may appeal the decision 
to the NCUA Board. An appeal must be sent to the NCUA Board 
Secretary within 60 days of the date of denial. The appeal must be 
clearly identified as such and must address the specific reason(s) 
the federal credit union disagrees with the denial. A copy of the 
appeal must be sent to the Office of Consumer Financial Protection 
and Access, or as applicable, the appropriate regional office or 
Office of National Examinations and Supervision Director. 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 office rendering the 
initial decision for reconsideration. A reconsideration will contain 
new and material evidence addressing the reasons for the initial 
denial. The office rendering the initial decision 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 or Office 
of National Examinations and Supervision Director where the 
continuing credit union is headquartered, with the concurrence of 
the regional director or Office of National Examinations and 
Supervision 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

[[Page 88430]]

community credit union, Section IV.D or Section V.D of this Chapter, 
respectively, should be reviewed.

II.D.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 in danger of insolvency, as 
defined in the Glossary, 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 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 field regions must be approved by the regional 
director or Office of National Examinations and Supervision Director 
where the continuing credit union is headquartered, with the 
concurrence of the regional director or Office of National 
Examinations and Supervision Director of the merging credit union 
and, as applicable, the state regulators.

II.D.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 or Office of 
National Examinations and Supervision Director where the continuing 
credit union is headquartered, with the concurrence of the regional 
director or Office of National Examinations and Supervision 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 and, if 
applicable, Office of National Examinations and Supervision Director 
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. Spin-offs involving the creation 
of a new federally insured credit union require the approval of the 
Office of Consumer Financial Protection and Access Director. The 
Office of Consumer Financial Protection and Access also provides 
advice regarding field of membership compatibility when appropriate.

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.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 and Field of Membership 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

[[Page 88431]]

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 Office of Consumer Financial 
Protection and Access Director will determine why the credit union 
desires to remove the group. If the Office of Consumer Financial 
Protection and Access Director concurs with the request, membership 
will continue for those who are already members under the ``once a 
member, always a member'' provision of the Federal Credit Union Act.

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

    A number of persons, by virtue of their close relationship to a 
common bond group, may be included, at the charter applicant's 
option, in the field of membership. These include the following:
     Spouses of persons who died while within the field of 
membership of this credit union;
     Employees of this credit union;
     Persons retired as pensioners or annuitants from the 
above employment;
     Volunteers;
     Members of the immediate family or household;
    
     Honorably discharged veterans who served in any of the 
Armed Services of the United States listed in this charter;
    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.
    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;
    1.
    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.

[[Page 88432]]

    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.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;
    (1)
    (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.c--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.

III.A.2--Subsequent Changes to Association's Bylaws

    If the association's membership or geographical definitions in 
its charter and bylaws are changed subsequent to the effective date 
stated in the field of membership, the credit union must submit the 
revised charter or bylaws for NCUA's consideration and approval 
prior to serving members of the association added as a result of the 
change.

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

    Some examples of associational common bonds are:
     Regular members of Locals 10 and 13, IBEW, in Florida, 
who qualify for membership in accordance with their charter and 
bylaws in effect on May 20, 2001;
     Members of the Hoosier Farm Bureau in Grant, Logan, or 
Lee Counties of Indiana, who qualify for membership in accordance 
with its charter and bylaws in effect on March 7, 1997;
     Members of the Shalom Congregation in Chevy Chase, 
Maryland;
    
     Regular members of the Corporate Executives 
Association, located in Westchester, New York, who qualify for 
membership in accordance with its charter and bylaws in effect on 
December 1, 1997;
     Members of the University of Wisconsin Alumni 
Association, located in Green Bay, Wisconsin;
     Members of the Marine Corps Reserve Officers 
Association; or
     Members of St. John's Methodist Church and St. Luke's 
Methodist Church, located in Toledo, Ohio.
    Some examples of insufficiently defined single associational 
common bonds are:
     All Lutherans in the United States (too broadly 
defined); or
     Veterans of U.S. military service (group is too broadly 
defined; no formal association of all members of the group).
    Some examples of unacceptable single associational common bonds 
are:
     Alumni of Amos University (no formal association);
     Customers of Fleetwood Insurance Company (policyholders 
or primarily customer/client relationships do not meet associational 
standards);
     Employees of members of the Reston, Virginia, Chamber 
of Commerce (not a sufficiently close tie to the associational 
common bond); or
     Members of St. John's Lutheran Church and St. Mary's 
Catholic Church located in Anniston, Alabama (churches are not of 
the same denomination).

III.B--Associational Common Bond Amendments

III.B.1--General

    Section 5 of every associational federal credit union's charter 
defines the field of 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 Office of Consumer Financial Protection and Access Director 
must approve all amendments to an associational common bond credit 
union's field of membership.

III.B.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, the Office of Consumer 
Financial Protection and Access Director may require additional 
information prior to making a decision.

[[Page 88433]]

III.B.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 Office of Consumer Financial Protection and Access 
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 Office of Consumer Financial 
Protection and Access Director.

III.C.C.2--Office of Consumer Financial Protection and Access 
Director Decision

    NCUA staff will review all amendment requests in order to ensure 
conformance to NCUA policy.
    Before acting on a proposed amendment, the Office of Consumer 
Financial Protection and Access Director may require an on-site 
review. In addition, the Office of Consumer Financial Protection and 
Access 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--Office of Consumer Financial Protection and Access 
Director Approval

    If the Office of Consumer Financial Protection and Access 
Director approves the requested amendment, the credit union will be 
issued an amendment to Section 5 of its charter.

III.C.4--Office of Consumer Financial Protection and Access 
Director Disapproval

    When the Office of Consumer Financial Protection and Access 
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 Office of Consumer Financial Protection and 
Access Director Decision

    If a field of membership expansion request, merger, or spin-off 
is denied by staff, the federal credit union may appeal the decision 
to the NCUA Board. An appeal must be sent to the NCUA Board 
Secretary within 60 days of the date of denial and must be clearly 
identified as such and address the reason(s) the federal credit 
union disagrees with the denial. A copy of the appeal must be sent 
to the Office of Consumer Financial Protection and Access, or as 
applicable, the appropriate regional office or Office of National 
Examinations and Supervision Director. 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 office rendering the 
initial decision for reconsideration. A reconsideration will contain 
new and material evidence addressing the reasons for the initial 
denial. The office rendering the initial decision will have 30 days 
from the date of the receipt of the request for reconsideration to 
make a final decision. If the request is again denied, the applicant 
may proceed with the appeal process within 60 days of the date of 
the last denial. A second request for reconsideration will be 
treated as an appeal to the NCUA Board.

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

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

III.D.1--Mergers

    Generally, the requirements applicable to field of membership 
expansions found in this section apply to mergers where the 
continuing credit union is a federal charter. That is, the two 
credit unions must share a common bond.
    Where the merging credit union is state-chartered, the common 
bond rules applicable to a federal credit union apply.
    Mergers must be approved by the NCUA regional director or Office 
of National Examinations and Supervision Director where the 
continuing credit union is headquartered, with the concurrence of 
the regional director or Office of National Examinations and 
Supervision 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.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 in danger of insolvency, as 
defined in the Glossary, 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 or 
Office of National Examinations and Supervision Director where the 
continuing credit union is headquartered, with the concurrence of 
the regional director or Office of National Examinations and 
Supervision Director of the merging credit union and, as applicable, 
the state regulators.

