Organization and Operations of Federal Credit Unions

SUMMARY: The recently enacted Credit Union Membership Access Act

modified NCUA's chartering and field of membership authority.

Accordingly, NCUA is proposing a number of amendments to its policies

to update them consistent with the recent legislation. Additionally,

this proposal revises and updates NCUA's chartering and field of

membership policy to reflect the advances and changes in chartering

requirements since the promulgation of IRPS 94-1. The majority of the

revisions reflect NCUA's policy on the types of federal credit union

charters and the criteria necessary to amend a credit union's field of

membership. The legislation authorizes three types of credit union

charters. These charter types include a single occupational or

associational common bond, a multiple common bond, or a local

community, neighborhood, or rural district serving a well defined area.

Along with a comprehensive update of chartering policy, the format

of the chartering manual has been changed to make it more user-

friendly. The proposal further clarifies multiple common bond policies,

overlap issues, mergers, low-income policies regarding low income

charters and service of low income areas, the definition of immediate

family members, and the ``once a member always a member'' policy.

DATES: Comments must be postmarked or received by November 13, 1998.

ADDRESSES: Comments should be directed to Becky Baker, Secretary of the

Board. Mail or hand deliver comments to: National Credit Union

Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. Fax

comments to (703) 518-6319. E-Mail comments to [email protected].

Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: J. Leonard Skiles, Chairman, Field of

Membership Task Force, 4807 Spicewood Springs Road, Suite 5100, Austin,

Texas 78759, or telephone (512) 231-7900; Michael J. McKenna, Senior

Staff Attorney, Office of General Counsel, 1775 Duke Street,

Alexandria, Virginia 22314 or telephone (703) 518-6540; Lynn K.

McLaughlin, Program Officer, Office of Examination and Insurance, 1775

Duke Street, Alexandria, Virginia, or telephone (703) 518-6360.

SUPPLEMENTARY INFORMATION:

In 1982, the changing economic environment created safety and

soundness concerns which prompted the NCUA Board to revise its

chartering policy to permit membership in a federal credit union to

consist of multiple groups, provided each group possessed a common

bond. Such membership could be accomplished through the chartering

process, through charter amendments, or by way of merger to form a

single credit union. This policy change strengthened the federal credit

union system by enabling NCUA to merge credit unions that otherwise

would have failed because of loss of sponsor or other financial or

operational downturns. The policy also enabled federal credit unions to

diversify their membership and become less dependent on the financial

success of one sponsoring company or group. An additional advantage of

the policy change was to provide access to credit union service for

small groups of people who did not have the resources to charter their

own credit unions. The NCUA Board issued subsequent changes to

chartering policy in 1984, 1989, 1994, 1996, and 1998, most of which

addressed the multiple group policy.

In First National Bank and Trust Co., et al. v. National Credit

Union Administration, 90 F.3d 525 (D.C. Cir. 1996), the U.S. Court of

Appeals for the District of Columbia Circuit invalidated certain select

group additions to the field of membership of a North Carolina credit

union (the ``Decision''). In that case, the Court ruled that groups

with unlike common bonds could not be joined to form a single credit

union. Furthermore, in the consolidated cases of First National Bank

and Trust Co., et al. v. NCUA and the American Bankers Association, et

al. v. NCUA, et al., the U.S. District Court issued a nationwide

injunction prohibiting federal credit unions from adding new select

groups to their fields of membership that did not share a common bond

(the ``Order''). The Decision and Order affected the operations of

approximately 3,600 multiple group federal credit unions serving

approximately 158,000 select groups.

On February 25, 1998, the U.S. Supreme Court ruled that NCUA's

multiple group policy was impermissible under the Federal Credit Union

Act. National Credit Union Administration v. First National Bank &

Trust Co. et al., 118 S. Ct. 927 (1998). The Supreme Court stated that

groups with unlike common bonds could not be joined to form a single

occupational credit union. Congress addressed this issue and recently

enacted legislation reinstating NCUA's multiple group policy with some

modifications. This is the first time since 1934 that Congress has

updated the statutory common bond rules. Accordingly, the NCUA Board is

updating its chartering policies by proposing IRPS 98-3.

The purposes of this proposed rule are to:

First, replace IRPS 94-1, as amended by IRPS 96-1 and 98-

1, to bring NCUA's field of membership and chartering policy into

compliance with the Credit Union Membership Access Act. Modifications

are necessary regarding single occupational/associational common bonds,

multiple common bonds, community charters, as well as policies

regarding service to low-income areas.

Second, update NCUA's field of membership and chartering

policies since the issuance of IRPS 94-1, as amended by IRPS 96-1 and

IRPS 98-1.

Third, rewrite and reformat the chartering manual to make

it more user-friendly.

The NCUA Board is proposing a number of changes to its chartering

policies, but the following are the most significant:

First, issuance of a new multiple group policy. This

includes numerical limitations for a select group addition, five

statutory criteria for adding a select group to a multiple common bond

credit union, mergers of multiple group credit unions, and overlaps.

Second, an update of the definition of single occupational

and associational common bonds.

Third, a revised policy on the requirements to charter,

expand, or convert to a community charter.

Fourth, a separate chapter on low-income credit unions

which addresses the ability of a multiple group credit union to add an

underserved area to its field of membership.

Fifth, a definition of immediate family member for

purposes of credit union eligibility.

Sixth, a discussion of the statutory authorization for the

``once a member, always a member'' policy.

A. Chapter and Section Analysis

I. Chapter 1 of the Chartering Manual

This chapter sets forth the goals of NCUA's chartering policy, and

the requirements and procedures for chartering a new federal credit

union.

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NCUA's definition of economic advisability is set forth in this

chapter. The Board wishes to emphasize that when NCUA charters a new

credit union, the Agency evaluates the economic advisability of the

proposed institution as well as its effect on other credit unions.

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

chartering a federal credit union, experience has suggested that a

credit union with fewer than 3,000 primary potential members (e.g.,

employees of a corporation or members of an association) may not be

economically advisable. Therefore, a charter applicant with a proposed

field of membership of fewer than 3,000 primary potential members will

have to provide significantly more support than a proposed credit union

with a larger field of membership. This change not only more accurately

reflects the economic reality necessitating increased numbers of

primary potential members in order for most groups to meet the economic

advisability requirement, but it also recognizes that some groups, even

though less than 3,000, can be economically viable as a separate credit

union. This modification also makes it operationally consistent with

the multiple group expansion requirements. Comments are specifically

requested on whether the economic advisability number should be set at

a lower or higher level.

The chapter also addresses the issue of member support as well as

the marketing plan and is generally directed to those groups wishing to

charter a new credit union.

This chapter encourages the formation of newly chartered federal

credit unions and the use of mentor relationships with existing, well-

managed credit unions. NCUA believes that experienced credit unions are

a valuable resource to newly chartered credit unions and can provide

needed guidance and assistance.

Chapter 1 discusses the various field of membership designations

available to prospective and existing credit unions. These designations

include single occupational, single associational, multiple group, or

community.

Finally, this chapter sets forth NCUA's long-standing policy

prohibiting the establishment of a federal credit union for the primary

purpose of serving the citizens of a foreign nation. As always, federal

credit unions are permitted to serve foreign nationals within the field

of membership when they reside or work in the United States. Foreign

nationals may also be served if they reside in a foreign country, but

only when the primary purpose of the credit union's foreign service

facility is to serve United States citizens who are credit union

members residing in the foreign country.

II. Chapter 2 of the Chartering Manual

Chapter 2 sets forth the field of membership requirements for a

federal credit union. This chapter is divided into the following

comprehensive sections: (1) single occupational charters, (2) single

associational charters, (3) multiple group charters, and (4) community

charters. Although some basic information applicable to all charters is

repeated in the individual sections addressing each charter type, which

increased the overall length of the chartering manual, the new format

will be more user-friendly by making information easier to locate.

a. Single Occupational Common Bond Credit Union

The NCUA Board is proposing that a federal credit union may include

in a single occupational common bond all persons and entities who share

that common bond without regard to geographic location. The Board

believes eligibility for membership in an occupational common bond can

be established in four 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 of not less than 10 percent in or by another legal

entity makes that person part of an occupational common bond of

employees of the two legal 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; or

Employment or attendance at a school.

Occupational Common Bond Amendments

There are a number of ways an occupational credit union can amend

its field of membership. The proposed rule sets forth when NCUA may

approve an amendment to expand a credit union's field of membership.

One instance requiring an amendment is when the sponsor

organization is involved in a corporate restructuring. A credit union

can continue to provide service to a group that is spun-off only if it

otherwise qualifies as part of the single occupational common bond, or

if the credit union converts to a multiple group credit union.

A second instance requiring an amendment is when the entire field

of membership is acquired by another corporation. The credit union can

serve the employees of the new corporation, including any subsidiaries

of the acquiring corporation, after receiving NCUA approval. In this

instance the credit union remains a single common bond credit union.

Overlaps

As a general rule, NCUA will not charter two or more credit unions

to serve the same single occupational group. Consequently, overlap

protection is provided for single occupational credit unions. However,

an overlap may be permitted when two or more credit unions are

attempting to serve the same group if the overlap's beneficial effect

in meeting the convenience and needs of the members of the group

proposed to be included in the field of membership clearly outweighs

any adverse effect on the overlapped credit union.

The proposal sets forth when NCUA will permit an overlap of an

occupational credit union and what NCUA considers in reviewing an

overlap. However, an occupational credit union will rarely, if ever, be

protected from overlap by a community charter. Where a federally

insured state credit union's field of membership is broadly stated,

NCUA will exclude its field of membership from overlap protection.

b. Single Associational Common Bond Credit Union

The proposal sets forth the definition of associational common

bond. An associational common bond consists of individuals (natural

persons) and/or groups (non natural persons) whose members participate

in activities developing common loyalties, mutual benefits, and mutual

interests. This proposal permits an associational common bond to

include members of the association, groups which are not comprised

primarily of natural person members but are members of the association,

and employees of the association, as well as the association. NCUA may

grant an associational charter without regard to the geographic

location of the association's members or headquarters. This means a

credit union can serve a widely dispersed membership base if NCUA

determines that it has the ability to serve the area.

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Associations based primarily on a client-customer relationship do

not meet associational common bond requirements. For example, members

of an automobile club, such as the American Automobile Association,

which primarily sells services, would not qualify as an associational

common bond.

If an association subsequently changes its bylaws, the credit union

cannot serve the new members of the association until the revised

charter and bylaws are approved by NCUA through a field of membership

amendment.

Overlaps

As a general rule, NCUA will not charter two or more credit unions

to serve the same single associational group. Consequently, overlap

protection is provided for single associational credit unions. However,

an overlap may be permitted when two or more credit unions are

attempting to serve the same group if the overlap's beneficial effect

in meeting the convenience and needs of the members of the group

proposed to be included in the field of membership clearly outweighs

any adverse effect on the overlapped credit union.

The proposal sets forth when NCUA will permit an overlap of an

associational credit union and what NCUA considers in reviewing an

overlap. An associational credit union will rarely, if ever, be

protected from overlap by a community charter. Where a federally

insured state credit union's field of membership is broadly stated,

NCUA will exclude its field of membership from any overlap protection.

c. Multiple Common Bond Credit Union

The Credit Union Membership Access Act reinstated NCUA's multiple

common bond policy with some modifications. A multiple common bond

credit union may serve a combination of distinct, definable,

occupational and/or associational common bonds.

Multiple common bond credit unions can add groups with dissimilar

common bonds, which are called select groups. These groups must be

within reasonable proximity of the credit union. That is, the groups

must be within the service area of one of the credit union's service

facilities. A service facility is defined as a place where shares are

accepted for members' accounts, loan applications are accepted, and

loans are disbursed. This definition includes a credit union owned

branch, a shared branch, or a credit union owned electronic facility

that meets, at a minimum, these requirements. This definition does not

include an ATM.

Multiple Group Amendments

Before a credit union can add a new occupational or associational

select group, NCUA must determine in writing that five statutory

criteria have been met.

The first criteria is that the credit union did not engage in any

unsafe or unsound practice which is material during the one year period

preceding the filing of the application. The NCUA Board defines an

unsafe or unsound practice for this criteria to mean any action, or

lack of action, which would result in an abnormal risk or loss to the

credit union, its members, or the Naitonal Credit Union share Insurance

Fund. The determination of an unsafe and unsound practice will be

decided by the regional director.

The second criteria is that the credit union is adequately

capitalized. NCUA defines adequately capitalized to mean the credit

union has a net worth ratio of not less than 6 percent. NCUA is

requesting comment on what criteria should be considered when defining

``adequately capitalized'' for newly chartered credit unions.

The third criteria is that the credit union has the administrative

capability and the financial resources to serve the proposed group. To

determine whether the credit union has met this criteria, NCUA will

review the credit union's most recent examination report or, if

necessary, contact the credit union directly.

The fourth criteria is that the credit union must demonstrate that

any potential harm the expansion may have on any other credit union and

its members is clearly outweighed by the probable beneficial effect of

the expansion. NCUA will perform an overlap analysis as set forth in

Chapter 2, Section IV.E of NCUA's Chartering and Field of Membership

Manual to determine whether this criteria has been met.

The fifth criteria is that NCUA must determine that the formation

of a separate credit union is not practical or does not meet the

economic advisability criteria set forth in Chapter 1 of NCUA's

Chartering and Field of Membership Manual.

