Federal Credit Union Field of Membership and Chartering Policy

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

Federal Credit Union Field of Membership and Chartering Policy

AGENCY: National Credit Union Administration (``NCUA'').

ACTION: Final rule and final amendments to Interpretive Ruling and

Policy Statement 94-1 (``IRPS 96-1'').

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SUMMARY: The NCUA Board is updating the references to federal credit

union chartering, field of membership modifications and conversions.

The NCUA Board is issuing amendments to its field of membership

policies. One change will require senior citizen and retiree groups to

meet the same conditions as other associational groups in order to

qualify for a federal credit union charter or addition to an existing

charter through a field of membership amendment. The Board is also

issuing five amendments to clarify operational issues. The amendments

clarify: The application of field of membership requirements to

mergers; the streamlined expansion procedure; the documentation

requirements for low-income communities; the use of surveys to support

a community common bond; and appeal procedures.

EFFECTIVE DATE: July 1, 1996.

FOR FURTHER INFORMATION CONTACT: Michael J. McKenna, Staff Attorney,

Office of General Counsel, 1775 Duke Street, Alexandria, Virginia

22314-3428 or telephone (703) 518-6540.

SUPPLEMENTARY INFORMATION:

A. Background

In 1984, NCUA adopted a policy which permitted federal credit

unions (FCUs) to accept senior citizen and retiree members through the

formation of associations. The only requirement for adding these

associations to a credit union charter was a written request from the

FCU to the NCUA; no request from the group or copy of the association's

charter or bylaws was necessary. As a result, many FCUs added senior

citizen/retiree associations to their charters. Subsequent policy

statements, including Interpretive Ruling and Policy Statement 94-1

(IRPS 94-1) (the ``Chartering Manual''), continued this policy. 59 FR

29066 (June 3, 1994).

In 1994, two bank trade associations and six Texas commercial banks

filed suit against Communicators FCU of Houston, Texas, as a result of

several additions to the FCU's field of membership. The suit

challenged, among other additions, the 1994 addition of a senior

citizen/retiree group formed solely for the purpose of acquiring credit

union service. While upholding the other field of membership additions,

the court vacated the addition of the senior citizen/retiree

association and permanently enjoined NCUA from adding any similar

associations to the FCU. Texas Bankers Association, et al. v. NCUA, et

al., 1995 WL 328319 (D.D.C., May 31, 1995) (the ``Communicators FCU''

decision). On September 28, 1995, partly in response to the

Communicators FCU decision, the Board issued proposed amendments to the

Chartering Manual. 60 Fed. Reg. 51396 (October 4, 1995).

B. Comments

Seventy comments were received. Comments were received from thirty-

four federal credit unions, two state chartered credit unions, seven

state credit union leagues and three national credit union trade

associations. The comments were generally positive and supported most

of the proposed amendments.

The Board also received comments from twenty-five banking

associations. Briefly summarized, the bank commenters support NCUA's

proposed amendment to require senior citizen/retiree groups to meet the

same conditions as other associational groups before seeking to charter

or join a federal credit union. The bank commenters argue against

permitting federal credit unions that have adopted the ``once a member,

always a member'' bylaw to continue serving members based on their

membership in the senior citizen group. Many of the bank commenters

also request that NCUA re-examine its policies relating to all forms of

select group field of membership expansions.

The Senior Citizen and Retiree Association Policy

The Board proposed to modify its senior citizen/retiree policy to

require such groups to meet associational common bond requirements

before seeking to join or charter an FCU. Twenty-three commenters agree

with NCUA that senior citizen and retiree groups should meet the same

criteria as other associational groups before seeking to charter or

join a federal credit union.

Sixteen commenters disagreed with the Board's proposal. Seven of

these commenters believe that such groups are an underserved segment of

the population. They believe that a formal organization with bylaws and

officer and membership requirements should be sufficient for senior

citizen associations. Two commenters recommend that NCUA treat senior

citizen groups the same as low-income groups. Two commenters state that

the conversion of an existing group to a bona fide association should

not require that the association be completely divorced from the credit

union. They suggest that a senior citizen/retiree group could have

bylaws that permit the group to have the same directors as the credit

union and conduct their annual meeting concurrently with the credit

union's annual meeting. One commenter suggests that the final

amendments clarify that a credit union may help senior groups meet the

associational common bond requirement.

The Board believes the policy modification is an appropriate

response to the Communicators FCU decision and is adopting the proposed

amendment in final. In determining whether a group satisfies this

common bond requirement, NCUA will consider the totality of the

circumstances, such as whether the members pay dues, have voting

rights, hold office, hold meetings, have a purpose other than to obtain

credit union services, whether there is interaction among members and

whether the group has its own bylaws. See, Chapter 1, Section II.B. of

the Chartering Manual, 59 FR at 29076. Provided operational area

requirements are met, senior citizen/retiree associations formed for

purposes other than seeking credit union service will qualify to join

an existing FCU. The Board is not requiring such associations to have a

specific type of internal structure. Moreover, the Board continues to

stress that an FCU may assist a senior citizen group to form an

association that will qualify under the Chartering Manual.

[[Page 11722]]

The Board also requested comment on how to address members of

existing senior citizen/retiree groups which do not meet the proposed

characteristics of an association. The Board proposed that such groups

must meet the normal associational common bond requirements to enroll

new senior citizen/retiree group members. If the credit union has

adopted the ``once a member, always a member'' bylaw, it may continue

to serve its current members. Fourteen commenters agree with this

proposal. One commenter believes it would be unfair to current senior

citizen members to deny them credit union service and benefits because

of a change in NCUA policy.