III.D.Purchase and Assumption (P&A)

    Another alternative for acquiring the field of membership of a 
failing credit union is

[[Page 88434]]

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 or Office of 
National Examinations and Supervision Director where the continuing 
credit union is headquartered, with the concurrence of the regional 
director or Office of National Examinations and Supervision 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 and, if 
applicable, Office of National Examinations and Supervision Director 
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. Spin-offs involving the creation 
of a new federally insured credit union require the approval of the 
Office of Consumer Financial Protection and Access Director. The 
Office of Consumer Financial Protection and Access also provides 
advice regarding field of membership compatibility when appropriate.

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.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 and Field of Membership Manual will remain in effect 
unless the credit unions agree to remove them or one of the affected 
credit unions submits a housekeeping amendment to have it removed.

III.F--Charter Conversions

    A single associational common bond federal credit union may 
apply to convert to a community charter provided the field of 
membership requirements of the community charter are met. Groups 
within the existing charter which cannot qualify in the new charter 
cannot be served except for members of record, or groups or 
communities obtained in an emergency merger or P&A. A credit union 
must notify all groups that will be removed from the field of 
membership as a result of conversion. Members of record can continue 
to be served. Also, in order to support a case for a conversion, the 
applicant federal credit union may be required to develop a detailed 
business plan as specified in Chapter 2, Section V.A.3.
    A single associational common bond federal credit union may 
apply to convert to a multiple common bond charter by adding a non-
common bond group that is within a reasonable proximity of a service 
facility. Groups within the existing charter may be retained and 
continue to be served. However, future amendments, including any 
expansions of the original single common bond group, must be done in 
accordance with multiple common bond policy.

III.G--Removal of Groups From the Field of Membership

    A credit union may request removal of a portion of the common 
bond group from its field of membership for various reasons. The 
most common reasons for this type of amendment are:
     The group is within the field of membership of two 
credit unions and one wishes to discontinue service;
     The federal credit union cannot continue to provide 
adequate service to the group;
     The group has ceased to exist;
     The group does not respond to repeated requests to 
contact the credit union or refuses to provide needed support; or
     The group initiates action to be removed from the field 
of membership.
    When a federal credit union requests an amendment to remove a 
group from its field of membership, the Office of Consumer Financial 
Protection and Access Director will determine why the credit union 
desires to remove the group. If the Office of Consumer Financial 
Protection and Access 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;
    

[[Page 88435]]

     Honorably discharged veterans who served in any of the 
Armed Services of the United States in this charter;
    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.
    Employment in a corporation or other legal entity which is 
related to another legal entity (such as a company under contract 
to, and possessing a strong dependency relationship with, the other 
company) makes that person part of the occupational common bond of a 
select employee group within a multiple common bond. In this 
context, a ``strong dependency relationship'' is a relationship in 
which the entities rely on each other as measured by a pattern of 
regularly doing business with each other, for example, as documented 
by the number, the term length, and the dollar volume of prior and 
pending contracts between them.
    A multiple common bond credit union's charter may also combine 
individual occupational groups that each consist of employees of a 
retailer or other business tenant of an industrial park, a shopping 
mall, office park or office building (each ``a park''). To be able 
to have this type of clause in its charter, the multiple common bond 
credit union first must receive a request from an authorized 
representative of the group or the park to establish credit union 
service. The park must be within the multiple common bond credit 
union's service area, and each occupational group must have fewer 
than 3,000 employees, who are eligible for membership only for so 
long as each is employed by a park tenant. Under this clause, a 
multiple common bond credit union can enroll group employees only 
while the group's retail or business employer is a park tenant, but 
such credit unions are free to serve employees of new groups under 
the above conditions as each respective employer becomes a park 
tenant.
    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;
    4. Employees of tenants of MJB Office Park under the following 
conditions:

--Each tenant's employees form an individual occupational group;
--the tenant has fewer than 3,000 employees working at MJB Office 
Park; and
--those employees work in MJB Office Park's Wilmington, Delaware 
location,''

IV.B--Multiple Common Bond Amendments

IV.B.1--General

    Section 5 of every multiple common bond federal credit union's 
charter defines the field of membership and select groups the credit 
union can legally serve. Only those persons or legal entities 
specified in the field of membership can be served. There are a 
number of instances in which Section 5 must be amended by NCUA.
    First, a new select group is added to the field of membership. 
This may occur through agreement between the group and the credit 
union directly, or through a merger, corporate acquisition, purchase 
and assumption (P&A), or spin-off.
    Second, a federal credit union qualifies to change its charter 
from:
     A single occupational or associational charter to a 
multiple common bond charter;
     A multiple common bond to a single occupational or 
associational charter;
     A multiple common bond to a community charter; or
     A community to a multiple common bond charter.
    Third, a federal credit union removes a group from its field of 
membership through agreement with the group, a spin-off, or because 
the group no longer exists.

IV.B.2--Numerical Limitation of Select Groups

    An existing multiple common bond federal credit union that 
submits a request to amend its charter must provide documentation to 
establish that the multiple common bond requirements have been met. 
The Office of Consumer Financial Protection and Access 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 Office of Consumer Financial 
Protection and Access Director, with input from the appropriate 
regional director or Office of

[[Page 88436]]

National Examinations and Supervision Director, which is material 
during the one year period preceding the filing to add the group;
     The credit union is ``adequately capitalized'' pursuant 
to Part 702 of NCUA's Rules and Regulations. For low-income credit 
unions or credit unions chartered less than ten years, the Office of 
Consumer Financial Protection and Access Director, with input from 
the appropriate regional director or Office of National Examinations 
and Supervision Director, may determine that a less than 
``adequately capitalized'' credit union can qualify for an expansion 
if it is making reasonable progress toward becoming ``adequately 
capitalized.'' For any other credit union, the Office of Consumer 
Financial Protection and Access Director, with input from the 
appropriate regional director or Office of National Examinations and 
Supervision Director, may determine that a less than ``adequately 
capitalized'' credit union can qualify for an expansion if it is 
making reasonable progress toward becoming ``adequately 
capitalized,'' 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.
    The Federal Credit Union Act presumes that a group of 3,000 or 
more primary potential members is able to form its own stand-alone 
credit union unless NCUA determines that it is infeasible to do so 
for reasons such as:
    (i) The group lacks sufficient volunteer and other resources to 
support the efficient and effective operation of its own credit 
union;
    (ii) the group does not meet criteria that the Board has 
determined to be an important indicator of success in establishing 
and managing a new credit union, including demographic 
characteristics such as the geographic location of members, the 
diversity of ages and income levels among members, and other factors 
that may affect such a credit union's financial viability and 
stability; or
    (iii) the group would be unlikely to operate a safe and sound 
credit union.
    As such, NCUA requires additional information when a multiple 
common bond credit union applies to add a group of 3,000 or more 
primary potential members. For groups between 3,000 and 4,999 
potential members, NCUA requires documentation indicating the group 
has a lack of available subsidies, interest among the group's 
members, and sufficient resources. For such cases NCUA, in its 
discretion, will accept a written statement indicating these 
conditions exist as sufficient documentation the group cannot form 
its own credit union. Groups with 5,000 or more members will be 
subject to the standard document requirements as discussed later in 
this chapter, requiring a group to fully describe its inability to 
establish a new single common bond credit union.

IV.B.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-EZ, NCUA 
4015-A or NCUA 4015) to the Office of Consumer Financial Protection 
and Access 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:
     That the group wants to be added to the applicant 
federal credit union's field of membership;
     The number of persons currently included within the 
group to be added and their locations; and
     The group's proximity to the 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-A (for groups between 3,000 and 4,999 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:
     That the group wants to be added to the federal credit 
union's field of membership;
     The number of persons currently included within the 
group to be added and their locations;
     The group's proximity to credit union's nearest service 
facility, and
     Why the formation of a separate credit union for the 
group is not practical or consistent with safety and soundness 
standards because of a lack of available subsidies, interest among 
the group's members, and sufficient resources.
    The NCUA 4015 (for groups of 5,000 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:
     That the group wants to be added to the federal credit 
union's field of membership;
     Whether the group presently has other credit union 
service available;
     The number of persons currently included within the 
group to be added and their locations;
     The group's proximity to credit union's nearest service 
facility, and
     Why the formation of a separate credit union for the 
group is not practical or consistent with safety and soundness 
standards. 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.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 Office of Consumer Financial 
Protection and Access Director.

