NATIONAL
CREDIT UNION ADMINISTRATION
12 CFR Part
701
Federal
Credit Union Field of Membership and Chartering Policy
AGENCY:
National Credit Union Administration ("NCUA").
ACTION:
Final Amendments to Interpretive Ruling and Policy Statement 94-1
("IRPS
96-1").
SUMMARY:
The NCUA Board is issuing amendments to its field of membership
policies. One change will require senior citizen and retiree groups
to meet the same conditions as other associational groups in order to
qualify for a federal credit union charter or addition to an existing
charter through a field of membership amendment. The Board is also issuing
five amendments to clarify operational issues. The amendments clarify:
1) the application of field of membership requirements to mergers; 2)
the streamlined expansion procedure; 3) the documentation requirements
for low-income communities; 4) the use of surveys to support a community
common bond; and 5) appeal procedures.
EFFECTIVE
DATE: July 1, 1996.
FOR FURTHER
INFORMATION CONTACT: Michael J. McKenna, Staff Attorney, Office
of General Counsel, 1775 Duke Street, Alexandria, Virginia 22314-3428
or telephone (703) 518-6540.
SUPPLEMENTARY
INFORMATION:
A. Background
In 1984, NCUA
adopted a policy which permitted federal credit unions (FCUs) to accept
senior citizen and retiree members through the formation of associations.
The only requirement for adding these associations to a credit union
charter was a written request from the FCU to the NCUA; no request from
the group or copy of the association's charter or bylaws was necessary.
As a result, many FCUs added senior citizen/retiree associations to
their charters. Subsequent policy statements, including Interpretive
Ruling and Policy Statement 94-1 (IRPS 94-1) (the "Chartering Manual"),
continued this policy. 59 FR 29066 (June 3, 1994).
In 1994, two
bank trade associations and six Texas commercial banks filed suit against
Communicators FCU of Houston, Texas, as a result of several additions
to the FCU's field of membership. The suit challenged, among other additions,
the 1994 addition of a senior citizen/retiree group formed solely for
the purpose of acquiring credit union service. While upholding the other
field of membership additions, the court vacated the addition of the
senior citizen/retiree association and permanently enjoined NCUA from
adding any similar associations to the FCU. Texas Bankers Association,
et al. v. NCUA, et al., 1995 WL 328319 (D.D.C., May 31, 1995)(the
"Communicators FCU" decision). On September 28, 1995,
partly in response to the Communicators FCU decision, the Board
issued proposed amendments to the Chartering Manual. 60 Fed. Reg. 51396
(October 4, 1995).
B. Comments
Seventy comments
were received. Comments were received from thirty-four federal credit
unions, two state chartered credit unions, seven state credit union
leagues and three national credit union trade associations. The comments
were generally positive and supported most of the proposed amendments.
The Board also
received comments from twenty-five banking associations. Briefly summarized,
the bank commenters support NCUA's proposed amendment to require senior
citizen/retiree groups to meet the same conditions as other associational
groups before seeking to charter or join a federal credit union. The
bank commenters argue against permitting federal credit unions that
have adopted the "once a member, always a member" bylaw to
continue serving members based on their membership in the senior citizen
group. Many of the bank commenters also request that NCUA re-examine
its policies relating to all forms of select group field of membership
expansions.
The Senior
Citizen and Retiree Association Policy
The Board proposed
to modify its senior citizen/retiree policy to require such groups
to meet associational
common bond requirements before seeking to join or charter an FCU. Twenty-three
commenters agree with NCUA that senior citizen and retiree groups should
meet the same criteria as other associational groups before seeking
to charter or join a federal credit union.
Sixteen commenters
disagreed with the Board's proposal. Seven of these commenters believe
that such groups are an underserved segment of the population. They
believe that a formal organization with bylaws and officer and membership
requirements should be sufficient for senior citizen associations. Two
commenters recommend that NCUA treat senior citizen groups the same
as low-income groups. Two commenters state that the conversion of an
existing group to a bona fide association should not require that the
association be completely divorced from the credit union. They suggest
that a senior citizen/retiree group could have bylaws that permit the
group to have the same directors as the credit union and conduct their
annual meeting concurrently with the credit union's annual meeting.
One commenter suggests that the final amendments clarify that a credit
union may help senior groups meet the associational common bond requirement.
The Board believes
the policy modification is an appropriate response to the
Communicators
FCU decision and is adopting the proposed amendment in final. In
determining whether a group satisfies this common bond requirement,
NCUA will consider the totality of the circumstances, such as whether
the members pay dues, have voting rights, hold office, hold meetings,
have a purpose other than to obtain credit union services, whether there
is interaction among members and whether the group has its own bylaws.
See, Chapter 1, Section II.B. of the Chartering Manual, 59 FR
at 29076. Provided operational area requirements are met, senior citizen/retiree
associations formed for purposes other than seeking credit union service
will qualify to join an existing FCU. The Board is not requiring such
associations to have a specific type of internal structure. Moreover,
the Board continues to stress that an FCU may assist a senior citizen
group to form an association that will qualify under the Chartering
Manual.
The Board also
requested comment on how to address members of existing senior citizen/retiree
groups which do not meet the proposed characteristics of an association.
The Board proposed that such groups must meet the normal associational
common bond requirements to enroll new senior citizen/retiree group
members. If the credit union has adopted the "once a member, always
a member" bylaw, it may continue to serve its current members.
Fourteen commenters agree with this proposal. One commenter believes
it would be unfair to current senior citizen members to deny them credit
union service and benefits because of a change in NCUA policy.
