# 73 FR 34366: Organization and Operations of Federal Credit Unions

> Federal · Regulations · In force

URL: https://www.frixlaw.com/law-library/statutes/FR_PRORULE_E8-12946

## Section

- **Citation:** 73 FR 34366
- **Heading:** Organization and Operations of Federal Credit Unions
- **Jurisdiction:** Federal
- **Kind:** Regulations
- **Status:** In force
- **Text as of:** August 14, 2026
- **Source:** Compiled text
- **Location:** Federal Register / Vol. 73 / 73 FR 34366

## Text

NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Part 701 RIN 3133-AD48 Organization and Operations of Federal Credit Unions AGENCY:
National Credit Union Administration (NCUA).

ACTION:
Proposed rule.

SUMMARY:
NCUA seeks public comment on four proposals to modify its Chartering and Field of Membership Manual to update and clarify the process of approving credit union service to “underserved areas.” The first proposal clarifies the procedure for establishing that an “underserved area” qualifies as a local community. The second addresses the application of the economic distress criteria that determine whether an area combining multiple geographic units is sufficiently “distressed” to qualify as “underserved.” The third would update the documentation and clarify the scope requirements for demonstrating that a proposed area has “significant unmet needs” for loans and applicable financial services. The final proposal recognizes that meaningful data from NCUA and the federal banking agencies will be available to assess whether an area is “underserved by other depository institutions.”

DATES:
Comments must be received on or before August 18, 2008.

ADDRESSES:
You may submit comments by any of the following methods (Please send comments by one method only):
• Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
• NCUA Web Site: http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html . Follow the instructions for submitting comments.
• E-mail: Address to regcomments@ncua.gov. Include “[Your name] Comments on Proposed Rule Part 701.1” in the e-mail subject line.
• Fax: (703) 518-6319. Use the subject line described above for e-mail.
• Mail: Address to Mary Rupp, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428.
• Hand Delivery/Courier: Same as mail address.
FOR FURTHER INFORMATION CONTACT:
Michael J. McKenna, Deputy General Counsel; John K
Rule Part 701.1” in the e-mail subject line.
• Fax: (703) 518-6319. Use the subject line described above for e-mail.
• Mail: Address to Mary Rupp, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428.
• Hand Delivery/Courier: Same as mail address.
FOR FURTHER INFORMATION CONTACT:
Michael J. McKenna, Deputy General Counsel; John K. Ianno, Associate General Counsel; or Steven W. Widerman, Trial Attorney, Office of General Counsel, 1775 Duke Street, Alexandria, Virginia 22314 or telephone (703) 518-6540.

SUPPLEMENTARY INFORMATION:
I. Background
In 1998, Congress enacted the Credit Union Membership Access Act (CUMAA), Public Law 105-219, 112 Stat. 914 (1998). Among other things, CUMAA authorized the NCUA Board to allow multiple common bond credit unions to serve members residing in “underserved areas,” provided the credit union establishes and maintains a facility there. 12 U.S.C. 1759(c)(2). For an area to be “underserved,” CUMAA requires the NCUA Board to determine that a local community, neighborhood or rural district is an “investment area” as defined in the Community Development Banking and Financial Institutions Act of 1994 (“CDFI Act”), 12 U.S.C. 4702(16), and also that it is “underserved * * * by other depository institutions.” 1 12 U.S.C. 1759(c)(2)(A).
1 A “depository institution” is defined to include insured credit unions. 12 U.S.C. 461(b)(1)(A)(iv).
The CDFI Act defines an “investment area” as a geographic area that “encompasses or is located in an empowerment zone or enterprise community designated under [26 U.S.C. 1391]”; or that “meets the objective criteria of economic distress developed by the [Community Development Financial Institutions] Fund” (“CDFI Fund”) and also “has significant unmet needs for loans or equity investments.” 12 U.S.C. 4702(16). The Fund established “criteria of economic distress” and implemented the “significant unmet needs” criterion by regulation
munity designated under [26 U.S.C. 1391]”; or that “meets the objective criteria of economic distress developed by the [Community Development Financial Institutions] Fund” (“CDFI Fund”) and also “has significant unmet needs for loans or equity investments.” 12 U.S.C. 4702(16). The Fund established “criteria of economic distress” and implemented the “significant unmet needs” criterion by regulation. 12 CFR 1805.201(d) and (e) (1998); 12 CFR 1805.104(dd) (1998).
To reflect the enactment of CUMAA and its introduction of “underserved areas,” NCUA revised its Chartering and Field of Membership Manual (“Chartering Manual”) in 1998, replacing the previous authority to serve low-income communities and associations. 12 CFR 701.1 (1999). As revised, the Chartering Manual implemented the statutory definition of “underserved area” and incorporated the then-existing CDFI criteria for establishing a “distressed” area. 63 FR 71998 (December 30, 1998). Those criteria addressed median family income, poverty, unemployment, distressed housing, county population loss, and significant unmet needs for loans and equity investments. 63 FR at 72015, 72042.
Anticipating the possibility of periodic additions to the then-existing distress criteria, the Chartering Manual incorporated by reference other criteria that the CDFI Fund might establish in the future. 67 FR 20013, 20017 (April 24, 2002). The distress criteria that apply today are the same ones that applied in 1998, except that the “distressed housing” criterion has been replaced by county “net migration loss.” 12 CFR 1805.201(b)(3)(D)(5) (2008).
The proposed rule (Interpretive Ruling and Policy Statement 08-2) is intended to update and clarify the existing process of approving credit union service to “underserved areas.” Public comments on the proposed modifications are welcome. To facilitate the consideration of these comments, the NCUA Board urges commenters to organize and label their comments to correspond to the topics and issues discussed below.
II
(Interpretive Ruling and Policy Statement 08-2) is intended to update and clarify the existing process of approving credit union service to “underserved areas.” Public comments on the proposed modifications are welcome. To facilitate the consideration of these comments, the NCUA Board urges commenters to organize and label their comments to correspond to the topics and issues discussed below.
II. Discussion of Proposed Rule
A. Definition of a Local Community
To be eligible for approval as an “underserved area,” a proposed area first must qualify as a “local community, neighborhood or rural district” (“local community”). 12 U.S.C. 1759(c)(2)(A); S. Rep. No. 193, 105th Cong., 2d Sess. 6 (1998); H.R. Rep. No. 105-472, 105th Cong., 2d Sess. 19 (1998). The Chartering Manual's criteria for establishing a “local community” for “underserved area” purposes deviates somewhat from the “well-defined local community” criteria elsewhere in the Manual.