IV.C.2--Office of Consumer Financial Protection and Access Director 
Decision

    NCUA staff will review all amendment requests in order to ensure 
conformance to NCUA policy.
    Before acting on a proposed amendment, the Office of Consumer 
Financial Protection

[[Page 88437]]

and Access Director may require an on-site review. In addition, the 
Office of Consumer Financial Protection and Access 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--Office of Consumer Financial Protection and Access Director 
Approval

    If the Office of Consumer Financial Protection and Access 
Director approves the requested amendment, the credit union will be 
issued an amendment to Section 5 of its charter.

IV.C.4--Office of Consumer Financial Protection and Access Director 
Disapproval

    When the Office of Consumer Financial Protection and Access 
Director disapproves any application, in whole or in part, to amend 
the field of membership under this chapter, the applicant will be 
informed in writing of the:
     Specific reasons for the action;
    
     Options to consider, if appropriate, for gaining 
approval; and
     Appeal procedure.

IV.C.5--Appeal of Office of Consumer Financial Protection and 
Access Director Decision

    If a field of membership expansion request, merger, or spin-off 
is denied by staff, the federal credit union may appeal the decision 
to the NCUA Board. An appeal must be sent to the NCUA Board 
Secretary within 60 days of the date of denial and must be clearly 
identified as such and address the reason(s) the federal credit 
union disagrees with the denial. A copy of the appeal must be sent 
to the Office of Consumer Financial Protection and Access or, as 
applicable, the appropriate regional office or Office of National 
Examinations and Supervision Director. 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 office rendering the 
initial decision for reconsideration. A reconsideration will contain 
new and material evidence addressing the reasons for the initial 
denial. The office rendering the initial decision 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. 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 applicable NCUA regional or 
Office of National Examinations and Supervision Director where the 
continuing credit union is headquartered, with the concurrence of 
the regional director or Office of National Examinations and 
Supervision 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. 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 in danger of insolvency, as 
defined in the Glossary, 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

[[Page 88438]]

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 or 
Office of National Examinations and Supervision Director where the 
continuing credit union is headquartered, with the concurrence of 
the regional director or Office of National Examinations and 
Supervision Director of the merging credit union and, as applicable, 
the state regulators.

IV.D. 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 or Office of 
National Examinations and Supervision Director where the continuing 
credit union is headquartered, with the concurrence of the regional 
director or Office of National Examinations and Supervision Director 
of the purchased and/or assumed credit union and, as applicable, the 
state regulators.

IV.D.5--Spin-Offs

    A spin-off occurs when, by agreement of the parties, a portion 
of the field of membership, assets, liabilities, shares, and capital 
of a credit union are transferred to a new or existing credit union. 
A spin-off is unique in that usually one credit union has a field of 
membership expansion and the other loses a portion of its field of 
membership.
    All common bond requirements apply regardless of whether the 
spun-off group becomes a new charter or goes to an existing federal 
charter.
    The request for approval of a spun-off group must be supported 
with a plan that addresses, at a minimum:
     Why the spin-off is being requested;
     What part of the field of membership is to be spun off;
     Which assets, liabilities, shares, and capital are to 
be transferred;
     The financial impact the spin-off will have on the 
affected credit unions;
     The ability of the acquiring credit union to 
effectively serve the new members;
     The proposed spin-off date; and
     Disclosure to the members of the requirements set forth 
above.
    The spin-off request must also include current financial 
statements from the affected credit unions and the proposed voting 
ballot.
    For federal credit unions spinning off a group, membership 
notice and voting requirements and procedures are the same as for 
mergers (see part 708 of the NCUA Rules and Regulations), except 
that only the members directly affected by the spin-off--those whose 
shares are to be transferred--are permitted to vote. Members whose 
shares are not being transferred will not be afforded the 
opportunity to vote. All members of the group to be spun off 
(whether they voted in favor, against, or not at all) will be 
transferred if the spin-off is approved by the voting membership. 
Voting requirements for federally insured state credit unions are 
governed by state law.
    Spin-offs involving federally insured credit unions in different 
NCUA regions must be approved by all regional directors and, if 
applicable, the Office of National Examinations and Supervision 
Director 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 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 5,000 or more primary potential 
members. If cases arise where the assurance given to the Office of 
Consumer Financial Protection and Access 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 outweighs any adverse effect on the overlapped credit union.
    In reviewing the overlap, the Office of Consumer Financial 
Protection and Access 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. 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.
    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.

[[Page 88439]]

    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 and Field of Membership 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--Credit Union Requested Removal of Groups From the Field of 
Membership

    A credit union may request removal of a group from its field of 
membership for various reasons. The most common reasons for this 
type of amendment are:
     The group is within the field of membership of two 
credit unions and one wishes to discontinue service;
     The federal credit union cannot continue to provide 
adequate service to the group;
     The group has ceased to exist;
     The group does not respond to repeated requests to 
contact the credit union or refuses to provide needed support;
     The group initiates action to be removed from the field 
of membership; or
     The federal credit union wishes to convert to a single 
common bond.
    When a federal credit union requests an amendment to remove a 
group from its field of membership, the Office of Consumer Financial 
Protection and Access Director will determine why the credit union 
desires to remove the group. If the Office of Consumer Financial 
Protection and Access 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--NCUA Supervisory Action To Remove Groups From the Field of 
Membership

    NCUA has in place quality control processes that protect the 
integrity of its field of membership requirements. As part of this 
obligation, NCUA's Office of Consumer Financial Protection and 
Access will randomly select groups added through NCUA's Field of 
Membership Internet Application (FOMIA) system for quality assurance 
reviews even if the expansion application meets all the conditions 
for approval. Each FCU is responsible for obtaining certain 
documentation when seeking to add groups to its field of membership 
through FOMIA. In addition, as indicated in the FOMIA User 
Instruction Guide, available on NCUA's Web site, an FCU must 
permanently retain the documentation from the select group 
requesting service and the Confirmation Certificate generated at the 
time the FOMIA request is submitted to NCUA.
    As part of the quality assurance process, the Office of Consumer 
Financial Protection and Access reserves the right to request this 
documentation at any time. If the FCU fails to provide this 
documentation when the Office of Consumer Financial Protection and 
Access requests it, the director of the Office of Consumer Financial 
Protection and Access may consider removing the group from the FCU's 
field of membership and restricting the FCU from using the FOMIA 
system for future requests. Specifically, as part of the FOMIA 
quality assurance process, the Office of Consumer Financial 
Protection and Access staff will do the following:
    1. Within 10 days of receiving an application selected for a 
quality assurance review, notify the FCU of the documentation the 
Office of Consumer Financial Protection and Access requires. The FCU 
will have 15 days to provide the necessary documentation. the Office 
of Consumer Financial Protection and Access will respond to the FCU 
with a determination on the quality assurance review of the 
association within 15 days of receiving the requested information;
    2. After receiving the additional documentation, if any concerns 
remain outstanding, the Office of Consumer Financial Protection and 
Access will again correspond with the FCU and provide a 15-day time 
frame for correcting the concern. the Office of Consumer Financial 
Protection and Access will respond to the FCU with a determination 
on the quality assurance review of the association within 15 days of 
receiving the requested information; and
    3. If the FCU does not provide the requested documentation, or 
cannot correct the concern, the Office of Consumer Financial 
Protection and Access Director will deny the application and notify 
the credit union of its appeal rights.