Thirteen commenters
oppose NCUA's proposed treatment of senior citizen/retiree groups that
do not have associational characteristics. Nine of these commenters
recommend grandfathering any existing senior citizen/retiree groups
and allowing the credit unions to continue to serve the groups. Two
commenters state that the Communicators FCU decision does not
compel the Board to retroactively apply any new policy it adopts.
The comments
from banking associations all opposed permitting existing members to
retain membership.
The Communicators
FCU decision does not compel the Board to apply its new policy retroactively.
The Board considered whether to grandfather existing groups in the final
amendment. However, in light of the rationale expressed in the Communicators
FCU decision, the Board believes that grandfathering groups that
do not meet the requirements of the new policy is inappropriate. Grandfathering
the groups will simply invite litigation without furthering any of NCUA's
chartering goals. Therefore, the Board is requiring that all existing
senior citizen groups meet standard associational common bond requirements
or be deleted from the charter. Many of these groups may already meet
these requirements. If the FCU has adopted the "once a member,
always a member" bylaw, it can continue to serve members who had
joined based on their membership in the senior citizen/retiree group.
Any other treatment would not be in the best interest of current members
or the credit unions to which they belong. An FCU that has a group that
does not meet the associational requirements in its field of membership
should delete the group by submitting a charter amendment to the appropriate
regional office. Compliance will be monitored through the exam program.
Low-Income
Associations
The Board did
not propose any changes to the ability of a federal credit union to
add low-income associations that are formed solely for the purpose of
obtaining credit union service without meeting the standard characteristics
of an association. Thirteen commenters agreed that credit unions should
be allowed to add to low-income groups to their field of membership.
Three of these commenters stated that this policy enables credit unions
to serve groups not currently receiving financial services. One commenter
believes this policy is consistent with credit unions' "people
helping people" philosophy.
Five commenters
stated that federal credit unions should not be allowed to add low-income
groups formed solely for the purpose of seeking credit union service.
Two of these commenters found no reason to differentiate between senior
citizen groups and low-income groups. One of these commenters believes
eliminating this policy would not significantly affect the ability of
low-income persons to join federal credit unions. One commenter believes
it is preferable for low-income groups seeking credit union service
to be encouraged to form a credit union rather than to be included in
the field of membership of an existing credit union.
Congress and
the NCUA Board have long recognized that special efforts must be made
for those who are attempting to serve the needs of persons of limited
means. The FCU Act was enacted "to make more available to people
of small means credit for provident purposes through a national system
of cooperative credit." 12 U.S.C. §1751. Congress established
a special segment of credit unions serving predominantly low-income
members. 12 U.S.C. 1752(5). Congress also established and funded a Community
Development Revolving Loan Fund for Credit Unions, designed to help,
through loans to credit unions serving predominantly low-income persons,
in providing "basic financial and related services" to low-income
persons and in "stimulating economic activities . . . which will
result in increased income, ownership and employment opportunities for
low-income residents." 12 CFR §705.2(a). See also,
12 U.S.C. §1766(k) (giving the Board authority over the Community
Development Revolving Loan Fund for Credit Unions). NCUA defines as
"low-income" persons earning less than 80 percent of the average
for all wage earners and persons whose annual household income falls
at or below 80 percent of the median household income for the nation.
12 CFR §701.32(d)(2). The Board believes that the current low income
credit union program continues to serve an important governmental purpose
and is therefore not modifying its low-income association policy.
Clarifications
of Operational Issues
The Board proposed
five amendments to its chartering and field of membership policies to
clarify operational issues. The amendments addressed: 1) the application
of field of membership rules to credit union mergers; 2) the use of
the streamlined expansion procedure; 3) the documentation requirements
for low-income community credit unions as well as low-income additions;
4) the use of surveys to support a community charter; and 5) appeal
procedures.
Mergers
A. Operational
Area
The Board proposed
to clarify how it applies operational and field of membership requirements
to mergers. The Board reiterated that mergers will usually fall into
the common bond addition or select group addition category, but some
may fall into both categories. In a merger, common bond groups may be
added to a federal credit union's field of membership without regard
to location. The Board then clarified that for select group additions
the field of membership requirements are met for each merging group
only if the group could have been added to the continuing credit union
without the benefit of the merger. The continuing credit union would
have to analyze each group in the merging credit union's field of membership
as if the continuing credit union was expanding its own field of membership
without a merger. Three commenters support this proposal. One of these
commenters believes that a more expansive policy would give large credit
unions a great advantage over smaller credit unions in expanding their
field of membership. This commenter believes that most credit unions
cannot realistically provide quality service to members who live and
work a great distance from the credit union.
Thirty-four
commenters disagree with the concept of applying operational area requirements
to "select group additions" in a merger. Nineteen commenters
believe that a discontinuing credit union's groups should be added to
the continuing credit union's charter. Nine commenters believe that
operational area is an anachronism in an era of significant technological
advancements. Three commenters believe that mergers are a business decision
that should best be left to credit unions, not NCUA. Three commenters
state that the proposal is overly restrictive. Three commenters state
that the clarification will create additional paperwork and delay approval.
Two commenters believe the proposal will result in a decrease in the
number of mergers. Two commenters state that mergers should be based
on the services the continuing credit union can provide and the philosophical
"fit" between the merging credit unions. One commenter believes
that the economic impact on other credit unions in a similar area should
not be the determining factor on whether a merger is approved or not.