The proposal also sets forth the documentation requirements to add

a select group and NCUA's procedures for amending the field of

membership. This proposal does not include any provisions for the

Streamlined Expansion Procedure because NCUA must make a written

determination on all multiple group expansions.

Corporate Restructuring

Due to a corporate restructuring of a select group, a credit union

may be required to request an amendment to its field of membership if

it wishes to continue to provide service to that group. NCUA permits a

multiple common bond credit union to retain in its field of membership

a sold or spun-off group to which it has been providing service,

without regard to location, if the original group is clearly

identifiable and requests continued service. NCUA views this as a

housekeeping amendment and not a field of membership expansion.

Mergers

The proposed rule sets forth the requirements for the merger into,

and by, a multiple common bond credit union. Generally, the

requirements applicable to field of membership expansions apply to a

credit union merging into a multiple common bond credit union. If the

continuing credit union in a proposed merger is federally chartered and

the merging credit union has a select group of 3,000 or more persons

(excluding family members), the merger can be approved if NCUA's

expansion requirements are met. If the expansion requirements are not

met, this may require a credit union to spin-off a select group of

3,000 or more persons from the merging credit union.

The proposal also clarifies requirements applicable to mergers of

multiple group credit unions for safety and soundness reasons and

emergency situations. The numerical limitation does not apply to

mergers where there are safety and soundness concerns or the emergency

criteria exist.

Overlaps

NCUA will generally not approve an overlap unless the expansion's

beneficial effect in meeting the convenience and needs of the members

of the group proposed to be included in the field of membership clearly

outweighs any adverse effect on the overlapped credit union. The

proposal sets forth the issues NCUA will consider in reviewing the

overlap. In general, if the overlapped credit union does not object,

and NCUA determines that there are no safety and soundness problems,

the overlap will be permitted. If, however, the overlapped credit union

objects to the overlap, a thorough review as set forth in the proposal

is required. Generally, NCUA will permit overlaps between multiple

common bond credit unions and community chartered credit unions without

performing an overlap analysis, since NCUA has determined

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that in these types of overlaps the benefit of the overlap to the

member will always outweigh the harm to either credit union. A multiple

common bond credit union will rarely, if ever, be protected from

overlap by a community charter.

d. Community Charters

NCUA's current community chartering policy is addressed by the

recent legislation and accordingly must be modified. The legislation

requires that a community charter be based on ``a well-defined local

community, neighborhood, or rural district.'' The NCUA Board believes

that the addition of the word ``local'' by Congress means that review

of what constitutes a community is required. NCUA's most recent policy

has been to limit the community to a single, geographically well-

defined area, where residents interact. The NCUA Board believes that

while the current criteria remain applicable and are essential in

determining what constitutes a community for chartering purposes, the

addition of the word ``local'' in the statutory language in the

community chartering requirements requires NCUA to reevaluate how it

views community. Furthermore, due to the evolving nature of communities

and the intent evidenced in the legislation, NCUA is proposing to

require that the residents either have common interests or interaction.

It will be up to the charter applicant to decide and provide evidence

on whether the individuals in the geographic area interact or have

common interests. Either or both will be sufficient for community

chartering requirements.

NCUA continues to recognize four types of affinity on which a

community common bond can be based--persons who live, work, worship, or

attend school in the community. Businesses and other legal entities

within the community boundaries may also qualify for membership.

However, community credit unions can not serve persons who are paid

from or supervised from a business located within the community, if the

employees do not live, work, worship or attend school in the community.

Given the diversity of community characteristics throughout the

country, the intent of the legislation, and NCUA's goal of making

credit union service available to all eligible groups who wish to have

it, NCUA has established the following requirements for community

charters:

The geographic area's boundaries must be clearly defined;

The charter applicant must establish that the area is a

well-defined ``local community, neighborhood, or rural district;'' and

The residents must have common interests or interact.

``Well-defined'' means the proposed area has specific geographic

boundaries. ``Local community, neighborhood, or rural district''

encompasses several factors including interaction and/or common

interests. Simply being able to draw a boundary around an area does not

meet the requirements for a well-defined local community as that term

is used in the new legislation. The meaning of well-defined local

community includes a variety of factors including, but not limited to,

a geographic limitation. Most prominent is the criteria that the

residents of the well-defined local community interact and/or have

common interests. Although the chartering manual does not precisely

define interaction, it does suggest that a greater burden needs to be

met when either the geographic size or the population of the area is

large. In determining interaction and/or common interests, a number of

factors become relevant. For example, the existence of a single major

trade area, shared governmental facilities, local festivals, area

newspapers, among others, are significant indicia of community

interaction and/or common interests. Conversely, an area which has

numerous trade areas, multiple taxing authorities, or multiple

political jurisdictions tend to diminish the factors that demonstrate

the existence of a local community.

In general, a large population in a small geographic area or a

small population in a large geographic area, may meet NCUA community

chartering requirements. For example, an ethnic neighborhood, a rural

area, a county, or a political subdivision within the county, with less

than 300,000 residents will often have sufficient interaction and/or

common interests to meet community charter requirements.

Conversely, a large population in a large geographic area will not

normally meet NCUA community chartering requirements. It is unlikely

that an entire state, a major metropolitan city, a densely populated

county, or an area covering multiple counties with significant

population, will have sufficient interaction and/or common interests.

Therefore, if the credit union is interested in serving this type of

expanded area as a community charter, the burden of demonstrating

interaction and/or common interests will be significantly greater than

the evidence necessary for a smaller area. For example, the proposed

community charter requirements make it difficult for a state or a large

city such as New York, Boston, Dallas, or Los Angeles, to meet the

requirements of a local community.

The well defined local community, neighborhood, or rural district

will most easily be met if the area to be served is a recognized

political jurisdiction, not greater than a county or its equivalent,

and if the population of the requested well-defined area does not

exceed 300,000. Generally, the single jurisdiction will most often

coincide with a county, or its political equivalent. Multiple smaller

political subdivisions within a county or its equivalent, such as a

``city'' or a ``school district,'' would also qualify. For this type of

community charter, the applicant must only submit a letter

demonstrating how the area meets the indicia for community interaction

or common interests. In addition, the applicant must provide evidence

of the political jurisdiction and size of the population. At its

discretion, NCUA may request more documentation demonstrating the area

is a well-defined local community, neighborhood, or rural district. If

the requested area is not a single political jurisdiction or exceeds

300,000, more extensive and detailed documentation, as discussed in

this proposal, must be provided to support that the proposed area is a

well-defined local community. This proposal does not limit community

charters to a recognized single political jurisdiction, or to a

proposed area where the population is 300,000 or less. Simply,

additional documentation is required if the proposed community charter

exceeds an area greater than a county or 300,000 in population.

Specific comments are requested as to whether a streamlined approach

for community charter approval is appropriate and, if so, in accordance

with what criteria.

The NCUA Board believes that a low-income area meeting the low-

income definition found in Section 701.34 of NCUA's Rules and

Regulations, has many of the common characteristics and demographics of

a local community, and generally lacks the basic financial services

found in more affluent communities. When reviewing low-income community

charter applications, NCUA's documentation requirements are more

flexible. A new charter applicant applying to serve a low-income

neighborhood of 300,000 residents in a major metropolitan city will

have fewer documentation requirements than would be required in a

standard community charter package. For example, an applicant seeking

to serve such a low-income community need only provide evidence

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demonstrating well-defined community boundaries and that the area meets

the low-income definition.

Overlaps

A credit union seeking a community charter must contact all

federally insured credit unions with a service facility in the proposed

service area. A community credit union can overlap any other type of

credit union charter. If safety and soundness concerns exist, NCUA may,

on rare occasions, provide overlap protection from a community charter

for a limited period of time, generally 12 to 24 months. Extensions

will be granted for continued serious safety and soundness concerns.

The timeframe for the duration of the exclusionary clause will be

specifically listed in Section 5 of the community credit union's

charter.

In the past, exclusionary clauses have been permitted for reasons

other than for safety and soundness, such as when there is an agreement

between the overlapping credit unions. An exclusionary clause, under

circumstances other than for safety and soundness, would not be

permitted under the current proposal if the overlapping credit union is

a community charter. Specific comments are requested as to whether

exclusionary clauses are appropriate for community charters, and, if

so, under what circumstances.

A credit union that converts to a community charter may continue to

serve existing members of the credit union who are not within the

community, pursuant to the statutory provision that once a person

becomes a credit union member, he or she can remain a member. A

community credit union may not, however, add new members, or serve

groups outside the community.

e. Changes Applicable to All Federal Credit Unions

Emergency Mergers

NCUA is issuing clarifying language regarding emergency mergers and

purchase and assumption agreements for occupational, associational and

community charters. Among other minor modifications, NCUA is removing

the 12 month period within which insolvency must occur, since it is not

required by the Federal Credit Union Act.

Definition of Immediate Family Member

As required by the new legislation, the proposed regulation defines

an individual who is eligible for membership in a credit union on the

basis of the relationship of such individual to another person who is

eligible for membership in such credit union. This is commonly referred

to as immediate family members. Members of their immediate families is

defined as related persons i.e., blood, marriage, or other recognized

family relationships in the same household (under the same roof), or if

not in the same household, as a grandparent, parent, spouse, sibling,

child, or grandchild. For the purposes of this definition, immediate

family member includes stepparents, stepchildren, and stepsiblings. The

immediate family member must be related to the credit union member. In

other words, once a person becomes a member, then that person's

immediate family could join.

Once a Member Always a Member

The statute authorizes that once a person becomes a member of the

credit union, such a person or organization may remain a member until

the person chooses to withdraw from the credit union, unless the person

is expelled as provided in Section 118 of the Federal Credit Union Act.

This provision codifies the ``once a member, always a member'' policy.

III. Chapter 3 of the Chartering Manual

Low-income credit unions play an especially important part in the

credit union movement. Therefore, NCUA has developed a separate chapter

setting forth special policies for low-income credit unions and special

chartering policies for underserved areas. The intent of these policies

is to encourage the formation of new credit unions and the expansion of

existing credit unions into underserved and low-income areas.

The Credit Union Membership Access Act authorizes credit union

service to people of modest means and the addition of underserved areas

to the field of membership of a multiple common bond credit union with

the approval of NCUA. The legislation defines an underserved area as a

local community, neighborhood, or rural district that is an

``investment area'' as defined in Section 103(16) of the Community

Development Banking and Financial Institutions Act of 1994.

An investment area includes any of the following:

An area encompassed or located in an Enpowerment Zone or

Enterprise Community designated under section 1391 or the Internal

Revenue Code of 1996 (26 U.S.C. 1391);

An area where the percentage of the population living in

poverty is at least 20 percent and the area has significant unmet needs

for loans or equity investments;

An area in a Metropolitan Area where the median family

income is at or below 80 percent of the Metropolitan Area median family

income or the national Metropolitan Area median family income,

whichever is greater; and the area has significant unmet needs for

loans or equity investments;

An area outside of a Metropolitan Area, where the median

family income is at or below 80 percent of the statewide non-

Metropolitan Area median family income or the national non-Metropolitan

Area median family income, whichever is greater; and the area has

significant unmet needs for loans or equity investments;

An area where the unemployment rate is at least 1.5 times

the national average and the area has significant unmet needs for loans

or equity investments;

An area where the percentage of occupied distressed

housing (as indicated by lack of complete plumbing and occupancy of

more than one person per room) is at least 20 percent and the area has

significant unmet needs for loans or equity investments;

An area located outside of a Metropolitan Area with a

county population loss between 1980 and 1990 of at least 10 percent and

the area has significant unmet needs for loans or equity investments.

Although the new legislation specifically authorizes flexible

policies regarding multiple group credit unions providing service to

underserved areas, it is NCUA's determination that previous Agency

policies allowing similar service to poor and disadvantaged areas

should also be permitted. Accordingly, the criteria established for

multiple group credit unions will also apply to single occupational,

single associational, and community credit unions desiring to serve

underserved areas. The charter type of the credit union will not change

based on service to underserved area.

In addition, the area must be underserved based on data considered

by the NCUA Board and the Federal Banking Agencies. Once an underserved

area has been added to a multiple group credit union's field of

membership with NCUA's approval, the credit union must establish and

maintain an office or facility in the community.

Prior to approving an underserved area to a multiple group credit

union's field of membership, NCUA will evaluate current service to

groups within the field of membership by analyzing the credit union's

penetration rates. If the credit union has a low penetration rate of

existing groups, it will have a greater burden of showing

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that it can adequately serve the requested underserved area.

IV. Chapter 4 of the Chartering Manual

This chapter discusses the requirements and procedures for

conversion of a state credit union to a federal credit union and

conversion of a federal credit union to a state credit union. The

proposed policy for charter conversions is basically the same as

current policy. The major change concerns changing the credit union's

name on all signs, records, accounts, investments, stationery and other

documents. The new policy establishes that the credit union has 180

days from the effective date of the conversion to change its signs,

records, accounts, investments, and stationery. The credit union may

reissue, with its new name, its outstanding debit cards, ATM cards,

credit cards, at the time of renewal. Share drafts with the credit

union's name can be used by the member until depleted. This provision

applies to both types of conversions, state-to-federal and federal-to-

state. If the state credit union is not federally insured, it must

change its name and must immediately cease using any credit union

documents referencing federal insurance and a federal name, including

checks and credit cards.