IV.I--NCUA Investigation of Potential Field of Membership Violations

    NCUA's Office of Consumer Financial Protection and Access is 
responsible for investigating field of membership complaints from 
the public, and matters referred to it from the field. It also 
pursues corrective action as needed for FCUs with confirmed field of 
membership violations. Although circumstances can vary with each 
case, the Office of Consumer Financial Protection and Access will 
generally adhere to the following process for investigating and 
addressing potential field of membership violations:
    1. Initially correspond with management to outline concerns and 
request clarifying information within 60 days. the Office of 
Consumer Financial Protection and Access will also provide context 
as to the source of NCUA's concerns, such as the discovery of new 
information about a particular group or an examination finding 
brought to the attention of the Office of Consumer Financial 
Protection and Access;
    2. If the Office of Consumer Financial Protection and Access 
does not receive the requested information within 60 days, it will 
notify the FCU and again request the required information be 
provided within 30 days;
    3. After receiving the additional documentation, if any concerns 
remain outstanding, the Office of Consumer Financial Protection and 
Access will again correspond with the FCU to provide a 60-day time 
frame for addressing the concern; and
    4. If the FCU is unable to correct the concern, and after 
consultation with the Office of General Counsel and the appropriate 
Regional Office or Office of National Examinations and Supervision 
Director, and in accordance with agency guidelines for 
administrative actions, the Director of the Office of Consumer 
Financial Protection and Access will remove the group from the FCU's 
field of membership pursuant to authority delegated by the NCUA 
Board. Removal of a group is treated the same as an initial denial 
under the Chartering Manual. In any adverse final determination on 
removal under the above delegations, the Office of Consumer 
Financial Protection and Access will notify the FCU of its appeal 
rights.
    NCUA considers the removal of an association from an FCU's field 
of membership as an action of last resort. If a group is removed, 
the FCU can no longer add new members from the group, but can

[[Page 88440]]

continue serving those who are already members of the FCU under the 
``once a member, always a member'' provision of the Federal Credit 
Union Act. Also, if the group subsequently qualifies due to changes 
to the group itself, management can submit a new application at that 
time.

IV.J--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;
     Honorably discharged veterans who served in any of the 
Armed Services of the United States in this charter;
     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

    There are two types of community charters. One is based on a 
single, geographically well- defined local community or 
neighborhood; the other is a rural district. More than one credit 
union may serve the same community.
    NCUA recognizes four types of affinity on which both a community 
charter and a rural district can be based--persons who live in, 
worship in, attend school in, or work in the community or rural 
district. Businesses and other legal entities within the community 
boundaries or rural district may also qualify for membership.
    NCUA has established the following requirements for community 
charters:
     The geographic area's boundaries must be clearly 
defined; and
     The area is a well-defined local community or a rural 
district.

V.A.2--Definition of Well-Defined Local Community and Rural 
District

    In addition to the documentation requirements 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.
    An applicant has the burden of demonstrating to NCUA that the 
proposed community area meets the statutory requirements of being: 
(1) Well-defined, and (2) a local community or rural district.
    ``Well-defined'' means the proposed area has specific geographic 
boundaries. Geographic boundaries may include a city, township, 
county (single, multiple, or portions of a county) or a political 
equivalent, school district, or a clearly identifiable neighborhood. 
Although state boundaries are well-defined areas, states themselves 
do not meet the requirement that the proposed area be a local 
community.
    The well-defined local community requirement is met if:
     Single Political Jurisdiction--The area to be served is 
in a recognized Single Political Jurisdiction, i.e., a city, county, 
or their political equivalent, or any individual portion thereof.
     Statistical Area--The area is a designated Core Based 
Statistical Area or allowing a portion thereof, or in the case of a 
Core Based Statistical Area with Metropolitan Divisions, the area is 
a Metropolitan Division or is a portion thereof; or
     The area is a designated a Combined Statistical Area or 
a portion thereof; AND
     The Core Based Statistical Area, Metropolitan Division 
or Combined Statistical Area, or the portion thereof, must have a 
population of 2.5 million or less people.
     Compelling Evidence of Interaction or Common 
Interests--In lieu of a statistical area as defined above, this 
option applies only to the addition of an immediately adjacent area 
falling outside a Single Political Jurisdiction, Core Based 
Statistical Area or Combined Statistical Area, and thus may 
demonstrate a sufficient level of interaction to qualify as a local 
community. For these situations, applicants have the option of 
submitting a narrative to NCUA to address how the residents meet the 
requirements for being a local community. The Office of Consumer 
Financial Protection and Access will issue additional guidance to 
help a credit union develop its written narrative. NCUA will base 
its decision on a consideration of the following factors with 
respect to the proposed service area in its entirety:
    Economic Hub: Evidence indicates residents commonly travel to a 
geographically compact locale within the area for work and major 
commerce needs. Traffic flows, the presence of common or related 
industries, or unified economic planning demonstrate how the locales 
have economic interdependence.
    Population Center: Area has a dominant county or municipality 
with a significant portion of the area's population and evidence 
exists to support the relevance of the population center to all 
residents within the area.
    Isolated Areas: Areas geographically isolated, such as by 
mountains, bodies of water, or other prominent features.
    Quasi-Governmental Agencies: A quasi-governmental agency, such 
as a regional planning commission, predominantly covers the proposed 
service area and derives its leadership from the area to advance 
meaningful objectives advancing the residents' common interests in 
economic development and/or improving quality of life. Success of 
agency in meeting its mission depends upon collaboration from 
throughout the area.
    Government Designations: A division of a federal or state agency 
specifically designates the proposed service area as its area of 
coverage or as a target area for specific programs.
    Shared Public Services/Facilities: Formal agreements exist that 
provide for a common need shared by all of the residents, such as 
common police or fire protection, or public utilities.
    Colleges and Universities: Evidence exists to demonstrate the 
common relevance of an institution or institutions to the entire 
area, such as unique educational initiatives to support economic 
objectives benefiting all residents and/or partnerships with local 
businesses or high schools.
    An area of any geographic size qualifies as a Rural District if:
     The proposed district has well-defined, contiguous 
geographic boundaries;
     The total population of the proposed district does not 
exceed 1,000,000.
     Either more than 50% of the proposed district's 
population resides in census blocks or other geographic units that 
are designated as rural by either the Consumer Financial Protection 
Bureau or the United States Census Bureau, OR the district has a 
population density of 100 persons or fewer per square mile; and
     The boundaries of the well-defined rural district do 
not exceed the outer boundaries of the states that are immediately 
contiguous to the state in which the credit union maintains its 
headquarters (i.e., not to exceed the outer perimeter of the layer 
of states immediately surrounding the headquarters state).
    The affinity groups that apply to well-defined local 
communities, found in Chapter 2, Section V.G., also apply to Rural 
Districts.
    The OMB definitions of Core Based Statistical Area and 
Metropolitan Division, as

[[Page 88441]]

well as that of Combined Statistical Area (found at https://www.whitehouse.gov/omb/bulletins_default) are incorporated herein by 
reference. Access to these definitions is also available through 
NCUA's Web site at http://www.ncua.gov.
    The requirements in Chapter 2, Sections V.A.4 through V.G. also 
apply to a credit union that serves a rural district.

V.A.3--Previously Approved Communities

    If NCUA has determined that a specific geographic area is a 
well-defined local community, then a new applicant need not 
reestablish that fact as part of its application to serve the exact 
area. The new applicant must, however, note NCUA's previous 
determination as part of its overall application. An applicant 
applying for an area that is not exactly the same as a previously 
approved well defined local community must comply with the current 
criteria in place for determining a well-defined local community.