One commenter suggests NCUA should be concerned with safety and soundness
issues and not field of membership issues when considering a merger.
The Board recognizes
that how field of membership requirements should be applied in a merger
is a continuing controversy within the credit union community. The Board
wishes to reiterate that it is not willing to discard operational area
requirements in the merger context. However, the Board believes that
in response to changing technologies, operational area requirements
need to be reviewed, and not only in the context of mergers. The Board
is currently in the process of conducting such a review and may issue
new policies after the study is complete.
The Board's
proposed clarification may, however, impose a paperwork burden without
providing any significant assistance in reaching NCUA's field of membership
goals. In light of the commenter's concerns and the language of IRPS
94-1, the Board believes that the proposed clarification was overly
broad and has reconsidered its position. Rather than requiring each
group in the discontinuing field of membership to be within the operational
area of the continuing credit union, any of the discontinuing credit
union's groups that are within the operational area of either credit
union may be transferred intact to the continuing credit union. Any
group that is not within the operational area of either federal credit
union, prior to the completion of the merger, will be deleted from the
continuing credit union's field of membership and only members of record
will be transferred to the continuing credit union.
This clarification
should not significantly decrease the number of mergers or impose a
significant burden on credit unions wishing to merge. Rather, it applies
the operational area requirements to mergers as required by IRPS 94-1
since a group could not ordinarily be added to either credit union's
field of membership if it was not within the operational area of the
credit union.
The Board also
requested comment on whether mergers should be limited to credit unions
that primarily serve groups in the same geographic location. One commenter
supports this concept. Fourteen commenters disagree and believe that
credit unions should be able to merge even if they do not primarily
serve groups in the same geographic area. Seven commenters believe that
geographic location is unimportant because of current and coming technologies.
Four commenters state that the standard for considering mergers should
be whether the continuing credit union can provide quality member services.
One commenter believes that financial soundness is more important than
geographic location. The Board is not placing any new geographic limitations
on mergers but is continuing to study whether it should modify how it
applies field of membership requirements to mergers.
B. Views
of Overlapped Credit Unions
The Board requested
comment on whether it should require NCUA Regions to conduct an overlap
analysis for merging credit unions and whether an affected credit union
should be notified of the merger and be given an opportunity to comment
or object. Twelve commenters wanted both an overlap analysis and the
opportunity to comment or object. One of these commenters believes that
some recent merger decisions have put some smaller credit unions in
a competitive disadvantage with larger credit unions. One commenter
believes that such an analysis is necessary because of the potential
harm to the overlapped credit union. This commenter states that with
respect to a preexisting overlap, NCUA should review the effect a proposed
merger may have on the nature of any preexisting overlaps.
Sixteen commenters
believe that NCUA should not require an overlap analysis for a group
in a discontinuing credit union's field of membership that has service
available from another credit union. Five of these commenters believe
the analysis is unnecessary since one was conducted when the overlap
was originally granted. Two commenters state that there is no useful
purpose in re-examining an existing overlap. One commenter states that
the merger should not adversely affect the credit union anymore than
it was affected by the original overlap. Two commenters state that a
merger does not add to the number of federal credit unions a member
can belong, it just replaces an existing overlap with a different credit
union.
The Board believes
that conducting an analysis of a preexisting overlap is unnecessary.
Such a requirement would increase the burden on the merging credit unions
as well as NCUA without any corresponding benefit. The Board believes
that transferring a preexisting overlap to the continuing credit would
not ordinarily have a significant impact on any other credit union.
Consequently, the Board is not modifying its existing policy which does
not require the Region to conduct an overlap analysis for merging credit
unions.
The Board also
requested comment on whether credit unions that may be adversely affected
by a merger should have the right to appeal the Regional Director's
determination. The Board also asked whether NCUA should establish a
formal process for credit unions to comment on a merger prior to the
Regional Director making a determination. Thirteen commenters believe
that NCUA should establish such a comment process; twelve oppose the
right to appeal the Regional Director's decision. Four commenters state
that such an appeal creates an unnecessary obstacle to a merger and
will delay the process. One of these commenters believes that the appeal
process will prove costly to NCUA and credit unions.
The Board believes
that a formal comment period will delay the merger process and increase
costs for credit unions and NCUA without any corresponding benefits.
Therefore, the Board is not establishing such a process. However, the
Board will continue to consider appeals from credit unions that may
be adversely affected by a merger through the normal appeal process.
C. Waivers
An operational
area waiver procedure is available when a state-chartered credit union
is merged into an FCU. The Board clarified that the waiver is discretionary
on the part of NCUA and permits groups already receiving quality credit
union services, who are located outside of the credit union's operational
area, to continue to have credit union service after the merger. Two
commenters recommend making available to federal credit unions the operational
area waiver procedure. The Board does not believe the waiver procedure
needs to be extended to federal credit unions because in almost all
cases involving federal credit unions operational area requirements
will be met. The Board is clarifying in the final amendments that the
waiver is only available if the group is not being served by any other
credit union. The Board will continue to review this area but is not
making any further changes at this time.
Streamlined
Expansion Procedure (SEP)
SEP permits
well-operated federal credit unions to add small groups of less than
100 persons with an occupational common bond to its field of membership
without prior NCUA approval. The group must be located within 25 miles
of the credit union's service facilities and in general, the group must
not have credit union service available. The Board proposed three clarifications
to this policy. First, the Board proposed that a credit union may use
SEP if the only other credit union service available is from a community
credit union. The Board is adopting this proposal. Nineteen commenters
supported this proposal. One of those commenters requests that it be
modified to protect community credit unions serving smaller rural communities.