V. Items in Process

Until this rule is finalized, NCUA must operate under interim

policies. These policies primarily affect the chartering and conversion

to a community charter, the approval of field of membership amendments

for multiple common bond credit unions, and the eligibility of

immediate family members. If NCUA received a community charter

application, including conversions and expansions, prior to the

enactment of the Credit Union Membership Access Act, NCUA will process

the application under IRPS 94-1, as amended by IRPS 96-1 and IRPS 98-1,

as required by Section 103 of the statutory amendments. If the

application is denied by NCUA during the interim period after passage

of the legislation, and the credit union subsequently submits a new

application, the new rules contained in this proposal, if finalized,

apply.

Amendments to multiple common bond credit unions cannot be approved

until this rule is finalized. If NCUA receives amendment requests

during this interim period, it will return the request to the credit

union. However, amendments to single occupational/assocational common

bond credit unions will continue to be processed.

Under IRPS 94-1, credit unions have the ability to define immediate

family through a credit union adopted bylaw amendment. Congress is

requiring NCUA to specifically define immediate family member and

submit the rule to Congress for review. Therefore, those immediate

family members who are defined in the credit union's bylaws are

eligible to join the credit union until notified by NCUA.

VI. Grandfather Provision

The Credit Union Membership Access Act permits any person or

organization, who is a member of any federal credit union at the date

of enactment, unless expelled under Section 118 of the Federal Credit

Union Act, to maintain membership in the credit union. The Act also

permits a member, or subsequent new member, of any group, whose members

constituted a portion of the membership of any federal credit union at

the date of enactment, to continue to be eligible for membership in the

credit union. For example, an employee of a select group who was

eligible for membership prior to August 7, 1998, but did not join the

credit union, is still eligible to join the credit union. This also

applies to new employees hired subsequent to the date of enactment.

B. Regulatory Procedures

Regulatory Flexibility Act

The Regulatory Flexibility Act requires NCUA to prepare an analysis

to describe any significant economic impact a regulation may have on a

substantial number of small credit unions (primarily those under $1

million in assets). The proposed rule will not have a significant

economic impact on a substantial number of small credit unions and

therefore, a regulatory flexibility analysis is not required.

Paperwork Reduction Act

NCUA has determined that several requirements of this proposal

constitute collections of information under the Paperwork Reduction

Act. The requirements are that federal credit unions: (1) complete a

charter application or conversion application; and (2) provide written

requests for changes in a credit union's field of membership. These

documents are necessary to ensure the safety and soundness of credit

unions as well as ensuring that the legal requirements of the Act have

been met. Other aspects of this proposal reduce the paperwork

requirements from the current rule.

It is NCUA's view that some aspects of the time it takes a credit

union to complete a charter application, charter amendment, or a

community conversion or expansion application is not a burden created

by this regulation but is the usual and customary practice in the

normal operations of a business entity. However, NCUA estimates that it

should take a credit union an average of 80 hours to develop a written

charter or conversion request. NCUA estimates that it will receive 80

charter or conversion requests in any given year. The annual reporting

burden would be 6,400 hours to comply with this requirement. NCUA also

estimates that it should take a credit union an average of two hours to

provide a written request for changes in a credit union's field of

membership. NCUA estimates that it will receive 9,000 of these requests

in any given year. The annual reporting burden would be 18,000 hours to

comply with this requirement. The total annual burden hours imposed by

the proposed rule is 24,400 hours.

The Paperwork Reduction Act of 1995 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 the burden of the collection of

information.

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

the 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, including the validity of the

methodology and assumptions used; (3) ways to enhance the quality,

utility, and clarity of the information to be collected; and (4) ways

to minimize the burden of collection of information on those who are to

respond, including through the use of appropriate automated electronic,

mechanical, or other technological collection techniques or other forms

of information technology; e.g., permitting electronic submission of

responses.

OMB is required to make a decision concerning the collection of

information contained in these proposed regulations between 30 and 60

days after publication of this document in the Federal Register.

Therefore, a comment to OMB is best assured of having its full effect

if OMB receives it within 30 days of publication. This does not affect

the deadline for the public to comment to the NCUA Board on the

proposed regulation.

Organizations and individuals desiring to submit comments on the

information collection requirements should direct them to the Office of

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Information and Regulatory Affairs, OMB, Room 10235, New Executive

Office Building, Washington, D.C. 20503; Attention: Alex Hunt, Desk

Officer for NCUA. Comments must also be sent to NCUA, 1775 Duke Street,

Alexandria, VA 22314-3428; Attention: Jim Baylen, Director, office of

Administration, Telephone No. (703) 518-6410; Fax No. (703) 518-6433.

Comments should be postmarked by November 13, 1998. All comments

submitted in response to these proposed regulations will be available

for public inspection, during and after the comment period, at NCUA's

Central Office, 6th Floor, Law Library, 1775 Duke Street, Alexandria,

VA between the hours of 9 a.m. and 1 p.m., Monday through Friday of

each week except federal holidays, and by appointment through the Law

Librarian at telephone no. (703) 518-6540.

Executive Order 12612

Executive Order 12612 requires NCUA to consider the effect of its

actions on state interests. This proposed rule makes no significant

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

materially affect state interests.

Congressional Review

Congress, by statute, has determined that NCUA's definition of

``immediate family or household'' as well as NCUA's definition of a

``well-defined local community, neighborhood, or rural district,''

shall be treated as a major rule for purposes of chapter 8 of title 5

United States Code.

List of Subjects in 12 CFR Part 701

Credit, Credit unions, Reporting and recordkeeping requirements.

By the National Credit Union Administration Board on August 31,

1998.

Becky Baker,

Secretary of the Board.

Accordingly, NCUA proposes to amend 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

12 U.S.C. 1601 et seq., 42 U.S.C. 1981 and 3601-3610. Section 701.35

is also authorized by 12 U.S.C. 4311-4312.

2. Section 701.1 is revised to read as follows:

Sec. 701.1 Federal credit union chartering, field of membership

modifications, and conversions.

National Credit Union Administration policies concerning

chartering, field of membership modifications, and conversions are set

forth in Interpretive Ruling and Policy Statement 98-3, Chartering and

Field of Membership Policy. Copies may be obtained by contacting NCUA

at the address found in Sec. 792.2(g)(1) of this chapter. The IRPS is

incorporated into this section.

(Approved by the Office of Management and Budget under control

number 3133-0015.)

IRPS 98-3--[Added]

Note: The text of the Interpretive Ruling and Policy Statement

(IRPS 98-3) does not appear in the Code of Federal Regulations.

3. IRPS 98-3 is added to read as follows:

Chapter 1--Federal Credit Union Chartering

I--Goals of NCUA Chartering Policy

The National Credit Union Administration's (NCUA) chartering and

field of membership policies are directed toward achieving the

following goals:

To encourage the formation of credit unions;

To uphold the provisions of the Federal Credit Union Act;

To promote thrift and credit extension;

To promote credit union safety and soundness; and

To make quality credit union service available to all

eligible persons.

NCUA may grant a charter to single occupational/associational

groups, multiple groups, or communities if:

The occupational, associational, or multiple groups

possess an appropriate common bond or the community represents a well-

defined local community, neighborhood, or rural district;

The subscribers are of good character and are fit to

represent the proposed credit union; and

The establishment of the credit union is economically

advisable.

Generally, these are the primary criteria that NCUA will consider.

In unusual circumstances, however, NCUA may examine other factors, such

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

be approved.

II--Types of Charters

The Federal Credit Union Act recognizes three types of federal

credit union charters--single common bond (occupational and

associational), multiple common bond (more than one group each having a

common bond of occupation or association), and community.

The requirements that must be met to charter a single occupational/

associational group, multiple groups, or a community federal credit

union are described in Chapter 2. Special rules for credit unions

serving low-income groups are described in Chapter 3.

If a federal credit union charter is granted, Section 5 of the

charter will describe the credit union's field of membership, which

defines those persons and entities eligible for membership. Generally,

federal credit unions are only able to grant loans and provide services

to persons within the field of membership who have become members of

the credit union.

III--Subscribers

Federal credit unions are generally organized by persons who

volunteer their time and resources and are responsible for determining

the interest, commitment, and economic advisability of forming a

federal credit union. The organization of a successful federal credit

union takes considerable planning and dedication.

Persons interested in organizing a federal credit union should

contact one of the credit union trade associations or the NCUA regional

office serving the state in which the credit union will be organized.

Lists of NCUA offices and credit union trade associations are shown in

the appendices. NCUA will provide information to groups interested in

pursuing a federal charter and will assist them in contacting an

organizer.

While anyone may organize a credit union, a person with training

and experience in chartering new federal credit unions is generally the

most effective organizer. However, extensive involvement by the group

desiring credit union service is essential.

The functions of the organizer are to provide direction, guidance,

and advice on the chartering process. The organizer also provides the

group with information about a credit union's functions and purpose as

well as technical assistance in preparing and submitting the charter

application. Close communication and cooperation between the organizer

and the proposed members are critical to the chartering process.

The Federal Credit Union Act requires that seven or more natural

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

organization certificate stating at a minimum:

[[Page 49171]]

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; and

The fact that the certificate is made to enable such

persons to avail themselves of the advantages of the Federal Credit

Union Act.

False statements on any of the required documentation filed in

obtaining a federal credit union charter may be grounds for federal

criminal prosecution.

IV--Economic Advisability

IV.A--General

Before chartering a federal credit union, NCUA must be satisfied

that the institution will be viable and that it will provide needed

services to its members. Economic advisability is essential in order to

qualify for a credit union charter.

NCUA will conduct an independent on-site investigation of each

charter application to ensure that the proposed credit union can be

successful. In general, the success of any credit union depends on: (a)

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

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

IV.B--Proposed Management's Character and Fitness

The Federal Credit Union Act requires NCUA to ensure that the

subscribers are of good ``general character and fitness.'' Prospective

officials and employees will be the subject of credit and background

investigations. The investigation report must demonstrate each

applicant's ability to effectively handle financial matters. Employees

and officials should also be competent, experienced, honest and of good

character. Factors that may lead to disapproval of a prospective

official or employee include criminal convictions, indictments, and

acts of fraud and dishonesty. Further, factors such as serious or

unresolved past due credit obligations and bankruptcies disclosed

during credit checks may disqualify an individual.

NCUA also needs reasonable assurance that the management team will

have the requisite skills--particularly in leadership and accounting--

and the commitment to dedicate the time and effort needed to make the

proposed federal credit union a success.

Section 701.14 of NCUA's Rules and Regulations set forth the

procedures for NCUA approval of officials of newly chartered credit

unions. If the application of a prospective official or employee to

serve is not acceptable to the regional director, the group can propose

an alternate to act in that individual's place. If the charter

applicant feels it is essential that the disqualified individual be

retained, the individual may appeal the regional director's decision to

the NCUA Board. If an appeal is pursued, action on the application may

be delayed. If the appeal is denied by the NCUA Board, an acceptable

new applicant must be provided before the charter can be approved.

IV.C--Member Support

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

chartering a federal credit union, experience has demonstrated that a

credit union with fewer than 3,000 primary potential members (e.g.,

employees of a corporation or members of an association) generally is

not economically advisable. Therefore, a charter applicant with a

proposed field of membership of fewer than 3,000 primary potential

members will have to provide significantly more support than a proposed

credit union with a larger field of membership. For example, a small

occupational group should demonstrate a commitment for significant

long-term support from the employer.

Economic advisability is a major factor in determining whether the

credit union will be chartered. An important consideration is the

degree of support from the field of membership. The charter applicant

must be able to demonstrate that membership support is sufficient to

ensure viability.

IV.D--Present and Future Market Conditions--Business Plan

The ability to provide effective service to members, compete in the

marketplace, and to adapt to changing market conditions is key to the

survival of any enterprise. Before NCUA will charter or convert a

credit union, a business plan based on realistic and supportable

projections and assumptions must be submitted.

The business plan should contain, at a minimum, the following

elements:

Mission statement;

Analysis of market conditions, including if applicable,

geographic, demographic, employment, income, housing, and economic

data;

Identify any overlapped credit unions (discussed in

Chapter 2);

Evidence of member support;

Goals for shares, loans, and for number of members;

Financial services needed/desired;

Financial services to be provided to members of all

segments within the field of membership;

How/when services are to be implemented;

Organizational/management plan addressing qualification

and planned training of officials/employees;

Plan for continuity--directors, committee members and

management staff;

Operating facilities, to include office space/equipment

and supplies, safeguarding of assets, insurance coverage, etc.;

Type of record keeping system, including consideration of

a data processing system;

Detailed semiannual pro forma financial statements

(balance sheet, income and expense projections) for 1st and 2nd year,

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

Plans for operating independently and adequately

accumulating capital;

Written policies (shares, lending, investments, funds

management, capital accumulation, dividends, collections, etc.);

Source of funds to pay expenses during initial months of

operation, including any subsidies, assistance, etc., and terms or

conditions of such resources; and

Evidence of sponsor commitment (or other source of

support) if subsidies are critical to success of the federal credit

union. Evidence may be in the form of letters, contracts, financial

statements from the sponsor, and any other such document on which the

proposed federal credit union can substantiate its projections.

While the business plan may be prepared with outside assistance,

the subscribers and proposed officials must understand and support the

submitted business plan.

V--Steps in Organizing a Federal Credit Union

V.A--Getting Started

Following the guidance contained throughout this policy, the

organizers should submit wording for the proposed field of membership

(the persons, organizations and other legal entities the credit union

will serve) to NCUA early in the application process for written

preliminary approval. The proposed field of membership must meet all

common bond or community requirements.