When a proposed area qualifies as a “presumptive community” (multiple political jurisdictions with a total population of 500,000 or less; or an area within a Metropolitan Statistical Area with a population of 1 million or less) the Chartering Manual's chapter on community chartering requires a credit union to complete the presumption by submitting a letter “describing how the area meets the standards for community interaction and/or common interests” within in the proposed area. 2 Id. Ch. 2, § V.A.1. The chapter on “underserved areas” does not require an equivalent letter to establish that a proposed “underserved area” is a “presumptive community.” Manual, Ch. 3, § III.A.
2 When the letter supporting a “presumptive community” fails to present sufficient evidence of community interaction and/or common interests, the credit union may be required to provide a full analysis to support that the area is a well-defined local community. Manual, Ch. 2 § V.A.1.
The disparity concerning the letter supporting a “presumptive community” provides an opportunity to reconsider
B
When the letter supporting a “presumptive community” fails to present sufficient evidence of community interaction and/or common interests, the credit union may be required to provide a full analysis to support that the area is a well-defined local community. Manual, Ch. 2 § V.A.1.
The disparity concerning the letter supporting a “presumptive community” provides an opportunity to reconsider
B. Criteria of Economic Distress
The proposed rule addresses the practical incompatibility between credit union service to a local community and the CDFI Fund's economic distress criteria that apply to determine whether a proposed area is an “investment area,” thus qualifying it as “underserved.” To qualify as a “local community, neighborhood or rural district,” the proposed area must be a “single, well-defined” area so as to facilitate the mandatory interaction and common interests that signify a common bond among its residents. 65 FR 37065, 37072, 37082 (June 13, 2000). This has always meant that the parts of a proposed area must be contiguous, regardless of any other prerequisites for credit union service that apply. Because of this restriction, NCUA evaluates a “local community, neighborhood or rural district”—whether seeking approval as an “underserved area” or otherwise—strictly as a single, unified entity.
In several respects, the “single unified entity” approach is incompatible with the “geographic units” the CDFI Fund utilizes to apply its economic distress criteria. First, the areas that the CDFI Fund is asked to certify as “investment areas” conform from the outset to prescribed census units (e.g., tracts or blocks) or political subdivisions, allowing each such geographic unit or group of units to be treated as a separate “investment area.” 12 CFR 1805.201(b)(3)(ii)(B) (2008). In contrast, an “underserved area” that a credit union proposes to add may be drawn without regard to prescribed geographic units or political boundaries, reflecting the area's status as a single unified entity ( i.e
, tracts or blocks) or political subdivisions, allowing each such geographic unit or group of units to be treated as a separate “investment area.” 12 CFR 1805.201(b)(3)(ii)(B) (2008). In contrast, an “underserved area” that a credit union proposes to add may be drawn without regard to prescribed geographic units or political boundaries, reflecting the area's status as a single unified entity ( i.e. , a well-defined community). Second, the proposed area's boundaries may be nontraditional, consisting of a riverbank, a railroad line or an interstate highway, for example. 63 FR at 72038-72039. Further, the proposed area may even bisect the traditional geographic units and political subdivisions upon which the CDFI Fund relies. Finally, when evaluating an “investment area,” the CDFI Fund considers only the number of persons who reside there. In contrast, when deciding whether to add a proposed area to its field of membership, a credit union considers potential membership from among the persons who reside, work, worship or attend school there. These distinctions tend to complicate the translation of a proposed “underserved area” into the geographic units envisioned by the CDFI Fund's economic distress criteria.
In the decade since CUMAA, a plethora of economic and demographic data has become available over the Internet, and there has been a manifold increase in the number of people who have Internet access. Convenient on-line access to relevant data has considerably simplified the task of translating an “underserved area” into the geographic units that the CDFI Fund uses to apply the economic distress criteria that define an “investment area.” Therefore, this proposed rule revisits NCUA's rules for qualifying an “underserved area” primarily to update and conform its approach to present circumstances
Convenient on-line access to relevant data has considerably simplified the task of translating an “underserved area” into the geographic units that the CDFI Fund uses to apply the economic distress criteria that define an “investment area.” Therefore, this proposed rule revisits NCUA's rules for qualifying an “underserved area” primarily to update and conform its approach to present circumstances.
As a preliminary matter, a proposed area qualifies as an “investment area” without regard to the economic distress and “significant unmet needs” criteria if it is presently designated an “Empowerment Zone” or an “Enterprise Community.” 12 CFR 1805.201(b)(3)(ii)(A)(3). Empowerment Zones and Enterprise Communities were designated by the U.S. Department of Housing and Urban Development and the U.S. Department of Agriculture between 1993 and 1996. These designations have since largely expired, 3 so most proposed areas will not be able to bypass the economic distress and “significant unmet needs” criteria of an “investment area.”
3 Unexpired Empowerment Zones and Enterprise Communities are identified at: http://www.hud.gov/offices/cpd/economicdevelopment/programs/rc/tour/index.cfm. At this link, select a state from the map or list, then select from the “RC/EZ/EC Communities” shown to generate a map of the designated areas.
For proposed areas that do not benefit from an Empowerment Zone or Enterprise Community designation, the availability of certain on-line resources will make it easier to apply the economic distress criteria. The on-line resources that correspond to each step are discussed below and the internet address of each is cited in the footnotes. In any case, it is useful to understand in a step-by-step progression how the economic distress criteria operate.
Metro or Non-Metro Location . The initial step is to determine whether a proposed area is located within or outside a “Metropolitan Area” as designated by the Office of Management and Budget (“OMB”). 12 CFR 1805.104(ff)
elow and the internet address of each is cited in the footnotes. In any case, it is useful to understand in a step-by-step progression how the economic distress criteria operate.