Another commenter that approved of the proposal states that there should
be some minimum overlap protection for community credit unions.
Six commenters
do not believe credit unions should be able to use SEP to overlap a
community credit union. Three commenters believe any overlap of a community
credit union should be done through the normal expansion process because
the use of SEP could erode a community credit union's potential for
growth. One commenter believes that community credit unions need overlap
protection. One commenter states that if a company is within a community's
boundaries and being adequately served by a community credit union,
then no overlap should be permitted.
NCUA does not
afford overlap protection to a community credit union when it is overlapped
by an occupational group. Chapter I, IV.B.1, Chartering Manual, 59 FR
at 29080. This long-standing policy is working well and the Board is
not convinced that it should be changed. Since the standard policy is
not being changed it is only logical to extend the policy to SEP. To
do otherwise would simply place an unnecessary paperwork burden on credit
unions and NCUA. Consequently, the Board is adopting the proposed amendment
in final.
Second, the
Board proposed that, consistent with standard field of membership expansions,
the group as a whole will be considered to be within a credit union's
25 mile limit when: a majority of the group's members live or work within
the 25 mile limit; or the group's headquarters is located within the
25 mile limit; or the group's "paid from" or "supervised
from" location is within the 25 mile limit. Eight commenters support
this proposal. One commenter objects to the proposed amendment. Eleven
commenters believe that NCUA should eliminate the 25 mile limit for
SEP because they believe the concept of operational area is outdated.
Six commenters believe that groups added to a credit union's field of
membership under SEP should be required to be within 25 miles of the
credit union.
The Board believes
the 25 mile limit for SEP is working well and should not be modified
at this time. The Board is adopting the proposed amendment in final
so that SEP's definition of a group's location is consistent with standard
field of membership expansions. To eliminate any possible confusion
the Board is reiterating that there is no standard 25 mile operational
area limit for standard field of membership expansions.
Third, the
Board proposed that if an FCU has SEP in its charter and merges into
a credit union without SEP, the continuing credit union must submit
a charter amendment and receive NCUA approval if it wishes to use SEP.
Nine commenters support this proposal. One commenter states that applying
for SEP is not a burden for credit unions. One commenter believes that
this proposal provides NCUA with appropriate control. One commenter
requests that NCUA clarify that if the continuing credit union already
had SEP it would not need to reapply after the merger. One commenter
believes that if either federal credit union in a merger has SEP then
the continuing credit union should maintain SEP.
The Board is
adopting this proposed amendment in final to maintain appropriate controls
over SEP. The Board believes that the continuing credit union's application
for SEP can be accomplished as part of the merger process. The Board
is also clarifying that if the continuing credit union already has SEP
it need not reapply after the merger.
Documentation
Requirements to Establish Low-Income Services
The Board proposed
that for new low-income charters or community expansions, the Regional
Director would decide what documentation satisfies the community common
bond requirement. The Board is adopting this proposal. Such documentation
must clearly define the area's geographic boundaries and the charter
applicant must establish that the area is recognized as a distinct "neighborhood,
community or rural district." Chapter 1, Section II.C.1, Chartering
Manual, 59 FR at 29077. Twelve commenters support this proposal. One
commenter states that depending on the circumstances the Regional Director
may be better able to determine documentation requirements. One commenter
supports this proposal if it will result in providing more flexibility
for groups seeking to charter low-income credit unions or for low-income
community expansions.
Five commenters
state that the Regional Director should not be allowed to determine
the appropriate documentation for low-income charters or low-income
expansions. Three commenters believe that documentation requirements
for low-income credit unions and expansions should be specific and uniform.
Two of the commenters believe this proposal will result in inconsistencies
among the Regions.
The Board believes
that in many cases, a low-income area already has the common interest
and characteristics of a community just by lacking the basic financial
services found in more affluent communities. The Board also believes
that allowing the Regional Director to decide what documentation will
satisfy the community common bond requirement will provide NCUA with
more flexibility in granting low-income community charters and low-income
community expansions. The Board also expects that this amendment will
minimize bureaucratic hurdles and expedite making credit union service
available to persons in low-income communities. The Board will be monitoring
the process to assure consistent application among NCUA Regions.
Community
Charters
The Board proposed
to amend the Chartering Manual to clarify that surveys are not always
required to demonstrate a community charter. Ten commenters agreed with
this proposal and none opposed. Surveys should not be required if other
evidence is more relevant or more clearly demonstrates the sentiment
of the community. The Board is adopting the proposed amendment in final.
Procedures
for Appealing Chartering and Field of Membership Determinations
The Board proposed
that all appeals be made within 60 days of the Regional Director's determination.
Seventeen commenters agree with this proposal; two commenters believe
there should be less time and four commenters oppose the proposed appeal
procedure. Three commenters recommend that the appeal process for chartering
and field of membership should be the same as those adopted by NCUA
for examination issues. One commenter believes the current appeal process
is sufficient.
The Board believes
that a timeframe should be established to deal with appeals expeditiously
and concludes that the 60 days proposed by a majority of those commenting
gives the credit union sufficient time to appeal the region's determination.
The Board also believes that it and not the supervisory review committee
is best suited to resolve field of membership issues. The Board is adopting
the proposed amendment in final.