Thirteen commenters oppose NCUA's proposed treatment of senior

citizen/retiree groups that do not have associational characteristics.

Nine of these commenters recommend grandfathering any existing senior

citizen/retiree groups and allowing the credit unions to continue to

serve the groups. Two commenters state that the Communicators FCU

decision does not compel the Board to retroactively apply any new

policy it adopts. The comments from banking associations all opposed

permitting existing members to retain membership.

The Communicators FCU decision does not compel the Board to apply

its new policy retroactively. The Board considered whether to

grandfather existing groups in the final amendment. However, in light

of the rationale expressed in the Communicators FCU decision, the Board

believes that grandfathering groups that do not meet the requirements

of the new policy is inappropriate. Grandfathering the groups will

simply invite litigation without furthering any of NCUA's chartering

goals. Therefore, the Board is requiring that all existing senior

citizen groups meet standard associational common bond requirements or

be deleted from the charter. Many of these groups may already meet

these requirements. If the FCU has adopted the ``once a member, always

a member'' bylaw, it can continue to serve members who had joined based

on their membership in the senior citizen/retiree group. Any other

treatment would not be in the best interest of current members or the

credit unions to which they belong. An FCU that has a group that does

not meet the associational requirements in its field of membership

should delete the group by submitting a charter amendment to the

appropriate regional office. Compliance will be monitored through the

exam program.

Low-Income Associations

The Board did not propose any changes to the ability of a federal

credit union to add low-income associations that are formed solely for

the purpose of obtaining credit union service without meeting the

standard characteristics of an association. Thirteen commenters agreed

that credit unions should be allowed to add to low-income groups to

their field of membership. Three of these commenters stated that this

policy enables credit unions to serve groups not currently receiving

financial services. One commenter believes this policy is consistent

with credit unions' ``people helping people'' philosophy.

Five commenters stated that federal credit unions should not be

allowed to add low-income groups formed solely for the purpose of

seeking credit union service. Two of these commenters found no reason

to differentiate between senior citizen groups and low-income groups.

One of these commenters believes eliminating this policy would not

significantly affect the ability of low-income persons to join federal

credit unions. One commenter believes it is preferable for low-income

groups seeking credit union service to be encouraged to form a credit

union rather than to be included in the field of membership of an

existing credit union.

Congress and the NCUA Board have long recognized that special

efforts must be made for those who are attempting to serve the needs of

persons of limited means. The FCU Act was enacted ``to make more

available to people of small means credit for provident purposes

through a national system of cooperative credit.'' 12 U.S.C. 1751.

Congress established a special segment of credit unions serving

predominantly low-income members. 12 U.S.C. 1752(5). Congress also

established and funded a Community Development Revolving Loan Fund for

Credit Unions, designed to help, through loans to credit unions serving

predominantly low-income persons, in providing ``basic financial and

related services'' to low-income persons and in ``stimulating economic

activities * * * which will result in increased income, ownership and

employment opportunities for low-income residents.'' 12 CFR 705.2(a).

See also, 12 U.S.C. 1766(k) (giving the Board authority over the

Community Development Revolving Loan Fund for Credit Unions). NCUA

defines as ``low-income'' persons earning less than 80 percent of the

average for all wage earners and persons whose annual household income

falls at or below 80 percent of the median household income for the

nation. 12 CFR 701.32(d)(2). The Board believes that the current low

income credit union program continues to serve an important

governmental purpose and is therefore not modifying its low-income

association policy.

Clarifications of Operational Issues

The Board proposed five amendments to its chartering and field of

membership policies to clarify operational issues. The amendments

addressed: (1) the application of field of membership rules to credit

union mergers; (2) the use of the streamlined expansion procedure; (3)

the documentation requirements for low-income community credit unions

as well as low-income additions; (4) the use of surveys to support a

community charter; and (5) appeal procedures.

Mergers

A. Operational Area

The Board proposed to clarify how it applies operational and field

of membership requirements to mergers. The Board reiterated that

mergers will usually fall into the common bond addition or select group

addition category, but some may fall into both categories. In a merger,

common bond groups may be added to a federal credit union's field of

membership without regard to location. The Board then clarified that

for select group additions the field of membership requirements are met

for each merging group only if the group could have been added to the

continuing credit union without the benefit of the merger. The

continuing credit union would have to analyze each group in the merging

credit union's field of membership as if the continuing credit union

was expanding its own field of membership without a merger. Three

commenters support this proposal. One of these commenters believes that

a more expansive policy would give large credit unions a great

advantage over smaller credit unions in expanding their field of

membership. This commenter believes that most credit unions cannot

realistically provide quality service to members who live and work a

great distance from the credit union.

Thirty-four commenters disagree with the concept of applying

operational area requirements to ``select group additions'' in a

merger. Nineteen commenters believe that a discontinuing credit union's

groups should be added to the continuing credit union's charter. Nine

commenters believe that operational area is an anachronism in an era of

significant technological advancements. Three commenters

[[Page 11723]]

believe that mergers are a business decision that should best be left

to credit unions, not NCUA. Three commenters state that the proposal is

overly restrictive. Three commenters state that the clarification will

create additional paperwork and delay approval. Two commenters believe

the proposal will result in a decrease in the number of mergers. Two

commenters state that mergers should be based on the services the

continuing credit union can provide and the philosophical ``fit''

between the merging credit unions. One commenter believes that the

economic impact on other credit unions in a similar area should not be

the determining factor on whether a merger is approved or not. One

commenter suggests NCUA should be concerned with safety and soundness

issues and not field of membership issues when considering a merger.

