[Federal Register Volume 85, Number 178 (Monday, September 14, 2020)]
[Rules and Regulations]
[Pages 56498-56514]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-16988]


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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: Final rule.

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SUMMARY: The NCUA Board (Board) is amending its chartering and field of 
membership (FOM) rules with respect to applicants and existing federal 
credit unions (FCUs) seeking a community charter approval, expansion, 
or conversion, in response to an August 2019 opinion and order issued 
by the D.C. Circuit Court of Appeals. First, the Board is re-adopting 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. Second, with respect to communities 
based on a Core-Based Statistical Area (CBSA), or a portion thereof, 
the Board is providing additional explanation to support its decision 
to eliminate the requirement to serve the CBSA's core area as provided 
for in its comprehensive 2016 FOM rulemaking known as FOM1. Third, the 
Board is clarifying existing requirements and adding an explicit 
provision to its rules regarding potential discrimination in the FOM 
selection for CSAs and CBSAs.

DATES: This final rule is effective September 14, 2020.

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: 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

    In a notice of proposed rulemaking and supplemental statement 
published on November 7, 2019,\1\ the Board: (1) Proposed 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; \2\ 
(2) explained 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) proposed 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

[[Page 56499]]

selected its FOM and to demonstrate that its selection will serve low- 
and moderate-income segments of a community. The proposed rule also 
included 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 proposed to 
apply this provision to CSAs and CBSAs. As detailed further below, the 
Board is adopting and finalizing all aspects of the proposed rule 
without change. The following sections provide background on this 
rulemaking.
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    \1\ 84 FR 59989.
    \2\ References to CSAs or portions thereof in this final rule 
should be understood to carry this 2.5 million population limit. As 
noted above, 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. Applicants also have the option of requesting areas outside 
these parameters. However, because these types of areas are not 
presumptive WDLCs, applicants must submit a narrative and supporting 
documentation establishing how the residents interact or share 
common interests. Please refer to NCUA Letter to Federal Credit 
Unions 18-FCU-02 (https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/requests-serve-well-defined-local-community-using-narrative-approach) for additional background.
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A. Overview

    Under the Federal Credit Union Act (Act), seven or more individuals 
may create an FCU by presenting a proposed charter (referred to in the 
Act as the organization certificate) to the Board.\3\ These 
individuals, referred to as ``subscribers,'' must pledge to deposit 
funds for shares in the FCU and describe the FCU's proposed FOM.\4\ 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 proposed charter with 
the Act.\5\ Under the Act, FCUs may choose from two general categories 
of FOM: Common-bond and community.\6\
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    \3\ 12 U.S.C. 1753.
    \4\ 12 U.S.C. 1753(5).
    \5\ 12 U.S.C. 1754.
    \6\ 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),\7\ implements the chartering and FOM requirements that the Act 
establishes for FCUs. The Chartering Manual provides 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.\8\ 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.'' \9\
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    \7\ Appendix B to 12 CFR part 701 (Appendix B). The Chartering 
Manual is a single regulation that addresses all aspects of 
chartering FCUs. In that respect, it is similar to regulations of 
the Office of the Comptroller of the Currency (OCC) applicable to 
the chartering of national banks or federal savings associations. 12 
CFR part 5.
    \8\ Appendix B, Ch. 1, section I.
    \9\ 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.'' 
\10\ As amended by CUMAA, the Act provides a choice among three charter 
types: A single group sharing a single occupational or associational 
common bond; \11\ a multiple common bond consisting of groups each of 
which have a distinct occupational or associational common bond among 
members of the group; \12\ and a community consisting of ``persons or 
organizations within a well-defined local community, neighborhood, or 
rural district.'' \13\
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    \10\ Public Law 105-219, 2, 112 Stat. 913 (Aug. 7, 1998).
    \11\ 12 U.S.C. 1759(b)(1).
    \12\ Id. 1759(b)(2)(A).
    \13\ Id. 1759(b)(3).
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    Congress 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 FCU,\14\ and to establish applicable criteria for any such 
determination.\15\ 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 a political equivalent, 
school districts or a clearly identifiable neighborhood.'' \16\ The 
boundaries themselves may consist of political borders, streets, 
rivers, railroad tracks, or other static geographical features.\17\ 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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    \14\ Id. 1759(g)(1)(A).
    \15\ Id. 1759(g)(1)(B). The Circuit Court cited this express 
delegation in its August 2019 decision, which is discussed in detail 
below. Am. Bankers Ass'n v. Nat'l Credit Union Admin., 934 F.3d 649, 
663 (D.C. Cir. 2019).
    \16\ Appendix B, Ch. 2, section V.A.2.
    \17\ Appendix B, Ch. 2, section V.A.5.
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    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).\18\ A WDLC was (and still is) required to 
consist of a contiguous area, as reflected in the current text of the 
Chartering Manual.\19\ 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'').\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\ Under the presumptive 
community model, approval is not automatic; rather, there is a 
multiple-step process. Once a presumptive WDLC is established, an FCU 
is still required to demonstrate its ability to serve its entire 
proposed community, as demonstrated by the required business and 
marketing plans. Then, the NCUA's staff, including the Office of Credit 
Union Resources and Expansion (CURE), the Office of General Counsel 
(OGC), and Regional Offices, review the application to ensure the 
applicant has established that it can serve its entire proposed 
community.
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    \18\ 75 FR 36257 (June 25, 2010).
    \19\ 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). While the specific 
wording of this provision has been revised since 2003, the NCUA has 
always required that a WDLC consist of a contiguous area, dating 
back to 1999.
    \20\ 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).
    \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

[[Page 56500]]

population.\22\ The second is a single CBSA \23\ (as defined above) as 
designated by the U.S. 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 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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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).\25\ 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; \26\ (3) 
permitting FCUs to serve CSAs,\27\ 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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    \25\ 80 FR 76748 (Dec. 10, 2015).
    \26\ Similar to CSAs, as discussed in note 2, 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.
    \27\ 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,\28\ the Board adopted the five provisions of 
the 2015 Proposed Rule that are set forth above (2016 Final Rule, which 
is also known as FOM1). In the proposed rule, the Board proposed 
additional changes to the community charter provisions (2016 Proposed 
Rule).\29\ 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 
proposed narrative model would serve the same purpose as in years prior 
to 2010, when the narrative model was used exclusively. Further, 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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    \28\ 81 FR 88412 (Dec. 7, 2016).
    \29\ 81 FR 78748 (Nov. 9, 2016).
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C. March 2018 Federal District Court Decision

    The American Bankers Association (ABA) challenged several community 
FOM provisions adopted in the 2016 Final Rule under the Administrative 
Procedure Act (APA).\30\ On March 29, 2018, the U.S. District Court for 
the District of Columbia (District Court) upheld, or left in place, 
three provisions and vacated two provisions of the 2016 Final 
Rule).\31\ The court held that Congress had delegated sufficient 
statutory authority to the Board to issue such regulations under 
Chevron v. Natural Resource Defense Council.\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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    \30\ 5 U.S.C. 702.
    \31\ Am. Bankers Ass'n v. Nat'l Credit Union Admin., 306 F. 
Supp. 3d 44 (D.D.C. 2018).
    \32\ 467 U.S. 837 (1984). Shortly after CUMAA's s enactment, the 
D.C. Circuit determined that the Board acted within its delegated 
authority to issue rules for multiple common bond and community 
charters under Chevron in Am. Bankers Ass'n v. Nat'l Credit Union 
Admin, 271 F.3d 262 (D.C. Cir. 2001).
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    The District 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 contrary to the Act. Finally, the District Court 
vacated the provision to increase the population limit to 1 million 
people for rural districts, also finding it contrary to the Act.
    Both parties appealed this decision. The NCUA appealed the court's 
rulings on CSAs and rural districts. 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

[[Page 56501]]

community with a population greater than 2.5 million. Further, with 
regard to the change to CBSA limitations based on metropolitan division 
boundaries, no commenters objected to this 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 Circuit Court Decision

    On August 20, 2019, a three-judge panel of the D.C. Circuit Court 
of Appeals (Circuit Court) issued a decision on the appeal.\34\ The 
Circuit Court, in a unanimous decision, found that the Board acted 
within its statutory authority and thus 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 Circuit 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 Circuit 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 Circuit 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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    On one limited issue, the Circuit Court asked for additional 
explanation in reversing 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 
Circuit 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\ Accordingly, the Circuit Court directed the 
District Court to remand this provision without vacating it, and noted 
that it expected the Board to act ``expeditiously.'' \45\ The Circuit 
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.
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    \43\ Id. at 674.
    \44\ Id. at 670.
    \45\ 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 Circuit Court 
finding the Board acted within its authority, the Board proposed 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 remained in the 
Chartering Manual and was upheld by the court's decision. Accordingly, 
the Board did not address rural districts in the proposed rule.\46\ 
Finally, the Board provided further explanation and support, and 
proposed to add a provision to the Chartering Manual with respect to 
potential discrimination to address the Circuit Court decision. The 
Board issued the proposed rule promptly after the decision in light of 
the Circuit Court's expectation that the agency act expeditiously to 
provide further explanation on the CBSA core area service requirement.
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    \46\ On October 4, 2019, the ABA filed a petition for rehearing 
en banc with respect to the panel's ruling on the CSA and rural 
district provisions. The NCUA responded to this petition, upon order 
of the court, on November 21, 2019. On December 12, 2019, the D.C. 
Circuit issued a per curiam (summary) order denying the petition. 
The Circuit Court issued its mandate to terminate the appeal on 
December 31, 2019, and the District Court entered summary judgment 
in accordance with the mandate on January 7, 2020. On March 11, 
2020, the ABA filed a petition for a writ for certiorari requesting 
the U.S. Supreme Court review the Circuit Court decision. On June 
29, 2020, the Supreme Court denied the ABA's petition. 2020 WL 
3492665.
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II. Summary of Proposed Rule and Further Explanation of Core Area 
Service Requirement

    On November 7, 2019, the Board published a notice proposing to 
amend its FOM rules with respect to applicants for a community charter 
approval, expansion, or conversion, in response to the Circuit Court's 
August 2019 opinion and order. First, the Board proposed re-adopting a 
provision to allow an applicant to designate a CSA, or an individual, 
contiguous portion thereof, as a WDLC, provided that the chosen area 
has a population of 2.5 million or less. Second, with respect to 
communities based on a CBSA or a portion thereof, the Board provided 
additional explanation for its decision to eliminate the core service 
requirement in the 2016 Final Rule. Third, the Board clarified existing 
requirements and proposed to add an explicit provision to its rules 
regarding potential discrimination in the FOM selection for CSAs and 
CBSAs.