Once the field of membership has been given preliminary approval,

and

[[Page 49172]]

the organizer is satisfied the application has merit, the organizers

should conduct an organizational meeting to elect seven to ten persons

to serve as subscribers. The subscribers should locate willing

individuals capable of serving on the board of directors, credit

committee, supervisory committee, and as chief operating officer/

manager of the proposed credit union.

Subsequent organizational meetings may be held to discuss the

progress of the charter investigation, to announce the proposed slate

of officials, and to respond to any questions posed at these meetings.

If NCUA approves the charter application, the subscribers, as their

final duty, will elect the board of directors of the proposed federal

credit union. The new board of directors will then appoint the

supervisory committee.

V.B--Charter Application Documentation

V.B.1--General

As discussed previously in this Chapter, the organizers of a

federal credit union charter must, at a minimum, provide evidence that:

The group(s) possesses an appropriate common bond or the

geographical area to be served is a well-defined local community,

neighborhood, or rural district;

The subscribers, prospective officials, and employees are

of good character and fitness; and

The establishment of the credit union is economically

advisable.

As part of the application process, the organizers must submit the

following forms, which are available in Appendix D of this Manual:

Federal Credit Union Investigation Report, NCUA 4001;

Organization Certificate, NCUA 4008;

Report of Official and Agreement to Serve, NCUA 4012;

Applications and Agreements for Insurance of Accounts,

NCUA 9500; and Certification of Resolutions, NCUA 9501.

Each of these forms is described in more detail in the following

sections.

V.B.2--Federal Credit Union Investigation Report, NCUA 4001

The application for a new federal credit union will be submitted on

NCUA 4001. (State-chartered credit unions applying for conversion to

federal charter will use NCUA 4000. See Chapter 4 for a full

discussion.) The organizer is required to certify the information and

recommend approval or disapproval, based on the investigation of the

request. Instructions and guidance for completing the form are provided

on the reverse side of the form.

V.B.3--Organization Certificate, NCUA 4008

This document, which must be completed by the subscribers, includes

the seven criteria established by the Federal Credit Union Act. NCUA

staff assigned to the case will assist in the proper completion of this

document.

V.B.4--Report of Official and Agreement to Serve, NCUA 4012

This form documents general background information of each official

and employee of the proposed federal credit union. Each official and

employee must complete and sign this form. The organizers must review

each of the NCUA 4012s for elements that would prevent the prospective

official or employee from serving. Further, such factors as serious,

unresolved past due credit obligations and bankruptcies disclosed

during credit checks may disqualify an individual.

V.B.5--Application and Agreements for Insurance of Accounts, NCUA 9500

This document contains the agreements with which federal credit

unions must comply in order to obtain National Credit Union Share

Insurance Fund (NCUSIF) coverage of member accounts. The document must

be completed and signed by both the chief executive officer and chief

financial officer. A federal credit union must qualify for federal

share insurance.

V.B.6--Certification of Resolutions, NCUA 9501

This document certifies that the board of directors of the proposed

federal credit union has resolved to apply for NCUSIF insurance of

member accounts and has authorized the chief executive officer and

chief recording 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.

VI--Name Selection

It is the responsibility of the federal credit union organizers or

officials of an existing credit union to ensure that the proposed

federal credit union name or federal credit union name change does not

constitute an infringement on the name of any corporation in its trade

area. This responsibility also includes researching any service marks

or trademarks used by any other corporation (including credit unions)

in its trade area. NCUA will ensure, to the extent possible, that the

credit union's name:

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 credit union; and

Does not include misleading or inappropriate language.

The last three words in the name of every credit union chartered by

NCUA must be ``Federal Credit Union.''

The word ``community,'' while not required, can only be included in

the name of federal credit unions that have been granted a community

charter.

VII--NCUA Review

VII.A--General

NCUA may provide preliminary 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. At some point

during the review process, a staff member will be assigned to perform

an on-site contact with the proposed officials and others having an

interest in the proposed federal credit union.

NCUA staff will review the application package and verify its

accuracy and reasonableness. A staff member will inquire into the

financial management experience, and the suitability and commitment of

the proposed officials and employees and will make an assessment of

economic advisability. The staff member will also provide guidance to

the subscribers in the proper completion of the Organization

Certificate, NCUA 4008.

The staff member will analyze the prospective credit union's

business plan for realistic projections, attainable goals, adequate

service to all segments of the field of membership, sufficient start-up

capital, and time commitment by the proposed officials and employees.

Any concerns will be reviewed with the organizers and discussed with

the prospective credit union's officials. Additional on-site contacts

by NCUA staff may be necessary. The organizers and subscribers will be

expected to take the steps necessary to resolve any issues or concerns.

Such resolution efforts may delay processing the application.

NCUA staff will then make a recommendation to the regional director

[[Page 49173]]

regarding the charter application. The recommendation may include

specific provisions to be included in a Letter of Understanding and

Agreement. In most cases, NCUA will require the prospective officials

to adhere to certain operational guidelines. Generally, the agreement

is for a limited term of two to four years. A sample Letter of

Understanding and Agreement is found in Appendix B.

VII.B--Regional Director Approval

Once approved, the board of directors of the newly formed federal

credit union will receive a signed charter and standard bylaws from the

regional director. Additionally, the officials will be advised of the

name of the examiner assigned responsibility for supervising and

examining the credit union.

VII.C--Regional Director Disapproval

When a regional director disapproves any charter application, in

whole or in part, the organizers will be informed in writing of the

specific reasons for the disapproval. Where applicable, the regional

director will provide information concerning options or suggestions

that the applicant could consider for gaining approval or otherwise

acquiring credit union service. The letter of denial will include the

procedures for appealing the decision.

VII.D--Appeal of Regional Director Decision

If the regional director denies a charter application, in whole or

in part, that decision may be appealed to the NCUA Board. An appeal

must be sent to the appropriate regional office within 60 days of the

date of denial and must address the specific reasons for denial. The

regional director will then forward the appeal to the NCUA Board. NCUA

central office staff will make an independent review of the facts and

present the appeal with a recommendation to the NCUA Board.

Before appealing, the prospective group may, within 30 days of the

denial, provide supplemental information to the regional director for

reconsideration. The request will not be considered as an appeal, but

as a request for reconsideration by the regional director. The regional

director will have 30 days from the date of the receipt of the request

for reconsideration to make a final decision. If the charter

application is again denied, the group may proceed with the appeal

process within 60 days of the date of the last denial.

VII.E--Commencement of Operations

Assistance in commencing operations is generally available through

the various credit union trade organizations listed in Appendix E.

All new federal credit unions are also encouraged to establish a

mentor relationship with a trained, experienced credit union individual

or an existing credit union. The mentor should provide guidance and

assistance to the new credit union through attendance at meetings and

general oversight review. Upon request, NCUA will provide assistance in

finding a qualified mentor.

VIII--Future Supervision

Each federal credit union will be examined regularly by NCUA to

determine that it remains in compliance with applicable laws and

regulations and to determine that it does not pose undue risk to the

National Credit Union Share Insurance Fund. The examiner will contact

the credit union officials shortly after approval of the charter in

order to arrange for the initial examination (usually within the first

six months of operation).

The examiner will be responsible for monitoring the progress of the

credit union and providing the necessary advice and guidance to ensure

it is in compliance with applicable laws and regulations. The examiner

will also monitor compliance with the terms of any required Letter of

Understanding and Agreement. Typically, the examiner will require the

credit union to submit copies of monthly board minutes and financial

statements.

The Federal Credit Union Act requires all newly chartered credit

unions, up to two years after the charter anniversary date, to obtain

NCUA approval prior to appointment of any new board member, credit or

supervisory committee member, or senior executive officer. Section

701.14 of the NCUA Rules and Regulations sets forth the notice and

application requirements. If NCUA issues a Notice of Disapproval, the

newly chartered credit union is prohibited from making the change.

NCUA may disapprove an individual serving as a director, committee

member or senior executive officer if it finds that the competence,

experience, character, or integrity of the individual indicates it

would not be in the best interests of the members of the credit union

or of the public to permit the individual to be employed by or

associated with the credit union. If a Notice of Disapproval is issued,

the credit union may appeal the decision to the NCUA Board.

IX--Corporate Federal Credit Unions

A corporate federal credit union is one that is operated primarily

for the purpose of serving other credit unions. Corporate federal

credit unions operate under and are administered by the NCUA Office of

Corporate Credit Unions.

X--Groups Seeking Credit Union Service

NCUA will attempt to assist any group in chartering a credit union

or joining an existing credit union. If the group is not eligible for

federal credit union service, NCUA will refer the group to the

appropriate state supervisory authority where different requirements

may apply.

XI--Field of Membership Designations

For monitoring purposes, NCUA will designate a credit union based

on the following criteria:

Single Occupational: If a credit union serves a single occupational

sponsor, such as ABC Corporation, it will be designated as an

occupational credit union, followed by the name, ABC Corporation.

Single Associational: If a credit union serves a single

associational sponsor, such as the Knights of Columbus, it will be

designated as an associational credit union.

Multiple Group: If a credit union serves more than one group, each

of which has a common bond of occupation and/or association, it will be

designated as a multiple group credit union.

Community: All community credit unions will be designated as such,

followed by a description of their geographic boundaries (e.g. city or

county). More than one credit union may serve the same community.

XII--Serving Foreign Nationals

The Federal Credit Union Act authorizes a federal credit union to

serve foreign nationals within the field of membership when they reside

in or work in the United States. Foreign nationals may also be served

if they reside in a foreign country, but only when the primary purpose

of the credit union's foreign service facility is to serve United

States citizens who are credit union members residing in the foreign

country. In order to be served, the foreign nationals must be within

the field of membership of the group for which the credit union

maintains an office on foreign soil.

NCUA policy prohibits the establishment of a federal credit union

on foreign soil for the primary purpose

[[Page 49174]]

of serving the citizens of a foreign nation.

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

I--Introduction

I.A.1--General

As set forth in Chapter 1, the Federal Credit Union Act provides

for three types of federal credit union charters--single common bond

(occupational or associational), multiple common bond (multiple

groups), and community. Section 109 (12 U.S.C. 1759) of the Federal

Credit Union Act sets forth the membership criteria for each of these

three types of credit unions.

The field of membership, which is specified in Section 5 of the

charter, defines those persons and entities eligible for membership. A

single common bond federal credit union consists of one group which has

a common bond of occupation or association. A multiple common bond

federal credit union consists of more than one group, each of which has

a common bond of occupation or association. A community federal credit

union consists of persons or organizations within a well defined local

community, neighborhood, or rural district.

Once chartered, a federal credit union can amend its field of

membership; however, the same common bond or community requirements for

chartering the credit union must be satisfied. Since there are

differences in the three types of charters, special rules, which are

fully discussed in the following sections of this Chapter may apply to

each.

I.A.2--Special Low-Income Rules

Generally, federal credit unions can only grant loans and provide

services to persons who have joined the credit union. The Federal

Credit Union Act states that one of the purposes of federal credit

unions is ``to serve the productive and provident credit needs of

individuals of modest means.'' Although field of membership

requirements are applicable, special rules set forth in Chapter 3 may

apply to low-income designated credit unions and those credit unions

assisting low-income groups or to a federal credit union that adds an

underserved community to its field of membership.

II--Occupational Common Bond

II.A.--General

A single occupational common bond federal credit union may include

in its field of membership all persons and entities who share that

common bond. NCUA permits a person's membership eligibility in a single

occupational common bond group to be established in four 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 single occupational common bond;

Employment in a corporation or other legal entity with a

controlling ownership interest (which shall not be less than 10

percent) in or by another legal entity makes that person part of a

single occupational common bond;

Employment in a corporation or other legal entity which is

related to another legal entity (such as a company under contract and

possessing a strong dependency relationship with another company) makes

that person part of a single occupational common bond; or

Employment or attendance at a school makes that person

part of a single occupational common bond.

A geographic limitation is not a requirement for a single

occupational common bond. However, for purposes of describing the field

of membership, the geographic areas being served will be included in

the charter. For example:

Employees, officials, and persons who work regularly under

contract in Miami, Florida for ABC Corporation or the subsidiaries

listed below;

Employees of ABC Corporation who are paid from * * *;

Employees of ABC Corporation who are supervised from * *

*;

Employees of ABC Corporation who are headquartered in * *

*; and/or

Employees of ABC Corporation who work in the United

States.

So that NCUA may monitor any potential field of membership

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

franchisees, and contractors) must be separately listed in Section 5 of

the charter.

The corporate or other legal entity (i.e., the employer) may also

be included in the common bond--e.g., ``ABC Corporation.'' The

corporation or legal entity will be defined in the last clause in

Section 5 of the credit union's charter.

A charter applicant must provide documentation to establish that

the single occupational common bond requirement has been met.

Some examples of a single occupational common bond are:

Employees of the Hunt Manufacturing Company who work in

West Chester, Pennsylvania. (common bond--same employer with geographic

definition);

Employees of the Buffalo Manufacturing Company who work in

the United States. (common bond--same employer with geographic

definition);

Employees, elected and appointed officials of municipal

government in Parma, Ohio. (common bond--same employer with geographic

definition);

Employees of Johnson Soap Company and its majority owned

subsidiary, Johnson Toothpaste Company, who work in, are paid from, are

supervised from, or are headquartered in Augusta and Portland, Maine.