The Board recognizes that how field of membership requirements

should be applied in a merger is a continuing controversy within the

credit union community. The Board wishes to reiterate that it is not

willing to discard operational area requirements in the merger context.

However, the Board believes that in response to changing technologies,

operational area requirements need to be reviewed, and not only in the

context of mergers. The Board is currently in the process of conducting

such a review and may issue new policies after the study is complete.

The Board's proposed clarification may, however, impose a paperwork

burden without providing any significant assistance in reaching NCUA's

field of membership goals. In light of the commenter's concerns and the

language of IRPS 94-1, the Board believes that the proposed

clarification was overly broad and has reconsidered its position.

Rather than requiring each group in the discontinuing field of

membership to be within the operational area of the continuing credit

union, any of the discontinuing credit union's groups that are within

the operational area of either credit union may be transferred intact

to the continuing credit union. Any group that is not within the

operational area of either federal credit union, prior to the

completion of the merger, will be deleted from the continuing credit

union's field of membership and only members of record will be

transferred to the continuing credit union.

This clarification should not significantly decrease the number of

mergers or impose a significant burden on credit unions wishing to

merge. Rather, it applies the operational area requirements to mergers

as required by IRPS 94-1 since a group could not ordinarily be added to

either credit union's field of membership if it was not within the

operational area of the credit union.

The Board also requested comment on whether mergers should be

limited to credit unions that primarily serve groups in the same

geographic location. One commenter supports this concept. Fourteen

commenters disagree and believe that credit unions should be able to

merge even if they do not primarily serve groups in the same geographic

area. Seven commenters believe that geographic location is unimportant

because of current and coming technologies. Four commenters state that

the standard for considering mergers should be whether the continuing

credit union can provide quality member services. One commenter

believes that financial soundness is more important than geographic

location. The Board is not placing any new geographic limitations on

mergers but is continuing to study whether it should modify how it

applies field of membership requirements to mergers.

B. Views of Overlapped Credit Unions

The Board requested comment on whether it should require NCUA

Regions to conduct an overlap analysis for merging credit unions and

whether an affected credit union should be notified of the merger and

be given an opportunity to comment or object. Twelve commenters wanted

both an overlap analysis and the opportunity to comment or object. One

of these commenters believes that some recent merger decisions have put

some smaller credit unions in a competitive disadvantage with larger

credit unions. One commenter believes that such an analysis is

necessary because of the potential harm to the overlapped credit union.

This commenter states that with respect to a preexisting overlap, NCUA

should review the effect a proposed merger may have on the nature of

any preexisting overlaps.

Sixteen commenters believe that NCUA should not require an overlap

analysis for a group in a discontinuing credit union's field of

membership that has service available from another credit union. Five

of these commenters believe the analysis is unnecessary since one was

conducted when the overlap was originally granted. Two commenters state

that there is no useful purpose in re-examining an existing overlap.

One commenter states that the merger should not adversely affect the

credit union anymore than it was affected by the original overlap. Two

commenters state that a merger does not add to the number of federal

credit unions a member can belong, it just replaces an existing overlap

with a different credit union.

The Board believes that conducting an analysis of a preexisting

overlap is unnecessary. Such a requirement would increase the burden on

the merging credit unions as well as NCUA without any corresponding

benefit. The Board believes that transferring a preexisting overlap to

the continuing credit would not ordinarily have a significant impact on

any other credit union. Consequently, the Board is not modifying its

existing policy which does not require the Region to conduct an overlap

analysis for merging credit unions.

The Board also requested comment on whether credit unions that may

be adversely affected by a merger should have the right to appeal the

Regional Director's determination. The Board also asked whether NCUA

should establish a formal process for credit unions to comment on a

merger prior to the Regional Director making a determination. Thirteen

commenters believe that NCUA should establish such a comment process;

twelve oppose the right to appeal the Regional Director's decision.

Four commenters state that such an appeal creates an unnecessary

obstacle to a merger and will delay the process. One of these

commenters believes that the appeal process will prove costly to NCUA

and credit unions.

The Board believes that a formal comment period will delay the

merger process and increase costs for credit unions and NCUA without

any corresponding benefits. Therefore, the Board is not establishing

such a process. However, the Board will continue to consider appeals

from credit unions that may be adversely affected by a merger through

the normal appeal process.

C. Waivers

An operational area waiver procedure is available when a state-

chartered credit union is merged into an FCU. The Board clarified that

the waiver is discretionary on the part of NCUA and permits groups

already receiving quality credit union services, who are located

outside of the credit union's operational area, to continue to have

credit union service after the merger. Two commenters recommend making

available to federal credit unions the operational area waiver

procedure. The Board does not believe the waiver procedure needs to be

extended to federal credit unions because in almost all cases involving

federal credit unions

[[Page 11724]]

operational area requirements will be met. The Board is clarifying in

the final amendments that the waiver is only available if the group is

not being served by any other credit union. The Board will continue to

review this area but is not making any further changes at this time.

