Organization and Operation of Federal Credit Unions; Rule NATIONAL CREDIT UNION ADMINISTRATION

SUMMARY: This final interpretive ruling and policy statement (``IRPS'')

is the result of NCUA's policy of reevaluating all its regulations

periodically to determine whether change is warranted. The NCUA Board

approved publication of a proposed IRPS on chartering and field of

membership after its July 15, 1993 open meeting; the public ultimately

was given 180 days to submit comments. This final IRPS 94-1 reflects a

full evaluation of those comments; substantial changes as outlined

below were made to the proposal. This IRPS 94-1 replaces IRPS 89-1.

The NCUA is also issuing a final amendment to update Part 701.1 of

its Rules and Regulations entitled ``Organization and Operations of

Federal Credit Unions''.

EFFECTIVE DATE: July 5, 1994.

ADDRESSES: National Credit Union Administration, 1775 Duke Street,

Alexandria, Virginia 22314-3428.

FOR FURTHER INFORMATION CONTACT: H. Allen Carver, Regional Director,

National Credit Union Administration, (404) 396-4042, 7000 Central

Parkway, Suite 1600, Atlanta, Georgia 30328.

SUPPLEMENTARY INFORMATION:

Background

I. The Proposed IRPS

On July 28, 1993, the NCUA Board published a proposed interpretive

rule and policy statement (IRPS) updating chartering and field of

membership policies, and also published a proposed amendment to Section

701.1 of the NCUA Rules and Regulations (12 CFR 701.1), to reference

the updated IRPS. The proposal was issued with a 90 day comment period

that was extended by the NCUA Board for an additional 90 days due to a

public request. The proposed IRPS was designed: (1) To update policies

on low-income credit unions; (2) to streamline the charter application

process; (3) to address credit unions undergoing corporate and military

unit restructuring; (4) to clarify NCUA policy on the ``operational

area'' requirement for select group expansions; and (5) to make certain

other minor or technical changes to modify or clarify NCUA policy.

The Board also requested specific comment on the following issues:

(1) Whether NCUA should permit credit union chartering and field of

membership expansions based on associational groups formed for the sole

purpose of making credit union service available to low-income persons,

such as is now permitted for existing credit unions seeking to extend

service to senior citizens; (2) Whether NCUA should permit

occupational, associational, and multiple group federal credit unions

to add to their fields of membership communities satisfying the ``low-

income credit union'' definition found in Part 701.32 of NCUA's Rules

and Regulations; (3) Whether there should be special procedures for

permitting select group expansions ``in the public interest;'' and (4)

Whether NCUA should establish a streamlining ``file and serve''

procedure for select group expansions of fewer than 50 potential

members.

II. Summary of Comments Received

One hundred and thirty-nine public comment letters were received.

Comments were received from seventy-eight federal credit unions, six

state chartered credit unions, one state regulator, thirteen state

credit union leagues, seven national credit union trade organizations,

and two individuals.

The Board also received comments from thirty-two banks and banking

associations. Briefly summarized, the bank commenters argued that

federal credit unions are permitted to expand only within a single

common bond, and that federal credit unions should be subject to tax

like banks. The NCUA Board, in currently ongoing litigation, has

repeatedly stated its disagreement with banking organizations' position

on various matters regarding field of membership issues. The question

of taxation has been decided by Congress and the President.

In general, the credit union commenters partially supporting or

opposed to the proposal argued that NCUA should go even further in

liberalizing chartering and field of membership policy. For example,

the vast majority of commenters favored deleting operational area

requirements altogether for select group amendments. Though the credit

union community's desire for more flexibility in accepting new members

is understandable, the NCUA Board is unwilling to make the significant

changes suggested in operating rules that have served the community

well for so long. The Board, in the final IRPS, has adopted a more

conservative approach to change.

At the same time, the Board has noted the continuing decline in the

number of credit unions and the lack of new chartering activity in

recent years. The final IRPS makes significant changes to existing

policy to encourage new chartering activity, particularly in low-income

areas.

THE ISSUES AND NCUA BOARD DECISIONS

I. Field of Membership Changes To Promote Service to Low-Income

Persons

A. Comments in General

The Board's suggestions for significantly liberalizing field of

membership policy to encourage service to low-income persons by any

sector of the credit union movement generated a great deal of interest.

The first suggestion was to permit credit union chartering and

field of membership expansion based on associational groups formed for

the sole purpose of making credit union service available to low-income

persons, much as is now permitted for existing credit unions seeking to

extend service to senior citizens. Nineteen commenters approved of this

proposal as a proper method to increase financial services to low-

income individuals. However, one association commenter stated that in

the case of a low-income credit union, it would oppose a low-income

``association'' seeking to align with such a non low-income credit

union if the association's constituents were already eligible for

membership in an existing low-income credit union, unless the latter

did not object. This commenter asked whether it was NCUA's intent that

the individuals of this associational group themselves be low-income or

simply have a stated interest in making services available to low-

income persons. This commenter also asked what method of income

documentation NCUA would require for the association and whether all of

the proposed members would have to qualify as low-income or simply a

majority. Four commenters opposed this proposal as unnecessary.

The Board also requested comment on a proposal to permit

occupational, associational, and multiple group federal credit unions

to add to their fields of membership communities satisfying the ``low-

income credit union'' definition of Part 701.32 of NCUA's Regulations.

Thirty commenters approved of this proposal. Most of these commenters

believed that it would allow healthy credit unions to help low-income

individuals. Two commenters stated that in many cases credit unions are

the only financial institutions that are willing to work with low-

income individuals in an effort to promote fiscal responsibility. Two

commenters believed there was reason to limit this proposal to non-

community credit unions. These commenters believed there may be

instances when it would be appropriate for a community credit union to

serve a non-contiguous low-income community. Furthermore, these

commenters suggested that any credit union wishing to serve a low-

income group or community should include in its business plan details

on how it will serve the group and periodically review how successful

its efforts have been.

Eight commenters opposed the proposal. Three commenters believed

there would be a potential for the credit union to ``cherry pick'' low-

income neighborhoods without truly being dedicated to its development.

Two commenters suggested that the credit union maintain separate

accounting records for the low-income addition, and at a later date, if

the low-income addition was successful, it could be spun off and stand

on its own. One commenter suggested that ``persons participating in

programs to alleviate poverty or distress'' in a designated community

also be considered an acceptable group for additions. Five commenters

suggested it might be possible to charter new community development

credit unions that would immediately operate under the agency's

conservatorship policies--perhaps for a minimum period of three years.

The commenters also suggested that under NCUA's broad conservatorship

powers, NCUA could hire the services of a nearby existing credit union

under a management contract to operate the new credit union.

One commenter stated that minimum requirements should be instituted

for any non-low-income credit unions seeking permission to enter a low-

income area to ensure that the community will be adequately served. One

commenter suggested that a non low-income credit union be required to

provide status reports on its service to such a low-income group. One

commenter recommended that no expansion should be granted unless it

could be demonstrated that there would be no adverse material impact on

existing low-income credit unions in the area, or groups in the process

of chartering a low-income credit union. One commenter stated that

before an expansion was granted, the federal credit union should be

required to perform a study of the credit and depository needs of the

low-income group.

One commenter supported using the existing limited income

designation criteria as defined by NCUA to allow existing religious-

based credit unions to grant access to credit union service in their

immediate financially underserved communities. One commenter

recommended allowing minority chambers of commerce or other

associations of minority and economically disadvantaged business

people, along with their respective employees, to qualify for charters.

B. NCUA Board Decision

The Board agrees that low-income persons need expanded credit union

service. To ensure that all possible means of accomplishing this end

can be used, the final IRPS:

Permits chartering associational low-income federal credit

unions, where the association is organized solely for the purpose of

providing credit union service to low-income persons.

Permits a low-income federal credit union, whether

associational or community based, to include in its charter,

occupational, associational, and community common bond groups without

regard to location. The credit union will have to monitor such

additions to its base common bond, however, to ensure that the credit

union remains qualified for a low-income credit union designation.

Permits a federal credit union of any type--occupational,

associational, community, or multiple group--to include low-income

groups in its field of membership, without regard to the groups'

location, either by forming an association which is organized solely

for the purpose of providing such service or by including a community

group which could be the basis for chartering a low-income credit

union.

The Board shares some commenters' concerns that this policy change

may be used to ``cherry pick'' by meeting the credit needs of a

relatively well-off portion of a low-income community while leaving

those most in need of service with nothing. The Board will institute

special reporting requirements and special examination procedures for

any credit union including a low-income group in its field of

membership to ensure that adequate credit union services are provided

to all persons in the community.

The Board sees no limitation in the Federal Credit Union Act

preventing this policy change. While true that NCUA has generally

refrained from combining community-based common bonds with occupational

and associational common bonds, the reason for that limitation has been

a concern for the safe and sound development of credit unions. The

language of Section 109 of the Federal Credit Union Act, 12 U.S.C.

1759, which states ``Federal credit union membership shall be limited

to groups having a common bond of occupation or association, or to

groups within a well-defined neighborhood, community, or rural

district,'' does not require segregation of community groups from other

kinds of common bonds. The difference in wording for community based

common bond seems to have arisen from the fact that the bond was more

difficult to describe adequately. The ``or'' between the ``common

bond'' provisions and the community description is no different from

the ``or'' between ``occupation'' and ``association'', which the Board

has long concluded permits combining occupational and associational

common bonds in a single federal credit union, and which is consistent

with the word's common usage.

Moreover, in IRPS 89-1, the Board described all three groupings--

occupational, associational, and community--as ``common bonds'' without

distinction, and in the case of distress mergers permitted

intermingling of all three common bond types.

Finally, there is nothing in the evident purposes of the Act which

suggests that community groups are necessarily to be treated

differently from other common bonds. Functionally, all three common

bonds perform an identical role--to help maintain in credit union

members the sense of belonging and ownership that is so crucial to

credit union success.

Other commenter suggestions--such as providing assurances that

existing low-income credit unions are not overlapped and extending the

agency's conservatorship power to help start low-income credit unions--

can be implemented under existing policy where appropriate.

II. Other Issues Relating to Low-Income Federal Credit Unions

A. Comments

Four commenters approved of updating low-income credit union

polices based on the revised regulatory definition. Two commenters

believed that low-income credit unions should have access to the CDCU

Revolving Loan Program immediately upon beginning operation. One

commenter suggested that community groups be able to seek a preliminary

determination of a low-income designation before final submission of a

charter package.

One commenter urged that associational groups proposing to start

low-income credit unions not be required to demonstrate voting, dues-

paying membership structures because, among other things, it would hurt

church based associational groups.

B. NCUA Board Decision

The Board agrees with these suggestions. The final IRPS:

Updates the provisions on low-income credit unions to

reflect recent changes in the Rules and Regulations

Eliminates the voting and dues-paying requirements for

recognition of an associational common bond

Provides for preliminary review of the low-income

designation.

Part 705 of the NCUA Rules and Regulations (12 CFR 705.0 et seq.)

currently provides qualifying newly chartered credit unions with

immediate access to the CDCU Revolving Loan Fund.

III. Streamlining the Process for New Charter Applications

A. Comments

Six commenters approved the streamlining process for new charter

applications. Four commenters believed that the amount of time that

passes between the day a potential credit union submits a charter

application to NCUA for approval and the day the application is

actually approved or denied was acceptable. Two commenters believed the

time frame for chartering was unacceptably lengthly. One commenter

suggested that an acknowledgment of receipt of the chartering

application ``be sent to the organizers in a timely fashion''

preferably within 10 days.

One commenter stated that it would facilitate chartering if groups

were able to obtain tentative approval of their fields of membership

early in the process. This commenter also believed that early

submission of NCUA 4012 may also speed the process.

The proposal stated that the subscribers should be responsible for

paying the cost of credit reports and background checks when applying

for a credit union charter. Seven commenters agreed with this

provision. Nine commenters believed that the subscribers should not be

responsible for paying the cost of credit reports and background checks

when applying for a new charter. Two commenters recommended that NCUA

articulate the standards relied upon in disqualifying credit union

organizers.

B. NCUA Board Decision

The NCUA Board agrees with these suggestions and is hopeful that

the result of all the changes made will be a significant increase in

new federal chartering activity. Small, vibrant credit unions, serving

their members on a first-name basis and willing to take reasonable

credit risks based on personal knowledge of their members' character,

are a vital part of the credit union movement. Many credit unions which

used to fill this niche have through their success grown to the point

where credit union management can no longer make these personal

judgments on each individual member: A new generation of small credit

unions is needed to fill that void, particularly in the many poor

inner-city and rural areas where credit needs are now largely unmet.

The final IRPS provides:

That charter applicants will receive acknowledgment of the

application's receipt in 10 business days

That tentative field of membership approval will be given

early in the process

That early submission of NCUA 4012 will be encouraged

That the cost of credit reports and background checks will

be borne by NCUA

The NCUA Board does not believe, however, that it would be

productive to establish many other absolute standards and guidelines.

Each application is to some extent unique and may require somewhat

different procedures and time frames. The Board believes these are best

left to be worked out between the prospective credit union officials

and NCUA staff.

IV. Distress Situations Caused by Dramatic Changes in Economic

Conditions Within a Federal Credit Union's Field of Membership

A. Comments

The proposal would have permitted an associational, occupational,

or multiple group credit union converting to a community charter as a

result of significant corporate or military restructurings to maintain

service to groups in its field of membership prior to conversion and to

add other groups within the credit union's operational area after the

conversion, but for only so long as needed to ensure the credit union's

continued viability. A group consisting of all NCUA Regional Directors

and the Director of Examination and Insurance would vote to determine

the necessity of allowing the converting credit union to maintain the

select employee groups. Eighteen commenters favored the proposal.

Four commenters believed this authority should be expanded to all

community charters where continued viability is threatened by a major

employer's restructuring. These commenters believed there was no reason

to treat a ``converting to'' community charter any different from

existing community charters when in both cases the threat is viability

caused by similar events.