III. Summary of Comments on the Proposed Rule

    The Board received approximately 128 comments, including from bank 
and credit union trade associations, state leagues and associations, 
credit unions, and banks. A number of banks submitted a form letter 
opposing the proposal, particularly with respect to the elimination of 
the core area service provision.
    Credit union-affiliated commenters generally supported the proposal 
to reinstate the CSA provision and eliminate the CBSA core area service 
requirement for community charters. Several credit union-affiliated 
commenters opposed additional requirements for the marketing and 
business plan to establish service to core

[[Page 56502]]

areas or low- and moderate-income individuals, viewing such 
requirements as unnecessary and burdensome.
    Banks and bank trade associations provided comments largely 
opposing the proposed rule and the Board's objectives. These comments 
focused on eliminating the core area service requirement. Approximately 
113 banks submitted various form letters opposing the proposal to 
eliminate the core requirement. The form letters criticized the 
proposal, emphasizing their belief that ``urban core areas deserve 
access to financial services'' and that the proposal would result in 
redlining. These commenters advocated that the Board adopt provisions 
similar to those issued by bank regulatory agencies that implement the 
Community Reinvestment Act (CRA). Specifically, they requested 
community-chartered credit unions account for low-, moderate-, and 
middle-income census tracts being excluded from the FOM and whether 
financial services are adequately being provided to those areas. 
Further, these commenters requested that an FCU be required to explain 
how people in the excluded core can access credit facilities if the FCU 
does not include the core.
    The ABA \47\ stated that the CSA and CBSA core provisions were 
``seriously flawed'' and should be withdrawn unless the Board made 
significant modifications. The ABA relied extensively on the District 
Court decision that was unanimously reversed by the Circuit Court. 
Details of the comments are provided below in the discussion of the 
final rule.
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    \47\ The ABA's submission included approximately 350 pages (14 
pages were new comments, and the remainder consisted of attachments 
that included the ABA's legal filings and the District Court and 
Circuit Court decisions discussed above).
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IV. Final Rule

A. General

    The Board has determined that it is appropriate and consistent with 
the Act to adopt the FOM chartering provisions described above, as 
proposed. Accordingly, the Board is amending its FOM rules with respect 
to applicants for a community charter approval, expansion, or 
conversion, in response to the 2019 opinion and order issued by the 
Circuit Court. First, the Board is re-adopting the provision to allow 
an applicant to designate a CSA, or an individual, contiguous portion 
thereof, as a WDLC, provided that the chosen area has a population of 
2.5 million or less. Second, with respect to communities based on a 
CBSA or a portion thereof, the Board is providing additional 
explanation and support for its decision to eliminate the requirement 
to serve the CBSA's core area, as provided for in the 2016 Final Rule. 
In light of comments and consistent with the Circuit Court decision, 
the Board is clarifying existing requirements and adding an explicit 
provision to its rules regarding potential discrimination in the FOM 
selection for CSAs and CBSAs. Each of these three topics is discussed 
below.

B. Statutory Background and General Principles

    Before responding to specific comments, the Board believes it is 
appropriate to explain the overall statutory basis for its FOM 
regulations applicable to chartering FCUs. In Section 2 of CUMAA, 
Congress set forth its ``Findings'' as follows:
    The Congress finds the following:
    (1) The American credit union movement began as a cooperative 
effort to serve the productive and provident credit needs of 
individuals of modest means.
    (2) Credit unions continue to fulfill this public purpose, and 
current members and membership groups should not face divestiture from 
the financial services institutions of their choice as a result of 
recent court action.
    (3) To promote thrift and credit extension, a meaningful affinity 
and bond among members, manifested by a commonality of routine 
interaction, shared and related work experiences, interests, or 
activities, or the maintenance of an otherwise well understood sense of 
cohesion or identity is essential to fulfillment of credit unions' 
public mission.
    (4) Credit unions, unlike many other participants in the financial 
services market, are exempt from Federal and most State taxes because 
they are member-owned, democratically operated, not-for-profit 
organizations generally managed by volunteer boards of directors and 
because they have the specific mission of meeting the credit and 
savings needs of consumers, especially persons of modest means.
    (5) Improved credit union safety and soundness provisions will 
enhance the public benefit that citizens receive from these cooperative 
financial service institutions.
    These congressional findings--to encourage and improve financial 
access to credit to people of modest means, to enhance consumer choice, 
community affinity and common bonds, and to promote the safety and 
soundness of credit unions--are bolstered by specific provisions of 
CUMAA. For instance, Title 1 of that law addresses ``credit union 
membership,'' including the express provision in section 109 for the 
Board to establish regulations to encourage the chartering of community 
and multiple common bond FCUs. This section includes provisions 
encouraging formation of FCUs to encourage providing financial services 
to underserved communities and people of modest means. Title II of 
CUMAA mandates that the Board protect the National Credit Union Share 
Insurance Fund (NCUSIF) by issuing stricter safety and soundness 
provisions, including enhanced accounting standards in section 201. 
Title III of CUMAA includes capitalization and net worth requirements 
to ``resolve the problems of the insured credit unions at the least 
possible long-term loss to the [NCUSIF].'' Title III also sets forth 
specific mandates, including issuing regulations for prompt corrective 
action; capitalization requirements (including the submission of net 
worth restoration plans; earnings retention requirements; and prior 
written approval requirements for credit unions that are not adequately 
capitalized); certification of NCUSIF equity ratios; increased share 
insurance premiums; and periodic evaluation of access to liquidity. 
Title IV of CUMAA includes assurances for independent decision making 
in connection with certain charter conversions. Congress patterned 
these safety and soundness provisions after provisions applicable to 
the Federal Deposit Insurance Corporation (FDIC) and other banking 
regulatory agencies to ensure the safety and soundness of banks and 
protect the FDIC's insurance fund.
    As CUMAA indicates, Congress directed the Board to consider 
multiple responsibilities, including encouraging access for financial 
services to people of modest means, encouraging competition among 
providers of financial services, and protecting taxpayers by enhancing 
the safety and soundness of the credit union system and protecting the 
NCUSIF. In contrast, banks have a more limited focus, including the 
interests of shareholders. This is illustrated in the ABA's comment 
letter, which states that the organization ``represents banks of all 
sizes and charters and is the voice of the nation's $18 trillion 
banking industry, which is composed of small, regional, and large banks 
that together employ more than 2 million people, safeguard more than 
$414 trillion in deposits, and extend $10.4 trillion in loans.'' \48\
---------------------------------------------------------------------------

    \48\ In contrast, Federal credit unions have $803 billion in 
assets, employ roughly 160,000 people, safeguard $670 billion in 
shares and deposits, and extended $561 billion in loans.

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

[[Page 56503]]

    Although the ABA's comment seems to oppose the Board's authority to 
construe the statute and promulgate substantive FOM rules based on 
consideration of the purposes of the Act, the Circuit Court made clear 
that Congress entrusted the NCUA with an express delegation of 
authority to reasonably construe the statutory field of membership 
terms, and to promulgate appropriate rules.\49\ The Board also wishes 
to clarify the record in light of inaccurate statements in parts of the 
ABA's comments and litigation motions (which were appended to the ABA's 
comment letter).\50\ Examples of factual misstatements in the ABA's 
``Petition for Rehearing En Banc for Appellee-Cross-Appellant,'' which 
the ABA attached to its comment on this rulemaking, include the 
following. The Board wishes to clarify and correct these points, which 
pertain to the rulemaking generally:
---------------------------------------------------------------------------

    \49\ Am. Bankers Ass'n, 934 F.3d at 663.
    \50\ On a non-substantive point, the ABA in its petition for 
rehearing en banc incorrectly referred to the NCUA's organic statute 
as the National Credit Union Act. Id. at 3.
---------------------------------------------------------------------------

     The ABA states that CSAs ``automatically qualify as `local 
communities' '' \51\ and ``The agency retains no discretion to 
determine that any application of its `local community' or `rural 
district' rule is unreasonable.'' \52\ In fact, such a CSA would be a 
``presumptive community'' for which an applicant requests approval and 
provides a business and marketing plan to support an application. Then, 
NCUA staff in CURE reviews the application and in consultation with OGC 
for legal issues and the Office of Examination and Insurance and the 
Regional Office for safety and soundness concerns, may grant, deny or 
seek additional information.
---------------------------------------------------------------------------

    \51\ Id. at 1.
    \52\ Id. at 8.
---------------------------------------------------------------------------

     The ABA incorrectly states that there were ``hundreds of 
examples--and not a single counter-example--showing the agency's 
definitions fall outside the reasonable range of ambiguity of those 
terms.'' \53\ In oral argument before the Circuit Court, on behalf of 
the Board, the Department of Justice provided several examples.\54\
---------------------------------------------------------------------------

    \53\ Id. at 1-2.
    \54\ The DOJ brief noted that ``people can readily refer to the 
Combined Statistical Areas of Midland-Odessa in Texas, Appleton-
Oshkosh-Neenah in Wisconsin, El Paso-Las Cruces on the Texas-New 
Mexico border, or Joplin-Miami on the Missouri-Oklahoma border as 
being `local communities,' as these towns clearly share strong 
economic and social ties.''
---------------------------------------------------------------------------

     The ABA incorrectly states Congress added the term 
``local'' in the 1998 Act and then the Supreme Court ``reversed one 
such effort which would have allowed credit unions to be comprised of 
multiple unrelated employer groups (NCUA v. First Nat'l Bank & Trust, 
522 U.S. 479 (1998).\55\ In fact, the Supreme Court ruling came first 
on February 25, 1998, and then several months later Congress enacted 
CUMAA on August 7, 1998, including adding the term ``local.'' Also, the 
term ``local'' applies to community charters, while the Supreme Court 
decision focused on associational common bonds.
---------------------------------------------------------------------------

    \55\ Id. at 3.
---------------------------------------------------------------------------

     The ABA references ``as applied'' challenges in 2004 in 
Utah and 2008 in Pennsylvania.\56\ In fact, these cases challenged the 
sufficiency of administrative determinations that the NCUA made under 
the narrative model to establishing a community charter; this is a 
regulatory framework which has not been in effect for over a decade and 
was superseded by the new presumptive community rules adopted by 
notice-and-comment rulemaking in 2010 and supplemented in 2016. Thus, 
these pre-2010 cases are not relevant to the current challenge to 
presumptive communities set forth in the 2016 Final Rule.
---------------------------------------------------------------------------

    \56\ Id. at 4.
---------------------------------------------------------------------------

