[Federal Register Volume 84, Number 216 (Thursday, November 7, 2019)]
[Proposed Rules]
[Pages 59989-60001]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23680]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

RIN 3133-AF06


Chartering and Field of Membership

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule and supplemental statement.

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SUMMARY: The NCUA Board (Board) is proposing to amend its chartering 
and field of membership (FOM) rules with respect to applicants for a 
community charter approval, expansion, or conversion. Specifically, the 
Board is proposing to re-adopt a provision to allow an applicant to 
designate a Combined Statistical Area (CSA), or an individual, 
contiguous portion thereof, as a well-defined local community (WDLC), 
provided that the chosen area has a population of 2.5 million or less. 
Separately, in accordance with an August 2019 opinion and order issued 
by the D.C. Circuit Court of Appeals (court) with respect to 
communities based on a Core-Based Statistical Area (CBSA) or a portion 
thereof, the Board is providing further explanation and support for its 
elimination of the requirement to serve the CBSA's core area as 
provided for in a 2016 rulemaking. In addition, the Board is proposing 
to clarify existing requirements and add an explicit provision to its 
rules to address concerns about potential discrimination in the FOM 
selection for CSAs and CBSAs.

DATES: Comments must be received by December 9, 2019.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Website: http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the instructions for 
submitting comments.

[[Page 59990]]

     Email: Address to [email protected]. Include ``[Your 
name] Comments on Chartering and Field of Membership Proposed Rule'' in 
the email subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for email.
     Mail: Address to Gerard Poliquin, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    Public inspection: All public comments are available on the 
agency's website at http://www.ncua.gov/RegulationsOpinionsLaws/comments as submitted, except as may not be possible for technical 
reasons. Public comments will not be edited to remove any identifying 
or contact information. Paper copies of comments may be inspected in 
NCUA's law library, at 1775 Duke Street, Alexandria, Virginia 22314, by 
appointment weekdays between 9:00 a.m. and 3:00 p.m. To make an 
appointment, call (703) 518-6540 or send an email to [email protected].

FOR FURTHER INFORMATION CONTACT: For program issues: Martha Ninichuk, 
Director, or JeanMarie Komyathy, Deputy Director; Office of Credit 
Union Resources and Expansion, at 1775 Duke Street, Alexandria, VA 
22314 or telephone (703) 518-1140. For legal issues: Michael J. 
McKenna, General Counsel, Ian Marenna, Associate General Counsel, or 
Marvin Shaw, Staff Attorney, Office of General Counsel, at the above 
address or telephone (703) 518-6540.

SUPPLEMENTARY INFORMATION:

I. Background

    As discussed below, the Board is: (1) Proposing to re-adopt the 
presumptive WDLC option consisting of a CSA or an individual, 
contiguous portion of a CSA, provided that the chosen area, whether it 
is an entire CSA or a portion of one, is no more than 2.5 million; \1\ 
(2) explaining further, with additional reasoning and factual support, 
the basis for eliminating the core area service requirement for FCUs 
that choose a CBSA as a WDLC; and (3) proposing to amend the NCUA's 
regulations regarding community FOM applications, amendments, and 
expansions for CSAs and CBSAs to require the applicant to explain why 
it has selected its FOM and to demonstrate that its selection will 
serve low- and moderate-income segments of a community. The proposal 
also would provide express authority for the NCUA to review and 
evaluate the foregoing explanation and submission regarding low- and 
moderate-income individuals, and to reject an application if the agency 
determines that the FCU's selection reflects discrimination. The Board 
proposes to apply this provision to CSAs and CBSAs because, unlike 
other community-based FOMs that are based on political jurisdictions or 
rural districts, there could be a potential to engage in 
``gerrymandering'' or ``redlining,'' although the Board emphasizes 
there is a lack of evidence of FCUs engaging in such gerrymandering. 
The following sections provide background on the relevant legislation, 
rulemakings, and court decisions that inform this action.
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    \1\ References to CSAs or portions thereof in this proposed rule 
should be understood to carry this 2.5 million population limit. As 
noted above, under the proposed rule, an applicant may select an 
entire CSA as its WDLC if its population is 2.5 million or below. 
Alternatively, if the CSA's population is greater than 2.5 million, 
the applicant may still base its WDLC on the CSA but must select an 
individual, contiguous portion of the CSA that has a population no 
greater than 2.5 million.
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A. Overview

    Under the Federal Credit Union Act (Act), seven or more individuals 
may create a federal credit union (FCU) by presenting a proposed 
charter to the Board and paying a fee.\2\ These individuals, referred 
to as ``subscribers,'' must pledge to deposit funds for shares in the 
FCU and describe the FCU's proposed FOM.\3\ An FOM consists of those 
persons and entities eligible for membership based on an FCU's type of 
charter. Before granting an FCU charter, the Board must complete an 
appropriate investigation and determine the character and fitness of 
the subscribers, the economic advisability of establishing the FCU, and 
the conformity of the organization certificate (referred to as the 
charter or chartering document) with the Act.\4\ Under the Act, FCUs 
may choose from two general categories of FOM: Common-bond and 
community.\5\
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    \2\ 12 U.S.C. 1753(3).
    \3\ 12 U.S.C. 1753(5).
    \4\ 12 U.S.C. 1754.
    \5\ 12 U.S.C. 1759(b).
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    The NCUA's Chartering and Field of Membership Manual, incorporated 
as Appendix B to part 701 of the NCUA regulations (Chartering 
Manual),\6\ implements the chartering and FOM requirements that the Act 
establishes for FCUs. The Chartering Manual provides generally that the 
NCUA will grant a charter if the FOM requirements are met, the 
subscribers are of good character and fit to represent the proposed 
FCU, and the establishment of the FCU is economically advisable.\7\ In 
addition, ``[i]n unusual circumstances, the NCUA may examine other 
factors, such as other federal law or public policy, in deciding if a 
charter should be approved.'' \8\
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    \6\ Appendix B to 12 CFR part 701 (Appendix B). The Chartering 
Manual is a single regulation that addresses all aspects of the 
chartering of FCUs. In that respect, it is similar to the 
regulations of the Office of the Comptroller of the Currency 
applicable to the chartering of national banks or Federal savings 
associations. 12 CFR part 5.
    \7\ Appendix B, Ch. 1, Sec.  1.
    \8\ Id.
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    In adopting the Credit Union Membership Access Act of 1998 (CUMAA), 
which amended the Act, Congress reiterated its longstanding support for 
credit unions, noting their ``specific mission of meeting the credit 
and savings needs of consumers, especially persons of modest means.'' 
\9\ As amended by CUMAA, the Act provides a choice among three charter 
types: A single group sharing a single occupational or associational 
common bond; \10\ a multiple common bond consisting of groups each of 
which have a distinct occupational or associational common bond among 
members of the group; \11\ and a community consisting of ``persons or 
organizations within a well-defined local community, neighborhood, or 
rural district.'' \12\
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    \9\ Public Law 105-219, 2, 112 Stat. 913 (Aug 7, 1998).
    \10\ 12 U.S.C. 1759(b)(1).
    \11\ Id. 1759(b)(2)(A).
    \12\ Id. 1759(b)(3).
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    Congress has expressly delegated to the Board substantial authority 
in the Act to define what constitutes a WDLC, neighborhood, or rural 
district for purposes of ``making any determination'' regarding a 
community credit union,\13\ and to establish applicable criteria for 
any such determination.\14\ To qualify as a WDLC, neighborhood, or 
rural district, the Board requires the proposed area to have ``specific 
geographic boundaries,'' such as those of ``a city, township, county 
(single or multiple portions of a county) or their political 
equivalent, school districts or a clearly identifiable neighborhood.'' 
\15\ The boundaries themselves may consist of political borders, 
streets, rivers, railroad tracks, or other static geographical 
features.\16\ The Board continues to emphasize that common interests or 
interaction among residents within those boundaries are essential 
features of a local community.
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    \13\ Id. 1759(g)(1)(A).
    \14\ Id. 1759(g)(1)(B).
    \15\ Appendix B, Ch. 2, section V.A.2.
    \16\ Appendix B, Ch. 2, section V.A.5.