Metro or Non-Metro Location . The initial step is to determine whether a proposed area is located within or outside a “Metropolitan Area” as designated by the Office of Management and Budget (“OMB”). 12 CFR 1805.104(ff). In practice, the CDFI Fund deems a proposed area to be located within a Metropolitan Area if it is located within an OMB-designated “Metropolitan Statistical Area” (“MSA”), and vice versa. 44 U.S.C. 3504(e)(3)(E). OMB updates its MSA designations annually; however, to ensure consistency with the CDFI Fund's distress criteria, which are measured according to the most recent decennial Census, the proposed rule relies solely on the MSA designations that correspond to the same decennial census, rather than on updated designations. 4
4 For MSA designations that correspond to the 2000 decennial Census, see “Metropolitan Areas and Components, 1999, with FIPS Codes” (6/30/99 revised 1/28/02) at: http://www.census.gov/population/estimates/metro-city/99mfips.txt
The location within or outside a Metropolitan Area dictates the “geographic unit(s)” into which the proposed area must be translated in order to apply the economic distress criteria. The geographic units prescribed for a Metropolitan area (“Metro units”) are a census tract, a block group, and an American Indian or Alaskan Native area. 12 CFR 1805.201(b)(3)(ii)(B) (2008). The geographic units prescribed for a Non-Metropolitan area (“Non-Metro units”) are a county (or equivalent area), a “minor civil division that is a unit of local government,” an incorporated place, a census tract, a block numbering area, a block group, or an American Indian or Alaskan Native area. Id . In either case, the proposed area must consist entirely of whole Metro or Non-Metro units; it cannot consist of fractional units ( e.g. , half of a census tract or half of a county)
county (or equivalent area), a “minor civil division that is a unit of local government,” an incorporated place, a census tract, a block numbering area, a block group, or an American Indian or Alaskan Native area. Id . In either case, the proposed area must consist entirely of whole Metro or Non-Metro units; it cannot consist of fractional units ( e.g. , half of a census tract or half of a county). A proposed area that is partly within and partly outside a Metropolitan Area ( e.g. , that straddles an MSA's boundary) must be evaluated using Metro units because they are the largest permissible unit that is common to all parts of the area.
Single Metro or Non-Metro Unit . To qualify as an “investment area,” a proposed area consisting of a single whole Metro unit ( e.g. , a single census tract) or a single whole Non-Metro unit ( e.g. , a single county) must as a whole meet one of the following distress criteria, as reported by the most recent
• Unemployment . Unemployment rate at least 1.5 times the national average; or
• Poverty . At least 20 percent (20%) of the population lives in poverty. 12 CFR 1805.201(b)(3)(ii)(D)(1) and (3) (2008).
If the proposed area consists of a single Metro unit of any kind, it may also meet the following criterion, as reported by the most recent decennial Census:
• Metro Area Median Family Income . Median family income (“MFI”) at or below 80 percent (80%) of either the Metro Area's MFI or the national Metro Area MFI, whichever is greater.
If the proposed area consists of a single Non-Metro unit of any kind, it may also meet the following criterion, as reported by the most recent decennial Census:
• Non-Metro Area Median Family Income . MFI at or below 80 percent (80%) of either the statewide Non-Metro Area's MFI or the national Non-Metro Area MFI, whichever is greater.
12 CFR 1805.201(b)(3)(ii)(D)(2)(i) and (ii) (2008)
eater.
If the proposed area consists of a single Non-Metro unit of any kind, it may also meet the following criterion, as reported by the most recent decennial Census:
• Non-Metro Area Median Family Income . MFI at or below 80 percent (80%) of either the statewide Non-Metro Area's MFI or the national Non-Metro Area MFI, whichever is greater.
12 CFR 1805.201(b)(3)(ii)(D)(2)(i) and (ii) (2008).
Finally, if the proposed area consists of a single Non-Metro county, it may meet one of the following two additional criteria, as reported by the most recent decennial Census:
• County Population Loss . County's population loss of at least 10 percent (10%) between the most recent and the preceding decennial census; or
• County Migration Loss . County's net migration loss of at least 5 percent (5%) in the 5-year period preceding the most recent decennial census.
12 CFR 1805.201(b)(3)(ii)(D)(4) and (5) (2008).
Multiple Contiguous Metro or Non-Metro Units . If a proposed area consists of multiple contiguous Metro units ( e.g. , a group of adjoining census tracts) or multiple contiguous Non-Metro units ( e.g. , a group of adjoining counties), the area is subject to a population threshold that does not apply to a proposed area consisting of a single unit. Thus, when a proposed area consists of multiple contiguous units, at least 85 percent (85%) of the area's total population must reside within the units that “together meet one of the [applicable distress] criteria” set forth above (“the 85% population threshold”). 12 CFR 1805.201(b)(3)(ii)(C)(2) (2008).
The language of the 85% population threshold suggests that all of the “distressed” units must qualify as such under the same criterion, but in practice, the CDFI Fund allows each “distressed” tract within a group to qualify under any one of the criteria
gether meet one of the [applicable distress] criteria” set forth above (“the 85% population threshold”). 12 CFR 1805.201(b)(3)(ii)(C)(2) (2008).
The language of the 85% population threshold suggests that all of the “distressed” units must qualify as such under the same criterion, but in practice, the CDFI Fund allows each “distressed” tract within a group to qualify under any one of the criteria. Also, the decennial Census itself does not apply the 85% population threshold to a proposed area consisting of multiple contiguous units; it only reports whether an individual unit meets an applicable distress criterion.
A proposed area consisting either of a single Metro or Non-Metro unit, or of multiple contiguous units in which the “distressed” units represent at least 85 percent of the area's population, will meet the definition of an “investment area” provided that, as explained below, it also has “significant unmet needs” for loan products and applicable financial services.
Resources for Determining If Distress Criteria Are Met . The CDFI Fund's “My CDFI Fund” Web site is an invaluable resource for determining whether a proposed area is “distressed,” but only if the area's unit(s) conform to one or more census tracts or counties, or to an independent city (which is treated as equivalent to a county); the site is not equipped to analyze any other kind of geographic unit. 5 Using its “Information and Mapping System” feature, the “My CDFI Fund” Web site allows the user to enter selected units that it then analyzes individually and as a proposed area. The analysis reflects the most recent decennial Census data. 6 The results are displayed on a comprehensive “Investment Area/Hot Zone Worksheet” (“IA Worksheet”)
ot equipped to analyze any other kind of geographic unit. 5 Using its “Information and Mapping System” feature, the “My CDFI Fund” Web site allows the user to enter selected units that it then analyzes individually and as a proposed area. The analysis reflects the most recent decennial Census data. 6 The results are displayed on a comprehensive “Investment Area/Hot Zone Worksheet” (“IA Worksheet”).
5 The “My CDFI Fund” Web site 's “Information and Mapping System” (“CIMS”) is available at: https://www.cdfifund.gov/myCDFI/Organization/Mapping/Mapping.asp The “Welcome to CIMS” page explains the options for identifying “CDFI Investment Areas” and a “Mapping System Overview and Tutorial.” The “My CDFI Fund” Web site is accessible to registered users through an organizational account holder. For instructions on how to become a registered user, see http://www.ncua.gov/CreditUnionDevelopment//Underserved/underserved.html . Under the “Expanding into Investment Areas” section is a link entitled “Instructions to Use the CDFI Web site .”