    The ABA also errs in stating: ``The panel relied on a separate 
regulation that requires credit unions to submit a business plan 
showing how the credit union would serve the proposed `local 
community.' '' \57\ In fact, both the presumptive community provisions 
for CSAs and CBSAs and the business and marketing plan requirements are 
in the same regulation.\58\ The ABA further argued that ``[t]he rule 
leaves the agency with no discretion to determine that a particular 
application of its rule is unreasonable.'' \59\ In fact, for the 
reasons noted above, approval for a presumptive community is not 
automatic; an applicant must establish through its business and 
marketing plan that it can serve the community, as the Circuit Court 
observed.\60\ All charter applications involve an iterative process 
between an applicant and the agency, with agency staff requiring the 
applicant to make modifications in approximately 95 percent of these 
applications. The NCUA chartering process is in this regard comparable 
to those that the federal banking agencies administer.\61\ For example 
the Federal Reserve Board's application materials state: ``Starting a 
bank involves a long organization process that could take a year or 
more, and permission from at least two regulatory authorities. 
Extensive information about the organizer(s), the business plan, senior 
management team, finances, capital adequacy, risk management 
infrastructure, and other relevant factors must be provided to the 
appropriate authorities.'' \62\
---------------------------------------------------------------------------

    \57\ Id. at 16.
    \58\ The Chartering Manual is all contained within Appendix B.
    \59\ ABA Petition for Rehearing at 16.
    \60\ 934 F.3d at 668.
    \61\ See FDIC Deposit Insurance Handbook at https://www.fdic.gov/regulations/applications/depositinsurance/handbook.pdf. 
For the OCC's procedures, see 12 CFR part 5.
    \62\ See the Federal Reserve Board's procedures at https://www.federalreserve.gov/faqs/banking_12779.htm.
---------------------------------------------------------------------------

C. Proposal To Re-Adopt the CSA Community Charter Option

    The Board proposed allowing a CSA (or a single portion thereof) to 
be a presumptive WDLC, subject to a 2.5 million population limit. In 
the proposed rule, the Board proposed to re-adopt this option in light 
of the Circuit Court decision reversing the District Court and 
upholding this provision in the 2016 Final Rule. The Board observed 
that the factual record regarding CSAs is materially identical to what 
existed in 2016. The only change that the Board proposed from the CSA 
option adopted in the 2016 Final Rule is clarifying language in the 
text of the Chartering Manual on the requirement that an FCU select a 
single, contiguous portion of a CSA to meet the WDLC requirement. The 
Board sought comments on this proposed action generally and 
specifically requested comments beyond the many it considered when it 
first adopted the CSA provision in FOM1.
    Commenters generally supported the proposal to readopt the CSA 
provision. The ABA was the only commenter opposing it; no other bank-
affiliated commenter addressed this proposal. In contrast, credit union 
commenters stated that CSAs are ``sufficiently compact to promote 
interaction and common interests among its residents'' and thus qualify 
as a WDLC. Other commenters stated that re-proposing this provision is 
consistent with the evolution in servicing members, as technology, 
financial services, and communities change. One commenter stated that 
adopting the CSA option is consistent with OMB designations that 
establish that there are sufficient interactions and common interests. 
Some commenters provided examples of CSAs, noting that cities in a CSA 
are ``intrinsically linked through both recreation and work.''

[[Page 56504]]

    In opposing the proposal, the ABA stated that defining a CSA as a 
``single local community'' is unreasonable and unlawful. The ABA 
largely relied on the District Court opinion, which was unanimously 
reversed by the Circuit Court. The ABA provided examples of CSAs that 
it believes might not be a WDLC and contended that CSAs have a ``daisy-
chain nature'' in which opposite ends have little connection. It then 
stated that the Circuit Court indicated that some CSAs might not be a 
WDLC and thus could be challenged on an ``as applied'' basis. The ABA 
further stated that the term ``local community'' should not 
automatically include a CSA. Rather, it stated that any presumption 
that a CSA is a local community should be rebuttable. The ABA further 
stated that the Board should not adopt these provisions while 
litigation remains pending, including the possibility of an appeal to 
the Supreme Court.
    After reviewing the comments in light of the unanimous Circuit 
Court decision to affirm the Board's adoption of a CSA as a presumptive 
community, the Board has determined that it is appropriate and 
consistent with the Act to amend the Chartering Manual to allow a CSA 
to be re-established as a presumptive WDLC. Much of the ABA's argument 
relied on the District Court decision that was unanimously rejected by 
the three-judge Circuit Court panel. In applying Chevron, the Circuit 
Court stated: ``We appreciate the District Court's conclusions, made 
after a thoughtful analysis of the Act. But we ultimately disagree with 
many of them. In this facial challenge, we review the rule not as 
armchair bankers or geographers, but rather as lay judges cognizant 
that Congress expressly delegated certain policy choices to the NCUA. 
After considering the Act's text, purpose, and legislative history, we 
hold the agency's policy choices `entirely appropriate' for the most 
part. Chevron, 467 U.S. at 865.'' \63\ With respect to CSAs, the 
Circuit Court, in rejecting the District Court's analysis, stated:
---------------------------------------------------------------------------

    \63\ Am. Bankers Ass'n, 934 F.3d at 656. See also with respect 
to CSAs: ``The NCUA possesses vast discretion to define terms 
because Congress expressly has given it such power. But the 
authority is not boundless. The agency must craft a reasonable 
definition consistent with the Act's text and purposes; that is 
central to the review we apply at Chevron's second step. Here, the 
NCUA's definition meets the standard.'' Id. at 664.

    In addition to being consistent with the Act's text, the 
Combined Statistical Area definition rationally advances the Act's 
underlying purposes. In the 1998 amendments, Congress made two 
relevant findings about purpose. First, legislators found 
``essential'' to the credit-union system a ``meaningful affinity and 
bond among members, manifested by a commonality of routine 
interaction [;] shared and related work experiences, interests, or 
activities [;] or the maintenance of an otherwise well-understood 
sense of cohesion or identity.'' Sec.  2, 112 Stat. at 914. Second, 
Congress highlighted the importance of ``credit union safety and 
soundness,'' because a credit union on firm financial footing ``will 
enhance the public benefit that citizens receive.'' \64\
---------------------------------------------------------------------------

    \64\ Id. at 665-66.

    The Circuit Court explicitly rejected the ABA's assertion that CSAs 
have a ``daisy chain'' nature, linking multiple metropolitan areas that 
have nothing to do with those at opposite ends of the chain. As the 
---------------------------------------------------------------------------
court stated:

    [T]he NCUA's definition does not readily create general, widely 
dispersed regions. Cf. First Nat'l Bank III, 522 U.S. at 502 
(indicating that community credit unions may not be `composed of 
members from an unlimited number of unrelated geographical units'. 
Combined Statistical Areas are geographical units well-accepted 
within the government. See [81 FR at 88414]. Because they 
essentially are regional hubs, the Combined Statistical Areas 
concentrate around central locations. . . . The NCUA rationally 
believed that such `real-world interconnections would qualify as the 
type of mutual bonds suggested by the term `local community.' . . . 
Thus, the agency reasonably determined that Combined Statistical 
Areas ``simply unif[y], as a single community,'' already connected 
neighboring regions. [See 81 FR at 88,415.] \65\
---------------------------------------------------------------------------

    \65\ Id. at 666-67.

    The ABA's misinterpretation of the Chevron doctrine was further 
repudiated by the entire Circuit Court, which rejected the ABA's 
petition for a rehearing en banc. The Board emphasizes that the ABA 
repeatedly misstates the regulatory framework for approving a 
presumptive community, both in its court filings and in its comment 
letter on the proposed rule. Under the regulatory provisions in the 
Chartering Manual, established by notice-and-comment rulemaking, there 
is no automatic approval of an application based on a CSA. Rather, an 
applicant would have to establish in its application that it can serve 
the entire community, as documented in its business and marketing plan. 
A further constraint on any such CSA or portion thereof is that its 
population cannot exceed 2.5 million people. As the Circuit Court 
---------------------------------------------------------------------------
noted:

    We might well agree with the District Court that the approval of 
such a geographical area would contravene the Act. But even so, the 
Association would need much more to mount its facial pre-enforcement 
challenge in this case. As the Supreme Court repeatedly has held, 
``the fact that petitioner can point to a hypothetical case in which 
the rule might lead to an arbitrary result does not render the 
rule'' facially invalid. Am. Hosp. Ass'n v. NLRB, 499 U.S. 606, 619 
(1991); see also EPA v. EME Homer City Generation, L.P. (EME Homer), 
572 U.S. 489, 524 (2014) (``The possibility that the rule, in 
uncommon particular applications, might exceed [the agency]'s 
statutory authority does not warrant judicial condemnation of the 
rule in its entirety.''); INS v. Nat'l Ctr. for Immigrants' Rights, 
Inc., 502 U.S. 183, 188 (1991) (``That the regulation may be invalid 
as applied in s[ome] cases . . . does not mean that the regulation 
is facially invalid because it is without statutory authority.''); 
cf. Barnhart v. Thomas, 540 U.S. 20, 29 (2003) (``Virtually every 
legal (or other) rule has imperfect applications in particular 
circumstances.'').

    Here, the Association's complaint and the District Court's 
accompanying worry strike us as too conjectural. The NCUA must assess 
the ``economic advisability of establishing'' the proposed credit union 
before approving it, [12 U.S.C. 1754], and as part of the assessment, 
the organizers must propose a ``realistic'' business plan showing how 
the institution and its branches would serve all members in the local 
community, see [12 CFR. part 701, app. B, ch. 1 section IV.D.] The 
Association has failed to demonstrate the plausibility of a local 
community that is defined like the hypothetical narrow, multi-state 
strip and accompanies a realistic business plan. And if the agency were 
to receive and approve such an application, a petitioner can make an 
as-applied challenge. See, e.g., EME Homer, 572 U.S. at 523-24; 
Buongiorno, 912 F.2d at 510.\66\
---------------------------------------------------------------------------

    \66\ Id. at 668.
---------------------------------------------------------------------------

    Thus, existing regulatory provisions guard against the extreme 
examples posited by the ABA, which claims incorrectly that the Board 
must approve them under the Chartering Manual. The Board agrees with 
the ABA and the Circuit Court that any application for a presumptive 
community, including one based on a CSA, can be challenged on an as 
applied, case-by-case basis. Given this regulatory framework, which is 
subject to judicial review, the Board agrees with the Circuit Court's 
reasoning in concluding that re-establishing the CSA as a presumptive 
community is entirely consistent with the express authority delegated 
to the Board by Congress. This provision also advances the Act's dual 
purposes of promoting common bonds while addressing safety and 
soundness considerations by ensuring that FCUs remain economically 
viable.