Streamlined Expansion Procedure (SEP)

SEP permits well-operated federal credit unions to add small groups

of less than 100 persons with an occupational common bond to its field

of membership without prior NCUA approval. The group must be located

within 25 miles of the credit union's service facilities and in

general, the group must not have credit union service available. The

Board proposed three clarifications to this policy. First, the Board

proposed that a credit union may use SEP if the only other credit union

service available is from a community credit union. The Board is

adopting this proposal. Nineteen commenters supported this proposal.

One of those commenters requests that it be modified to protect

community credit unions serving smaller rural communities. Another

commenter that approved of the proposal states that there should be

some minimum overlap protection for community credit unions.

Six commenters do not believe credit unions should be able to use

SEP to overlap a community credit union. Three commenters believe any

overlap of a community credit union should be done through the normal

expansion process because the use of SEP could erode a community credit

union's potential for growth. One commenter believes that community

credit unions need overlap protection. One commenter states that if a

company is within a community's boundaries and being adequately served

by a community credit union, then no overlap should be permitted.

NCUA does not afford overlap protection to a community credit union

when it is overlapped by an occupational group. Chapter I, IV.B.1,

Chartering Manual, 59 FR at 29080. This long-standing policy is working

well and the Board is not convinced that it should be changed. Since

the standard policy is not being changed it is only logical to extend

the policy to SEP. To do otherwise would simply place an unnecessary

paperwork burden on credit unions and NCUA. Consequently, the Board is

adopting the proposed amendment in final.

Second, the Board proposed that, consistent with standard field of

membership expansions, the group as a whole will be considered to be

within a credit union's 25 mile limit when: a majority of the group's

members live or work within the 25 mile limit; or the group's

headquarters is located within the 25 mile limit; or the group's ``paid

from'' or ``supervised from'' location is within the 25 mile limit.

Eight commenters support this proposal. One commenter objects to the

proposed amendment. Eleven commenters believe that NCUA should

eliminate the 25 mile limit for SEP because they believe the concept of

operational area is outdated. Six commenters believe that groups added

to a credit union's field of membership under SEP should be required to

be within 25 miles of the credit union.

The Board believes the 25 mile limit for SEP is working well and

should not be modified at this time. The Board is adopting the proposed

amendment in final so that SEP's definition of a group's location is

consistent with standard field of membership expansions. To eliminate

any possible confusion the Board is reiterating that there is no

standard 25 mile operational area limit for standard field of

membership expansions.

Third, the Board proposed that if an FCU has SEP in its charter and

merges into a credit union without SEP, the continuing credit union

must submit a charter amendment and receive NCUA approval if it wishes

to use SEP. Nine commenters support this proposal. One commenter states

that applying for SEP is not a burden for credit unions. One commenter

believes that this proposal provides NCUA with appropriate control. One

commenter requests that NCUA clarify that if the continuing credit

union already had SEP it would not need to reapply after the merger.

One commenter believes that if either federal credit union in a merger

has SEP then the continuing credit union should maintain SEP.

The Board is adopting this proposed amendment in final to maintain

appropriate controls over SEP. The Board believes that the continuing

credit union's application for SEP can be accomplished as part of the

merger process. The Board is also clarifying that if the continuing

credit union already has SEP it need not reapply after the merger.

Documentation Requirements to Establish Low-Income Services

The Board proposed that for new low-income charters or community

expansions, the Regional Director would decide what documentation

satisfies the community common bond requirement. The Board is adopting

this proposal. Such documentation must clearly define the area's

geographic boundaries and the charter applicant must establish that the

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

district.'' Chapter 1, Section II.C.1, Chartering Manual, 59 FR at

29077. Twelve commenters support this proposal. One commenter states

that depending on the circumstances the Regional Director may be better

able to determine documentation requirements. One commenter supports

this proposal if it will result in providing more flexibility for

groups seeking to charter low-income credit unions or for low-income

community expansions.

Five commenters state that the Regional Director should not be

allowed to determine the appropriate documentation for low-income

charters or low-income expansions. Three commenters believe that

documentation requirements for low-income credit unions and expansions

should be specific and uniform. Two of the commenters believe this

proposal will result in inconsistencies among the Regions.

The Board believes that in many cases, a low-income area already

has the common interest and characteristics of a community just by

lacking the basic financial services found in more affluent

communities. The Board also believes that allowing the Regional

Director to decide what documentation will satisfy the community common

bond requirement will provide NCUA with more flexibility in granting

low-income community charters and low-income community expansions. The

Board also expects that this amendment will minimize bureaucratic

hurdles and expedite making credit union service available to persons

in low-income communities. The Board will be monitoring the process to

assure consistent application among NCUA Regions.

Community Charters

The Board proposed to amend the Chartering Manual to clarify that

surveys are not always required to demonstrate a community charter. Ten

commenters agreed with this proposal and none opposed. Surveys should

not be required if other evidence is more relevant or more clearly

demonstrates the sentiment of the community. The Board is adopting the

proposed amendment in final.

Procedures for Appealing Chartering and Field of Membership

Determinations

The Board proposed that all appeals be made within 60 days of the

Regional Director's determination. Seventeen

[[Page 11725]]

commenters agree with this proposal; two commenters believe there

should be less time and four commenters oppose the proposed appeal

procedure.

Three commenters recommend that the appeal process for chartering

and field of membership should be the same as those adopted by NCUA for

examination issues. One commenter believes the current appeal process

is sufficient.