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[[Page 59991]]

    Until 2010, the Chartering Manual required FCUs seeking to 
establish an area as a WDLC to submit for NCUA approval a narrative, 
supported by documentation, that demonstrated indicia of common 
interests or interaction among residents of a proposed community (the 
``narrative model'') if the community extended beyond a single 
political jurisdiction (``SPJ'').\17\ A WDLC was (and still is) 
required to consist of a contiguous area, as reflected in the current 
text of the Chartering Manual.\18\ In 2010, the Board replaced the 
narrative model in favor of an objective model that provided FCUs a 
choice between two statistically based ``presumptive communities'' that 
each by definition qualifies as a WDLC (the ``presumptive community 
model'').\19\ The Board did so because it found the narrative model 
cumbersome, time-consuming, and subjective. By contrast, the Board 
found that the presumptive community approach, and particularly the use 
of statistical areas, would minimize ambiguity and make the application 
process less time-consuming.\20\ Further, the Board carefully 
considered the expertise and reasoning of the agencies that devised the 
statistical areas in deciding to designate these areas as WDLCs. In 
particular, the Board noted its agreement with the Office of Management 
and Budget (OMB) that commuting patterns within statistical areas 
demonstrate a high degree of social and economic integration with the 
central county.\21\
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    \17\ 75 FR 36257 (June 25, 2010).
    \18\ Appendix B., Ch. 2., section V.A.2. The Chartering Manual 
also contained this requirement in 2003 under the narrative model. 
68 FR 18334 (Apr.15, 2003). ``The well-defined local community, 
neighborhood, or rural district may be met if: The area to be served 
is multiple contiguous political jurisdictions, i.e., a city, 
county, or their political equivalent, or any contiguous portion 
thereof and if the population of the requested well-defined area 
does not exceed 500,000.'' (emphasis added).
    \19\ As explained in the 2010 final rule that discontinued the 
use of the narrative model, the Board ``does not believe it is 
beneficial to continue the practice of permitting a community 
charter applicant to provide a narrative statement with 
documentation to support the credit union's assertion that an area 
containing multiple political jurisdictions meets the standards for 
community interaction and/or common interests to qualify as a WDLC. 
As [the proposed rule] noted, the narrative approach is cumbersome, 
difficult for credit unions to fully understand, and time consuming. 
. . . While not every area will qualify as a WDLC under the 
statistical approach, NCUA stated it believes the consistency of 
this objective approach will enhance its chartering policy, assure 
the strength and viability of community charters, and greatly ease 
the burden for any community charter applicant.'' 75 FR 36257, 36260 
(June 25, 2010).
    \20\ 75 FR 36257, 36259, 36260 (June 25, 2010).
    \21\ 75 FR 36257, 36259 (June 25, 2010).
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    One kind of presumptive community is an ``[SPJ] . . . or any 
contiguous portion thereof,'' regardless of population.\22\ The second 
is a single CBSA \23\ (as defined above) as designated by the U.S. 
Census Bureau (Census Bureau), or a well-defined portion thereof, which 
under the 2010 final rule was subject to a 2.5 million population 
limit.\24\
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    \22\ Appendix B, Ch. 2, section V.A.2.A of the Chartering Manual 
defines ``single political jurisdiction'' as ``a city, county, or 
their political equivalent, or any single portion thereof.''
    \23\ A CBSA is composed of the country's Metropolitan 
Statistical Areas and Micropolitan Statistical Areas. ``Metropolitan 
Statistical Areas'' are defined by OMB as having ``at least one 
urbanized area of 50,000 or more population, plus adjacent territory 
that has a high degree of social and economic integration with the 
core as measured by commuting ties.'' ``Micropolitan Statistical 
Areas'' are identical to Metropolitan Statistical Areas except that 
their urbanized areas are smaller, i.e., the urbanized area contains 
at least 10,000 but fewer than 50,000 people. A ``Metropolitan 
Division'' is a subdivision of a large Metropolitan Statistical 
Area. Specifically, a Metropolitan Division is ``a county or group 
of counties within a Metropolitan Statistical Area that has a 
population core of at least 2.5 million.'' OMB Bulletin No. 15-01 
(July 15, 2015).
    \24\ Id. ``A total population cap of 2.5 million is appropriate 
in a multiple political jurisdiction context to demonstrate cohesion 
in the community.'' 75 FR 36257, 36260 (June 25, 2010).
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    For CBSAs that OMB has subdivided into metropolitan divisions, a 
community consisting of a portion of the CBSA was required to conform 
to the boundaries of such divisions. That is, the community could not 
cover multiple divisions within a CBSA. Under either of the 
``presumptive community'' options, an FCU was required to demonstrate 
its ability to serve its entire proposed community, as demonstrated by 
the required business and marketing plans.\25\
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    \25\ Appendix B, Ch. 2, Sec.  V.A.4
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B. 2015 and 2016 Rulemakings

    On November 19, 2015, the Board approved a proposed rule to amend 
various provisions of the Chartering Manual, including the WDLC and 
rural district options for community FOMs (``2015 Proposed Rule'').\26\ 
As relevant here, in the 2015 Proposed Rule, the Board proposed to 
amend the community FOM options by: (1) Eliminating the requirement for 
an FCU serving a CBSA to serve its core area; (2) permitting FCUs to 
serve a portion of a CBSA up to a 2.5 million population limit, even if 
the CBSA's total population is greater than 2.5 million; \27\ (3) 
permitting FCUs to serve CSAs,\28\ which combine contiguous CBSAs, or a 
portion of a CSA, provided that the chosen area has a population no 
greater than 2.5 million; (4) permitting FCUs to apply to the NCUA to 
add adjacent areas to existing WDLCs consisting of SPJs, CBSAs, or 
CSAs, based on a showing of interaction by residents on both sides of 
the adjacent areas; and (5) increasing the population limit for rural 
district FOMs from the greater of 250,000 or 3 percent of the relevant 
state's population to 1 million, subject to a requirement that the 
rural district not expand beyond the states immediately contiguous to 
the state in which the FCU has its headquarters.
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    \26\ 80 FR 76748 (Dec. 10, 2015).
    \27\ Similar to CSAs, as discussed in note 1, this provision 
allows an applicant to serve an entire CBSA if its population is no 
greater than 2.5 million. If the CBSA's population exceeds 2.5 
million, an applicant may still base its WDLC on the CBSA but must 
select an individual, contiguous area that has a population no 
greater than 2.5 million.
    \28\ CSAs are composed of adjacent CBSAs that share what OMB 
calls ``substantial employment interchange.'' OMB characterizes CSAs 
as ``representing larger regions that reflect broader social and 
economic interactions, such as wholesaling, commodity distribution, 
and weekend recreational activities, and are likely to be of 
considerable interest to regional authorities and the private 
sector.'' OMB Bulletin No. 15-01.
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    On October 27, 2016, the Board approved two rulemakings relating to 
the Chartering Manual. One was a final rule and the other a proposed 
rule. In the final rule,\29\ the Board adopted the five provisions of 
the 2015 Proposed Rule that are set forth above (``2016 Final Rule''). 
In the new proposed rule, the Board proposed additional changes to the 
community charter provisions (``2016 Proposed Rule'').\30\ 
Specifically, the Board proposed permitting an applicant for a 
community charter to submit a narrative to establish the existence of a 
WDLC as an alternative to stand alongside the SPJ and presumptive 
statistical community options. According to the proposed rule, the 
narrative model would serve the same purpose as in years prior to 2010, 
when the narrative model was used exclusively. Further, among other 
matters, the Board proposed permitting an FCU to designate a portion of 
a statistical area as its community without regard to metropolitan 
division boundaries.
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    \29\ 81 FR 88412 (Dec. 7, 2016).
    \30\ 81 FR 78748 (Nov. 9, 2016).
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C. March 2018 Federal District Court Decision

    The American Bankers Association (ABA) challenged several of the 
community FOM provisions under the Administrative Procedure Act 
(APA).\31\ On March 29, 2018, the U.S. District Court for the District 
of Columbia upheld, or left in place, three provisions and vacated two 
provisions of the 2016 Final Rule (``March 2018 District Court

[[Page 59992]]

Decision'').\32\ Specifically, the court upheld the provision allowing 
an FCU to serve areas within a CBSA that do not include the CBSA's 
core, holding that the definition was a reasonable interpretation of 
``local community'' and that the elimination of the core area service 
requirement was supported by the administrative record. The court also 
upheld the provision allowing an FCU to add an adjacent area to a 
presumptive community, similarly holding that this provision was 
reasonable under the Act and that the Board chose reasonable factors to 
evaluate whether adjacent areas are part of the same local community. 
Also, the court upheld the elimination of the requirement that a CBSA 
as a whole have a population of no more than 2.5 million in order for 
even a portion of the CBSA to qualify as a WDLC, holding that the 
plaintiff had waived this challenge by failing to raise it in the 
rulemaking.
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    \31\ 5 U.S.C. 702.
    \32\ Am. Bankers Ass'n v. Nat'l Credit Union Admin., 306 F. 
Supp. 3d 44 (D.D.C. 2018).
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    The court vacated the provision defining any individual portion of 
a CSA, up to a population limit of 2.5 million, as a WDLC, holding that 
it was manifestly contrary to the Act. Finally, the court also vacated 
the provision to increase the population limit to 1 million people for 
rural districts, finding it manifestly contrary to the Act.
    Both parties appealed this decision. The NCUA appealed the court's 
rulings on CSAs and the expansion of a rural district's population 
limit to 1 million. The ABA appealed only the ruling on the core area 
service requirement. The CSA and rural district provisions remained 
vacated while the appeal was pending. Accordingly, the NCUA rescinded 
approvals granted under those provisions and ceased approving new 
applications. The NCUA filed a notice with the court on April 19, 2018, 
stating that it did not interpret the court's March 29, 2018, order as 
mandating de-listing of members who joined FCUs under the vacated 
provisions. The notice also stated that the ABA did not intend to seek 
an order de-listing such members.