(common bond--parent and subsidiary company with geographic

definition);

Employees of those contractors who work regularly at the

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

of contractors with geographic definition);

Employees, doctors, medical staff, technicians, medical

and nursing students who work in or are paid from the Newport Beach

Medical Center, Newport Beach, California. (single corporation with

geographic definition);

Employees of JLS, Incorporated and MJM, Incorporated

working for the LKM Joint Venture Company in Catalina Island,

California. (common bond--same employer--ongoing dependent

relationship); or

Employees of and students attending Georgetown University.

(common bond--same occupation).

Some examples of insufficiently defined single occupational common

bonds are:

Employees of manufacturing firms in Seattle, Washington.

(no defined sponsor or industry);

Persons employed or working in Chicago, Illinois. (no

occupational common bond); or

Employees of all colleges and universities in the State of

Texas. (not a single occupational common bond).

II.B--Occupational Common Bond Amendments

II.B.1--General

Section 5 of every single occupational federal credit union's

charter defines the field of membership, i.e., common bond groups the

credit union can legally serve. Only those persons or legal entities

specified in the field of membership can be served. There are a number

of instances in which Section 5 must be amended by NCUA.

First, a new group sharing the credit union's common bond is added

to the field of membership. This may occur through agreement between

the group and the credit union directly, or through a merger, corporate

acquisition, purchase and assumption (P&A), or spin-off.

[[Page 49175]]

Second, if the entire field of membership is acquired by another

corporation, the credit union can serve the employees of the new

corporation and any subsidiaries after receiving NCUA approval.

Third, a federal credit union qualifies to change its common bond

from:

A single occupational common bond to a single

associational common bond;

A single occupational common bond to a community charter;

or

A single occupational common bond to a multiple common

bond.

Fourth, a federal credit union removes a group from its field of

membership through agreement with the group, a spin-off, or because the

group is no longer in existence.

An existing single occupational common bond federal credit union

that submits a request to amend its charter must provide documentation

to establish that the occupational common bond requirement has been

met.

All amendments to an occupational common bond credit union's field

of membership must be approved by the regional director. The regional

director may approve an amendment to expand the field of membership if:

The common bond requirements of this section are

satisfied;

The group to be added has provided a written request for

service to the credit union;

The change is economically advisable; and

The group presently does not have credit union service

available other than through a community charter (if non community

credit union service is available, the region must conduct an overlap

analysis).

II.B.2--Corporate Restructuring

If the single common bond group that comprises a federal credit

union's field of membership undergoes a substantial restructuring, the

result is often that portions of the group are sold or spun off. This

is an event which requires a change to the credit union's field of

membership. NCUA will not permit a single common bond credit union to

maintain in its field of membership a sold or spun-off group to which

it has been providing service unless the group otherwise qualifies for

membership in the credit union or if the credit union converts to a

multiple common bond credit union.

II.B.3--Economic Advisability

Prior to granting a common bond expansion, NCUA will examine the

amendment's likely effect on the credit union's operations and

financial condition, and its likely impact on other credit unions. In

most cases, the information needed for analyzing the effect of adding a

particular group will be available to NCUA through the examination and

financial and statistical reports; however, in particular cases, a

regional director may require additional information prior to making a

decision. With respect to a proposed expansion's effect on other credit

unions, the requirements on overlapping fields of membership set forth

in Section II.E are also applicable.

II.B.4--Documentation Requirements

A federal credit union requesting a common bond expansion must

submit a formal written request, using the Application for Field of

Membership Amendment (NCUA 4015), 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 (NCUA 4015) must

be accompanied by the following:

A letter signed by an authorized representative of the

group to be added. Wherever possible, this letter must be submitted on

the group's letterhead stationery. The regional director may accept

such other documentation or certification as deemed appropriate. This

letter must indicate:

How the group shares the credit union's occupational

common bond;

That the group wants to be added to the applicant federal

credit union's field of membership;

Whether the group presently has other credit union service

available; and

The number of persons currently included within the group

to be added and their locations.

If the group is eligible for membership in any other

credit union, documentation must be provided to support inclusion of

the group under the overlap standards set forth in Section II.E.

II.C--NCUA'S Procedures for Amending the Field of Membership

II.C.1--General

All requests for approval to amend a federal credit union's charter

must be submitted to the appropriate regional director.

II.C.2--Regional Director's Decision

All amendment requests will be reviewed by NCUA staff in order to

ensure conformance to NCUA policy.

In some cases, an on-site review by a staff member may be required

by the regional director before acting on a proposed amendment. In

addition, the regional director may, after taking into account the

significance of the proposed field of membership amendment, require the

applicant to submit a business plan addressing specific issues.

The financial and operational condition of the requesting credit

union will be considered in every instance. NCUA will carefully

consider the economic advisability of expanding the field of membership

of a credit union with financial or operational problems.

In most cases, field of membership amendments will only be approved

for credit unions that are operating satisfactorily. Generally, if a

federal credit union is having difficulty providing service to its

current membership, or is experiencing financial or other operational

problems, it may have more difficulty serving an expanded field of

membership.

Occasionally, however, an expanded field of membership may provide

the basis for reversing current financial problems. In such cases, an

amendment to expand the field of membership may be granted

notwithstanding the credit union's financial or operational problems.

The applicant credit union must clearly establish that the expanded

field of membership is in the best interest of the members and will not

increase the risk to the NCUSIF.

II.C.3--Regional Director Approval

If the requested amendment is approved by the regional director,

the credit union will be issued an amendment to Section 5 of its

charter.

II.C.4--Regional Director Disapproval

When a regional director disapproves any application, in whole or

in part, to amend the field of membership under this chapter, the

applicant will be informed in writing of the:

Specific reasons for the action;

If appropriate, options or suggestions that could be

considered for gaining approval; and

Appeal procedure.

II.C.5--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. An appeal must be sent to the appropriate

regional office within 60 days of the date of denial, and must address

the specific reason(s) for the denial. The regional director will then

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

make an independent review of the facts and

[[Page 49176]]

present the appeal to the Board with a recommendation.

Before appealing, the credit union may, within 30 days of the

denial, provide supplemental information to the regional director for

reconsideration. The request will not be considered as an appeal, but

as a request for reconsideration by the regional director. The regional

director will have 30 days from the date of the receipt of the request

for reconsideration to make a final decision. If the request is again

denied, the credit union may proceed with the appeal process to the

NCUA Board within 60 days of the date of the last denial by the

regional director.

II.D--Mergers, Purchase and Assumptions, and Spin-Offs

In general, other than the addition of common bond groups, there

are three additional ways a federal credit union with a single

occupational common bond can expand its field of membership:

By taking in the field of membership of another credit

union through a common bond or emergency merger;

By taking in the field of membership of another credit

union through a common bond or emergency purchase and assumption (P&A);

or

By taking a portion of another credit union's field of

membership through a common bond spin-off.

II.D.1--Common Bond Mergers

Generally, the requirements applicable to field of membership

expansions found in this chapter apply to mergers where the continuing

credit union has a federal charter. That is, the two credit unions must

share a common bond.

Where the merging credit union is state-chartered, the common bond

rules applicable to a federal credit union apply.

Mergers must be approved by the NCUA regional director where the

continuing credit union is located, with the concurrence of the

regional director of the merging credit union, and, as applicable, the

state regulators.

II.D.2--Emergency Mergers

An emergency merger may be approved by NCUA without regard to

common bond or other legal constraints. An emergency merger involves

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

must either be insolvent or likely to become insolvent, and NCUA must

determine that:

An emergency requiring expeditious action exists;

Other alternatives are not reasonably available; and

The public interest would best be served by approving the

merger.

If not corrected, conditions that could lead to insolvency include,

but are not limited to:

Abandonment by management;

Loss of sponsor;

Serious and persistent record keeping problems; or

Serious and persistent operational concerns.

In an emergency merger situation, NCUA will take an active role in

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

primarily concerned that the continuing credit union has the financial

strength and management expertise to absorb the troubled credit union

without adversely affecting its own financial condition and stability.

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

membership of the merging credit union may be transferred intact to the

continuing federal credit union without regard to any common bond

restrictions and without changing the character of the continuing

federal credit union for future amendments. Under this authority,

therefore, a single occupational common bond federal credit union may

take into its field of membership any dissimilar charter type.

The common bond characteristic of the continuing credit union in an

emergency merger does not change. That is, even though the merging

credit union is a multiple common bond or community, the continuing

credit union will remain a single common bond credit union. Similarly,

if the merging credit union is also an unlike single common bond, the

continuing credit union will remain a single common bond credit union.

Future common bond expansions will be based on the continuing credit

union's original single common bond.

Emergency mergers involving federally insured credit unions in

different NCUA regions must be approved by the regional director where

the continuing credit union is located, with the concurrence of the

regional director of the merging credit union and, as applicable, the

state regulators.

II.D.3--Purchase and Assumptions (P&As)

Another alternative for acquiring the field of membership of a

failing credit union is through a consolidation known as a P&A. If the

P&A is the result of insolvency or danger of insolvency, then the

emergency merger provisions apply and it is not necessary to meet

common bond requirements.

A P&A has limited application because, in most cases, the failing

credit union must be placed into involuntary liquidation. However, in

the few instances where a P&A may be appropriate, the assuming federal

credit union, as with emergency mergers, may acquire the entire field

of membership if the emergency merger criteria are satisfied. Specified

loans, shares, and certain other designated assets and liabilities,

without regard to common bond restrictions, may also be acquired

without changing the character of the continuing federal credit union

for purposes of future field of membership amendments.

If the purchased and/or assumed credit union's field of membership

does not share a common bond with the purchasing and/or assuming credit

union, then the continuing credit union's original common bond will be

controlling for future common bond expansions.

P&As involving federally insured credit unions in different NCUA

regions must be approved by all regional directors where the continuing

credit union is located, with the concurrence of the regional director

of the purchased and/or assumed credit union and, as applicable, the

state regulators.

II.D.4--Spin-Offs

A spin-off occurs when, by agreement of the parties, a portion of

the field of membership, assets, liabilities, shares, and capital of a

credit union are transferred to a new or existing credit union. A spin-

off is unique in that usually one credit union has a field of

membership expansion and the other loses a portion of its field of

membership.

All common bond requirements apply regardless of whether the spin-

off becomes a new credit union or goes to an existing federal charter.

The request for approval of a spin-off must be supported with a

plan that addresses, at a minimum:

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 bond

(applies only to single occupational credit unions);

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; and

[[Page 49177]]

Disclosure to the members of the requirements set forth

above.

The spin-off request must also include current financial statements

from the affected credit unions and the proposed voting ballot.

For federal credit unions spinning off a group, membership notice

and voting requirements and procedures are the same as for mergers (see

Part 708 of the NCUA Rules and Regulations), except that only the

members directly affected by the spin-off--those whose shares are to be

transferred--are permitted to vote. Members whose shares are not being

transferred will not be afforded the opportunity to vote. Voting

requirements for federally insured state credit unions are governed by

state law.

Spin-offs involving federally insured credit unions in different

NCUA regions must be approved by all regional directors where the

credit unions are located and the state regulators, as applicable.

Spin-offs in the same region also require approval by the state

regulator, as applicable.

II.E--Overlaps

II.E.1--General

An overlap exists when a group of persons is eligible for

membership in two or more credit unions. As a general rule, NCUA will

not charter two or more credit unions to serve the same single

occupational group. An overlap is permitted when the expansion's

beneficial effect in meeting the convenience and needs of the members

of the group proposed to be included in the field of membership clearly

outweighs any adverse effect on the overlapped credit union. However,

when two or more credit unions are attempting to serve the same

occupational group, an overlap can be permitted.

Proposed or existing credit unions must only investigate the

possibility of an overlap with federally insured credit unions prior to

submitting an application for a proposed charter or expansion.

When an overlap situation does arise, officials of the involved

credit unions must attempt to resolve the overlap issue. If the matter

is resolved between the affected credit unions, 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 or the overlapped credit union fails

to provide a letter, an application for a new charter or field of

membership expansion may still be submitted, but must also include

information regarding the overlap and documented attempts at

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.

An overlap will not be considered adverse to the overlapped credit

union if:

The overlapped credit union does not object to the

overlap;

The overlap is incidental in nature--the group of persons

in question is so small as to have no material effect on the original

credit union; or

there is limited participation by members or employees of

the group in the original credit union after the expiration of a

reasonable period of time.

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);

Whether the original credit union fails to provide

requested service;

The desire of the sponsor organization; and

The best interests of the affected group and the credit

union members involved.

Potential overlaps of a federally insured state credit union's

field of membership by a federal credit union will generally be

analyzed in the same way as if two federal credit unions were involved.

Where a federally insured state credit union's field of membership is

broadly stated, NCUA will exclude its field of membership from any

overlap protection.

New charter applicants and every single occupational common bond

group which comes before the regional director for affiliation with an

existing federal credit union must advise the regional director in

writing whether the group is included within the field of membership of

any other credit union. If cases arise where the assurance given to a

regional director concerning unavailability of credit union service is

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

the federal credit union's charter.

Generally, NCUA will permit single occupational federal credit

unions to overlap community charters without performing an overlap

analysis.

II.E.2--Overlap Issues as a Result of Organizational Restructuring

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

governed by the common bond descriptions contained in Section 5 of its

charter. Where a sponsor organization expands its operations

internally, by acquisition or otherwise, the credit union may serve

these new entrants to its field of membership if they are part of the

common bond described in Section 5. Where acquisitions are made which

add a new subsidiary, the group cannot be served until the subsidiary

is included in the field of membership.