The Board believes that a timeframe should be established to deal

with appeals expeditiously and concludes that the 60 days proposed by a

majority of those commenting gives the credit union sufficient time to

appeal the region's determination. The Board also believes that it and

not the supervisory review committee is best suited to resolve field of

membership issues. The Board is adopting the proposed amendment in

final.

The Board also requested comment on whether there should be a time

limit on the Board to render a decision on the appeal. Fourteen

commenters believe there should be such a time limit. Nine commenters

suggest 60 days, four suggest 30 days and one suggests 10 days. Two

commenters believe that the Board's time limit for deciding an appeal

could be extended if there were extenuating circumstance or good cause.

Two commenters state that there should be a procedure to protect credit

unions from possible retaliation as a result of their appeal.

Recent experience leads the Board to believe that flexibility is

necessary to respond to unique circumstances. The appealing credit

union does not necessarily want the Board's determination fast, they

want it correct. The Board is setting a goal of 90 days to render a

decision. The Board will investigate any claim by a credit union that

believes it is being singled out by NCUA because of its proper use of

the appeal process to immediately contact the Board.

Miscellaneous Comments

There were several comments received which did not address

themselves to specific requests for comment. Three commenters believe

that charter amendments and mergers which create virtually unlimited

fields of membership violate the cooperative nature of credit unions

and dilute the principle of the common bond. One commenter, discussing

operational area requirements, stated that if a select group feels they

will be better served by a credit union 1000 miles away instead of the

neighboring credit union then the select group should be permitted to

be added to the field of membership of the distant credit union. One

commenter states that NCUA should develop policies that would prohibit

overlapping memberships. The Board is continuing to review operational

area and overlaps and will take these comments into consideration when

studying the issues.

One commenter states that the Regions should be required to make

field of membership expansion determinations within 10 days. In fact,

most determinations are made within a 10 day period. There are

circumstances, however, which make it difficult to meet this goal.

One commenter requests that students should be part of the

community common bond so that persons who attend any educational

institution located in a community would be eligible to join a credit

union whose field of membership includes that community. The Board

agrees. The Board believes that a student is working for the purpose of

the community common bond and therefore a person going to school within

a community but is not living within the community boundaries is deemed

to be working in the community for field of membership purposes. One

commenter believes that NCUA should not allow a federal credit union to

add low-income communities to their field of membership. The Board

disagrees. The policy is working well and has increased the number of

low-income people receiving credit union service.

Regulatory Procedures

Regulatory Flexibility Act

The Regulatory Flexibility Act requires the NCUA to prepare an

analysis to describe any significant economic impact a proposed

regulation may have on a substantial number of small credit unions

(primarily those under $1 million in assets). The changes to NCUA

policy resulting from the adoption of these amendments to the IRPS do

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

credit unions. The changes are either legally required or simply

clarify existing policy. Accordingly, the Board determines and

certifies that this final rule does not have a significant economic

impact on a substantial number of small credit unions and that a

Regulatory Flexibility Act analysis is not required.

Paperwork Reduction Act

NCUA has determined that the requirement for a FCU to delete from

its charter senior citizen/retiree groups that do not meet standard

associational requirements do constitute a collection of information

under the Paperwork Reduction Act. The Paperwork Reduction Act and

regulations of the Office of Management and Budget (OMB) require that

the public be provided an opportunity to comment on information

collection requirements, including an agency's estimate of burden of

the collection of information.

NCUA estimates that it should take an average of 15 minutes for an

FCU to prepare and submit the required charter amendment. NCUA

estimates that approximately 300 FCUs will need to submit the charter

amendment, resulting in a total of 75 burden hours. This increase in

burden will only occur once.

The NCUA Board invites comment on (1) whether the collection of

information is necessary for the proper performance of the functions of

NCUA including whether the information will have practical utility; (2)

the accuracy of NCUA's estimate of the burden of the collection of

information; (3) ways to enhance the quality, utility, and clarity of

the information to be collected; and (4) ways to minimize the burden of

the collection on respondents, including through the use of automated

collection techniques or other forms of information technology. Send

comments to Suzanne Beauchesne, National Credit Union Administration,

1775 Duke Street, Alexandria, VA 22314-3428. Comments should be

postmarked by May 21, 1996.

Executive Order 12612

Executive Order 12612 requires NCUA to consider the effect of its

actions on state interests. The proposed amendments apply to federal

credit unions as well as state chartered credit unions that seek to

become federal credit unions. Therefore, the actions will not affect

state interests.

List of Subjects in 12 CFR Part 701

Credit unions, Reporting and recordkeeping requirements.

By the National Credit Union Administration Board on March 13,

1996.

Becky Baker,

Secretary of the Board.

Accordingly, NCUA amends 12 CFR part 701 as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

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

follows:

Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a,

1761b, 1766, 1767, 1782, 1784, 1787, 1789. Section 701.6 is also

authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by

15 U.S.C 1601 et seq.;

[[Page 11726]]

42 U.S.C. 1981 and 3601-3610. Section 701.35 is also authorized by

42 U.S.C 4311-4312.

2. Section 701.1 is revised to read as follows:

Sec. 701.1 Federal credit union chartering, field of membership

modifications, and conversions.

National Credit Union Administration practice and procedure

concerning chartering, field of membership modifications, and

conversions are set forth in Interpretive Ruling and Policy Statement

94-1--Chartering and Field of Membership Policy (IRPS 94-1), as amended

by IRPS 96-1. Both IRPS are incorporated into this section.