D. 2018 Final Rule

    On June 21, 2018, while the appeal was pending, the Board adopted 
certain limited aspects of the 2016 Proposed Rule in a final rule 
(``2018 Final Rule'').\33\ Specifically, the 2018 Final Rule amended 
the Chartering Manual to: (1) Allow an FCU seeking to serve a community 
FOM to submit a narrative to support its chosen area, as an alternative 
to the presumptive community options; and (2) eliminate the requirement 
that a WDLC based on a CBSA must be confined to a single metropolitan 
division within a CBSA. For the narrative model for establishing a WDLC 
for a community FOM, the Board established a public hearing process for 
any such proposed community with a population greater than 2.5 million. 
Further, with regard to the change to CBSA limitations based on 
metropolitan division boundaries, the Board noted that no commenters 
objected to this relatively technical change. In addition, in light of 
the March 2018 District Court Decision vacating the CSA option, the 
Board removed the CSA option from the Chartering Manual while it 
amended the portions of the Chartering Manual that contained this 
option. The 2018 Final Rule contained no statement on the validity of 
the CSAs or any other indication that the Board had decided to abandon 
or re-visit this definition. Because the 2016 Proposed Rule did not 
propose any changes to the rural district definition, the Board did not 
amend or remove the rural district provision in the 2018 Final Rule.
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    \33\ 83 FR 30289 (June 28, 2018).
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E. August 2019 Court of Appeals Decision

    On August 20, 2019, a three-judge panel of the D.C. Circuit Court 
of Appeals issued a decision on the appeal (``August 2019 Court of 
Appeals Decision'').\34\ The court reversed the district court's 
rulings on CSAs and rural districts and directed the district court to 
enter summary judgment for the NCUA on both issues. The court also 
reversed the ruling on the core area service requirement for CBSAs, 
remanding the issue to the agency for further explanation without 
vacating the provision.
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    \34\ Am. Bankers Ass'n v. Nat'l Credit Union Admin., 934 F.3d 
649 (D.C. Cir. 2019).
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    With respect to CSAs and rural districts up to 1 million people, 
the court held that both provisions are consistent with the Act and 
were reasonably explained. First, the court found the CSA provision 
consistent with the ``local community'' provision of the Act.\35\ 
Further, the court found that the CSA definition, which is based on 
commuting relationships, rationally advances the statutory purpose of 
ensuring an affinity or common bond among members.\36\ The court also 
found that the definition rationally advances the Act's safety and 
soundness purposes.\37\ On this point, the court found that allowing 
for larger communities could promote the economic viability of 
community FCUs.\38\ The court also held that the 2018 Final Rule's 
removal of the CSA option from the Chartering Manual did not render 
that issue moot, citing evidence of the Board's intention to re-
promulgate this provision if the court upheld it.\39\
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    \35\ Id. at 664.
    \36\ Id. at 665.
    \37\ Id. at 665-66.
    \38\ Id. at 666.
    \39\ Id. at 661-62.
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    Second, the court held that the expansion of the rural district 
definition to areas including 1 million people is consistent with the 
Act.\40\ The court found that the term ``rural district'' does not 
connote specific population or geographic constraints.\41\ The court 
also found that the Board reasonably explained the expansion, including 
the 2016 Final Rule's discussion of the agency's experience with 
several larger rural districts under the pre-2016 rule.\42\
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    \40\ Id. at 672.
    \41\ Id. at 672-73.
    \42\ Id. at 673.
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    By contrast, the court reversed the district court's ruling on the 
core area service requirement and directed the district court to enter 
summary judgment for the plaintiff on this provision and remand, 
without vacating, this provision to the agency for further 
explanation.\43\ The court held that this provision is consistent with 
the Act but that the 2016 Final Rule did not adequately explain it in 
light of the concern that commenters raised about the potential for 
FCUs to engage in redlining or gerrymandering of CBSAs to avoid serving 
minority or low-income individuals.\44\ The court did not find the 2016 
Final Rule's discussion of the agency's ongoing evaluations and 
supervisory process adequate to explain the provision because the court 
found that those efforts related to service of those within the FOM, 
not those excluded from it by definition.\45\ In considering whether to 
vacate this provision or remand it without vacating it, the court found 
that vacating the provision would raise a substantial likelihood of 
disruptive effect by making it more difficult for poor and minority 
suburban residents to receive adequate financial services.\46\ The 
court also noted the potential for the Board to provide sufficient 
justification for the provision on remand.\47\ Accordingly, the court 
directed the district court to

[[Page 59993]]

remand this provision without vacating it, and noted that it expected 
the Board to act ``expeditiously.'' \48\ The court did not prescribe a 
specific deadline or procedure for the Board to follow. Therefore, this 
provision and approvals that the agency has granted under it remain in 
effect while the matter is on remand to the agency.
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    \43\ Id. at 674.
    \44\ Id. at 670.
    \45\ Id. at 670-71.
    \46\ Id. at 674.
    \47\ Id.
    \48\ Id.
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    Currently, the Chartering Manual does not contain CSAs or portions 
thereof as an option for a WDLC. As a result of the August 2019 Court 
of Appeals Decision, the Board proposes to re-adopt the provision 
allowing a CSA or an individual, contiguous portion of a CSA, to be a 
presumptive statistical-based WDLC, provided that the chosen area has a 
population of no more than 2.5 million. The 2016 Final Rule's expanded 
definition of rural districts remains in the Chartering Manual and was 
upheld by the court's decision. Accordingly, the Board does not need to 
address rural districts in this proposed rule.\49\ Finally, the Board 
provides further explanation and support, and proposes to add a 
provision to the Chartering Manual with respect to potential 
discrimination to address the August 2019 Court of Appeals Decision. 
The Board is issuing this proposed rule promptly after the decision in 
light of the Court of Appeals' expectation that the agency act 
expeditiously to provide further explanation on the CBSA core area 
service requirement.
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    \49\ On October 4, 2019, the ABA filed a petition for rehearing 
en banc with respect to panel's ruling on the CSA and rural district 
provisions. The petition is pending as of the date of this proposed 
rule.
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II. FOM 3 Proposed Rule and Further Explanation on Core Area Service 
Requirement

A. Overview

    The Board emphasizes that this proposed rule is limited in scope 
and is intended to address only three aspects of the August 2019 Court 
of Appeals Decision regarding WDLCs. Specifically, the Board is: (1) 
Proposing to re-adopt the presumptive WDLC option consisting of a CSA 
or a portion of a CSA with a population of up to 2.5 million; (2) 
explaining further, with additional reasoning and factual support, the 
basis for eliminating the core area service requirement for FCUs that 
choose a portion of a CBSA as a WDLC; and (3) proposing to amend the 
Chartering Manual as it applies to applications, conversions, and 
expansions for CSAs and CBSAs to require the applicant to explain why 
it has selected its FOM and to demonstrate that its selection is not 
based on discriminatory intent, and to provide express regulatory 
authority for the NCUA to review this aspect of the application, 
conduct a further evaluation, if appropriate, and reject an application 
if the agency determines that the selection is based on discriminatory 
intent.
    The Board notes that these proposed changes to the chartering 
process reaffirm the current application and review process and make 
more explicit the steps that the applicant and the agency each follow. 
As a matter of well-established practice, after the agency receives an 
application for a community charter, the Office of Credit Union 
Resources and Expansion (CURE) conducts a thorough review of the 
application and frequently consults with other agency offices, 
including the Office of General Counsel for legal issues, and the 
appropriate Regional Office and the Office of Examination and Insurance 
for safety and soundness issues. CURE has the option of approving, 
denying, or requesting more information about the application.\50\
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    \50\ CURE staff reviews applications for new or amended charters 
for compliance with the Act and the requirements of the Chartering 
Manual, including an applicant's ability to serve low- and moderate-
income individuals in the community. After CURE completes its 
review, it obtains input from other divisions in the agency, as 
noted above. Accordingly, the Board notes that the review process 
typically takes several months, and the decision to grant a 
community charter is not automatic.
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    The Board is providing a 30-day comment period in light of the 
focused nature of the proposed rule and the Court of Appeals' 
expectation that the Board would act ``expeditiously'' on remand.\51\ 
The Board emphasizes that it is not re-visiting any other portion of 
the 2015, 2016, or 2018 FOM rulemakings and is not soliciting comments 
on those other matters. In particular, the Board is not re-visiting 
these elements (among others) of the 2016 Final Rule: (1) The expansion 
of permissible rural districts up to one million people; (2) the option 
to add an adjacent area to a presumptive community; and (3) the 
elimination of the 2.5 million population cap on CBSAs as a whole, 
which had previously disqualified as WDLCs portions of any CBSAs with 
total population over 2.5 million, even if the chosen portion was 
within that limit.\52\
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    \51\ See NCUA Interpretive Ruling and Policy Statement 87-2, as 
amended, 52 FR 35231 (Sept. 18, 1987).
    \52\ In addition, the Board is not proposing to re-visit any of 
the non-community FOM changes that it made in the 2016 Final Rule.
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B. CSAs

