[Federal Register: April 15, 2003 (Volume 68, Number 72)]
[Rules and Regulations]
[Page 18333-18438]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15ap03-24]
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Part II
National Credit Union Administration
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12 CFR Part 701
Organization and Operations of Federal Credit Unions; Final Rule
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
Organization and Operations of Federal Credit Unions
AGENCY: National Credit Union Administration.
ACTION: Final rule.
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SUMMARY: The NCUA Board is amending its chartering and field of
membership manual to update chartering policies and streamline
documentation. These final amendments are in response to NCUA's more
than four years experience with existing chartering and field of
membership policies.
DATES: This regulation is effective May 15, 2003.
FOR FURTHER INFORMATION CONTACT: Michael J. McKenna, Senior Staff
Attorney, Office of General Counsel, 1775 Duke Street, Alexandria,
Virginia 22314 or telephone (703) 518-6540; Regina Metz, Staff
Attorney, Office of General Counsel, 1775 Duke Street, Alexandria,
Virginia 22314 or telephone (703) 518-6540; Lynn K. Markgraf, Program
Officer, Office of Examination and Insurance, 1775 Duke Street,
Alexandria, Virginia 22314 or telephone (703) 518-6360.
SUPPLEMENTARY INFORMATION: NCUA's current chartering and field of
membership policy is set out in Interpretive Ruling and Policy
Statement 99-1, Chartering and Field of Membership Policy (IRPS 99-1),
as amended by IRPS 00-1 and IRPS 02-2. The policy is incorporated by
reference in NCUA's regulations at 12 CFR 701.1. It is also published
as NCUA's Chartering and Field of Membership Manual (Chartering
Manual), which is the document most interested parties use and to which
references in the following discussion are made.
In 1998, Congress updated the laws on field of membership with the
passage of the Credit Union Membership Access Act (CUMAA). On December
17, 1998, in response to CUMAA, the NCUA Board issued a final rule on
chartering and field of membership. 63 FR 73022, December 30, 1998.
When the NCUA Board issued its final rule, it instructed NCUA's Field
of Membership Taskforce to coordinate and monitor implementation of the
new chartering policies and make necessary recommendations for policy
clarifications and amendments to IRPS 99-1. Accordingly,
recommendations were made, and final amendments to NCUA's chartering
policy were issued by the NCUA Board in 2000 and again in 2002. 65 FR
64512, October 27, 2000; 67 FR 20013, April 24, 2002.
Over the past four years, NCUA's Field of Membership Taskforce has
continued to monitor and review the implementation of the Chartering
Manual and its amendments in an effort to improve consistency and
provide a basis, if necessary, for further clarifications and
modifications. In connection with this review, last year the NCUA Board
issued a proposed rule, with a 60-day comment period, that
comprehensively updated the agency's chartering policy. 67 FR 72444,
December 5, 2002. The comment period ended on February 3, 2003.
Six hundred and seventy comments were received. Comments were
received from 263 federal credit unions, 113 state-chartered credit
unions, 131 Florida bankers and 69 other banks, 31 state credit union
leagues or trade associations, and 4 national credit union trade
associations, 32 credit union members, 14 state bank trade associations
and 3 national bank trade associations, 2 members of Congress, 2 law
firms, 1 insurance company, 2 credit union service organizations
(CUSOs), 1 credit union contractor, 1 institute, and 1 shared service
center.
Except for the banks and bank trade associations, most commenters
were very supportive of the proposed chartering and field of membership
policies, with some commenters suggesting ways they would improve the
final rule. Many stated that they appreciated the added flexibility
permitted under the proposal, and some addressed how the proposal would
afford them the opportunity to diversify their membership and how this
would result in decreased economic risk. Besides the bank commenters,
four credit unions and the institute opposed the proposal. Two of these
commenters believe it would harm small credit unions. After the
following discussion of the proposed amendments, there is a separate
section devoted to the comments received from the bankers and bank
trade associations.
A. Proposed Amendments
1. Overlapping Fields of Membership Among Credit Unions
As stated in the proposal, the NCUA Board has found no empirical
evidence to indicate that overlaps have an adverse impact on credit
unions and believes overlaps should generally be permitted. Therefore,
except for select group expansions for multiple group credit unions,
the NCUA Board proposed to eliminate overlap protection and provide the
option to all credit unions to remove any existing exclusionary clauses
in its charter.
Under the Federal Credit Union Act (the Act), the agency must do an
overlap analysis on select group expansions for multiple group credit
unions so no significant changes were proposed in this area. 12 U.S.C
1759(f)(2)(D). On select group expansions, however, the NCUA Board
stated that overlaps of groups of less than 3,000 should be classified
as an incidental overlap and no overlap analysis should be required.
The 3,000 threshold is taken directly from the CUMAA.
The NCUA Board also stated if two credit unions want to retain an
exclusionary clause that is a business decision for them to make. If,
however, one credit union wants the exclusionary clause removed, the
NCUA Board stated the request should be approved and should be treated
as a housekeeping amendment.
One hundred and twenty-two commenters supported this proposed
change. Thirteen commenters opposed the change. They generally opposed
this change because they believe it may harm small to mid-size credit
unions that cannot compete with the rates and total range of services
offered by the larger credit unions.
The NCUA Board is committed to the concept of consumer choice as
reflected in CUMAA. NCUA has approved charter expansions that overlap
other credit unions for decades, without any evidence that the overlap
harms the overlapped credit union. Overlap protection can harm the
credit union member by denying consumer choice. By adopting the
proposed change, the agency's policy will accurately reflect today's
marketplace, which provides many choices in financial services to the
consumer. Therefore, the NCUA Board believes it is appropriate to
eliminate the remaining overlap protections that still exist in the
regulation to the extent permitted by statute. The NCUA Board does not
believe this overlap policy will have an adverse impact on small credit
unions. Accordingly, the NCUA Board is adopting the proposed change on
overlaps in the final rule including the procedure on how to remove
existing exclusionary clauses.
The NCUA Board is also eliminating a paperwork relic for credit
unions that wish to expand their single occupational or associational
common bond. Under the current rule, a single common bond credit union
needs to obtain a letter from a group's sponsor indicating that the
group wants to be added to the credit union's field of membership. The
purpose of this requirement was so that NCUA could
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monitor overlaps. Since overlaps are now permitted for single common
bond credit unions, this sponsor letter serves no safety and soundness
or other policy purpose. A couple of commenters specifically addressed
this issue and suggested the elimination of this requirement.
Therefore, the NCUA Board is modifying the single common bond expansion
procedure for both occupational and associational credit unions. Under
the new procedure, a credit union need only state how the common bond
is shared and how it will serve the expanded group. The requirement for
a sponsor letter is eliminated.
The NCUA Board is also clarifying in the final rule that a single
common bond credit union can merge into a multiple common bond credit
union if the single common bond credit union is completely overlapped
by the multiple common bond credit union. The NCUA Board believes that,
if a multiple group credit union has a complete overlap of a single
common bond credit union's field of membership, then the two credit
unions should be allowed to merge without analyzing the group's ability
to form its own credit union. This change is consistent with the new
overlap policy as well as previous modifications to merger policy.
Chapter 2, section IV.D.1.c is modified accordingly in the final rule.
2. Reasonable Proximity and Service Facility for Select Group
Expansions
Under CUMAA, if the formation of a separate credit union is not
practicable or consistent with the standards in the Act, then a select
group can be included in the ``field of membership of a credit union
that is within reasonable proximity to the location of the group.'' 12
U.S.C. 1759(f)(1)(B). The Act does not define a service facility for
the purpose of analyzing reasonable proximity. In the proposal, the
NCUA Board defined a service facility for multiple group expansions as
a place where shares are accepted for members' accounts, loan
applications are accepted, or loans are disbursed.
In defining reasonable proximity, the NCUA Board has continually
stated that the group to be added must be within the ``service area''
of a ``service facility'' of the credit union. After reviewing CUMAA
and its legislative history again, the NCUA Board proposed a new
definition of a service facility for the purpose of the reasonable
proximity analysis. The NCUA Board proposed that a wholly-owned ATM or
a shared service facility in which a credit union has an ownership
interest constitutes a credit union for the purpose of the reasonable
proximity analysis. Under the proposal, underserved areas still require
a physical presence other than an ATM or shared service facility.
One hundred and thirty-four commenters agreed with the proposed
change. Two commenters who supported expanding the definition of
service facility also suggested eliminating the reasonable proximity
requirement altogether. Eleven commenters did not agree with the use of
an ATM for purposes of the reasonable proximity analysis. One of these
commenters opposed the use of shared branch networks for the reasonable
proximity analysis. Many of these commenters were concerned that such a
definition would harm small credit unions.
Sixty-nine commenters supported the proposal, but recommended NCUA
further expand the definition of service facility. Many of these
commenters recommended that NCUA change ``wholly owned'' ATM to
``branded'' ATM and also include the web, telephone, and the United
States mail as service facilities. A few of these commenters wrote that
NCUA should also consider shared or network ATMs as service facilities.
The NCUA Board does not have the legal authority to eliminate the
reasonable proximity requirement. The NCUA Board also believes an
ownership interest is crucial in analyzing the reasonable proximity
requirement for ATMs and shared service facilities. However, the NCUA
Board is clarifying that services provided by an ATM are irrelevant to
this analysis as long as it is wholly-owned by the credit union.
The NCUA Board believes that the proposed definition of a service
facility for determining reasonable proximity is reasonable and is
consistent with economic realities of the ``clicks and windows'' age.
However, the NCUA Board is clarifying in the final rule that a service
facility does not include a credit union's internet web site.
In response to some commenters, the NCUA Board is clarifying in the
final rule that the requisite ownership interest can be in a shared
service center, a shared service network, or similar organization.
Therefore, as long as the credit union has an ownership interest in the
service center, network, or similar organization, the credit union can
expand around any of them. The credit union does not need to have an
ownership interest in the specific service facility. This means, for
example, that, if the credit union has an ownership interest in a CUSO,
it can expand around any service center connected to the CUSO. This
also would allow a participating credit union with an ownership
interest in the service facility to expand around other service
facilities connected to the shared service network or similar
organization.
3. Associational Common Bond
The Chartering Manual defines what constitutes an associational
common bond. Under the current definition the group must: (1) Hold
meetings open to all members; (2) sponsor other activities which
demonstrate that the members of the group meet to accomplish the
objectives of the association; and (3) have an authoritative definition
of who is eligible for membership. Other factors were also considered
by the agency. The NCUA Board proposed that the three mandatory
requirements be eliminated and merged into the list of factors to be
considered by the agency. Under the proposal, a consideration of the
totality of circumstances would determine whether an associational
common bond exists. The NCUA Board also explicitly stated in the
proposal that national associations in their entirety qualify for
credit union service if the headquarters are within reasonable
proximity to the credit union.
One hundred and seven commenters supported the proposed change.
Four commenters opposed the proposal. The NCUA Board believes, for the
reasons provided in the proposal, that a totality of the circumstances
analysis is appropriate in determining an associational common bond and
is adopting that approach in the final rule.
Eight commenters specifically approved of the clarification on
national associations. Four commenters did not agree with the
clarification. In response to concerns raised by some commenters, the
NCUA Board is clarifying that current policy already permits a multiple
group credit union to add national associations to its field of
membership as long as the national association headquarters are within
reasonable proximity to the credit union. If a multiple group credit
union wishes to add just a chapter of the national association, the
office of the chapter must be in reasonable proximity to the credit
union. If a credit union is chartered to serve a single association,
there is no reasonable proximity requirement. Therefore, the proposed
clarification is adopted in the final rule.
The NCUA Board wants to reiterate that associations that are
primarily based on client-customer relationships do not qualify as an
associational common bond. Finally, the NCUA Board is making some
technical wording changes in this section to eliminate possible
ambiguities.
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4. Occupational Common Bond
The NCUA Board has previously determined that an occupational
common bond can also include designations based on employment in a
trade, industry or profession (TIP), but because of operational
concerns chose not to implement a TIP policy. Having addressed these
concerns, the NCUA Board proposed a new definition of occupational
common bond based on a TIP.
This type of common bond can include employment at any number of
corporations or other legal entities that, while not under common
ownership, share a common bond by virtue of producing similar products,
providing similar services, sharing the same profession or trade, or
participating in the same industry. The common bond of a TIP credit
union is not based on a relationship with a single employer, but
rather, on the commonality of interests or characteristics of those
groups comprising the TIP. Individuals in those groups will share or
participate in the same purpose, interest, or endeavor as a result of
their employment. If persons in different groups possess common
interests that are reasonably tied to a common endeavor or purpose,
then the groups can be combined to form a single field of membership
and, thus, a single common bond credit union. This commonality of
interest constitutes a common bond of trade, industry or profession and
meets the statutory requirement of ``one group that has a common bond
of occupation.'' 12 U.S.C. 1759(a)(1).
In the proposal, the NCUA Board stated that, while there is some
latitude in defining trade, industry, or profession, the group must
have a close nexus. Furthermore, the NCUA Board stated that a TIP must
be narrowly defined and in most cases, will contain a geographic
limitation. The geographic limitation will generally correspond to the
credit union's current or planned service area. The NCUA Board limited
the TIP to single common bond credit unions and proposed allowing any
credit union to convert to a TIP single occupational credit union. Upon
such a conversion, the credit union could retain its members of record.
One hundred and seventy commenters supported the TIP proposal. A
few commenters who supported the proposal believe that a diverse field
of membership should reduce sponsor risk and risk to the National
Credit Union Share Insurance Fund. A few commenters expressed concern
with how TIP will be implemented. Four commenters opposed the TIP
concept because they believe it would hurt small credit unions.
Many commenters provided examples of different TIPs, ranging from
an educational TIP to a petroleum TIP. Some of the commenters believed
that the general thrust of occupational chartering based upon TIP
should be more ``horizontal'' than ``vertical.'' That is, they viewed
the TIP proposal as focusing on only some members of a trade or
industry, as opposed to everyone working in the same trade or industry.
The NCUA Board does not believe that these terms provide a meaningful
or relevant distinction and is not using them in the Chartering Manual.
In the proposal, the NCUA Board was simply illustrating who could
become a member depended on whether the credit union had a professional
TIP or an industry TIP. Again, if the TIP is the healthcare industry,
everyone working at a hospital would be included in the TIP. If the
credit union has a nurses TIP, then only nurses could be served. This
is a clear and important distinction. A TIP can be ``vertical'' or
``horizontal,'' but it is critical that a credit union understand which
type of occupational common bond it is choosing.
In a similar vein, some commenters asked why a credit union could
not serve clerical staff if a TIP is based on a single profession, for
example, Certified Public Accountants (CPAs). The answer is that a TIP
credit union based on profession or trade can only serve members of the
same profession or trade. An engineer TIP can only serve engineers; a
teachers TIP can only serve teachers. This is one of the fundamental
criteria of a TIP. However, if a TIP is based on an industry, such as
healthcare, the credit union can serve physicians, nurses, and
administrative staff. Therefore, as stated above, how the TIP is
characterized, whether by profession or industry, will be critical in
determining who the credit union can serve. If the credit union wants
to serve CPAs, it should request a CPA TIP. If the credit union wants
to include administrative staff, then it should request a TIP based on
the accounting industry.
A few commenters support applying TIP only to single common bond
credit unions. Thirty-one commenters recommended applying TIP to
multiple common bond credit unions. The NCUA Board believes that a
narrow approach is appropriate at this time because expansion of the
TIP policy would raise additional operational issues. For this reason,
the NCUA Board is limiting this type of occupational common bond to a
single common bond credit union.
The NCUA Board stated in the proposal that a credit union
converting to a TIP will usually have a geographic limitation that
comports with its current or planned service area. Nine commenters
opposed a geographic limitation on the TIP occupational common bond. A
few commenters requested broad geographic options. A few commenters
noted that, for a credit union already serving members nationwide,
there should be no geographic limitation. The NCUA Board believes that,
initially, a general geographic limitation is necessary for a
successful implementation of the TIP policy. However, after considering
the commenters' suggestions, the NCUA Board also believes a credit
union having a national field of membership or operating in multiple
states may request a TIP with no geographic restriction. Accordingly,
the NCUA Board has clarified the Chartering Manual to include this
concept.
The NCUA Board continues to believe that another fundamental
criterion of a TIP common bond is that the group must have a close
nexus and a commonality of interests. Because of this requirement, a
TIP cannot include third-party vendors and other suppliers and
contractors. In this regard, some TIPs might be more limiting than the
traditional definition of an occupational common bond. An automobile
TIP may include all workers manufacturing automobiles but may not
include the steel suppliers or other component suppliers. A healthcare
TIP may include all hospital personnel but may not include employees of
unaffiliated retail pharmacies. Furthermore, a TIP common bond charter
can be similar to, but distinguishable from, a common bond based on a
single corporation or employer.
For example, all Army personnel would qualify as a single common
bond employer group or TIP, but all nurses would only qualify as a TIP.
One commenter requested that a company that has one large,
predominant industry and some smaller industries still be allowed to be
included in a single industrial common bond. The NCUA Board believes
such a company would not have the close nexus and commonality of
interest required of a TIP occupational common bond based on industry.
However, this same company could qualify for a traditional single
employer occupational common bond.
A few commenters requested information about the scope of the TIP
business plan. One commenter also
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asked how a credit union will verify an individual as a TIP member.
When a credit union is chartered or converts to a TIP it must submit a
business plan that addresses how it will serve the TIP and how it will
verify an individual is part of that TIP. Verification may include a
state license, payroll statements, or any other documentation
indicating that an individual is a member of the specified TIP. Some
commenters have asked that retirees and corporate accounts be included
in a TIP field of membership. The NCUA Board sees no impediment to such
a change and has modified the final rule to allow retirees for all TIPs
and corporate accounts for industry TIPs.
The NCUA Board requested comment on whether the final rule should
contain a preapproved list of TIPs. A few commenters recommended that
the final rule should not contain a preapproved list of TIPs. A few
commenters supported an initial listing of NCUA preapproved TIPS, if it
did not limit possible TIPs. A few commenters suggested other
governmental sources a credit union could review to develop a TIP.
The NCUA Board believes that a list of preapproved TIPs would not
prove very useful to most credit unions. Instead, the NCUA Board
prefers that the agency approve TIPs, on a case-by-case basis, to
ensure consistency among the reasons, address operational issues and to
ensure the legal underpinnings of the policy are met. The NCUA Board
encourages credit unions to review the U.S. Bureau of Labor Statistics'
Standard Occupational Classification System (SOCS) and the U.S. Census
Bureau's North American Industrial Classification System (NAICS) for
guidance in developing a TIP. Although the information contained in the
SOCS and NAICS is neither controlling nor binding on NCUA, the systems
do contain some useful information for credit unions considering
converting to a TIP occupational common bond.
Finally, the NCUA Board is clarifying that if, for safety and
soundness reasons, a TIP credit union needs to convert back to its
original field of membership, it can obtain the field of membership it
had before the conversion. Such a conversion would need to be approved
by the regional director. After the conversion, a credit union could
continue to serve members of record of the TIP.
5. Economic Advisability and the Process for Select Group Expansions of
Less than 3,000
Economic advisability is critically important both in the
chartering process and in the addition of select groups to a multiple
common bond credit union. NCUA's responsibility is to ensure that a new
credit union has a reasonable likelihood of succeeding in today's
financial marketplace.
Based on the historical experience since the promulgation of IRPS
99-1, plus other chartering data since 1990, the NCUA Board proposed to
raise the expedited processing threshold for adding groups from 500 to
less than 3,000. In conjunction with this proposal, the NCUA Board also
proposed raising the number of members in a group requiring an overlap
analysis from 500 to less than 3,000.
One hundred and thirty-three commenters supported the proposed
change. One commenter requested no economic ability analysis or overlap
analysis be conducted on groups of 3,000 or more either. A few
commenters opposed the change and some of these commenters stated they
believed that it would hurt small credit unions.
The NCUA Board is adopting the proposed amendment in the final
rule. NCUA will continue to perform an economic advisability analysis
and overlap analysis for a group of 3,000 or more. NCUA's experience
supports the view that a primary potential membership of less than
3,000 will rarely be economically advisable. In fact, 3,000 is the same
threshold at or above which Congress requires the agency to look at the
group more closely to determine if it can form its own credit union.
The final rule merely makes consistent the application of the statutory
3,000 figure as the break point for mandatory analysis of a group that
chooses to affiliate with an existing credit union, rather than charter
its own credit union. In some circumstances, a smaller number of
potential members may be economically advisable, and such groups, if
they express the desire to form a separate credit union, will be given
that opportunity. However, as always, the group's desire and initiative
to form a credit union are critical factors in evaluating economic
advisability.
6. Community Charters
Over the years, the NCUA Board has approved numerous conversions of
credit unions to community charters. The NCUA Board proposed three
different definitions of what constitutes a local community. These
definitions were based on the Board's experience and authority under
the Act to determine what constitutes a local community for purposes of
a federal community charter.