6 Typically, there is an 18-month lag between the taking of a decennial U.S. Census and the publication of the results. Thus, for example, the results of the 2000 census became available when published in 2002 and will remain the most recent census until the results of the 2010 census are published.
For each unit individually, the IA Worksheet shows: Whether it is located within an MSA; its total population; its poverty rate; the percent of benchmark MFI; the unemployment rate; and most importantly, whether the unit is “distressed” under the distress criteria. 7 For the proposed area as a whole, the IA Worksheet shows: Whether the population of the non-“distressed” units is less than 15 percent of the whole area's population (i.e., applies the 85% population threshold); the exact percentage of the area's population that resides in the non-“distressed” units; the total population of the non-“distressed” units; and whether the combined units are contiguous
For the proposed area as a whole, the IA Worksheet shows: Whether the population of the non-“distressed” units is less than 15 percent of the whole area's population (i.e., applies the 85% population threshold); the exact percentage of the area's population that resides in the non-“distressed” units; the total population of the non-“distressed” units; and whether the combined units are contiguous. When the IA Worksheet indicates that a proposed area does not qualify as “distressed,” none of these details is provided.
7 The “My CDFI Fund” Web site implies that it determines whether a proposed area “qualifies as an investment area.” If so, it would not be necessary for an applicant to meet a further criterion—demonstrating “significant unmet needs for loans,” etc., within the proposed area. In fact, it is apparent that the Web site determines only whether a unit or proposed area is “distressed,” meaning that an applicant still must independently demonstrate the proposed area's “significant unmet needs for loans,” etc., in order to qualify as an “investment area.”
At present, the “My CDFI Fund” Web site's analysis is the most expeditious means of establishing that a proposed area is sufficiently “distressed,” thus conserving credit union resources. To benefit from the convenience of the “My CDFI Fund” Web site, the NCUA Board encourages credit unions to conform their proposed “underserved areas” to the “geographic units” the site is limited to—census tracts and county boundaries, as the case may be.
Approval to Serve an Already Approved “Underserved Area” . Once a credit union is initially approved to serve an area that qualifies as “underserved,” other credit unions may be approved to serve the area provided it is “underserved” at the time they apply. The proposed rule “grandfathers” all credit unions approved to serve an area while it qualifies as “underserved,” allowing them to continue serving that area in the event it no longer qualifies
Area” . Once a credit union is initially approved to serve an area that qualifies as “underserved,” other credit unions may be approved to serve the area provided it is “underserved” at the time they apply. The proposed rule “grandfathers” all credit unions approved to serve an area while it qualifies as “underserved,” allowing them to continue serving that area in the event it no longer qualifies. To terminate the approval to serve an area that no longer is “underserved” would penalize the credit union for its efforts to bring an adequate level of service to the area.
An area that previously was approved as “underserved” may still qualify as “distressed” when the proposed rule is applied using the decennial Census in effect when the new applicant applies. When that is the case, the new applicant must show at the time it applies that the area still has “significant unmet needs for loans and financial services” (to qualify as an “investment area”) and still is “underserved by other depository institutions” (to qualify as “underserved”). These criteria may become more difficult to meet as the number of depository institutions serving the area increases.
Issues for Comment . The NCUA Board invites public comment on the application of the economic distress
C. Significant Unmet Needs for Loans or Financial Services
Apart from applying the economic distress criteria, the CDFI Fund definition of an “investment area” requires a showing of “significant unmet needs for loans or equity investments” within the proposed area. 12 U.S.C. 4702(16)(A)(ii). Because credit unions are not authorized to offer equity investments, the scope of this “unmet needs” test initially was limited by definition to the unmet needs for loans
from applying the economic distress criteria, the CDFI Fund definition of an “investment area” requires a showing of “significant unmet needs for loans or equity investments” within the proposed area. 12 U.S.C. 4702(16)(A)(ii). Because credit unions are not authorized to offer equity investments, the scope of this “unmet needs” test initially was limited by definition to the unmet needs for loans. 8 In implementing the “significant unmet needs test,” the CDFI Fund added the alternative of addressing the unmet needs for a range of financial services including many that credit unions are authorized to offer: Checking accounts, savings accounts, check cashing, money orders, certified checks, automated teller machines, deposit taking, safe deposit box services, and other similar services. 9 12 CFR 1805.102(b)(3)(ii)(A)(2).
8 Credit unions are not authorized to offer “equity investments,” which are defined to include “a stock purchase, a purchase of a partnership interest, a purchase of a limited liability company membership interest, a loan made on such terms that it has sufficient characteristics of equity [and] a purchase of secondary capital.” 12 CFR 1805.104(t) (2008).
9 The financial services credit unions are authorized to offer are drawn from the CDFI Fund's definition of “financial services” that institutions generally offer. 12 CFR 1805.104(v) (2008). To these financial services, the Fund also added certain “financial products” that, except for loans, credit unions do not offer to their members. 12 CFR 1805.104(u) (2008).
From 1998 through 2000, NCUA permitted the “significant unmet needs” showing to be made through the Business Plan required to be developed by a credit union seeking to add an “underserved area.” 63 FR at 72042. The Business Plan already was required to “identify the credit and depository needs of the community and detail how the credit union plans to serve those needs.” Id
R 1805.104(u) (2008).
From 1998 through 2000, NCUA permitted the “significant unmet needs” showing to be made through the Business Plan required to be developed by a credit union seeking to add an “underserved area.” 63 FR at 72042. The Business Plan already was required to “identify the credit and depository needs of the community and detail how the credit union plans to serve those needs.” Id . For that reason, NCUA revised its policy to recognize that a proposed area that is “distressed” is presumed to have “significant unmet needs.” 65 FR 64512, 64518 (Oct. 27, 2000).
Since the enactment of CUMAA, the CDFI Fund has modified the documentation and scope requirements for a proposed area to meet the “significant unmet needs” test. “Studies or other analyses” were originally required to “adequately demonstrate a pattern of unmet needs for loans and equity investments.” 12 CFR 1805.301(e) (1998). As modified, a “narrative analysis” is the only supporting documentation now required. 12 CFR 1805.201(b)(3)(ii)(E) (2008). In practice, the CDFI Fund accepts a one-page Narrative Statement describing the significant unmet capital or financial services of a proposed area. “CDFI Certification Application” (June 2007) at 11. The analysis must be supported by relevant statistical evidence. There are no definitive standards of evaluation; the statements are evaluated on a case-by-case basis.