V.A. Business Plan Requirements for a Community Credit Union

    A community credit union is frequently more susceptible to 
competition from other local financial institutions and generally 
does not have substantial support from any single sponsoring company 
or association. As a result, a community credit union will often 
encounter financial and operational factors that differ from an 
occupational or associational charter. Its diverse membership may 
require special marketing programs targeted to different segments of 
the community. For example, the lack of payroll deduction creates 
special challenges in the development and promotion of savings 
programs and in the collection of loans. Accordingly, to support an 
application for a community charter, an applicant Federal credit 
union must develop a business plan incorporating the following data:
     Pro forma financial statements for a minimum of 24 
months after the proposed conversion, including the underlying 
assumptions and rationale for projected member, share, loan, and 
asset growth;
     Anticipated financial impact on the credit union, 
including the need for additional employees and fixed assets, and 
the associated costs;
     A description of the current and proposed office/branch 
structure, including a general description of the location(s); 
parking availability, public transportation availability, drive-
through service, lobby capacity, or any other service feature 
illustrating community access;
     A marketing plan addressing how the community will be 
served for the 24-month period after the proposed conversion to a 
community charter, including detailing: How the credit union will 
implement its business plan; the unique needs of the various 
demographic groups in the proposed community; how the credit union 
will market to each group, particularly underserved groups; which 
community-based organizations the credit union will target in its 
outreach efforts; the credit union's marketing budget projections 
dedicating greater resources to reaching new members; and the credit 
union's timetable for implementation, not just a calendar of events;
     Details, terms and conditions of the credit union's 
financial products, programs, and services to be provided to the 
entire community; and
     Maps showing the current and proposed service 
facilities, ATMs, political boundaries, major roads, and other 
pertinent information.
    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 must 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.
    Before approval of an application to convert to a community 
credit union, NCUA must be satisfied that the credit union will be 
viable and capable of providing services to its members.
    Community credit unions will be expected to regularly review and 
to follow, to the fullest extent economically possible, the 
marketing and business plans submitted with their applications. 
Additionally, NCUA will follow-up with an FCU every year for three 
years after the FCU has been granted a new or expanded community 
charter, and at any other intervals NCUA believes appropriate, to 
determine if the FCU is satisfying the terms of its marketing and 
business plans.
    An FCU failing to satisfy those terms will be subject to 
supervisory action. As part of this review process, the regional 
office or Office of National Examinations and Supervision Director 
will report to the NCUA Board instances where an FCU is failing to 
satisfy the terms of its marketing and business plan and indicate 
what supervisory actions the region or ONES intends to take.

V.A.5--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, 
or other static geographical feature.
    A community that is a recognized legal entity may be stated in 
the field of membership-- for example, ``Gus Township, Texas,'' 
``Isabella City, Georgia,'' or ``Fairfax County, Virginia.''
    A community that is an entire United States Census Bureau 
designated Core Based Statistical Area or Combined Statistical Area 
may be stated in the field of membership--for example, ``Fort Wayne, 
IN Metropolitan Statistical Area,'' ``Albany, GA Metropolitan 
Statistical Area,'' or ``Syracuse-Auburn, NY Combined Statistical 
Area.''

V.A.6--Special Community Charters

    A community field of membership may include persons who work or 
attend school in a particular industrial park, shopping mall, office 
building or complex, or similar development. The proposed field of 
membership must have clearly defined geographic boundaries.

V.A. Ample 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, 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;
     Persons who live, work, or worship in the Binghamton, 
New York, Core Based Statistical Area, consisting of Broome and 
Tioga Counties, New York (a qualifying Core Based Statistical Area 
in its entirety);
     Persons who live, work, worship, or attend school in 
the portion of the Oklahoma City, OK Metropolitan Statistical Area 
that includes Canadian and Oklahoma counties, Oklahoma (two 
contiguous counties in a portion of a qualifying Core Based 
Statistical Area that has seven counties in total); or
     Persons who live, work, worship, or attend school in 
Uinta County or Lincoln County, Wyoming, a rural district.
    Some examples of insufficiently defined local communities, 
neighborhoods, or rural districts are:
     Persons who live or work within and businesses located 
within a ten-mile radius of Washington, DC (not a permitted 
community);
     Persons who live or work in the industrial section of 
New York, New York. (not well- defined nor a permitted community); 
or
     Persons who live or work in the greater Boston area. 
(not well-defined).
    Some examples of unacceptable local communities, neighborhoods, 
or rural districts are:
     Persons who live or work in the State of California. 
(not a permitted community). Persons who live in the first 
congressional district of Florida. (not a permitted community).

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.4 of this chapter.
    A community credit union that is based on a Single Political 
Jurisdiction, a Statistical Area (e.g., Core Based Statistical Area 
or

[[Page 88442]]

Combined Statistical Area) or a rural district may expand its 
geographic boundaries to add a bordering area, provided the area is 
well defined and the credit union demonstrates that persons who 
live, work, worship, or attend school within the proposed expanded 
community (i.e., on both sides of the boundary separating the 
existing community and the bordering area) have common interests 
and/or interact. Such a credit union applying to expand its 
geographic boundaries to add a bordering area must follow a 
streamlined version of the business plan requirements of Section 
V.A.4 of this chapter and the expanded community would be subject to 
the corresponding population limit--2.5 million in the case of a 
Single Political Jurisdiction, or a Statistical Area and 1 million 
in the case of a rural district. The streamlined business plan 
requirements for adding a bordering area are:
     Anticipated marginal financial impact on the credit 
union of adding the proposed bordering area, including the need for 
additional employees and fixed assets, and the associated costs;
     A description of the current and, if applicable, 
proposed office/branch structure specific to serving the proposed 
bordering area;
     A marketing plan addressing how the new community will 
be served for the 24-month period after the proposed expansion of a 
community charter, including detailing how the credit union will 
address the unique needs of any demographic groups in the proposed 
bordering community not presently served by the credit union and how 
the credit union will market to any new groups; and
     Details, terms and conditions of any new financial 
products, programs, and services to be introduced as part of this 
expansion.

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 Office of Consumer Financial 
Protection and Access Director. If a decision cannot be made within 
a reasonable period of time, the Office of Consumer Financial 
Protection and Access 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 Office of Consumer Financial Protection and Access 
Director Decision

    If a field of membership expansion request, merger, or spin-off 
is denied by staff, the federal credit union may appeal the decision 
to the NCUA Board. An appeal must be sent to the NCUA Board 
Secretary within 60 days of the date of denial and must be clearly 
identified as such and address the specific reason(s) the federal 
credit union disagrees with the denial. A copy of the appeal must be 
sent to the Office of Consumer Financial Protection and Access or, 
as applicable, the appropriate regional office or Office of National 
Examinations and Supervision Director. 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 office rendering the 
initial decision for reconsideration. A reconsideration will contain 
new and material evidence addressing the reasons for the initial 
denial. The office rendering the initial decision will have 30 days 
from the date of the receipt of the request for reconsideration to 
make a final decision. If the request is again denied, the applicant 
may proceed with the appeal process within 60 days of the date of 
the last denial. A second request for reconsideration will be 
treated as an appeal to the NCUA Board.

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

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

V.D. 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 or Office 
of National Examinations and Supervision Director where the 
continuing credit union is headquartered, with the concurrence of 
the regional director or Office of National Examinations and 
Supervision Director of the merging credit union, and, as 
applicable, the state regulators.