First, the NCUA Board proposed that any city, county, or smaller
political jurisdiction, regardless of population size, meets the
definition of a local community. The NCUA Board stated that this is an
irrebuttable presumption, regardless of population size, and that no
documentation demonstrating that the political jurisdiction is a
community would be required.
Second, the NCUA Board proposed that any area that is a
Metropolitan Statistical Area (MSA), or its equivalent, or a portion
thereof, where the population of the MSA or its equivalent does not
exceed one million, may meet the definition of a local community. The
NCUA Board stated that, if the proposed community meets the MSA
criteria and population limits, the credit union must submit a letter
describing how the area meets the standards for community interaction
and/or common interests.
Third, the NCUA Board proposed increasing the presumption of a
local community from 200,000 residents to 500,000 residents for
multiple political jurisdictions that are not part of a single MSA. The
NCUA Board stated that, if the credit union meets this criterion, the
credit union must submit a letter describing how the area meets the
standards for community interaction and/or common interests.
One hundred and eighty-one commenters supported the new definitions
of a local community and the changes to the community section. Seven
commenters requested a more expansive definition of a local community.
Four commenters did not support the proposal and believe the definition
of local community will hurt small credit unions.
The NCUA Board is adopting the proposed definition of a local
community in the final rule. As stated in the proposal, this definition
of local community comports with the general experience of this Board
in determining what constitutes a local community charter.
The NCUA Board clarified in the proposed rule that a community
charter can apply to convert to serve a different community area. A
couple of commenters specifically approved of the proposal. The NCUA
Board is adopting this provision in the final rule without change.
The NCUA Board clarified in the proposal that persons or
organizations that regularly do business in a community can be included
in a community credit union's charter. A couple of commenters
specifically approved of this clarification. The NCUA Board is adopting
this clarification in the final rule and is
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providing an example in the final rule to demonstrate that a community
charter can serve individuals and organizations that regularly conduct
business in the community.
Twenty-two commenters requested that, if a credit union converts to
a community charter, all groups outside the community boundary should
continue to be served by the community credit union. The NCUA Board
believes that such an interpretation is not permitted under CUMAA.
However, as stated in this rule, and previous NCUA rules, groups
obtained through an emergency merger or emergency purchase and
assumption can continue to be served by the new community credit union.
One commenter believes credit unions should be able to serve
multiple, noncontiguous communities, and another commenter believes
NCUA should not restrict a credit union to a single charter type, but
should permit credit unions to be hybrids of different charter types.
Unfortunately, the Act does not specifically permit hybrid charters and
does not generally permit a credit union to serve multiple
noncontiguous communities. However, there are some exceptions to this
rule, involving emergency mergers, underserved areas and the
grandfathering of certain fields of memberships.
7. Common Bond Conversions
In the current Chartering Manual, the sections on federal charter
conversions for occupational common bond credit unions, associational
common bond credit unions, and multiple group common bond credit unions
all contain a general three-year prohibition on converting to another
type of charter, except to a community charter. This prohibition was
originally established for operational and administrative reasons. The
NCUA Board proposed the elimination of this prohibition since it unduly
limits the flexibility needed for federal credit unions to serve their
members and make well-reasoned business decisions.
Fifty-nine commenters specifically supported the proposal. One
commenter specifically opposed the change. The NCUA Board has not been
provided any compelling rationale to retain this prohibition so it is
deleting this requirement and adopting the proposal in the final rule.
8. Charter Conversions
The NCUA Board clarified in the proposed rule that, if a State
charter wants to convert to Federal charter and had previously obtained
a group or area through a procedure similar to NCUA's emergency merger
provision, it can retain that field of membership when it converts to a
Federal charter. Sixty-four commenters specifically supported this
clarification. Two commenters specifically opposed it because of
possible abuse.
The NCUA Board is adopting in the final rule the clarification that
a State charter that converts to a Federal charter may retain any
groups obtained through a State's emergency field of membership
provision. Any subsequent expansions or amendments to the field of
membership of the Federal charter must comply with Federal field of
membership policies. The NCUA Board does not believe that adoption of
this clarification will lead to any abuse because most State emergency
provisions are not broader than those for Federal charters.
The NCUA Board requested comment on whether there was a compelling
rationale to permit any type of State charters to retain their State
fields of membership when converting to Federal charters. The NCUA
Board also requested comment on other ways to streamline the procedure
for converting from a State charter to Federal charter. Several
commenters support streamlining the conversion process. Nine commenters
requested that State charters converting to Federal charters should be
able to retain all groups in their current fields of membership.
Although some of these commenters provided good business reasons for
adopting such a policy, no commenter provided a compelling
justification for such a policy change. The NCUA Board will continue to
review this issue in the future to determine if a change in policy is
appropriate.
9. The Appeal Process
The NCUA Board proposed a change to the appeal process. The NCUA
Board clarified that, if a credit union seeks a second reconsideration
of an application, and it is still not approved by the region, it will
be treated as an appeal and sent to the NCUA Board for a decision.
Furthermore, Chapter Three of the Chartering Manual on underserved
areas does not have a separate appeals section, so the NCUA Board
proposed adding an appeal provision to this section.
Fifty commenters specifically supported the changes to the appeal
process and only one commenter opposed it. The NCUA Board is adopting
the proposed changes to the appeals process, with minor modifications,
including the addition of an appeal process for underserved areas.
10. Miscellaneous Clarifications
The NCUA Board proposed three other amendments to conform to other
proposals made by the NCUA Board or to clarify existing policy. First,
the NCUA Board proposed a change to chapter 1, section XII to permit
foreign branching by Federal credit unions. Any existing or proposed
branches on United States military installations or United States
embassies are unaffected by this change.
The few commenters that addressed the issue supported the proposed
amendment. The NCUA Board is adopting this proposal in the final rule.
Second, the NCUA Board clarified how corporate accounts can be
cited in a credit union's charter by adding them to the list of groups
in ``Other Persons Eligible for Credit Union Membership.'' Forty-three
commenters supported the clarification and the NCUA Board is adopting
this clarification in the final rule.
Third, the NCUA Board clarified that in a spin-off all members of
the group to be spun off, regardless of how they voted, will be
transferred if the spin-off is approved by the voting membership.
Forty-three commenters supported the clarification. The NCUA Board
believes that this treatment of members in a spin-off is consistent
with CUMAA and is adopting this clarification in the final rule.
A couple of commenters recommended NCUA review its investment area
definition; specifically, the definition of empowerment zones or
enterprise communities used to add underserved areas. Before a Federal
credit union can expand its field of membership to serve an underserved
area, the area must, among other things, be classified as an investment
area under section 103(16) of the Community Development Banking and
Financial Institutions (CDFI) Act of 1994 (the CDFI Act), 12 U.S.C.
4703(16). The CDFI Act permits the U.S. Department of the Treasury's
CDFI Fund to further define investment area.
NCUA has reviewed its investment area definition in response to
these commenters and also because the CDFI Fund recently issued an
interim final rule, revising its program, including its own investment
area definition. 68 FR 5704, February 4, 2003 (to be codified at 12 CFR
part 1805). The CDFI Fund has deleted the following criteria from its
definition:
[sbull] An area where the percentage of occupied distressed housing
(as indicated by lack of complete plumbing and occupancy of more than
one person per room) is at least 20 percent;
[[Page 18339]]
[sbull] An area located outside of a Metropolitan Area with a
county population loss between the most recent decennial census and the
previous decennial census of at least 10 percent; and
[sbull] An area located outside of a Metropolitan Area with a
county net migration loss (out-migration minus in-migration) over the
5-year period preceding the most recent decennial census of at least 5
percent.
The CDFI Fund also modified its section on empowerment zones and
enterprise communities in its investment area definition. The
definition now includes an area that wholly consists of or is wholly
located within an Empowerment Zone or Enterprise Community designated
under section 1391 of the Internal Revenue Code of 1986, 26 U.S.C.
1391.
With the release of the 2000 Census data as well as the new
definitions of an investment area, the NCUA Board has also updated its
definition of an investment area in chapter 3 of the Chartering Manual.
The NCUA Board does not expect these revisions to have any measurable
impact on bringing credit union service to underserved areas. In
general, the NCUA Board acknowledges that the three eliminated criteria
were either redundant or not accurate measures of economic distress.
The NCUA Board believes that the changes will have no adverse effect on
geographic areas qualifying as investment areas. Therefore, the final
investment area definition is revised to conform to the CDFI Fund's new
definition.
A couple of commenters asked for the agency to abolish the
requirement of a sponsor letter from a select group that a multiple
common bond credit union wants to add to its field of membership. The
NCUA Board believes, at this time, the sponsor letter for multiple
group expansions is beneficial for credit unions because it
demonstrates the desire of the group. The Board is not deleting the
requirement but the NCUA Board will continue to monitor the usefulness
of requiring the letter.
Finally, the NCUA Board proposed some technical wording changes to
all of the chapters in the Chartering Manual and updated the
Appendices. The final rule includes additional changes to the forms in
Appendix D to make them easier to understand and use. These changes are
not substantive.
B. Comments From Banks and Bank Trade Organizations
Bank and bank trade organization commenters objected to the
proposal and argued that Federal credit unions should be subject to
taxation like banks. In general, these commenters opposed all 10
categories in the proposal listed above. Specifically, the commenters
argued that the NCUA Board's proposal does not adhere to CUMAA,
including the definitions of ``local'' and ``common bond,'' and
objected to: The proposals to use MSAs to define local communities;
defining a service facility as including ATMs; the concept of the TIP
occupational common bond; and the change to the standard clause to
include corporate and other business sponsors.
The NCUA Board has considered all issues raised by these commenters
and has previously addressed the major issues in this preamble since
other commenters discussed the same provisions. As to the question of
taxation, it is a statutory issue, not a regulatory issue. Most
recently Congress addressed this issue in CUMAA at section 2.(4), which
states that ``[c]redit unions, unlike many other participants in the
financial services market, are exempt from Federal and most State taxes
* * *''.
Finally, as in the past, some of the commenters from banking
organizations stated that the proposed regulation does nothing to
encourage the formation of separate credit unions to serve groups of
fewer than 3,000 persons. The NCUA Board strongly disagrees with this
comment. In fact, the NCUA Board's policy is that any group that can
meet the economic advisability requirements should form its own credit
union. The NCUA Board has simply established criteria that provide
guidance based on historical experience relative to those groups that
may have the best opportunity to succeed. Every effort will be made to
encourage new charters, but operational feasibility and requirements
are valid factors and cannot be ignored in the decision making process.
Nothing in this rule prevents a group with less than 3,000 from
applying to charter its own credit union. In fact, NCUA has put in
place an Express Chartering Program to help small but viable groups in
chartering a credit union.
C. Internet Expansion Requests
The Field of Membership Taskforce has developed an internet, select
group expansion form. This process allows credit unions to submit
requests for occupational groups of less than 3,000 online with an
expedited approval by NCUA. The Field of Membership Taskforce is in the
process of developing a form to allow associational groups of less than
3,000 to be approved by NCUA online. The regional offices can provide
credit unions with specific details on how to do an expansion through
the internet.
D. Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact a regulation may have on a
substantial number of small credit unions, primarily those under one
million dollars in assets. The final rule will not have a significant
economic impact on a substantial number of small credit unions and,
therefore, a regulatory flexibility analysis is not required.
Paperwork Reduction Act
The Office of Management and Budget control number assigned to
Sec. 701.1 is 3133-0015, and to forms included in Appendix D is 3133-
0116. NCUA has determined that the final rule will not increase
paperwork requirements and a paperwork reduction analysis is not
required.
Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. In
adherence to fundamental federalism principles, NCUA, an independent
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies
with the executive order. The final rule will not have substantial
direct effects on the states, on the connection between the national
government and the states, or on the distribution of power and
responsibilities among the various levels of government. NCUA has
determined that the final rule does not constitute a policy that has
federalism implications for purposes of the executive order.
The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
The NCUA has determined that the final rule would not affect family
well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act of 1999, Pub. L. 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) provides generally for congressional review of agency
rules. A reporting requirement is triggered in instances where NCUA
issues a final
[[Page 18340]]
rule as defined by section 551 of the Administrative Procedures Act. 5
U.S.C. 551. The Office of Management and Budget has determined that
this is not a major rule.
List of Subjects in 12 CFR Part 701
Credit, Credit unions, Reporting and recordkeeping requirements.
By the National Credit Union Administration Board on March 27,
2003.
Becky Baker,
Secretary of the Board.
0
Accordingly, NCUA amends 12 CFR part 701 as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
0
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.
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 12 U.S.C. 4311-4312.
0
2. Section 701.1 is revised to read as follows:
Sec. 701.1 Federal credit union chartering, field of membership
modifications, and conversions.
National Credit Union Administration policies concerning
chartering, field of membership modifications, and conversions are set
forth in Interpretive Ruling and Policy Statement 03-1, Chartering and
Field of Membership Policy (IRPS 03-1). Copies may be obtained by
contacting NCUA at the addresses found in Sec. 790.2(c) of this
chapter.
(Approved by the Office of Management and Budget under control
number 3133-0015.)
Note: The text of the Interpretive Ruling and Policy Statement
(IRPS 03-1) does not appear in the Code of Federal Regulations.
0
3. IRPS 03-1 is added to read as follows:
Chapter 1--Federal Credit Union Chartering
I--Goals of NCUA Chartering Policy
The National Credit Union Administration's (NCUA) chartering and
field of membership policies are directed toward achieving the
following goals:
[sbull] To encourage the formation of credit unions;
[sbull] To uphold the provisions of the Federal Credit Union Act;
[sbull] To promote thrift and credit extension;
[sbull] To promote credit union safety and soundness; and
[sbull] To make quality credit union service available to all
eligible persons.
NCUA may grant a charter to single occupational/associational
groups, multiple groups, or communities if:
[sbull] The occupational, associational, or multiple groups possess
an appropriate common bond or the community represents a well-defined
local community, neighborhood, or rural district;
[sbull] The subscribers are of good character and are fit to
represent the proposed credit union; and
[sbull] The establishment of the credit union is economically
advisable.
Generally, these are the primary criteria that NCUA will consider.
In unusual circumstances, however, NCUA may examine other factors, such
as other federal law or public policy, in deciding if a charter should
be approved.
Unless otherwise noted, the policies outlined in this manual apply
only to federal credit unions.
II--Types of Charters
The Federal Credit Union Act recognizes three types of federal
credit union charters--single common bond (occupational and
associational), multiple common bond (more than one group each having a
common bond of occupation or association), and community.
The requirements that must be met to charter a federal credit union
are described in Chapter 2. Special rules for credit unions serving
low-income groups are described in Chapter 3.
If a federal credit union charter is granted, Section 5 of the
charter will describe the credit union's field of membership, which
defines those persons and entities eligible for membership. Generally,
federal credit unions are only able to grant loans and provide services
to persons within the field of membership who have become members of
the credit union.
III--Subscribers
Federal credit unions are generally organized by persons who
volunteer their time and resources and are responsible for determining
the interest, commitment, and economic advisability of forming a
federal credit union. The organization of a successful federal credit
union takes considerable planning and dedication.
Persons interested in organizing a federal credit union should
contact one of the credit union trade associations or the NCUA regional
office serving the state in which the credit union will be organized.
Lists of NCUA offices and credit union trade associations are shown in
the appendices. NCUA will provide information to groups interested in
pursuing a federal charter and will assist them in contacting an
organizer.
While anyone may organize a credit union, a person with training
and experience in chartering new federal credit unions is generally the
most effective organizer. However, extensive involvement by the group
desiring credit union service is essential.
The functions of the organizer are to provide direction, guidance,
and advice on the chartering process. The organizer also provides the
group with information about a credit union's functions and purpose as
well as technical assistance in preparing and submitting the charter
application. Close communication and cooperation between the organizer
and the proposed members are critical to the chartering process.
The Federal Credit Union Act requires that seven or more natural
persons--the ``subscribers''--present to NCUA for approval a sworn
organization certificate stating at a minimum:
[sbull] The name of the proposed federal credit union;
[sbull] The location of the proposed federal credit union and the
territory in which it will operate;
[sbull] The names and addresses of the subscribers to the
certificate and the number of shares subscribed by each;
[sbull] The initial par value of the shares;
[sbull] The detailed proposed field of membership; and
[sbull] The fact that the certificate is made to enable such
persons to avail themselves of the advantages of the Federal Credit
Union Act.
False statements on any of the required documentation filed in
obtaining a federal credit union charter may be grounds for federal
criminal prosecution.
IV--Economic Advisability
IV.A--General
Before chartering a federal credit union, NCUA must be satisfied
that the institution will be viable and that it will provide needed
services to its members. Economic advisability, which is a
determination that a potential charter will have a reasonable
opportunity to succeed, is essential in order to qualify for a credit
union charter.
NCUA will conduct an independent on-site investigation of each
charter application to ensure that the proposed credit union can be
successful. In
[[Page 18341]]
general, the success of any credit union depends on: (a) The character
and fitness of management; (b) the depth of the members' support; and
(c) present and projected market conditions.
IV.B--Proposed Management's Character and Fitness
The Federal Credit Union Act requires NCUA to ensure that the
subscribers are of good ``general character and fitness.'' Prospective
officials and employees will be the subject of credit and background
investigations. The investigation report must demonstrate each
applicant's ability to effectively handle financial matters. Employees
and officials should also be competent, experienced, honest and of good
character. Factors that may lead to disapproval of a prospective
official or employee include criminal convictions, indictments, and
acts of fraud and dishonesty. Further, factors such as serious or
unresolved past due credit obligations and bankruptcies disclosed
during credit checks may disqualify an individual.
NCUA also needs reasonable assurance that the management team will
have the requisite skills--particularly in leadership and accounting--
and the commitment to dedicate the time and effort needed to make the
proposed federal credit union a success.
Section 701.14 of NCUA's Rules and Regulations sets forth the
procedures for NCUA approval of officials of newly chartered credit
unions. If the application of a prospective official or employee to
serve is not acceptable to the regional director, the group can propose
an alternate to act in that individual's place. If the charter
applicant feels it is essential that the disqualified individual be
retained, the individual may appeal the regional director's decision to
the NCUA Board. If an appeal is pursued, action on the application may
be delayed. If the appeal is denied by the NCUA Board, an acceptable
new applicant must be provided before the charter can be approved.
IV.C--Member Support
Economic advisability is a major factor in determining whether the
credit union will be chartered. An important consideration is the
degree of support from the field of membership. The charter applicant
must be able to demonstrate that membership support is sufficient to
ensure viability.
NCUA has not set a minimum field of membership size for chartering
a federal credit union. Consequently, groups of any size may apply for
a credit union charter and be approved if they demonstrate economic
advisability. However, it is important to note that often the size of
the group is indicative of the potential for success. For that reason,
a charter application with fewer than 3,000 primary potential members
(e.g., employees of a corporation or members of an association) may not
be economically advisable. Therefore, a charter applicant with a
proposed field of membership of fewer than 3,000 primary potential
members may have to provide more support than an applicant with a
larger field of membership. For example, a small occupational or
associational group may be required to demonstrate a commitment for
long-term support from the sponsor.
IV.D--Present and Future Market Conditions--Business Plan
The ability to provide effective service to members, compete in the
marketplace, and to adapt to changing market conditions are key to the
survival of any enterprise. Before NCUA will charter a credit union, a
business plan based on realistic and supportable projections and
assumptions must be submitted.
The business plan should contain, at a minimum, the following
elements:
[sbull] Mission statement;
[sbull] Analysis of market conditions, including if applicable,
geographic, demographic, employment, income, housing, and other
economic data;
[sbull] Evidence of member support;
[sbull] Goals for shares, loans, and for number of members;
[sbull] Financial services needed/desired;
[sbull] Financial services to be provided to members of all
segments within the field of membership;
[sbull] How/when services are to be implemented;
[sbull] Organizational/management plan addressing qualification and
planned training of officials/employees;
[sbull] Continuity plan for directors, committee members and
management staff;
[sbull] Operating facilities, to include office space/equipment and
supplies, safeguarding of assets, insurance coverage, etc.;
[sbull] Type of record keeping and data processing system;
[sbull] Detailed semiannual pro forma financial statements (balance
sheet, income and expense projections) for 1st and 2nd year, including
assumptions--e.g., loan and dividend rates;
[sbull] Plans for operating independently;
[sbull] Written policies (shares, lending, investments, funds
management, capital accumulation, dividends, collections, etc.);
[sbull] Source of funds to pay expenses during initial months of
operation, including any subsidies, assistance, etc., and terms or
conditions of such resources; and
[sbull] Evidence of sponsor commitment (or other source of support)
if subsidies are critical to success of the federal credit union.