(Approved by the Office of Management and Budget under control

number 3133-0015)

Note: The text of the interpretive ruling and policy statement

(IRPS 94-1) does not and the following amendments will not appear in

the Code of Federal Regulations.

3. In IRPS 94-1, Chapter 1, Section II.C.2 is revised to read as

follows:

II.C.2--Special Documentation Requirements

Information to support that the area chosen represents one 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; and

In general, what causes the chosen area and its

residents to be distinguishable from the immediate surrounding areas

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

neighborhoods, planned communities and small/rural towns or rural

counties.

The following information must be provided to support a need for

a community credit union or community field of membership expansion:

A list of credit unions presently in the area and those

credit union's positions regarding a new charter or field of

membership expansion; and

A list of other financial institutions (for example,

banks, savings and loan associations) that service the area.

Written documentation reflecting support for the

application for the charter, field of membership expansion or

conversion to a community credit union may be in the form of

letters, surveys, studies, pledges, or a petition. Other types of

evidence may also be acceptable. If a survey is used it should

reflect the following:

For the residents of the community:

-Approximate number contacted

Number in favor of the credit union

Number against the credit union

Number who will join the credit union

Number who have pledged initial and/or systematic savings and amount

of pledges

For the employers in the community:

Number of area employers and number of employees

Number contacted

Number in favor of the credit union

Number against the credit union

Number willing to provide payroll deductions to the credit union

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

union

For community organizations (including churches):

Number in area and number of members

Number contacted

Number in favor of the credit union

Number against the credit union

Number willing to provide some type of support to the credit union,

i.e., advertising facilities, etc.

Letters of support from area civic leaders

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

served as, or be included in, the field of membership--for example,

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

4. In IRPS 94-1, Chapter 1, Section V.A.2 is revised to read as

follows:

V.A.2--Special Common Bond Rules for Low-Income Federal Credit Unions

Generally, a low-income credit union is chartered as a community

or associational credit union. The Regional Director will determine

whether the applicants have provided sufficient evidence to

demonstrate the need for a low-income community charter. Such

evidence must establish that the geographic area's boundaries are

clearly defined and that the area is recognized as a distinct

neighborhood, community, or rural district. A low-income credit

union that has a community common bond may include the following

language in its field of membership:

``Persons who live in [the target area]; persons who regularly

work, worship, perform volunteer services, or participate in

associations headquartered in [the target area]; persons

participating in programs to alleviate poverty or distress which are

located in [the target area]; incorporated and unincorporated

organizations located in [the target area] or maintaining a facility

in [the target area]; and organizations of such persons.''

In recognition of the special efforts needed to help make credit

union service available to persons in low-income communities, NCUA

permits credit union chartering and field of membership amendments

based on associational groups formed for the sole purpose of making

credit union service available to low-income persons. The

association must be defined so that all its members will meet the

low-income definition of Part 701.32 of NCUA's Regulations. The

association, in documenting its low-income membership, may use the

same types of documentation as are currently permitted for

determining whether a community is low-income under Part 701.32 of

NCUA's Regulations.

In addition, a proposed or existing low-income federal credit

union whether community or associationally based, may include in its

field of membership, without regard to location, one or more groups

constituting an occupational, associational or community common

bond. Except for the operational area requirements, the proposed or

existing credit union must meet all the requisites for including the

group in its charter. Moreover, the proposed or existing credit

union must take care to ensure that it will continue to meet the

requirements for low-income status.

5. In IRPS 94-1, Chapter 1, Section V.A.3 is revised to read as

follows:

V.A.3--Special Common Bond Rules for Other Federal Credit Unions

Seeking To Serve Low-Income Persons

In the interest of making credit union service available to

persons in low-income communities, NCUA also permits any

occupational, associational, multiple group, or community federal

credit union to include in its field of membership, without regard

to location, communities and associational groups satisfying the

low-income definition of Part 701.32 of NCUA's Regulations. The

associational group may be formed for the sole purpose of providing

eligibility for federal credit union service, but must comprise only

persons meeting NCUA's low-income definition.

The federal credit union adding the low-income community or

association must document that the community or association meets

the low income definition in Part 701.32 of NCUA's Regulations, just

as is required for a designated low-income credit union. The

Regional Director will ensure that the proposed low-income community

addition is sufficient to establish a community common bond. A

federal credit union adding such a community or association,

however, would not be able to receive the benefits, such as expanded

use of non member deposits and access to the Community Development

Revolving Loan Program for Credit Unions, offered to low-income

credit unions.

A federal credit union that desires to include a low-income

community or association in its field of membership must first

develop a business plan specifying how it will serve the entire low-

income community. The business plan, at a minimum, must identify the

credit and depository needs of the low-income community or

association and detail how the credit union plans to serve those

needs. The credit union will be expected to regularly review the

business plan as well as loan penetration rates in the community to

determine if the community is being adequately served. NCUA will

require periodic service status reports on its service

[[Page 11727]]

to the low-income community and may review the credit union's

service to low-income persons during examinations.

6. In IRPS 94-1, Chapter 1, Section V.B is deleted and Sections

V.C. and V.D. are redesignated V.B and V.C, respectively.

7. In IRPS 94-1, Chapter 1, Section VIII.D is revised to read as

follows:

VIII.D--Appeal of Regional Director's Decision

If the Regional Director denies a charter application, the group

may appeal the decision to the NCUA Board. If not included with the

denial notice, a copy of these procedures may be obtained from the

appropriate region. An appeal will be sent to the regional office

within sixty days of the denial. The Regional Director will then

forward the appeal to the NCUA Board. NCUA central office staff will

make an independent review of the facts and present the appeal with

recommendations to the Board.