Instead of a presumption of “significant unmet needs,” the proposed rule revises the Chartering Manual to require a credit union to support its “underserved area” application with a one-page “Narrative Statement” demonstrating a pattern of “significant unmet needs” in the proposed area for loans or for one or more of the financial services that credit unions are authorized to offer. However, a credit union may choose which of these services to address and need not address all of them
rtering Manual to require a credit union to support its “underserved area” application with a one-page “Narrative Statement” demonstrating a pattern of “significant unmet needs” in the proposed area for loans or for one or more of the financial services that credit unions are authorized to offer. However, a credit union may choose which of these services to address and need not address all of them.
Under the proposed rule, the Narrative Statement on “significant unmet needs” must be supported by relevant, objective statistical data reflecting, among other things, loan and financial services activity in the proposed area—much of which is now publicly available over the Internet. The Narrative Statement also may be supplemented by objective testimonial evidence. The supporting data and evidence should be appended to the Narrative Statement.
In addressing a proposed area's unmet needs, for example, a credit union might focus on the need for cash operations to replace check cashing outlets and on the need for personal loans at reasonable rates to replace pawn brokers, payday lenders and rent-a-centers. To support such a Narrative Statement, the credit union might rely on statistics and conclusions about these needs published by the proposed area's Chamber of Commerce.
Issues for Comment . Public commenters are invited to address the “significant unmet needs” criterion, including whether the Narrative Statement should be integrated into the Business Plan a credit union is already required to submit. Further, the NCUA Board asks commenters to identify available statistical data that would assist credit unions in demonstrating the unmet needs for loans and credit union services in a proposed area.
D. Underserved by Other Depository Institutions
The CDFI Fund's “significant unmet needs” test focuses on the need for products and services within a proposed area
n is already required to submit. Further, the NCUA Board asks commenters to identify available statistical data that would assist credit unions in demonstrating the unmet needs for loans and credit union services in a proposed area.
D. Underserved by Other Depository Institutions
The CDFI Fund's “significant unmet needs” test focuses on the need for products and services within a proposed area. In contrast, CUMAA's demand that a proposed area be “underserved * * * by other depository institutions” focuses on the presence of providers of products and services within the area. CUMAA did not specify a methodology for determining whether a proposed area meets this test; instead, it broadly refers to unspecified “data of the [NCUA] Board and the Federal banking agencies.” 12 U.S.C. 1759(c)(2)(A)(ii).
In the decade since CUMAA, raw data has accumulated within government on branch locations and the volume of business in certain products and services, but meaningful and reliable data on these points has only recently become readily accessible. This data makes it possible to quantify and compare the presence of financial institution facilities in a given area. The proposed rule suggests a flexible methodology that relies on publicly available population data and data on the location of financial institution branches.
Concentration of Facilities . The proposed methodology compares two measures to determine whether an area is adequately served according to the concentration of depository institution facilities within the area. The first measure—which sets a benchmark level of adequate service—is the ratio of depository institution facilities to the population of the non-“distressed” tracts in a proposed area, regardless whether those tracts are contiguous. In cases where there are no non-“distressed” tracts within a proposed area, a non-“distressed” tract or larger unit immediately adjoining the proposed area (e.g., county or city) may be used to set the benchmark ratio
dequate service—is the ratio of depository institution facilities to the population of the non-“distressed” tracts in a proposed area, regardless whether those tracts are contiguous. In cases where there are no non-“distressed” tracts within a proposed area, a non-“distressed” tract or larger unit immediately adjoining the proposed area (e.g., county or city) may be used to set the benchmark ratio. The second measure is the ratio of facilities to the combined population of all of the tracts within the proposed area.
As shown in the example below, if the benchmark ratio of facilities within the non-“distressed” tracts (column A below) exceeds the ratio of facilities within all the tracts of the proposed area as a whole (column B below), the proposed rule deems the area to be “underserved by other depository institutions,” and vice versa (column C below):
EP17JN08.000 The proposed methodology does not distinguish between Metro and Non-Metro locations, and need not be limited to census tracts as its unit of measure for each ratio. Census tracts are proposed as the unit of measure, however, because most credit unions are likely to have already used them in determining whether the proposed area is sufficiently “distressed,” and thus will be familiar with the data and data sources associated with the tracts within the area.
Data on Population and Location of Facilities . Current tract-by-tract population data is available on-line from the “My CDFI Fund” Web site's IA Worksheet or from the most recent decennial Census itself. Current data on the location of facilities of institutions insured by the Federal Deposit Insurance Corporation (“FDIC”) or regulated by the Office of Thrift Supervision is available on-line on the FDIC's “Summary of Deposits” webpage sorted by state, county and MSA. 10 Current data on the location of credit union facilities is collected by NCUA annually from a credit union's “Report of Officials.” NCUA plans to organize that data and make it available on-line at the NCUA Web site
osit Insurance Corporation (“FDIC”) or regulated by the Office of Thrift Supervision is available on-line on the FDIC's “Summary of Deposits” webpage sorted by state, county and MSA. 10 Current data on the location of credit union facilities is collected by NCUA annually from a credit union's “Report of Officials.” NCUA plans to organize that data and make it available on-line at the NCUA Web site. This data can be sorted manually on a tract-by-tract basis.
10 FDIC Summary of Deposits webpage: http://www2.fdic.gov/sod/sodSummary.asp?baritem=3 .
Issues for Comment . Public commenters are invited to address the “underserved by other depository institutions” criterion, including whether the facilities of such institutions should be defined to include ATMs and shared branches. Further, the NCUA Board asks commenters to suggest methodologies other than the concentration of facilities to assess whether a proposed area is “underserved by other depository institutions,” and to identify sources of data on the location depository institution facilities that is sorted by census tract.
E. Service Status Reports
The current rule authorizes NCUA's regional directors to obtain from FCUs adding “underserved areas” reports on their success in serving members in these areas. Manual, Ch. 3, § III.A. Some commenters have in the past recommended that NCUA affirmatively require these reports. That issue is not addressed in this proposed rulemaking because the Board is as a separate matter considering recommendations of NCUA's Outreach Task Force that would call for NCUA to obtain information from credit unions on member income levels and products and services offered to members, and to organize the data by census tract. Consideration of the issue in this rulemaking would therefore be an unnecessary duplication.