Evidence may be in the form of letters, contracts, financial statements
from the sponsor, and any other such document on which the proposed
federal credit union can substantiate its projections.
While the business plan may be prepared with outside assistance,
the subscribers and proposed officials must understand and support the
submitted business plan.
V--Steps in Organizing a Federal Credit Union
V.A--Getting Started
Following the guidance contained throughout this policy, the
organizers should submit wording for the proposed field of membership
(the persons, organizations and other legal entities the credit union
will serve) to NCUA early in the application process for written
preliminary approval. The proposed field of membership must meet all
common bond or community requirements.
Once the field of membership has been given preliminary approval,
and the organizer is satisfied the application has merit, the organizer
should conduct an organizational meeting to elect seven to ten persons
to serve as subscribers. The subscribers should locate willing
individuals capable of serving on the board of directors, credit
committee, supervisory committee, and as chief operating officer/
manager of the proposed credit union.
Subsequent organizational meetings may be held to discuss the
progress of the charter investigation, to announce the proposed slate
of officials, and to respond to any questions posed at these meetings.
If NCUA approves the charter application, the subscribers, as their
final duty, will elect the board of directors of the proposed federal
credit union. The new board of directors will then appoint the
supervisory committee.
V.B--Charter Application Documentation
V.B.1--General
As discussed previously in this Chapter, the organizer of a federal
credit union charter must, at a minimum, provide evidence that:
[sbull] The group(s) possess an appropriate common bond or the
geographical area to be served is a well-defined local
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community, neighborhood, or rural district;
[sbull] The subscribers, prospective officials, and employees are
of good character and fitness; and
[sbull] The establishment of the credit union is economically
advisable.
As part of the application process, the organizer must submit the
following forms, which are available in Appendix D of this Manual:
[sbull] Federal Credit Union Investigation Report, NCUA 4001;
[sbull] Organization Certificate, NCUA 4008;
[sbull] Report of Official and Agreement to Serve, NCUA 4012;
[sbull] Application and Agreements for Insurance of Accounts, NCUA
9500; and
[sbull] Certification of Resolutions, NCUA 9501.
Each of these forms is described in more detail in the following
sections.
V.B.2--Federal Credit Union Investigation Report, NCUA 4001
The application for a new federal credit union will be submitted on
NCUA 4001. State-chartered credit unions applying for conversion to a
federal charter will use NCUA 4000. (See Chapter 4 for a full
discussion.) The organizer is required to certify the information and
recommend approval or disapproval, based on the investigation of the
request.
V.B.3--Organization Certificate, NCUA 4008
This document, which must be completed by the subscribers, includes
the seven criteria established by the Federal Credit Union Act. NCUA
staff assigned to the case will assist in the proper completion of this
document.
V.B.4--Report of Official and Agreement to Serve, NCUA 4012
This form documents general background information of each official
and employee of the proposed federal credit union. Each official and
employee must complete and sign this form. The organizer must review
each of the NCUA 4012s for elements that would prevent the prospective
official or employee from serving. Further, such factors as serious,
unresolved past due credit obligations and bankruptcies disclosed
during credit checks may disqualify an individual.
V.B.5--Application and Agreements for Insurance of Accounts, NCUA 9500
This document contains the agreements with which federal credit
unions must comply in order to obtain National Credit Union Share
Insurance Fund (NCUSIF) coverage of member accounts. The document must
be completed and signed by both the chief executive officer and chief
financial officer. A federal credit union must qualify for federal
share insurance.
V.B.6--Certification of Resolutions, NCUA 9501
This document certifies that the board of directors of the proposed
federal credit union has resolved to apply for NCUSIF insurance of
member accounts and has authorized the chief executive officer and
recording officer to execute the Application and Agreements for
Insurance of Accounts. Both the chief executive officer and recording
officer of the proposed federal credit union must sign this form.
VI--Name Selection
It is the responsibility of the federal credit union organizers or
officials of an existing credit union to ensure that the proposed
federal credit union name or federal credit union name change does not
constitute an infringement on the name of any corporation in its trade
area. This responsibility also includes researching any service marks
or trademarks used by any other corporation (including credit unions)
in its trade area. NCUA will ensure, to the extent possible, that the
credit union's name:
[sbull] Is not already being officially used by another federal
credit union;
[sbull] Will not be confused with NCUA or another federal or state
agency, or with another credit union; and
[sbull] Does not include misleading or inappropriate language.
The last three words in the name of every credit union chartered by
NCUA must be ``Federal Credit Union.''
The word ``community,'' while not required, can only be included in
the name of federal credit unions that have been granted a community
charter.
VII--NCUA Review
VII.A--General
Once NCUA receives a complete charter application package, an
acknowledgment of receipt will be sent to the organizer. At some point
during the review process, a staff member will be assigned to perform
an on-site contact with the proposed officials and others having an
interest in the proposed federal credit union.
NCUA staff will review the application package and verify its
accuracy and reasonableness. A staff member will inquire into the
financial management experience and the suitability and commitment of
the proposed officials and employees, and will make an assessment of
economic advisability. The staff member will also provide guidance to
the subscribers in the proper completion of the Organization
Certificate, NCUA 4008.
Credit and background investigations may be conducted concurrently
by NCUA with other work being performed by the organizer and
subscribers to reduce the likelihood of delays in the chartering
process.
The staff member will analyze the prospective credit union's
business plan for realistic projections, attainable goals, adequate
service to all segments of the field of membership, sufficient start-up
capital, and time commitment by the proposed officials and employees.
Any concerns will be reviewed with the organizer and discussed with the
prospective credit union's officials. Additional on-site contacts by
NCUA staff may be necessary. The organizer and subscribers will be
expected to take the steps necessary to resolve any issues or concerns.
Such resolution efforts may delay processing the application.
NCUA staff will then make a recommendation to the regional director
regarding the charter application. The recommendation may include
specific provisions to be included in a Letter of Understanding and
Agreement. In most cases, NCUA will require the prospective officials
to adhere to certain operational guidelines. Generally, the agreement
is for a limited term of two to four years. A sample Letter of
Understanding and Agreement is found in Appendix B.
VII.B--Regional Director Approval
Once approved, the board of directors of the newly formed federal
credit union will receive a signed charter and standard bylaws from the
regional director. Additionally, the officials will be advised of the
name of the examiner assigned responsibility for supervising and
examining the credit union.
VII.C--Regional Director Disapproval
When a regional director disapproves any charter application, in
whole or in part, the organizer will be informed in writing of the
specific reasons for the disapproval. Where applicable, the regional
director will provide information concerning options or suggestions
that the applicant could consider for gaining approval or otherwise
acquiring credit union service. The letter of denial will include the
procedures for appealing the decision.
[[Page 18343]]
VII.D--Appeal of Regional Director Decision
If the regional director denies a charter application, in whole or
in part, that decision may be appealed to the NCUA Board. An appeal
must be sent to the appropriate regional office within 60 days of the
date of denial and must address the specific reasons for 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 a recommendation to the NCUA Board.
Before appealing, the prospective group may, within 30 days of the
denial, provide supplemental information to the regional director for
reconsideration. A reconsideration will contain new and material
evidence addressing the reasons for the initial denial. The regional
director will have 30 days from the date of the receipt of the request
for reconsideration to make a final decision. If the request is again
denied, the applicant may proceed with the appeal process within 60
days of the date of the last denial. A second request for
reconsideration will be treated as an appeal to the NCUA Board.
VII.E--Commencement of Operations
Assistance in commencing operations is generally available through
the various credit union trade organizations listed in Appendix E.
All new federal credit unions are also encouraged to establish a
mentor relationship with a knowledgeable, experienced credit union
individual or an existing, well-operated credit union. The mentor
should provide guidance and assistance to the new credit union through
attendance at meetings and general oversight. Upon request, NCUA will
provide assistance in finding a qualified mentor.
VIII--Future Supervision
Each federal credit union will be examined regularly by NCUA to
determine that it remains in compliance with applicable laws and
regulations and to determine that it does not pose undue risk to the
NCUSIF. The examiner will contact the credit union officials shortly
after approval of the charter in order to arrange for the initial
examination (usually within the first six months of operation).
The examiner will be responsible for monitoring the progress of the
credit union and providing the necessary advice and guidance to ensure
it is in compliance with applicable laws and regulations. The examiner
will also monitor compliance with the terms of any required Letter of
Understanding and Agreement. Typically, the examiner will require the
credit union to submit copies of monthly board minutes and financial
statements.
The Federal Credit Union Act requires all newly chartered credit
unions, up to two years after the charter anniversary date, to obtain
NCUA approval prior to appointment of any new board member, credit or
supervisory committee member, or senior executive officer. Section
701.14 of the NCUA Rules and Regulations sets forth the notice and
application requirements. If NCUA issues a Notice of Disapproval, the
newly chartered credit union is prohibited from making the change.
NCUA may disapprove an individual serving as a director, committee
member or senior executive officer if it finds that the competence,
experience, character, or integrity of the individual indicates it
would not be in the best interests of the members of the credit union
or of the public to permit the individual to be employed by or
associated with the credit union. If a Notice of Disapproval is issued,
the credit union may appeal the decision to the NCUA Board.
IX--Corporate Federal Credit Unions
A corporate federal credit union is one that is operated primarily
for the purpose of serving other credit unions. Corporate federal
credit unions operate under and are administered by the NCUA Office of
Corporate Credit Unions.
X--Groups Seeking Credit Union Service
NCUA will attempt to assist any group in chartering a credit union
or joining an existing credit union. If the group is not eligible for
federal credit union service, NCUA will refer the group to the
appropriate state supervisory authority where different requirements
may apply.
XI--Field of Membership Designations
NCUA will designate a credit union based on the following criteria:
Single Occupational: If a credit union serves a single occupational
sponsor, such as ABC Corporation, it will be designated as an
occupational credit union. A single occupational common bond credit
union may also serve a trade, industry, or profession (TIP), such as
all teachers.
Single Associational: If a credit union serves a single
associational sponsor, such as the Knights of Columbus, it will be
designated as an associational credit union.
Multiple Common Bond: If a credit union serves more than one group,
each of which has a common bond of occupation and/or association, it
will be designated as a multiple common bond credit union.
Community: All community credit unions will be designated as such,
followed by a description of their geographic boundaries (e.g. city or
county).
Credit unions desiring to confirm or submit an application to
change their designations should contact the appropriate NCUA regional
office.
XII--Foreign Branching
Federal credit unions are permitted to serve foreign nationals
within their fields of membership wherever they reside provided they
have the ability, resources, and management expertise to serve such
persons. Before a credit union opens a branch outside the United
States, it must submit an application to do so and have prior written
approval of the regional director. A federal credit union may establish
a service facility on a United States military installation or United
States embassy without prior NCUA approval.
Chapter 2--Field of Membership Requirements for Federal Credit Unions
I--Introduction
I.A.1--General
As set forth in Chapter 1, the Federal Credit Union Act provides
for three types of federal credit union charters--single common bond
(occupational or associational), multiple common bond (multiple
groups), and community. Section 109 (12 U.S.C. 1759) of the Federal
Credit Union Act sets forth the membership criteria for each of these
three types of credit unions.
The field of membership, which is specified in Section 5 of the
charter, defines those persons and entities eligible for membership. A
single common bond federal credit union consists of one group having a
common bond of occupation or association. A multiple common bond
federal credit union consists of more than one group, each of which has
a common bond of occupation or association. A community federal credit
union consists of persons or organizations within a well-defined local
community, neighborhood, or rural district.
Once chartered, a federal credit union can amend its field of
membership; however, the same common bond or community requirements for
chartering the credit union must be satisfied. Since there are
differences in the three types of charters, special rules, which are
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fully discussed in the following sections of this Chapter, may apply to
each.
I.A.2--Special Low-Income Rules
Generally, federal credit unions can only grant loans and provide
services to persons who have joined the credit union. The Federal
Credit Union Act states that one of the purposes of federal credit
unions is ``to serve the productive and provident credit needs of
individuals of modest means.'' Although field of membership
requirements are applicable, special rules set forth in Chapter 3 may
apply to low-income designated credit unions and those credit unions
assisting low-income groups or to a federal credit union that adds an
underserved community to its field of membership.
II--Occupational Common Bond
II.A.1--General
A single occupational common bond federal credit union may include
in its field of membership all persons and entities who share that
common bond. NCUA permits a person's membership eligibility in a single
occupational common bond group to be established in five ways:
[sbull] Employment (or a long-term contractual relationship
equivalent to employment) in a single corporation or other legal entity
makes that person part of a single occupational common bond;
[sbull] Employment in a corporation or other legal entity with a
controlling ownership interest (which shall not be less than 10
percent) in or by another legal entity makes that person part of a
single occupational common bond;
[sbull] Employment in a corporation or other legal entity which is
related to another legal entity (such as a company under contract and
possessing a strong dependency relationship with another company) makes
that person part of a single occupational common bond;
[sbull] Employment or attendance at a school makes that person part
of a single occupational common bond (see Chapter 2, Section III.A.1);
or
[sbull] Employment in the same Trade, Industry, or Profession (TIP)
(see Chapter 2, Section II.A.2).
A geographic limitation is not a requirement for a single
occupational common bond. However, for purposes of describing the field
of membership, the geographic areas being served may be included in the
charter. For example:
[sbull] Employees, officials, and persons who work regularly under
contract in Miami, Florida for ABC Corporation and subsidiaries;
[sbull] Employees of ABC Corporation who are paid from * * *;
[sbull] Employees of ABC Corporation who are supervised from * * *;
[sbull] Employees of ABC Corporation who are headquartered in * *
*; and/or
[sbull] Employees of ABC Corporation who work in the United States.
The corporation or other legal entity (i.e., the employer) may also
be included in the common bond--e.g., ``ABC Corporation.'' The
corporation or legal entity will be defined in the last clause in
Section 5 of the credit union's charter.
A charter applicant must provide documentation to establish that
the single occupational common bond requirement has been met.
Some examples of single occupational common bonds are:
[sbull] Employees of the Hunt Manufacturing Company who work in
West Chester, Pennsylvania. (common bond--same employer with geographic
definition);
[sbull] Employees of the Buffalo Manufacturing Company who work in
the United States. (common bond--same employer with geographic
definition);
[sbull] Employees, elected and appointed officials of municipal
government in Parma, Ohio. (common bond--same employer with geographic
definition);
[sbull] Employees of Johnson Soap Company and its majority owned
subsidiary, Johnson Toothpaste Company, who work in, are paid from, are
supervised from, or are headquartered in Augusta and Portland, Maine.
(common bond--parent and subsidiary company with geographic
definition);
[sbull] Employees of MMLLJS contractor who work regularly at the
U.S. Naval Shipyard in Bremerton, Washington. (common bond--employees
of contractors with geographic definition);
[sbull] Employees, doctors, medical staff, technicians, medical and
nursing students who work in or are paid from the Newport Beach Medical
Center, Newport Beach, California. (single corporation with geographic
definition);
[sbull] Employees of JLS, Incorporated and MJM, Incorporated
working for the LKM Joint Venture Company in Catalina Island,
California. (common bond--same employer--ongoing dependent
relationship);
[sbull] Employees of and students attending Georgetown University.
(common bond--same occupation);
[sbull] Employees of all the schools supervised by the Timbrook
Board of Education in Timbrook, Georgia. (common bond--same employer);
or
[sbull] All licensed nurses in Fairfax County, Virginia.
(occupational common bond TIP).
Some examples of insufficiently defined single occupational common
bonds are:
[sbull] Employees of manufacturing firms in Seattle, Washington.
(no defined occupational sponsor; overly broad TIP);
[sbull] Persons employed or working in Chicago, Illinois. (no
occupational common bond);
II.A.2--Trade, Industry, or Profession
A common bond based on employment in a trade, industry, or
profession can include employment at any number of corporations or
other legal entities that--while not under common ownership--have a
common bond by virtue of producing similar products, providing similar
services, or participating in the same type of business.
While proposed or existing single common bond credit unions have
some latitude in defining a trade, industry, or profession occupational
common bond, it cannot be defined so broadly as to include groups in
fields which are not closely related. For example, the manufacturing
industry, energy industry, communications industry, retail industry, or
entertainment industry would not qualify as a TIP because each industry
lacks the necessary commonality. However, textile workers, realtors,
nurses, teachers, police officers, or U.S. military personnel are
closely related and each would qualify as a TIP.
The common bond relationship must be one that demonstrates a narrow
commonality of interests within a specific trade, industry, or
profession. If a credit union wants to serve a physician TIP, it can
serve all physicians, but that does not mean it can also serve all
clerical staff in the physicians' offices. However, if the TIP is based
on the health care industry, then clerical staff would be able to be
served by the credit union because they work in the same industry and
have the same commonality of interests.
If a credit union wants to include the airline services industry,
it can serve airline and airport personnel but not passengers. Clients
or customers of the TIP are not eligible for credit union membership
(e.g., patients in hospitals).
Any company that is involved in more than one industry cannot be
included in an industry TIP (e.g., a company that makes tobacco
products, food products, and electronics). However, employees of these
companies may be eligible for membership in a variety of trade/
profession occupational common bond TIPs.
Since a TIP must be narrowly defined, it cannot include third party
vendors
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and other suppliers. For example, the steel suppliers to the automobile
industry would not be part of the automobile industry TIP.
However, the automobile industry includes manufacturers and their
automobile dealerships.
In general, except for credit unions currently serving a national
field of membership or operating in multiple states, a geographic
limitation is required for a TIP credit union. The geographic
limitation will be part of the credit union's charter and generally
correspond to its current or planned operational area. More than one
federal credit union may serve the same trade, industry, or profession,
even if both credit unions are in the same geographic location.
This type of occupational common bond is only available to single
common bond credit unions. A TIP cannot be added to a multiple common
bond or community field of membership.
To obtain a TIP designation, the proposed or existing credit union
must submit a request to the regional director. New charter applicants
must follow the documentation requirements in Chapter 1. New charter
applicants and existing credit unions must submit a business plan on
how the credit union will serve the group with the request to serve the
TIP. The business plan also must address how the credit union will
verify the TIP. Examples of such verification include state licenses,
professional licenses, organizational memberships, pay statements,
union membership, or employer certification. The regional director must
approve this type of field of membership before a credit union can
serve a TIP. Credit unions converting to a TIP can retain members of
record but cannot add new members from its previous group or groups,
unless it is part of the TIP.
Section II.B on Occupational Common Bond Amendments does not apply
to a TIP common bond. Removing or changing a geographical limitation
will be processed as a housekeeping amendment. If safety and soundness
concerns are present, the regional director may require additional
information before the request can be processed.
Section II.H, on Other Persons Eligible for Credit Union
Membership, applies to TIP based credit unions except for the corporate
account provision which only applies to industry based TIPs. Credit
unions with industry based TIPs may include corporations as members
because they have the same commonality of interests as all employees in
the industry. For example, an airline service TIP (industry) can serve
an airline carrier (corporate account); however, a nurses TIP
(profession) could not serve a hospital (corporate account) because not
everyone working in the hospital shares the same profession.
If a TIP designated credit union wishes to convert to a different
TIP or employer-based occupational common bond, or different charter
type, it only retains members of record after the conversion. The
regional director, for safety and soundness reasons, may approve a TIP
designated credit union to convert to its original field of membership.
II.B--Occupational Common Bond Amendments
II.B.1--General
Section 5 of every single occupational federal credit union's
charter defines the field of membership the credit union can legally
serve. Only those persons or legal entities specified in the field of
membership can be served. There are a number of instances in which
Section 5 must be amended by NCUA.
First, a group sharing the credit union's common bond is added to
the field of membership. This may occur through various ways including
agreement between the group and the credit union directly, or through a
merger, corporate acquisition, purchase and assumption (P&A), or spin-
off.
Second, if the entire field of membership is acquired by another
corporation, the credit union can serve the employees of the new
corporation and any subsidiaries after receiving NCUA approval.
Third, a federal credit union qualifies to change its common bond
from:
[sbull] A single occupational common bond to a single associational
common bond;
[sbull] A single occupational common bond to a community charter;
or
[sbull] A single occupational common bond to a multiple common
bond.
Fourth, a federal credit union removes a portion of the group from
its field of membership through agreement with the group, a spin-off,
or because a portion of the group is no longer in existence.
An existing single occupational common bond federal credit union
that submits a request to amend its charter must provide documentation
to establish that the occupational common bond requirement has been
met. The regional director must approve all amendments to an
occupational common bond credit union's field of membership.
II.B.2--Corporate Restructuring
If the single common bond group that comprises a federal credit
union's field of membership undergoes a substantial restructuring, the
result is often that portions of the group are sold or spun off. This
requires a change to the credit union's field of membership. NCUA will
not permit a single common bond credit union to maintain in its field
of membership a sold or spun-off group to which it has been providing
service unless the group otherwise qualifies for membership in the
credit union or the credit union converts to a multiple common bond
credit union.