Overlaps may occur as a result of restructuring or merger of the

parent organization. Credit unions affected by organizational

restructuring or merger should attempt to resolve overlap issues among

themselves. If an agreement is reached, they must apply to NCUA for a

modification of their fields of membership to reflect the groups each

will serve. 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.

In addition, credit unions must submit to NCUA documentation

explaining the restructuring and providing information regarding the

new organizational structure. To help in future monitoring of overlaps,

the credit union must identify divisions and subsidiaries and the

locations of each. Where the sponsor and its employees desire to

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

Employees of Lucky Corporation, formerly a subsidiary of

Tool, Incorporated, located in Charleston, South Carolina.

II.E.3--Exclusionary Clauses

An exclusionary clause is a limitation which precludes the credit

union from serving the primary members of a portion of a group

otherwise included in its field of membership.

When two credit unions agree and/or NCUA has determined that

overlap protection is appropriate for safety and soundness reasons, an

exclusionary clause will be included in the expanding federal credit

union's charter.

Exclusionary clauses are very difficult for credit unions and NCUA

to monitor properly. Additionally, 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 a co-worker may

not. If, for safety and soundness reasons, an exclusionary clause is

appropriate, the overlap protection only applies to primary members,

which may only provide limited protection.

[[Page 49178]]

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 independently serve their respective groups as

they had prior to their sponsors' consolidation. The 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 define:

The identity of the group;

Whether the exclusion is to apply to the entire group or

only to those who are actually members of another credit union;

Whether the exclusion is to apply only to the current

members of the group or to future members as well; and

Whether the exclusion is to apply for a limited time

period.

Examples of exclusionary wording are:

Persons who work for Pearl Jam Company, except those who

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

California.

Persons who work for the Fastball Co., except those

employed by the Ranger Division as of June 30, 1996.

Persons who work for CAT Co., except those who were

members of the St. Bonaventure Federal Credit Union as of June 30,

1996.

Exclusionary clauses granted prior to the adoption of this new

chartering manual will remain in effect unless the two credit unions

agree to remove them. This requires NCUA approval.

II.F--Charter Conversion

A single common bond federal credit union may apply to convert to

any other type of charter provided the field of membership requirements

of the new charter type are met. A group currently within the field of

membership of the converting credit union which would not otherwise

qualify as a group with the new charter cannot be served by the

converting credit union; however, members of record can continue to be

served.

In order to support a case for a conversion, the applicant federal

credit union may be required to develop a detailed business plan as

specified in Chapter 1, Section IV.D.

II.G--Removal of Groups from the Field of Membership

A credit union may request removal of a group from its field of

membership for various reasons. The most common reasons for this type

of amendment are:

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; or

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. If the regional director

concurs with the request, membership may continue for those who are

already members under the ``once a member, always a member'' provision

of the Federal Credit Union Act.

II.H--Other Persons 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;

Volunteers;

Members of their immediate families; and

Organizations of such persons.

Members of their immediate families is defined as related persons

i.e., blood, marriage, or other recognized family relationships in the

same household (under the same roof), or if not in the same household,

as a grandparent, parent, spouse, sibling, child, or grandchild. For

the purposes of this definition, immediate family member includes

stepparents, stepchildren, and stepsiblings. The immediate family

member must be related to the credit union member.

Volunteers, by virtue of their close relationship with a sponsor

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

hospital or church.

Under the Federal Credit Union Act, once a person becomes a member

of the credit union, such person may remain a member of the credit

union until the person chooses to withdraw or is expelled from the

membership of the credit union. This is commonly referred to as ``once

a member, always a member.''

III--Associational

Common Bond

III.A.1--General

A single associational federal credit union may include in its

field of membership, regardless of location, all members and employees

of a recognized association. A single associational common bond

consists of individuals (natural persons) and/or groups (non natural

persons) whose members participate in activities developing common

loyalties, mutual benefits, and mutual interests.

Individuals and groups eligible for membership in a single

associational credit union can include the following:

Natural person members of the association (for example,

members of a union or church members);

Non-natural person members of the association;

Employees of the association (for example, employees of

the labor union or employees of the church); and

The association.

Generally, a single associational common bond does not include a

geographic definition. However, a proposed or existing federal credit

union may limit its field of membership to a single association or

geographic area. NCUA may impose a geographic limitation if it is

determined that the applicant credit union does not have the ability to

serve a larger group or there are other operational concerns. All

single associational common bonds will include a definition of the

group that may be served based on the effective date of the

association's charter and bylaws. If the associational charter crosses

NCUA regional boundaries, each of the affected regional directors must

be consulted prior to NCUA action on the charter.

Qualifying associational groups must hold meetings open to all

members, must sponsor other activities which demonstrate that the

members of the group meet to accomplish the objectives of the

association, and must have an authoritative definition of who is

eligible for membership. Usually, this will be found in the

association's charter and bylaws.

The common bond for an associational group cannot be established

simply on the basis that the association exists. In determining whether

a group satisfies associational common bond requirements for a federal

credit union charter, NCUA will

[[Page 49179]]

consider the totality of the circumstances, such as:

Whether members pay dues;

Whether members participate in the furtherance of the

goals of the association;

Whether the members have voting rights;

Whether the association maintains a membership list;

The clarity of the association's definition and

compactness of its membership; and

The frequency of meetings.

A support group whose members are continually changing or whose

duration is temporary may not meet the single associational common bond

criteria. Individuals or honorary members who only make donations to

the association are not eligible to join the credit union. Other

classes of membership that do not meet to accomplish the goals of the

association would not qualify.

Educational groups--for example, parent-teacher organizations,

alumni associations, and student organizations in any school--and

church groups constitute associational common bonds and may qualify for

a federal credit union charter. Homeowner associations, tenant groups,

co-ops, consumer groups, and other groups of persons having an

``interest in'' a particular cause and certain consumer cooperatives

may also qualify as an association.

The terminology ``Alumni of Jacksonville State University'' is

insufficient to demonstrate an associational common bond. To qualify as

an association, the alumni association must meet the requirements for

an associational common bond. The alumni of a school must first join

the alumni association, and not merely be alumni of the school to be

eligible for membership.

Associations based primarily on a client-customer relationship do

not meet associational common bond requirements. However, having an

incidental client-customer relationship does not preclude an

associational charter as long as the associational common bond

requirements are met. For example, a fraternal association that offers

insurance, which is not a condition of membership, may qualify as a

valid associational common bond.

Applicants for a single associational common bond federal credit

union charter or a field of membership amendment to include an

association must provide, at the request of the regional director, a

copy of the association's charter, bylaws, or other equivalent

documentation, and any legal documentation required by the state or

other governing authority.

The associational sponsor itself may also be included in the field

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

last clause of the field of membership.

III.A.2--Subsequent Changes to Association's Bylaws

If the association's membership or geographical definitions in its

charter and bylaws are changed subsequent to the effective date stated

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

charter or bylaws for NCUA's consideration and approval prior to

serving members of the association added as a result of the change.

III.A.3--Sample Single Associational Common Bonds

Some examples of associational common bonds are:

Regular members of Locals 10 and 13, IBEW, in Florida, who

qualify for membership in accordance with their charter and bylaws in

effect on May 20, 1997;

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, 1997;

Members of the Shalom Congregation in Chevy Chase,

Maryland;

Regular members of the Corporate Executives Association,

located in Westchester, New York, who qualify for membership in

accordance with its charter and bylaws in effect on December 1, 1997;

Members of the University of Wisconsin Alumni Association,

located in Green Bay, Wisconsin; or

Members of the Marine Corps Reserve Officers Association.

Some examples of insufficiently defined single associational common

bonds are:

All Lutherans in the United States. (too broadly defined);

or

Veterans of U.S. military service. (group is too broadly

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

Some examples of unacceptable single associational common bonds

are:

Alumni of Amos University. (no formal association); or

Customers of Fleetwood Insurance Company. (policyholders

or primarily customer/client relationships do not meet associational

standards).

Employees of members of the Reston, Virginia Chamber of

Commerce. (not a sufficiently close tie to the associational common

bond).

III.B--Associational Common Bond Amendments

III.B.1--General

Section 5 of every associational federal credit union's charter

defines the field of membership, i.e., common bond groups, the credit

union can legally serve. Only those persons who, or legal entities

that, join the credit union and are specified in the field of

membership can be served. There are three instances in which Section 5

must be amended by NCUA.

First, a new group that shares the credit union's common bond is

added to the field of membership. 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 qualifies to change its common bond

from:

A single associational common bond to a single

occupational common bond;

A single associational common bond to a community charter;

or

A single associational common bond to a multiple common

bond.

Third, a federal credit union removes a group from its field of

membership through agreement with the group, a spin-off, or the group

is no longer in existence.

An existing single associational federal credit union that submits

a request to amend its charter must provide documentation to establish

that the associational common bond requirement has been met.

All amendments to an associational common bond credit union's field

of membership must be approved by the regional director. The regional

director may approve an amendment to expand the field of membership if:

The common bond requirements of this section are

satisfied;

The group to be added has provided a written request for

service to the credit union;

The change is economically advisable; and

The group presently does not have credit union service

available other than through a community credit union (if non community

credit union service is available, the region must conduct an overlap

analysis.)

III.B.2--Organizational Restructuring

If the single common bond group that comprises a federal credit

union's field of membership undergoes a substantial restructuring, the

result is often that portions of the group are sold or spun-off. This

is an event which requires a

[[Page 49180]]

change to the credit union's field of membership. NCUA may not permit a

single associational credit union to maintain in its field of

membership a sold or spun-off group to which it has been providing

service unless the group otherwise qualifies for membership in the

credit union or the credit union converts to a multiple common bond

credit union.

III.B.3--Economic Advisability

Prior to granting a common bond expansion, NCUA will examine the

amendment's likely impact on the credit union's operations and

financial condition and its likely effect on other credit unions. In

most cases, the information needed for analyzing the effect of adding a

particular group will be available to NCUA through the examination and

financial and statistical reports; however, in particular cases, a

regional director may require additional information prior to making a

decision. With respect to a proposed expansion's effect on other credit

unions, the requirements on overlapping fields of membership set forth

in Section III.E are also applicable.

III.B.4--Documentation Requirements

A federal credit union requesting a common bond expansion must

submit a formal written request, using the Application for Field of

Membership Amendment, NCUA 4015, or its equivalent, to the appropriate

NCUA regional director. The request must be signed by an authorized

credit union representative.

NCUA 4015, must be accompanied by the following:

A letter signed by an authorized representative of the

group to be added. Wherever possible, this letter must be submitted on

the group's letterhead stationery. The regional director may accept

such other documentation or certification as deemed appropriate. This

letter must indicate:

How the group shares the credit union's associational

common bond;

That the group wants to be added to the applicant federal

credit union's field of membership;

Whether the group presently has other credit union service

available; and

The number of persons currently included within the group

to be added and their locations.

The most recent copy of the group's charter and bylaws or

equivalent documentation.

If the group is eligible for membership in any other

credit union, documentation must be provided to support inclusion of

the group under the overlap standards set forth in Section III.E.

III.C--NCUA Procedures for Amending the Field of Membership

III.C.1--General

All requests for approval to amend a federal credit union's charter

must be submitted to the appropriate regional director.

III.C.2--Regional Director's Decision

All amendment requests will be reviewed by NCUA staff in order to

ensure conformance to NCUA policy.

In some cases, an on-site review by a staff member may be required

by the regional director before acting on a proposed amendment. In

addition, the regional director may, after taking into account the

significance of the proposed field of membership amendment, require the

applicant to submit a business plan addressing specific issues.

The financial and operational condition of the requesting credit

union will be considered in every instance. The economic advisability

of expanding the field of membership of a credit union with financial

or operational problems must be carefully considered.

In most cases, field of membership amendments will only be approved

for credit unions that are operating satisfactorily. Generally, if a

federal credit union is having difficulty providing service to its

current membership, or is experiencing financial or other operational

problems, it may have more difficulty serving an expanded field of

membership.

Occasionally, however, an expanded field of membership may provide

the basis for reversing current financial problems. In such cases, an

amendment to expand the field of membership may be granted

notwithstanding the credit union's financial or operational problems.

The applicant credit union must clearly establish that the expanded

field of membership is in the best interest of the members and will not

increase the risk to the NCUSIF.

III.C.3--Regional Director Approval

If the requested amendment is approved by the regional director,

the credit union will be issued an amendment to Section 5 of its

charter.

III.C.4--Regional Director Disapproval

When a regional director disapproves any application, in whole or

in part, to amend the field of membership under this chapter, the

applicant will be informed in writing of the:

Specific reasons for the action;

If appropriate, options or suggestions that could be

considered for gaining approval; and

Appeal procedures.

III.C.5--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. An appeal must be sent to the appropriate

regional office within 60 days of the date of denial and must address

the specific reason(s) for the denial. The regional director will then

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

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

NCUA Board with a recommendation.

Before appealing, the credit union may, within 30 days of the

denial, provide supplemental information to the regional director for

reconsideration. The request will not be considered as an appeal, but

as a request for reconsideration by the regional director. The regional

director will have 30 days from the date of the receipt of the request

for reconsideration to make a final decision. If the request is again

denied, the credit union may proceed with the appeal process to the

NCUA Board within 60 days of the date of the last denial by the

regional director.