    For the reasons stated in the 2015 and 2016 rulemaking, the Board 
proposes to revise the definition of WDLC in the Chartering Manual to 
include, as it did before the 2018 Final Rule, a CSA or a single, 
contiguous portion thereof with a population of up to 2.5 million. As 
stated above, in the 2018 Final Rule, when the Board amended other 
portions relating to WDLCs that contained references to CSAs, the Board 
removed the CSA provisions in light of the 2018 District Court 
Decision. In doing so, the Board did not intend to change or re-visit 
its carefully reasoned determination in the 2016 Final Rule that such 
areas constitute WDLCs, but instead modified the rule to be 
``consistent with the District Court decision.'' \53\ Because the 2019 
Court of Appeals Decision reversed the lower court's decision on this 
issue and upheld the CSA provision from the 2016 Final Rule, the Board 
now proposes to re-adopt this provision. As the Board details below, it 
relies on the same reasons it cited in the 2016 Final Rule and restates 
those below.
---------------------------------------------------------------------------

    \53\ 83 FR at 30291.
---------------------------------------------------------------------------

i. 2016 Final Rule
    In the 2016 Final Rule, the Board noted that many commenters 
supported the proposal on CSAs, concurring that OMB's approach in 
designating CSAs is consistent with the NCUA's long-standing 
consideration of factors such as employment, commuting patterns, and 
economic interaction to identify a WDLC. Commenters also cited social 
and economic integration among residents within CSAs given that CSAs 
represent the same ``commonality of substantial employment 
interchange'' that an individual CBSA's residents must have.
    Bank trade associations opposed recognizing CSAs as ``presumptive 
communities.'' One criticized the proposal as exceeding the reasonable 
definition of ``local.'' Others contended that a CSA is necessarily 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 CSAs 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.
    The Board observed that those commenters overlooked certain facts 
that contradict the notion that a CSA is too expansive to be ``local.'' 
First, of the

[[Page 59994]]

174 CSAs that OMB had designated at that time, the 22 largest would not 
qualify as a WDLC because each, as a whole, exceeds the 2.5 million 
population cap.\54\ Second, the average geographic size among the 152 
CSAs that would each have qualified as a WDLC at that time, at 4,553 
square miles, was comparable to the average geographic size among the 
243 individual CBSAs the Board has approved since 2010, at 4,572 square 
miles.
---------------------------------------------------------------------------

    \54\ As of the date of this proposed rule, there are 175 CSAs. 
OMB Bulletin 18-04 (Sept. 14, 2018).
---------------------------------------------------------------------------

    The Board adopted the proposal because a CSA simply unifies, as a 
single community, two or more contiguous CBSAs that each independently 
met 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 2016 Final Rule added 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.'' \55\
---------------------------------------------------------------------------

    \55\ Appendix B, Ch. 2, Sec.  V.A.2. The 2.5 million population 
cap on CBSAs as a whole was eliminated in the 2016 Final Rule, as 
discussed in footnote 27 above.
---------------------------------------------------------------------------

    As summarized above, the 2018 District Court Decision vacated the 
CSA provision, and the 2019 Court of Appeals Decision reversed this 
ruling, finding the commuting relationships that OMB uses to define 
CSAs to be a reasonable proxy for community.
ii. New Proposal
    For all the reasons set forth above, the Board proposes to re-adopt 
the CSA provision from the 2016 Final Rule. The Board continues to 
believe CSAs or a single portion thereof, with the chosen area being 
subject to a 2.5 million population limit, are sufficiently compact to 
promote interaction and common interests among its residents. The 
factual record regarding CSAs is materially identical to what existed 
in 2016, and the Board is aware of no substantial changes in these 
statistical areas that warrant departing from the well-founded basis 
for this provision in the 2016 Final Rule. The only change from the 
2016 Final Rule is clarifying language in the proposed text of the 
Chartering Manual on the requirement that an FCU select a single, 
contiguous portion of a CSA to meet the WDLC requirement. Such a change 
is consistent with the current regulatory text for SPJs and CBSAs,\56\ 
the 2016 Final Rule preamble on CSAs, and the NCUA's longstanding, 
consistent practice with respect to geographic areas. The Board 
solicits comments on this proposal and will consider any comments it 
receives. The Board notes, however, that it is most interested in any 
comments that differ from or expand upon those that the Board 
thoroughly reviewed in connection with the 2016 Final Rule.
---------------------------------------------------------------------------

    \56\ Appendix B, Ch. 2, V.A.2 (providing that the WDLC 
requirement is met for SPJs if the area is a recognized SPJ ``or any 
single portion thereof'' and for statistical areas if the area is a 
CBSA or ``a portion thereof,'' which ``must be contiguous'').
---------------------------------------------------------------------------

C. CBSA Core Area Service Requirement

    As discussed above, the 2019 Court of Appeals Decision remanded to 
the Board for further explanation the provision of the 2016 Final Rule 
that amended the WDLC definition to include CBSAs or portions thereof 
with a population up to 2.5 million without the requirement to serve 
the core area of the CBSA. The Court of Appeals did not accept the 
Board's explanation in the 2016 Final Rule that its periodic 
evaluations of service policies and its experience in this area 
addressed this issue. As explained in detail below, the Board is 
issuing further explanation on this issue in light of the court's 
decision. In addition, the Board is elaborating on its support and 
basis for this provision. The Board believes that each reason that it 
lays out below is independently sufficient to support this provision. 
The Board is soliciting public comments generally on the issues 
concerning the CBSA core area service requirement. The Board would also 
be interested specifically in any comments on how the core area service 
requirement may affect FCUs' ability to serve low- and moderate-income 
segments of communities.
i. 2015 Proposed Rule
    As discussed in the 2015 Proposed Rule, in its 2010 rulemaking on 
CBSAs, the Board required that when an FCU applies to serve a community 
consisting of a portion of a CBSA, that portion include the CBSA's 
``core area,'' which the NCUA defines as the most populated county or 
named municipality in the CBSA's title.\57\ The primary purpose of this 
requirement was to acknowledge the core area as the typical focal point 
for common interests and interaction among residents. The NCUA's review 
of progress under approved FCUs' business and marketing plans between 
2010 and 2015 indicated that those FCUs are adequately serving low-
income persons and underserved areas without regard to their location 
within the community. Accordingly, the Board proposed to repeal the 
core area requirement as an indicator of service to low-income persons 
and underserved areas, in favor of the agency's practice of annually 
reviewing the progress of business and marketing plans for three years 
following charter approval or expansion, and relying on those plans to 
assess those service objectives within an original or an expanded 
community.
---------------------------------------------------------------------------

    \57\ 75 FR 36257, 36260 (June 25, 2010).
---------------------------------------------------------------------------

ii. 2016 Final Rule
    In the 2016 Final Rule, after considering public comments on this 
issue, the Board adopted the proposal to eliminate the core area 
service requirement.
    The majority of commenters favored repeal of the core area service 
requirement, stating that it is not mandated by the Act and thus 
unnecessarily imposes an additional constraint on whom FCUs can serve. 
They further stated that relief from an obligation to serve a ``core 
area'' would give FCUs the flexibility to adapt to the specific area 
each initially is able to serve reasonably and safely, allowing each 
FCU 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.
    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 of 1977 
(CRA), which requires financial institutions other than credit unions 
to publicly document service to people of modest means.\58\
---------------------------------------------------------------------------

    \58\ 12 U.S.C. 2902(2). Congress has amended the CRA seven times 
(1989, 1991, 1992, 1994, 1995, 1999, and 2005) since its initial 
enactment and has declined to apply the CRA requirements to credit 
unions each time.
---------------------------------------------------------------------------

    In response to those opposing the proposal, the Board cited the 
agency's supervisory process and its ability to follow up on member 
complaints of discrimination affecting low- and

[[Page 59995]]

moderate-income and underserved populations. Further, the Board 
observed that the Act does not mandate any such requirement for a 
community.
    Based on these considerations, the Board repealed the core area 
service requirement in the 2016 Final Rule. As discussed above, the 
Court of Appeals has remanded this provision for further explanation.
iii. Further Explanation and Support
    The Board has carefully reviewed the 2018 District Court Decision, 
the 2019 Court of Appeals decision, and the record associated with the 
2016 Final Rule. As described below, the Board now provides further 
explanation for the elimination of the core area service requirement 
for CBSAs. The Board also sets forth new information and data that 
support eliminating this requirement and seeks comments on that 
information. To be clear, the Board believes that the further 
explanation based solely on the record reflected in the 2016 Final Rule 
is sufficient to support this provision. The new information and data 
provide additional support that is also sufficient on its own to 
support this provision. In light of both sets of considerations, the 
Board continues to find that it is consistent with the Act and its 
underlying purposes to eliminate this requirement.
1. Background on the CRA, the Federal Credit Union Act, and Anti-
Discrimination Laws Applicable to FCUs
    As discussed above, the Court of Appeals noted that it did not 
believe that the NCUA had adequately responded to commenters' 
objections that the elimination of the core requirement might permit 
FCUs to engage in discriminatory redlining. In addressing this issue, 
the Board has reviewed the history of redlining and how it relates to 
the establishment and mission of FCUs. This background informs the 
Board's response to the court's direction to provide further 
explanation.
    The term ``redlining'' has a long history associated with banks 
denying financial services to low-income and minority communities. In 
the 1930s, allegations of ``redlining'' certain neighborhoods 
originated with the Federal Housing Administration. The Federal Home 
Loan Bank Board--a predecessor to the Office of the Comptroller of the 
Currency (OCC) in regulating federal savings associations--supervised 
the Home Owners' Loan Corporation, which created ``residential security 
maps'' to withhold mortgage capital from neighborhoods that were deemed 
``unsafe.'' In contrast, the contemporaneous FCU Act of 1934 did not 
encourage such discriminatory practices. In fact, by focusing on common 
bonds, the Act encouraged lending to people of modest means and diverse 
backgrounds.
    With respect to chartering new financial institutions, Congress 
focused on the concept of ``redlining'' with respect to chartering 
banks and has not applied this term to chartering new community credit 
unions.\59\ Rather, compared to its decision to apply the anti-
redlining provisions in the CRA to banks, Congress established a 
different statutory framework for FCUs to encourage providing financial 
services to low- and moderate-income residents.
---------------------------------------------------------------------------