V.D. 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 in danger of insolvency, as 
defined in the Glossary, 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

[[Page 88443]]

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 or 
Office of National Examinations and Supervision Director where the 
continuing credit union is headquartered, with the concurrence of 
the regional director or Office of National Examinations and 
Supervision Director of the merging credit union and, as applicable, 
the state regulators.

V.D. 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 or Office of 
National Examinations and Supervision Director where the continuing 
credit union is headquartered, with the concurrence of the regional 
director or Office of National Examinations and Supervision 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. Exclusionary Clauses

    An exclusionary clause is a limitation precluding the credit 
union from serving the primary members of a portion of a group or 
community otherwise included in its field of membership.
    NCUA no longer grants exclusionary clauses. Those granted prior 
to the adoption of this new Chartering and Field of Membership 
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

[[Page 88444]]

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 median family income falls at or below 80 percent 
of the median family 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 Office of Consumer 
Financial Protection and Access Director, along with appropriate 
documentation supporting the request.
    For community charter applicants, the supporting material should 
include the median family 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 Office of Consumer 
Financial Protection and Access Director with a list which includes 
the number of potential members, sorted by their residential zip 
codes, and NCUA will assist in obtaining the necessary demographic 
data.
    An existing credit union can perform a loan or membership survey 
to determine if the credit union is primarily serving low-income 
members.

II.D--Third-Party Assistance

    A low-income federal credit union charter applicant may contract 
with a third party to assist in the chartering and low-income 
designation process. If the charter is granted, a low-income credit 
union may contract with a third party to provide necessary 
management services. Such contracts should not exceed the duration 
of one year subject to renewal.

II.E--Special Rules for Low-Income Federal Credit Unions

    In recognition of the unique efforts needed to help make credit 
union service available to low-income groups, NCUA has adopted 
special rules that pertain to low-income credit union charters, as 
well as field of membership additions for low-income credit unions. 
These special rules provide additional latitude to enable 
underserved, low-income individuals to gain access to credit union 
service.
    NCUA permits credit union chartering and field of membership 
amendments based on associational groups formed for the sole purpose 
of making credit union service available to low- income persons. The 
association must be defined so that all of its members will meet the 
low- income definition of Section 701.34 of the NCUA Rules and 
Regulations. Any multiple common bond credit union can add low-
income associations to their fields of membership.
    A low-income designated community federal credit union has 
additional latitude in serving persons who are affiliated with the 
community. In addition to serving members who live, work, worship, 
or attend school in the community, a low-income community federal 
credit union may also serve persons who participate in programs to 
alleviate poverty or distress, or who participate in associations 
headquartered in the community.
    Examples of a low-income designated community and an 
associational-based low-income federal credit union are as follows:
     Persons who live in [the target area]; persons who 
work, worship, attend school, or participate in associations 
headquartered in [the target area]; persons participating in 
programs to alleviate poverty or distress which are located in [the 
target area]; incorporated and unincorporated organizations located 
in [the target area] or maintaining a facility in [the target area]; 
and organizations of such persons.
     Members of the Canarsie Economic Assistance League, in 
Brooklyn, NY, an association whose members all meet the low-income 
definition of Section 701.34 of the NCUA Rules and Regulations.

III--Service to Underserved Communities

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.

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).

[[Page 88445]]

III.B.2. Economic Distress Criteria

    Geographic Unit(s) By Proposed Area's Location. The location of 
a proposed ``underserved area'' either within or outside of a 
Metropolitan Statistical Area 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 a Metropolitan Statistical Area. For a proposed area 
located, in whole or in part, within a Metropolitan Statistical 
Area, 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 a Metropolitan Statistical Area. For a proposed area 
that is located entirely outside a Metropolitan Statistical Area, 
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 a Metropolitan Statistical Area) 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 Metropolitan Statistical Area, 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 a Metropolitan Statistical Area) 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 a Metropolitan Statistical Area) 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 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. 
This establishes the area's concentration of facilities ratio. 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 a 
Metropolitan Statistical Area, 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.
    When, as the result of an initial Concentration of Facilities 
ratio calculation, a proposed area does not qualify as ``underserved 
by other depository institutions,'' NCUA will exclude non- 
depository banks (e.g., trust companies) and non-community credit 
unions (i.e., those institutions unable to serve the general public) 
from the computation. For the purposes of this analysis, a multiple 
common bond credit union already serving the area as an underserved 
area is considered able to serve the general public and thus would 
not be excluded. With both of these exclusions, NCUA will 
recalculate the concentration of facilities ratio to determine 
whether, as a result, the proposed area qualifies as ``underserved 
by other depository institutions.''
    As one alternative to the concentration of facilities ratio, a 
proposed area will qualify as ``underserved by other depository 
institutions'' if it is designated an ``underserved county'' by NCUA 
based on data produced by the Consumer Financial Protection Bureau 
(available at: http://www.consumerfinance.gov/guidance/#ruralunderserved). NCUA will make its list of ``underserved 
counties'' available on its Web site.
    As another alternative to the concentration of facilities ratio, 
a proposed area will qualify as ``underserved by other depository 
institutions'' if the credit seeking to serve it, using a metric of 
its own choosing, provided that it is based on NCUA or other Federal 
banking agency data, that establishes to NCUA that the proposed area 
is ``underserved by other depository institutions.''

[[Page 88446]]

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 that 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 Office of Consumer 
Financial Protection and Access 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 Office of Consumer Financial Protection and Access 
Director Decision

    If the Office of Consumer Financial Protection and Access 
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 NCUA Board Secretary within 60 days of the date of 
denial. The appeal must be clearly identified as such and address 
the specific reason(s) the federal credit union disagrees with the 
denial. A copy of the appeal must be sent to the Office of Consumer 
Financial Protection and Access. 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 Office of Consumer 
Financial Protection and Access Director for reconsideration. A 
reconsideration will contain new and material evidence addressing 
the reasons for the initial denial. The Office of Consumer Financial 
Protection and Access Director will have 30 days from the date of 
the receipt of the request for reconsideration to make a final 
decision. If the request is again denied, the applicant may proceed 
with the appeal process within 60 days of the date of the last 
denial. A second request for reconsideration will be treated as an 
appeal to the NCUA Board.

Chapter 4--Charter Conversions

I--Introduction

    A charter conversion is a change in the jurisdictional authority 
under which a credit union operates.
    Federal credit unions receive their charters from NCUA and are 
subject to its supervision, examination, and regulation.
    State-chartered credit unions are incorporated in a particular 
state, receiving their charter from the state agency responsible for 
credit unions and subject to the state's regulator. If the state-
chartered credit union's deposits are federally insured, it will 
also fall under NCUA's jurisdiction.
    A federal credit union's power and authority are derived from 
the Federal Credit Union Act and NCUA Rules and Regulations. State-
chartered credit unions are governed by state law and regulation. 
Certain federal laws and regulations also apply to federally insured 
state chartered credit unions.
    There are two types of charter conversions: federal charter to 
state charter and state charter to federal charter. Common bond and 
community requirements are not an issue from NCUA's standpoint in 
the case of a federal to state charter conversion. The procedures 
and forms relevant to both types of charter conversion are included 
in appendix 4.