Though many commenters suggested abandoning the operational area

requirement altogether (see ```Public Interest' Addition Comments''

below), one in particular urged that it at least be abandoned in

distress situations. Eight commenters opposed the proposal. Two

commenters stated that military credit unions should not be granted

community charters except in rare cases where an isolated base is the

community. These commenters believed that in a heavily populated area

where there are many other credit unions already serving select groups,

this proposal would grant an unfair advantage to military credit

unions. Six commenters approved the special administrative approval

procedure but nine objected to it.

B. NCUA Board Decision

The Board is persuaded that federal credit unions of all types need

additional flexibility when faced with distress situations such as

significant corporate or military restructuring. The final IRPS:

Permits federal credit unions of all types--occupational,

associational, multiple group, and community--to apply for designation

as a ``distressed federal credit union'' and to do so regardless of

whether they are converting to community charter

Permits federal credit unions with such designations to

add occupational and associational groups to their fields of membership

regardless of location.

As an added assurance that the process is administered consistently

and proper guidance is given, the NCUA Board will reserve to itself, at

least initially, the authority to grant ``distressed credit union''

designations. The Board believes that, with this added requirement,

there will be adequate controls in place to prevent abuse: There will

be a comprehensive review by the NCUA Board prior to initial

designation; groups must request service in order to be added to a

distressed credit union's field of membership; the regional director

must approve all expansion requests; and normal overlap procedures will

apply.

V. Common Bond Issues

A. Occupational Common Bonds

1. Comments

The proposal suggested only slight modifications of current policy.

It stated that a proposed federal credit union whose primary sponsor is

a particular corporation may include the employees of that corporation

who work at another location, employees of the corporation who are paid

from or are supervised from the headquarters location, such as sales

persons or sales agents who work at a number of locations, employees of

a division or majority-owned subsidiary of the parent company

regardless of location, and employees of a related company (such as a

person working regularly for an enterprise under contract and

possessing a strong dependency relationship with the sponsoring

enterprise). Each group to be served (e.g., majority-owned

subsidiaries, contractors) was to be separately listed.

One commenter objected to the proposal that each group to be served

must be separately listed. This commenter suggested that NCUA be more

lenient. Another commenter requested that if an occupational credit

union furnished evidence of its parent company's preference for one

credit union, that credit union should be allowed to describe its field

of membership to include the parent and all other companies under

common control. One commenter stated that the components of a field of

membership definition should be limited to legal entities.

One commenter stated that the Chartering Manual does not state

procedures necessary for a credit union to keep its existing

membership, if a company or a division has been sold. This commenter

believes that if a company or division is sold to a company which has a

credit union, then the original credit union loses the field of

membership after the sale; otherwise, service should be allowed to

continue.

2. NCUA Board Decision

The NCUA Board agrees that the wording of this portion of IRPS 89-1

pertaining to business relationships is in need of some revision. The

final IRPS has been rewritten to provide more clarity. However, the

Board does not see a need to broaden the occupational common bond

definition in general at this time.

The Board does believe, however, that it is a disservice to cut off

service to groups which are divested from a sponsoring firm. The final

IRPS permitted continued service if the group desires it.

Finally, it is clear that some in the credit union community have

misunderstood why the NCUA Board proposed requiring listing of

subsidiary entities included in a common bond. The agency is in the

process of establishing a field of membership database for internal

monitoring of overlaps. Federal credit union listing of all subgroups

would greatly enhance the reliability and overall usefulness of the

database. But the NCUA Board sees no need to impose this requirement on

a federal credit union which finds that process overly burdensome, and

the final IRPS has deleted this portion of the proposal. Such a credit

union should understand, however, that if a specific group is not

mentioned in its charter, and the group in good faith states in a

request for service from another credit union that it does not have

credit union service available (as often happens with new subsidiaries

of sponsoring groups), an overlap may inadvertently be permitted

without full consideration for the overlapped credit union's interests.

If the overlap is discovered after the other credit union has begun

service, it is likely that, in the interests of the group and the other

credit union, NCUA will permit the overlap to continue.

B. Associational Common Bonds

1. Comments

The proposal clarified that a federal credit union seeking to

include an association in its field of membership may only include

natural persons who pay dues and have voting rights or hold office in

the association. Eight commenters supported this change. Twenty-one

commenters opposed the proposal. In general, these commenters believed

that not all natural person associations require a member to pay dues.

A few commenters stated that the proposal would harm church

associations that have members that do not pay dues. Four commenters

stated the proposal would harm low-income cooperatives. One commenter

stated that the collection of dues for an associational group may be

entirely irrelevant to the group's purpose or mission. One commenter

stated that this requirement can not be reasonably monitored by a

federal credit union.

The proposal also clarified that a federal credit union's field of

membership has to be updated and approved by NCUA when an association

changed its bylaws to modify the scope of those eligible for

membership. Six commenters approved of this clarification. One

commenter stated that without this limitation an associational credit

union would be allowed to change to an open field of membership.

Thirteen commenters disapproved of the clarification. Six of these

commenters believed that if an association changed its bylaws

frequently it could cause an administrative nightmare for the credit

union and NCUA if the charter had to be amended every time the bylaws

changed. One commenter believed the main concern should be whether the

association in question was a viable functioning organization. This

commenter believed that an association with membership qualification

requirements, bylaws and meetings should be defined as a functioning

organization.

The proposal removed the requirement that students must join the

credit union prior to family members becoming eligible. Five commenters

agreed with this change.

One commenter stated that the final IRPS should be modified to

allow for inclusion of an entire association in a federal credit union

at a higher level if that level provided broad based services which

were not available at a lower level.

2. NCUA Board Decision

The NCUA Board agrees that the dues-paying and voting rights

requirements of the proposal could be unfair to some bona fide

associations. The final IRPS lists these elements as factors to be

considered, not as requirements.

The Board has also attempted to clarify in the final IRPS the

ambiguities noted by some of the commenters.

The Board does not agree, however, that it should alter its present

policy in favor of service to associations at the lowest possible

level, or that it is appropriate to allow associations to modify

portions of their bylaws which dramatically change the make-up of

membership without agency review. The final IRPS maintains these

provisions as in the proposal.

VI. Select Group Addition Issues

A. Comments

A number of comments were received on the various proposed changes

to NCUA's select group addition policy. They are best discussed as a

group.

1. ``Public Interest'' Addition Comments

The Board requested comment on a limited ``public interest''

procedure by which NCUA might approve a federal credit union expansion

to include a group outside the operational area of a home or branch

office, if such action was in the interest of making quality credit

union service available to all eligible groups who wish to have it, and

if doing so would not have a significant adverse effect on the safe and

sound operations of credit unions. Any federal credit union seeking

such an expansion would need to provide certain documentation,

including a summary of the views of each credit union with a home or

branch office within a 25 mile radius as to whether each has agreed to

inclusion of the group in the applying credit union's field of

membership, and if the credit union refused, the reasons for the

refusal.

Thirty commenters supported the concept of the ``public interest''

proposal. These commenters generally believed that the proposal would

provide more people with credit union service. However, most of these

commenters believed the proposal's operational area requirement was

unnecessary. Furthermore, sixteen commenters stated that the proposal's

documentation requirements were so onerous that it would discourage

most credit unions from trying to use the procedure. Six commenters

opposed this proposal.

One commenter believed that the only use for the ``public

interest'' procedure should be to provide an exception to the rules for

credit unions experiencing a loss of members due to some extraordinary

circumstances, such as a base closing or a corporate restructuring.

This commenter believed the test for a ``public interest'' procedure

should be based on: (1) The demand for credit union service; (2) the

capability of the credit union to provide services; and (3) the level

of membership necessary to sustain the affected credit union.

2. ``Operational Area'' Comments

NCUA has traditionally focused multiple group field of membership

additions around the ``operational area'' of a home or branch office.

This policy was designed to ensure a satisfactory level of commitment

and service to the groups included in the field of membership, while

also minimizing instances of overlap and deterring territorial

stakeouts by overly aggressive credit unions. However, in response to

new technologies and innovations, the proposal clarified operational

area requirements. The first clarification was that for purposes of a

field of membership expansion the ``standard'' operational area will be

considered an area within a 25 mile radius of a home or branch office,

but that this standard may be extended for rural areas. Six commenters

believed the proposed operational area was reasonable and approve of

it. Four other commenters agreed in general with the definition but

believed that there should be more leeway for rural areas.

Forty-one commenters objected to the 25 mile operational area as

outdated in light of current technology. Thirty-seven commenters stated

there should not be any operational area. They believed that direct

deposit, automated teller service, and service-by-phone, in many cases,

has eliminated the need for physical access to a branch. Five

commenters believed operational area should just be one of many factors

to be considered in a field of membership expansion.

A few of the commenters stated that a progressive approach to the

expansion of services is one based on functionality, not geography.

They believed a functional approach should be based on the capacity and

willingness to serve matched with a demand for those services. One

commenter suggested that the determination of the operational area of a

credit union should be based on whether the credit union can reasonably

be expected to deliver adequate credit union service to the area. This

commenter suggested that NCUA approve a field of membership expansion

request if: (1) There is a clear demand for the credit union's

services; (2) the credit union is capable of providing the services;

and (3) other credit unions in the area are not already providing the

service. Twelve commenters stated that any credit union should have the

option to add select employee groups to its field of membership

(without regard to operational area) if it has the financial resources

to do so and there is no overlap.

3. ``Shared Facilities'' Comments

The proposal stated that ``shared facilities'' and ``shared service

centers'' were specifically to be excluded from consideration as either

a ``home'' or ``branch'' office for purposes of meeting NCUA's

operational area requirement, except in unusual circumstances--e.g.,

where a credit union is converting an existing home or branch office to

a ``shared facility.'' Nine commenters believed this to be a reasonable

position and agreed with the clarification. One commenter stated that

this position would ultimately help service centers prosper and control

predatory concerns from credit unions not participating in shared

service center programs.

Seven commenters opposed the clarification. Several commenters

believed the proposal would force some credit unions into unnecessary

expenditures for ``brick and mortar'' facilities. Some commenters

suggested that field of membership expansions be allowed around a

shared branch if the credit union has a material (20%) stake in the

facility. They believed shared branches were tantamount to a credit

union's own property.

4. ``Branch'' Comments

The proposal stated that a facility which was directly and solely

owned by, leased by or donated by a credit union and had credit union

employees regularly on site who accept payment on shares and disburse

loans was clearly a home or branch office. One commenter objected to

the requirement that a branch office have a paid employee working in

it. This commenter believed this section needed to be modified to

include credit union volunteers.

One commenter believed that in order to facilitate growth among

credit unions, NCUA should reconsider its position that ``the addition

of a new select group alone is not enough to justify a proposed home or

branch office.''

One commenter believed the definition of branches should be

expanded to more closely identify and define the difference between an

``open branch'' and a ``closed branch.'' This commenter stated that an

open branch should be identified as one where members from any company

or group could have free access and that a closed branch should be

identified as one that is located within a sponsor's facility that is

accessible only to employees of that group. This commenter believed

that taking on additional small employee groups using a close branch as

the base in determining the 25 mile radius should not be permitted.

B. NCUA Board Decision

The NCUA Board is not prepared to jettison the ``operational area''

limitation or to make substantial changes in how that limitation is

defined. The requirement has served credit unions well and remains

vital. Some of the wording in the final IRPS has been changed to make

the concept more adaptable to the variety of credit union service

outlets, however. ``Home or branch office'' has been changed to

``service facility,'' for example, and the requirement to have an

``employee'' on site has been changed to ``representative'' to

accommodate the possibility of volunteers.

However, the final IRPS does not include provisions for a ``public

interest'' field of membership expansion. Moreover, the Board does not

believe that technology has reached the point where access to a

facility where business can be transacted by interaction with another

person is unimportant. Therefore, the operational area requirement will

continue to be linked to the credit union's ability to provide service

by such means. Finally, the Board cannot, without substantially more

experience, allow ``shared service centers'' and other similar kinds of

group service arrangements to be considered ``service facilities'' for

select group expansion purposes; the effects of such a change are too

unclear at this point. The final IRPS therefore excludes from the

definition of a ``shared facility'' locations at which service is

provided to a significant number of different credit unions' members.

VII. Community Charters

A. Comments

Two commenters believed the proposal did not address the concerns

of community credit unions. The proposal clarified that a community

credit union's operational (service) area was to be defined by its

boundaries. Four commenters agreed with this clarification. Four

commenters believed that the authority to add new groups outside

community boundaries should be extended to all community charters where

continued viability is threatened by a major corporate or military

restructuring. These commenters believed there was no reason to treat a

``converting to'' community charter any differently from existing

community charters when in both cases the threat is viability caused by

similar events. Eight commenters believed any community credit union

should have the option to add select employee groups to its field of

membership if it has the financial ability to do so and NCUA determines

that no other credit union in the area could serve the group. Four

commenters suggested allowing community credit unions to merge with

multiple group or associational credit unions while still continuing to

serve the former fields of membership of both credit unions.

Four commenters believed NCUA should provide for the chartering of

community credit unions in two non-adjacent communities. These

commenters believed the granting of community charter status in one

area should not prevent the credit union from continuing to serve and

admit new members from existing select employee groups in a second

area, or obtaining a dual community charter.

One commenter believed NCUA should make it easier to expand

geographic boundaries of community credit unions by eliminating the

requirement of showing a ``commingling of the two communities.'' This

commenter believed this requirement was no longer realistic because

electronic transactions have taken over in the marketplace.

B. NCUA Board Decision

The Board believes the final policy statement addresses the needs

of community charters. In response to the advent of new technologies in

communication and the evolving character of communities, the Board has

slightly revised the definition of a community common bond. A community

charter must continue to be limited to ``a well-defined neighborhood,

community, or rural district.'' However, a community will be defined as

a single, well-defined area where residents interact. To meet this

definition, the Board has established the following common bond

requirements for a community charter: the geographic area's boundaries

must be clearly defined; and the applicant for a new charter or an

expansion must establish that the area is recognized as a ``distinct

neighborhood, community or rural district.'' This new policy eliminates

the commingling requirement while still requiring the members to

interact. The final policy also clarifies that the community credit

union's operational (service) area is defined by its boundaries.