    \59\ 12 U.S.C. 2901. The ``Findings'' section of this provision 
directs banks to ``serve the convenience and needs of the 
communities in which they are chartered to do business.'' 12 U.S.C. 
2901(a)(1). In addition, Congress required the banking regulators to 
``assess the institution's record of meeting the credit needs of its 
entire community, including low- and moderate-income neighborhoods, 
consistent with the safe and sound operation of such institution, 
and take such record into account in its evaluation of an 
application for a deposit facility by such institution.'' 12 U.S.C. 
2903(a)(1) and (2).
---------------------------------------------------------------------------

    The Board is mindful that Congress has developed several statutory 
regimes to encourage financial institutions to provide credit to 
residents of low- and moderate-income neighborhoods. Banks and federal 
savings associations are subject to the CRA; government-sponsored 
enterprises (GSEs), such as Fannie Mae and Freddie Mac, are subject to 
affordable housing goals relating to underserved areas under the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992, 
as amended by the Housing and Economic Recovery Act of 2008; \60\ and 
FCUs are subject to the Act, which is intended to improve access to 
credit for underserved communities.
---------------------------------------------------------------------------

    \60\ Public Law 110-289 (July 30, 2008); 12 U.S.C. 4511. With 
respect to the GSEs, Congress directed them to comply with an 
affordable housing mandate to encourage mortgage lending to 
underserved communities. Specifically, the GSEs are subject to goals 
for single-family mortgages for low-income families. The Housing and 
Economic Recovery Act of 2008 also subjects the GSEs to duty-to-
serve rules aimed at facilitating a secondary market for mortgages 
for very low-, low-, and moderate-income families in manufactured 
housing, affordable housing preservation, and rural housing. 12 
U.S.C. 4565(a).
---------------------------------------------------------------------------

    With respect to banks, the OCC noted that Congress enacted the CRA 
to ``encourage efforts to meet the credit needs of all community 
members, including residents of low- and moderate-income 
neighborhoods.'' \61\ In addition, the CRA has a second mandate to 
prohibit redlining (i.e., the denying of or increasing the cost of 
banking of residents of racially defined neighborhoods).\62\ In 
explaining its supervisory obligation under the CRA, the Federal 
Reserve states that, among other things, it ``examines state member 
banks to evaluate and rate their performance under the CRA; considers 
banks' CRA performance in context with other supervisory information 
when analyzing applications for mergers, acquisitions, and branch 
openings; and shares information about community development techniques 
with bankers and the public.\63\ Similarly, the FDIC states the ``CRA 
requires the FDIC to assess an institution's record of helping to meet 
the credit needs of the local communities in which the institution is 
chartered.'' \64\
---------------------------------------------------------------------------

    \61\ https://www.occ.gov/topics/consumers-and-communities/cra/index-cra.html.
    \62\ Id. See also, American Bankers Association, Community 
Reinvestment Act, https://www.aba.com/banking-topics/compliance/acts/community-reinvestment-act.
    \63\ https://www.federalreserve.gov/consumerscommunities/cra_about.htm.
    \64\ https://www.fdic.gov/regulations/cra/.
---------------------------------------------------------------------------

    By contrast, with respect to FCUs, Congress enacted the Act to 
encourage lending to communities with low and moderate incomes. 
Specifically, in 1998, Congress enacted CUMAA to amend the Act. Section 
2, which sets forth CUMAA's ``Findings,'' states: ``Credit unions . . . 
have the specified mission of meeting the credit and savings needs of 
consumers, especially persons of modest means.'' Further, section 109 
of the Act facilitates the formation of community-chartered FCUs to 
provide financial services to underserved areas.\65\ For instance, the 
accompanying House Report to CUMAA noted that ``[a]ny person or 
organization within an underserved local community, neighborhood, or 
rural district may be added to multiple common bond credit unions which 
establishes and maintains an office or facility in the underserved 
areas.'' \66\ Congress then directed the Board to issue regulations to 
implement the FOM requirements, including special provisions 
encouraging service to such underserved communities. The Board did so 
by issuing the Chartering Manual.
---------------------------------------------------------------------------

    \65\ 12 U.S.C. 1759.
    \66\ H.R. Rep. No. 105-472, at 19 (1998).
---------------------------------------------------------------------------

    The Board has issued these regulations to further encourage FCUs to 
provide credit and other financial services to members in underserved 
areas. For instance, the 2016 Final Rule's elimination of the core area 
service requirement was intended to provide additional flexibility to 
community-based FCUs, thereby allowing newly chartered or expanded FCUs 
to provide financial services to low- and moderate-income segments of

[[Page 59996]]

communities that are outside the core. As explained below, this 
reflects the fact that some areas outside some of the core areas may 
have more low- and moderate-income areas, while the core, which is 
often closer to business centers, may sometimes have more affluent 
residents. Further, many FCUs, which often are not large financial 
institutions, do not have the financial wherewithal to serve both the 
core of a CBSA and the rest of the CBSA.\67\ Allowing such an FCU the 
flexibility to serve the CBSA without the core results in the FCU being 
financially capable of providing reasonably priced financial services 
to more low- and moderate-income individuals rather than fewer.
---------------------------------------------------------------------------

    \67\ In fact, as of June 30, 2019, approximately 75% of all FCUs 
have total assets under $100 million. Further, approximately 60% of 
community-based FCUs have total assets under $100 million.
---------------------------------------------------------------------------

    The Board further notes that the ABA, in its comments about 
redlining, appears to intermix the two concepts at the heart of the 
CRA.\68\ As the OCC's CRA Handbook explains, the CRA addresses both the 
initial chartering of banks as well as lending practices. As noted 
above, the CRA's directive to banks during the chartering process to 
``encourage efforts to meet the credit needs of all community members, 
including residents of low- and moderate-income neighborhoods'' is not 
a statutory provision applicable to FCUs. Rather, under the Act, FCUs 
provide financial services to underserved communities through the 
statute's unique chartering and application process. For instance, a 
major component of the CRA, as applied to banks, is supervising the 
branching decisions of applicants for bank charters; in contrast, with 
respect to community charters, Congress has not found it necessary to 
direct the NCUA to supervise FCUs' branching decisions. Second, the CRA 
directs banks to prohibit redlining in its lending and operations 
decisions. In addition to the fact that Congress has never mandated 
that the CRA apply to FCUs, the Board further notes that Congress has 
applied many other anti-discrimination statutes to FCUs. Accordingly, 
the potential for discrimination by an FCU is further lessened because, 
like other financial institutions, FCUs are subject to consumer 
protection statutes such as the Equal Credit Opportunity Act of 1974 
\69\ (referred to as ECOA), which is implemented by Regulation B,\70\ 
and the Fair Housing Act of 1968.\71\ Further, the member-based, 
cooperative nature of FCU ownership and management is an organic 
incentive for an FCU to serve its low- and moderate-income member-
owners in a way that does not exist in a for-profit bank's relationship 
with its customers.
---------------------------------------------------------------------------

    \68\ In addition, the ABA itself appears to contend that the CRA 
is not effective in providing credit to underserved communities. For 
instance, on its website, the ABA states: ``The rules implementing 
CRA, however, have not kept pace with the times or with new 
technologies and are actually holding back investment in the very 
communities the law is intended to serve.'' Further, in a comment 
letter to the bank regulators regarding the CRA, the ABA stated that 
``the objectives of the CRA statute are being undermined by outdated 
implementing regulations.'' See ABA Comment Letter to OCC Docket 
``Reforming the Community Reinvestment Act Regulatory Framework,'' 
Docket ID OCC 2018-0008.
    \69\ 15 U.S.C. 1691 et. seq.
    \70\ 12 CFR part 1002.
    \71\ Public Law 90-284, 82 Stat. 73 (enacted Apr. 11, 1968).
---------------------------------------------------------------------------