The Board also
requested comment on whether there should be a time limit on the Board
to render a decision on the appeal. Fourteen commenters believe there
should be such a time limit. Nine commenters suggest 60 days, four suggest
30 days and one suggests 10 days. Two commenters believe that the Board's
time limit for deciding an appeal could be extended if there were extenuating
circumstance or good cause. Two commenters state that there should be
a procedure to protect credit unions from possible retaliation as a
result of their appeal.
Recent experience
leads the Board to believe that flexibility is necessary to repsond
to unique circumstances. The appealing credit union does not necessarily
want the Board's determination fast, they want it correct. The Board
is setting a goal of 90 days to render a decision. The Board will investigate
any claim by a credit union that believes it is being singled out by
NCUA because of its proper use of the appeal process to immediately
contact the Board.
Miscellaneous
Comments
There were
several comments received which did not address themselves to specific
requests for comment. Three commenters believe that charter amendments
and mergers which create virtually unlimited fields of membership violate
the cooperative nature of credit unions and dilute the principle of
the common bond. One commenter, discussing operational area requirements,
stated that if a select group feels they will be better served by a
credit union 1000 miles away instead of the neighboring credit union
then the select group should be permitted to be added to the field of
membership of the distant credit union. One commenter states that NCUA
should develop policies that would prohibit overlapping memberships.
The Board is continuing to review operational area and overlaps and
will take these comments into consideration when studying the issues.
One commenter
states that the Regions should be required to make field of membership
expansion determinations within 10 days. In fact, most determinations
are made within a 10 day period. There are circumstances, however, which
make it difficult meet this goal.
One commenter
requests that students should be part of the community common bond so
that persons who attend any educational institution located in a community
would be eligible to join a credit union whose field of membership includes
that community. The Board agrees. The Board believes that a student
is working for the purpose of the community common bond and therefore
a person going to school within a community but is not living within
the community boundaries is deemed to be working in the community for
field of membership purposes. One commenter believes that NCUA should
not allow a federal credit union to add low-income communities to their
field of membership. The Board disagrees. The policy is working well
and has increased the number of low-income people receiving credit union
service.
Regulatory
Procedures
Regulatory
Flexibility Act
The Regulatory
Flexibility Act requires the NCUA to prepare an analysis to describe
any significant economic impact a proposed regulation may have on a
substantial number of small credit unions (primarily those under $1
million in assets). The changes to NCUA policy resulting from the adoption
of these amendments to the IRPS do not have a significant economic impact
on a substantial number of small credit unions. The changes are either
legally required or simply clarify existing policy. Accordingly, the
Board determines and certifies that this final rule does not have a
significant economic impact on a substantial number of small credit
unions and that a Regulatory Flexibility Act analysis is not required.
Paperwork
Reduction Act
NCUA has determined
that the requirement for a FCU to delete from its charter senior citizen/retiree
groups that do not meet standard associational requirements do constitute
a collection of information under the Paperwork Reduction Act. The Paperwork
Reduction Act and regulations of the Office of Management and Budget
(OMB) require that the public be provided an opportunity to comment
on information collection requirements, including an agency's estimate
of burden of the collection of information.
NCUA estimates
that it should take an average of 15 minutes for an FCU to prepare and
submit the required charter amendment. NCUA estimates that approximately
300 FCUs will need to submit the charter amendment, resulting in a total
of 75 burden hours. This increase in burden will only occur once.
The NCUA Board
invites comment on (1) whether the collection of information is necessary
for the proper performance of the functions of NCUA including whether
the information will have practical utility; (2) the accuracy of NCUA's
estimate of the burden of the collection of information; (3) ways to
enhance the quality, utility, and clarity of the information to be collected;
and (4) ways to minimize the burden of the collection on respondents,
including through the use of automated collection techniques or other
forms of information technology. Send comments to Suzanne Beauchesne,
National Credit Union Administration, 1775 Duke Street, Alexandria,
VA 22314-3428. Comments should be postmarked by [insert date 60 days
from the date of publication in the Federal Register].
Executive
Order 12612
Executive Order
12612 requires NCUA to consider the effect of its actions on state interests.
The proposed amendments apply to federal credit unions as well as state
chartered credit unions that seek to become federal credit unions. Therefore,
the actions will not affect state interests.
List of
subjects in 12 CFR part 701
Chartering,
Conversions, Credit union, Field of membership addition, Mergers.
By the National
Credit Union Administration Board on March 13, 1996.
_________________________
Becky Baker
Secretary of the Board
Accordingly,
NCUA amends 12 CFR part 701, by amending IRPS 94-1 as follows:
PART 701-ORGANIZATION
AND OPERATIONS OF FEDERAL CREDIT UNIONS
1. The authority
citation for part 701 continues to read as follows:
Authority:
12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 1761b, 1766, 1767,
1782, 1784, 1787, 1789, and Public Law 101-73. Section 701.6 is also
authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by 15
U.S.C 1601, et seq., 42 U.S.C. 1981 and 42U.S.C. 3601-3610.
Section 701.35
is also authorized by 12 U.S.C 4311-4312.
2. Section
701.1 is revised as follows:
§701.1
Federal credit union chartering, field of membership modifications,
and conversions.
National Credit
Union Administration practice and procedure concerning chartering, field
of membership modifications, and conversions are set forth in Interpretive
Ruling and Policy Statement 94-1 - Chartering and Field of Membership
Policy (IRPS 94-1), as amended by IRPS 96-1. Both IRPS are incorporated
into this regulation.
[Note: Neither
the amendments nor the interpretive ruling and policy statement will
appear in the Code of Federal Regulations.]