As stated earlier, community credit unions may also apply for a

designation as a ``distressed federal credit union'' and to do so

regardless of whether they are converting to a community charter. These

credit unions, as well as low-income community credit unions, may add

select employee groups outside their operational area to their fields

of membership as long as they have the financial ability to serve the

group. After the credit union community has some experience with this

policy, the Board will assess the wisdom of extending this option to

all community credit unions.

VIII. Overlap Issues

A. Comments

The proposal clarified that NCUA may exclude from overlap

protection state chartered credit unions with a field of membership so

broadly defined as to include virtually everyone in a wide area. Four

commenters agreed with this clarification. However, many commenters

addressed other overlap issues. Two commenters supported the

requirement that credit unions involved in overlap situations first

attempt to resolve related issues among themselves before turning to

NCUA. Three commenters stated that field of membership policy was

overly liberal and permits numerous overlaps which hurt small credit

unions. Eight commenters stated that overlaps between credit unions

should be liberally permitted.

Four commenters believed NCUA should include a definition of the

term ``incidental overlap'' as a further aid to the credit union

community. One commenter believed the term should be defined as 3% of

the potential membership of the credit union being overlapped. One

commenter stated that overlaps are incidental if they do not create

questions of viability for the credit union affected by the overlap.

The proposal stated that an overlap may be justified if the

original credit union failed to provide quality service to the group.

One commenter suggested that the Board define ``quality service'' and

reexamine its position regarding the absence of ``specialized service

as not being a justification for an overlap.'' Seven other commenters

also believed that the term ``quality service'' needed to be defined.

They believed the term was very subjective: Did it mean the number of

services, hours open, or the attitude of workers? A few of these

commenters believed the lack of a definition has hurt small credit

unions.

One commenter supported NCUA's intent to provide overlap protection

for any type of charter if there are significant safety and soundness

concerns. This commenter would expand this to include a low-income

service impact test: A credit union should be protected from overlaps

which would impair its ability to effectively serve low-income members

of the community.

The proposal also stated that in special cases exclusionary

language should be used to limit the membership eligibility of widely

dispersed employees or associations. One commenter disagreed with this

limitation. This commenter believed that if there was a legitimate

common bond, such as a single employer or association, and no credit

union was serving the group, then exclusionary language was not

necessary.

B. NCUA Board Decision

The final IRPS contains the provision in the proposal removing from

overlap consideration broadly based state chartered credit unions,

which parallels how the agency approaches broadly based federal

charters. As to most of the remaining comments, the Board disagrees

with many of the suggestions. The Agency's long-standing policy is

working well. The vast majority of all overlaps are consented to by the

overlapped credit union. The remainder are resolved in a way which

makes the interests of the group paramount. The Board continues to

believe it needs flexibility in this area. Therefore, the final IRPS

does not define ``incidental overlap'' or ``quality service.''

However, the Board agrees that experience with exclusionary clauses

has not been entirely satisfactory. This entire section has been

rewritten in the final IRPS in the hope of limiting their use to the

few situations where they are truly warranted and effective.

IX. Documentation Issues

A. Comments

The proposal attempted to streamline documentation requirements.

Five commenters stated that the documentation requirements in the

proposal were not burdensome. Ten commenters disagreed. Many of these

commenters also believed that financial statements were unnecessary in

light of periodic call reports and examinations. Four commenters

believed that financial statements should not be necessary for field of

membership expansions.

Two commenters noted that, for a field of membership expansion, the

proposal required documentation from groups ``on the group's letterhead

stationery and signed by an official representative to the group.'' The

commenters believed this has generally been interpreted to mean an

officer of the employer. These commenters believed that NCUA should be

flexible and recognize that not all groups are represented by the

employer or have an ``official'' representative. They suggested that

the IRPS allow the regions to accept other documentation or

certification.

B. NCUA Board Decision

The NCUA Board agrees that in the vast majority of cases regional

staff have sufficient financial information available to make a

determination as to the economic advisability of the proposed charter

change. Therefore, the requirement to submit financial statements with

a charter change request has been deleted. If a regional office needs

additional information, it may ask for it. The NCUA Board also agrees

that the requirement for letterhead stationery can be relaxed. With

regard to the requirement that an ``official representative'' of the

group sign the letter requesting service, the Board does not believe a

change in the wording is needed, but will ensure that the regional

offices are instructed to be more flexible in applying the term to

specific situations.

X. The Proposed ``File and Serve'' Procedure

A. Comments

The proposal requested comment on a ``File and Serve'' select group

expansion procedure. It was envisioned that the procedure would permit

CAMEL code 1 and 2 credit unions to begin providing service to small

groups--50 persons or fewer was suggested--prior to formal NCUA

approval of the expansion. Thirty-six commenters favored the procedure.

These commenters believed it would allow credit unions to timely serve

new groups. However, some commenters suggested an increase in the

number of potential members that could be added using the procedure.

One commenter inquired whether the number included family members. Four

commenters recommended NCUA issue guidelines on what to do if the

expansion is subsequently denied by the Region.

Eighteen commenters objected to the ``File and Serve'' proposal.

The reasons were varied. Nine commenters stated there were no

procedures for what would happen if the expansion was denied by the

Region and that it would be an administrative nightmare if a denial

occurred. Eight commenters believed this proposal was not justified

since regulatory delay in approving expansion requests was not a

problem. Six commenters believed that there would be more conflicts

arising from both intentional and unintentional overlaps. Five

commenters stated that regulatory approval distinguishes credit unions

from banks.

Three commenters suggested any CAMEL code 1, 2 and 3 credit unions

be permitted to use the file and serve procedure. One commenter

suggested that NCUA implement an alternative procedure by which CAMEL

code 1 and 2 credit unions should be given preference by NCUA in

reviewing field of membership expansions. Two commenters specifically

objected to the procedure's being tied to a CAMEL rating. Four

commenters recommended that all credit unions should be able to use the

file and serve procedure. One of these commenters suggested NCUA could

then restrict the file and serve authority on a case-by-case basis for

any credit union it had concerns about. One commenter recommended

adding a requirement that the filing credit union have to state that

there was no overlap or existing eligibility for membership in another

credit union for the group to be served.

B. NCUA Board Decision

Many of the commenters' suggestions have been incorporated into the

final IRPS. The new policy will permit well operated federal credit

unions in good standing with NCUA to apply for charter amendments which

authorize the credit unions to make use of a streamlined process for

adding small occupational groups currently without credit union

service. The initial maximum number of persons in a group to be added

under this procedure has been set initially by the NCUA Board at 100.

The Board may be resolution adjust that number from time to time as

appropriate.

XI. Other Procedures for Reviewing Field of Membership Addition

Requests

A. Comments

The proposal sought to clarify the mechanics of requesting

additions to a federal credit union's field of membership. Four

commenters believed that the approval time on select employee group

additions was excessive. Another commenter stated that the field of

membership expansion procedure was burdensome and should be

streamlined. Two commenters supported NCUA's goal of approving or

denying field of membership expansion requests within the ``10 business

day or less'' time frame.

One commenter stated that, in regard to charter amendments, once

NCUA approves one, the board of directors of the credit union should

not subsequently have to adopt it to make it effective.

Two commenters stated that pre-notification of a proposed field of

membership expansion in another credit union's operating area should be

a common courtesy. Three commenters believed the final IRPS should

provide at a minimum for some form of publication and hearings or

period of comment relative to an expansion of any credit union's field

of membership.

B. NCUA Board Decision

The NCUA Board believes that a ten-business-day turnaround for

field of membership amendment requests is reasonable. All regions have

automated the review process so that this time frame should be exceeded

only in extraordinary cases. The Board strongly believes, however, that

a federal credit union's board needs to be involved in the process--

after all, the board is responsible for the institution's overall

direction and control. There are adequate procedures a federal credit

union can put in place to ensure that needed board oversight can be

maintained without delaying initiation of service to a group.

The Board also disagrees that a public notice procedure should be

implemented. The overlap procedures now in place provide adequate

safeguards.

XII. Federalism Concerns

A. Comments

The proposal would permit state-chartered credit unions that are

converting to a federal charter and that had an established history of

being able to serve multiple groups outside of its operational area to

continue to serve these groups without regard to the operational area

requirements normally applicable to new federal multiple group

charters. Three commenters supported the change but suggested that the

concept of operational area be discarded in favor of non-geographic

criteria. One commenter opposed relaxing the rules for converting state

charters.

B. NCUA Board Decision

The Board believes that, with respect to converting state charters,

where the commitment to the group and the ability to provide quality

service have been demonstrated, there is no need to impose the

operational area requirement. The final IRPS maintains this portion of

the proposal. Moreover, the IRPS establishes the same flexibility for

an occupational, associational, and multiple group federal credit union

converting to a community charter.

XIII. Miscellaneous Matters

A. Staff Leasing

1. Comments

The proposal attempted to clarify NCUA's policy on staff leasing

arrangements. The proposal stated that where the requirements of

existing policy were met, the employees leased to a firm listed in a

federal credit union's field of membership might be added as a common

bond expansion. Where those requirements were not met, the elements of

a select group expansion to serve employees of the leasing company had

to be met. When a leasing company was to be included in a credit

union's field of membership, the company had to identify each client

and work location served by the leasing company.

Four commenters favored the leasing clarification. Five commenters

disapproved of the clarification. These commenters believed that the

requirement for specific delineation of each separate company that was

a client of the employee leasing firm was both impractical and

impossible from an operational standpoint.

2. NCUA Board Decision

On reconsideration, it is evident that general policy can be

adequately adapted to the leasing company situation. Therefore, this

portion has been deleted from the final IRPS.

B. Spin-offs, Mergers, and Purchase and Assumptions

1. Comments

The proposal clarified NCUA's policy on mergers, spin-offs and

purchase and assumptions. Four commenters approved of the update on

spin-offs. Three of these commenters specifically approved of the

voting requirements for a spin-off. Seven commenters approved of the

revised merger section. Three commenters approved of the provision to

allow a merged state credit union's field of membership to be served by

the continuing federal credit union even if the inclusion of this field

of membership would otherwise be restricted under NCUA guidelines.

One commenter disapproved of the merger policy. This commenter

believed that by applying an operational area condition to distress

mergers, NCUA is limiting its own range of action. This commenter

further stated that a suitable merger candidate may not be located

within the operational area of a distressed credit union and that it

seemed wasteful to wait for emergency conditions to evolve and moot the

operational area issue.

One commenter suggested that NCUA should be able to put a credit

union for which it is seeking a merger partner into temporary

conservatorship, which would allow public notification and bidding from

interested credit unions. In addition, this commenter stated that

current merger procedures were left to the discretion of each regional

office and suggested NCUA give serious consideration to standardizing

procedures which would give all credit unions an opportunity to bid.

Four commenters suggested allowing community credit unions to merge

with occupational, associational, or multiple group credit unions while

still continuing to serve the former fields of membership of both

credit unions. Two commenters requested that with respect to mergers,

the final IRPS should clarify that when a state chartered credit union

is merged into a federal credit union, the federal credit union would

be allowed to retain the merged state chartered credit union's select

employee groups, regardless of operational area, in order to assure the

vitality of the federal credit union after the merger. Another

commenter agreed with this suggestion and would expand it to all

mergers, including mergers between federal credit unions.

2. NCUA Board Decision

The NCUA Board agrees that operational area limitations should not

be an obstacle to merger of credit unions in distress situations, and

believes this was Congress' intent in giving NCUA emergency merger

authority. The Board has therefore interpreted Section 205(h) of the

Federal Credit Union Act (12 U.S.C. 1785(h)) to permit authorizing as

emergency mergers what have become known since IRPS 89-1 as distress

mergers.

For the reasons stated earlier, however, the Board does not believe

that the operational area limitation should be discarded entirely or

that exercise of NCUA's conservatorship authority should become a

standard part of the merger process.

C. Removal of Groups

1. Comments

The proposal clarified NCUA's policy on the removal of groups from

a federal credit union's field of membership. Four commenters agreed

with the clarification. One of these commenters suggested allowing the

removal of a group when it does not respond to a federal credit union's

repeated attempts to contact them.

2. NCUA Board Decision

The final IRPS incorporates this suggested change.

D. School Systems

1. Comments

The proposal clarified that employees of different school systems

and different government units do not have the same primary sponsor.

Therefore, the addition of the employees of a particular school

district by a federal credit union serving employees of an adjoining

school district would have to be done under the select group addition

procedures. Three commenters concurred with this clarification. Two

commenters disagreed with this proposal. They believed that school

employees in different school districts may share the same common bond

and they should be added under the common bond procedure.

2. NCUA Board Decision

The final IRPS deletes discussion of school systems. They will be

analyzed under general common bond policy. In the vast majority of

cases, different school systems will be considered different common

bonds.

E. Industrial Parks

1. Comments

The proposal suggested modifying existing policy to permit field of

membership expansions to include all employees of office complexes,

industrial parks, shopping centers and similar establishments upon

request from the leasing agent or similar authoritative figure. No

overlap protection would be given to the expanding credit union and

exclusionary clauses would be used to prevent injury to those credit

unions serving a portion of these employees. Sixteen commenters favored

this proposal. One commenter believed NCUA needs to identify other

contacts beside the leasing agent.

Three commenters opposed this modification. One commenter stated

that if NCUA adopted this modification, it should ensure that no

overlap protection was given to the expanding credit union and that

exclusionary language was incorporated into the bylaws of the expanding

credit union to prevent possible injury to other credit unions which

served the same employees. One commenter stated that this modification

would cause numerous overlaps in fields of memberships.

2. NCUA Board Decision

The Board has decided to adopt this proposal with a modification.

Although the proposal stated that exclusionary clauses would be used to

protect overlapped credit unions, the Board believes that the member,

in such cases, should have the ability to use the credit union which

best serves his/her needs. In many cases it might be the industrial

park type credit union that is more attractive to the individual.

Therefore, in general, no overlap protection will be given to the

credit union with the industrial park or similar complex in its

charter. However, the regional director may, for safety and soundness

reasons, provide overlap protection or require exclusionary clauses to

prevent significant economic injury to other credit unions serving a

portion of these employees.

Although NCUA has not specifically identified parties other than

the complex leasing agent or owner, the final IRPS provides sufficient

flexibility in this matter.