[[Page 56505]]

B. Proposal: Elimination of the Core Requirement for CBSA Community 
Charters

    In the proposed rule, the Board addressed the Circuit Court's 
concern regarding the potential for discriminatory redlining or 
gerrymandering of FOMs based on a portion of a CBSA that excludes the 
core area. In accordance with the Circuit Court's order, the Board 
provided further explanation for the provision of the 2016 Final Rule 
that eliminated the requirement for an FCU to serve the core area when 
it chooses to base its FOM on a portion of a CBSA. As background and 
context for these considerations, the Board explained differences 
between the chartering processes for FCUs and other types of financial 
institutions, with particular reference to the CRA provisions that 
Congress has applied solely to banks and federal savings associations. 
The Board explained that Congress intentionally excluded credit unions 
from the CRA and established a different regulatory framework for how 
credit unions provide financial services to low- and moderate-income 
people. In addition to differences between banks and credit unions, the 
Board further explained that Congress established different regulatory 
incentives for government-sponsored enterprises, such as Fannie Mae and 
Freddie Mac.
    In addition to these legislative differences, the proposal set 
forth additional reasons, including quantitative data, to support its 
decision to eliminate the core area service requirement. To this end, 
the Board reviewed the record from the 2016 Final Rule and observed 
that removing the core area service requirement would better allow FCUs 
flexibility to serve low- or moderate-income segments of communities in 
areas outside the cores. The Board noted that this consideration is 
consistent with a view that credit union-affiliated commenters 
expressed in response to the 2015 Proposed Rule. After reviewing the 
judicial decisions in this matter and comment letters from the 2015 and 
2016 rulemaking, the Board determined that enhancing flexibility is 
consistent with its decision to eliminate the core area service 
requirement.
    As an independent basis to support this decision, the Board 
presented and considered supplemental data relating to CBSAs to further 
support eliminating the core area service requirement. The Board noted 
that the data showed that a substantial majority of core areas in CBSAs 
receive service from community FCUs. In addition, the Board 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. 
Specifically, the Board observed that household income is sometimes 
higher in certain neighborhoods in a CBSA's core as compared to 
suburban areas in adjacent counties outside the core. Retaining the 
core area service requirement would often require an applicant to 
provide financial services to relatively wealthy individuals in high-
income areas who have ample options for their financial needs. Thus, 
the Board reasoned that 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 and access to 
credit. Based on that analysis, the Board found that this requirement 
may decrease potential credit opportunities for low- and moderate-
income segments of communities in some circumstances. By removing the 
core area service requirement provision, the Board anticipated that a 
potential FCU applicant could focus its limited resources to better 
serve such less affluent communities.
    In addition to those examples and analysis, the Board considered 
data reflecting that community FCUs tend to serve most CBSA core areas 
across the country. The NCUA's data (which are publicly available) 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 
pre-existing FCUs sought to modify their FOM to exclude an urban core, 
such a request would be subject to scrutiny by the NCUA to determine 
whether the FCU was engaged in discriminatory practices or whether it 
might leave the urban core underserved.\67\ Moreover, any member of 
these pre-existing FCUs could alert the NCUA of any potentially 
discriminatory practices, for which the NCUA could take appropriate 
action.\68\ Because of this expansive coverage of core areas by pre-
existing community FCUs, the Board found further support that it is 
reasonable to eliminate the core area service requirement.
---------------------------------------------------------------------------

    \67\ The new provisions in the Chartering Manual, discussed in 
detail below, would address this issue. App. 1, Ch. V.A.8.
    \68\ Id.
---------------------------------------------------------------------------

    Furthermore, the Board noted that approximately 700 community-based 
FCUs are currently designated as low-income credit unions (LICUs) 
pursuant to the Act and the NCUA's regulations.\69\ These FCUs 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,\70\ are exempt from the aggregate loan limit on 
business loans that otherwise applies to all federally insured credit 
unions,\71\ may offer secondary capital accounts to strengthen their 
capital base,\72\ and gain access to grants and loans from the 
Community Development Revolving Loan Program for Credit Unions.\73\ 
Accordingly, the Board observed that community-based FCUs have both 
strong incentives and a strong record of providing service to low-
income segments of communities.
---------------------------------------------------------------------------

    \69\ 12 U.S.C. 1757(6); 12 CFR 701.34.
    \70\ 12 U.S.C. 1757(6).
    \71\ 12 U.S.C. 1759a(b)(2)(A).
    \72\ 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.
    \73\ 12 CFR 705.2.
---------------------------------------------------------------------------

    Separately, the Board cited the agency's experience in implementing 
this provision since 2016 as a further indication of the non-
discriminatory bases that FCUs have for pursuing this option. For 
example, in applications granted by the agency between 2016 and 2019 
under this provision, the agency identified no discrimination. The 
Board detailed the reasons that the three FCUs approved under this 
provision had for their FOM selection, which centered on limited 
capacity or the ability to serve areas outlying a heavily populated 
core area, such as New York City. In light of that actual record, in 
addition to the data and examples, the Board found 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.
    Comments were mixed on whether it is appropriate to eliminate the 
core area service requirement. While every credit union-affiliated 
commenter that addressed this specific proposal supported it, bankers 
opposed the Board's decision to eliminate the core service requirement.

[[Page 56506]]

    Credit union-affiliated commenters stated that eliminating the core 
service requirement will not encourage discriminatory lending 
practices, noting that FCUs have a history of providing financial 
services to the underserved, and unlike banks do not have a history of 
redlining. Additional reasons commenters provided for supporting the 
proposal include that it:
     Allows an FCU to request an FOM that more reasonably fits 
its ability to serve, thereby facilitating services to potential 
customers and that requiring service to the entire core may 
unreasonably stretch an applicant's resources;
     Provides FCUs added flexibility to serve low- and 
moderate-income communities in areas outside the core;
     Allows FCUs to focus on how best to allocate limited 
resources to allow service to low-income members and areas;
     Accommodates changing demographics in which core areas are 
wealthier, while suburbs are more diverse but poorer;
     Recognizes that FCUs have valid business reasons for 
choosing to serve or not to serve a CBSA's core; and
     Provides the NCUA added authority to reject applications 
that may be based on discriminatory intent.
    These commenters further stated that the ABA's lawsuit would limit 
access of some low-income people to financial services. Specifically, 
they argued that implementing outdated and burdensome CRA requirements 
would reduce flexibility to serve poorer communities because FCUs may 
be required to serve wealthier cores, while reducing service to poorer 
areas. Consistent with the proposed rule's discussion, a commenter 
cited a New York Times article identifying demographic changes in 
downtown populations in Raleigh, Brooklyn, Atlanta, Indianapolis, 
Philadelphia, Nashville, Houston, Denver, and Chicago.\74\
---------------------------------------------------------------------------

    \74\ Badger. E., Bui Q, & Gebeloff R (Apr. 27, 2019), ``The 
Neighborhood is Mostly Black. The Home Buyers Are Mostly White,'' 
The New York Times, available at: https://www.nytimes.com/interactive/2019/04/27/upshot/diversity-housing-maps-raleigh-gentrification.html.
---------------------------------------------------------------------------

    Commenters noted that even without additional requirements, FCUs--
like banks--are subject to numerous anti-discrimination laws, and the 
NCUA \75\ already has authority to oversee compliance. In addition to 
the Equal Credit Opportunity Act of 1974 (ECOA) \76\ and the Fair 
Housing Act of 1968,\77\ the Home Mortgage Disclosure Act (HMDA) \78\ 
mandates that FCUs provide extensive data on lending practices, thereby 
providing an additional mechanism to identify discriminatory lending 
trends. Further, compliance with fair lending laws is a core 
responsibility of an FCU's board of directors. Also, similar to bank 
regulatory examiners, NCUA examiners, who are trained to identify fair 
lending violations, are empowered to take appropriate action against 
FCUs relating to lending activity.
---------------------------------------------------------------------------

    \75\ The NCUA, along with the Consumer Financial Protection 
Bureau (CFPB), FDIC, Federal Reserve, and the OCC, is a member of 
the Federal Financial Institutions Examination Council (FFIEC), 
which coordinates the supervision of financial institutions,
    \76\ 15 U.S.C. 1691 et. seq.
    \77\ Public Law 90-284.
    \78\ Public Law 94-200.
---------------------------------------------------------------------------

    In contrast, bank-affiliated commenters opposed eliminating the 
core requirement, stating:
     The NCUA did not address the Circuit Court's concern that 
a community credit union can engage in redlining or gerrymandering to 
create a community of higher-income members;
     The NCUA should consider the effect on excluded portions 
of communities, without regard to the business needs of the credit 
union, in light of FCUs' mission of serving those of modest means;
     The NCUA needs to consider access to full-service 
branches, even though not statutorily mandated; \79\
---------------------------------------------------------------------------

    \79\ No bank-affiliated commenter directly addressed the 
proposed rule's discussion about how Congress established different 
regulatory structures to provide financial services for underserved 
people and communities for different financial institutions. 
Specifically, Congress mandated the CRA for banks and federal 
savings association. In contrast, Congress declined applying the CRA 
to credit unions; rather, understanding the differences among 
financial institutions, Congress tailored different incentives for 
credit unions and government sponsored enterprises to facilitate 
providing financial services to people in underserved communities.
---------------------------------------------------------------------------

     The NCUA should substantiate the statement in the proposed 
rule regarding FCUs serving most CBSA core areas across the country;
     The proposed rule did not consider two Government 
Accountability Office (GAO) studies that conclude that credit unions 
serve a lower percentage of people of modest means than banks;
     The fact that some CBSAs have lower-income people outside 
the core does not justify a blanket rule permitting FCUs to exclude 
core areas;
     Credit unions should undergo examinations similar to the 
CRA reviews that bank regulators conduct;
     FCUs should demonstrate whether: (1) The revised 
geographic boundaries outside the core would result in more low- and 
moderate-income individual \80\ populations being served, (2) financial 
services are provided to the excluded areas, and (3) the excluded area 
will have access to financial services;
---------------------------------------------------------------------------

    \80\ The commenters referred to these groups as ``LMIs.''
---------------------------------------------------------------------------