F
this proposed rulemaking because the Board is as a separate matter considering recommendations of NCUA's Outreach Task Force that would call for NCUA to obtain information from credit unions on member income levels and products and services offered to members, and to organize the data by census tract. Consideration of the issue in this rulemaking would therefore be an unnecessary duplication.
F. Pending Applications To Serve an “Underserved Area”
If, as a result of its review of public comments on this proposed rule, the NCUA Board adopts a final rule modifying the current Chartering Manual, the modifications will apply prospectively. Pending applications for approval to serve an “underserved area” and applications received after the date of publication of this rule will be deferred until the rulemaking process is completed.
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 $10 million in assets). The proposed amendments 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
This proposed rule imposes a requirement that any multiple common bond federal credit union that wishes to add an underserved area must apply for the NCUA Board's written approval to do so. This proposed rule mandates certain specific information that must be included in the application. NCUA requests public comment on all aspects of the collection of information in this proposed rule. Based upon past experience NCUA anticipates approximately 100 applications per year. Given the type of information required to be included in the application, NCUA estimates a burden of 8 hours per application and will revisit this estimate in light of the comments NCUA receives
in the application. NCUA requests public comment on all aspects of the collection of information in this proposed rule. Based upon past experience NCUA anticipates approximately 100 applications per year. Given the type of information required to be included in the application, NCUA estimates a burden of 8 hours per application and will revisit this estimate in light of the comments NCUA receives.
NCUA will submit the collection of information requirements contained in this proposed rule to the Office of Management and Budget (OMB) in accordance with the Paperwork Reduction Act of 1995. 44 U.S.C. 3507. NCUA will use any comments received to develop its new burden estimates. Comments on the collections of information should be sent to Office of
NCUA made the following assumptions about this proposed rule:
• The likely respondents are multiple common bond federal credit unions.
• Estimated annual number of respondents: 100.
• Estimated average annual burden hours per respondent: 8 hours.
• Estimated total annual disclosure and recordkeeping burden: 800 hours.
In addition to comments on the proposed rule, NCUA invites comment on:
• The accuracy of NCUA's estimate of the burden of the information collections;
• Ways to minimize the burden of the information collections on Federal credit unions, including the use of automated collection techniques or other forms of information technology; and
• Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.
Recordkeepers are not required to respond to this collection of information unless it displays a currently valid OMB control number. NCUA is currently requesting a control number for this information collection from OMB.
Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests
vide information.
Recordkeepers are not required to respond to this collection of information unless it displays a currently valid OMB control number. NCUA is currently requesting a control number for this information collection from OMB.
Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. In adherence to fundamental federalism principles, NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order. The proposed rule would not have substantial direct effects on the states, on the connection between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. NCUA has determined that this proposed rule does not constitute a policy that has federalism implications for purposes of the executive order.
The Treasury and General Government Appropriations Act, 1999
The NCUA has determined that this proposed rule would not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act of 1999, Public Law 105-277, 112 Stat. 2681 (1998).
List of Subjects in 12 CFR Part 701
Credit, Credit unions, Reporting and recordkeeping requirements.

By the National Credit Union Administration Board on May 29, 2008. Mary Rupp, Secretary of the Board.
For the reasons stated above, 12 CFR Part 701 is proposed to be amended 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 15 U.S.C. 3717. Section 701.31 is also authorized by 15 U.S.C. 1601, et seq. , 42 U.S.C. 1981 and 3601-3610. Section 701.35 is also authorized by 12 U.S.C. 4311-4312.
2
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 15 U.S.C. 3717. Section 701.31 is also authorized by 15 U.S.C. 1601, et seq. , 42 U.S.C. 1981 and 3601-3610. Section 701.35 is also authorized by 12 U.S.C. 4311-4312.
2. Section 701.1 is revised to read as follows:
§ 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 08-2, Chartering and Field of Membership Manual (IRPS 08-2) published as Appendix B to this part. The Chartering and Field of Membership Manual also is available on-line at http://www.ncua.gov .
3. Appendix B to 12 CFR Part 701 is added to read as follows:
Appendix B To Part 701—Chartering and Field of Membership Manual
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
tional 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.
Unless otherwise noted, the policies outlined in this manual apply only to federal credit unions.
II—Types of Charters
The Federal Credit Union Act recognizes three types of federal credit union charters—single common bond (occupational and associational), multiple common bond (more than one group each having a common bond of occupation or association), and community.
The requirements that must be met to charter a federal credit union are described in Chapter 2. Special rules for credit unions serving low-income groups are described in Chapter 3.
If a federal credit union charter is granted, Section 5 of the charter will describe the credit union's field of membership, which defines those persons and entities eligible for membership. Generally, federal credit unions are only able to grant loans and provide services to persons within the field of membership who have become members of the credit union.
III—Subscribers
Federal credit unions are generally organized by persons who volunteer their time and resources and are responsible for determining the interest, commitment, and economic advisability of forming a federal credit union. The organization of a successful federal credit union takes considerable planning and dedication
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
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:
• 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
deral 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, which is a determination that a potential charter will have a reasonable opportunity to succeed, is essential in order to qualify for a credit union charter.
NCUA will conduct an independent on-site investigation of each charter application to ensure that the proposed credit union can be successful. In 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
subject of credit and background investigations. The investigation report must demonstrate each applicant's ability to effectively handle financial matters. Employees and officials should also be competent, experienced, honest and of good character. Factors that may lead to disapproval of a prospective official or employee include criminal convictions, indictments, and acts of fraud and dishonesty. Further, factors such as serious or unresolved past due credit obligations and bankruptcies disclosed during credit checks may disqualify an individual.
NCUA also needs reasonable assurance that the management team will have the requisite skills—particularly in leadership and accounting—and the commitment to dedicate the time and effort needed to make the proposed federal credit union a success.
Section 701.14 of NCUA's Rules and Regulations sets forth the procedures for NCUA approval of officials of newly chartered credit unions. If the application of a prospective official or employee to serve is not acceptable to the regional director, the group can propose an alternate to act in that individual's place. If the charter applicant feels it is essential that the disqualified individual be retained, the individual may appeal the regional director's decision to the NCUA Board. If an appeal is pursued, action on the application may be delayed. If the appeal is denied by the NCUA Board, an acceptable new applicant must be provided before the charter can be approved.