F. Outside Vendors

1. Comments

The proposal provided guidance on the safety and soundness concerns

NCUA had with a credit union using outside parties, insurance agents

and car dealers, among others, to recommend select group expansions.

Three commenters approved of this addition. One commenter stated that

this guidance should be expanded to include discussion of indirect

lending.

2. NCUA Board Decision

The final IRPS includes the discussion on outside vendors and has

been expanded to include indirect lending.

G. Approval of Officials

1. Comments

The proposal clarified that NCUA must approve all prospective

officials and management personnel of a newly chartered credit union

during the first two years. A few comments opposed this provision.

2. NCUA Board Decision

The Board has adopted the proposal in the final IRPS since the

requirement is statutory; the reason for its inclusion in the IRPS is

to be a reminder to credit union officials.

H. Appeal Rights

1. Comments

The proposal clarified the appeal rights for new charters and for

those credit unions denied requests for a field of membership

amendment, spin-offs and mergers. Eight commenters supported the appeal

procedure. Nine commenters believed the appeal procedure was

insufficient. Four of these commenters requested that appeals be sent

directly to the central office and bypass the region. One commenter

questioned whether central office staff would act independently of the

regional director. One commenter stated the proposal was unclear on

what rights of appeal an overlapped credit union had involving the

field of membership of another credit union.

The appeal process in the proposal did not include a provision for

oral argument. Six commenters agreed that oral argument before the

Board was unnecessary. Fourteen commenters disagreed.

One commenter suggested the proposal clarify that a resubmission or

additional information for consideration to the Regional Director

within 90 days of a denial should be considered a new request for

purposes of the appeal time limit. Furthermore, the commenter stated,

if the resubmission was denied, the credit union should then have

another 60 days to appeal.

2. NCUA Board Decision

The Board is currently undertaking a complete review of its appeal

process. The final IRPS makes the agency's standard appeal process

applicable.

I. Professional Organizations

1. Comments

The proposal included language to minimize potential conflicts of

interest when adding certain professional organizations to the field of

membership of a federal credit union. Four commenters concurred with

the guidance provided when adding a professional organization to a

field of membership.

2. NCUA Board Decision

The final IRPS includes this portion of the proposal.

J. Corporate Federal Credit Unions

1. Comments

The proposal clarified that corporate credit union chartering and

field of membership issues were handled by the Office of Examination

and Insurance. Four commenters agreed with the proposed change.

2. NCUA Board Decision

The final IRPS includes this portion of the proposal.

K. Appendix C--Type of Membership Classification System

1. Comments

One commenter stated the classification was fixed at the time of

chartering and it was his understanding that it never changed.

Furthermore, in recognition that the membership composition of a credit

union can undergo substantial change over time, this commenter

suggested a procedure be created to provide classification changes.

Otherwise, this commenter believed classification related data would

become increasingly flawed.

2. NCUA Board Decision

Since the coding is used for internal analytical purposes, Appendix

C has been deleted from the final IRPS. As a note, the codes are

changed periodically by NCUA staff.

L. Format of the Manual

1. Comments

One commenter was concerned with the terminology ``field of

membership expansion.'' This commenter believed that all changes in the

field of membership were not for the purpose of expansion and some

field of membership ``modifications'' were based on considerations

other than the mere decision of a credit union to expand. This

commenter recommended replacing the term ``expansion'' with

``modification.'' Two commenters believed the manual should be

reorganized so it would be more accessible to the user.

2. NCUA Board Decision

The Board agrees that not all field of membership changes are

expansions and therefore has replaced the term ``expansion'' with the

term ``amendment.'' The format of the proposed IRPS has been modified

substantially in the final version. Additionally, the IRPS, when put in

the form of a manual, will be indexed to make it easier to use.

Regulatory Procedures

Regulatory Flexibility Act

As was noted in the proposed IRPS, the NCUA Board has determined

that changes to NCUA policy resulting from adoption of the IRPS will

not have a significant economic impact on a substantial number of small

credit unions (primarily those under $1 million in assets). The changes

in the final IRPS clarify existing policy rather than create new

restrictions. Therefore, a regulatory flexibility analysis has not been

performed.

Paperwork Reduction Act

Paperwork requirement should decrease under the final IRPS. The

information collection requirements contained in the IRPS have been

submitted to the Office of Management and Budget (OMB) for approval.

OMB is in the process of reviewing these requirements. A notice of OMB

approval will be published in the Federal Register upon its receipt.

Any comments regarding collection requirement should be forwarded

directly to the OMB Desk Officer indicated below at the following

address: OMB Reports Management Branch, New Executive Office Building,

room 3208, Washington, DC 20503; Attn.: Gary Waxman.

Executive Order

Executive Order 12612 requires NCUA to consider the effect of its

actions on state interests. The final IRPS makes no significant changes

with respect to state credit unions and, therefore, will not materially

affect state interests.

List of Subjects in 12 CFR Part 701

Chartering, Conversions, Credit Union, Field of Membership

Addition, Mergers by the National Credit Union Administration Board on

May 12, 1994.

Becky Baker,

Secretary of the Board.

Accordingly, NCUA amends 12 CFR part 701, supersedes 89-1 and

establishes the following IRPS 94-1 as follows:

PART 701--ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNIONS

1. The authority citation for part 701 continues to read as

follows:

Authority: 12 U.S.C. 1755, 1756, 1757, 1759, 1761a, 1761b, 1766,

1767, 1782, 1784, 1787, 1789, and 1798.

2. Section 701.1 is revised as follows:

Sec. 701.1 Federal credit union chartering, field of membership

modifications, and conversions.

National Credit Union Administration practice and procedure

concerning chartering field of membership modifications, and

conversions are set forth in Interpretive Ruling and Policy Statement

94-1--Chartering and Field of Membership Policy (IRPS 94-1). The IRPS

is incorporated into this regulation.

3. IRPS 89-1 is superseded by the following IRPS 94-1:

[Note: The following ruling will not appear in the Code of

Federal Regulations.]

CHAPTER 1--FEDERAL CREDIT UNION CHARTERING

I--Goals of NCUA Chartering Policy

NCUA's chartering policies are directed toward achieving three

goals:

to uphold the provisions of the Federal Credit Union Act

concerning granting federal charters

to promote credit union safety and soundness

to make quality credit union service available to all

eligible groups who wish to have it.

NCUA may grant a charter to any group or combination of groups

desiring credit union service where it finds:

the group or groups possess an appropriate common bond;

the subscribers are of good character and are fit to

represent the group; and

establishment of the credit union is economically

advisable--i.e., it will be a viable institution and its chartering

will not materially affect the interests of other credit unions or the

credit union system.

Generally, these are the only criteria NCUA will look to. In

unusual circumstances, however, NCUA may consider other factors, such

as other federal law or public policy, in deciding if a charter should

be approved.

II--Common Bond

Congress, in the Federal Credit Union Act, has recognized three

types of federal credit union common bonds--occupational,

associational, and community. A federal credit union may also consist

of a combination of occupational, associational, and, in certain

limited circumstances, community groups. For example, NCUA may charter

a federal credit union consisting of employees of a local school

district and members of a church group.

The Federal Credit Union Act and NCUA recognize that individual

groups have their own common bond. All of the groups belonging to one

particular credit union included in Section 5 of the credit union's

charter make up the credit union's field of membership. If the charter

is granted, the federal credit union will only be able to grant loans

and provide services to persons within the groups defined in the field

of membership.

If a federal credit union later wishes to add persons to its field

of membership, it must comply with the procedures set forth in Chapter

2.

II.A--Occupational Common Bonds

II.A.1--General

A federal credit union may include in a single occupational common

bond, regardless of location, any and all persons who share that common

bond. NCUA permits a person's membership in an occupational common bond

to be established in a number of ways:

Employment (or a long-term contractual relationship

equivalent to employment) in a single corporation or other legal entity

makes that person part of an occupational common bond of employees of

the entity.

Employment in a corporation or other legal entity with an

ownership interest in or by another legal entity makes that person part

of an occupational common bond of employees of the two entities.

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 an occupational common bond of employees of the two

entities.

A proposed federal credit union must supply documentation from as

many authorized representatives as are needed to establish that all

persons to be included in a single occupational common bond are in fact

linked in one of the ways described above.

An occupational common bond must include a geographic definitions,

e.g., ``employees, officials, and persons who work regularly under

contract in Miami, Florida for ABC Corporation or any of these

majority-owned subsidiaries. * * *'' Other acceptable geographic

definitions are: ``employees of * * * who are paid from * * *'' or

``employees of * * * who are supervised from * * *'' To the maximum

extent possible, setting geographic definitions by changeable corporate

or division boundary--e.g., ``employees of Federal Reserve District

6''--is to be avoided.

So that NCUA may monitor any potential field of membership

overlaps, each group to be served (e.g., employees of subsidiaries,

franchisees, and contractors) may be separately listed.

The employer may also be included in this common bond--e.g., ``ABC

Corporation and its subsidiaries.'' The employer group will be defined

in the last clause describing the field of membership.

II.A.2--Sample Occupational Fields of Membership

Some examples of occupational group definitions are:

``Employees of the Scott Manufacturing Company who work in

Chester, Pennsylvania. * * *'' (common bond--same employer)

``Employees and elected and appointed officials of

municipal government in Parma, Ohio. * * *'' (common bond--same

employer)

``Employees of Johnson Soap Company and its majority-owned

subsidiary, Johnson Toothpaste Company, who work in Augusta and

Portland, Maine. * * *'' (common bond--parent and majority-owned

subsidiary company)

``Personnel of fleet units of the U.S. Navy home ported at

Mayport, Florida. * * *'' (common bond--same employer)

``Department of Defense civilian and U.S. Army personnel

who work or are stationed at, or are attached or assigned to Fort

Belvoir, Virginia, or those who are retired from, or their dependents

or dependent survivors who are eligible by law or regulation to receive

and are receiving benefits or services from, that military

installation. * * *'' (common bond--same employer)

``Employees of those contractors who work regularly at

U.S. Naval Shipyard in Bremerton, Washington. * * *'' (common bond--

employees of contractors)

``Employees, doctors, medical staff, technicians, medical

and nursing students who work at Boston Medical Center at the locations

stated: * * *'' (common bond--same employer)

``Employees and teachers who work for the School District

Number 3 in Austin, Texas * * *.'' (common bond--same employer)

``Employees of the JKL Employee Leasing Company who are

paid from Lake Charles, Louisiana * * *.'' (common bond--same employer)

``Employees of JKL, Inc. and STU, Inc. working for the XYZ

Joint Venture Company in Los Gatos, California * * *.''

Some examples of insufficiently defined occupational groups are:

``Employees of engineering firms in Seattle, Washington.''

(Not the same occupational common bond, since various firms compete

against one another; names of firms must be stated; however, may be the

basis for a multiple group charter.)

``Persons employed or working in Chicago, Illinois.'' (No

common bond; names of firms must be stated.)

``Persons working in the entertainment industry in

California.'' (No occupational common bond, since firms compete against

one another; names of firms must be stated.)

II.B--Associational Common Bonds

II.B.1--General

A federal credit union may include in its field of membership,

regardless of location, all members of a recognized association.

NCUA limits this common bond to groups consisting primarily of

individuals (natural persons) who participate in activities developing

common loyalties, mutual benefits, and mutual interests. Except for

student, church, and similar groups, all associational common bonds

will include a definition of the group that may be served based on the

effective date of the association's charter and bylaws and a geographic

limitation. Therefore, with the exceptions noted above, applicants for

an associationally-based federal credit union charter must provide a

copy of the association's charter and bylaws.

Qualifying associational groups must hold meetings open to all

natural person members at least once a year, must sponsor other

activities which clearly demonstrate that the members of the group meet

and interact regularly to accomplish the objectives of the association,

and must have an authoritative definition of who is eligible for

membership--usually, this will be the association's charter and bylaws.

In determining whether a group satisfies the common bond

requirement for a federal credit union charter, NCUA will consider the

totality of the circumstances--such as whether members pay dues, have

voting rights, and hold office, whether the group maintains a

membership list, the clarity of the associational group's definition

and compactness of its membership, and the frequency of meetings and

the interaction of members. A support group, whose members are

continually changing, may not meet the criteria.

NCUA's focus with respect to chartering associational federal

credit unions will be on the group's natural person members. In certain

instances, however, NCUA will also allow non-natural persons (e.g.,

corporate sponsors, entities participating in programs to alleviate

poverty and distress, or organizations of members) to be eligible for

membership. It is not necessary that every non-natural person member of

the group be a recognized legal entity; NCUA will consider such groups

on a case-by-case basis.

Student groups--for example, parent-teacher organizations, alumni

associations, and students in a trade school or other curriculum--and

church groups constitute associational common bonds and may qualify for

a federal credit union charter. Since such groups usually do not have a

formal association charter, there is no requirement for these groups to

provide a charter or bylaws.

Homeowners associations, tenant groups, electric co-ops, consumer

groups and other groups of persons having an ``interest in'' a

particular cause and certain consumer cooperatives may be eligible to

receive a federal charter. However, they must make a strong showing of

common activities which clearly demonstrate that the group meets and

interacts regularly to accomplish the objectives of the association.

Furthermore, they must provide clear evidence of economic viability.

Newly-organized associations must make a similar strong showing of

common activities. Experience has shown that a new group's efforts are

best focused on solidifying member interest before attempting to offer

credit union service.

The associational sponsor itself may also be included in the field

of membership--e.g., ``ABC Association''--and will be shown in the last

clause of the field of membership.

II.B.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 state dated

in the field of membership, the credit union must submit the revised

charter or bylaws for NCUA's consideration prior to serving members of

the association added as a result of the change. This type of field of

membership amendment will require following select group amendment

procedures discussed in Chapter 2.

II.B.3--Widely Dispersed Associational Charters

NCUA policy is to charter associational federal credit unions at

the lowest organizational level which is economically feasible. NCUA

will grant associational charters with widely dispersed memberships

only where clearly demonstrated to be in the best interests of the

association's members and the credit union community, and only after

scrutinizing the adequacy of the applicant's common bond and the

economic advisability of a more compact field of membership. NCUA, in

its discretion, may require that the proposed field of membership be

narrowed before granting a new charter. Amendment to include a larger

portion of the association's members may be allowed at a later time, if

appropriate.