3. Chapter
1, Section II.C.2 is revised to read as follows:
II.C.2--Special
Documentation Requirements
Information
to support that the area chosen represents one welldefined area, distinguishable
from the immediate surrounding areas, includes:
- political jurisdictions;
- major trade areas (shopping
patterns);
- traffic flows;
- shared/common facilities
(for example, educational, medical, police and fire protection, school
district, water, etc.);
- organizations/clubs whose
membership is made up exclusively of persons within the area;
- newspapers or other periodicals
published for and about the area;
- census tracts;
- common characteristics
and background of residents (for example, income, religious beliefs,
primary ethnic groups, similarity of occupations, household types,
primary age group, etc.);
- history of area; and
- in general, what causes
the chosen area and its residents to be distinguishable from the immediate
surrounding areas and residents -- some examples are old, well- established
ethnic neighborhoods, planned communities and small/rural towns or
rural counties.
The following
information must be provided to support a need for a community credit
union or community field of membership expansion:
- a list of credit unions
presently in the area and those credit union's positions regarding
a new charter or field of membership expansion; and
- a list of other financial
institutions (for example, banks, savings and loan associations) that
service the area.
Written documentation
reflecting support for the application for the charter, field of membership
expansion or conversion to a community credit union may be in the form
of letters, surveys, studies, pledges, or a petition. Other types of
evidence may also be acceptable. If a survey is used it should reflect
the following:
For the residents
of the community:
- approximate number contacted
- number in favor of the
credit union
- number against the credit
union
- number who will join
the credit union
- number who have pledged
initial and/or systematic savings and amount of pledges
- For the employers in
the community:
- number of area employers
and number of employees
- number contacted
- number in favor of the
credit union
- number against the credit
union
- number willing to provide
payroll deductions to the credit union
-
- number willing to provide
other type(s) of support to the credit union
- For community organizations
(including churches):
- number in area and number
of members
- number contacted
- number in favor of the
credit union
- number against the credit
union
- number willing to provide
some type of support to the credit union, i.e., advertising facilities,
etc.
- letters of support from
area civic leaders
If the community
is also a recognized legal entity, it may be served as, or be included
in, the field of membership - for example, "DEF Township, Kansas"
or "GHI County, Minnesota."
4. Chapter
1, Section V.A.2 is revised to read as follows:
V.A.2 --
Special Common Bond Rules for Low-income Federal Credit Unions
Generally,
a low-income credit union is chartered as a community or associational
credit union. The Regional Director will determine whether the applicants
have provided sufficient evidence to demonstrate the need for a low-income
community charter. Such evidence must establish that the geographic
area's boundaries are clearly defined and that the area is recognized
as a distinct neighborhood, community, or rural district. A low-income
credit union that has a community common bond may include the following
language in its field of membership:
"Persons
who live in [the target area]; persons who regularly work, worship,
perform volunteer services, or participate in associations headquartered
in [the target area]; persons participating in programs to alleviate
poverty or distress which are located in [the target area]; incorporated
and unincorporated organizations located in [the target area] or maintaining
a facility in [the target area]; and organizations of such persons."
In recognition
of the special efforts needed to help make credit union service available
to persons in low-income communities, NCUA permits credit union chartering
and field of membership amendments based on associational groups formed
for the sole purpose of making credit union service available to low-income
persons. The association must be defined so that all its members will
meet the low-income definition of Part 701.32 of NCUA's Regulations.
The association, in documenting its low-income membership, may use the
same types of documentation as are currently permitted for determining
whether a community is low-income under Part 701.32 of NCUA's Regulations.
In addition,
a proposed or existing low-income federal credit union whether community
or associationally based, may include in its field of membership, without
regard to location, one or more groups constituting an occupational,
associational or community common bond. Except for the operational area
requirements, the proposed or existing credit union must meet all the
requisites for including the group in its charter. Moreover, the proposed
or existing credit union must take care to ensure that it will continue
to meet the requirements for low-income status.
5. Chapter
1, Section V.A.3 is revised to read as follows:
V.A.3 --
Special Common Bond Rules for Other Federal Credit Unions Seeking to
Serve Low-income Persons
In the interest
of making credit union service available to persons in low-income communities,
NCUA also permits any occupational, associational, multiple group, or
community federal credit union to include in its field of membership,
without regard to location, communities and associational groups satisfying
the low-income definition of Part 701.32 of NCUA's Regulations. The
associational group may be formed for the sole purpose of providing
eligibility for federal credit union service, but must comprise only
persons meeting NCUA's low-income definition.
The federal
credit union adding the low-income community or association must document
that the community or association meets the low income definition in
Part 701.32 of NCUA's Regulations, just as is required for a designated
low-income credit union. The Regional Director will ensure that the
proposed low-income community addition is sufficient to establish a
community common bond. A federal credit union adding such a community
or association, however, would not be able to receive the benefits,
such as expanded use of non member deposits and access to the Community
Development Revolving Loan Program for Credit Unions, offered to low-income
credit unions.
A federal credit
union that desires to include a low-income community or association
in its field of membership must first develop a business plan specifying
how it will serve the entire low-income community. The business plan,
at a minimum, must identify the credit and depository needs of the low-income
community or association and detail how the credit union plans to serve
those needs. The credit union will be expected to regularly review the
business plan as well as loan penetration rates in the community to
determine if the community is being adequately served. NCUA will require
periodic service status reports on its service to the low-income community
and may review the credit union's service to low-income persons during
examinations.