If the group comprising the single common bond of the credit union
merges with, or is acquired by, another group, the credit union can
serve the new group resulting from the merger or acquisition after
receiving a housekeeping amendment.
II.B.3--Economic Advisability
Prior to granting a common bond expansion, NCUA will examine the
amendment's likely effect on the credit union's operations and
financial condition. In most cases, the information needed for
analyzing the effect of adding a particular group will be available to
NCUA through the examination and financial and statistical reports;
however, in particular cases, a regional director may require
additional information prior to making a decision.
II.B.4--Documentation Requirements
A federal credit union requesting a common bond expansion must
submit an Application for Field of Membership Amendment (NCUA 4015-EZ)
to the appropriate NCUA regional director. An authorized credit union
representative must sign the request.
II.C--NCUA'S Procedures for Amending the Field of Membership
II.C.1--General
All requests for approval to amend a federal credit union's charter
must be submitted to the appropriate regional director.
II.C.2--Regional Director's Decision
NCUA staff will review all amendment requests in order to ensure
compliance with NCUA policy.
Before acting on a proposed amendment, the regional director may
require an on-site review. In addition, the regional director may,
after taking into account the significance of the proposed field of
membership amendment, require the applicant to
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submit a business plan addressing specific issues.
The financial and operational condition of the requesting credit
union will be considered in every instance. NCUA will carefully
consider the economic advisability of expanding the field of membership
of a credit union with financial or operational problems.
In most cases, field of membership amendments will only be approved
for credit unions that are operating satisfactorily. Generally, if a
federal credit union is having difficulty providing service to its
current membership, or is experiencing financial or other operational
problems, it may have more difficulty serving an expanded field of
membership.
Occasionally, however, an expanded field of membership may provide
the basis for reversing current financial problems. In such cases, an
amendment to expand the field of membership may be granted
notwithstanding the credit union's financial or operational problems.
The applicant credit union must clearly establish that the expanded
field of membership is in the best interest of the members and will not
increase the risk to the NCUSIF.
II.C.3--Regional Director Approval
If the regional director approves the requested amendment, the
credit union will be issued an amendment to Section 5 of its charter.
II.C.4--Regional Director Disapproval
When a regional director disapproves any application, in whole or
in part, to amend the field of membership under this chapter, the
applicant will be informed in writing of the:
[sbull] Specific reasons for the action;
[sbull] Options to consider, if appropriate, for gaining approval;
and
[sbull] Appeal procedure.
II.C.5--Appeal of Regional Director Decision
If a field of membership expansion request, merger, or spin-off is
denied by the regional director, the federal credit union may appeal
the decision to the NCUA Board. An appeal must be sent to the
appropriate regional office within 60 days of the date of denial, and
must address the specific reason(s) for 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.
Before appealing, the credit union may, within 30 days of the
denial, provide supplemental information to the regional director for
reconsideration. A reconsideration will contain new and material
evidence addressing the reasons for the initial denial. The regional
director will have 30 days from the date of the receipt of the request
for reconsideration to make a final decision. If the request is again
denied, the applicant may proceed with the appeal process within 60
days of the date of the last denial. A second request for
reconsideration will be treated as an appeal to the NCUA Board.
II.D--Mergers, Purchase and Assumptions, and Spin-Offs
In general, other than the addition of common bond groups, there
are three additional ways a federal credit union with a single
occupational common bond can expand its field of membership:
[sbull] By taking in the field of membership of another credit
union through a common bond or emergency merger;
[sbull] By taking in the field of membership of another credit
union through a common bond or emergency purchase and assumption (P&A),
or
[sbull] By taking a portion of another credit union's field of
membership through a common bond spin-off.
II.D.1--Mergers
Generally, the requirements applicable to field of membership
expansions found in this chapter apply to mergers where the continuing
credit union has a federal charter. That is, the two credit unions must
share a common bond.
Where the merging credit union is state-chartered, the common bond
rules applicable to a federal credit union apply.
Mergers must be approved by the NCUA regional director where the
continuing credit union is headquartered, with the concurrence of the
regional director of the merging credit union, and, as applicable, the
state regulators.
If a single occupational credit union wants to merge into a
multiple common bond or community credit union, Section IV.D or Section
V.D of this Chapter, respectively, should be reviewed.
II.D.2--Emergency Mergers
An emergency merger may be approved by NCUA without regard to
common bond or other legal constraints. An emergency merger involves
NCUA's direct intervention and approval. The credit union to be merged
must either be insolvent or likely to become insolvent, and NCUA must
determine that:
[sbull] An emergency requiring expeditious action exists;
[sbull] Other alternatives are not reasonably available; and
[sbull] The public interest would best be served by approving the
merger.
If not corrected, conditions that could lead to insolvency include,
but are not limited to:
[sbull] Abandonment by management;
[sbull] Loss of sponsor;
[sbull] Serious and persistent record keeping problems; or
[sbull] Serious and persistent operational concerns.
In an emergency merger situation, NCUA will take an active role in
finding a suitable merger partner (continuing credit union). NCUA is
primarily concerned that the continuing credit union has the financial
strength and management expertise to absorb the troubled credit union
without adversely affecting its own financial condition and stability.
As a stipulated condition to an emergency merger, the field of
membership of the merging credit union may be transferred intact to the
continuing federal credit union without regard to any common bond
restrictions. Under this authority, therefore, a single occupational
common bond federal credit union may take into its field of membership
any dissimilar charter type.
The common bond characteristic of the continuing credit union in an
emergency merger does not change. That is, even though the merging
credit union is a multiple common bond or community, the continuing
credit union will remain a single common bond credit union. Similarly,
if the merging credit union is also an unlike single common bond, the
continuing credit union will remain a single common bond credit union.
Future common bond expansions will be based on the continuing credit
union's original single common bond.
Emergency mergers involving federally insured credit unions in
different NCUA regions must be approved by the regional director where
the continuing credit union is headquartered, with the concurrence of
the regional director of the merging credit union and, as applicable,
the state regulators.
II.D.3--Purchase and Assumption (P&A)
Another alternative for acquiring the field of membership of a
failing credit union is through a consolidation known as a P&A. A P&A
has limited application because, in most cases, the failing credit
union must be placed into involuntary liquidation. In the few instances
where a P&A may be appropriate, the assuming
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federal credit union, as with emergency mergers, may acquire the entire
field of membership if the emergency merger criteria are satisfied.
However, if the P&A does not meet the emergency merger criteria, it
must be processed under the common bond requirements.
In a P&A processed under the emergency criteria, specified loans,
shares, and certain other designated assets and liabilities, without
regard to common bond restrictions, may also be acquired without
changing the character of the continuing federal credit union for
purposes of future field of membership amendments.
If the purchased and/or assumed credit union's field of membership
does not share a common bond with the purchasing and/or assuming credit
union, then the continuing credit union's original common bond will be
controlling for future common bond expansions.
P&As involving federally insured credit unions in different NCUA
regions must be approved by the regional director where the continuing
credit union is headquartered, with the concurrence of the regional
director of the purchased and/or assumed credit union and, as
applicable, the state regulators.
II.D.4--Spin-Offs
A spin-off occurs when, by agreement of the parties, a portion of
the field of membership, assets, liabilities, shares, and capital of a
credit union are transferred to a new or existing credit union. A spin-
off is unique in that usually one credit union has a field of
membership expansion and the other loses a portion of its field of
membership.
All common bond requirements apply regardless of whether the spun-
off group becomes a new credit union or goes to an existing federal
charter.
The request for approval of a spin-off must be supported with a
plan that addresses, at a minimum:
[sbull] Why the spin-off is being requested;
[sbull] What part of the field of membership is to be spun off;
[sbull] Whether the affected credit unions have a common bond
(applies only to single occupational credit unions);
[sbull] Which assets, liabilities, shares, and capital are to be
transferred;
[sbull] The financial impact the spin-off will have on the affected
credit unions;
[sbull] The ability of the acquiring credit union to effectively
serve the new members;
[sbull] The proposed spin-off date; and
[sbull] Disclosure to the members of the requirements set forth
above.
The spin-off request must also include current financial statements
from the affected credit unions and the proposed voting ballot.
For federal credit unions spinning off a group, membership notice
and voting requirements and procedures are the same as for mergers (see
Part 708 of the NCUA Rules and Regulations), except that only the
members directly affected by the spin-off--those whose shares are to be
transferred--are permitted to vote. Members whose shares are not being
transferred will not be afforded the opportunity to vote. All members
of the group to be spun off (whether they voted in favor, against, or
not at all) will be transferred if the spin-off is approved by the
voting membership. Voting requirements for federally insured state
credit unions are governed by state law.
Spin-offs involving federally insured credit unions in different
NCUA regions must be approved by all regional directors where the
credit unions are headquartered and the state regulators, as
applicable. Spin-offs in the same region also require approval by the
state regulator, as applicable.
II.E--Overlaps
II.E.1--General
An overlap exists when a group of persons is eligible for
membership in two or more credit unions. NCUA will permit single
occupational federal credit unions to overlap any other charter without
performing an overlap analysis.
II.E.2--Organizational Restructuring
A federal credit union's field of membership will always be
governed by the common bond descriptions contained in Section 5 of its
charter. Where a sponsor organization expands its operations
internally, by acquisition or otherwise, the credit union may serve
these new entrants to its field of membership if they are part of the
common bond described in Section 5. NCUA will permit a complete overlap
of the credit unions' fields of membership.
If a sponsor organization sells off a group, new members can no
longer be served unless they otherwise qualify for membership in the
credit union or it converts to a multiple common bond charter.
Credit unions must submit documentation explaining the
restructuring and providing information regarding the new
organizational structure.
II.E.3--Exclusionary Clauses
An exclusionary clause is a limitation precluding the credit union
from serving the primary members of a portion of a group otherwise
included in its field of membership. NCUA no longer grants exclusionary
clauses. Those granted prior to the adoption of this new chartering
manual will remain in effect unless the credit unions agree to remove
them or one of the affected credit unions submits a housekeeping
amendment to have it removed.
II.F--Charter Conversion
A single occupational common bond federal credit union may apply to
convert to a community charter provided the field of membership
requirements of the community charter are met. Groups within the
existing charter which cannot qualify in the new charter cannot be
served except for members of record, or groups or communities obtained
in an emergency merger or P&A. A credit union must notify all groups
that will be removed from the field of membership as a result of
conversion. Members of record can continue to be served. Also, in order
to support a case for a conversion, the applicant federal credit union
may be required to develop a detailed business plan as specified in
Chapter 2, Section V.A.3.
A single occupational common bond federal credit union may apply to
convert to a multiple common bond charter by adding a non-common bond
group that is within a reasonable proximity of a service facility.
Groups within the existing charter may be retained and continue to be
served. However, future amendments, including any expansions of the
original single common bond group, must be done in accordance with
multiple common bond policy.
II.G--Removal of Groups From the Field of Membership
A credit union may request removal of a portion of the common bond
group from its field of membership for various reasons. The most common
reasons for this type of amendment are:
[sbull] The group is within the field of membership of two credit
unions and one wishes to discontinue service;
[sbull] The federal credit union cannot continue to provide
adequate service to the group;
[sbull] The group has ceased to exist;
[sbull] The group does not respond to repeated requests to contact
the credit union or refuses to provide needed support; or
[sbull] The group initiates action to be removed from the field of
membership.
When a federal credit union requests an amendment to remove a group
from its field of membership, the regional director will determine why
the credit union desires to remove the group. If the regional director
concurs with the
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request, membership will continue for those who are already members
under the ``once a member, always a member'' provision of the Federal
Credit Union Act.
II.H--Other Persons Eligible for Credit Union Membership
A number of persons, by virtue of their close relationship to a
common bond group, may be included, at the charter applicant's option,
in the field of membership. These include the following:
[sbull] Spouses of persons who died while within the field of
membership of this credit union;
[sbull] Employees of this credit union;
[sbull] Persons retired as pensioners or annuitants from the above
employment;
[sbull] Volunteers;
[sbull] Members of the immediate family or household;
[sbull] Organizations of such persons; and
[sbull] Corporate or other legal entities in this charter.
Immediate family is defined as spouse, child, sibling, parent,
grandparent, or grandchild. This includes stepparents, stepchildren,
stepsiblings, and adoptive relationships.
Household is defined as persons living in the same residence
maintaining a single economic unit.
Membership eligibility is extended only to individuals who are
members of an ``immediate family or household'' of a credit union
member. It is not necessary for the primary member to join the credit
union in order for the immediate family or household member of the
primary member to join, provided the immediate family or household
clause is included in the field of membership. However, it is necessary
for the immediate family member or household member to first join in
order for that person's immediate family member or household member to
join the credit union. A credit union can adopt a more restrictive
definition of immediate family or household.
Volunteers, by virtue of their close relationship with a sponsor
group, may be included. Examples include volunteers working at a
hospital or school.
Under the Federal Credit Union Act, once a person becomes a member
of the credit union, such person may remain a member of the credit
union until the person chooses to withdraw or is expelled from the
membership of the credit union. This is commonly referred to as ``once
a member, always a member.'' The ``once a member, always a member''
provision does not prevent a credit union from restricting services to
members who are no longer within the field of membership.
III--Associational Common Bond
III.A.1--General
A single associational federal credit union may include in its
field of membership, regardless of location, all members and employees
of a recognized association. A single associational common bond
consists of individuals (natural persons) and/or groups (non-natural
persons) whose members participate in activities developing common
loyalties, mutual benefits, and mutual interests. Separately chartered
associational groups can establish a single common bond relationship if
they are integrally related and share common goals and purposes. For
example, two or more churches of the same denomination, Knights of
Columbus Councils, or locals of the same union can qualify as a single
associational common bond.
Individuals and groups eligible for membership in a single
associational credit union can include the following:
[sbull] Natural person members of the association (for example,
members of a union or church members);
[sbull] Non-natural person members of the association;
[sbull] Employees of the association (for example, employees of the
labor union or employees of the church); and
[sbull] The association.
Generally, a single associational common bond does not include a
geographic definition and can operate nationally. However, a proposed
or existing federal credit union may limit its field of membership to a
single association or geographic area. NCUA may impose a geographic
limitation if it is determined that the applicant credit union does not
have the ability to serve a larger group or there are other operational
concerns. All single associational common bonds should include a
definition of the group that may be served based on the association's
charter, bylaws, and any other equivalent documentation.
The common bond for an associational group cannot be established
simply on the basis that the association exists. In determining whether
a group satisfies associational common bond requirements for a federal
credit union charter, NCUA will consider the totality of the
circumstances, which includes:
[sbull] Whether members pay dues;
[sbull] Whether members participate in the furtherance of the goals
of the association;
[sbull] Whether the members have voting rights. To meet this
requirement, members need not vote directly for an officer, but may
vote for a delegate who in turn represents the members' interests;
[sbull] Whether the association maintains a membership list;
[sbull] Whether the association sponsors other activities;
[sbull] The association's membership eligibility requirements; and
[sbull] The frequency of meetings.
A support group whose members are continually changing or whose
duration is temporary may not meet the single associational common bond
criteria. Each class of member will be evaluated based on the totality
of the circumstances. Individuals or honorary members who only make
donations to the association are not eligible to join the credit union.
Educational groups--for example, parent-teacher organizations,
alumni associations, and student organizations in any school--and
church groups may constitute associational common bonds.
Student groups (e.g., students enrolled at a public, private, or
parochial school) may constitute either an associational or
occupational common bond. For example, students enrolled at a church
sponsored school could share a single associational common bond with
the members of that church and may qualify for a federal credit union
charter. Similarly, students enrolled at a university, as a group by
itself, or in conjunction with the faculty and employees of the school,
could share a single occupational common bond and may qualify for a
federal credit union charter.
The terminology ``Alumni of Jacksonville State University'' is
insufficient to demonstrate an associational common bond. To qualify as
an association, the alumni association must meet the requirements for
an associational common bond. The alumni of a school must first join
the alumni association, and not merely be alumni of the school to be
eligible for membership.
Homeowner associations, tenant groups, consumer groups, and other
groups of persons having an ``interest in'' a particular cause and
certain consumer cooperatives may also qualify as an association.
Associations based primarily on a client-customer relationship do
not meet associational common bond requirements. However, having an
incidental client-customer relationship does not preclude an
associational charter as long as the associational common bond
requirements are met. For example, a fraternal association that offers
insurance, which is not a
[[Page 18349]]
condition of membership, may qualify as a valid associational common
bond.
Applicants for a single associational common bond federal credit
union charter or a field of membership amendment to include an
association must provide, at the request of the regional director, a
copy of the association's charter, bylaws, or other equivalent
documentation, including any legal documents required by the state or
other governing authority.
The associational sponsor itself may also be included in the field
of membership--e.g., ``Sprocket Association''--and will be shown in the
last clause of the field of membership.
III.A.2--Subsequent Changes to Association's Bylaws
If the association's membership or geographical definitions in its
charter and bylaws are changed subsequent to the effective date stated
in the field of membership, the credit union must submit the revised
charter or bylaws for NCUA's consideration and approval prior to
serving members of the association added as a result of the change.
III.A.3--Sample Single Associational Common Bonds
Some examples of associational common bonds are:
[sbull] Regular members of Locals 10 and 13, IBEW, in Florida, who
qualify for membership in accordance with their charter and bylaws in
effect on May 20, 2001;
[sbull] Members of the Hoosier Farm Bureau in Grant, Logan, or Lee
Counties of Indiana, who qualify for membership in accordance with its
charter and bylaws in effect on March 7, 1997;
[sbull] Members of the Shalom Congregation in Chevy Chase,
Maryland;
[sbull] Regular members of the Corporate Executives Association,
located in Westchester, New York, who qualify for membership in
accordance with its charter and bylaws in effect on December 1, 1997;
[sbull] Members of the University of Wisconsin Alumni Association,
located in Green Bay, Wisconsin;
[sbull] Members of the Marine Corps Reserve Officers Association;
or
[sbull] Members of St. John's Methodist Church and St. Luke's
Methodist Church, located in Toledo, Ohio.
Some examples of insufficiently defined single associational common
bonds are:
[sbull] All Lutherans in the United States. (Too broadly defined);
or
[sbull] Veterans of U.S. military service. (Group is too broadly
defined; no formal association of all members of the group).
Some examples of unacceptable single associational common bonds
are:
[sbull] Alumni of Amos University. (No formal association);
[sbull] Customers of Fleetwood Insurance Company. (Policyholders or
primarily customer/client relationships do not meet associational
standards);
[sbull] Employees of members of the Reston, Virginia Chamber of
Commerce. (Not a sufficiently close tie to the associational common
bond); or
[sbull] Members of St. John's Lutheran Church and St. Mary's
Catholic Church located in Anniston, Alabama. (Churches are not of the
same denomination).
III.B--Associational Common Bond Amendments
III.B.1--General
Section 5 of every associational federal credit union's charter
defines the field of membership the credit union can legally serve.
Only those persons who, or legal entities that, join the credit union
and are specified in the field of membership can be served. There are
three instances in which Section 5 must be amended by NCUA.
First, a group that shares the credit union's common bond is added
to the field of membership. This may occur through various ways
including agreement between the group and the credit union directly, or
through a merger, purchase and assumption (P&A), or spin-off.
Second, a federal credit union qualifies to change its common bond
from:
[sbull] A single associational common bond to a single occupational
common bond;
[sbull] A single associational common bond to a community charter;
or
[sbull] A single associational common bond to a multiple common
bond.
Third, a federal credit union removes a portion of the group from
its field of membership through agreement with the group, a spin-off,
or a portion of the group is no longer in existence.
An existing single associational federal credit union that submits
a request to amend its charter must provide documentation to establish
that the associational common bond requirement has been met. The
regional director must approve all amendments to an associational
common bond credit union's field of membership.
III.B.2--Organizational Restructuring
If the single common bond group that comprises a federal credit
union's field of membership undergoes a substantial restructuring, the
result is often that portions of the group are sold or spun off. This
is an event requiring a change to the credit union's field of
membership. NCUA may not permit a single associational credit union to
maintain in its field of membership a sold or spun-off group to which
it has been providing service unless the group otherwise qualifies for
membership in the credit union or the credit union converts to a
multiple common bond credit union.
If the group comprising the single common bond of the credit union
merges with, or is acquired by, another group, the credit union can
serve the new group resulting from the merger or acquisition after
receiving a housekeeping amendment.
III.B.3--Economic Advisability
Prior to granting a common bond expansion, NCUA will examine the
amendment's likely impact on the credit union's operations and
financial condition. In most cases, the information needed for
analyzing the effect of adding a particular group will be available to
NCUA through the examination and financial and statistical reports;
however, in particular cases, a regional director may require
additional information prior to making a decision.
III.B.4--Documentation Requirements
A federal credit union requesting a common bond expansion must
submit an Application for Field of Membership Amendment (NCUA 4015-EZ)
to the appropriate NCUA regional director. An authorized credit union
representative must sign the request.