Before appealing, the prospective group may, within thirty days

of the denial, provide supplemental information to the Regional

Director for reconsideration. In these cases, the request will not

be considered as an appeal but as a request for reconsideration by

the regional director. If the request is again denied, the group may

proceed with the appeal process.

8. In IRPS 94-1, Chapter 2, Section II.A.3.a is revised to read as

follows:

II.A.3.a--General

The special rules for credit unions serving low-income persons

and serving employees at industrial parks, shopping centers and

similar facilities apply equally to field of membership additions.

However, there are two special situations unique to existing federal

credit unions: (1) corporate restructurings and (2) plant or base

closings, and other kinds of distress to a substantial portion of a

credit union's membership.

9. In IRPS 94-1, Chapter 2, Section III.A is revised to read as

follows:

III.A--Mergers

Generally, the standards applicable to field of membership

amendments found in Section II of this chapter apply to mergers

where the continuing credit union is a federal charter. This

requires analyzing each group in the merging credit union's field of

membership. Groups in the merging credit union that are within the

operating area of either credit union may be transferred intact into

the continuing credit union. Merger applicants must provide NCUA

with their own analysis of how the proposed field of membership of

the continuing credit union conforms to this policy. For those

groups from the merging credit union that do not meet operational

area requirements, unless granted a waiver under the procedure for

merging state chartered credit unions, only the members of record

will be transferred to the continuing credit union.

Where the merging credit union is state chartered, the field of

membership rules for a credit union converting to a federal charter

apply with the following differences:

In a merger involving a common bond addition, the

requirements to provide a request for credit union service from the

corporate, associational, or other unit to be added is not required,

since the unit already has credit union service.

In a merger involving a select group addition:

For the same reason as above, the requirement for a letter from

each group included in the credit union's field of membership is not

required.

Where a state credit union is merging into a federal credit

union, the operational area requirement may be waived if it can

demonstrate that the group does not have other credit union service

available and the credit union will continue to be able to provide

quality credit union service to the group. In determining quality of

services, NCUA will consider the number of members of the group who

are using the credit union's services. The waiver is discretionary

on the part of NCUA and will be strictly scrutinized. The waiver

will only be granted if supported by clear and convincing evidence.

Absent any waivers, only members of record of groups that do not

meet operational area requirements will be transferred to the

continuing credit union. Upon merging, the state credit union's

field of membership will be worded to conform to the NCUA standards

set forth in Chapter 1. Any subsequent field of membership

amendments must comply with applicable amendment procedures.

In a merger of a community credit union into a federal

credit union of any type, the continuing credit union may be

permitted to continue to provide service to the merging credit

union's members of record as of the merger date where the

operational area requirement is satisfied. Except in the case of an

emergency merger or where the continuing credit union is low-income,

the continuing federal credit union can obtain only the members of

record of the merging community credit union.

Where both credit unions are community charters, the

continuing credit union is a federal credit union, and the criteria

for expanding the service area of a community federal credit union

(as discussed previously in this Chapter) are satisfied, the entire

field of membership of the merging credit union may be added to the

continuing federal credit union's charter.

Mergers must be approved by all affected NCUA regional

directors, and, as applicable, the state regulators.

10. In IRPS 94-1, Chapter 2, Section III.B. is revised to read as

follows:

III.B--Emergency Mergers

NCUA may approve emergency mergers without regard to field of

membership or other legal constraints. An emergency merger involves

NCUA's direct intervention. The credit union to be merged must

either be insolvent or be likely to become insolvent within 12

months and NCUA must determine that:

An emergency requiring expeditious action exists;

Other alternatives are not reasonably available; and

The public interest would best be served by approving

the merger.

In an emergency merger situation, NCUA takes an active role in

finding a suitable merger partner (continuing credit union). NCUA is

primarily concerned that the continuing credit union has the

financial strength and management expertise to absorb the troubled

credit union without adversely affecting its own financial condition

and stability.

As a stipulated condition to an emergency merger, the field of

membership of the merging credit union may be transferred intact to

the continuing federal credit union without regard to any field of

membership restrictions and without changing the character of the

continuing federal credit union for future amendments. Under this

authority, therefore, a federal credit union may take into its field

of membership a group defined by a community or associational common

bond permitted under state law, regardless of whether that common

bond definition could be approved under the Federal Credit Union

Act. If a federal credit union which has added groups or communities

under an emergency merger later proposes to merge with another

federal credit union, the groups or communities added pursuant to

the emergency merger will not be subject to operational area or

field of membership analysis.

11. In IRPS 94-1, Chapter 2, Section VIII.B is revised to read as

follows:

VIII.B--Streamlined Expansion Procedure (SEP) for Small Occupational

Groups

In keeping with the goals of NCUA chartering policy to provide

service to all eligible groups desiring credit union service, well

operated federal credit unions except those designated as

``distressed'' may take advantage of the SEP for adding occupational

groups to their fields of membership.

To use this procedure, the federal credit union's board of

directors must first apply to their respective NCUA regional

director for a charter amendment. The charter amendment request must

be signed by the presiding officer of the board of directors.