    Given these important historical distinctions between the 
chartering of FCUs and banks and the other provisions that help to 
limit potential discrimination by FCUs based on income or other 
considerations, the Board concludes that the best way to address the 
Court of Appeals' concern is in a tailored manner. The Board can do so 
by clarifying and bolstering protections against potential 
discrimination through further explanation of the 2016 Final Rule and 
by adopting new requirements for certain community-based FCUs to 
address these issues more explicitly in the application process. The 
discussion below details the Board's reasoning and proposal.
2. Further Explanation of the 2016 Final Rule's Elimination of the Core 
Area Service Requirement
    The Board has reviewed the record from the 2016 Final Rule and 
concludes that removing the core area service requirement will better 
allow FCUs to serve low- or moderate-income segments of communities in 
areas outside the cores. This consideration is consistent with a view 
that credit union-affiliated commenters expressed in response to the 
2015 Proposed Rule. After reviewing the decisions from the District 
Court and the Court of Appeals in this matter and the comment letters 
from the 2015 and 2016 rulemaking, the Board has determined that this 
factor supports eliminating the core area service requirement. In the 
2016 Final Rule, the Board relied on the agency's supervisory processes 
and experience in eliminating the requirement to serve the core area. 
The Board has reconsidered the matter and concludes that the provision 
is appropriate because the enhanced flexibility would facilitate 
service to low-income communities outside core areas. Because cores are 
relatively populous, retaining the core area service requirement would 
in many instances make it more difficult for an FCU applicant to serve 
areas beyond the core. Given the potential to serve low- or moderate-
income residents in areas outside the core, the Board believes that 
eliminating this requirement would provide benefits to low- or 
moderate-income individuals.
    Accordingly, the Board affirms this provision because it would 
expand access to financial services to low- or moderate-income 
individuals, which is directly responsive to the concern raised in the 
prior rulemaking and discussed by the court.
3. Consideration of Supplemental Information
    In addition, to supplement the record and offer further support for 
this provision, the Board has reviewed data reflecting the distribution 
of incomes across CBSAs in several metropolitan areas.
    In response to the court's concern that the ABA warned against 
redlining and objected that community credit unions could now ``serv[e] 
wealthier suburban counties and exclud[e] markets containing low-income 
and minority communities that reside in core area,'' \72\ the Board has 
conducted quantitative analysis indicating that core areas often 
contain higher-income communities and more expensive housing than 
certain suburban and exurban areas surrounding the core.
---------------------------------------------------------------------------

    \72\ 934 F.3d at 669.
---------------------------------------------------------------------------

Washington, DC Example
    Without the core area service requirement, a new or expanded 
community charter could be granted to serve low- and moderate-income 
areas, including Silver Spring/Takoma Park, in Montgomery County and 
Prince George's County Maryland, which are within close proximity to 
Washington, DC. These areas have the following median household income 
based on the America Community Survey, which is produced by the Census 
Bureau.\73\ The latest year for which data are available is 2017.
---------------------------------------------------------------------------

    \73\ https://factfinder.census.gov/faces/nav/jsf/pages/community_facts.xhtml.

------------------------------------------------------------------------
                                                              Median
                        Zip code                             household
                                                              income
------------------------------------------------------------------------
20783 Hyattsville (Prince George's County)..............         $60,783
20903 Hyattsville.......................................          63,106
20912 Silver Spring.....................................          73,961
------------------------------------------------------------------------


[[Page 59997]]

    With the core area service requirement, such a new community 
charter would have to include the entire District of Columbia because 
that is the ``named'' community in the CBSA. Mandating the core 
provision would require far more FCU resources, which may not exist, 
thereby making it more difficult--and potentially impossible--for a 
potential applicant for a community charter to serve the entire 
community for several reasons. First, the geographic footprint would be 
much larger; and second, it would require the new FCU to establish 
branches in some affluent areas with significantly higher leasing 
costs. For instance, the following zip codes in Northwest DC--Foxhall, 
Friendship Heights, and Tenleytown--have the following median incomes, 
which are roughly double that of some suburban areas.
Northwest Washington

------------------------------------------------------------------------
                                                              Median
                        Zip code                             household
                                                              income
------------------------------------------------------------------------
20007--Foxhall..........................................        $123,154
20008--Van Ness.........................................         120,342
20016--Friendship Heights...............................         140,545
------------------------------------------------------------------------

Atlanta Example
    Similarly, Fulton County is the core of the Atlanta metropolitan 
area, yet certain neighborhoods in Fulton County have much higher 
median household income than neighboring DeKalb and Gwinnett Counties. 
Without the core area service requirement, a new community charter 
could be granted to serve low- and moderate-income areas, including 
Chamblee and Doraville, in DeKalb County and Norcross in Gwinnett 
County, both of which border Fulton County. These areas have the 
following median household income based on the America Community 
Survey, which is produced by the Census Bureau.\74\ The latest year for 
which data are available is 2017.
---------------------------------------------------------------------------

    \74\ https://factfinder.census.gov/faces/nav/jsf/pages/community_facts.xhtml.
---------------------------------------------------------------------------

DeKalb and Gwinnett County Areas

------------------------------------------------------------------------
                                                              Median
                        Zip code                             household
                                                              income
------------------------------------------------------------------------
30093--Norcross--Gwinnett County........................         $37,862
30340--Doraville--DeKalb County.........................          50,076
30341--Chamblee--DeKalb County..........................          54,142
------------------------------------------------------------------------

Fulton County

------------------------------------------------------------------------
                                                              Median
                        Zip code                             household
                                                              income
------------------------------------------------------------------------
30327--Buckhead.........................................        $148,480
30022--Alpharetta.......................................         103,228
30305--Paces Ferry......................................          98,506
------------------------------------------------------------------------

    The situation in which household income is sometimes higher in 
certain neighborhoods in a CBSA's core as compared to suburban areas in 
adjacent counties outside the ``core'' is common in many other 
metropolitan areas, including Boston, Philadelphia, and others. A 
further irony is that the core area service requirement would often 
require an applicant to provide financial service to relatively wealthy 
individuals in high-income areas who have ample options for their 
financial needs. Thus, the requirement may result in a potential 
applicant for a community charter either not seeking a charter for the 
low- to moderate-income areas or expending resources on wealthier areas 
in the core that have less need for such new services.
    Based on the above discussion and examples, the Board has concluded 
that this requirement may decrease potential credit opportunities for 
low- and moderate-income segments of communities in some circumstances. 
By removing the ``core'' provision, the Board anticipates that a 
potential FCU applicant can focus its limited resources to better serve 
such communities.
    In addition to the data on income cited above, the Board has 
considered data reflecting that community FCUs tend to serve most CBSA 
core areas across the country. Currently, the NCUA's data show that a 
substantial majority of CBSAs, including their core areas, are 
currently served by community-based FCUs. FCUs of various other charter 
types also serve core areas across the country. In addition, FCUs 
currently serve the entirety of several of the most populous SPJs in 
the country--Los Angeles County, California; Houston, Texas; 
Philadelphia, Pennsylvania; and San Antonio, Texas. If any of these 
FCUs seeks to amend their FOM to exclude the core area, such a request 
will be evaluated by the NCUA, and the NCUA will consider whether the 
proposed amended charter is discriminatory.\75\ Because of this 
expansive coverage of core areas by community FCUs, which the Board 
does not expect to change substantially, the Board finds that it is 
reasonable to eliminate the core area service requirement. As the data 
show, FCUs, and community FCUs in particular, are currently serving 
core areas extensively across the country. This finding is independent 
of the finding above regarding income, and the Board views each factor 
as independently sufficient to support this provision.
---------------------------------------------------------------------------

    \75\ 81 FR at 88414.
---------------------------------------------------------------------------

    Furthermore, approximately 700 community-based FCUs are currently 
designated as low-income credit unions pursuant to the Act and the 
NCUA's regulations.\76\ These credit unions have the potential to serve 
over 10 million members across the country. As directed by Congress, 
the NCUA accords this designation to credit unions that predominantly 
serve low-income members. By obtaining this designation, credit unions 
gain greater flexibility in accepting nonmember deposits,\77\ are 
exempt from the aggregate loan limit on business loans that otherwise 
applies to all federally insured credit unions,\78\ may offer secondary 
capital accounts to strengthen their capital base,\79\ and gain access 
to grants and loans from the Community Development Revolving Loan 
Program for Credit Unions.\80\ Accordingly, the Board believes that 
community-based FCUs have both strong incentives and a strong record of 
providing service to low-income segments of communities.
---------------------------------------------------------------------------

    \76\ 12 U.S.C. 1757(6); 12 CFR 701.34.
    \77\ 12 U.S.C. 1757(6).
    \78\ 12 U.S.C. 1759a(b)(2)(A).
    \79\ 12 CFR 701.34(b)-(d). Credit unions must submit a secondary 
capital plan under Sec.  701.34(b)(1) before issuing secondary 
capital accounts.
    \80\ 12 CFR 705.2.
---------------------------------------------------------------------------