III.D--Mergers, Purchase and Assumptions, and Spin-Offs

In general, other than the addition of common bond groups, there

are three additional ways a federal credit union with a single

associational common bond can expand its field of membership:

By taking in the field of membership of another credit

union through a common bond or emergency merger;

By taking in the field of membership of another credit

union through a common bond or emergency purchase and assumption (P&A);

or

By taking a portion of another credit union's field of

membership through a common bond spin-off.

III.D.1--Common Bond Mergers

Generally, the requirements applicable to field of membership

expansions found in this section apply to mergers where the continuing

credit union is a federal charter. That is, the two credit unions must

share a common bond.

Where the merging credit union is state-chartered, the common bond

rules applicable to a federal credit union apply.

[[Page 49181]]

Mergers must be approved by the NCUA regional director where the

continuing credit union is located, with the concurrence of the

regional director of the merging credit union, and, as applicable, the

state regulators.

III.D.2--Emergency Mergers

An emergency merger may be approved by NCUA without regard to

common bond or other legal constraints. An emergency merger involves

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

must either be insolvent or likely to become insolvent, and NCUA must

determine that:

An emergency requiring expeditious action exists;

Other alternatives are not reasonably available; and

The public interest would best be served by approving the

merger.

If not corrected, conditions that could lead to insolvency include,

but are not limited to:

Abandonment by management;

Loss of sponsor;

Serious and persistent record keeping problems; or

Serious and persistent operational concerns.

In an emergency merger situation, NCUA will take an active role in

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

primarily concerned that the continuing credit union has the financial

strength and management expertise to absorb the troubled credit union

without adversely affecting its own financial condition and stability.

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

membership of the merging credit union may be transferred intact to the

continuing federal credit union without regard to any common bond

restrictions and without changing the character of the continuing

federal credit union for future amendments. Under this authority,

therefore, a single associational common bond federal credit union may

take into its field of membership any dissimilar charter type.

The common bond characteristic of the continuing credit union in an

emergency merger does not change. That is, even though the merging

credit union is a multiple common bond or community, the continuing

credit union will remain a single common bond credit union. Similarly,

if the merging credit union is an unlike single common bond, the

continuing credit union will remain a single common bond credit union.

Future common bond expansions will be based on the continuing credit

union's single common bond.

Emergency mergers involving federally insured credit unions in

different NCUA regions must be approved by the regional director where

the continuing credit union is located, with the concurrence of the

regional director of the merging credit union and, as applicable, the

state regulators.

III.D.3--Purchase and Assumptions (P&As)

Another alternative for acquiring the field of membership of a

failing credit union is through a consolidation known as a P&A. If the

P&A is the result of insolvency or danger of insolvency, then the

emergency merger provisions apply and it is not necessary to meet

common bond requirements.

A P&A has limited application because, in most cases, the failing

credit union must be placed into involuntary liquidation. However, in

the few instances where a P&A may be appropriate, the assuming federal

credit union, as with emergency mergers, may acquire the entire field

of membership if the emergency merger criteria are satisfied. Specified

loans, shares, and certain other designated assets and liabilities, may

also be acquired without regard to common bond restrictions and without

changing the character of the continuing federal credit union for

purposes of future field of membership amendments.

If the purchased and/or assumed credit union's field of membership

does not share a common bond with the purchasing and/or assuming credit

union, then the continuing credit unions' original common bond will be

controlling for future common bond expansions.

If the P&A is not the result of an insolvency or danger of

insolvency, then the common bond rules apply to those assets purchased

and liabilities assumed.

P&As involving federally insured credit unions in different NCUA

regions must be approved by all regional directors where the continuing

credit union is located, with the concurrence of the regional director

of the purchased and/or assumed credit union and, as applicable, the

state regulators.

III.D.4--Spin-Offs

Generally, a spin-off occurs when, by agreement of the parties, a

portion of the field of membership, assets, liabilities, shares and

capital of a credit union, are transferred to a new or existing credit

union. A spin-off is unique in that usually one credit union has a

field of membership expansion and the other loses a portion of its

field of membership.

All single associational common bond requirements apply regardless

of whether the spin-off becomes a new credit union or goes to an

existing federal charter.

The request for approval of a spin-off must be supported with a

plan that addresses, at a minimum:

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 the same common

bond (applies only to single associational credit unions);

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; and

Disclosure to the members of the requirements set forth

above.

The spin-off request must also include current financial statements

from the affected credit unions and the proposed voting ballot.

For federal credit unions spinning off a group, membership notice

and voting requirements and procedures are the same as for mergers (see

Part 708 of the NCUA Rules and Regulations), except that only the

members directly affected by the spin-off--those whose shares are to be

transferred--are permitted to vote. Members whose shares are not being

transferred will not be afforded the opportunity to vote. Voting

requirements for federally insured state credit unions are governed by

state law.

Spin-offs involving federally insured credit unions in different

NCUA regions must be approved by all regional directors where the

credit unions are located and the state regulators, as applicable.

Spin-offs in the same region also require approval by the state

regulator, as applicable.

III.E--Overlaps

III.E.1--General

An overlap exists when a group of persons is eligible for

membership in two or more credit unions. As a general rule, NCUA will

not charter two or more credit unions to serve the same single

associational group. An overlap is permitted when the expansion's

beneficial effect in meeting the convenience and needs of the members

of the group proposed to be included in the field of membership clearly

outweighs any adverse effect on the overlapped credit union. However,

when two or more credit unions are attempting to serve the same

[[Page 49182]]

associational group, an overlap can be permitted.

Proposed or existing credit unions must only investigate the

possibility of an overlap with federally insured credit unions prior to

submitting an application for a proposed charter or expansion.

When an overlap situation does arise, officials of the involved

credit unions must attempt to resolve the overlap issue. If the matter

is resolved between the credit unions, 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 or the overlapped credit union fails

to provide a letter, an application for a new charter or field of

membership expansion may still be submitted, but must also include

information regarding the overlap and documented attempts at

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.

An overlap will not be considered adverse to the overlapped credit

union if:

The overlapped credit union does not object to the

overlap;

The overlap is incidental in nature--the group of persons

in question is so small as to have no material effect on the original

credit union;

There is limited participation by members of the group in

the original credit union after the expiration of a reasonable period

of time; or

The field of membership is broadly stated, such as a

national association.

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);

Whether the original credit union fails to provide

requested service;

The desire of the sponsor organization; and

The best interests of the affected group and the credit

union members involved.

Potential overlaps of a federally insured state credit union's

field of membership by a federal credit union will generally be

analyzed in the same way as if two federal credit unions were involved.

Where a federally insured state credit union's field of membership is

broadly stated, NCUA will exclude its field of membership from any

overlap protection.

New charter applicants and every single associational common bond

group which comes before the regional director for affiliation with an

existing federal credit union must advise the regional director in

writing whether the group is included within the field of membership of

any other credit union. If cases arise where the assurance given to a

regional director concerning unavailability of credit union service is

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

the federal credit union's charter.

Generally, NCUA will permit single associational federal credit

unions to overlap community charters without performing an overlap

analysis.

III.E.2--Overlap Issues as a Result of Organizational Restructuring

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

governed by the common bond descriptions contained in Section 5 of its

charter. Where a sponsor organization expands its operations

internally, by acquisition or otherwise, the credit union may serve

these new entrants to its field of membership if they are part of the

common bond described in Section 5.

Overlaps may occur as a result of restructuring or merger of the

parent organization. Credit unions affected by organizational

restructuring or merger should attempt to resolve overlap issues among

themselves. If an agreement is reached, they must apply to NCUA for a

modification of their fields of membership to reflect the groups each

will serve. 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.

III.E.3--Exclusionary Clauses

An exclusionary clause is a limitation which precludes the credit

union from serving the primary members of a portion of a group

otherwise included in its field of membership.

When two credit unions agree and/or NCUA has determined that

overlap protection is appropriate for safety and soundness reasons, an

exclusionary clause will be included in the expanding federal credit

union's charter.

Exclusionary clauses are very difficult for credit unions and NCUA

to monitor properly. Additionally, 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

member may be eligible for credit union service while another may not.

If, for safety and soundness reasons, an exclusionary clause is

appropriate, the overlap protection only applies to primary members,

which may only provide limited protection.

One example of an appropriate use of an exclusionary clause may be

where there is a merger of two labor unions served by two credit unions

which will continue to serve their groups as they had prior to their

sponsors' consolidation. The 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 define:

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;

Whether the exclusion is to apply only to the current

members of the group or to future members as well; and

Whether the exclusion is to apply for a limited time

period.

Examples of exclusionary wording are:

Members of K of C Council #10, except members of the XYZ

Federal Credit Union as of June 30, 1996; or

Members of the American Bar Association, except those

located in Washington, D.C.

Exclusionary clauses granted prior to the adoption of this new

chartering manual will remain in effect unless the two credit unions

agree to remove them. This requires NCUA approval.

III.F--Charter Conversions

A single common bond associational federal credit union may apply

to convert to any other type of charter. A conversion is no different

than applying for a charter or expanding the field of membership--field

of membership requirements must be met. A group currently within the

field of membership of the converting credit union, but which would not

otherwise qualify as a member of the new charter, cannot be served by

the converting credit union; however, members of record can continue to

be served.

In order to support a case for a conversion, the applicant federal

credit union must develop a detailed business plan as specified in

Chapter 1, Section IV.D.

III.G--Removal of Groups From the Field of Membership

A credit union may request removal of a group from its field of

membership for various reasons. The most common reasons for this type

of amendment are:

[[Page 49183]]

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; or

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. If the regional director

concurs with the request, membership may continue for those who are

already members under the ``once a member, always a member'' provision

of the Federal Credit Union Act.

III.H--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;

Volunteers;

Members of their immediate families; and

Organizations of such persons.

``Members of their immediate families'' is defined as related

persons i.e., blood, marriage, or other recognized family relationships

in the same household (under the same roof), or if not in the same

household, as a grandparent, parent, spouse, sibling, child, or

grandchild. For the purposes of this definition, immediate family

member includes stepparents, stepchildren, and stepsiblings. The

immediate family member must be related to the credit union member.

Volunteers, by virtue of their close relationship with a sponsor

group, may be included. One example is volunteers working at a church.

Under the Federal Credit Union Act, once a person becomes a member

of the credit union, such person may remain a member of the credit

union until the person chooses to withdraw or is expelled from the

membership of the credit union. This is commonly referred to as ``once

a member, always a member.''

IV--Multiple Occupational/Associational Common Bonds

IV.A.1--General

A federal credit union may be chartered to serve a combination of

distinct, definable single occupational and/or associational common

bonds. This type of credit union is called a multiple common bond

credit union. Each group in the field of membership must have its own

occupational or associational common bond. For example, a multiple

common bond credit union may include two unrelated employers, or two

unrelated associations, or a combination of two or more employers or

associations. Additionally, these groups must be within reasonable

proximity of the credit union. That is, the groups must be within the

service area of one of the credit union's service facilities. These

groups are referred to as select groups.

A federal credit union's service area is the area that can

reasonably be served by the service facilities accessible to the groups

within the field of membership. The service area will most often

coincide with that geographic area primarily served by the service

facility. Additionally, the groups served by the credit union must have

access to the service facility. A service facility is defined as a

place where shares are accepted for members' accounts, loan

applications are accepted, and loans are disbursed. This definition

includes a credit union owned branch, a shared branch, or a credit

union owned electronic facility that meets, at a minimum, these

requirements. This definition does not include an ATM.

The select group as a whole will be considered to be within a

credit union's service area when:

A majority of the persons in a select group live, work, or

gather regularly within the service area;

The group's headquarters is located within the service

area; or

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

is within the service area.

IV.A.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 Teltex Corporation who work in Wilmington,

Delaware;

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

work in Wilmington, Delaware;

3. Members of the M&L Association who live in Wilmington, Delaware,

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

effect on December 31, 1997.''

IV.B--Multiple Group Amendments

IV.B.1--General

Section 5 of every multiple group federal credit union's charter

defines the field of membership and select groups the credit union can

legally serve. Only those persons or legal entities specified in the

field of membership can be served. There are a number of instances in

which Section 5 must be amended by NCUA.

First, a new select group is added to the field of membership. This

may occur through agreement between the group and the credit union

directly, or through a merger, corporate acquisition, purchase and

assumption (P&A), or spin-off.

Second, a federal credit union qualifies to change its charter

from:

A single occupational/associational charter to a multiple

group charter;

A multiple group to a single occupational/associational

charter;

A multiple group to a community charter; or

A community to a multiple group charter.

Third, a federal credit union removes a group from its field of

membership through agreement with the group, a spin-off, or because the

group is no longer in existence.

IV.B.2--Numerical Limitation of Select Groups

An existing multiple group federal credit union that submits a

request to amend its charter must provide documentation to establish

that the multiple group requirements have been met. All amendments to a

multiple group credit union's field of membership must be approved by

the regional director.

NCUA will approve groups of less than 3,000 persons (excluding

family members) to a credit union's field of membership, if the agency

determines in writing that the following criteria are met:

The credit union has not engaged in any unsafe or unsound

practice, as determined by the regional director, which is material

during the one year period preceding the filing to add the group;

The credit union is ``adequately capitalized.'' NCUA

defines adequately capitalized to mean if the credit union has a net

worth of not less than 6 percent;

[[Page 49184]]

The credit union has the administrative capability to

serve the proposed group and the financial resources to meet the need

for additional staff and assets to serve the new group;

Any potential harm the expansion may have on any other

credit union and its members is clearly outweighed by the probable

beneficial effect of the expansion. With respect to a proposed

expansion's effect on other credit unions, the requirements on

overlapping fields of membership set forth in Section IV.E are also

applicable; and

If the formation of a separate credit union by such group

is not practical or consistent with safety and soundness standards.