     The NCUA's consumer compliance program is not sufficient 
to ensure compliance with consumer compliance laws;
     The NCUA's consumer compliance practices are not 
sufficient to safeguard against illegal discrimination, stating the 
NCUA conducted 25 fair lending exams in 2018 (less than 2013) even 
though credit unions have added 22 million members since 2013; and
     The NCUA's complaint process does not address nonmembers 
seeking FOM expansions.
    Accordingly, some of the bank-affiliated commenters requested that 
the NCUA withdraw the proposal because, as the ABA opined, ``credit 
unions have a special mission of serving persons of modest means'' and 
that it is ``the Board's responsibility to carry out this mission.'' 
These commenters further requested that the NCUA require that FCUs 
demonstrate a compelling interest or need to exclude urban cores. They 
also requested that the NCUA provide for public input to allow 
community groups to weigh in on excluding the core area.
    In response to supplemental information in the proposed rule 
regarding income distribution within and outside the core in several 
CBSAs, several commenters provided specific examples of credit unions 
serving wealthier communities while not adding branches in less 
affluent communities. The ABA specifically referenced Cleveland and 
Detroit to illustrate charters that may be approved by the NCUA under 
this provision where they contended lower-income and minority residents 
might be excluded from the FOM. Similarly, a Michigan banker referenced 
a state-chartered credit union's activities in Michigan.\81\ In 
addition, the ABA questioned the proposed rule's examples of CBSAs in 
which some portions--represented by ZIP codes--outside the core area 
have lower median income than the relevant core areas. The ABA 
questioned the use of ZIP codes because the NCUA's chartering rules do 
not recognize ZIP codes as WDLCs. The ABA also stated that the fact 
that there may be relatively affluent parts of the urban core of some 
CBSAs, in which median incomes exceed those in some outlying suburbs, 
does not justify a blanket rule that credit unions may

[[Page 56507]]

exclude all, or any part of, the urban core from their service area. 
According to the ABA, such a rule would permit FCUs to choose to serve 
only high-income areas of the CBSA, while excluding low-income areas.
---------------------------------------------------------------------------

    \81\ The Board notes that because the credit union referenced by 
the banker is state-chartered, it is not subject to the NCUA's 
chartering rules.
---------------------------------------------------------------------------

    Based on its review of the comments along with incorporating the 
rationale set forth in the proposed rule, the Board has determined that 
eliminating the core area service requirement is appropriate and 
consistent with the Act. In doing so, the Board reiterates its 
statement in the proposed rule that it sees each of the supporting 
points that it set forth as sufficient on its own to support 
eliminating this requirement. Considered together, these points 
cumulatively provide a reasoned basis for this action. As noted above, 
in establishing its FOM requirements, the Board must consider both 
providing increased access to consumers of modest means and enhancing 
safety and soundness and protecting the NCUSIF (and thus taxpayers). 
Based on its experience in analyzing community charters in light of the 
statutory provisions, the Board has determined that eliminating the 
core service requirement advances these congressional mandates. As 
discussed in the proposal, affording applicants for community charters 
the flexibility to match their financial resources with an underserved 
community will increase the likelihood that more low- to moderate-
income consumers will be served, and enhances safety and soundness, 
because the applicant will be better able to serve a community without 
over-extending its resources. The inflexible regulatory requirement 
suggested by the bankers would likely result in not only providing 
fewer underserved communities access to financial services, but may 
result in more credit union failures.
    As discussed in the proposed rule, of the approximately 50 
community charters reviewed by the agency since the 2016 Final Rule 
took effect, the Board has approved only three community charters in 
which the applicant requested a CBSA that excluded the core. As the 
following table reflects, these charters are primarily for FCUs with 
assets ranging from $158 million to $281 million.\82\ Thus, they 
illustrate the critical need for enhanced flexibility by not mandating 
service to the core area. Such flexibility may be crucial to the FCU's 
decision to seek a community in an area, especially near a major--and 
expensive--population center such as New York City, Boston, Washington, 
DC, or Cleveland.
---------------------------------------------------------------------------

    \82\ The Small Business Administration considers any financial 
institution with assets under $600 million a small business. See 13 
CFR 121.201, ``Small Business Size Standards by NAICS.'' This 
designation includes credit unions as well as banks.

----------------------------------------------------------------------------------------------------------------
           Credit union                    City           State       Approx. assets       Approved community
----------------------------------------------------------------------------------------------------------------
Palisades FCU....................  Pearl River........  NY         $181 mil...........  Rockland County, NY and
                                                                                         Bergen County, NJ
                                                                                         (population 1.2
                                                                                         million) is a portion
                                                                                         of larger New York-
                                                                                         Jersey City-White
                                                                                         Plains, NY-NJ
                                                                                         Metropolitan Division
                                                                                         (core under former rule
                                                                                         would have been either
                                                                                         New York City or New
                                                                                         York County
                                                                                         (Manhattan).
NYMEO FCU........................  Frederick..........  MD         $281 mil...........  Montgomery, Washington,
                                                                                         Carroll, and Howard
                                                                                         Counties, Maryland and
                                                                                         Jefferson and Berkley
                                                                                         Counties, West
                                                                                         Virginia.
LorMet Community FCU.............  Amherst............  OH         $158 mil...........  Expanded community
                                                                                         charter to serve Lorain
                                                                                         County, Ohio and the
                                                                                         cities of Westlake, Bay
                                                                                         Village and Rocky
                                                                                         River, located in
                                                                                         Cuyahoga County, Ohio.
----------------------------------------------------------------------------------------------------------------

    For instance, the LorMet Community FCU provides a direct, real 
world, response to the ABA's reference to the Cleveland CBSA. The 
Cleveland-Elyria Ohio MSA--centered in Cuyahoga County--has 980 census 
tracts \83\ with a population of 2,057,009. It is comprised of the 
following counties with these populations: Cuyahoga County 
(Cleveland)--1,243,857, Geauga County--94,031, Lake County--230,514, 
Lorain County--309,461, and Medina County--150,439.
---------------------------------------------------------------------------

    \83\ Each census tract has approximately 3,200 residents, thus 
offering an opportunity for a wide disparity in incomes.
---------------------------------------------------------------------------

    LorMet Community FCU has 18,778 current members, three branches, 
and assets of $158 million. It was originally a state chartered credit 
union that served employees of a single occupation. LorMet converted to 
a federal community charter in 2000 to better diversify due to 
downturns in domestic manufacturing activities. Specifically, Lorain 
County suffered automotive and other manufacturing plant closures. The 
FCU's original community charter served people who live, work, worship, 
or attend school in and businesses and other legal entities located in 
Lorain County, Ohio, which is directly adjacent to Cuyahoga's western 
border. LorMet sought to expand to three small towns in Cuyahoga: 
Westlake (population 32,293), Bay Village (population 15,328), and 
Rocky River (population 20,264). The combined populations of these 
three towns represent less than six percent of Cuyahoga's total 
population. The agency approved the community charter request, which 
would allow the credit union to expand its indirect loan program to 
attract new members. Management based the credit union's service area 
on the areas covered by two automobile dealers with longstanding 
involvement in the credit union's indirect loan program. The indirect 
loan program served as an important driver of the credit union's loan 
acquisition, growth, and income. Absent the Board's decision to 
eliminate the core area service requirement, it would be highly 
impracticable for LorMet to serve all of Cuyahoga County, which has a 
population approximately 400 percent larger than Lorain County and 20 
times more than the proposed expansion, within existing resources.
    Similarly, the Detroit-Warren-Dearborn CBSA--centered in Wayne 
County--has 1,594 census tracts with a population of 4,326,442. This 
CBSA also includes five other counties: Lapeer--population 88,028, 
Livingston--population 191,224, Macomb--population 874,759, Oakland--
population 1,259,201, and St. Clair--population 159,337. With respect 
to the named counties, each of the core areas has census tracts with 
both lower-income residents and significant wealthy areas of 
gentrification. For instance, one of Detroit's most affluent 
neighborhoods, Gross Pointe, is in Wayne County. Ten miles away and on 
the border with Wayne County, both Oakland and Macomb counties have 
some of the poorest segments of the CBSA. Thus, relative wealth at 
times does not correlate with the county in which a resident lives, as 
distressed core areas often have affluent residents, and suburban 
counties adjacent to the core area have extremely poorer ones. Thus, 
similar to the proposal's examples of Washington, DC and Atlanta, the

[[Page 56508]]

same situation holds true for Cleveland and Detroit.
    Counties adjacent to Cleveland and Detroit have faced significant 
economic challenges due to the loss of manufacturing jobs. For 
instance, in Lorain County, both Ford and US Steel closed manufacturing 
plans; and in Macomb County, General Motors closed plants. Eliminating 
the core area service requirement makes it more likely that an FCU 
would seek a community charter in these economically distressed 
adjacent counties than if they were required to seek a charter for the 
entire CBSA. It would be economically far more difficult, and 
potentially impossible, for a smaller FCU to provide financial services 
to both the core county and adjacent areas.
    While nothing in the Chartering Manual prohibits an applicant from 
pursuing a charter for an entire CBSA up to 2.5 million people, a 
mandate requiring such service may dangerously and needlessly increase 
risk by overextending the resources of an FCU, especially a smaller 
one.\84\ As discussed above, mandating that a community charter 
applicant serve the named core communities such as Cuyahoga in 
Cleveland and Wayne in Detroit may result in two harmful outcomes. 
First, an overextended smaller FCU is more likely to fail. Second, a 
potential applicant faced with having to serve both the named core as 
well as an adjacent area might make the business decision not to pursue 
an application at all, thereby reducing access to financial services 
for some low- and moderate-income consumers. Therefore, providing FCUs 
with limited resources more options will provide more low- and 
moderate-income people greater access to financial services.
---------------------------------------------------------------------------

    \84\ As of March 31, 2020, 74 percent of all FCUs have total 
assets under $100 million. Further, 60 percent of community-based 
FCUs have total assets under $100 million.
---------------------------------------------------------------------------

    The ABA also questioned why the NCUA had not addressed two GAO 
studies regarding the credit union industry. The first study (GAO-07-
29) from 2006 indicated that 31 percent of credit union customers are 
of ``modest means'' as compared to 41 percent of bank customers.\85\ 
The second GAO study (GAO-04-91) from 2003 concluded that credit unions 
provide a ``slightly lower'' percentage of their mortgage loans to low- 
and moderate-income households than banks.\86\ The age of the studies 
as well as data limitations cast significant doubt on their usefulness 
to this rulemaking.\87\ GAO-07-29 was issued in 2006 and relied on two-
year old (2004) data from the Survey of Consumer Finances (SCF). GAO-
04-91 was issued in 2003 and based its analysis on 2001 mortgage data 
from the HMDA database. Further, as the GAO itself acknowledged in both 
studies, the limitations inherent to the data require caution in their 
interpretation. In the case of GAO-07-29, the study noted that ``as an 
approximation of income levels, SCF data have certain limitations for 
measuring the income characteristics of credit union members.'' \88\ 
GAO-04-91 provided that ``relying on HMDA data to evaluate credit union 
service to low- and moderate-income households has limitations'' due to 
the smaller size of credit unions and the fact they generally make more 
consumer loans than residential mortgage loans.\89\ Also, the two 
studies inconsistently distinguished between FCUs and state-chartered 
credit unions \90\ in presenting the statistics that the ABA cites. 
Given the questionable utility of these outdated studies which relied 
on data that preceded the Subprime Mortgage Crisis and the Great 
Recession, the Board believes that its actual experience with 
implementing the rule along with the more timely data presented in the 
November 7, 2019, proposed rule, as well as in the earlier FOM rules, 
better reflect the relevant policy and legal considerations.
---------------------------------------------------------------------------