    Separately, the agency's experience in implementing this provision 
since 2016 indicates that FCUs generally have non-discriminatory bases 
for pursuing this option. For example, in the three applications that 
the agency granted between 2016 and 2019 under this provision, the 
agency detected no evidence of discrimination. Instead, the applicants 
selected their FOMs either to operate within their current capacity 
limitations or to be able to serve outlying areas in CBSAs with a 
populous core area. For example, one FCU that was serving a county 
outside a core area added an adjacent (also non-core) county given its 
proximity and its lack of credit union services. This FCU also made 
this selection based on its branch structure and capacity. Another FCU 
that invoked this option selected areas outside of New York City within 
that CBSA. If the FCU had been required to include the core area, it 
would not have been able to include any outlying areas in its FOM due 
to resource concerns and the limitations of its

[[Page 59998]]

ability to serve a certain number of members. The third FCU that chose 
this option decided to serve a single county and two adjacent 
municipalities. This FCU has under $50 million in assets, and thus this 
modest expansion was consistent with its resources and ability to 
serve. In light of these experiences, as distinct from the data 
discussed above, the Board finds that the risk of discrimination is 
minimal and that FCUs have invoked the subject provision to serve areas 
outside the core that would otherwise have been omitted if the core 
area service requirement had been in place.
4. Proposed New Factor in the Chartering Manual To Address Service to 
Low- and Moderate-Income Individuals
    Separately, the Board proposes to amend the Chartering Manual to 
clarify and bolster the NCUA's authority to reject applications to 
serve community-based FOMs consisting of CSAs or CBSAs, if the agency 
determines that the FCU's proposal is based on discriminatory intent or 
a desire to exclude low- or moderate-income individuals. This 
provision, if adopted, would serve as an additional means to address 
the issue that the court raised regarding redlining and other forms of 
illegal discrimination. In essence, this provision would require an FCU 
to demonstrate that its choice of FOM, including choosing not to serve 
the core, is based on sound legal and business judgment and not an 
attempt to redline or discriminate on an illegal basis. This provision 
would add to the existing requirement for applicants to submit 
acceptable business plans, which applies to all community-based FOM 
applications. The Board believes that the further explanation and 
support set forth above is sufficient on its own to sustain the 2016 
Final Rule's elimination of the core area service requirement.
    At the outset, as discussed in detail above, the Board notes that 
the CRA and the frequently associated ``redlining'' prohibition does 
not specifically apply to FCUs by statute or regulation. The Board has 
reviewed and understands the 2019 Court of Appeals Decision's 
distinction between redlining in the CRA context and other potential 
gerrymandering of a service area with the intention of excluding low-
income or minority individuals, or both. The Board is mindful of the 
potential harm caused by discrimination in various contexts and 
reinforces its long-standing commitment to require compliance with all 
applicable anti-discrimination laws. In the context of chartering and 
selecting a community-based FOM, the Board believes that it can clarify 
and add to its existing authorities to ensure that it has the necessary 
tools to address any discrimination that it may encounter in the 
community FOM chartering process. The Board finds it unnecessary to 
impose this requirement for WDLCs consisting of SPJs or to rural 
districts because those community types do not pose the same potential 
for redlining or gerrymandering that the court considered.\81\
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    \81\ Under the SPJ provision, an FCU may serve an entire SPJ 
regardless of population, which limits the potential for the 
redlining that the court discussed. Likewise, rural districts 
present limited potential for this conduct because the provision 
enables FCUs to serve a combination of urban and rural areas to 
build sufficient capacity to be viable. It would therefore be 
contrary to this model for FCUs to use the rural district provision 
to attempt to exclude low- or moderate-income areas, since rural 
areas are predominantly populated by individuals with low and 
moderate incomes. See 81 FR at 88417 (``[T]he 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.'')
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    The Board notes that its existing requirements and practices 
already address community service in the chartering or FOM expansion 
process. As discussed in the 2016 Final Rule, FCUs seeking or expanding 
a community FOM must submit a business plan supported by realistic 
assumptions.\82\ Specifically, the Chartering Manual currently requires 
an applicant for a community charter to submit 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.'' \83\
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    \82\ FCUs amending their FOMs to add bordering areas submit a 
``streamlined'' business plan. Appendix B, Ch. 2., V.B.
    \83\ Appendix B, Ch. 2, V.A.4.
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    In the agency's experience, these business plans explain the 
applicant's reason for selecting a particular FOM, including cost or 
marketing considerations. The Board proposes to build on that existing 
practice to more expressly address the court's decision through 
specific provisions and requirements in the Chartering Manual 
applicable to CSAs and CBSAs.
    Taking this experience and background into account, the Board is 
proposing to make explicit that an applicant for a community FOM 
consisting of a CSA or CBSA must address how it will serve low- and 
moderate-income segments of a community. To make certain that the 
agency has explicit discretion to ensure that the FCU applicant will 
not exclude service to low- and moderate-income segments of 
communities, the Board proposes to amend the Chartering Manual to 
provide that the NCUA may require additional information on how the 
FCU's business needs support its selection, conduct any further inquiry 
that it deems appropriate, and reject either an initial charter 
application or an expansion or amendment request if the NCUA determines 
that a community-based FCU has chosen its specific geographic FOM based 
on discriminatory intent or effect.
    In the ordinary course, the Board would expect CURE, in 
consultation with other agency offices, as necessary, to consider 
income distribution or other statistical evidence to gauge whether a 
particular application may call for further review. In addition, under 
this proposal, CURE may consider other information in determining 
whether further review is needed, including, but not limited to, 
inclusion or exclusion of predominantly low- or moderate-income Census 
tracts within a statistical area, the statements and supporting 
information from the applicant FCU regarding how it intends to serve 
low- and moderate-income individuals, and, if applicable, the FCU's 
record of consumer compliance or fair lending violations. If CURE 
denies an application on this basis, the applicant could appeal to the 
Board, as with other whole or partial application denials under the 
Chartering Manual. To complement this express regulatory authority, the 
Board also proposes to amend the Chartering Manual to require 
community-based FCUs that select a CSA or a CBSA to document that it 
has a non-discriminatory purpose(s) for selecting its FOM and for the 
NCUA to review such submissions and follow up as appropriate.
    The Board believes that this measured approach would provide the 
agency clear authority in the text of the Chartering Manual to act in 
appropriate cases based on its extensive experience in evaluating FCUs' 
service plans. This approach is also appropriate because it expands on 
the existing principle and provision in Chapter 1 of the Chartering 
Manual that the NCUA may examine

[[Page 59999]]

other factors in unusual cases when deciding whether to grant a 
charter, including other federal laws and public policy.\84\ It would 
also be consistent with the purposes animating the NCUA's organic Act, 
which recognizes that FCUs ``have the specified mission of meeting the 
credit and savings needs of consumers, especially persons of modest 
means.'' \85\ The proposed amendment would more clearly apply these 
considerations to community expansion and amendment requests and 
provide more specific considerations than the general principle in 
Chapter 1. In sum, after reviewing the August 20, 2019 Court of Appeals 
Decision and the existing authority in the Chartering Manual, the Board 
proposes to build on this existing general provision to address this 
issue.
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    \84\ Appendix B, Ch. 1, Section I.
    \85\ 12 U.S.C. 1751 note.
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iv. Summary
    As discussed above, the Board has carefully reviewed the court 
decisions and the 2016 Final Rule and affirms the elimination of the 
core area service requirement for CBSA-based FOMs. The Board has 
offered further explanation of the issues raised in the August 2019 
Court of Appeals Decision. Specifically, several commenters have made a 
persuasive case that eliminating this requirement may enable FCUs to 
serve more low- or moderate-income individuals. Separately, as an 
independent basis to support this provision, the Board has considered 
supplemental data relating to CBSAs and concludes that this additional 
information would also support eliminating the requirement. These data 
show that a substantial majority of core areas in CBSAs receive service 
from community FCUs. In addition, the Board has identified several 
CBSAs in which low- or moderate-income individuals could receive 
greater access to financial services if FCUs are permitted to serve an 
FOM consisting of the non-core areas of those CBSAs. Further, and also 
as an independent basis for affirming this provision, the Board 
proposes to add a provision to the Chartering Manual under which the 
Board would retain clear discretion to require additional information, 
conduct an inquiry, and ultimately reject an initial application, 
expansion, or conversion, if the Board finds discrimination in the 
selection of a portion of a CSA or a CBSA, thus minimizing the 
likelihood of redlining. In this context, the Board notes that many 
FCUs may choose not to serve core areas because they lack the financial 
wherewithal, not for discriminatory reasons.\86\ The Board believes 
that each consideration cited above is sufficient on its own to explain 
and justify the elimination of the core area service requirement, and 
when combined, provide even stronger justification for this provision. 
The Board solicits public comments generally on the issues concerning 
the CBSA core area service requirement. The Board would also be 
interested specifically in any comments on how the core area service 
requirement may affect an FCU's ability to serve low- and moderate-
income segments of communities.
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    \86\ Serving a large and densely populated core area may often 
require establishing a significant geographic footprint throughout 
the core, with significant expenditures for rent, overhead, and 
other expenses, which a nascent FCU may not have the resources to 
cover. But by the same token, densely populated cores will often be 
an attractive option for FCUs who have the required resources and 
seek to serve a large and diverse field of membership.
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D. Limited Scope of This Rulemaking