Also, as with any widely dispersed group, overlap issues are likely

to arise, either at the time of or subsequent to chartering. NCUA will

consider the effect that granting a charter with such a group in its

field of membership would have on any number of existing credit unions.

In addition, an associational credit union with a widely dispersed

membership may expect overlaps, particularly at the local level, to be

granted to other credit unions in the future.

In recognition of these unique circumstances, NCUA follows a

separate internal procedure for associational charter applications for

associations with proposed fields of membership of 500 or more persons

which cross NCUA regional boundaries. NCUA's Director of Examination

and Insurance and all NCUA regional directors with any of the

association's members located in their region must vote on the charter

application. A majority vote is required for approvals. Tie votes are

referred directly to the NCUA Board for decision.

II.B.4--Limits of Associational Common Bond

Except for retiree clubs and low-income groups (discussed below),

associations formed primarily to obtain a federal credit union charter

do not have a sufficient associational common bond. Similarly,

associations based on a client-customer relationship--for example, an

insurance company and its customers or a buyer's club and its members--

do not have a sufficient associational common bond.

The common bond extends only to the association's members. The

employees of a member of a local chamber of commerce, for example, do

not have a sufficiently close tie to the association to be included. A

proposal to include these persons among those to be served by the

federal credit union may be considered as a multiple-group charter

application. In such cases, letters of support and request for service

must be provided from each separate entity.

II.B.5--Sample Associational Fields of Membership

Some examples of associational group definitions are:

Regular members of Locals 10 and 13, IBEW, Miami, Florida,

who qualify for membership in accordance with their charter and bylaws

in effect on May 20, 1994.''

``Members of the Hoosier Farm Bureau who live or work in

Grant, Logan, or Lee Counties of Indiana, who qualify for membership in

accordance with its charter and bylaws in effect on March 7, 1994.''

``Members of the First Baptist Church in Topeka, Kansas.''

``Members of the Shalom Congregation in Chevy Chase,

Maryland.''

``Regular members of the Corporate Executives Association,

located in Westchester, New York, who live or work in Westchester,

Rockland, and Suffolk Counties in New York, who qualify for membership

in accordance with its charter and bylaws in effect on December 1,

1994.''

``Members of the Northern Michigan Electric Co-op located

in Marquette, Michigan.''

``Members of the ABC Association living or working in New

York, New York, who qualify for membership in accordance with its

charter and bylaws in effect on January 21, 1994.'' Some examples of

insufficiently defined associational group definitions are:

``Members of military service clubs in the State of New

Mexico.'' (No single associational tie; specific clubs and locations

must be named; may be considered as multiple group.)

``Veterans of U.S. military service.'' (Group is too

broadly defined; no formal association of all members of the group.)

Some examples of unacceptable associational common bonds are:

``Members of ABC Buyers Club.'' (An interest in purchasing

does not meet associational standards.)

``Customers of ABC Insurance Company.'' (Policyholders or

customer/client relationships do not meet associational standards.)

II.C--Community Common Bonds

II.C.1--General

Congress requires that a credit union charter based on a tie to a

specific geographic location be limited to ``a well-defined

neighborhood, community, or rural district.'' NCUA policy is to limit

the community to a single, geographically well-defined area where

residents interact.

NCUA recognizes three types of affinity on which a community common

bond can be based--persons who live in, persons who worship in, and

persons who work in the community. Businesses and other legal entities

within the community boundaries may also qualify for membership. Given

the diversity of community characteristics throughout the country and

NCUA's goal of making credit union service available to all eligible

groups who wish to have it, NCUA has established the following common

bond requirements for community charters:

The geographic area's boundaries must be clearly defined;

and

The charter applicant must establish that the area is

recognized as a distinct ``neighborhood, community, or rural

district.''

II.C.2--Special Documentation Requirements

Information to support that the area chosen represents one well-

defined area, distinguishable from the immediate surrounding areas,

includes:

political jurisdictions

major trade areas (shopping patterns)

traffic flows

shared/common facilities (for example, educational,

medical, police and fire protection, school district, water, etc.)

organizations/clubs whose membership is made up

exclusively of persons within the area

newspapers or other periodicals published for and about

the area

census tracts

common characteristics and background of residents (for

example, income, religious beliefs, primary ethnic groups, similarity

of occupations, household types, primary age group, etc.)

history of area

in general, what distinguishes the chosen area and its

residents to be distinguishable from the immediate surrounding areas

and residents--some examples are old, well established ethnic

neighborhoods, planned communities and small/rural towns

The following information must be provided to support a need for a

community credit union:

a list of credit unions presently in area

a list of other financial institutions (for example,

banks, savings and loan associations) that service the area

Necessary written documentation (for example, letters, surveys,

studies, pledges, petitions) reflecting support for the application for

or the conversion to a community credit union is as follows:

For the residents of the area:

Approximate number contacted.

Number in favor of the credit union.

Number against the credit union.

Number who will join the credit union.

Number who have pledged initial and/or systematic savings

and amount of pledges.

For the employers:

Number of area employers and number of employees.

Number contacted.

Number in favor of the credit union.

Number against the credit union.

Number willing to provide payroll deductions to the credit

union.

Number willing to provide other type(s) of support to the

credit union.

For organizations (including churches):

Number in areas and number of members.

Number contacted.

Number in favor of the credit union.

Number against the credit union.

Number willing to provide some type of support to the

credit union, i.e., advertising facilities, etc.

letters of support from area civic leaders.

If the community is also a recognized legal entity, it may comprise

or be included in the field of membership--for example, ``DEF Township,

Kansas'' or ``GHI County, Minnesota.''

II.C.3--Community Service Area

The service area of a community federal credit union is the area

defined in its charter, usually with north, east, south, and west

boundaries.

II.C.4--Sample Community Fields of Membership

Some examples of community common bond definitions are:

``Persons who live or work in, and businesses located in

the area of XYZ City bounded by Fern Street on the north, Long Street

on the east, Fourth Street on the south, and Elm Avenue on the west.''

``Persons who live or work in Green County, Maine. . . .''

``Persons who live, worship or work in and businesses and

other legal entities located in Independent School District No. 1,

DuPage County, Illinois. . . .''

``Persons who live or work within a twenty mile radius of

the main post office in Walnut, Illinois. . . .'' (Rural areas only.)

Some examples of insufficiently defined community common bond

definitions are:

``Persons who live or work within and businesses located

within a ten-mile radius of Washington, DC.'' (Not a recognized

neighborhood, community, or rural district.)

``Persons who live or work in the industrial section of

New York, New York.'' (Not a recognized neighborhood, community, or

rural district.)

II.D--Multiple Occupational/Associational Common Bonds

II.D.1--General

NCUA may charter a federal credit union to serve a combination of

distinct, definable occupational and/or associational common bonds. For

a common bond which will constitute a majority of the federal credit

union's field of membership, the requirements for occupational and

associational fields of membership apply. Any other group constituting

an occupational or associational common bond to be included within the

federal credit union's field of membership must be within what will be

the credit union's operational area.

A proposed federal credit union's operational area is the area

which, as determined by NCUA in its sole discretion, may reasonably be

served by the service facilities that will be accessible by the groups

to be included in the field of membership when the credit union begins

operation. A credit union's service facility is a place where, also as

determined by NCUA in its sole discretion: (1) Shares are accepted for

members' accounts; (2) loan applications are accepted or loans are

disbursed; (3) a member can deal directly with a credit union

representative; and (4) the service provided is clearly associated with

that particular credit union. An automated teller machine or similar

device is not a federal credit union service facility. Similarly, a

branch or service center shared by a number of credit unions is not a

service facility for purposes of this Chapter.

Any members of a group who will have access to one of a proposed

federal credit union's service facilities may be included in the field

of membership. In addition, the group as a whole will be considered to

be within a proposed credit union's operational area when:

A majority of the group's members live, work, or gather

regularly within the operational area;

The group's headquarters is located within the operational

area; or

The group's ``paid from'' or ``supervised from'' location

is within the operational area.

The following special additional requirements pertaining to

multiple group applications must be satisfied before NCUA will grant

such a charter:

Each group to be included in the proposed field of

membership of the federal credit union must have its own occupational

or associational common bond.

Except for employee groups in the same industrial park,

shopping center or similar facility, each group must individually

request inclusion in the proposed federal credit union's charter.

The proposed federal credit union's business plan must

show that the credit union will possess the financial resources and

management capability to provide quality credit union service to each

group.

The proposed federal credit union must show that, when it

begins operations, each group to be added will be within the

operational area of a service facility to which the group will have

access.

II.D.2--Sample Multiple Group Field of Membership

An example of a multiple group field of membership is: ``The field

of membership of this federal credit union shall be limited to the

following:

1. Employees of Dupont Corporation who work in Wilmington,

Delaware;

2. Partners and employees of Smith & Jones, Attorney at Law, who

work in Wilmington, Delaware;

3. Members of the GHI Association who live in Wilmington, Delaware,

and qualify for membership in accordance with its charter and bylaws in

effect on December 31, 1994.

II.D.3--Additional Documentation

For multiple group charters, NCUA will need the following, in

addition to what is required for new charters generally:

For each group seeking to be included in the proposed

federal credit union's field of membership, the credit union must

provide a letter from the group, on the group's letterhead stationery

and signed by an official representative of the group wherever

possible, or if that is not possible, such other documentation or

certification as the regional director may, in his or her discretion,

deem appropriate, containing this information:

The fact that the group wants to obtain service from the

proposed federal credit union, the kind of service it desires and the

credit union has agreed to provide, and the extent to which the group

supports the credit union--e.g., by providing access to its employees

or members via payroll deduction, by permitting use of employee or

members' newsletter, etc.

The number of employees or members in the group.

The proximity to the proposed federal credit union's

closest service facility.

The name of any credit union to which the group currently

has access.

The group's headquarters location and all other work

locations the credit union is proposing to serve.

If the group is eligible for membership in another credit

union, documentation must be provided to support inclusion of the group

under the standards set forth in the ``Overlaps'' section of this

chapter.

II.E--Other Persons Sharing Common Bond

A number of persons by virtue of their close relationship to a

common bond group may be included, at the charter applicant's option,

in the field of membership. These include the following:

``Spouses of persons who died while within the field of

membership of this credit union.''

``Employees of this credit union.''

``Persons retired as pensioners or annuitants from the

above employment.''

Members of their immediate families.''

``Volunteers.''

``Organizations of such persons.''

``Members of their immediate families'' may be generally defined as

deemed appropriate by a federal credit union when including this group

among those to be served. To be made effective, however, the federal

credit union's board of directors must approve the definition by

resolution, and include it in Article XVIII, Section 2, of its by-laws.

NCUA approval is not necessary.

Volunteers, by virtue of their close relationship with a sponsor

group, may be included. Examples include volunteers working at a

hospital or church.

Under Article II, Section 5, of NCUA's Standard Bylaws, if a member

leaves the field of membership, standard member services are

terminated. However, the board of directors may, by resolution, set

forth the circumstances under which a member may maintain membership.

This option is commonly referred to as the ``once a member, always a

member'' bylaw provision. NCUA approval is not necessary here, either.

III--Subscribers

Federal credit unions are organized by persons who donate time and

resources and are responsible for determining the interest, commitment,

and advisability of forming a federal credit union. The organization of

federal credit union takes considerable planning and dedication in

order to ensure the success of the new credit union.

Persons interested in organizing a federal credit union should

contact the NCUA regional office serving the state in which the credit

union will be organized or one of the trade associations. Lists of NCUA

offices and 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.

A credit union organizer may be a trade association representative

or a person with training and experience in chartering new federal

credit unions. 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 group members are critical to the chartering

process.

The Federal Credit Union Act requires that seven or more natural

persons--the ``subscribers''--must present to NCUA for approval a sworn

organization certificate stating at a minimum:

The name of the proposed federal credit union.

The location of the proposed federal credit union and the

territory in which it will operate.

The names and addresses of the subscribers to the

certificate and the number of shares subscribed by each.

The initial par value of the shares.

The detailed proposed field of membership.

The term of the existence of the corporation, which may be

perpetual.

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 the organization certificate may be grounds for

federal criminal prosecution.

IV--Economic Advisability

IV.A--Viability

IV.A.1--General

Before chartering a federal credit union, NCUA must be assured that

the institution will be viable and that it will not materially affect

existing state or federal credit unions. This economic advisability

inquiry has become especially important since 1970, when Congress

assigned NCUA the obligation to establish a fund insuring credit union

members' shares and to preserve that fund.

NCUA will conduct an independent on-site investigation of each

charter application to assure itself that the proposed credit union can

be successful. In general, the success of any credit union depends on:

(a) the depth of the members' support; (b) the character and fitness of

management; and (c) present and projected market conditions.

IV.A.2--Proposed Management's Character and Fitness

The Federal Credit Union Act requires NCUA to satisfy itself as to

the ``general character and fitness'' of the subscribers. In addition,

prospective officials and employees will be the subject of credit and

background investigations. The investigation reports must demonstrate

their ability to effectively handle financial matters.

NCUA also needs 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.

IV.A.3--Member Support

While NCUA has not set a minimum size field of membership for

chartering a federal credit union, experience has shown that a credit

union with under 500 potential members generally is unlikely to

succeed. Therefore, a charter applicant with a proposed field of

membership of under 500 will have to demonstrate convincing support for

the credit union. For example, a small occupational group must

demonstrate a commitment for significant long-term support from the

employer.

The group's size is meaningful only if members participate in the

credit union. The charter applicant must show that a substantial

percentage of the group's members will join the credit union and use

its services. Survey results must be based, at a minimum, on a sampling

of 250 potential members. In particular instances, especially where the

common bond is broadly defined or newly established, NCUA may require a

larger sampling.

IV.A.4--Present and Future Market Conditions--Business Plan

IV.A.4.a--General

The ability to compete in the marketplace and to adapt to changing

market conditions is key to the survival of any enterprise, and a

crucial part of that is the ability to plan well. NCUA, therefore,

requires an applicant to submit a business plan based on realistic and

supportable projections and assumptions, including, as a minimum, these

elements:

Mission statement.