    \85\ Gov't Accountability Office, Greater Transparency Needed on 
Who Credit Unions Serve and on Senior Executive Compensation 
Arrangements, GAO-07-29 (Nov. 2006).
    \86\ Gov't Accountability Office, Financial Condition Has 
Improved, but Opportunities Exist to Enhance Oversight and Share 
Insurance Management, GAO-04-91 (Oct. 2003).
    \87\ By comparison, if Congress relied on data that was 16 to 19 
years out of date when it enacted CUMAA, the data would reflect the 
9 to 18 percent mortgage rate environment of the late 1970s and 
early 1980s. http://www.fedprimerate.com/mortgage_rates.htm.
    \88\ Supra note 85, at 5.
    \89\ Supra note 86, at 5.
    \90\ State chartered credit unions are not subject to NCUA's 
Chartering regulations. Further, some states provide more expansive 
chartering opportunities.
---------------------------------------------------------------------------

    The Board also notes that the ABA contended that the small number 
of approvals under this provision since 2016 suggests that the Board 
lacks sufficient experience to support what it terms a ``sweeping 
conclusion'' that FCUs have legitimate, nondiscriminatory purposes for 
using this provision. To the contrary, the Board finds that these 
limited approvals confirm the Board's conclusion. As noted in the 
proposed rule, eliminating the core area service requirement may 
benefit FCUs with more limited resources. The fact that FCUs have not 
used this provision extensively, but rather more selectively, tends to 
dispel the ABA's stated concern that FCUs will use the provision to 
avoid serving low- and moderate-income people. Instead, the Board's 
experience in analyzing community charter applications, regardless of 
the volume of applications and approvals, tends to show that FCUs have 
used the provision as the Board expected.
    Further, as noted in the proposed rule, in light of changes in 
demographics and population trends, many core areas have residents with 
higher incomes compared to proximately close areas outside the core. In 
the proposed rule, the Board provided examples of this phenomenon of 
CBSAs, including Washington, DC and Atlanta. Commenters provided 
support for this phenomenon of many other gentrifying CBSAs, including 
the New York Times story discussed above. This phenomenon is further 
reflected by the demographics in Detroit and Cleveland.\91\ No 
commenter provided convincing arguments or information to counter this 
factual consideration.
---------------------------------------------------------------------------

    \91\ For example, Shaker Heights in Cuyahoga is one of 
Cleveland's most affluent neighborhoods.
---------------------------------------------------------------------------

    Regarding the ABA's comment concerning the Washington, DC and 
Atlanta examples in the proposed rule and questioning the use of ZIP 
codes to delineate portions of these CBSAs, the Board notes that the 
ABA does not dispute the income figures or provide evidence that in 
such CBSAs, an FCU could use the CBSA provision without the core area 
service requirement to compose an FOM that would likely contain more 
low-income individuals than if the FCU served the core area to the 
exclusion of outlying areas. Regarding the use of ZIP codes, the Board 
agrees that these designations do not constitute WDLCs under the 
Chartering Manual. Rather, the different ZIP codes correlate with areas 
within these CBSAs and were used to illustrate varying median income 
levels within well-recognized segments of these communities. Further, 
ZIP codes are more readily understood by the general public than other 
geographic designations such as census tracts. Accordingly, the Board 
continues to believe that such examples illustrate the potential 
benefits of eliminating the core area service requirement for CBSAs.
    Similarly, with respect to the ABA's contention that a blanket rule 
permitting omission of the core area is not justified by the fact that 
more affluent people reside inside the core areas (and less affluent 
ones live outside the core) in some CBSAs, the Board believes that the 
real life examples more appropriately reflect current demographic and 
corresponding housing and income

[[Page 56509]]

trends. The Board acknowledges, as it did in the proposed rule, that 
the phenomenon of outlying areas outside the cores having higher 
incomes is not universal. It is true in some instances, and the Board 
finds that eliminating the core area service requirement will make it 
more likely that FCUs with limited resources can select FOMs with more 
low- and moderate-income people in a safe and sound manner. The ABA's 
unsubstantiated concern that FCUs may use this provision to exclude 
low- and moderate-income people in other instances does not override 
this significant benefit to the rule. Also, this concern is 
independently addressed by the new provision that the Board is adopting 
in the Chartering Manual, discussed below, to provide the agency more 
explicit authority to address the ABA's concern, if FCUs do attempt to 
use the provision in order to exclude low- and moderate-income people 
from their FOMs.
    In addition, the Board considered the recommendation by many banks 
that FCUs should be subject to the same CRA reviews that the banks 
undergo. The Board finds this recommendation misplaced because it 
addresses community service and lending activity after an FCU selects 
its FOM. As the Board noted in the proposed rule and discussed in 
detail in the 2016 Final Rule, under the Chartering Manual, the agency 
conducts periodic reviews of FCUs to determine whether they are serving 
their communities as stated in their initial FOM applications. These 
periodic reviews are conducted in addition to fair lending and safety 
and soundness examinations. The bank commenters did not explain why 
these existing procedures are insufficient in their view and also did 
not explain how the strength of reviews that the agency conducts after 
FOM selection is relevant to the validity of the provisions addressing 
how FCUs may designate their FOMs in the first instance. As the Circuit 
Court observed, FOM selection and post-selection community service are 
distinct,\92\ and the agency will continue to conduct these periodic 
reviews for their intended purpose. Accordingly, the Board has 
established two sets of requirements. The Chartering Manual's 
requirement for an applicant to submit a business and marketing plan is 
prospective in nature and requires an applicant for a new or expanded 
charter to provide information about how it intends to serve the new 
community. The business and marketing plan requirement is supplemented 
by the periodic review requirement, which specifies that agency staff 
will evaluate how well a credit union has served its new community.
---------------------------------------------------------------------------

    \92\ 934 F.3d at 670.
---------------------------------------------------------------------------

    The ABA also indicated that eliminating the core area service 
requirement would result in disparate treatment for minorities, stating 
that ``NCUA must consider whether approval of a proposed service area 
that excludes the urban core of the community will have a 
discriminatory effect.'' \93\ Throughout the ABA's comments, it refers 
many times to ``low income or minority individuals.'' \94\ The Board 
finds that this rule addresses potential disparate impact on low-income 
or minority individuals in several significant ways.
---------------------------------------------------------------------------

    \93\ Emphasis in original.
    \94\ The Board acknowledges that there may be overlap between 
low-income and minority groups. Nevertheless, the ABA should be 
aware that in applying statutes and the ensuing regulatory regime, 
the threshold issue is always whether Congress applied the 
provisions to that entity. In its comment, the ABA conflates the 
CRA's purpose of providing financial services to underserved areas 
with ``disparate impact'' considerations that affect minority 
borrowers. By contrast, in the ABA's extensive comments to an 
advance notice of proposed rulemaking issued by the OCC and FDIC, 
the ABA made no mention of disparate impact, suggesting it views 
these concepts as distinct. ABA Comment Letter, Reforming the 
Community Reinvestment Act Regulatory Framework, Docket ID OCC-2018-
0008, available at https://www.aba.com/-/media/documents/comment-letter/cl-cra20181115.pdf?rev=a8d598e9460341e78a4d76aa004dd244.
---------------------------------------------------------------------------

    First, as detailed in the preceding section, based on the Board's 
consideration of the evidence and public comments, the Board finds that 
eliminating the core area service requirement is likely to enhance 
service to areas outlying the cores, which may allow FCUs to respond to 
the trend of low-income and minority individuals moving to suburbs in 
greater numbers than in the past. Thus, the Board is not persuaded that 
maintaining this chartering option and the flexibility it provides will 
by its nature have a disparate impact on low-income or minority people.
    Second, as detailed in this rulemaking, in the 2016 Final Rule, and 
in the Circuit Court's August 2019 opinion,\95\ many pre-existing FCUs 
serve core areas where low-income and minority residents live. The 
Board found in the 2016 Final Rule that its periodic reviews of 
community service and enforcement of applicable anti-discrimination 
laws effectively address discriminatory practices that might occur 
separate from the initial chartering process, and the Circuit Court 
found that these measures could address such discrimination. This 
established process and the agency's experience in its administration 
indicate that the agency is well-equipped to address discrimination in 
the chartering process as it has in the post-chartering phase without 
the need to adopt a disparate impact or effects-based standard.
---------------------------------------------------------------------------

    \95\ Am. Bankers Ass'n, 934 F.3d at 970.
---------------------------------------------------------------------------

    Third, as a complement to the post-chartering review and 
regulation, the Board is adopting the new provisions in the Chartering 
Manual detailed in the section below to provide explicit authority for 
the Board to address intentional discrimination in the chartering 
process. These provisions also directly address the ABA's concern.
    For each of these individual reasons, the Board concludes that this 
final rule addresses the ABA's concern. As noted in the Circuit Court's 
opinion, this final rule would not bar the ABA from challenging such 
approved applications on an as-applied basis. But, the ABA's concerns 
are unfounded and do not provide persuasive reasons not to adopt this 
final rule, which is consistent with the Act.
    The Board also notes that the ABA's statement about LICUs not 
serving all people of modest means in the country is misplaced. The ABA 
contends that the proposed rule's discussion of LICUs is not persuasive 
because LICUs have potential to serve only 3 percent of the United 
States population and that 11 percent of the population is below the 
poverty line. The Board did not state that LICUs have the potential or 
do serve all people of modest means in the United States. Instead, the 
Board enumerated the benefits of low-income designation as further, 
independent support for its finding that FCUs are unlikely to engage in 
redlining or gerrymandering because there is a strong incentive to 
compose FOMs that have larger percentages of low-income people in order 
to attain this designation, as set forth in detail above and in the 
proposed rule.
    Similarly, the Board observes that the ABA does not factually 
dispute the statement in the proposed rule that FCUs serve the majority 
of CBSA core areas in the country. The ABA, which has access to public 
data on FOMs across the country, did not adduce or provide any contrary 
information or specifically question the conclusion. This information, 
like the information about LICUs, constitutes further, independent 
support for affirming this provision. As amply illustrated in the 
proposed rule and in this final rule, it is not the sole basis for 
support, and nor is it necessary to sustain the provision given the 
other strong reasons detailed in the proposed rule. Nevertheless, the 
Board continues to find this fact compelling because it confirms that