6. Chapter
1, Section V.B is deleted and Sections V.C. and V.D. are redesignated
V.B and V.C, respectively.
7. Chapter
1, Section VIII.D is revised to read as follows:
VIII.D --
Appeal of Regional Director's Decision
If the Regional
Director denies a charter application, the group may appeal the decision
to the NCUA Board. If not included with the denial notice, a
copy of these procedures may be obtained from the appropriate region.
An appeal will be sent to the regional office within sixty days of the
denial. The Regional Director will then forward the appeal to the NCUA
Board. NCUA central office staff will make an independent review of
the facts and present the appeal with recommendations to the Board.
Before appealing,
the prospective group may, within thirty days of the denial, provide
supplemental information to the Regional Director for reconsideration.
In these cases, the request will not be considered as an appeal but
as a request for reconsideration by the regional director. If the request
is again denied, the group may proceed with the appeal process.
8. Chapter
2, Section II.A.3.a is revised to read as follows:
II.A.3.a--General
The special
rules for credit unions serving low-income persons and serving employees
at industrial parks, shopping centers and similar facilities apply equally
to field of membership additions. However, there are two special situations
unique to existing federal credit unions: (1) corporate restructurings
and (2) plant or base closings, and other kinds of distress to a substantial
portion of a credit union's membership.
9. Chapter
2, Section III.A is revised to read as follows:
III.A --
Mergers
Generally,
the standards applicable to field of membership amendments found in
Section II of this chapter apply to mergers where the continuing credit
union is a federal charter. This requires analyzing each group in the
merging credit union's field of membership. Groups in the merging credit
union that are within the operating area of either credit union may
be transferred intact into the continuing credit union. Merger applicants
must provide NCUA with their own analysis of how the proposed field
of membership of the continuing credit union conforms to this policy.
For those groups from the merging credit union that do not meet operational
area requirements, unless granted a waiver under the procedure for merging
state chartered credit unions, only the members of record will be transferred
to the continuing credit union.
Where the merging
credit union is state chartered, the field of membership rules for a
credit union converting to a federal charter apply with the following
differences:
In a merger
involving a common bond addition, the requirements to provide a request
for credit union service from the corporate, associational, or other
unit to be added is not required, since the unit already has credit
union service.
In a merger
involving a select group addition:
For the same
reason as above, the requirement for a letter from each group included
in the credit union's field of membership is not required.
Where a state
credit union is merging into a federal credit union, the operational
area requirement may be waived if it can demonstrate that the group
does not have other credit union service available and the credit union
will continue to be able to provide quality credit union service to
the group. In determining quality of services, NCUA will consider the
number of members of the group who are using the credit union's services.
The waiver is discretionary on the part of NCUA and will be strictly
scrutinized. The waiver will only be granted if supported by clear and
convincing evidence. Absent any waivers, only members of record of groups
that do not meet operational area requirements will be transferred to
the continuing credit union. Upon merging, the state credit union's
field of membership will be worded to conform to the NCUA standards
set forth in Chapter 1. Any subsequent field of membership amendments
must comply with applicable amendment procedures.
In a merger
of a community credit union into a federal credit union of any type,
the continuing credit union may be permitted to continue to provide
service to the merging credit union's members of record as of the merger
date where the operational area requirement is satisfied. Except in
the case of an emergency merger or where the continuing credit union
is low-income, the continuing federal credit union can obtain only the
members of record of the merging community credit union.
Where both
credit unions are community charters, the continuing credit union is
a federal credit union, and the criteria for expanding the service area
of a community federal credit union (as discussed previously in this
Chapter) are satisfied, the entire field of membership of the merging
credit union may be added to the continuing federal credit union's charter.
Mergers must be approved by all affected NCUA regional directors, and,
as applicable, the state regulators.
10. Chapter 2, Section III.B. is revised to read as follows:
III.B --
Emergency Mergers
NCUA may approve
emergency mergers without regard to field of membership or other legal
constraints. An emergency merger involves NCUA's direct intervention.
The credit union to be merged must either be insolvent or be likely
to become insolvent within 12 months and NCUA must determine that:
- an emergency requiring
expeditious action exists;
- other alternatives are
not reasonably available; and
- the public interest would
best be served by approving the merger.
In an emergency
merger situation, NCUA takes an active role in finding a suitable merger
partner (continuing credit union). NCUA is primarily concerned that
the continuing credit union has the financial strength and management
expertise to absorb the troubled credit union without adversely affecting
its own financial condition and stability.
As a stipulated
condition to an emergency merger, the field of membership of the merging
credit union may be transferred intact to the continuing federal credit
union without regard to any field of membership restrictions and without
changing the character of the continuing federal credit union for future
amendments. Under this authority, therefore, a federal credit union
may take into its field of membership a group defined by a community
or associational common bond permitted under state law, regardless of
whether that common bond definition could be approved under the Federal
Credit Union Act. If a federal credit union which has added groups or
communities under an emergency merger later proposes to merge with another
federal credit union, the groups or communities added pursuant to the
emergency merger will not be subject to operational area or field of
membership analysis.
11. Chapter
2, Section VIII.B is revised to read as follows:
VIII.B --
Streamlined Expansion Procedure (SEP) for Small Occupational Groups
In keeping
with the goals of NCUA chartering policy to provide service to all eligible
groups desiring credit union service, well operated federal credit unions
except those designated as "distressed" may take advantage
of the SEP for adding occupational groups to their fields of membership.