Analysis of market conditions--economic prospects for the

group, availability of financial services from other credit unions,

banks, and savings and loans.

Summary of survey results.

Financial services needed/desired.

Financial services to be provided.

How/when services are to be implemented.

Staffing of credit union and credentials of key employees.

Physical facility--office, equipment.

Type of recordkeeping system, including consideration of a

data processing system.

Budget for 1st and 2nd year.

Semiannual pro forma financial statements for 1st and 2nd

year, including assumptions--e.g., loan and dividend rates.

Goals for number of members.

Goals for operating independently.

Source of funds to pay expenses during initial months of

operation.

Written policies (shares, lending, investments, funds

management, capital accumulation, dividends).

Goals for shares and loans.

Plan for continuity--directors, committee members.

Evidence of sponsor commitment if subsidies are critical

to success of the federal credit union--evidence may be in the form of

letters, contracts, or any other such document on which the proposed

federal credit union can substantiate its projects.

NCUA expects that the subscribers and proposed officials will

understand and support the business plan submitted.

IV.A.4.b--Special Requirements for Community Credit Unions

Community credit unions are frequently more susceptible to

competition from other local financial institutions and generally do

not have substantial support from any single sponsoring company or

association. Also, the lack of payroll deduction creates special

challenges in the development of savings promotion programs and in the

collection of loans. Therefore, it is essential for the group to

develop a detailed and practical business plan for at least the first

three years of operation. The business plan should contain, but not

necessarily be limited to, the following:

Analysis of market area--geographic, demographic,

employment, income, housing, and economic data.

Service/market strategy--financial and other services to

be provided, new member/share/loan promotion policies and procedures

and income generation strategy.

Organizational/management plan--qualification and planned

training of officials/employees, operating facilities to include office

space/equipment and supplies, accounting system, safeguarding of

assets, insurance coverage, etc.

Financial plan--sources and application of funds

statements and pro forma balance sheet and income/expense statements

and assumptions.

IV.B--Effects on Other Credit Unions--Overlaps

(This discussion pertains to new and existing charters.)

IV.B.1--Overlaps In General

An overlap exists when a group of persons is eligible for

membership in two or more credit unions, including state charters.

General policy requires that every reasonable effort be made to avoid

an overlap. Ideally, a group of persons should be included in the field

of membership of only one credit union.

New credit unions are obligated to investigate the possibility of

an overlap prior to submitting an application for a new charter by

surveying the prospective field of membership.

When a potential overlap situation does arise, officials of the

involved credit unions must attempt to work the problem out between or

among themselves. In the case of a new federal credit union applying

for or converting to a community field of membership, the applicant

will generally be required to contact only those credit unions with a

service facility within the community boundary. Other credit unions

serving select groups within the proposed area will not ordinarily be

contacted or afforded overlap protection unless a significant portion

of their field of membership is affected. If the matter is resolved

informally, the applicant must submit a letter to that effect from the

credit union whose field of membership already includes the subject

group.

If no resolution is possible, an application for a new charter may

still be submitted, but must also include information regarding the

overlap and document attempts at informal resolution. Documentation on

the interests of the group, such as a petition signed by a majority of

the group's members, will be strongly considered.

When resolution of the issue is not possible, and other

circumstances warrant, an overlap may be permitted. Among the

circumstances which may justify an overlap are:

Failure of the original credit union to provide quality

service.

Limited participation by members or employees of the group

in the original credit union after the expiration of a reasonable

period of time.

Incidental overlap--the group of persons in question is so

small as to have no material effect on the original credit union.

In reviewing the overlap, the regional director will consider the

nature of the issue, efforts made to resolve the matter, financial

effect on the overlapped credit union, the desires of the group(s), the

desire of the sponsor organization, the opinion of the state credit

union supervisor and other interested parties, as applicable, and the

best interests of the affected group and the credit union members

involved.

Potential overlaps of a 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. However, where a state credit

union's field of membership is so general as to include virtually

everyone in a wide area, NCUA may exclude any state credit union from

overlap protection altogether just as it would with a federal credit

union with a broadly defined field of membership. Prior to making that

decision, the regional director will consult the credit union and the

state regulator. Any decision by the regional director will be provided

in writing to the credit union and the state regulator.

Generally, NCUA will permit federal credit unions serving

occupational groups to overlap associational and community charters.

However, should the proposed overlap pose significant safety and

soundness concerns, NCUA may provide overlap protection for any type

charter. For example, labor union groups constitute an associational

common bond, and while some labor unions serve members who work

regularly for several employers, others have members who work for only

one employer. In these latter cases, overlap protection may be provided

if a substantial portion of the company's employees are served by the

credit union.

Some situations may not justify approval of a requested overlap.

For example, if the requesting credit union offers certain specialized

services not offered by the original credit union (such as credit

cards, ATMs, and IRAs), the extra services alone may not justify the

overlap. Also, proximity, by itself, may not warrant approval of an

overlap. A federal credit union in Chicago, Illinois, may not have a

convincing argument, based on geography alone, that a select group also

located in Chicago would be better served by it than by the select

group's headquarters credit union located in Dallas, Texas.

From an overlap prevention perspective, new charter applicants and

every occupational or associational group which comes before the

regional director for affiliation with an existing federal credit union

must advise in writing whether the group is included within the field

of membership of any other credit union. This requirement will alert

the regional director to possible overlap situations before they occur.

Most potential field of membership conflicts can be avoided in this

way. If cases do arise where the assurance given to a regional director

concerning unavailability of credit union service turns out later to be

inaccurate, the misinformation is grounds for removal of the group from

the federal credit union's charter.

IV.B.2--Overlap Issues as a Result of Organizational Restructuring

A federal credit union's field of membership will always be

governed by the group 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 a

group described in Section 5. Where acquisitions are made which add a

new wholly-owned or majority-owned subsidiary, the group cannot be

served until the subsidiary is included in the field of membership.

Overlaps may occur as a result of restructuring of the parent

organization. Credit unions affected by organizational restructuring

are required first to attempt to resolve overlap issues among

themselves. Once the affected credit unions reach agreement, they must

apply to NCUA for a modification of their fields of membership to

reflect the groups each will serve.

In addition, credit unions must submit to NCUA correspondence from

the parent organization explaining the restructuring and providing

information regarding the new organizational structure. To help in

future monitoring of overlaps, the organizational structure should

identify divisions and subsidiaries and the location and number of

employees at each location.

Overlaps may also occur as a result of the parent organization's

merger. NCUA's general policy of avoiding overlaps applies to those

resulting from corporate mergers as well. Affected credit unions must

make every reasonable effort to identify up front and address the

overlap issue raised by parent corporation mergers and must attempt to

resolve any differences among themselves. In those rare cases which

require NCUA's intervention, all attempts to resolve the issues must be

fully documented by the affected credit unions.

Affected credit unions should consider consolidation (merger) of

institutions as a possible alternative to dividing up the field of

membership, particularly if safety and soundness concerns exist or

future viability is in question. A federal credit union which has a

broad based field of membership generally has a better chance of

survival when a sponsor restructures or closes.

While neutral, NCUA will make the final decision regarding field of

membership amendments, taking into account the credit unions'

agreements, safety and soundness concerns, the desires of the members,

the significance of the overlap and other relevant issues.

NCUA will be flexible when working with credit unions affected by

parent corporation mergers and divestitures. Where no other credit

union service is available and the sponsor and its employees desire to

continue service, NCUA may use wording such as the following:

``Employees of XYZ Corporation, formerly a subsidiary of ABC,

Incorporated, located in Charleston, South Carolina. . . .''

IV.B.3--Overlaps-Exclusionary Clauses

This discussion pertains to new and existing charters.)

Where two credit unions agree and/or NCUA has determined that an

overlap should be avoided, this decision may need to be memorialized in

a federal credit union's charter through an exclusionary clause.

Examples of exclusionary wording are:

Persons who work for Hilo Sugar Company, except those who

work in or are paid from or are supervised from San Francisco,

California.

Persons who work for the ABC Co., except those employed by

the XYZ Division as of June 30, 1994.

Persons who work for the ABC Co., except those who were

members of the XYZ Federal Credit Union as of June 30, 1994.

Exclusionary clauses are very difficult for credit unions and NCUA

to monitor properly. To minimize this difficulty, NCUA generally does

not require federal credit unions to apply exclusionary clauses to

persons eligible for membership in another credit union simply because

they are one of the ``other persons sharing common bond'' listed in

Section II.E of this Chapter.

Moreover, if phrased improperly or used in situations for which

they are not suited, exclusionary clauses can be ineffective or create

obvious inequities--one spouse may be eligible for membership in a

federal credit union while the other may not; one employee may be

eligible for credit union service while the person working next to him

or her may not. For this reason, exclusionary clauses are rarely if

ever appropriate for inclusion in a community charter's field of

membership as a way to resolve overlap concerns.

One example of an appropriate use of an exclusionary clause may be

where there is a merger of two corporations served by two credit unions

which will continue to serve their groups as they had prior to their

sponsors' consolidation. Addition of an exclusionary clause to the

field of membership of one or both of the credit unions may be the best

way to clarify the division of service responsibility within the new

corporate entity.

When an exclusionary clause is included in a federal credit union's

field of membership, NCUA will strive to define as precisely as

possible:

The identity of the group to be excluded;

Whether the exclusion is to apply to the entire group or

only to those who are actually members of another credit union; and

Whether the exclusion is to apply only to the current

members of the group or to future members as well.

V--Special Situations

There are some instances where, because of overriding policy,

special common bond rules apply. To ensure quality service to as many

low-income and senior citizens as possible, NCUA has established

broader common bond rules for federal credit unions seeking to serve

those groups. Further, to expedite service to groups in industrial

parks, shopping centers, and similar areas, the documentation

requirements for federal credit unions seeking to serve these groups

have been simplified. Finally, to ensure consistency throughout the

credit union movement, NCUA has centralized decision making for the

corporate credit union program in the Central Office.

V.A--Low-Income Credit Union Groups

V.A.1--General

A low-income credit union is defined in Part 701.32 of the NCUA

Rules and Regulations as one where a majority of its members either

earn less than 80 percent of the average for all wage earners as

established by the Bureau of Labor Statistics, or whose annual income

falls at or below 80 percent of the median household income for the

nation. In documenting its low-income membership, a credit union that

serves a geographical area where a majority of residents fall at or

below the annual income standard is presumed to be serving

predominantly low-income members.

A credit union designated by NCUA as serving predominantly low-

income members has greater flexibility in accepting non member deposits

insured by the National Credit Union Share Insurance Fund. It also may

participate in special funding programs such as the Community

Development Revolving Loan Program for Credit Unions if it is involved

in the stimulation of economic development and community revitalization

efforts. A credit union participating in the revolving loan program is

also eligible for technical assistance. The requirements for

participation in the revolving loan program are set forth in Part 705

of NCUA's Regulations. Only operating credit unions are eligible for

participation in the revolving loan program.

A federal credit union charter applicant meeting the definition of

a low-income credit union should forward a separate request for low-

income designation, along with appropriate documentation, at the time

the charter application is submitted. A charter applicant's low-income

designation will be based on its primary field of membership and not on

its actual members as is the practice for operating credit unions. In

most cases, if the credit union qualifies, NCUA will grant the charter

and low-income designation simultaneously.

A low-income federal credit union charter applicant may contract

with a third party to assist in the chartering process. Even after the

charter is granted, a low-income credit union may contract with a third

party to provide necessary management services. Such contracts should

be for a duration of one year subject to renewal. However, within three

years of commencement of operations, the credit union should no longer

require such services.

V.A.2--Special Common Bond Rules for Low-Income Federal Credit Unions

Generally, a low-income credit union is chartered as a community or

associational credit union. A low-income credit union that has a

community common bond may include the following language in its field

of membership:

``Persons who live in [the target area]; persons who regularly

work, worship, perform volunteer services, or participate in

associations headquartered in [the target area]; persons participating

in programs to alleviate poverty or distress which are located in [the

target area]; incorporated and unincorporated organizations located in

[the target area] or maintaining a facility in [the target area]; and

organizations of such persons.''

In recognition of the special efforts needed to help make credit

union service available to persons in low-income communities, NCUA

permits credit union chartering and field of membership amendments

based on associational groups formed for the sole purpose of making

credit union service available to low-income persons. The association

must be defined so that all its members will meet the low-income

definition of Part 701.32 of NCUA's Regulations. The association, in

documenting its low-income membership, may use the same types of

documentation as is currently permitted for determining whether a

community is low-income under Part 701.32 of NCUA's Regulations.

In addition, a proposed low-income community or associationally

based federal credit union may include in its field of membership,

without regard to location, another group constituting an occupational,

associational or community common bond. Except for the operational area

requirements, the proposed credit union must meet all the requisites

for including the group in its charter. Moreover, the proposed credit

union must take care to ensure that it will continue to meet the

requirements for low-income status.

V.A.3--Special Common Bond Rules for Other Federal Credit Unions

Seeking to Serve Low-Income Persons

In the interest of making credit union service available to persons

in low-income communities, NCUA also permits any occupational,

associational, multiple group, or community federal credit union to

include in its field of membership, without regard to location,

communities and associational groups satisfying the low-income

definition of Part 701.32 of NCUA's Regulations. The associational

group may be formed for the sole purpose of providing eligibility for

federal credit union service, but must comprise only persons meeting

NCUA's low-income definition.

The federal credit union adding the low-income community or

association must document that the community or association meets the

low income definition in Part 701.32 of NCUA's Regulations, just as is

required for a designated low-income credit union. A federal credit

union adding such a community or association, however, would not be

able to receive the benefits, such as expanded use of non member

deposits and access to the Community Development Revolving Loan Program

for Credit Unions, offered to low-income credit unions.