NCUA encourages the formation of separately chartered credit unions

for groups consisting of 3,000 or more persons (excluding family

members). If the formation of a separate credit union by such a group

is not practical because the group lacks sufficient volunteer and other

resources to support the efficient and effective operations of a credit

union or does not meet the economic advisability criteria outlined in

Chapter 1, the group may be added to a multiple common bond credit

union's field of membership. However, NCUA must determine in writing

that all the requirements set forth above are met and the group must be

within the credit union's service area.

IV.B.3.--Documentation Requirements

A multiple group credit union requesting a select group expansion

must submit a formal written request, using the Application for Field

of Membership Amendment (NCUA 4015), 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 (NCUA 4015) must

be accompanied by the following:

A letter signed by an authorized representative of the

group to be added. Wherever possible, this letter must be submitted on

the group's letterhead stationery. The regional director may, accept

such other documentation or certification as deemed appropriate. This

letter must indicate:

The group's occupational or associational common bond;

That the group wants to be added to the federal credit

union's field of membership;

Whether the group presently has other credit union service

available;

The number of persons currently included within the group

to be added and their locations; and

Evidence that the groups are within reasonable proximity

of the credit union.

If the group is eligible for membership in any other

credit union, documentation must be provided to support inclusion of

the group under the overlap standards set forth in Section IV.E.

IV.B.4--Corporate Restructuring

If a select group within a federal credit union's field of

membership undergoes a substantial restructuring, a change to the

credit union's field of membership may be required if the credit union

is to continue to provide service to the select group. NCUA permits a

multiple common bond credit union to maintain in its field of

membership a sold or spun-off select group to which it has been

providing service, without regard to location, if the original group is

clearly identifiable, and the group requests continued service,

documented by a letter from an official representative of the group.

This type of amendment to the credit union's charter is not considered

an expansion, therefore the criteria relating to adding new groups are

not applicable.

IV.C--NCUA's Procedures for Amending the Field of Membership

IV.C.1--General

All requests for approval to amend a federal credit union's charter

must be submitted to the appropriate regional director.

IV.C.2--Regional Director's Decision

All amendment requests will be reviewed by NCUA staff in order to

ensure conformance to NCUA policy.

In some cases, an on-site review by a staff member may be required

by the regional director before acting on a proposed amendment. In

addition, the regional director may, after taking into account the

significance of the proposed field of membership amendment, require the

applicant to submit a business plan addressing specific issues.

The financial and operational condition of the requesting credit

union will be considered in every instance. An expanded field of

membership may provide the basis for reversing adverse trends. In such

cases, an amendment to expand the field of membership may be granted

notwithstanding the credit union's adverse trends. The applicant credit

union must clearly establish that the approval of the expanded field of

membership meets the requirements of IV.B.2 and will not increase the

risk to the NCUSIF.

IV.C.3--Regional Director Approval

If the requested amendment is approved by the regional director,

the credit union will be issued an amendment to Section 5 of its

charter.

IV.C.4--Regional Director Disapproval

When a regional director disapproves any application, in whole or

in part, to amend the field of membership under this chapter, the

applicant will be informed in writing of the:

Specific reasons for the action;

If appropriate, options or suggestions that could be

considered for gaining approval; and

Appeal procedure.

IV.C.5--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. An appeal must be sent to the appropriate

regional office within 60 days of the date of denial, and must address

the specific reason(s) for the denial. The regional director will then

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

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

Board with a recommendation.

Before appealing, the credit union may, within 30 days of the

denial, provide supplemental information to the regional director for

reconsideration. The regional director will have 30 days from the date

of the receipt of the request for reconsideration to make a final

decision. 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 credit union may proceed with the appeal process to

the NCUA Board within 60 days of date of the last denial by the

regional director.

IV.D--Mergers, Purchase and Assumptions, and Spin-Offs

In general, other than the addition of select groups, there are

three additional ways a multiple group federal credit union can expand

its field of membership:

By taking in the field of membership of another credit

union through a merger;

By taking in the field of membership of another credit

union through an purchase and assumption (P&A); or

By taking a portion of another credit union's field of

membership through a spin-off.

[[Page 49185]]

With the exception of emergency mergers and P&As, in all cases the

requirements of IV.B.2 must be met. If the merger, spin-off, or P&A is

the result of safety and soundness concerns or an emergency situation

as described in IV.D.2 and IV.D.3, the numerical limitation does not

apply.

IV.D.1--Mergers of Multiple Group Credit Unions

Generally, the requirements applicable to field of membership

expansions found in this section apply to mergers where the continuing

credit union is a federal charter. If the requirements of IV.B.2 are

not met, the merger will not be approved by NCUA.

If the merger is approved, the merging credit union's field of

membership will be transferred intact to the continuing credit union

and can continue to be served.

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

membership rules applicable to a federal credit union apply.

Mergers must be approved by the NCUA regional director where the

continuing credit union is located, with the concurrence of the

regional director of the merging credit union, and, as applicable, the

state regulators.

IV.D.2--Emergency Mergers

An emergency merger may be approved by NCUA without regard to field

of membership rules or other legal constraints. An emergency merger

involves NCUA's direct intervention and approval. The credit union to

be merged must either be insolvent or likely to become insolvent, and

NCUA must determine that:

An emergency requiring expeditious action exists;

Other alternatives are not reasonably available; and

The public interest would best be served by approving the

merger.

If not corrected, conditions that could lead to insolvency include,

but are not limited to:

Abandonment by management;

Loss of sponsor;

Serious and persistent record keeping problems; or

Serious and persistent operational concerns.

In an emergency merger situation, NCUA will take an active role in

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

primarily concerned that the continuing credit union has the financial

strength and management expertise to absorb the troubled credit union

without adversely affecting its own financial condition and stability.

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

membership of the merging credit union may be transferred intact to the

continuing federal credit union without regard to any field of

membership restrictions including numerical limitation requirements and

without changing the character of the continuing federal credit union

for future amendments. Under this authority, a multiple common bond

credit union may merge with any single occupational/associational,

multiple common bond, or community charter and that credit union can

continue to serve the merging credit union's field of membership.

Subsequent field of membership expansions must be consistent with

multiple group policies.

Emergency mergers involving federally insured credit unions in

different NCUA regions must be approved by the regional director where

the continuing credit union is located, with the concurrence of the

regional director of the merging credit union and, as applicable, the

state regulators.

IV.D.3--Purchase and Assumptions (P&As)

Another alternative for acquiring the field of membership of a

failing credit union is through a consolidation known as a P&A.

Generally, the requirements applicable to field of membership

expansions found in this chapter apply to purchase and assumptions

where the purchasing credit union is a federal charter.

A P&A has limited application because, in most cases, the failing

credit union must be placed into involuntary liquidation. However, in

the few instances where a P&A may occur, the assuming federal credit

union, as with emergency mergers, may acquire the entire field of

membership if the emergency merger criteria are satisfied. Specified

loans, shares, and certain other designated assets and liabilities,

without regard to field of membership restrictions, may also be

acquired without changing the character of the continuing federal

credit union for purposes of future field of membership amendments.

Subsequent field of membership expansions must be consistent with

multiple group policies.

P&As involving federally insured credit unions in different NCUA

regions must be approved by all regional directors where the continuing

credit union is located, with the concurrence of the regional director

of the purchased and/or assumed credit union and, as applicable, the

state regulators.

IV.D.4--Spin-Offs

A spin-off occurs when, by agreement of the parties, a portion of

the field of membership, assets, liabilities, shares, and capital of a

credit union are transferred to a new or existing credit union. A spin-

off is unique in that usually one credit union has a field of

membership expansion and the other loses a portion of its field of

membership.

All requirements of IV.B.2 and IV.B.3 apply if the spun-off group

goes to an existing federal charter.

The request for approval of a spin-off must be supported with a

plan that addresses, at a minimum:

Why the spin-off is being requested;

What part of the field of membership is to be spun off;

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; and

Disclosure to the members of the requirements set forth

above.

The spin-off request must also include current financial statements

from the affected credit unions and the proposed voting ballot.

For federal credit unions spinning off a group, membership notice

and voting requirements and procedures are the same as for mergers (see

Part 708 of the NCUA Rules and Regulations), except that only the

members directly affected by the spin-off--those whose shares are to be

transferred--are permitted to vote. Members whose shares are not being

transferred will not be afforded the opportunity to vote. Voting

requirements for federally insured state credit unions are governed by

state law.

Spin-offs involving federally insured credit unions in different

NCUA regions must be approved by all regional directors where the

credit unions are located and the state regulators, as applicable.

Spin-offs in the same region also require approval by the state

regulator, as applicable.

IV.E--Overlaps

IV.E.1--General

An overlap exists when a group of persons is eligible for

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

overlap is permitted when the expansion's beneficial effect in meeting

the convenience and needs of the members of the group proposed to be

included in the field of membership clearly outweighs any adverse

effect on the overlapped credit union.

[[Page 49186]]

Proposed or existing credit unions must investigate the possibility

of an overlap prior to submitting an application for a proposed charter

or expansion.

When an overlap situation does arise, officials of the expanding

credit union must ascertain the views of the overlapped credit union.

If the overlapped credit union does not object, the applicant must

submit a letter or other documentation to that effect. If the

overlapped credit union does not respond, the expanding credit union

must notify NCUA in writing of its attempt to obtain the overlapped

credit union's comments.

NCUA will generally not approve an overlap unless the expansion's

beneficial effect in meeting the convenience and needs of the members

of the group proposed to be included in field of membership clearly

outweighs any adverse effect on the overlapped credit union.

In reviewing the overlap, the regional director will consider:

The view of the overlapped credit union(s);

Whether the overlap is incidental in nature--the group of

persons in question is so small as to have no material effect on the

original credit union;

Whether there is limited participation by members or

employees of the group in the original credit union after the

expiration of a reasonable period of time;

Whether the original credit union fails to provide

requested service;

Financial effect on the overlapped credit union;

The desires of the group(s);

The desire of the sponsor organization; and

The best interests of the affected group and the credit

union members involved.

Generally, if the overlapped credit union does not object, and NCUA

determines that there is no safety and soundness problem, the overlap

will be permitted.

Potential overlaps of a federally insured state credit union's

field of membership by a federal credit union will generally be

analyzed in the same way as if two federal credit unions were involved.

Where a federally insured state credit union's field of membership is

broadly stated, NCUA will exclude its field of membership from any

overlap protection.

New charter applicants and every select group which comes before

the regional director for affiliation with an existing federal credit

union must advise the regional director in writing whether the group is

included within the field of membership of any other credit union. If

cases arise where the assurance given to a regional director concerning

unavailability of credit union service is inaccurate, the

misinformation is grounds for removal of the group from the federal

credit union's charter.

Generally, NCUA will permit multiple group federal credit unions to

overlap community charters without performing an overlap analysis.

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

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

governed by the field of membership descriptions contained in Section 5

of its charter. Where a sponsor organization expands its operations

internally, by acquisition or otherwise, the credit union may serve

these new entrants to its field of membership if they are part of any

select group listed in Section 5. Where acquisitions are made which add

a new subsidiary, the group cannot be served until the subsidiary is

included in the field of membership.

Overlaps may occur as a result of restructuring or merger of the

parent organization. When such overlaps occur, each credit union must

request a field of membership amendment to reflect the new groups each

wishes to serve. NCUA will review these requests as it does any select

group addition. The credit union can continue to serve any current

group in its field of membership that is acquiring a new group or has

been acquired by a new group. The new group cannot be served by the

credit union until the field of membership amendment is approved by

NCUA.

In addition, credit unions must submit to NCUA documentation

explaining the restructuring and providing information regarding the

new organizational structure. To help in future monitoring of overlaps,

the credit union must identify divisions and subsidiaries and the

locations of each. Where the sponsor and its employees desire to

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

Employees of MHS Corporation, formerly a subsidiary of

Tool, Incorporated, located in Charleston, South Carolina.

IV.E.3--Exclusionary Clauses

An exclusionary clause is a limitation which precludes the credit

union from serving the primary members of a portion of a group

otherwise included in its field of membership.

When NCUA determines that overlap protection is appropriate for

safety and soundness reasons, an exclusionary clause will be included

in the expanding federal credit union's charter.

Exclusionary clauses are very difficult for credit unions and NCUA

to monitor properly. Additionally, 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 a co-worker may

not. If, for safety and soundness reasons, an exclusionary clause is

appropriate, the overlap protection only applies to primary members,

which may only provide limited protection.

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. The 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 define:

The identity of the group;

Whether the exclusion is to apply to the entire group or

only to those who are actually members of another credit union;

Whether the exclusion is to apply only to the current

members of the group or to future members as well; and

Whether the exclusion is to apply for a limited time

period.

Examples of exclusionary wording are:

Persons who work for Monty Sugar Company, except those who

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

California.

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

the JEC Division as of June 30, 1997.

Persons who work for KLB Co, except those who were members

of the St. Bonaventure Federal Credit Union as of June 30, 1997.

Exclusionary clauses granted prior to the adoption of this new

chartering manual will remain in effect unless the two credit unions

agree to remove them. This requires NCUA approval.

IV.F--Charter Conversion

A multiple c

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