The following is a sample amendment for permitting a federal

credit union to use the SEP authority:

Groups of persons with occupational common bonds which are

located within 25 miles of one of the credit union's service

facilities, which have provided a written request for service to the

credit union, which do not presently have credit union service

available, other than through a community credit union, which have

no more members in the group than the maximum number established by

the NCUA Board for additions under this provision: Provided,

however, that the National Credit Union Administration may

permanently or temporarily revoke the power to add groups under this

provision upon a finding, in the Agency's discretion, that

permitting additions under this provision are not in the best

interests of the credit union, its members, or the National Credit

Union Share Insurance Fund.

[[Page 11728]]

Once NCUA has approved the amendment and the credit union board

has adopted it, the SEP authority may be implemented. The charter

amendment permits approved federal credit unions to immediately

begin serving employee groups meeting criteria set forth in this

section. Under this procedure, there is no formal NCUA action

necessary on each group being added.

The maximum number of persons for each group of employees which

may be added under SEP will be established by the NCUA Board from

time to time. The number will be based on potential primary

members--that is, the persons sharing the basic occupational

affinity to each sponsor group; family members and other derivative

members are not included in the SEP limit. Several groups may be

simultaneously added using these procedures; however, the maximum

number of persons for each group must fall within the SEP limit.

The SEP does not apply to associational groups since NCUA must

review membership requirements and geographical area prior to these

groups being added to a field of membership. The procedure also does

not apply to community charter expansions, because of the more

individualized analysis required.

The following SEP steps and documentation requirements must be

adhered to:

The federal credit union must complete, for each group

to be added, an Application for Field of Membership Amendment form,

NCUA 4015, shown in Appendix D.

The federal credit union must obtain a letter, on the

group's letterhead where possible, signed by an official

representative identified by title, requesting credit union service

and stating that the group does not have any other credit union

service available from any associational, occupational or multiple

group credit union.

The group must be located within 25 miles of one of the

federal credit union's service facilities. The group will be

considered to be within the 25 mile limit when: (1) a majority of

the group's members live or work within the 25 mile limit; or (2)

the group's headquarters is located within the 25 mile limit; or (3)

the group's ``paid from'' or ``supervised from'' location is within

the 25 mile limit.

The group must indicate the number of potential

members--the number of employees--seeking service.

The federal credit union must maintain the above

documentation permanently with its charter.

The federal credit union must maintain a control log of

groups added to its field of membership under the SEP procedure. The

control log must include the date the group obtained service, the

name and location of the sponsor group, the number of potential

primary members added, the number of miles to the nearest main or

branch office, the federal credit union board of director's approval

of the group and the date approved. See Appendix D for the SEP

Control Log, NCUA 4016.

The groups added under SEP must be reported to the

federal credit union's board at the next regular board meeting and

made a part of the meeting minutes.

The control log and other SEP documentation must be

made available to NCUA upon request.-

The regional director may from time to time request service

status reports on groups added under SEP. It is advisable to use

some method, such as a sponsor prefix added to the member account

number, to readily access data for such groups.

Should a federal credit union fail to provide quality credit

union service, as determined by the group's members or employees, to

a group added under SEP, NCUA may subsequently permit dual

membership with another credit union.

Should a federal credit union fail to follow the above

procedures or deteriorate financially or operationally, NCUA, at its

discretion, may revoke the SEP privilege.

If a federal credit union that has SEP in its charter merges

with another federal credit union that does not have SEP, the

continuing credit union, if it desires to have SEP, must submit a

charter amendment and receive approval from NCUA to implement SEP.

Otherwise, the groups obtained by the merging credit union through

SEP must be listed specifically in the continuing credit union's

field of membership or a reference to the merging credit union's SEP

log must be made in the continuing credit union's field of

membership as of the date of the merger.

12. In IRPS 94-1, Chapter 2, Section VIII.G is revised to read as

follows:

VIII.G--Appeal of Regional Director Decision

If a field of membership expansion, merger, or spin-off is

denied by the Regional Director, the federal credit union may appeal

the decision to the NCUA Board. If not included with the denial

notice, a copy of these procedures may be obtained from the Regional

Director who made the decision. An appeal must be sent to the

appropriate regional office within sixty days of the denial. The

Regional Director will then forward the appeal to the NCUA Board.

NCUA central office staff will make an independent review of the

facts and present the appeal to the Board with a recommendation.

The federal credit union may, within thirty days of the denial,

request reconsideration and provide supplemental information to the

regional director. The request for reconsideration will not be

considered an appeal but will toll the sixty day requirement to file

an appeal until a ruling is received on the request for

reconsideration.

13. In IRPS 94-1, Chapter 3, Section 3.H, is added as follows:

III.H--Appeal of Regional Director Decision

If a conversion to a state charter is denied by the Regional

Director, the credit union may appeal the decision to the NCUA

Board. If not included with the denial notice, a copy of these

procedures may be obtained from the Regional Director who made the

decision. An appeal must be sent to the appropriate regional office

within sixty days of the denial. The Regional Director will then

forward the appeal to the NCUA Board. NCUA central office staff will

make an independent review of the facts and present the appeal to

the Board with a recommendation.

The federal credit union may, within thirty days of the denial,

request reconsideration and provide supplemental information to the

regional director. The request for reconsideration will not be

considered an appeal but will toll the sixty day requirement to file

an appeal until a ruling is received on the request for

reconsideration.

[FR Doc. 96-6701 Filed 3-21-96; 8:45 am]

BILLING CODE 7535-01-U