IV.C—Member Support
Economic advisability is a major factor in determining whether the credit union will be chartered. An important consideration is the degree of support from the field of membership. The charter applicant must be able to demonstrate that membership support is sufficient to ensure viability.
NCUA has not set a minimum field of membership size for chartering a federal credit union. Consequently, groups of any size may apply for a credit union charter and be approved if they demonstrate economic advisability
t consideration is the degree of support from the field of membership. The charter applicant must be able to demonstrate that membership support is sufficient to ensure viability.
NCUA has not set a minimum field of membership size for chartering a federal credit union. Consequently, groups of any size may apply for a credit union charter and be approved if they demonstrate economic advisability. However, it is important to note that often the size of the group is indicative of the potential for success. For that reason, a charter application with fewer than 3,000 primary potential members (e.g., employees of a corporation or members of an association) may not be economically advisable. Therefore, a charter applicant with a proposed field of membership of fewer than 3,000 primary potential members may have to provide more support than an applicant with a larger field of membership. For example, a small occupational or associational group may be required to demonstrate a commitment for long-term support from the sponsor.
IV.D—Present and Future Market Conditions—Business Plan
The ability to provide effective service to members, compete in the marketplace, and to adapt to changing market conditions are key to the survival of any enterprise. Before NCUA will charter a credit union, a business plan based on realistic and supportable projections and assumptions must be submitted.
The business plan should contain, at a minimum, the following elements:
• Mission statement;
• Analysis of market conditions, including if applicable, geographic, demographic, employment, income, housing, and other economic data;
• 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;
• Continuity plan for directors,
ence 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;
• Continuity plan for 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 and 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;
• 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
d and support the submitted business plan.
V—Steps in Organizing a Federal Credit Union
V.A—Getting Started
Following the guidance contained throughout this policy, the organizers should submit wording for the proposed field of membership (the persons, organizations and other legal entities the credit union will serve) to NCUA early in the application process for written preliminary approval. The proposed field of membership must meet all common bond or community requirements.
Once the field of membership has been given preliminary approval, and the organizer is satisfied the application has merit, the organizer should conduct an organizational meeting to elect seven to ten persons to serve as subscribers. The subscribers should locate willing individuals capable of serving on the board of directors, credit committee, supervisory committee, and as chief operating officer/manager of the proposed credit union.
Subsequent organizational meetings may be held to discuss the progress of the charter investigation, to announce the proposed slate of officials, and to respond to any questions posed at these meetings.
If NCUA approves the charter application, the subscribers, as their final duty, will elect the board of directors of the proposed federal credit union. The new board of directors will then appoint the supervisory committee.
V.B—Charter Application Documentation
V.B.1—General
As discussed previously in this Chapter, the organizer of a federal credit union charter must, at a minimum, provide evidence that:
• The group(s) possess 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
of a federal credit union charter must, at a minimum, provide evidence that:
• The group(s) possess 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 organizer must submit the following forms, which are available in Appendix 4 of this Manual:
• Federal Credit Union Investigation Report, NCUA 4001;
• Organization Certificate, NCUA 4008;
• Report of Official and Agreement to Serve, NCUA 4012;
• Application 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 a federal charter will use NCUA 4000. (See Chapter 4 for a full discussion.) The organizer is required to certify the information and recommend approval or disapproval, based on the investigation of the request.
V.B.3—Organization Certificate, NCUA 4008
This document, which must be completed by the subscribers, includes the seven criteria established by the Federal Credit Union Act. NCUA staff assigned to the case will assist in the proper completion of this document.
V.B.4—Report of Official and Agreement to Serve, NCUA 4012
This form documents general background information of each official and employee of the proposed federal credit union. Each official and employee must complete and sign this form. The organizer must review each of the NCUA 4012s for elements that would prevent the prospective official or employee from serving
mpletion of this document.
V.B.4—Report of Official and Agreement to Serve, NCUA 4012
This form documents general background information of each official and employee of the proposed federal credit union. Each official and employee must complete and sign this form. The organizer must review each of the NCUA 4012s for elements that would prevent the prospective official or employee from serving. Further, such factors as serious, unresolved past due credit obligations and bankruptcies disclosed during credit checks may disqualify an individual.
V.B.5—Application and Agreements for Insurance of Accounts, NCUA 9500
This document contains the agreements with which federal credit unions must comply in order to obtain National Credit Union Share Insurance Fund (NCUSIF) coverage of member accounts. The document must be completed and signed by both the chief executive officer and chief financial officer. A federal credit union must qualify for federal share insurance.
V.B.6—Certification of Resolutions, NCUA 9501
This document certifies that the board of directors of the proposed federal credit union has resolved to apply for NCUSIF insurance of member accounts and has authorized the chief executive officer and recording officer to execute the Application and Agreements for Insurance of Accounts. Both the chief executive officer and recording officer of the proposed federal credit union must sign this form.
VI—Name Selection
It is the responsibility of the federal credit union organizers or officials of an existing credit union to ensure that the proposed federal credit union name or federal credit union name change does not constitute an infringement on the name of any corporation in its trade area. This responsibility also includes researching any service marks or trademarks used by any other corporation (including credit unions) in its trade area
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
Once NCUA receives a complete charter application package, an acknowledgment of receipt will be sent to the organizer. At some point during the review process, a staff member will be assigned to perform an on-site contact with the proposed officials and others having an interest in the proposed federal credit union.
NCUA staff will review the application package and verify its accuracy and reasonableness. A staff member will inquire into the financial management experience and the suitability and commitment of the proposed officials and employees, and will make an assessment of economic advisability. The staff member will also provide guidance to the subscribers in the proper completion of the Organization Certificate, NCUA 4008.
Credit and background investigations may be conducted concurrently by NCUA with other work being performed by the organizer and subscribers to reduce the likelihood of delays in the chartering process
employees, and will make an assessment of economic advisability. The staff member will also provide guidance to the subscribers in the proper completion of the Organization Certificate, NCUA 4008.
Credit and background investigations may be conducted concurrently by NCUA with other work being performed by the organizer and subscribers to reduce the likelihood of delays in the chartering process.
The staff member will analyze the prospective credit union's business plan for realistic projections, attainable goals, adequate service to all segments of the field of membership, sufficient start-up capital, and time commitment by the proposed officials and employees. Any concerns will be reviewed with the organizer and discussed with the prospective credit union's officials. Additional on-site contacts by NCUA staff may be necessary. The organizer and subscribers will be expected to take the steps necessary to resolve any issues or concerns. Such resolution efforts may delay processing the application.