[[Page 56510]]

FCUs provide services to a broad range of areas across the country, 
including CBSA core areas. In addition, in response to the ABA's 
supposition that the Board noted this fact to suggest that other 
institutions are doing the work of serving those of modest means, the 
Board emphasizes that the agency does and will continue to evaluate 
each individual application on its own merits. The fact that FCUs 
already provide services to many low- and moderate-income individuals 
reinforces that FCUs have a strong history of doing so.
    Based on its experience with community chartering, as bolstered by 
this legal analysis of the statutes that address providing financial 
services to people of modest means, the Board has determined that its 
decision to eliminate the core service requirement is appropriate and 
consistent with the legislation. Not only does the flexibility afforded 
by this regulatory decision incentivize the chartering of more 
community-based FCUs to serve people of modest means, but allowing an 
applicant to tailor its community to its residents and particular 
circumstances will increase economic viability. Thus, FCUs will likely 
have fewer safety and soundness concerns and will be less likely to 
fail. The Board further notes that nothing in the rule precludes an FCU 
from serving an entire CBSA up to the 2.5 million population limit, 
just that such an FCU is not mandated to do so. Statistics provided in 
the proposed rule indicated that FCUs already provide financial 
services to the vast majority of CBSA core areas. Thus, the bankers' 
proffered concerns that many low- and moderate-income people will not 
obtain such access is without merit.
    Further, the bankers' dismissive response to the various fair 
lending laws, such as ECOA, HMDA, and the Fair Housing Act to which 
FCUs are subject is without merit, particularly because banks are 
subject to the same statutes and regulations. The NCUA--along with the 
CFPB, FDIC, Federal Reserve, and OCC--is a member of the Federal 
Financial Institutions Examination Council (known as the FFIEC) and 
thus extensively coordinates with those agencies on consumer compliance 
programs. Like bank consumer compliance examiners, NCUA examiners seek 
to ensure compliance with these consumer protection statutes and 
regulations. Further, the boards of directors of both banks and credit 
unions are on notice and fully aware that compliance with such consumer 
safeguards is essential and that non-compliance with fair lending 
statutes expose them to reputational risk, legal risk, and compliance 
risk, including enforcement actions and fines.\96\
---------------------------------------------------------------------------

    \96\ ``Wells Fargo, Philadelphia reach settlement in redlining 
lawsuit,'' The American Banker, available at https://www.americanbanker.com/news/wells-fargo-philadelphia-reach-settlement-in-redlining-lawsuit.
---------------------------------------------------------------------------

    These safeguards provide further support for the Board's 
determination that it is appropriate to eliminate the core area service 
mandate. The Board notes that the core area service requirement is a 
regulatory provision adopted in 2010 by a notice-and-comment rulemaking 
and is not required by the Act. After several years of experience with 
the provision, the Board determined that this provision was not 
necessary to further the Act's purposes. Further, the Board notes that 
the ABA's request that the Board demonstrate a ``compelling interest or 
need'' to exclude the core misunderstands the applicable law. A 
fundamental principle of administrative law under the APA is that an 
agency is required to provide a rational basis that the rule is not 
``arbitrary, capricious, an abuse of discretion or otherwise not in 
accordance with the law.'' \97\ As described above and consistent with 
the Circuit Court's decision, the agency's decision to eliminate the 
core requirement is fully consistent with and advances the statutory 
mandate as described in the ``Findings'' section and various provisions 
in CUMAA. Eliminating the provision not only furthers financial access 
to people of modest means, but enhances the safety and soundness of 
credit unions and the share insurance fund.
---------------------------------------------------------------------------

    \97\ 5 U.S.C. 706.
---------------------------------------------------------------------------

    The bankers' additional request to allow for public input from 
community groups to weigh in on excluding core areas is neither 
necessary nor appropriate. By approving new FCU charters, the Board is 
expanding choices for consumers, including those of modest means, and 
providing additional competition to other financial institutions. Such 
expanded choice and competition is in the interest of all consumers. 
Nothing in the approval of a new FCU requires an individual or 
community group to do anything other than potentially benefit from 
expanded alternatives.

D. Added Provision in Chartering Manual Addressing Service to Low- and 
Moderate-Income Individuals

    The Board proposed amending the Chartering Manual to clarify and 
bolster the NCUA's authority to review applications to serve community-
based FOMs consisting of CSAs or CBSAs to ensure that the FCU's 
requested community is not selected in order to exclude low- or 
moderate-income individuals. Under current provisions in the Chartering 
Manual, an applicant must detail how it will implement its business and 
marketing plan; the unique needs of various demographic groups in the 
proposed community; how the FCU will market to each group, particularly 
underserved groups; which community based organizations the FCU will 
target for outreach efforts; the FCU's marketing and budget projections 
dedicating resources to reach new members; and the FCU's timetable for 
implementation. Under the proposed rule, an FCU would be required 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 was 
proposed to supplement existing requirements for applicants to submit 
acceptable business plans, which applies to all community-based FOM 
applications.
    Separately, and to complement this proposed requirement, the Board 
proposed 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 
application is based on discriminatory intent or a desire to exclude 
low- or moderate-income individuals. The Board stated that this 
provision, if adopted, would serve as an additional means to address 
the issue that the Circuit Court raised regarding redlining and other 
forms of illegal discrimination. This provision was proposed to add to 
the existing provisions under which applicants must submit acceptable 
business plans, which applies to all community-based FOM applications.
    Further, to make certain that the agency has explicit discretion to 
ensure that the FCU applicant will not seek to exclude service to low- 
and moderate-income segments of communities, the Board proposed 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 area in order to exclude low- or 
moderate-income or underserved people.
    The Board further discussed how it would expect CURE, in 
consultation

[[Page 56511]]

with other agency offices, to implement this provision if it were 
adopted. Specifically, without proposing to require applicants to 
submit extensive information that might slow down the overall 
application process, the Board stated that CURE might 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.
    The Board found that this approach is appropriate because it 
expands on the existing principle and provision in Chapter 1 of the 
Chartering Manual that the NCUA may examine other factors in unusual 
cases when deciding whether to grant a charter, including other federal 
laws and public policy.\98\ Further, the Board observed that 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.'' \99\
---------------------------------------------------------------------------

    \98\ Appendix B, Ch. 1, Section I.
    \99\ 12 U.S.C. 1751 note.
---------------------------------------------------------------------------

    Banks and a few credit union-affiliated commenters generally 
supported or did not address such additional requirements. One 
commenter stated that the NCUA needs to require heightened 
documentation and explanations for FCUs seeking to exclude the core and 
how low-income residents will be served. Thus, the commenter believed 
that it is appropriate for the NCUA to request additional information 
on how an FCU's business needs would support its selection. This 
commenter viewed such a provision as not unreasonably burdensome, given 
that the NCUA may request such information only as warranted. Those 
favoring what they termed ``reasonable'' requirements stated that the 
current policy provides that the NCUA will review FCUs' plans to ensure 
service to such people. One commenter stated the proposed additional 
requirements were consistent with the Circuit Court decision, which 
indicated the requirement should be more explicit in terms of 
demonstrating service to underserved individuals.
    In addition to their general support of additional requirements 
(subject to recommendations to strengthen the requirements), bankers 
also requested they have advance notice and the opportunity to 
participate in administrative proceedings, which they viewed as 
necessary to prevent the Board from ``acting as a rubber stamp.'' The 
ABA suggested strengthening the new proposed factor by requiring FCUs 
to show that their chosen service area will advance the mission of 
serving low- and moderate-income persons and reiterated its assertion 
that an FCU's business needs should not justify excluding such persons. 
The ABA also reiterated that the NCUA should look at the effect on 
excluded parts of communities, and not just at discriminatory intent. 
Other bank-affiliated comments made similar recommendations for 
increasing the NCUA's scrutiny of such applications, including by 
allowing FCU members to vote on any proposal for an FCU to leave its 
portion of the community.
    In contrast, several of the credit-union affiliated commenters 
opposed the proposed regulatory provisions, which they characterized as 
requiring an applicant to demonstrate nondiscrimination in service area 
selections that show an FCU's ability to serve underserved individuals. 
These commenters were concerned that the proposed procedures were 
unreasonably vague and that it was not clear what type of additional 
information FCUs need to submit to demonstrate service to people of 
modest means. Specifically, some commenters requested that the NCUA 
should expressly include examples of evidence like income distribution 
or other statistical evidence in the Chartering Manual and not just in 
the preamble. They also expressed concern that these requirements would 
unnecessarily complicate and delay the application process. Several 
commenters requested that the NCUA define what this section in the 
business plan should include (including through the issuance of model 
form or guidance) and requested that the section not be so overly 
complicated or lengthy that it will entail additional cost or 
significant time.
    Commenters made several additional observations about the new 
requirements. Several commenters stated that certain information should 
not be required in the marketing and business plan submission. The 
inclusion or exclusion of certain census tracts should not raise 
negative inferences, provided that an FCU has stated a rational 
explanation, using sound business judgment for the area selected. 
Similarly, one commenter questioned the use of an FCU's record of 
consumer compliance or fair lending violations. The commenter stated 
the NCUA should clarify the basis for this criterion. Commenters 
identified other concerns, including the difficulty in determining 
whether an applicant was not choosing a service area based on 
discriminatory factors. One commenter stated that it should be NCUA's 
responsibility to prove discriminatory intent rather than the 
applicant's responsibility to disprove it. Another commenter expressed 
concern about the potential to increase safety and soundness risk by 
focusing on service to low-income areas.
    After reviewing the comments, the Board has decided to adopt the 
modifications to the Chartering Manual's provisions addressing an FCU's 
ability to provide financial services to people of modest means, as 
proposed. The Board notes that some commenters characterized the 
requirement as placing the burden on applicants to establish 
conclusively that the requested community charter would not 
discriminate against people of modest means. This is not the case; the 
applicant will be required to provide a narrative in the business and 
marketing plan establishing that the requested community will provide 
financial services to people of modest means. CURE, along with other 
divisions in the agency, will review the plan to ensure that the 
applicant's requested community will in fact provide such services to 
people of modest means. CURE staff has the option of approving the 
application, requesting additional information, or rejecting the 
application. The final rule further clarifies the Chartering Manual by 
stating in the new provision that illegal discrimination will form a 
basis for rejection, consistent with the discussion in the proposed 
rule preamble \100\ and building on the existing principle in Chapter 1 
of the Chartering Manual that permits the agency to consider other 
federal laws in deciding on an application.
---------------------------------------------------------------------------