III.C--NCUA Procedures for Amending the Field of Membership
III.C.1--General
All requests for approval to amend a federal credit union's charter
must be submitted to the appropriate regional director.
III.C.2--Regional Director's Decision
NCUA staff will review all amendment requests in order to ensure
conformance to NCUA policy.
Before acting on a proposed amendment, the regional director may
require an on-site review. In addition, the regional director may,
after taking into account the significance of the proposed field of
membership amendment, require the applicant to submit a business plan
addressing specific issues.
The financial and operational condition of the requesting credit
union will be considered in every instance. The economic advisability
of expanding
[[Page 18350]]
the field of membership of a credit union with financial or operational
problems must be carefully considered.
In most cases, field of membership amendments will only be approved
for credit unions that are operating satisfactorily. Generally, if a
federal credit union is having difficulty providing service to its
current membership, or is experiencing financial or other operational
problems, it may have more difficulty serving an expanded field of
membership.
Occasionally, however, an expanded field of membership may provide
the basis for reversing current financial problems. In such cases, an
amendment to expand the field of membership may be granted
notwithstanding the credit union's financial or operational problems.
The applicant credit union must clearly establish that the expanded
field of membership is in the best interest of the members and will not
increase the risk to the NCUSIF.
III.C.3--Regional Director Approval
If the regional director approves the requested amendment, the
credit union will be issued an amendment to Section 5 of its charter.
III.C.4--Regional Director Disapproval
When a regional director disapproves any application, in whole or
in part, to amend the field of membership under this chapter, the
applicant will be informed in writing of the:
[sbull] Specific reasons for the action;
[sbull] Options to consider, if appropriate, for gaining approval;
and
[sbull] Appeal procedures.
III.C.5--Appeal of Regional Director Decision
If a field of membership expansion request, merger, or spin-off is
denied by the regional director, the federal credit union may appeal
the decision to the NCUA Board. An appeal must be sent to the
appropriate regional office within 60 days of the date of denial and
must address the specific reason(s) for 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 NCUA Board with a recommendation.
Before appealing, the credit union may, within 30 days of the
denial, provide supplemental information to the regional director for
reconsideration. A reconsideration will contain new and material
evidence addressing the reasons for the initial denial. The regional
director will have 30 days from the date of the receipt of the request
for reconsideration to make a final decision. If the request is again
denied, the applicant may proceed with the appeal process within 60
days of the date of the last denial. A second request for
reconsideration will be treated as an appeal to the NCUA Board.
III.D--Mergers, Purchase and Assumptions, and Spin-offs
In general, other than the addition of common bond groups, there
are three additional ways a federal credit union with a single
associational common bond can expand its field of membership:
[sbull] By taking in the field of membership of another credit
union through a common bond or emergency merger;
[sbull] By taking in the field of membership of another credit
union through a common bond or emergency purchase and assumption (P&A);
or
[sbull] By taking a portion of another credit union's field of
membership through a common bond spin-off.
III.D.1--Mergers
Generally, the requirements applicable to field of membership
expansions found in this section apply to mergers where the continuing
credit union is a federal charter. That is, the two credit unions must
share a common bond.
Where the merging credit union is state-chartered, the common bond
rules applicable to a federal credit union apply.
Mergers must be approved by the NCUA regional director where the
continuing credit union is headquartered, with the concurrence of the
regional director of the merging credit union, and, as applicable, the
state regulators.
If a single associational credit union wants to merge into a
multiple common bond or community credit union, Section IV.D or Section
V.D of this Chapter, respectively, should be reviewed.
III.D.2--Emergency Mergers
An emergency merger may be approved by NCUA without regard to
common bond or other legal constraints. An emergency merger involves
NCUA's direct intervention and approval. The credit union to be merged
must either be insolvent or likely to become insolvent, and NCUA must
determine that:
[sbull] An emergency requiring expeditious action exists;
[sbull] Other alternatives are not reasonably available; and
[sbull] The public interest would best be served by approving the
merger.
If not corrected, conditions that could lead to insolvency include,
but are not limited to:
[sbull] Abandonment by management;
[sbull] Loss of sponsor;
[sbull] Serious and persistent record keeping problems; or
[sbull] Serious and persistent operational concerns.
In an emergency merger situation, NCUA will take an active role in
finding a suitable merger partner (continuing credit union). NCUA is
primarily concerned that the continuing credit union has the financial
strength and management expertise to absorb the troubled credit union
without adversely affecting its own financial condition and stability.
As a stipulated condition to an emergency merger, the field of
membership of the merging credit union may be transferred intact to the
continuing federal credit union without regard to any common bond
restrictions. Under this authority, therefore, a single associational
common bond federal credit union may take into its field of membership
any dissimilar charter type.
The common bond characteristic of the continuing credit union in an
emergency merger does not change. That is, even though the merging
credit union is a multiple common bond or community, the continuing
credit union will remain a single common bond credit union. Similarly,
if the merging credit union is an unlike single common bond, the
continuing credit union will remain a single common bond credit union.
Future common bond expansions will be based on the continuing credit
union's single common bond.
Emergency mergers involving federally insured credit unions in
different NCUA regions must be approved by the regional director where
the continuing credit union is headquartered, with the concurrence of
the regional director of the merging credit union and, as applicable,
the state regulators.
III.D.3--Purchase and Assumption (P&A)
Another alternative for acquiring the field of membership of a
failing credit union is through a consolidation known as a P&A. A P&A
has limited application because, in most cases, the failing credit
union must be placed into involuntary liquidation. In the few instances
where a P&A may be appropriate, the assuming federal credit union, as
with emergency mergers, may acquire the entire field of membership if
the emergency merger criteria are satisfied. However, if the P&A does
not meet the emergency
[[Page 18351]]
merger criteria, it must be processed under the common bond
requirements.
In a P&A processed under the emergency criteria, specified loans,
shares, and certain other designated assets and liabilities, without
regard to common bond restrictions, may also be acquired without
changing the character of the continuing federal credit union for
purposes of future field of membership amendments.
If the purchased and/or assumed credit union's field of membership
does not share a common bond with the purchasing and/or assuming credit
union, then the continuing credit union's original common bond will be
controlling for future common bond expansions.
P&As involving federally insured credit unions in different NCUA
regions must be approved by the regional director where the continuing
credit union is headquartered, with the concurrence of the regional
director of the purchased and/or assumed credit union and, as
applicable, the state regulators.
III.D.4--Spin-Offs
A spin-off occurs when, by agreement of the parties, a portion of
the field of membership, assets, liabilities, shares, and capital of a
credit union are transferred to a new or existing credit union. A spin-
off is unique in that usually one credit union has a field of
membership expansion and the other loses a portion of its field of
membership.
All common bond requirements apply regardless of whether the spun-
off group becomes a new credit union or goes to an existing federal
charter.
The request for approval of a spin-off must be supported with a
plan that addresses, at a minimum:
[sbull] Why the spin-off is being requested;
[sbull] What part of the field of membership is to be spun off;
[sbull] Whether the affected credit unions have the same common
bond (applies only to single associational credit unions);
[sbull] Which assets, liabilities, shares, and capital are to be
transferred;
[sbull] The financial impact the spin-off will have on the affected
credit unions;
[sbull] The ability of the acquiring credit union to effectively
serve the new members;
[sbull] The proposed spin-off date; and
[sbull] Disclosure to the members of the requirements set forth
above.
The spin-off request must also include current financial statements
from the affected credit unions and the proposed voting ballot.
For federal credit unions spinning off a group, membership notice
and voting requirements and procedures are the same as for mergers (see
Part 708 of the NCUA Rules and Regulations), except that only the
members directly affected by the spin-off--those whose shares are to be
transferred--are permitted to vote. Members whose shares are not being
transferred will not be afforded the opportunity to vote. All members
of the group to be spun off (whether they voted in favor, against, or
not at all) will be transferred if the spin-off is approved by the
voting membership. Voting requirements for federally insured state
credit unions are governed by state law.
Spin-offs involving federally insured credit unions in different
NCUA regions must be approved by all regional directors where the
credit unions are headquartered and the state regulators, as
applicable. Spin-offs in the same region also require approval by the
state regulator, as applicable.
III.E--Overlaps
III.E.1--General
An overlap exists when a group of persons is eligible for
membership in two or more credit unions. NCUA will permit single
associational federal credit unions to overlap any other charters
without performing an overlap analysis.
III.E.2--Organizational Restructuring
A federal credit union's field of membership will always be
governed by the common bond descriptions contained in Section 5 of its
charter. Where a sponsor organization expands its operations
internally, by acquisition or otherwise, the credit union may serve
these new entrants to its field of membership if they are part of the
common bond described in Section 5. NCUA will permit a complete overlap
of the credit unions' fields of membership. If a sponsor organization
sells off a group, new members can no longer be served unless they
otherwise qualify for membership in the credit union or it converts to
a multiple common bond.
Credit unions must submit documentation explaining the
restructuring and providing information regarding the new
organizational structure.
III.E.3--Exclusionary Clauses
An exclusionary clause is a limitation precluding the credit union
from serving the primary members of a portion of a group otherwise
included in its field of membership. NCUA no longer grants exclusionary
clauses. Those granted prior to the adoption of this new chartering
manual will remain in effect unless the credit unions agree to remove
them or one of the affected credit unions submits a housekeeping
amendment to have it removed.
III.F--Charter Conversions
A single associational common bond federal credit union may apply
to convert to a community charter provided the field of membership
requirements of the community charter are met. Groups within the
existing charter which cannot qualify in the new charter cannot be
served except for members of record, or groups or communities obtained
in an emergency merger or P&A. A credit union must notify all groups
that will be removed from the field of membership as a result of
conversion. Members of record can continue to be served. Also, in order
to support a case for a conversion, the applicant federal credit union
may be required to develop a detailed business plan as specified in
Chapter 2, Section V.A.3.
A single associational common bond federal credit union may apply
to convert to a multiple common bond charter by adding a non-common
bond group that is within a reasonable proximity of a service facility.
Groups within the existing charter may be retained and continue to be
served. However, future amendments, including any expansions of the
original single common bond group, must be done in accordance with
multiple common bond policy.
III.G--Removal of Groups From the Field of Membership
A credit union may request removal of a portion of the common bond
group from its field of membership for various reasons. The most common
reasons for this type of amendment are:
[sbull] The group is within the field of membership of two credit
unions and one wishes to discontinue service;
[sbull] The federal credit union cannot continue to provide
adequate service to the group;
[sbull] The group has ceased to exist;
[sbull] The group does not respond to repeated requests to contact
the credit union or refuses to provide needed support; or
[sbull] The group initiates action to be removed from the field of
membership.
When a federal credit union requests an amendment to remove a group
from its field of membership, the regional director will determine why
the credit union desires to remove the group. If the regional director
concurs with the request, membership will continue for those who are
already members under the ``once a member, always a member'' provision
of the Federal Credit Union Act.
[[Page 18352]]
III.H--Other Persons Eligible for Credit Union Membership
A number of persons by virtue of their close relationship to a
common bond group may be included, at the charter applicant's option,
in the field of membership. These include the following:
[sbull] Spouses of persons who died while within the field of
membership of this credit union;
[sbull] Employees of this credit union;
[sbull] Volunteers;
[sbull] Members of the immediate family or household;
[sbull] Organizations of such persons; and
[sbull] Corporate or other legal entities in this charter.
Immediate family is defined as spouse, child, sibling, parent,
grandparent, or grandchild. This includes stepparents, stepchildren,
stepsiblings, and adoptive relationships.
Household is defined as persons living in the same residence
maintaining a single economic unit.
Membership eligibility is extended only to individuals who are
members of an ``immediate family or household'' of a credit union
member. It is not necessary for the primary member to join the credit
union in order for the immediate family or household member of the
primary member to join, provided the immediate family or household
clause is included in the field of membership. However, it is necessary
for the immediate family member or household member to first join in
order for that person's immediate family member or household member to
join the credit union. A credit union can adopt a more restrictive
definition of immediate family or household.
Volunteers, by virtue of their close relationship with a sponsor
group, may be included. One example is volunteers working at a church.
Under the Federal Credit Union Act, once a person becomes a member
of the credit union, such person may remain a member of the credit
union until the person chooses to withdraw or is expelled from the
membership of the credit union. This is commonly referred to as ``once
a member, always a member.'' The ``once a member, always a member''
provision does not prevent a credit union from restricting services to
members who are no longer within the field of membership.
IV--Multiple Occupational/Associational Common Bonds
IV.A.1--General
A federal credit union may be chartered to serve a combination of
distinct, definable single occupational and/or associational common
bonds. This type of credit union is called a multiple common bond
credit union. Each group in the field of membership must have its own
occupational or associational common bond. For example, a multiple
common bond credit union may include two unrelated employers, or two
unrelated associations, or a combination of two or more employers or
associations. Additionally, these groups must be within reasonable
geographic proximity of the credit union. That is, the groups must be
within the service area of one of the credit union's service
facilities. These groups are referred to as select groups. A multiple
common bond credit union cannot include a TIP or expand using single
common bond criteria.
A federal credit union's service area is the area that can
reasonably be served by the service facilities accessible to the groups
within the field of membership. The service area will most often
coincide with that geographic area primarily served by the service
facility. Additionally, the groups served by the credit union must have
access to the service facility. The non-availability of other credit
union service is a factor to be considered in determining whether the
group is within reasonable proximity of a credit union wishing to add
the group to its field of membership.
A service facility for multiple common bond credit unions is
defined as a place where shares are accepted for members' accounts,
loan applications are accepted or loans are disbursed. This definition
includes a credit union owned branch, a mobile branch, an office
operated on a regularly scheduled weekly basis, a credit union owned
ATM, or a credit union owned electronic facility that meets, at a
minimum, these requirements. A service facility also includes a shared
branch or a shared branch network if either: (1) The credit union has
an ownership interest in the service facility either directly or
through a CUSO or similar organization; or (2) the service facility is
local to the credit union and the credit union is an authorized
participant in the service center. This definition does not include the
credit union's Internet website.
The select group as a whole will be considered to be within a
credit union's service area when:
[sbull] A majority of the persons in a select group live, work, or
gather regularly within the service area;
[sbull] The group's headquarters is located within the service
area; or
[sbull] The group's ``paid from'' or ``supervised from'' location
is within the service area.
IV.A.2--Sample Multiple Common Bond Field of Membership
An example of a multiple common bond field of membership is:
``The field of membership of this federal credit union shall be
limited to the following:
1. Employees of Teltex Corporation who work in Wilmington,
Delaware;
2. Partners and employees of Smith & Jones, Attorneys at Law, who
work in Wilmington, Delaware;
3. Members of the M&L Association in Wilmington, Delaware, who
qualify for membership in accordance with its charter and bylaws in
effect on December 31, 1997.''
IV.B--Multiple Common Bond Amendments
IV.B.1--General
Section 5 of every multiple common bond federal credit union's
charter defines the field of membership and select groups the credit
union can legally serve. Only those persons or legal entities specified
in the field of membership can be served. There are a number of
instances in which Section 5 must be amended by NCUA.
First, a new select group is added to the field of membership. This
may occur through agreement between the group and the credit union
directly, or through a merger, corporate acquisition, purchase and
assumption (P&A), or spin-off.
Second, a federal credit union qualifies to change its charter
from:
[sbull] A single occupational or associational charter to a
multiple common bond charter;
[sbull] A multiple common bond to a single occupational or
associational charter;
[sbull] A multiple common bond to a community charter; or
[sbull] A community to a multiple common bond charter.
Third, a federal credit union removes a group from its field of
membership through agreement with the group, a spin-off, or because the
group no longer exists.
IV.B.2--Numerical Limitation of Select Groups
An existing multiple common bond federal credit union that submits
a request to amend its charter must provide documentation to establish
that the multiple common bond requirements have been met. The regional
director must approve all
[[Page 18353]]
amendments to a multiple common bond credit union's field of
membership.
NCUA will approve groups to a credit union's field of membership if
the agency determines in writing that the following criteria are met:
[sbull] The credit union has not engaged in any unsafe or unsound
practice, as determined by the regional director, which is material
during the one year period preceding the filing to add the group;
[sbull] The credit union is ``adequately capitalized.'' NCUA
defines adequately capitalized to mean the credit union has a net worth
ratio of not less than 6 percent. For low-income credit unions or
credit unions chartered less than ten years, the regional director may
determine that a net worth ratio of less than 6 percent is adequate if
the credit union is making reasonable progress toward meeting the 6
percent net worth requirement. For any other credit union, the regional
director may determine that a net worth ratio of less than 6 percent is
adequate if the credit union is making reasonable progress toward
meeting the 6 percent net worth requirement, and the addition of the
group would not adversely affect the credit union's capitalization
level;
[sbull] The credit union has the administrative capability to serve
the proposed group and the financial resources to meet the need for
additional staff and assets to serve the new group;
[sbull] Any potential harm the expansion may have on any other
credit union and its members is clearly outweighed by the probable
beneficial effect of the expansion. With respect to a proposed
expansion's effect on other credit unions, the requirements on
overlapping fields of membership set forth in Section IV.E of this
Chapter are also applicable; and
[sbull] If the formation of a separate credit union by such group
is not practical and consistent with reasonable standards for the safe
and sound operation of a credit union.
A detailed analysis is required for groups of 3,000 or more primary
potential members requesting to be added to a multiple common bond
credit union. It is incumbent upon the credit union to demonstrate that
the formation of a separate credit union by such a group is not
practical. The group must provide evidence that it lacks sufficient
volunteer and other resources to support the efficient and effective
operations of a credit union or does not meet the economic advisability
criteria outlined in Chapter 1. If this can be demonstrated, the group
may be added to a multiple common bond credit union's field of
membership.
IV.B.3--Documentation Requirements
A multiple common bond credit union requesting a select group
expansion must submit a formal written request, using the Application
for Field of Membership Amendment (NCUA 4015 or NCUA 4015-EZ) to the
appropriate NCUA regional director. An authorized credit union
representative must sign the request.
The NCUA 4015-EZ (for groups less than 3,000 potential members)
must be accompanied by the following:
[sbull] A letter, or equivalent documentation, from the group
requesting credit union service. This letter must indicate:
[sbull] That the group wants to be added to the applicant federal
credit union's field of membership;
[sbull] The number of persons currently included within the group
to be added and their locations; and
[sbull] The group's proximity to credit union's nearest service
facility.
[sbull] The most recent copy of the group's charter and bylaws or
equivalent documentation (for associational groups).
The NCUA 4015 (for groups of 3,000 or more primary potential
members) must be accompanied by the following:
[sbull] A letter, or equivalent documentation, from the group
requesting credit union service. This letter must indicate:
[sbull] That the group wants to be added to the federal credit
union's field of membership;
[sbull] Whether the group presently has other credit union service
available;
[sbull] The number of persons currently included within the group
to be added and their locations;
[sbull] The group's proximity to credit union's nearest service
facility, and
[sbull] Why the formation of a separate credit union for the group
is not practical or consistent with safety and soundness standards. A
credit union need not address every item on the list, simply those
issues that are relevant to its particular request:
Member location--whether the membership is widely dispersed or
concentrated in a central location.
Demographics--the employee turnover rate, economic status of the
group's members, and whether the group is more apt to consist of savers
and/or borrowers.
Market competition--the availability of other financial services.
Desired services and products--the type of services the group
desires in comparison to the type of services a new credit union could
offer.
Sponsor subsidies--the availability of operating subsidies.
The desire of the sponsor--the extent of the sponsor's interest in
supporting a credit union charter.
Employee interest--the extent of the employees' interest in
obtaining a credit union charter.
Evidence of past failure--whether the group previously had its own
credit union or previously filed for a credit union charter.
Administrative capacity to provide services--will the group have
the management expertise to provide the services requested.
[sbull] If the group is eligible for membership in any other credit
union, documentation must be provided to support inclusion of the group
under the overlap standards set forth in Section IV.E of this Chapter;
and
[sbull] The most recent copy of the group's charter and bylaws or
equivalent documentation (for associational groups).
IV.B.4--Corporate Restructuring
If a select group within a federal credit union's field of
membership undergoes a substantial restructuring, a change to the
credit union's field of membership may be required if the credit union
is to continue to provide service to the select group. NCUA permits a
multiple common bond credit union to maintain in its field of
membership a sold, spun-off, or merged select group to which it has
been providing service. This type of amendment to the credit union's
charter is not considered an expansion; therefore, the criteria
relating to adding new groups are not applicable.
When two groups merge and each is in the field of membership of a
credit union, then both (or all affected) credit unions can serve the
resulting merged group, subject to any existing geographic limitation
and without regard to any overlap provisions. However, the credit
unions cannot serve the other multiple groups that may be in the field
of membership of the other credit union.