A federal credit union that desires to include a low-income

community or association in its field of membership must first develop

a business plan specifying how it will serve the entire low-income

community. The business plan, at a minimum, must identify the credit

and depository needs of the low-income community or association and

detail how the credit union plans to serve those needs. The credit

union will be expected regularly to review the business plan as well as

loan penetration rates in the community to determine if the community

is being adequately served. NCUA will require periodic service status

reports on its service to the low-income community and may review the

credit union's service to low-income persons during examinations.

V.B--Retiree and Senior Citizen Groups

Special common bond rules also apply for providing service to

retiree and senior citizen groups. It is NCUA policy to encourage

federal credit unions to bring credit union service to senior citizens

(aged 50 and over) and retired persons. To help in this effort, federal

credit unions may form associations of such persons for the sole

purpose of providing eligibility for credit union service. Except for

the minimum age requirement of 50, the definition of a senior citizen

is left to the credit union's discretion. Moreover, the only

documentation requirement for including such an association in a

federal credit union's charter is a written request from the credit

union; no request from the group or copy of the association's charter

or bylaws will be needed. In all other respects, however, the

requirements for including an association in a federal credit union's

field of membership apply, including those relating to the credit

union's operational area.

V.C--Employees at Industrial Parks, Shopping Centers, and Similar

Areas

A federal charter may include in its field of membership persons

working in a particular industrial park, shopping mall, office complex,

or similar development either through a community or multiple group

charter.

If the multiple group option is selected, NCUA permits the credit

union to satisfy the requirement for a request from each of the groups

through a request by the complex owner, leasing agent, or similar

responsible official. The complex owner, leasing agent or similar

official must provide information regarding credit union service

available to any segment of the proposed select group amendment or

proposed federal credit union. It is up to the applicant credit union

to investigate whether credit union service is already available to any

segment of the select group amendment or proposed charter.

In general, exclusionary clauses will not be used to protect any

overlapped credit union. However, in those cases where each employee

group in the complex has not specifically requested credit union

service, NCUA may exercise broad discretion in addressing overlaps with

other credit unions and any request from a group to be removed from the

field of membership.

The following or similar wording will be used to define groups

added under this procedure: ``Employees who regularly work in the Plaza

Mall, New Orleans, Louisiana''

If the community option is selected, the industrial park, shopping

center, or office complex must meet the standards for community

charters.

V.D--Corporate Federal Credit Unions

A corporate credit union is defined as one that:

is operated primarily for the purpose of serving other

credit unions,

is designated by the NCUA as a corporate credit union, and

limits natural person members to the minimum required by

state or federal law to charter and operate the credit union.

Corporate credit unions operate under and are governed by standards

different from those applicable to natural person credit unions. These

standards are set forth in part 704 of NCUA's Regulations.

Supervision of corporate credit unions is the responsibility of

NCUA's Office of Examination and Insurance. All applications for

federal corporate charters as well as requested changes to section 5 of

the charter of existing corporate federal credit unions should be

directed to that office.

VI--Name Selection

It is the responsibility of the federal credit union organizers to

ensure that the federal credit union applicant's name or federal credit

union name change does not constitute an infringement on the name of

any corporation in their trade area. This responsibility also includes

researching any service marks or trademarks used by any other credit

union in their trade area. NCUA will ensure, to the greatest extent

possible, that the credit union's name:

is not already being officially used by another federal

credit union;

will not be confused with NCUA or another federal or state

agency, or with another federal credit union; and

does not include inappropriate language.

The last three words in the name of every credit union chartered by

NCUA must be ``Federal Credit Union.''

VII--Steps To Take To Organize a Federal Credit Union

VII.A--Getting Started

Following the guidance contained throughout this policy, the

organizers should submit the proposed field of membership to NCUA early

in the process for written tentative approval.

Once the field of membership has been tentatively approved, and the

organizer is satisfied the application has merit, the organizers should

conduct a preliminary 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.

The organizers and subscribers should arrange for any meetings

necessary to develop the business plan discussed in section IV.A.4 of

this chapter and to complete the documentation for submittal to NCUA.

Each of the required documents is discussed more fully later in this

chapter.

The organizers and subcribers must apply for insurance of member

accounts. The Certificate of Resolutions (NCUA 9501) will be executed

by the prospective chief executive officer and recording officer.

Following action on this issue, the prospective chief executive officer

and chief financial officer will execute the Application and Agreements

for Insurance of Accounts (NCUA 9500). These documents should be

provided to NCUA as part of the charter application.

The organizers and subscribers should also complete an NCUA 4012,

Report of Official or Employee, for each prospective board member,

credit and supervisory committee member, and employee. The NCUA 4012s

should be submitted to NCUA as early as possible to enable the

necessary credit reports and background checks to be obtained well in

advance of the anticipated charter date. NCUA will pay the direct costs

of acquiring such credit and background checks.

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 the meeting.

If NCUA approves the charter application, the subscribers, as their

final duty, will elect the board of directors and credit committee of

the proposed federal credit union. The new board of directors will then

appoint the supervisory committee.

VII.B--Support for Charter Application

VII.B.1--General

As discussed previously in this chapter, applicants for federal

credit union charters must, at a minimum, provide evidence that:

the group constitutes a recognized common bond;

the subscribers, prospective officials and employees are

of good character; and

the establishment of the credit union is economically

feasible.

In addition, the Federal Credit Union Act requires applicants to

submit a sworn organization certificate setting forth seven criteria

(see section entitled ``Subscribers'' earlier in this chapter). In

order to process the application and capture all required information,

NCUA has developed certain chartering forms to assist organizers. See

Appendix D for the necessary blank forms.

VII.B.2--Federal Credit Union Investigation Report, NCUA 4001

Applications for new federal credit unions will be submitted on

NCUA 4001. (State-chartered credit unions applying for conversion to

federal charter will use NCUA 4000. See chapter 3 for a full

discussion.) The organizer is required to certify the information and

recommend approval or disapproval, based on the investigation of the

request. Instructions and guidance for completing the form are provided

on the form's reverse. Associational charter applicants must include a

statement of their membership criteria (normally the group's charter or

bylaws) and current financial statements on the associational sponsor.

VII.B.3--Report of Official and Employee, NCUA 4012

This form documents general background information of each official

and employee of the proposed federal credit union. Each official must

complete and sign this form. The organizers must review each of the

NCUA 4012s for elements--criminal convictions, indictments, etc.--that

would prevent the prospective official or employee from serving in an

official capacity. Further, such factors as past due credit obligations

and bankruptcies disclosed during credit checks may disqualify an

individual.

VII.B.4--Organization Certificate, NCUA 4008

This document establishes the seven criteria required of

subscribers by the Federal Credit Union Act and is signed by the

subscribers and notarized. This document should be executed in

duplicate. During his or her on-site contact, the NCUA staff member

assigned to the case will assist in the proper completion of this

document.

VII.B.5--Certification of Resolutions, NCUA 9501

This document certifies that the board of directors of the proposed

federal credit union has resolved to apply for insurance of member

accounts and has authorized the chief executive officer and chief

financial officer to execute the Application and Agreements for

Insurance of Accounts. This form must be signed by both the chief

executive officer and recording officer of the proposed federal credit

union.

VII.B.6--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. Each prospective federal credit union must qualify

for federal share insurance.

VIII--NCUA Review

VIII.A--General

As discussed previously, NCUA may provide tentative approval of the

proposed federal credit union's field of membership. Additionally,

credit and background investigations may be conducted concurrently by

NCUA with other work being performed by the organizers and subscribers

to reduce the likelihood of delays in the chartering process.

Once NCUA receives a complete charter application package, an

acknowledgment of receipt will be sent to the organizers within 10

business days of receipt, and 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 will make

every effort to process the application expeditiously.

The staff member will review the application package and verify its

accuracy and reasonableness. The staff member will inquire into the

financial management experience, suitability and commitment of the

proposed officials and make an assessment of economic advisability. The

staff member will also assist the subscribers in the proper completion

of the Organization Certificate, NCUA 4008. By assisting in the

completion of the Organization Certificate, the staff member may,

without indicating his or her endorsement of the charter application,

expedite the process.

The staff member will thoroughly analyze the prospective credit

union's business plan for realistic projections, attainable goals, and

time commitment. Any concerns will be reviewed with the organizers and

discussed with the prospective credit union's officials.

The staff member will then make a recommendation to the regional

director regarding the charter application. His or her recommendation

may include specific provisions to be included in a Letter of

Understanding and Agreement. In most cases, NCUA will require the

prospective federal credit union's officials to enter into an agreement

not to engage in certain activities. The agreement is for a limited

term--usually two to four years. A sample Letter of Understanding and

Agreement is attached in Appendix B.

VIII.B--Regional Director Approval

Once approved, the board of directors of the newly formed federal

credit union will receive a signed charter and bylaws from the regional

director. Additionally, the officials will be advised of the name and

mailing address of the examiner who has been assigned responsibility

for supervising and examining the credit union.

Generally, 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).

Assistance in commencing operations is generally available through the

various trade organizations listed in Appendix F.

VIII.C--Regional Director Disapproval

Where a regional director disapproves any application, in whole or

in part, under this Chapter, the organizers will be informed in writing

of the specific reasons for the action. Where applicable, the regional

director will provide information concerning options or suggestions

that they could consider for gaining approval or otherwise acquiring

credit union service.

The letter of denial will include the procedure for and other

information on the group's right to appeal the decision.

VIII.D--Appeal of Regional Director Decision

The procedures for filing an appeal of any actions taken by NCUA

regional directors will be followed. If not included with the denial

notice, a copy of these procedures may be obtained from the regional

director who made the decision.

The prospective group may submit substantive new and additional

information to the regional director for reconsideration. In these

cases, the request will not be considered as an appeal but as a request

for reconsideration by the regional director. If the request is again

denied, the group may proceed with the appeal process.

IX--Future Supervision

Once NCUA has granted a charter to a new federal credit union, an

examiner will be assigned to supervise the credit union.

The examiner will be responsible for monitoring the progress of the

credit union and ensuring it gets off to a good start. The examiner

will also monitor compliance with the terms of the Letter of

Understanding and Agreement. Typically, the examiner will require

copies of monthly board minutes and financial statements.

Each federal credit union is examined regularly to NCUA to

determine that it remains in compliance with law and regulation and to

determine that it does not pose undue risk to the National Credit Union

Share Insurance Fund.

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 board member, any credit or

supervisory committee member, or any senior executive officer. Part

701.14 of the NCUA 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 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.

CHAPTER 2--AMENDMENTS TO THE FIELD OF MEMBERSHIP

I--Introduction

As stated in Chapter 1, Section 5 of every federal credit union's

charter defines the groups the credit union is legally entitled to

serve. There are a number of instances in which Section 5 may need to

be changed. On each of these occasions, the federal credit union must

obtain approval from NCUA before amending its charter.

First, a group not included in a federal credit union's charter may

wish to be served by that credit union. This may occur through

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 may wish to change it common bond entirely--from an

occupational to a community credit union, for example, or vice versa.

Third, which is discussed in Chapter 3, a state-chartered credit union

may wish to convert to a federal charter. (The field of membership of a

federal credit union converting to a state charter is determined under

applicable state law, except to the extent that the credit union seeks

to continue to be federally insured and the proposed new field of

membership would adversely affect the safe and sound operation of the

institution.) Finally, a federal credit union may wish to remove a

group from its field of membership--for example, through agreement with

the group or a spin-off.

NCUA's goals with respect to amendments of federal credit union

charters are the same as for including groups in the charters of new

federal credit unions. The Agency's analysis, therefore, is also

similar, though adapted for the different circumstances in which the

issue arises--primarily the facts that the federal credit union is in

existence and has a history of service that can be evaluated.

The three issues NCUA must evaluate in deciding whether to approve

a change in a federal credit union's field of membership are:

whether the change satisfies NCUA's common bond

requirements;

whether the interests of the groups to be added are

demonstrated; and

whether the change is economically advisable.

II--Additions Through Direct Agreement With a Group

The most common type of addition to a federal credit union's field

of membership is through agreement with the group itself. The

requirements are similar to those for including a group in a federal

credit union's charter initially.

II.A--Common Bond Requirement

II.A.1--Additions to Fields of Membership of Occupational,

Associational, and Multiple Occupational/Associational Federal Credit

Unions

As with new multiple occupational/associational federal credit

unions, occupational and associational groups may be added to

occupational, associational, and multiple occupational/associational

federal credit unions in two ways. If the group is part of an

occupational or associational common bond which constitutes a majority

of the federal credit union's field of membership, the group may be

added regardless of location. These are commonly called ``common bond

additions.'' For any other occupational or associational common bond,

the group must be within the credit union's operational area. These are

commonly called ``select group additions.''

The requirements for common bond additions are identical to those

for inclusion of occupational and associational common bonds in a

credit union's initial field of membership; please refer to Section

II.A and II.B of Chapter 1 for guidance. The requirements for select

groups additions are similar to those set forth in Section II.D of

Chapter 1 for inclusion of other associational and occupational groups

in a multiple group federal credit union's field of membership

initially, with this exception: The credit union may add groups within

the operational areas of one of its planned service facilities if:

The planned facility begins operation shortly after the

group is added; and

The current field of membership constitutes a significant

portion of the total field of membership to be served initially by the

proposed facility. Although the addition of a new select group alone is

not enough to justify a planned service facility, it is permissible to

include new groups as partial justification for such a facility.

Moreover, in the case of a planned facility, NCUA may, in its

discretion, require financial projections and/or a business plan

supporting amendments around that service facility in order to

determine the economic feasibility and to address any safety and

soundness concerns of the amendment.

II.A.2--Additions to the Common Bond of a Community Federal Credit

Union

Community federal credit unions, except those designated low-income

or distressed, may expand their fields of membership only by redefining

their boundaries. There must be interaction among persons who live or

work within the proposed well-defined neighborhood, community or rural

district. The burden of proof for existence of the common bond is

placed upon the applicant credit union.

In the majority of cases where community credit unions are asking

to expand their areas of service, and in all cases where a conversion

to a community charter is proposed, an NCUA staff member will make a

documented on-site evaluation of the proposal. The staff member will

prepare a separate analysis of the proposed amendment, independent of

the credit union's application. Following completion of the on-site

evaluation and regional office review of the staff member's report, the

regional director will act on the proposal. Certain expansions require

NCUA Board consideration.