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

II.A--General Requirements

    Any state-chartered credit union may apply to convert to a 
federal credit union. In order to do so it must:
     Comply with state law regarding conversion and file 
proof of compliance with NCUA;
     File the required conversion application, proposed 
federal credit union organization certificate, and other documents 
with NCUA;
     Comply with the requirements of the Federal Credit 
Union Act, e.g., chartering and reserve requirements; and
     Be granted federal share insurance by NCUA.
    Conversions are treated the same as any initial application for 
a federal charter, including an on-site examination by NCUA where 
appropriate. NCUA will also consult with the appropriate state 
authority regarding the credit union's current financial condition, 
management expertise, and past performance. Since the applicant in a 
conversion is an ongoing credit union, the economic advisability of 
granting a charter is more readily determinable than in the case of 
an initial charter applicant.
    A converting state credit union's field of membership must 
conform to NCUA's chartering policy. The field of membership will be 
phrased in accordance with NCUA chartering policy. However, if the 
converting credit union is a multiple group charter and the new 
federal charter is a multiple group, then the new federal charter 
may retain in its field of membership any group that the state 
credit union was serving at the time of conversion. Subsequent 
changes must conform to NCUA chartering policy in effect at that 
time.
    If the converting credit union is a community charter and the 
new federal charter is community-based, it must meet the community 
field of membership requirements set forth in Chapter 2, Section V 
of this manual. If the state-chartered credit union's community 
boundary is more expansive than the approved federal boundary, only 
members of record outside of the new community boundary may continue 
to be served.
    The converting credit union, regardless of charter type, may 
continue to serve members of record. The converting credit union may 
retain in its field of membership any group or community added 
pursuant to state emergency provisions.

II.B--Submission of Conversion Proposal to NCUA

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

[[Page 88447]]

     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 Office of Consumer Financial Protection and 
Access 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 Office of 
Consumer Financial Protection and Access 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 Office of Consumer Financial Protection and 
Access Director and Conditions to the Approval

    The conversion will be approved by the Office of Consumer 
Financial Protection and Access 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 Office of Consumer 
Financial Protection and Access 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 appropriate NCUA regional director or Office of National 
Examinations and Supervision Director.

II.C.4--Notification

    The Office of Consumer Financial Protection and Access 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 Office of Consumer Financial Protection and Access 
Director Decision

    If a conversion to a federal charter is denied by the Office of 
Consumer Financial Protection and Access Director, the applicant 
credit union may appeal the decision to the NCUA Board. An appeal 
must be sent to the NCUA Board Secretary within 60 days of the date 
of denial. The appeal must be clearly identified as such and address 
the specific reason(s) the credit union disagrees with the denial. A 
copy of the appeal must be sent to the Office of Consumer Financial 
Protection and Access. 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 Office of Consumer 
Financial Protection and Access Director for reconsideration. The 
request will not be considered as an appeal, but a request for 
reconsideration by the Office of Consumer Financial Protection and 
Access Director. The Office of Consumer Financial Protection and 
Access 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 Office of Consumer Financial Protection 
and Access Director.

II.D--Action by Board of Directors

II.D.1--General

    Upon being informed of the Office of Consumer Financial 
Protection and Access 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 Office of Consumer Financial Protection and Access 
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 Office of Consumer Financial 
Protection and Access Director; and
     Submit a statement of the action taken to comply with 
any conditions imposed by the Office of Consumer Financial 
Protection and Access Director in the preliminary approval of the 
conversion proposal and, if applicable, submit the signed LUA.

II.D.Application for a Federal Charter

    When the Office of Consumer Financial Protection and Access 
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.--Effective Date of Conversion

    The date on which the Office of Consumer Financial Protection 
and Access 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 Office of 
Consumer Financial Protection and Access 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 Office of Consumer Financial 
Protection and Access 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.Reports to NCUA

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

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

III.A--General Requirements

    Any federal credit union may apply to convert to a state credit 
union. In order to do so, it must:
     Notify NCUA prior to commencing the process to convert 
to a state charter and state the reason(s) for the conversion;
     Comply with the requirements of Section 125 of the 
Federal Credit Union Act that

[[Page 88448]]

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 
Office of Consumer Financial Protection and Access Director at the 
time it requests approval of the conversion proposal. The Office of 
Consumer Financial Protection and Access 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 Office of Consumer Financial Protection and Access 
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 Office of Consumer Financial Protection and 
Access 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 Office of Consumer Financial Protection and Access 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 Office of Consumer Financial Protection and Access 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 Office of Consumer Financial Protection and 
Access Director

    The proposal will be approved by the Office of Consumer 
Financial Protection and Access 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 Office of Consumer Financial Protection and Access Director 
will notify both the credit union and the state regulator of the 
decision on the proposal.

III.D.UA 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 Office of Consumer Financial Protection and Access 
Director Decision

    If the Office of Consumer Financial Protection and Access 
Director denies a conversion to a state charter, the federal credit 
union may appeal the decision to the NCUA Board. An appeal must be 
sent to the NCUA Board Secretary within 60 days of the date of 
denial. The appeal must be clearly identified as such and address 
the specific reason(s) the federal credit union disagrees with the 
denial. A copy of the appeal must be sent to the Office of Consumer 
Financial Protection and Access. 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 Office of Consumer 
Financial Protection and Access Director for reconsideration. The 
request will not be considered as an appeal, but a request for 
reconsideration by the Office of Consumer Financial Protection and 
Access Director. The Office of Consumer Financial Protection and 
Access 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 Office of Consumer Financial Protection 
and Access Director.

III.E--Approval of Proposal by Members

    The members may not vote on the proposal until it is approved by 
the Office of Consumer Financial Protection and Access 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:
     Specify the purpose, time and place of the meeting;
     Include a brief, complete, and accurate statement of 
the reasons for and against the proposed conversion, including any 
effects it could have upon share holdings, insurance of member 
accounts, and the policies and practices of the credit union;
     Specify the costs of the conversion, i.e., changing the 
credit union's name, examination and operating fees, attorney and 
consulting fees, tax liability, etc.;
     Inform the members that they have the right to vote on 
the proposal at the meeting, or by written ballot to be filed not 
later than the date and time announced for the annual meeting, or at 
the special meeting called for that purpose;
     Be accompanied by a Federal to State Conversion--Ballot 
for Conversion Proposal (NCUA 4506); and
     State in bold face type that the issue will be decided 
by a majority of members who vote.
     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

[[Page 88449]]

vote to the Office of Consumer Financial Protection and Access 
Director. The statement shall be verified by affidavits of the Chief 
Executive Officer and the Recording Officer on NCUA 4505.

III.F--Compliance With State Laws

    If the proposal for conversion is approved by a majority of all 
members who voted, the board of directors will:
     Ensure that all requirements of state law and the state 
regulator have been accommodated;
     Ensure that the state charter or the license has been 
received within 90 days from the date the members approved the 
proposal to convert; and
     Ensure that the Office of Consumer Financial Protection 
and Access 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 Office of Consumer Financial Protection and Access Director 
should be informed of the reasons for the delay. The Office of 
Consumer Financial Protection and Access 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 Office of Consumer Financial Protection and Access 
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 Office of Consumer Financial Protection and Access 
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 Office of Consumer Financial Protection and 
Access 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 Office of Consumer Financial Protection and Access 
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 Office of Consumer Financial Protection and 
Access 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 Office of Consumer Financial Protection and 
Access 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 Office of Consumer Financial Protection and Access Director will 
issue a new insurance certificate.