    As the Board explains above, this proposed rule has a limited 
scope. The Board is proposing to re-adopt the CSA presumptive WDLC 
option that it originally adopted in the 2016 Final Rule and is 
providing further explanation and support for its elimination of the 
core area service requirement for CBSAs in the 2016 Final Rule. The 
Board is also proposing a new provision in the Chartering Manual to 
enhance service to low- and moderate-income individuals for community 
FOMs based on CSAs and CBSAs. The Board seeks comments on those issues. 
The Board is not proposing to re-visit or change any other provisions 
of the 2016 Final Rule or the Chartering Manual. In particular, the 
Board is not re-visiting the following elements (among others) of the 
2016 Final Rule: (1) The expansion of permissible rural districts up to 
one million people; (2) the option to add an adjacent area to a 
presumptive community; or (3) the elimination of the 2.5 million 
population cap on CBSAs as a whole.\87\
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    \87\ In addition, the Board is not proposing to re-visit any of 
the non-community FOM changes that it made in the 2016 Final Rule.
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III. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires the NCUA to prepare an 
analysis to describe any significant economic impact a regulation may 
have on a substantial number of small entities.\88\ For purposes of 
this analysis, the NCUA considers small credit unions to be those 
having under $100 million in assets.\89\ Although this proposed rule is 
anticipated to economically benefit FCUs that choose to charter, 
expand, or convert to a community charter, the NCUA certifies that it 
would not have a significant economic impact on a substantial number of 
small credit unions.
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    \88\ 5 U.S.C. 603(a).
    \89\ 80 FR 57512 (Sept. 24, 2015).
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Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemaking in 
which an agency by rule creates a new paperwork burden on regulated 
entities or modifies an existing burden. For purposes of the PRA, a 
paperwork burden may take the form of a reporting, disclosure, or 
recordkeeping requirement, referred to as information collection. The 
NCUA may not conduct or sponsor, and the respondent is not required to 
respond to an information collection unless it displays a valid Office 
of Management and Budget (OMB) control number.
    The rule proposes to amend Chapter 2 of Appendix B to part 701 by 
adding Section V.A.8 to require applicants of community FOM 
applications, amendments, and expansions of CSAs and CBSAs to explain 
why they have selected their FOM and to demonstrate that the selection 
will serve low- and moderate-income segments of a community, as 
outlined by the new section V.A.8.
    The current information collection requirements for the Chartering 
and Field of Membership Manual are approved under OMB control number 
3133-0015. It is estimated that 20 respondents applying, amending, or 
expanding a community FOM would be affected by the proposed amendment. 
It is estimated that these respondents would need an additional two 
hours to prepare the necessary documentation to demonstrate its 
selection, for an increase of 40 burden hours.
    Title of Information Collection: Chartering and Field of Membership 
Manual, Appendix B to part 701.
    OMB Control Number: 3133-0015.
    Estimated number of respondents: 8,155.
    Estimated number of responses per respondent: 1.
    Estimated total annual responses: 8,155.
    Estimated total annual burden: 16,182.
    Affected Public: Private Sector: Not-for-profit institutions.
    The Board invites comment on (a) whether the collections of 
information

[[Page 60000]]

are necessary for the proper performance of the agency's function, 
including whether the information has practical utility; (b) the 
accuracy of estimates of the burden of the information collections, 
including the validity of the methodology and assumptions used; (c) 
ways to enhance the quality, utility, and clarity of the information 
being collected; (d) ways to minimize the burden of the information 
collection on respondents, including through the use of automated 
collection techniques or other forms of information technology; and (e) 
estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    All comments are a matter of public record. Comments regarding the 
information collection requirements of this rule should be sent to (1) 
Dawn Wolfgang, NCUA PRA Clearance Officer, National Credit Union 
Administration, 1775 Duke Street, Suite 6032, Alexandria, Virginia 
22314, or Fax No. 703-519-8572, or Email at [email protected] and 
the (2) Office of Information and Regulatory Affairs, Office of 
Management and Budget, Attention: Desk Officer for NCUA, New Executive 
Office Building, Room 10235, Washington, DC 20503, or email at 
[email protected].

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles,
    The NCUA, an independent regulatory agency as defined in 44 U.S.C. 
3502(5), voluntarily complies with the executive order. Primarily 
because this proposed rule would apply to FCUs exclusively, it would 
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. 
The NCUA has determined that this proposed rule would not constitute a 
policy that has federalism implications for purposes of the executive 
order.

Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this proposed rule would not affect 
family well-being within the meaning of Section 654 of the Treasury and 
General Government Appropriations Act, 1999.\90\
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    \90\ Public Law 105-277, 112 Stat. 2681 (1998).
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List of Subjects in 12 CFR Part 701

    Credit, Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on October 24, 
2019.
Gerard Poliquin,
Secretary of the Board.

    For the reasons stated above, the Board proposes to amend 12 CFR 
part 701, Appendix B 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. Section V.A.2 of Chapter 2 of Appendix B to part 701 is revised to 
read as follows:

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

* * * * *

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, as well as the business plan 
requirements set forth in this Chapter. An applicant must meet all 
of these requirements to obtain NCUA approval.
    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. The 
applicant also has the burden of demonstrating that with respect to 
the proposed community, it has the capacity to provide financial 
services to low- and moderate-income areas of the community. The 
agency will reject any application that fails to establish the 
criteria set forth above.
    For an applicant seeking a community charter for a Statistical 
Area with multiple political jurisdictions with a population of 2.5 
million people or more, the Office of Credit Union Resources and 
Expansion (CURE) shall: (1) Publish a notice in the Federal Register 
seeking comment from interested parties about the proposed community 
and (2) conduct a public hearing about this application.
    ``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 districts, or a clearly identifiable 
neighborhood.
    The well-defined local community requirement is met if:
     Single Political Jurisdiction--the area to be served is 
a recognized Single Political Jurisdiction, i.e., a city, county, or 
their political equivalent, or any single portion thereof.
     Statistical Area--A statistical area is all or an 
individual portion of a Combined Statistical Area (CSA) or a Core-
Based Statistical Area (CBSA) designated by the U.S. Census Bureau, 
including a Metropolitan Statistical Area. To meet the well-defined 
local community requirement, the CSA or CBSA or a portion thereof, 
must be contiguous and have a population of 2.5 million or less 
people. An individual portion of a statistical area need not conform 
to internal boundaries within the area, such as metropolitan 
division boundaries within a Core-Based Statistical Area.
     Compelling Evidence of Common Interests or 
Interaction--In lieu of a statistical area as defined above, this 
option is available when a credit union seeks to initially charter a 
community credit union; to expand an existing community; or to 
convert to a community charter. Under this option, the credit union 
must demonstrate that the areas in question are contiguous and 
further demonstrate a sufficient level of common interests or 
interaction among area residents to qualify the area as a local 
community. For that purpose, an applicant must submit for NCUA 
approval a narrative, supported by appropriate documentation, 
establishing that the area's residents meet the requirements of a 
local community.
    To assist a credit union in developing its narrative, Appendix 6 
of this Manual identifies criteria a narrative should address, and 
which NCUA will consider in deciding a credit union's application 
to: Initially charter a community credit union; to expand an 
existing community, including by an adjacent area addition; or to 
convert to a community charter. In any case, the credit union must 
demonstrate, through its business and marketing plans, its ability 
and commitment to serve the entire community for which it seeks NCUA 
approval.
    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 common bond affinity groups that apply to well-defined local 
communities also apply to Rural Districts.

[[Page 60001]]

    The requirements in Chapter 2, Sections V.A.4 through V.G also 
apply to a credit union that serves a rural district.

0
3. Amend Chapter 2 of Appendix B to part 701 by adding Section V.A.8 to 
read as follows:

V.A.8 Community Selection Requirements and Review

    The NCUA will not approve an application for a community charter 
consisting of all or a portion of a CSA or a CBSA, including an 
initial application, amendment, or expansion, unless the applicant 
demonstrates in its business and marketing plan that (1) the credit 
union will serve a community that is contiguous and (2) the credit 
union will provide financial services to low- and moderate-income 
and underserved people, and that the credit union has not selected 
its service area in order to exclude low- and moderate-income and 
underserved people. Upon receipt of this material, the NCUA will 
evaluate the business and marketing plan to ensure that low- and 
moderate-income and underserved people will be served and that the 
credit union has not selected the service area in order to exclude 
such people. This requirement is in addition to the requirement to 
document in the business and marketing plan the realistic 
assumptions that support the credit union's viability and its plan 
to serve its entire FOM.
    The NCUA may conduct such further inquiry or evaluation as it 
deems appropriate, as authorized by 12 U.S.C. 1754 and consistent 
with the principles of this Manual, other federal laws, and public 
policy. If the NCUA determines that the credit union's submission is 
inaccurate or unsupported, it may deny that application on those 
grounds, regardless of whether the application satisfies the other 
criteria for initial chartering, amendment, or expansion.

0
4. Section V.B of Chapter 2 of Appendix B to part 701 is revised to 
read as follows:

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 and Section 
V.A.8 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 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.

[FR Doc. 2019-23680 Filed 11-6-19; 8:45 am]
BILLING CODE 7535-01-P