To use this
procedure, the federal credit union's board of directors must first
apply to their respective NCUA regional director for a charter amendment.
The charter amendment request must be signed by the presiding officer
of the board of directors.
The following
is a sample amendment for permitting a federal credit union to use the
SEP authority:
Groups of persons
with occupational common bonds which are located within 25 miles of
one of the credit union's service facilities, which have provided a
written request for service to the credit union, which do not presently
have credit union service available, other than through a community
credit union, which have no more members in the group than the maximum
number established by the NCUA Board for additions under this provision:
Provided, however, that the National Credit Union Administration may
permanently or temporarily revoke the power to add groups under this
provision upon a finding, in the Agency's discretion, that permitting
additions under this provision are not in the best interests of the
credit union, its members, or the National Credit Union Share Insurance
Fund.
Once NCUA has
approved the amendment and the credit union board has adopted it, the
SEP authority may be implemented. The charter amendment permits approved
federal credit unions to immediately begin serving employee groups meeting
criteria set forth in this section. Under this procedure, there is no
formal NCUA action necessary on each group being added.
The maximum
number of persons for each group of employees which may be added under
SEP will be established by the NCUA Board from time to time. The number
will be based on potential primary members -- that is, the persons sharing
the basic occupational affinity to each sponsor group; family members
and other derivative members are not included in the SEP limit. Several
groups may be simultaneously added using these procedures; however,
the maximum number of persons for each group must fall within the SEP
limit.
The SEP does
not apply to associational groups since NCUA must review membership
requirements and geographical area prior to these groups being added
to a field of membership. The procedure also does not apply to community
charter expansions, because of the more individualized analysis required.
The following
SEP steps and documentation requirements must be adhered to:
The federal
credit union must complete, for each group to be added, an Application
for Field of Membership Amendment form, NCUA 4015, shown in Appendix
D.
The federal
credit union must obtain a letter, on the group's letterhead where possible,
signed by an official representative identified by title, requesting
credit union service and stating that the group does not have any other
credit union service available from any associational, occupational
or multiple group credit union.
The group must
be located within 25 miles of one of the federal credit union's service
facilities. The group will be considered to be within the 25 mile limit
when: 1) a majority of the group's members live or work within the 25
mile limit; or 2) the group's headquarters is located within the 25
mile limit; or 3) the group's "paid from" or "supervised
from" location is within the 25 mile limit.
The group must
indicate the number of potential members -- the number of employees
-- seeking service.
The federal
credit union must maintain the above documentation permanently with
its charter.
The federal
credit union must maintain a control log of groups added to its field
of membership under the SEP procedure. The control log must include
the date the group obtained service, the name and location of the sponsor
group, the number of potential primary members added, the number of
miles to the nearest main or branch office, the federal credit union
board of director's approval of the group and the date approved. See
Appendix D for the SEP Control Log, NCUA 4016.
The groups
added under SEP must be reported to the federal credit union's board
at the next regular board meeting and made a part of the meeting minutes.
The control
log and other SEP documentation must be made available to NCUA upon
request.
The regional
director may from time to time request service status reports on groups
added under SEP. It is advisable to use some method, such as a sponsor
prefix added to the member account number, to readily access data for
such groups.
Should a federal
credit union fail to provide quality credit union service, as determined
by the group's members or employees, to a group added under SEP, NCUA
may subsequently permit dual membership with another credit union.
Should a federal
credit union fail to follow the above procedures or deteriorate financially
or operationally, NCUA, at its discretion, may revoke the SEP privilege.
If a federal
credit union that has SEP in its charter merges with another federal
credit union that does not have SEP, the continuing credit union, if
it desires to have SEP, must submit a charter amendment and receive
approval from NCUA to implement SEP. Otherwise, the groups obtained
by the merging credit union through SEP must be listed specifically
in the continuing credit union's field of membership or a reference
to the merging credit union's SEP log must be made in the continuing
credit union's field of membership as of the date of the merger.
12. Chapter
2, Section VIII.G is revised to read as follows:
VIII.G --
Appeal of Regional Director Decision
If a field
of membership expansion, merger, or spin-off is denied by the Regional
Director, the federal credit union may appeal the decision to the NCUA
Board. If not included with the denial notice, a copy of these procedures
may be obtained from the Regional Director who made the decision. An
appeal must be sent to the appropriate regional office within sixty
days of the denial. The Regional Director will then forward the appeal
to the NCUA Board. NCUA central office staff will make an independent
review of the facts and present the appeal to the Board with a recommendation.
The federal
credit union may, within thirty days of the denial, request reconsideration
and provide supplemental information to the regional director. The request
for reconsideration will not be considered an appeal but will toll the
sixty day requirement to file an appeal until a ruling is received on
the request for reconsideration.
13. Chapter
3, Section 3.H, is added as follows:
III.H --
Appeal of Regional Director Decision
If a conversion
to a state charter is denied by the Regional Director, the credit union
may appeal the decision to the NCUA Board. If not included with the
denial notice, a copy of these procedures may be obtained from the Regional
Director who made the decision. An appeal must be sent to the appropriate
regional office within sixty days of the denial. The Regional Director
will then forward the appeal to the NCUA Board. NCUA central office
staff will make an independent review of the facts and present the appeal
to the Board with a recommendation.
The federal
credit union may, within thirty days of the denial, request reconsideration
and provide supplemental information to the regional director. The request
for reconsideration will not be considered an appeal but will toll the
sixty day requirement to file an appeal until a ruling is received on
the request for reconsideration.
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