IV.C--NCUA'S Procedures for Amending the Field of Membership
IV.C.1--General
All requests for approval to amend a federal credit union's charter
must be submitted to the appropriate regional director.
[[Page 18354]]
IV.C.2--Regional Director's Decision
NCUA staff will review all amendment requests in order to ensure
conformance to NCUA policy.
Before acting on a proposed amendment, the regional director may
require an on-site review. In addition, the regional director may,
after taking into account the significance of the proposed field of
membership amendment, require the applicant to submit a business plan
addressing specific issues.
The financial and operational condition of the requesting credit
union will be considered in every instance. An expanded field of
membership may provide the basis for reversing adverse trends. In such
cases, an amendment to expand the field of membership may be granted
notwithstanding the credit union's adverse trends. The applicant credit
union must clearly establish that the approval of the expanded field of
membership meets the requirements of Section IV.B.2 of this Chapter and
will not increase the risk to the NCUSIF.
IV.C.3--Regional Director Approval
If the regional director approves the requested amendment, the
credit union will be issued an amendment to Section 5 of its charter.
IV.C.4--Regional Director Disapproval
When a regional director disapproves any application, in whole or
in part, to amend the field of membership under this chapter, the
applicant will be informed in writing of the:
[sbull] Specific reasons for the action;
[sbull] Options to consider, if appropriate, for gaining approval;
and
[sbull] Appeal procedure.
IV.C.5--Appeal of Regional Director Decision
If a field of membership expansion request, merger, or spin-off is
denied by the regional director, the federal credit union may appeal
the decision to the NCUA Board. An appeal must be sent to the
appropriate regional office within 60 days of the date of denial, and
must address the specific reason(s) for 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.
Before appealing, the credit union may, within 30 days of the
denial, provide supplemental information to the regional director for
reconsideration. A reconsideration will contain new and material
evidence addressing the reasons for the initial denial. The regional
director will have 30 days from the date of the receipt of the request
for reconsideration to make a final decision. If the request is again
denied, the applicant may proceed with the appeal process within 60
days of the date of the last denial. A second request for
reconsideration will be treated as an appeal to the NCUA Board.
IV.D--Mergers, Purchase and Assumptions, and Spin-Offs
In general, other than the addition of select groups, there are
three additional ways a multiple common bond federal credit union can
expand its field of membership:
[sbull] By taking in the field of membership of another credit
union through a merger;
[sbull] By taking in the field of membership of another credit
union through a purchase and assumption (P&A); or
[sbull] By taking a portion of another credit union's field of
membership through a spin-off.
IV.D.1--Voluntary Mergers
a. All Select Groups in the Merging Credit Union's Field of
Membership Have Less Than 3,000 Primary Potential Members.
A voluntary merger of two or more federal credit unions is
permissible as long as each select group in the merging credit union's
field of membership has less than 3,000 primary potential members.
While the merger requirements outlined in Section 205 of the Federal
Credit Union Act must still be met, the requirements of Chapter 2,
Section IV.B.2 of this manual are not applicable.
b. One or More Select Groups in the Merging Credit Union's Field of
Membership has 3,000 or More Primary Potential Members.
If the merging credit unions serve the same group, and the group
consists of 3,000 or more primary potential members, then the ability
to form a separate credit union analysis is not required for that
group. If the merging credit union has any other groups consisting of
3,000 or more primary potential members, special requirements apply.
NCUA will analyze each group of 3,000 or more primary potential
members, except as noted above, to determine whether the formation of a
separate credit union by such a group is practical. If the formation of
a separate credit union by such a group is not practical because the
group lacks sufficient volunteer and other resources to support the
efficient and effective operations of a credit union or does not meet
the economic advisable criteria outlined in Chapter 1, the group may be
merged into a multiple common bond credit union. If the formation of a
separate credit union is practical, the group must be spun-off before
the merger can be approved.
c. Merger of a Single Common Bond Credit Union Into a Multiple
Common Bond Credit Union.
A financially healthy single common bond credit union with a
primary potential membership of 3,000 or more cannot merge into a
multiple common bond credit union, absent supervisory reasons, unless
the continuing credit union already serves the same group.
d. Merger Approval.
If the merger is approved, the qualifying groups within the merging
credit union's field of membership will be transferred intact to the
continuing credit union and can continue to be served.
Where the merging credit union is state-chartered, the field of
membership rules applicable to a federal credit union apply.
Mergers must be approved by the NCUA regional director where the
continuing credit union is headquartered, with the concurrence of the
regional director of the merging credit union, and, as applicable, the
state regulators.
IV.D.2--Supervisory Mergers
The NCUA may approve the merger of any federally insured credit
union when safety and soundness concerns are present without regard to
the 3,000 numerical limitation. The credit union need not be insolvent
or in danger of insolvency for NCUA to use this statutory authority.
Examples constituting appropriate reasons for using this authority are:
abandonment of the management and/or officials and an inability to find
replacements, loss of sponsor support, serious and persistent record
keeping problems, sustained material decline in financial condition, or
other serious or persistent circumstances.
IV.D.3--Emergency Mergers
An emergency merger may be approved by NCUA without regard to field
of membership rules, the 3,000 numerical limitation, or other legal
constraints. An emergency merger involves NCUA's direct intervention
and approval. The credit union to be merged must either be insolvent or
likely to become insolvent, and NCUA must determine that:
[sbull] An emergency requiring expeditious action exists;
[sbull] Other alternatives are not reasonably available; and
[[Page 18355]]
[sbull] The public interest would best be served by approving the
merger.
If not corrected, conditions that could lead to insolvency include,
but are not limited to:
[sbull] Abandonment by management;
[sbull] Loss of sponsor;
[sbull] Serious and persistent record keeping problems; or
[sbull] Serious and persistent operational concerns.
In an emergency merger situation, NCUA will take an active role in
finding a suitable merger partner (continuing credit union). NCUA is
primarily concerned that the continuing credit union has the financial
strength and management expertise to absorb the troubled credit union
without adversely affecting its own financial condition and stability.
As a stipulated condition to an emergency merger, the field of
membership of the merging credit union may be transferred intact to the
continuing federal credit union without regard to any field of
membership restrictions including numerical limitation requirements.
Under this authority, any single occupational or associational common
bond, multiple common bond, or community charter may merger into a
multiple common bond credit union and that credit union can continue to
serve the merging credit union's field of membership. Subsequent field
of membership expansions of the continuing multiple common bond credit
union must be consistent with multiple common bond policies.
Emergency mergers involving federally insured credit unions in
different NCUA regions must be approved by the regional director where
the continuing credit union is headquartered, with the concurrence of
the regional director of the merging credit union and, as applicable,
the state regulators.
IV.D.4--Purchase and Assumption (P&A)
Another alternative for acquiring the field of membership of a
failing credit union is through a consolidation known as a P&A.
Generally, the requirements applicable to field of membership
expansions found in this chapter apply to purchase and assumptions
where the purchasing credit union is a federal charter.
A P&A has limited application because, in most cases, the failing
credit union must be placed into involuntary liquidation. However, in
the few instances where a P&A may occur, the assuming federal credit
union, as with emergency mergers, may acquire the entire field of
membership if the emergency criteria are satisfied. Specified loans,
shares, and certain other designated assets and liabilities, without
regard to field of membership restrictions, may also be acquired
without changing the character of the continuing federal credit union
for purposes of future field of membership amendments. Subsequent field
of membership expansions must be consistent with multiple common bond
policies.
P&As involving federally insured credit unions in different NCUA
regions must be approved by the regional director where the continuing
credit union is headquartered, with the concurrence of the regional
director of the purchased and/or assumed credit union and, as
applicable, the state regulators.
IV.D.5--Spin-Offs
A spin-off occurs when, by agreement of the parties, a portion of
the field of membership, assets, liabilities, shares, and capital of a
credit union are transferred to a new or existing credit union. A spin-
off is unique in that usually one credit union has a field of
membership expansion and the other loses a portion of its field of
membership.
All common bond requirements apply regardless of whether the spun-
off group becomes a new charter or goes to an existing federal charter.
The request for approval of a spun-off group must be supported with
a plan that addresses, at a minimum:
[sbull] Why the spin-off is being requested;
[sbull] What part of the field of membership is to be spun off;
[sbull] Which assets, liabilities, shares, and capital are to be
transferred;
[sbull] The financial impact the spin-off will have on the affected
credit unions;
[sbull] The ability of the acquiring credit union to effectively
serve the new members;
[sbull] The proposed spin-off date; and
[sbull] Disclosure to the members of the requirements set forth
above.
The spin-off request must also include current financial statements
from the affected credit unions and the proposed voting ballot.
For federal credit unions spinning off a group, membership notice
and voting requirements and procedures are the same as for mergers (see
Part 708 of the NCUA Rules and Regulations), except that only the
members directly affected by the spin-off--those whose shares are to be
transferred--are permitted to vote. Members whose shares are not being
transferred will not be afforded the opportunity to vote. All members
of the group to be spun off (whether they voted in favor, against, or
not at all) will be transferred if the spin-off is approved by the
voting membership. Voting requirements for federally insured state
credit unions are governed by state law.
Spin-offs involving federally insured credit unions in different
NCUA regions must be approved by all regional directors where the
credit unions are headquartered and the state regulators, as
applicable. Spin-offs in the same region also require approval by the
state regulator, as applicable.
IV.E--Overlaps
IV.E.1--General
An overlap exists when a group of persons is eligible for
membership in two or more credit unions, including state charters. An
overlap is permitted when the expansion's beneficial effect in meeting
the convenience and needs of the members of the group proposed to be
included in the field of membership clearly outweighs any adverse
effect on the overlapped credit union.
Credit unions must investigate the possibility of an overlap with
federally insured credit unions prior to submitting an expansion
request if the group has 3,000 or more primary potential members. If
cases arise where the assurance given to a regional director concerning
the unavailability of credit union service is inaccurate, the
misinformation may be grounds for removal of the group from the federal
credit union's charter.
When an overlap situation requiring analysis does arise, officials
of the expanding credit union must ascertain the views of the
overlapped credit union. If the overlapped credit union does not
object, the applicant must submit a letter or other documentation to
that effect. If the overlapped credit union does not respond, the
expanding credit union must notify NCUA in writing of its attempt to
obtain the overlapped credit union's comments.
NCUA will approve an overlap if the expansion's beneficial effect
in meeting the convenience and needs of the members of the group
clearly outweighs any adverse effect on the overlapped credit union.
In reviewing the overlap, the regional director will consider:
[sbull] The view of the overlapped credit union(s);
[sbull] Whether the overlap is incidental in nature--the group of
persons in question is so small as to have no material effect on the
original credit union;
[sbull] Whether there is limited participation by members or
employees
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of the group in the original credit union after the expiration of a
reasonable period of time;
[sbull] Whether the original credit union fails to provide
requested service;
[sbull] Financial effect on the overlapped credit union;
[sbull] The desires of the group(s);
[sbull] The desire of the sponsor organization; and
[sbull] The best interests of the affected group and the credit
union members involved.
Generally, if the overlapped credit union does not object, and NCUA
determines that there is no safety and soundness problem, the overlap
will be permitted.
Potential overlaps of a federally insured state credit union's
field of membership by a federal credit union will generally be
analyzed in the same way as if two federal credit unions were involved.
Where a federally insured state credit union's field of membership is
broadly stated, NCUA will exclude its field of membership from any
overlap protection.
NCUA will permit multiple common bond federal credit unions to
overlap community charters without performing an overlap analysis.
IV.E.2--Overlap Issues as a Result of Organizational Restructuring
A federal credit union's field of membership will always be
governed by the field of membership descriptions contained in Section 5
of its charter. Where a sponsor organization expands its operations
internally, by acquisition or otherwise, the credit union may serve
these new entrants to its field of membership if they are part of any
select group listed in Section 5. Where acquisitions are made which add
a new subsidiary, the group cannot be served until the subsidiary is
included in the field of membership through a housekeeping amendment.
Overlaps may occur as a result of restructuring or merger of the
parent organization. When such overlaps occur, each credit union must
request a field of membership amendment to reflect the new groups each
wishes to serve. The credit union can continue to serve any current
group in its field of membership that is acquiring a new group or has
been acquired by a new group. The new group cannot be served by the
credit union until the field of membership amendment is approved by
NCUA.
Credit unions affected by organizational restructuring or merger
should attempt to resolve overlap issues among themselves. Unless an
agreement is reached limiting the overlap resulting from the corporate
restructuring, NCUA will permit a complete overlap of the credit
unions' fields of membership. When two groups merge, or one group is
acquired by the other, and each is in the field of membership of a
credit union, both (or all affected) credit unions can serve the
resulting merged or acquired group, subject to any existing geographic
limitation and without regard to any overlap provisions. This is
accomplished through a housekeeping amendment.
Credit unions must submit to NCUA documentation explaining the
restructuring and provide information regarding the new organizational
structure.
IV.E.3--Exclusionary Clauses
An exclusionary clause is a limitation precluding the credit union
from serving the primary members of a portion of a group otherwise
included in its field of membership. NCUA no longer grants exclusionary
clauses. Those granted prior to the adoption of this new chartering
manual will remain in effect unless the credit unions agree to remove
them or one of the affected credit unions submits a housekeeping
amendment to have it removed.
IV. F--Charter Conversion
A multiple common bond federal credit union may apply to convert to
a community charter provided the field of membership requirements of
the community charter are met. Groups within the existing charter which
cannot qualify in the new charter cannot be served except for members
of record, or groups or communities obtained in an emergency merger or
P&A. A credit union must notify all groups that will be removed from
the field of membership as a result of conversion. Members of record
can continue to be served. Also, in order to support a case for a
conversion, the applicant federal credit union may be required to
develop a detailed business plan as specified in Chapter 2, Section
V.A.3.
A multiple common bond federal credit union may apply to convert to
a single occupational or associational common bond charter provided the
field of membership requirements of the new charter are met. Groups
within the existing charter, which do not qualify in the new charter,
cannot be served except for members of record, or groups or communities
obtained in an emergency merger or P&A. A credit union must notify all
groups that will be removed from the field of membership as a result of
conversion.
IV. G--Removal of Groups From the Field of Membership
A credit union may request removal of a group from its field of
membership for various reasons. The most common reasons for this type
of amendment are:
[sbull] The group is within the field of membership of two credit
unions and one wishes to discontinue service;
[sbull] The federal credit union cannot continue to provide
adequate service to the group;
[sbull] The group has ceased to exist;
[sbull] The group does not respond to repeated requests to contact
the credit union or refuses to provide needed support;
[sbull] The group initiates action to be removed from the field of
membership; or
[sbull] The federal credit union wishes to convert to a single
common bond.
When a federal credit union requests an amendment to remove a group
from its field of membership, the regional director will determine why
the credit union desires to remove the group. If the regional director
concurs with the request, membership will continue for those who are
already members under the ``once a member, always a member'' provision
of the Federal Credit Union Act.
IV. H--Other Persons Eligible for Credit Union Membership
A number of persons, by virtue of their close relationship to a
common bond group, may be included, at the charter applicant's option,
in the field of membership. These include the following:
[sbull] Spouses of persons who died while within the field of
membership of this credit union;
[sbull] Employees of this credit union;
[sbull] Persons retired as pensioners or annuitants from the above
employment;
[sbull] Volunteers;
[sbull] Members of the immediate family or household;
[sbull] Organizations of such persons; and
[sbull] Corporate or other legal entities in this charter.
Immediate family is defined as spouse, child, sibling, parent,
grandparent, or grandchild. This includes stepparents, stepchildren,
stepsiblings, and adoptive relationships.
Household is defined as persons living in the same residence
maintaining a single economic unit.
Membership eligibility is extended only to individuals who are
members of an ``immediate family or household'' of a credit union
member. It is not necessary for the primary member to join the credit
union in order for the
[[Page 18357]]
immediate family or household member of the primary member to join,
provided the immediate family or household clause is included in the
field of membership. However, it is necessary for the immediate family
member or household member to first join in order for that person's
immediate family member or household member to join the credit union. A
credit union can adopt a more restrictive definition of immediate
family or household.
Volunteers, by virtue of their close relationship with a sponsor
group, may be included. Examples include volunteers working at a
hospital or church.
Under the Federal Credit Union Act, once a person becomes a member
of the credit union, such person may remain a member of the credit
union until the person chooses to withdraw or is expelled from the
membership of the credit union. This is commonly referred to as ``once
a member, always a member.'' The ``once a member, always a member''
provision does not prevent a credit union from restricting services to
members who are no longer within the field of membership.
V--Community Charter Requirements
V.A.1--General
Community charters must be based on a single, geographically well-
defined local community, neighborhood, or rural district where
individuals have common interests and/or interact. More than one credit
union may serve the same community.
NCUA recognizes four types of affinity on which a community charter
can be based--persons who live in, worship in, attend school in, or
work in the community. Businesses and other legal entities within the
community boundaries may also qualify for membership.
NCUA has established the following requirements for community
charters:
[sbull] The geographic area's boundaries must be clearly defined;
[sbull] The area is a ``well-defined local, community,
neighborhood, or rural district;'' and
[sbull] Individuals must have common interests and/or interact.
V.A.2--Documentation Requirements
In addition to the documentation requirements set forth 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.
A community credit union must meet the statutory requirements that
the proposed community area is (1) well-defined, and (2) a local
community, neighborhood, or rural district.
``Well-defined'' means the proposed area has specific geographic
boundaries. Geographic boundaries may include a city, township, county
(or its political equivalent), or a clearly identifiable neighborhood.
Although congressional districts and state boundaries are well-defined
areas, they do not meet the requirement that the proposed area be a
local community.
The well-defined local community, neighborhood, or rural district
requirement is met if:
[sbull] The area to be served is in a recognized single political
jurisdiction, i.e., a city, county, or their political equivalent, or
any contiguous portion thereof.
The well-defined local community, neighborhood, or rural district
requirement may be met if:
[sbull] The area to be served is in 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; or
[sbull] The area to be served is a Metropolitan Statistical Area
(MSA) or its equivalent, or a portion thereof, where the population of
the MSA or its equivalent does not exceed 1,000,000.
If the proposed area meets either the multiple political
jurisdiction or MSA criteria, the credit union must submit a letter
describing how the area meets the standards for community interaction
and/or common interests.
If NCUA does not find sufficient evidence of community interaction
and/or common interests or if the area to be served does not meet the
MSA or multiple political jurisdiction requirements of the preceding
paragraph, the application must include documentation to support that
it is a well-defined local community, neighborhood, or rural district.
It is the applicant's responsibility to demonstrate the relevance
of the documentation provided in support of the application. This must
be provided in a narrative summary. The narrative summary must explain
how the documentation demonstrates interaction and/or common interests.
For example, simply listing newspapers and organizations in the area is
not sufficient to demonstrate that the area is a local community,
neighborhood, or rural district.
Examples of acceptable documentation may include:
[sbull] The defined political jurisdictions;
[sbull] Major trade areas (shopping patterns and traffic flows);
[sbull] Shared/common facilities (for example, educational,
medical, police and fire protection, school district, water, etc.);
[sbull] Organizations and clubs within the community area;
[sbull] Newspapers or other periodicals published for and about the
area;
[sbull] A local map designating the area to be served and locations
of current and proposed service facilities and a regional or state map
with the proposed community outlined; or
[sbull] Other documentation that demonstrates that the area is a
community where individuals have common interests and/or interact.
An applicant need not submit a narrative summary or documentation
to support a proposed community charter, amendment or conversion as a
well-defined local community, neighborhood or rural district if the
NCUA has previously determined that the same exact geographic area
meets that requirement in connection with consideration of a prior
application since IRPS 99-1, as amended. Applicants may contact the
appropriate regional office to find out if the area they are interested
in has already been determined to meet the community requirements. If
the area is the same as a previously approved area, an applicant need
only include a statement to that effect in the application. Applicants
may be required to submit their own summary and documentation regarding
the community requirements if NCUA has reason to believe that prior
submissions are no longer accurate.
A community credit union is frequently more susceptible to
competition from other local financial institutions and generally does
not have substantial support from any single sponsoring company or
association. As a result, a community credit union will often encounter
financial and operational factors that differ from an occupational or
associational charter. Its diverse membership may require special
marketing programs targeted to different segments of the community. For
example, the lack of payroll deduction creates special challenges in
the development of savings promotional programs and in the collection
of loans.
Accordingly, it is essential for the proposed community credit
union to develop a detailed and practical business and marketing plan
for at least the first two years of operation. The proposed credit
union must not only address the documentation requirements set forth in
Chapter 1, but also focus on the accomplishment of the
[[Page 18358]]
unique financial and operational factors of a community charter.
Community credit unions will be expected to regularly review and to
follow, to the fullest extent economically possible, the marketing and
business plan submitted with their application.