    \100\ 84 FR 59998 (Nov. 7, 2019).
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    The Board emphasizes that these changes essentially make explicit 
what had been required with respect to providing communities with 
financial services. Specifically, an applicant's business and marketing 
plan for a community charter has been required and will continue to be 
required to establish that it can provide financial services to people 
of modest means by providing demographic information such as income, 
race, gender, and financial resources. In addition, an applicant will 
continue to provide in the business and marketing plan its near-term 
and longer-term plans with respect to types of financial products

[[Page 56512]]

and services that may appeal to people of modest means. Such products 
include various savings accounts and loan programs (including first-
time car-buying loans, 125 percent automobile financing, PALs and 
similar programs). Additionally, specific information continues to be 
required about advertising and marketing activities and potential 
branching considerations. Thus, the Board agrees with the ABA's comment 
that ``FCUs [should] show that their chosen service area will advance 
the mission of serving low- and moderate-income persons.'' The Board 
has determined that this provision will advance that mission.
    The Board finds no utility or justification for the suggestion that 
it provide advance notice and the opportunity to participate in 
administrative proceedings. The new, excessively burdensome procedures 
suggested by the bankers would impose additional administrative and 
economic burdens on both the applicants--many of which are small 
entities--and agency staff. These burdens are unnecessary and 
counterproductive because, as noted elsewhere in this final rule, FOM 
and chartering determinations may already be challenged on an as 
applied, case-by-case basis. Further, the resulting delays and possible 
introduction of superfluous information in the charter approval process 
would defeat the purposes of the presumptive community model. As the 
Board noted in the preamble to the proposed rule, the model was adopted 
to expedite charter approvals through the use of objectively verifiable 
statistical data.\101\
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    \101\ See 84 FR 59989, 59991 (Nov. 7, 2019).
---------------------------------------------------------------------------

    In addition, the Board finds that the proposal to add express 
authority for the NCUA to reject an application in appropriate 
circumstances is reasonable. As discussed in the proposed rule, this 
proposed provision builds on the existing principle in the Chartering 
Manual that the NCUA may consider other laws and public policy in 
reviewing a charter application. Far from creating a vague standard, 
the proposed provision establishes a more concrete implementation of 
this principle in the specific context of service to low- and moderate-
income segments of communities. Accordingly, the Board adopts this 
provision as proposed. The Board declines to introduce further 
prescriptive details or requirements into the Chartering Manual, or to 
establish specific deadlines for agency action, in order to maintain 
flexibility for the agency and applicants. Specifically, the Board has 
determined that it is neither necessary nor appropriate to establish a 
model form; however, the Board emphasizes that the Chartering Manual 
provides significant guidance on the preparation of charter 
applications. Providing a model form would reduce flexibility without 
any significant corresponding benefit. As the agency and FCUs gain 
experience with the new provision, which is closely tied to the 
existing provisions, the agency can consider the need for any 
additional guidance.
    At the same time, the Board has considered the comments by the ABA 
and other bank-affiliated commenters recommending that the Board 
consider the effects of discrimination against low- and moderate-income 
people, as well as intent or purpose. Conversely, some credit union-
affiliated commenters opined that the Board should not consider 
discriminatory effects or impact and sought clarification of the 
standard. After carefully considering these comments, the Board 
clarifies that under the new provision in the Chartering Manual, it 
will focus on evidence of discriminatory intent or purpose. This 
standard is consistent with the text of the provision, as proposed, 
which states that the Board will consider whether the FOM was selected 
``in order to exclude'' low- and moderate-income people. Similarly, 
this standard is responsive to the concern that the Circuit Court 
raised about FCUs potentially engaging in gerrymandering or redlining, 
both of which signify intentional exclusion. Contrary to the 
suggestions of some of the bank-affiliated commenters, there is no 
legal requirement applicable to FCUs that would mandate imposing an 
effects-based standard.
    Further, as an independent basis to decline to adopt this 
suggestion, the Board concludes that an effects-based standard would be 
inappropriate. First, there is no clear or easily applicable test for 
what would constitute an acceptable or unacceptable disparate effect. 
Second, the commenters provide no evidence to suggest that an effects 
test, rather than an intent or purpose test, would necessarily result 
in different approvals or disapprovals of prospective FCU charters or 
expansions or amendments to existing FCU charters. The Board believes 
it is appropriate to adopt an intent or purpose test initially, so that 
both FCUs and the agency can develop familiarity with the process. 
After developing that experience, it might be appropriate in the future 
for the Board to revisit the standard and determine whether an effect 
test would be desirable, manageable, or result in materially different 
outcomes.
    Likewise, the Board disagrees with the ABA and some of the other 
bank-affiliated commenters that asserted that an FCU's limited 
resources should not, by itself, justify excluding portions of a CBSA 
or CSA. As the Board details in the section above, in some instances, 
this flexibility may enable FCUs to serve more low- and moderate-income 
people safely and soundly. No other legal standard applies that would 
require additional explanation. In any event, the Board does agree with 
the ABA and other bank-affiliated commenters that the explanation 
should be consistent with FCUs' mission of meeting the needs of people 
of modest means, as well as the statutory purpose of ensuring the 
safety and soundness of FCUs.
    Accordingly, the Board has determined that it is appropriate to 
avoid overly prescriptive provisions that would mandate certain types 
of quantitative or other information (in addition to the substantial, 
detailed information that applicants already provide under the 
Chartering Manual's requirements). Specifically, the Board has 
determined that there is no need to require an applicant to provide 
specific income distribution data or census tract information in 
addition to the extensive information that applicants provide under 
existing provisions in the Chartering Manual. Requiring such additional 
information would be unreasonably burdensome and costly without 
corresponding benefits.

D. Miscellaneous Comments

    With respect to timing, some credit unions stated the NCUA should 
act quickly and not delay finalizing the provisions. In contrast, bank 
trade associations commented that the rule was not ``ripe'' because 
neither the full Circuit Court \102\ nor the Supreme Court had 
adjudicated the rule. Thus, in their opinion, the proposal was 
premature until ``all current legal challenges have been exhausted.'' 
They stated that such a final agency action could harm or confuse 
consumers. The Board is issuing this final rule after the Supreme 
Court's June 29, 2020 denial of the ABA's petition for a writ of 
certiorari. Therefore, this concern is rendered moot.
---------------------------------------------------------------------------

    \102\ Subsequent to the comment period closing date, the full 
D.C. Circuit denied the ABA's petition to review the decision en 
banc.
---------------------------------------------------------------------------

    Commenters also raised a few issues that are outside the scope of 
this rulemaking. For instance, a few commenters stated that the NCUA 
should align the federal chartering rules with state rules, because 
several states

[[Page 56513]]

have more liberal rules, resulting in conversions from federal to state 
charters. The Board is aware that under the dual chartering system, 
state laws may differ from federal ones. The Board sought to enhance 
the federal charter through FOM1 and the other recent rulemakings, 
within the constraints of the Act. Given that state chartering laws are 
often more permissive than the Act, the Board sought to allow more 
expansive chartering opportunities at the federal level. This serves to 
foster parity between state and federal laws and is in the interest of 
providing access to more financial services and furthering safety and 
soundness.
    Another commenter requested that the NCUA should issue guidance on 
use of the narrative in applications and best practices. The Board 
notes that further discussion of the narrative approach is beyond the 
scope of this rulemaking proposal.
    One commenter stated its support for a provision in the proposal to 
allow an FCU to designate a portion of a CBSA as a WDLC without regard 
to metropolitan division boundaries. The Board notes that this issue 
was resolved in the Board's June 2018 final rule (referred to as 
FOM2).\103\
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    \103\ 83 FR 30289 (June 28, 2018).
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V. 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.\104\ For purposes of 
this analysis, the NCUA considers small credit unions to be those 
having under $100 million in assets.\105\ Although this final 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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    \104\ 5 U.S.C. 603(a).
    \105\ 80 FR 57512 (Sept. 24, 2015).
---------------------------------------------------------------------------

Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et seq.) 
requires that the Office of Management and Budget (OMB) approve all 
collections of information by a Federal agency from the public before 
they can be implemented. Respondents are not required to respond to any 
collection of information unless it displays a current, valid OMB 
control number.
    In accordance with the PRA, the information collection requirements 
included in this final rule has been submitted to OMB for approval 
under control number 3133-0015.

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 
final rule applies to FCUs exclusively, it will not have a substantial 
direct effect on the states, on the connection between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. The NCUA has 
determined that this final rule does 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 final rule would not affect 
family well-being within the meaning of Section 654 of the Treasury and 
General Government Appropriations Act, 1999.\106\
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    \106\ Public Law 105-277, 112 Stat. 2681 (1998).
---------------------------------------------------------------------------

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub. L. 104-121) (SBREFA) generally provides for congressional review 
of agency rules.\107\ A reporting requirement is triggered in instances 
where the NCUA issues a final rule as defined in the APA.\108\ An 
agency rule, in addition to being subject to congressional oversight, 
may also be subject to a delayed effective date if the rule is a 
``major rule.'' \109\ As required by SBREFA, the NCUA submitted this 
final rule to the OMB for it to determine if the final rule is a 
``major rule'' for purposes of SBREFA. OMB determined that this final 
rule is not a major rule. The NCUA also will file appropriate reports 
with Congress and the Government Accountability Office so this rule may 
be reviewed.
---------------------------------------------------------------------------

    \107\ 5 U.S.C. 801-804.
    \108\ 5 U.S.C. 551.
    \109\ 5 U.S.C. 804(2).
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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 July 30, 
2020.
Gerard Poliquin,
Secretary of the Board.

    For the reasons stated above, the Board is amending 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, 1785, 1786, 1787, 1788, and 
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. In appendix B to part 701, in chapter 2, section V.A.2 is revised, 
section V.A.8 is added, and section V.B is revised to read as follows:

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

* * * * *

Chapter 2--Field of Membership Requirements for Federal Credit Unions

* * * * *

V--Community Charter Requirements

* * * * *

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.

[[Page 56514]]

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

V.A.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 or to engage in illegal discrimination. 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 or to 
engage in illegal discrimination. 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.

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. 2020-16988 Filed 9-11-20; 8:45 am]
BILLING CODE 7535-01-P