APPENDIX 1 GLOSSARY

    These definitions apply only for use with this Manual. 
Definitions are not intended to be all inclusive or comprehensive. 
This Manual, the Federal Credit Union Act, and NCUA Rules and 
Regulations, as well as state laws, may be used for further 
reference.
    Adequately capitalized--A credit union is considered 
``adequately capitalized'' when it meets the ``adequately 
capitalized'' definition in Part 702 of NCUA's Rules and 
Regulations. A multiple common bond credit union must be 
``adequately capitalized'' in order to add new groups to its 
charter. The Office of Consumer Financial Protection and Access 
director, with input from the appropriate regional director or 
Office of National Examinations and Supervision Director, may 
determine that a less than ``adequately capitalized'' credit union 
can qualify for an expansion if it is making reasonable progress 
toward becoming ``adequately capitalized,'' and the addition of the 
group would not adversely affect the credit union's capitalization 
level.
    Affinity--A relationship upon which a community charter is 
based. Acceptable affinities include living, working, worshiping, or 
attending school in a community.
    Appeal--The right of a credit union or charter applicant to 
request a formal review of the Office of Consumer Financial 
Protection and Access, regional director's or Office of National 
Examinations and Supervision Director's adverse decision by the 
National Credit Union Administration Board.
    Associational common bond--A common bond comprised of members 
and employees of a recognized association. It includes individuals 
(natural persons) and/or groups (non-natural persons) whose members 
participate in activities developing common loyalties, mutual 
benefits, and mutual interests.
    Business plan--Plan submitted by a charter applicant or existing 
federal credit union addressing the economic advisability of a 
proposed charter or field of membership addition.
    Charter--The document which authorizes a group to operate as a 
credit union and defines the fundamental limits of its operating 
authority, generally including the persons the credit union is 
permitted to accept for membership. Charters are issued by the 
National Credit Union Administration for federal credit unions and 
by the designated state chartering authority for credit unions 
organized under the laws of that state.
    Common bond--The characteristic or combination of 
characteristics which distinguishes a particular group of persons 
from the general public. There are two common bonds which can serve 
as a basis for a group forming a federal credit union or being 
included in an existing federal credit union's field of membership: 
Occupational--employment by the same company, related companies or 
in a trade, industry, or profession (TIP); and associational--
membership in the same association.
    Community credit union--A credit union whose field of membership 
consists of persons who live, work, worship, or attend school in the 
same well-defined local community, neighborhood, or rural district.
    Credit union--A member-owned, not-for-profit cooperative 
financial institution formed to permit those in the field of 
membership specified in the charter to save, borrow, and obtain 
related financial services.
    Economic advisability--An overall evaluation of the credit 
union's or charter applicant's ability to operate successfully.
    Emergency merger--Pursuant to Section 205(h) of the Federal 
Credit Union Act, authority of NCUA to merge two credit unions 
without regard to common bond policy.
    Exclusionary clause--A limitation, written in a credit union's 
charter, which precludes the credit union from serving a portion of 
a group which otherwise could be included in its field of 
membership.
    Federal share insurance--Insurance coverage provided by the 
National Credit Union Share Insurance Fund and administered by the 
National Credit Union Administration. Coverage is provided for 
qualified accounts in all federal credit unions and participating 
state credit unions.

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    Field of membership--The persons (including organizations and 
other legal entities) a credit union is permitted to accept for 
membership.
    Household--Persons living in the same residence maintaining a 
single economic unit.
    Housekeeping Amendment--A field of membership amendment to 
delete groups, change group names, change group locations, remove 
exclusionary clauses, and to add other persons eligible for credit 
union membership by virtue of their close relationship to a common 
bond group or the community for community charters.
    Immediate family member--A spouse, child, sibling, parent, 
grandparent, or grandchild. This includes stepparents, stepchildren, 
stepsiblings, and adoptive relationships.
    In danger of insolvency--In making the determination that a 
particular credit union is in danger of insolvency, NCUA will 
establish that the credit union falls into one or more of the 
following categories:
    1. The credit union's net worth is declining at a rate that will 
render it insolvent within 24 months. In projecting future net 
worth, NCUA may rely on data in addition to Call Report data. The 
trend must be supported by at least 12 months of historic data.
    2. The credit union's net worth is declining at a rate that will 
take it under two percent (2%) net worth within 12 months. In 
projecting future net worth, NCUA may rely on data in addition to 
Call Report data. The trend must be supported by at least 12 months 
of historic data.
    3. The credit union's net worth, as self-reported on its Call 
Report, is significantly undercapitalized, and NCUA determines that 
there is no reasonable prospect of the credit union becoming 
adequately capitalized in the succeeding 36 months. In making its 
determination on the prospect of achieving adequate capitalization, 
NCUA will assume that, if adverse economic conditions are affecting 
the value of the credit union's assets and liabilities, including 
property values and loan delinquencies related to unemployment, 
these adverse conditions will not further deteriorate.
    Letter of Understanding and Agreement--Agreement between NCUA 
and federal credit union officials not to engage in certain 
activities and/or to establish reasonable operational goals. These 
are normally entered into with new charter applicants for a limited 
time.
    Mentor--An individual who provides guidance and assistance to 
newly chartered, small, or low-income credit unions. All new federal 
credit unions are encouraged to establish a mentor relationship with 
a trained, experienced credit union individual or an existing credit 
union.
    Metropolitan Statistical Area--The Office of Management and 
Budget defines a metropolitan statistical area as an urbanized area 
that has at least one urbanized area in excess of 50,000 and 
``comprises the central county or counties containing the core, plus 
adjacent outlying counties having a high degree of social and 
economic integration with the central county as measured through 
commuting.''
    Merger--Absorption by one credit union of all of the assets, 
liabilities and equity of another credit union. Mergers must be 
approved by the National Credit Union Administration and by the 
appropriate state regulator whenever a state credit union is 
involved.
    Multiple common bond credit union--A credit union whose field of 
membership consists of more than one group, each of which has a 
common bond of occupation or association.
    Occupational common bond--Employment by the same entity or 
related entities or a Trade, Industry, or Profession.
    Once a member, always a member--A provision of the Federal 
Credit Union Act which permits an individual to remain a member of 
the credit union until he or she chooses to withdraw or is expelled 
from the membership of the credit union. Under this provision, 
leaving a group that is named in the credit union's charter does not 
terminate an individual's membership in the credit union.
    Organizations of such persons--An organization or organizations 
composed exclusively of persons who are within the field of 
membership of the credit union.
    Overlap--The situation which results when a group is eligible 
for membership in more than one credit union.
    Primary potential members--Members or employees who belong to an 
associational or occupational group.
    Purchase and assumption--Purchase of all or part of the assets 
of and assumption of all or part of the liabilities of one credit 
union by another credit union. The purchased and assumed credit 
union must first be placed into involuntary liquidation.
    Service area--The area that can reasonably be served by the 
service facilities accessible to the groups within the field of 
membership.
    Service facility--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, a video teller machine 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. A service facility does not 
include an ATM or interest in a shared branch network for purposes 
of serving an underserved area.
    Single associational common bond credit union--A credit union 
whose field of membership includes members and employees of a 
recognized association.
    Single common bond credit union--A credit union whose field of 
membership consists of one group which has a common bond of 
occupation or association.
    Single occupational common bond credit union--A credit union 
whose field of membership consists of employees of the same entity 
or related entities or part of a Trade, Industry, or Profession 
(TIP).
    Spin-off--The transfer of a portion of the field of membership, 
assets, liabilities, shares, and capital of one credit union to a 
new or existing credit union.
    Subscribers--For a federal credit union, at least seven 
individuals who sign the charter application and pledge at least one 
share.
    Trade, Industry, or Profession (TIP)--A single occupational 
common bond credit union based on employment in a trade, industry, 
or profession including 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.
    Underserved community--A local community, neighborhood, or rural 
district that is an ``investment area'' as defined in Section 
103(16) of the Community Development Banking and Financial 
Institutions Act of 1994. The area must also be underserved based on 
other NCUA and federal banking agency data.
    Unsafe or unsound practice--Any action, or lack of action, which 
would result in an abnormal risk or loss to the credit union, its 
members, or the National Credit Union Share Insurance Fund.
BILLING CODE 7535-01-P

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[FR Doc. 2016-26956 Filed 12-6-16; 8:45 am]
BILLING CODE 7535-01-C