V.A.3--Special Documentation Requirements for a Converting Credit Union
An existing federal credit union may apply to convert to a
community charter. Groups currently in the credit union's field of
membership but outside the new community credit union's boundaries may
not be included in the new community charter. Therefore, the credit
union is required to notify groups that will be removed from the field
of membership as a result of the conversion. Members of record can
continue to be served.
The documentation requirements set forth in Section V.A.2 of this
Chapter must be met before a community charter can be approved. In
order to support a case for a conversion to community charter, the
applicant federal credit union must develop a business plan
incorporating the following data:
[sbull] Pro forma financial statements for the first two years
after the proposed conversion, including assumptions--e.g., member,
share, loan, and asset growth;
[sbull] Marketing plan addressing how the community will be served;
[sbull] Financial services to be provided to members;
[sbull] A local map showing current and proposed service
facilities; and
[sbull] Anticipated financial impact on the credit union in terms
of need for additional employees and fixed assets.
Before approval of an application to convert to a community credit
union, NCUA must be satisfied that the institution will be viable and
capable of providing services to its members.
V.A.4--Community Boundaries
The geographic boundaries of a community federal credit union are
the areas defined in its charter. The boundaries can usually be defined
using political borders, streets, rivers, railroad tracks, etc.
A community that is a recognized legal entity, may be stated in the
field of membership--for example, ``Gus Township, Texas'' or ``Kristi
County, Virginia.''
A community that is a recognized MSA must state in the field of
membership the political jurisdiction(s) that comprise the MSA.
V.A.5--Special Community Charters
A community field of membership may include persons who work or
attend school in a particular industrial park, shopping mall, office
complex, or similar development. The proposed field of membership must
have clearly defined geographic boundaries.
V.A.6--Sample Community Fields of Membership
A community charter does not have to include all four affinities
(i.e., live, work, worship, or attend school in a community). Some
examples of community fields of membership are:
[sbull] Persons who live, work, worship, or attend school in, and
businesses located in the area of Johnson City, Tennessee, bounded by
Fern Street on the north, Long Street on the east, Fourth Street on the
south, and Elm Avenue on the west;
[sbull] Persons who live or work in Green County, Maine;
[sbull] Persons who live, worship, or work in and businesses and
other legal entities located in Independent School District No. 1,
DuPage County, Illinois;
[sbull] Persons who live, worship, work (or regularly conduct
business in), or attend school on the University of Dayton campus, in
Dayton, Ohio;
[sbull] Persons who work for businesses located in Clifton Country
Mall, in Clifton Park, New York; or
[sbull] Persons who live, work, or worship in the Binghamton, New
York, MSA, consisting of Broome and Tioga Counties, New York.
Some examples of insufficiently defined community field of
membership definitions are:
[sbull] Persons who live or work within and businesses located
within a ten-mile radius of Washington, D.C. (using a radius does not
establish a well-defined area);
[sbull] Persons who live or work in the industrial section of New
York, New York. (not a well-defined neighborhood, community, or rural
district); or
[sbull] Persons who live or work in the greater Boston area. (not a
well-defined neighborhood, community, or rural district).
Some examples of unacceptable local communities, neighborhoods, or
rural districts are:
[sbull] Persons who live or work in the State of California. (does
not meet the definition of local community, neighborhood, or rural
district).
[sbull] Persons who live in the first congressional district of
Florida. (does not meet the definition of local community,
neighborhood, or rural district).
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.3 of this chapter.
V.C--NCUA Procedures for Amending the Field of Membership
V.C.1--General
All requests for approval to amend a community credit union's
charter must be submitted to the appropriate regional director. If a
decision cannot be made within a reasonable period of time, the
regional director will notify the credit union.
V.C.2--NCUA's Decision
The financial and operational condition of the requesting credit
union will be considered in every instance. The economic advisability
of expanding the field of membership of a credit union with financial
or operational problems must be carefully considered.
In most cases, field of membership amendments will only be approved
for credit unions that are operating satisfactorily. Generally, if a
federal credit union is having difficulty providing service to its
current membership, or is experiencing financial or other operational
problems, it may have more difficulty serving an expanded field of
membership.
Occasionally, however, an expanded field of membership may provide
the basis for reversing current financial problems. In such cases, an
amendment to expand the field of membership may be granted
notwithstanding the credit union's financial or operational problems.
The applicant credit union must clearly establish that the expanded
field of membership is in the best interest of the members and will not
increase the risk to the NCUSIF.
V.C.3--NCUA Approval
If the requested amendment is approved by NCUA, the credit union
will be issued an amendment to Section 5 of its charter.
V.C.4--NCUA Disapproval
When NCUA disapproves any application to amend the field of
[[Page 18359]]
membership, in whole or in part, under this chapter, the applicant will
be informed in writing of the:
[sbull] Specific reasons for the action;
[sbull] If appropriate, options or suggestions that could be
considered for gaining approval; and
[sbull] Appeal procedures.
V.C.5--Appeal of Regional Director Decision
If a field of membership expansion request, merger, or spin-off is
denied by the regional director, the federal credit union may appeal
the decision to the NCUA Board. An appeal must be sent to the
appropriate regional office within 60 days of the date of denial and
must address the specific reason(s) for 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 NCUA Board with a recommendation.
Before appealing, the credit union may, within 30 days of the
denial, provide supplemental information to the regional director for
reconsideration. A reconsideration will contain new and material
evidence addressing the reasons for the initial denial. The regional
director will have 30 days from the date of the receipt of the request
for reconsideration to make a final decision. If the request is again
denied, the applicant may proceed with the appeal process within 60
days of the date of the last denial. A second request for
reconsideration will be treated as an appeal to the NCUA Board.
V.D--Mergers, Purchase and Assumptions, and Spin-Offs
There are three additional ways a community federal credit union
can expand its field of membership:
[sbull] By taking in the field of membership of another credit
union through a merger;
[sbull] By taking in the field of membership through a purchase and
assumption (P&A); or
[sbull] By taking a portion of another credit union's field of
membership through a spin-off.
V.D.1--Standard Mergers
Generally, the requirements applicable to field of membership
expansions apply to mergers where the continuing credit union is a
community federal charter.
Where both credit unions are community charters, the continuing
credit union must meet the criteria for expanding the community
boundaries. A community credit union cannot merge into a single
occupational/associational, or multiple common bond credit union,
except in an emergency merger. However, a single occupational or
associational, or multiple common bond credit union can merge into a
community charter as long as the merging credit union has a service
facility within the community boundaries or a majority of the merging
credit union's field of membership would qualify for membership in the
community charter. While a community charter may take in an
occupational, associational, or multiple common bond credit union in a
merger, it will remain a community charter.
Groups within the merging credit union's field of membership
located outside of the community boundaries may not continue to be
served. The merging credit union must notify groups that will be
removed from the field of membership as a result of the merger.
However, the credit union may continue to serve members of record.
Where a state-chartered credit union is merging into a community
federal credit union, the continuing federal credit union's field of
membership will be worded in accordance with NCUA policy. Any
subsequent field of membership expansions must comply with applicable
amendment procedures.
Mergers must be approved by the NCUA regional director where the
continuing credit union is headquartered, with the concurrence of the
regional director of the merging credit union, and, as applicable, the
state regulators.
V.D.2--Emergency Mergers
An emergency merger may be approved by NCUA without regard to field
of membership requirements or other legal constraints. An emergency
merger involves NCUA's direct intervention and approval. The credit
union to be merged must either be insolvent or likely to become
insolvent, and NCUA must determine that:
[sbull] An emergency requiring expeditious action exists;
[sbull] Other alternatives are not reasonably available; and
[sbull] The public interest would best be served by approving the
merger.
If not corrected, conditions that could lead to insolvency include,
but are not limited to:
[sbull] Abandonment by management;
[sbull] Loss of sponsor;
[sbull] Serious and persistent recordkeeping; or
[sbull] Serious and persistent operational concerns.
In an emergency merger situation, NCUA will take an active role in
finding a suitable merger partner (continuing credit union). NCUA is
primarily concerned that the continuing credit union has the financial
strength and management expertise to absorb the troubled credit union
without adversely affecting its own financial condition and stability.
As a stipulated condition to an emergency merger, the field of
membership of the merging credit union may be transferred intact to the
continuing federal credit union without regard to any field of
membership restrictions, including the service facility requirement.
Under this authority, a federal credit union may take in any dissimilar
field of membership.
Even though the merging credit union is a single common bond credit
union or multiple common bond credit union or community credit union,
the continuing credit union will remain a community charter. Future
community expansions will be based on the continuing credit union's
original community area.
Emergency mergers involving federally insured credit unions in
different NCUA regions must be approved by the regional director where
the continuing credit union is headquartered, with the concurrence of
the regional director of the merging credit union and, as applicable,
the state regulators.
V.D.3--Purchase and Assumption (P&A)
Another alternative for acquiring the field of membership of a
failing credit union is through a consolidation known as a P&A.
Generally, the requirements applicable to community expansions found in
this chapter apply to purchase and assumptions where the purchasing
credit union is a federal charter.
A P&A has limited application because, in most instances, the
failing credit union must be placed into involuntary liquidation.
However, in the few instances where a P&A may occur, the assuming
federal credit union, as with emergency mergers, may acquire the entire
field of membership if the emergency criteria are satisfied.
In a P&A processed under the emergency criteria, specified loans,
shares, and certain other designated assets and liabilities may also be
acquired without regard to field of membership restrictions and without
changing the character of the continuing federal credit union for
purposes of future field of membership amendments.
If the P&A does not meet the emergency criteria, then only members
of record can be obtained unless they
[[Page 18360]]
otherwise qualify for membership in the community charter.
P&As involving federally insured credit unions in different NCUA
regions must be approved by the regional director where the continuing
credit union is headquartered, with the concurrence of the regional
director of the purchased and/or assumed credit union and, as
applicable, the state regulators.
V.D.4--Spin-Offs
A spin-off occurs when, by agreement of the parties, a portion of
the field of membership, assets, liabilities, shares, and capital of a
credit union are transferred to a new or existing credit union. A spin-
off is unique in that usually one credit union has a field of
membership expansion and the other loses a portion of its field of
membership.
All field of membership requirements apply regardless of whether
the spun-off group goes to a new or existing federal charter.
The request for approval of a spin-off must be supported with a
plan that addresses, at a minimum:
[sbull] Why the spin-off is being requested;
[sbull] What part of the field of membership is to be spun off;
[sbull] Whether the field of membership requirements are met;
[sbull] Which assets, liabilities, shares, and capital are to be
transferred;
[sbull] The financial impact the spin-off will have on the affected
credit unions;
[sbull] The ability of the acquiring credit union to effectively
serve the new members;
[sbull] The proposed spin-off date; and
[sbull] Disclosure to the members of the requirements set forth
above.
The spin-off request must also include current financial statements
from the affected credit unions and the proposed voting ballot.
For federal credit unions spinning off a portion of the community,
membership notice and voting requirements and procedures are the same
as for mergers (see Part 708 of the NCUA Rules and Regulations), except
that only the members directly affected by the spin-off--those whose
shares are to be transferred--are permitted to vote. Members whose
shares are not being transferred will not be afforded the opportunity
to vote. All members of the group to be spun off (whether they voted in
favor, against, or not at all) will be transferred if the spin-off is
approved by the voting membership. Voting requirements for federally
insured state credit unions are governed by state law.
V.E--Overlaps
V.E.1--General
Generally, an overlap exists when a group of persons is eligible
for membership in two or more credit unions. NCUA will permit community
credit unions to overlap any other charters without performing an
overlap analysis.
V.E.2--Exclusionary Clauses
An exclusionary clause is a limitation precluding the credit union
from serving the primary members of a portion of a group or community
otherwise included in its field of membership. NCUA no longer grants
exclusionary clauses. Those granted prior to the adoption of this new
chartering manual will remain in effect unless the credit unions agree
to remove them or one of the affected credit unions submits a
housekeeping amendment to have it removed.
V.F--Charter Conversions
A community federal credit union may convert to a single
occupational or associational, or multiple common bond credit union.
The converting credit union must meet all occupational, associational,
and multiple common bond requirements, as applicable. The converting
credit union may continue to serve members of record of the prior field
of membership as of the date of the conversion, and any groups or
communities obtained in an emergency merger or P&A. A change to the
credit union's field of membership and designated common bond will be
necessary.
A community credit union may convert to serve a new geographical
area provided the field of membership requirements of V.A.3 of this
chapter are met. Members of record of the original community can
continue to be served.
V.G--Other Persons With a Relationship to the Community
A number of persons who have a close relationship to the community
may be included, at the charter applicant's option, in the field of
membership. These include the following:
[sbull] Spouses of persons who died while within the field of
membership of this credit union;
[sbull] Employees of this credit union;
[sbull] Volunteers in the community;
[sbull] Members of the immediate family or household; and
[sbull] Organizations of such persons.
Immediate family is defined as spouse, child, sibling, parent,
grandparent, or grandchild. This includes stepparents, stepchildren,
stepsiblings, and adoptive relationships.
Household is defined as persons living in the same residence
maintaining a single economic unit.
Membership eligibility is extended only to individuals who are
members of an ``immediate family or household'' of a credit union
member. It is not necessary for the primary member to join the credit
union in order for the immediate family or household member of the
primary member to join, provided the immediate family or household
clause is included in the field of membership. However, it is necessary
for the immediate family member or household member to first join in
order for that person's immediate family member or household member to
join the credit union. A credit union can adopt a more restrictive
definition of immediate family or household.
Under the Federal Credit Union Act, once a person becomes a member
of the credit union, such person may remain a member of the credit
union until the person chooses to withdraw or is expelled from the
membership of the credit union. This is commonly referred to as ``once
a member, always a member.'' The ``once a member, always a member''
provision does not prevent a credit union from restricting services to
members who are no longer within the field of membership.
Chapter 3--Low-Income Credit Unions and Credit Unions Serving
Underserved Areas
I--Introduction
One of the primary reasons for the creation of federal credit
unions is to make credit available to people of modest means for
provident and productive purposes. To help NCUA fulfill this mission,
the agency has established special operational policies for federal
credit unions that serve low-income groups and underserved areas. The
policies provide a greater degree of flexibility that will enhance and
invigorate capital infusion into low-income groups, low-income
communities, and underserved areas. These unique policies are necessary
to provide credit unions serving low-income groups with financial
stability and potential for controlled growth and to encourage the
formation of new charters as well as the delivery of credit union
services in low-income communities.
II--Low-Income Credit Union
II.A--Defined
A credit union serving predominantly low-income members may be
designated
[[Page 18361]]
as a low-income credit union. Section 701.34 of NCUA's Rules and
Regulations defines the term ``low-income members'' as those members:
[sbull] Who make less than 80 percent of the average for all wage
earners as established by the Bureau of Labor Statistics; or
[sbull] Whose annual household income falls at or below 80 percent
of the median household income for the nation as established by the
Census Bureau.
The term ``low-income members'' also includes members who are full-
time or part-time students in a college, university, high school, or
vocational school.
To obtain a low-income designation from NCUA, an existing credit
union must establish that a majority of its members meet the low-income
definition. An existing community credit union that serves a geographic
area where a majority of residents meet the annual income standard is
presumed to be serving predominantly low-income members. A low-income
designation for a new credit union charter may be based on a majority
of the potential membership.
II.B--Special Programs
A credit union with a low-income designation has greater
flexibility in accepting nonmember deposits insured by the NCUSIF, are
exempt from the aggregate loan limit on business loans, and may offer
secondary capital accounts to strengthen its capital base. It also may
participate in special funding programs such as the Community
Development Revolving Loan Program for Credit Unions (CDRLP) if it is
involved in the stimulation of economic development and community
revitalization efforts.
The CDRLP provides both loans and grants for technical assistance
to low-income credit unions. The requirements for participation in the
revolving loan program are in Part 705 of the NCUA Rules and
Regulations. Only operating credit unions are eligible for
participation in this program.
II.C--Low-Income Documentation
A federal credit union charter applicant or existing credit union
wishing to receive a low-income designation should forward a separate
request for the designation to the regional director, along with
appropriate documentation supporting the request.
For community charter applicants, the supporting material should
include the median household income or annual wage figures for the
community to be served. If this information is unavailable, the
applicant should identify the individual zip codes or census tracts
that comprise the community and NCUA will assist in obtaining the
necessary demographic data.
Similarly, if single occupational or associational or multiple
common bond charter applicants cannot supply income data on its
potential members, they should provide the regional director with a
list which includes the number of potential members, sorted by their
residential zip codes, and NCUA will assist in obtaining the necessary
demographic data.
An existing credit union can perform a loan or membership survey to
determine if the credit union is primarily serving low-income members.
II.D--Third Party Assistance
A low-income federal credit union charter applicant may contract
with a third party to assist in the chartering and low-income
designation process. If the charter is granted, a low-income credit
union may contract with a third party to provide necessary management
services. Such contracts should not exceed the duration of one year
subject to renewal.
II.E--Special Rules for Low-Income Federal Credit Unions
In recognition of the unique efforts needed to help make credit
union service available to low-income groups, NCUA has adopted special
rules that pertain to low-income credit union charters, as well as
field of membership additions for low-income credit unions. These
special rules provide additional latitude to enable underserved, low-
income individuals to gain access to credit union service.
NCUA permits credit union chartering and field of membership
amendments based on associational groups formed for the sole purpose of
making credit union service available to low-income persons. The
association must be defined so that all of its members will meet the
low-income definition of Section 701.34 of the NCUA Rules and
Regulations. Any multiple common bond credit union can add low-income
associations to their fields of membership.
A low-income designated community federal credit union has
additional latitude in serving persons who are affiliated with the
community. In addition to serving members who live, work, worship, or
attend school in the community, a low-income community federal credit
union may also serve persons who participate in programs to alleviate
poverty or distress, or who participate in associations headquartered
in the community.
Examples of a low-income designated community and an associational-
based low-income federal credit union are as follows:
[sbull] Persons who live in [the target area]; persons who work,
worship, attend school, or participate in associations headquartered in
[the target area]; persons participating in programs to alleviate
poverty or distress which are located in [the target area];
incorporated and unincorporated organizations located in [the target
area] or maintaining a facility in [the target area]; and organizations
of such persons.
[sbull] Members of the Canarsie Economic Assistance League, in
Brooklyn, NY, an association whose members all meet the low-income
definition of Section 701.34 of the NCUA Rules and Regulations.
III--Service to Underserved Communities
III.A--General
All federal credit unions may include in their fields of
membership, without regard to location, communities satisfying the
definition of underserved areas in the Federal Credit Union Act. Adding
an underserved area will not change the charter type of a federal
credit union. More than one federal credit union can serve the same
underserved area. The Federal Credit Union Act defines an underserved
area as a local community, neighborhood, or rural district that is an
``investment area'' as defined in Section 103(16) of the Community
Development Banking and Financial Institutions Act of 1994.
For an underserved area, the well-defined local community,
neighborhood, or rural district requirement is met if:
[sbull] The area to be served is in a recognized single political
jurisdiction, i.e., a city, county, or their political equivalent, or
any contiguous portion thereof;
[sbull] The area to be served is in 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; or
[sbull] The area to be served is a Metropolitan Statistical Area
(MSA) or its equivalent, or a portion thereof, where the population of
the MSA or its equivalent does not exceed 1,000,000.
If the area to be served does not meet the MSA or multiple
political jurisdiction requirements outlined above, the application
must include documentation to support that it is a
[[Page 18362]]
well-defined local community, neighborhood, or rural district.
For an underserved area, an investment area includes any of the
following (as reported in the most recently completed decennial census
or equivalent government data):
[sbull] An area that wholly consists of or is wholly located within
an Empowerment Zone or Enterprise Community designated under section
1391 of the Internal Revenue Code (26 U.S.C. 1391);
[sbull] An area where the percentage of the population living in
poverty is at least 20 percent;
[sbull] An area in a Metropolitan Area where the median family
income is at or below 80 percent of the Metropolitan Area median family
income or the national Metropolitan Area median family income,
whichever is greater;
[sbull] An area outside of a Metropolitan Area, where the median
family income is at or below 80 percent of the statewide non-
Metropolitan Area median family income or the national non-Metropolitan
Area median family income, whichever is greater;
[sbull] An area where the unemployment rate is at least 1.5 times
the national average;
[sbull] An area meeting the criteria for economic distress that may
be established by the Community Development Financial Institutions Fund
(CDFI) of the United States Department of the Treasury.
In addition, the local community, neighborhood, or rural district
must be underserved, based on data considered by the NCUA Board and the
Federal banking agencies.
Once an underserved area has been added to a federal credit union's
field of membership, the credit union must establish and maintain an
office or facility in the community within two years. A service
facility is defined as a place where shares are accepted for members'
accounts, loan applications are accepted and loans are disbursed. This
definition includes a credit union owned branch, a shared branch, a
mobile branch, an office operated on a regularly scheduled weekly
basis, or a credit union owned electronic facility that meets, at a
minimum, these requirements. This definition does not include an ATM or
the credit union's Internet web site.