II.A.3--Special Situations

II.A.3.a--General

The special rules for credit unions serving low-income persons,

serving retirees and senior citizens over 50 years old, and serving

employees at industrial parks, shopping centers and similar facilities

apply equally to field of membership additions. However, there are two

special situations unique to existing federal credit unions: (1)

corporate restructurings and (2) plant or base closings, and other

kinds of distress to a substantial portion of a credit union's

membership.

II.A.3.b--Corporate Restructuring

If an occupational or associational group within 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 which requires a change to the credit union's field of

membership if the credit union is to continue to provide service. NCUA

will permit a credit union to add to its field of membership a sold or

spun off group to which it has been providing service, without regard

to location, if the group requests continued service, documented by a

letter from an official representative, on the group's letterhead where

possible.

II.A.3.c--Distress Situations

If a major group within the field of membership of any federal

credit union--whether occupational, associational, community or

multiple group--suffers a severe economic reversal--e.g., a plant or

base closing--one option for the credit union may be to diversify its

field of membership by adding groups desiring to be served. If

economically advisable, NCUA may facilitate the credit union's

diversification efforts, to the extent and only until the credit

union's viability is assured, by allowing the credit union to add

occupational and associational groups without regard to location. To

obtain this authorization, the credit union must submit a request for

designation as a distressed credit union to its regional director.

The decision will be based on the totality of the circumstances,

including the severity of the economic problem, whether offsetting

gains from the expansion of other groups currently in its field of

membership are reasonably foreseeable, the availability of other groups

able to be served, the likely cost the credit union will incur in

reorienting itself to serve those groups, the competitive environment

it is operating in, the effect on other credit unions, and the

availability of alternatives such as merger. Prior to making a

determination on this issue, NCUA may request such additional

information, including a business plan, as may be appropriate.

II.B--Interests of the Group to be Added

Of primary concern to NCUA is that quality credit union service be

provided to all groups served by a federal credit union. Therefore,

with respect to each field of membership addition, NCUA requires

documentation from each group to be added stating that it desires

service from the applying credit union.

II.C--Economic Advisability

Prior to granting a field of membership addition, NCUA will examine

the amendment's likely effect on the credit union's operations and

financial condition and its likely effect on other credit unions. Most

of the information needed for analyzing the effect of adding a

particular group will already be available to NCUA through the

examination and call reports; generally, nothing more will be needed.

However, in particular cases, a regional director may ask for

additional information prior to making a decision. With respect to a

proposed addition's effect on other credit unions, the requirements on

overlapping fields of membership set forth in Section IV.A.2 of Chapter

1 apply here as well.

II.D--Documentation Required

The documentation needed for community charter additions will vary

substantially depending on the circumstances, and has been described in

general terms above. For common bond and select group additions, which

constitute the bulk of amendment requests, the procedures are more

standardized. A federal credit union requesting such a change must

submit a formal written request, using the Application for Field of

Membership Amendment form shown in Appendix D, or its equivalent, to

the appropriate NCUA regional director. The request must be signed by

an authorized credit union representative.

The Application for Field of Membership Amendment form must be

accompanied by the following:

A letter signed by an official representative of the group

to be added. Wherever possible, this letter must be submitted on the

group's letterhead stationery--regional directors may, at their

discretion, however, accept such other documentation or certification

as they deem appropriate. This letter must indicate:

that the group wants to be added to the applicant federal

credit union's field of membership;

whether the group presently has any credit union service

available;

the number of persons currently included within the group

to be added and their locations; and

in the case of a select group addition, the group's

proximity to one of the credit union's service facilities to which the

group has access.

If the group is eligible for membership in any other

credit union, documentation must be provided to support inclusion of

the group under the standards set forth in Section IV.B of Chapter 1.

If the group to be included is an associational group, the

credit union must, where required as established in Chapter 1, also

provide a copy of the group's charter and bylaws defining the group's

purpose, membership classes, and geographical area.

III--Additions Through Consolidation With Another Credit Union

NCUA supports credit unions desiring to remain a separate entity.

However, there are three other ways a federal credit union can expand

its field of membership, two of which result in a credit union's

ceasing to exist--by taking in the field of membership of another

credit union through a merger or a purchase and assumption (P&A), or by

taking a portion of a continuing credit union's field of membership

through a spin-off. Spin-offs are discussed in Section VI of this

Chapter.

III.A--Mergers

Generally, the standards applicable to field of membership

amendments apply to mergers where the continuing credit union is a

federal charter. In particular, where the merging credit union is state

chartered, the field of membership rules applicable to a credit union

converting to a federal charter apply. However, there are some

differences:

As to a merger involving a common bond addition, the

requirements to provide a request for credit union service from the

corporate, associational, or other unit to be added is not required,

since the unit already has credit union service.

As to a merger involving a select group addition:

For the same reason, the requirement for a letter from

each group included in the credit union's field of membership is not

required.

Where a state credit union is merging into a federal

credit union, the operational area requirement may be waived on a

proper showing that the state credit union will continue to be able to

provide quality credit union service to its current field of membership

as a federal credit union. Upon merging, the state credit union's field

of membership will be worded to conform to the NCUA standards set forth

in Chapter 1. Any subsequent field of membership amendments must comply

with applicable amendment procedures.

As to a merger of a community credit union into a federal

credit union of any type, the continuing credit union may be permitted

to continue to provide service to the merging credit union's members of

record as of the merger date where the operational area requirement is

satisfied. Except in the case of an emergency merger, the continuing

federal credit union can obtain only the members of record of the

merging community credit union.

Where both credit unions are community charters, the continuing

credit union is a federal credit, and the criteria for expanding the

service area of a community federal credit union (as discussed

previously in this Chapter) are satisfied, the entire field of

membership of the merging credit union may be added to the continuing

federal credit union's charter.

Mergers must be approved by all affected NCUA regional directors,

and, as applicable, the state regulators.

III.B--Emergency Mergers

A specifically designated emergency merger may be approved by NCUA

without regard to field of membership or other legal constraints. An

emergency merger involved NCUA's direct intervention. The credit union

to be merged must either be insolvent or will likely become insolvent

within 12 months and NCUA must determine that:

an emergency requiring expeditious action exists

other alternatives are not reasonably available

the public interest would best be served by approving the

merger

In an emergency merger situation, NCUA takes an active role in

finding a suitable merger partner (continuing credit union). NCUA is

primarily concerned that the continuing credit union has the financial

strength and management expertise to absorb the troubled credit union

without adversely affecting its own financial condition and stability.

As a stipulated condition to an emergency merger, the field of

membership of the merging credit union may be transferred intact to the

continuing federal credit union without regard to any field of

membership restrictions and without changing the character of the

continuing federal credit union for future amendments. Under this

authority, therefore, a federal credit union may take into its field of

membership a group defined by a community or associational common bond

permitted under state law, regardless of whether that common bond

definition could be approved under the Federal Credit Union Act.

III.C--Purchase and Assumptions (P&A's)

Another alternative for acquiring the field of membership of a

failing credit union is through a consolidation known as a purchase and

assumption (P&A).

A P&A has limited application because 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 along

with specified loans, shares and certain other designated assets and

liabilities, without regard to field of membership amendment

restrictions and without changing the character of the continuing

federal credit union for purposes of future field of membership

amendments.

P&A's involving federally insured state credit unions in different

NCUA regions must be approved by all affected regional directors and,

as applicable, the state regulators.

IV--Field of Membership Conversions

A community federal credit union may convert to an occupational,

associational, or multiple group credit union, and an occupational,

associational, or multiple group credit union may convert to a

community credit union. In any case, a change to the credit union's

field membership will be necessary.

IV.A--Conversion to Occupational, Associational, or Multiple Group

Federal Credit Union

A community federal credit union converting to an occupational,

associational, or multiple group field of membership must meet the

common bond and economic advisability requirements applicable to the

type of charter which it seeks conversion to.

IV.B--Conversion to Community Charter

An existing occupational, associational or multiple group federal

credit union may apply to convert to a community charter. In most

cases, groups currently in the credit union's field of membership but

outside the new community credit union's boundaries may be included in

the new community charter.

In order to support a case for a conversion to community charter,

the applicant federal credit union must develop a detailed business

plan incorporating the following data:

Current financial statements, including the income

statement and a summary of loan delinquency.

A map or maps showing both the existing and proposed

boundaries for the field of membership.

A written description of the area of community service for

the proposed community credit union.

The most current population figures for the existing and

proposed boundaries.

The source of the population information; census data are

considered the most authoritative; the greater the population of the

proposed area, the greater justification necessary to support the

existence of the ``community'' and interaction among its residents.

Evidence in the form of surveys or letters from official

representatives of prominent groups located in the area to be added

showing that the persons who live, work, or worship in the area are

interested in affiliating with the applicant credit union.

Evidence that the proposed area is a ``community'' as

defined in ``Community Common Bond'' in Chapter 1.

Information concerning the availability of financial

services to the residents of the new area.

A list of credit unions with a home or branch office in

the proposed area. (If present credit union service to the residents of

the new area is adequate, there may be no basis for the proposed

conversion.)

The attitude of current credit union sponsors and existing

credit union members toward the proposed conversion.

The anticipated financial impact on the credit union in

terms of need for additional employees and fixed assets.

V--Removal of Groups From the Field of Membership

Credit unions may request removal of a group from its field of

membership for various reasons.

The most common reasons for this type amendment are:

The group is within the overlapping field of membership of

two credit unions and one wishes to discontinue service.

The federal credit union cannot continue to provide

adequate service to the group.

The group has ceased to exist.

The group does not respond to repeated requests to contact

the credit union or refuses to provide needed support.

The group initiates action to be removed from the field of

membership.

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 wishes to remove the group and whether the existing

members of the group will continue membership. Membership may continue

for those who are already members if the credit union has adopted the

``once a member, always a member'' bylaw provision.

VI--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 one credit union has a field of membership

addition and the other has a removal.

If the spin-off goes to a new federal charter, the requirements of

Chapter 1 apply. (See that chapter for discussion of the field of

membership and documentation requirements for new federal charters.) If

it goes to an existing federal charter, the requirements of Chapter 2

apply.

Spin-offs involving federally insured state credit unions in

different NCUA regions must be approved by all affected regional

directors and the state regulators, as applicable.

The request for approval of a spin-off must be supported with a

plan that addresses, as a minimum:

Why the spin-off is being requested.

What part of the field of membership is to be spun-off.

Whether the affected credit unions have a common sponsor

or are located within the same operational area.

Which assets, liabilities, shares and capital are to be

transferred.

The financial impact the spin-off will have on the

affected credit unions.

The ability of the acquiring credit union to effectively

serve the new members.

The proposed spin-off date.

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 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. Voting requirements for

federally insured state credit unions are governed by state statute.

VII--Professional Conflicts

It is important for a credit union, as well as professional

organizations such as accounting firms, law firms, real estate title

insurance firms and appraisal firms, to avoid the appearance of

impropriety when the credit union contracts with a professional

organization for services. This is even more critical if the

professional organization and/or its employees are members of the

credit union.

When a professional organization is added to a federal credit

union's field of membership, the credit union should notify the

professional organization of certain provisions. The following notice

is intended to ensure that decisions made by a credit union and the

professional organizations serving the credit union are independent of

any loan decisions or deposit activities:

``Please be advised that with respect to the addition of the

employees of [professional organization] to the [FCU], any lending,

deposit and/or other credit union services involving this group's

members must avoid any appearance of impropriety and must follow the

ethical standards of the profession.''

VIII--Procedures for Amending the Field of Membership

VIII.A--General

All requests for approval to amend a federal charter must be

submitted to the appropriate regional director. In normal cases, the

regional director will make a decision on the request within 10

business days. If a decision cannot be made within that time, the

regional director will notify the credit union within the 10-business-

day period.

To streamline the process further, NCUA has instituted two

additional procedures--a limited preapproval process and a procedure

for easing the workload when making substantial charter changes as with

mergers and charter conversions.

VIII.B--Streamlined Expansion Procedure (SEP) for Small Occupational

Groups

In keeping with the goals of NCUA chartering policy to provide

service to all eligible groups desiring credit union service, well

operated federal credit unions except those designated as

``distressed'' may take advantage of the SEP for adding occupational

groups to their fields of membership.

To use this procedure, the federal credit union's board of

directors must first apply to their respective NCUA regional director

for a charter amendment. The charter amendment request must be signed

by the presiding officer of the board of directors.

The following is a sample amendment for permitting a federal credit

union to use the SEP authority:

Groups of persons with occupational common bonds which are located

within 25 miles of one of the credit union's service facilities, which

have provided a written request for service to the credit union, which

do not presently have credit union service available, and which have no

more members in the group than the maximum number established by the

NCUA Board for additions under this provision: Provided, however, that

the National Credit Union Administration may permanently or temporarily

revoke the power to add groups under this provision upon a finding, in

the Agency's discretion, that permitting additions under this provision

are not in the best interests of the credit union, its members, or the

National Credit Union Share Insurance Fund.

Once NCUA has approved the amendment and the credit union board has

adopted it, the SEP authority may be implemented. The charter amendment

permits approved federal credit unions to immediately begin serving

employee groups meeting criteria set forth in this section. Under this

procedure, there is no formal NCUA action necessary on each group being

added.

The maximum number of persons for each group of employees which may

be added under SEP will be established by the NCUA Board from time to

time. The number will be based on potential primary members--that is,

the persons sharing the basic occupational affinity to each sponsor

group; family members and other derivative members are not included in

the SEP limit. Several groups may be simultaneously added using these

procedures; however, the maximum number of persons for each group must

fall within the SEP limit.

The SEP does not apply to associational groups since NCUA must

review membership requirements and geographical area prior to these

groups' being added to a field of membership. The procedure also does

not apply to community charter expansions because of the more

individualized analysis required.

The following SEP steps and documentation requirements must be

adhered to:

The federal credit union must complete, for each group to

be added, an Application for Field of Membership Amendment form shown

in Appendix D

The federal credit union must obtain a letter, on the

group's letterhead where possible, signed by an official representative

identified by title, requesting credit union service and stating that

the group

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