If a credit union has a preexisting office within close proximity
to the underserved area, then it will not be required to maintain an
office or facility within the underserved area. Close proximity will be
determined on a case-by-case basis, but the office must be readily
accessible to the residents and the distance from the underserved area
will not be an impediment to a majority of the residents to transact
credit union business.
The federal credit union adding the underserved community must
document that the community meets the definition for serving
underserved areas in the Federal Credit Union Act. The charter type of
a federal credit union adding such a community will not change.
Therefore, the credit union will not be able to receive the benefits
afforded to low-income designated credit unions, such as expanded use
of nonmember deposits and access to the Community Development Revolving
Loan Program for Credit Unions.
A federal credit union that desires to include an underserved
community in its field of membership must first develop a business plan
specifying how it will serve the community. The business plan, at a
minimum, must identify the credit and depository needs of the community
and detail how the credit union plans to serve those needs. The credit
union will be expected to regularly review the business plan to
determine if the community is being adequately served. The regional
director may require periodic service status reports from a credit
union about the underserved area to ensure that the needs of the
community are being met as well as requiring such reports before NCUA
allows a federal credit union to add an additional underserved area.
IV--Appeal Procedures for Underserved Areas
IV.A--NCUA Approval
If the requested underserved area is approved by NCUA, the credit
union will be issued an amendment to Section 5 of its charter.
IV.B--NCUA Disapproval
When NCUA disapproves any application to add an underserved area,
in whole or in part, under this chapter, the applicant will be informed
in writing of the:
[sbull] Specific reasons for the action;
[sbull] Options to consider, if appropriate, for gaining approval;
and
[sbull] Appeal procedures.
IV.C--Appeal of Regional Director Decision
If the regional director denies an underserved area request, the
federal credit union may appeal the decision to the NCUA Board. An
appeal must be sent to the appropriate regional office within 60 days
of the date of denial and must address the specific reason(s) for 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 NCUA Board with a recommendation.
Before appealing, the credit union may, within 30 days of the
denial, provide supplemental information to the regional director for
reconsideration. A reconsideration will contain new and material
evidence addressing the reasons for the initial denial. The regional
director will have 30 days from the date of the receipt of the request
for reconsideration to make a final decision. If the request is again
denied, the applicant may proceed with the appeal process within 60
days of the date of the last denial. A second request for
reconsideration will be treated as an appeal to the NCUA Board.
Chapter 4--Chapter Conversions
I--Introduction
A charter conversion is a change in the jurisdictional authority
under which a credit union operates.
Federal credit unions receive their charters from NCUA and are
subject to its supervision, examination, and regulation.
State-chartered credit unions are incorporated in a particular
state, receiving their charter from the state agency responsible for
credit unions and subject to the state's regulator. If the state-
chartered credit union's deposits are federally insured, it will also
fall under NCUA's jurisdiction.
A federal credit union's power and authority are derived from the
Federal Credit Union Act and NCUA Rules and Regulations. State-
chartered credit unions are governed by state law and regulation.
Certain federal laws and regulations also apply to federally insured
state chartered credit unions.
There are two types of charter conversions: federal charter to
state charter and state charter to federal charter. Common bond and
community requirements are not an issue from NCUA's standpoint in the
case of a federal to state charter conversion. The procedures and forms
relevant to both types of charter conversion are included in Appendix
D.
II--Conversion of a State Credit Union to a Federal Credit Union
II.A--General Requirements
Any state-chartered credit union may apply to convert to a federal
credit union. In order to do so it must:
[sbull] Comply with state law regarding conversion and file proof
of compliance with NCUA;
[[Page 18363]]
[sbull] File the required conversion application, proposed federal
credit union organization certificate, and other documents with NCUA;
[sbull] Comply with the requirements of the Federal Credit Union
Act, e.g., chartering and reserve requirements; and
[sbull] Be granted federal share insurance by NCUA.
Conversions are treated the same as any initial application for a
federal charter, including an on-site examination by NCUA where
appropriate. NCUA will also consult with the appropriate state
authority regarding the credit union's current financial condition,
management expertise, and past performance. Since the applicant in a
conversion is an ongoing credit union, the economic advisability of
granting a charter is more readily determinable than in the case of an
initial charter applicant.
A converting state credit union's field of membership must conform
to NCUA's chartering policy. The field of membership will be phrased in
accordance with NCUA chartering policy. However, if the converting
credit union is a multiple group charter and the new federal charter is
a multiple group, then the new federal charter may retain in its field
of membership any group that the state credit union was serving at the
time of conversion. Subsequent changes must conform to NCUA chartering
policy in effect at that time.
If the converting credit union is a community charter and the new
federal charter is community-based, it must meet the community field of
membership requirements set forth in Chapter 2, Section V of this
manual. If the state-chartered credit union's community boundary is
more expansive than the approved federal boundary, only members of
record outside of the new community boundary may continue to be served.
The converting credit union, regardless of charter type, may
continue to serve members of record. The converting credit union may
retain in its field of membership any group or community added pursuant
to state emergency provisions.
II.B--Submission of Conversion Proposal to NCUA
The following documents must be submitted with the conversion
proposal:
[sbull] Conversion of State Charter to Federal Charter (NCUA 4000);
[sbull] Organization Certificate (NCUA 4008). Only Part (3) and the
signature/notary section should be completed and, where applicable,
signed by the credit union officials.
[sbull] Report of Officials and Agreement to Serve (NCUA 4012);
[sbull] The Application to Convert From State Credit Union to
Federal Credit Union (NCUA 4401);
[sbull] The Application and Agreements for Insurance of Accounts
(NCUA 9500);
[sbull] Certification of Resolution (NCUA 9501);
[sbull] Written evidence regarding whether the state regulator is
in agreement with the conversion proposal; and
[sbull] Business plan, as appropriate, including the most current
financial report and delinquent loan schedule.
If the state charter is applying to become a federal community
charter, it must also comply with the documentation requirements
included in Chapter 2, Section V.A.2 of this manual.
II.C--NCUA Consideration of Application To Convert
II.C.1--Review by the Regional Director
The application will be reviewed to determine that it is complete
and that the proposal is in compliance with Section 125 of the Federal
Credit Union Act. This review will include a determination that the
state credit union's field of membership is in compliance with NCUA's
chartering policies. The regional director may make further
investigation into the proposal and may require the submission of
additional information to support the request to convert.
II.C.2--On-Site Review
NCUA may conduct an on-site examination of the books and records of
the credit union. Non-federally insured credit unions will be assessed
an insurance application fee.
II.C.3--Approval by the Regional Director and Conditions to the
Approval
The conversion will be approved by the regional director if it is
in compliance with Section 125 of the Federal Credit Union Act and
meets the criteria for federal insurance. Where applicable, the
regional director will specify any special conditions that the credit
union must meet in order to convert to a federal charter, including
changes to the credit union's field of membership in order to conform
to NCUA's chartering policies. Some of these conditions may be set
forth in a Letter of Understanding and Agreement (LUA), which requires
the signature of the officials and the regional director.
II.C.4--Notification
The regional director will notify both the credit union and the
state regulator of the decision on the conversion.
II.C.5--NCUA Disapproval
When NCUA disapproves any application to convert to a federal
charter, the applicant will be informed in writing of the:
[sbull] Specific reasons for the action;
[sbull] Options to consider, if appropriate, for gaining approval;
and
[sbull] Appeal procedures.
II.C.6--Appeal of Regional Director Decision
If a conversion to a federal charter is denied by the regional
director, the applicant credit union may appeal the decision to the
NCUA Board. An appeal must be sent to the appropriate regional office
within 60 days of the date of denial and must address the specific
reason(s) for 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 NCUA
Board with a recommendation.
Before appealing, the credit union may, within 30 days of the
denial, provide supplemental information to the regional director for
reconsideration. The request will not be considered as an appeal, but a
request for reconsideration by the regional director. The regional
director will have 30 business days from the date of the receipt of the
request for reconsideration to make a final decision. If the
application is again denied, the credit union may proceed with the
appeal process to the NCUA Board within 60 days of the date of the last
denial by the regional director.
II.D--Action by Board of Directors
II.D.1--General
Upon being informed of the regional director's preliminary
approval, the board must:
[sbull] Comply with all requirements of the state regulator that
will enable the credit union to convert to a federal charter and cease
being a state credit union;
[sbull] Obtain a letter or official statement from the state
regulator certifying that the credit union has met all of the state
requirements and will cease to be a state credit union upon its
receiving a federal charter. A copy of this document must be submitted
to the regional director;
[sbull] Obtain a letter from the private share insurer (includes
excess share insurers), if applicable, certifying that the credit union
has met all withdrawal requirements. A copy of this document must be
submitted to the regional director; and
[[Page 18364]]
[sbull] Submit a statement of the action taken to comply with any
conditions imposed by the regional director in the preliminary approval
of the conversion proposal and, if applicable, submit the signed LUA.
II.D.2--Application for a Federal Charter
When the regional director has received evidence that the board of
directors has satisfactorily completed the actions described above, the
federal charter and new Certificate of Insurance will be issued.
The credit union may then complete the conversion as discussed in
the following section. A denial of a conversion application can be
appealed. Refer to Section II.C.6 of this chapter.
II.E--Completion of the Conversion
II.E.1--Effective Date of Conversion
The date on which the regional director approves the Organization
Certificate and the Application and Agreements for Insurance of
Accounts is the date on which the credit union becomes a federal credit
union. The regional director will notify the credit union and the state
regulator of the date of the conversion.
II.E.2--Assumption of Assets and Liabilities
As of the effective date of the conversion, the federal credit
union will be the owner of all of the assets and will be responsible
for all of the liabilities and share accounts of the state credit
union.
II.E.3--Board of Directors' Meeting
Upon receipt of its federal charter, the board will hold its first
meeting as a federal credit union. At this meeting, the board will
transact such business as is necessary to complete the conversion as
approved and to operate the credit union in accordance with the
requirements of the Federal Credit Union Act and NCUA Rules and
Regulations.
As of the commencement of operations, the accounting system,
records, and forms must conform to the standards established by NCUA.
II.E.4--Credit Union's Name
Changing of the credit union's name on all signage, records,
accounts, investments, and other documents should be accomplished as
soon as possible after conversion. The credit union has 180 days from
the effective date of the conversion to change its signage and
promotional material. This requires the credit union to discontinue
using any remaining stock of ``state credit union'' stationery
immediately, and discontinue using credit cards, ATM cards, etc.,
within 180 days after the effective date of the conversion, or the
reissue date, whichever is later. The regional director has the
discretion to extend the timeframe for an additional 180 days. Member
share drafts with the state-chartered name can be used by the members
until depleted.
II.E.5--Reports to NCUA
Within 10 business days after commencement of operations, the
recently converted federal credit union must submit to the regional
director the following:
[sbull] Report of Officials (NCUA 4501); and
[sbull] Financial and Statistical Reports, as of the commencement
of business of the federal credit union.
III--Conversion of a Federal Credit Union to a State Credit Union
III.A--General Requirements
Any federal credit union may apply to convert to a state credit
union. In order to do so, it must:
[sbull] Notify NCUA prior to commencing the process to convert to a
state charter and state the reason(s) for the conversion;
[sbull] Comply with the requirements of Section 125 of the Federal
Credit Union Act that enable it to convert to a state credit union and
to cease being a federal credit union; and
[sbull] Comply with applicable state law and the requirements of
the state regulator.
It is important that the credit union provide an accurate
disclosure of the reasons for the conversion. These reasons should be
stated in specific terms, not as generalities. The federal credit union
converting to a state charter remains responsible for the entire
operating fee for the year in which it converts.
III.B--Special Provisions Regarding Federal Share Insurance
If the federal credit union intends to continue federal share
insurance after the conversion to a state credit union, it must submit
an Application for Insurance of Accounts (NCUA 9600) to the regional
director at the time it requests approval of the conversion proposal.
The regional director has the authority to approve or disapprove the
application.
If the converting federal credit union does not intend to continue
federal share insurance or if its application for continued insurance
is denied, insurance will cease in accordance with the provisions of
Section 206 of the Federal Credit Union Act.
If, upon its conversion to a state credit union, the federal credit
union will be terminating its federal share insurance or converting
from federal to non-federal share insurance, it must comply with the
membership notice and voting procedures set forth in Section 206 of the
Federal Credit Union Act and Part 708 of NCUA's Rules and Regulations,
and address the criteria set forth in Section 205(c) of the Federal
Credit Union Act.
Where the state credit union will be non-federally insured, federal
insurance ceases on the effective date of the charter conversion. If it
will be otherwise uninsured, then federal insurance will cease one year
after the date of conversion subject to the restrictions in Section
206(d)(1) of the Federal Credit Union Act. In either case, the state
credit union will be entitled to a refund of the federal credit union's
NCUSIF capitalization deposit after the final date on which any of its
shares are federally insured.
The NCUA Board reserves the right to delay the refund of the
capitalization deposit for up to one year if it determines that payment
would jeopardize the NCUSIF.
III.C--Submission of Conversion Proposal to NCUA
Upon approval of a proposition for conversion by a majority vote of
the board of directors at a meeting held in accordance with the federal
credit union's bylaws, the conversion proposal will be submitted to the
regional director and will include:
[sbull] A current financial report;
[sbull] A current delinquent loan schedule;
[sbull] An explanation and appropriate documents relative to any
changes in insurance of member accounts;
[sbull] A resolution of the board of directors;
[sbull] A proposed Notice of Special Meeting of the Members (NCUA
4221);
[sbull] A copy of the ballot to be sent to all members (NCUA 4506);
[sbull] If the credit union intends to continue with federal share
insurance, an application for insurance of accounts (NCUA 9600);
[sbull] Evidence that the state regulator is in agreement with the
conversion proposal; and
[sbull] A statement of reasons supporting the request to convert.
III.D--Approval of Proposal To Convert
III.D.1--Review by the Regional Director
The proposal will be reviewed to determine that it is complete and
is in
[[Page 18365]]
compliance with Section 125 of the Federal Credit Union Act. The
regional director may make further investigation into the proposal and
require the submission of additional information to support the
request.
III.D.2--Conditions to the Approval
The regional director will specify any special conditions that the
credit union must meet in order to proceed with the conversion.
III.D.3--Approval by the Regional Director
The proposal will be approved by the regional director if it is in
compliance with Section 125 and, in the case where the state credit
union will no longer be federally insured, the notice and voting
requirements of Section 206 of the Federal Credit Union Act.
III.D.4--Notification
The regional director will notify both the credit union and the
state regulator of the decision on the proposal.
III.D.5--NCUA Disapproval
When NCUA disapproves any application to convert to a state
charter, the applicant will be informed in writing of the:
[sbull] Specific reasons for the action;
[sbull] If appropriate, options or suggestions that could be
considered for gaining approval; and
[sbull] Appeal procedures.
III.D.6--Appeal of Regional Director Decision
If the regional director denies a conversion to a state charter,
the applicant credit union may appeal the decision to the NCUA Board.
An appeal must be sent to the appropriate regional office within 60
days of the date of denial and must address the specific reason(s) for
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 NCUA Board with a
recommendation.
Before appealing, the credit union may, within 30 days of the
denial, provide supplemental information to the regional director for
reconsideration. The request will not be considered as an appeal, but a
request for reconsideration by the regional director. The regional
director will have 30 business days from the date of the receipt of the
request for reconsideration to make a final decision. If the
application is again denied, the credit union may proceed with the
appeal process to the NCUA Board within 60 days of the date of the last
denial by the regional director.
III.E--Approval of Proposal by Members
The members may not vote on the proposal until it is approved by
the regional director. Once approval of the proposal is received, the
following actions will be taken by the board of directors:
[sbull] The proposal must be submitted to the members for approval and
a date set for a meeting to vote on the proposal. The proposal may be
acted on at the annual meeting or at a special meeting for that
purpose. The members must also be given the opportunity to vote by
written ballot to be filed by the date set for the meeting.
[sbull] Members must be given advance notice (NCUA 4221) of the meeting
at which the proposal is to be submitted. The notice must:
[sbull] Specify the purpose, time and place of the meeting;
[sbull] Include a brief, complete, and accurate statement of the
reasons for and against the proposed conversion, including any effects
it could have upon share holdings, insurance of member accounts, and
the policies and practices of the credit union;
[sbull]Specify the costs of the conversion, i.e., changing the
credit union's name, examination and operating fees, attorney and
consulting fees, tax liability, etc.;
[sbull] Inform the members that they have the right to vote on the
proposal at the meeting, or by written ballot to be filed not later
than the date and time announced for the annual meeting, or at the
special meeting called for that purpose;
[sbull] Be accompanied by a Federal to State Conversion--Ballot for
Conversion Proposal (NCUA 4506); and
[sbull] State in bold face type that the issue will be decided by a
majority of members who vote.
[sbull] The proposed conversion must be approved by a majority of all
of the members who vote on the proposal, a quorum being present, in
order for the credit union to proceed further with the proposition,
provided federal insurance is maintained. If the proposed state-
chartered credit union will not be federally insured, 20 percent of the
total membership must participate in the voting, and of those, a
majority must vote in favor of the proposal. Ballots cast by members
who did not attend the meeting but who submitted their ballots in
accordance with instructions above will be counted with votes cast at
the meeting. In order to have a suitable record of the vote, the voting
at the meeting should be by written ballot as well.
[sbull] The board of directors shall, within 10 days, certify the
results of the membership vote to the regional director. The statement
shall be verified by affidavits of the Chief Executive Officer and the
Recording Officer on NCUA 4505.
III.F--Compliance With State Laws
If the proposal for conversion is approved by a majority of all
members who voted, the board of directors will:
[sbull] Ensure that all requirements of state law and the state
regulator have been accommodated;
[sbull] Ensure that the state charter or the license has been
received within 90 days from the date the members approved the proposal
to convert; and
[sbull] Ensure that the regional director is kept informed as to
progress toward conversion and of any material delay or of substantial
difficulties which may be encountered.
If the conversion cannot be completed within the 90-day period, the
regional director should be informed of the reasons for the delay. The
regional director may set a new date for the conversion to be
completed.
III.G--Completion of Conversion
In order for the conversion to be completed, the following steps
are necessary:
[sbull] The board of directors will submit a copy of the state
charter to the regional director within 10 days of its receipt. This
will be accompanied by the federal charter and the federal insurance
certificate. A copy of the financial reports as of the preceding month-
end should be submitted at this time.
[sbull] The regional director will notify the credit union and the
state regulator in writing of the receipt of evidence that the credit
union has been authorized to operate as a state credit union.
[sbull] The credit union shall cease to be a federal credit union
as of the effective date of the state charter.
[sbull] If the regional director finds a material deviation from
the provisions that would invalidate any steps taken in the conversion,
the credit union and the state regulator shall be promptly notified in
writing. This notice may be either before or after the copy of the
state charter is filed with the regional director. The notice will
inform the credit union as to the nature of the adverse findings. The
conversion will not be effective and completed until the improper
actions and steps have been corrected.
[[Page 18366]]
[sbull] Upon ceasing to be a federal credit union, the credit union
shall no longer be subject to any of the provisions of the Federal
Credit Union Act, except as may apply if federal share insurance
coverage is continued. The successor state credit union shall be
immediately vested with all of the assets and shall continue to be
responsible for all of the obligations of the federal credit union to
the same extent as though the conversion had not taken place. Operation
of the credit union from this point will be in accordance with the
requirements of state law and the state regulator.
[sbull] If the regional director is satisfied that the conversion
has been accomplished in accordance with the approved proposal, the
federal charter will be canceled.
[sbull] There is no federal requirement for closing the records of
the federal credit union at the time of conversion or for the manner in
which the records shall be maintained thereafter. The converting credit
union is advised to contact the state regulator for applicable state
requirements.
[sbull] The credit union shall neither use the words ``Federal
Credit Union'' in its name nor represent itself in any manner as being
a federal credit union.
[sbull] Changing of the credit union's name on all signage,
records, accounts, investments, and other documents should be
accomplished as soon as possible after conversion. Unless it violates
state law, the credit union has 180 days from the effective date of the
conversion to change its signage and promotional material. This
requires the credit union to discontinue using any remaining stock of
``federal credit union'' stationery immediately, and discontinue using
credit cards, ATM cards, etc., within 180 days after the effective date
of the conversion, or the reissue date, whichever is later. The
regional director has the discretion to extend the timeframe for an
additional 180 days. Member share drafts with the federal chartered
name can be used by the members until depleted. If the state credit
union is not federally insured, it must change its name and must
immediately cease using any credit union documents referencing federal
insurance.
[sbull] If the state credit union is to be federally insured, the
regional director will issue a new insurance certificate.
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[FR Doc. 03-8721 Filed 4-14-03; 8:45 am]
BILLING CODE 7535-01-C