NCUA staff will then make a recommendation to the regional director regarding the charter application. The recommendation may include specific provisions to be included in a Letter of Understanding and Agreement. In most cases, NCUA will require the prospective officials to adhere to certain operational guidelines. Generally, the agreement is for a limited term of two to four years. A sample Letter of Understanding and Agreement is found in Appendix 2.
VII.B—Regional Director Approval
Once approved, the board of directors of the newly formed federal credit union will receive a signed charter and standard bylaws from the regional director. Additionally, the officials will be advised of the name of the examiner assigned responsibility for supervising and examining the credit union.
VII.C—Regional Director Disapproval
When a regional director disapproves any charter application, in whole or in part, the organizer will be informed in writing of the specific reasons for the disapproval
and standard bylaws from the regional director. Additionally, the officials will be advised of the name of the examiner assigned responsibility for supervising and examining the credit union.
VII.C—Regional Director Disapproval
When a regional director disapproves any charter application, in whole or in part, the organizer will be informed in writing of the specific reasons for the disapproval. Where applicable, the regional director will provide information concerning options or suggestions that the applicant could consider for gaining approval or otherwise acquiring credit union service. The letter of denial will include the procedures for appealing the decision.
VII.D—Appeal of Regional Director Decision
If the regional director denies a charter application, in whole or in part, that decision may be appealed to the NCUA Board. An appeal must be sent to the appropriate regional office within 60 days of the date of denial and must address the specific reasons for denial. The regional director will then forward the appeal to the NCUA Board. NCUA central office staff will make an independent review of the facts and present the appeal with a recommendation to the NCUA Board.
Before appealing, the prospective group may, within 30 days of the denial, provide supplemental information to the regional director for reconsideration. A reconsideration will contain new and material evidence addressing the reasons for the initial denial. The regional director will have 30 days from the date of the receipt of the request for reconsideration to make a final decision. If the request is again denied, the applicant may proceed with the appeal process within 60 days of the date of the last denial. A second request for reconsideration will be treated as an appeal to the NCUA Board.
VII.E—Commencement of Operations
Assistance in commencing operations is generally available through the various credit union trade organizations listed in Appendix 5
final decision. If the request is again denied, the applicant may proceed with the appeal process within 60 days of the date of the last denial. A second request for reconsideration will be treated as an appeal to the NCUA Board.
VII.E—Commencement of Operations
Assistance in commencing operations is generally available through the various credit union trade organizations listed in Appendix 5.
All new federal credit unions are also encouraged to establish a mentor relationship with a knowledgeable, experienced credit union individual or an existing, well-operated credit union. The mentor should provide guidance and assistance to the new credit union through attendance at meetings and general oversight. Upon request, NCUA will provide assistance in finding a qualified mentor.
VIII—Future Supervision
Each federal credit union will be examined regularly by NCUA to determine that it
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
p to two years after the charter anniversary date, to obtain NCUA approval prior to appointment of any new board member, credit or supervisory committee member, or senior executive officer. Section 701.14 of the NCUA Rules and Regulations sets forth the notice and application requirements. If NCUA issues a Notice of Disapproval, the newly chartered credit union is prohibited from making the change.
NCUA may disapprove an individual serving as a director, committee member or senior executive officer if it finds that the competence, experience, character, or integrity of the individual indicates it would not be in the best interests of the members of the credit union or of the public to permit the individual to be employed by or associated with the credit union. If a Notice of Disapproval is issued, the credit union may appeal the decision to the NCUA Board.
IX—Corporate Federal Credit Unions
A corporate federal credit union is one that is operated primarily for the purpose of serving other credit unions. Corporate federal credit unions operate under and are administered by the NCUA Office of Corporate Credit Unions.
X—Groups Seeking Credit Union Service
NCUA will attempt to assist any group in chartering a credit union or joining an existing credit union. If the group is not eligible for federal credit union service, NCUA will refer the group to the appropriate state supervisory authority where different requirements may apply.
XI—Field of Membership Designations
NCUA will designate a credit union based on the following criteria:
Single Occupational: If a credit union serves a single occupational sponsor, such as ABC Corporation, it will be designated as an occupational credit union. A single occupational common bond credit union may also serve a trade, industry, or profession (TIP), such as all teachers.
Single Associational: If a credit union serves a single associational sponsor, such as the Knights of Columbus, it will be designated as an associational credit union
ingle occupational sponsor, such as ABC Corporation, it will be designated as an occupational credit union. A single occupational common bond credit union may also serve a trade, industry, or profession (TIP), such as all teachers.
Single Associational: If a credit union serves a single associational sponsor, such as the Knights of Columbus, it will be designated as an associational credit union.
Multiple Common Bond: If a credit union serves more than one group, each of which has a common bond of occupation and/or association, it will be designated as a multiple common bond credit union.
Community: All community credit unions will be designated as such, followed by a description of their geographic boundaries (e.g. city or county).
Credit unions desiring to confirm or submit an application to change their designations should contact the appropriate NCUA regional office.
XII—Foreign Branching
Federal credit unions are permitted to serve foreign nationals within their fields of membership wherever they reside provided they have the ability, resources, and management expertise to serve such persons. Before a credit union opens a branch outside the United States, it must submit an application to do so and have prior written approval of the regional director. A federal credit union may establish a service facility on a United States military installation or United States embassy without prior NCUA approval.
Chapter 2
Field of Membership Requirements for Federal Credit Unions
I—Introduction
I.A.1—General
As set forth in Chapter 1, the Federal Credit Union Act provides for three types of federal credit union charters—single common bond (occupational or associational), multiple common bond (multiple groups), and community. Section 109 (12 U.S.C. 1759) of the Federal Credit Union Act sets forth the membership criteria for each of these three types of credit unions.
The field of membership, which is specified in Section 5 of the charter, defines those persons and entities eligible for membership
union charters—single common bond (occupational or associational), multiple common bond (multiple groups), and community. Section 109 (12 U.S.C. 1759) of the Federal Credit Union Act sets forth the membership criteria for each of these three types of credit unions.
The field of membership, which is specified in Section 5 of the charter, defines those persons and entities eligible for membership. A single common bond federal credit union consists of one group having a common bond of occupation or association. A multiple common bond federal credit union consists of more than one group, each of which has a common bond of occupation or association. A community federal credit union consists of persons or organizations within a well-defined local community, neighborhood, or rural district.
Once chartered, a federal credit union can amend its field of membership; however, the same common bond or community requirements for chartering the credit union must be satisfied. Since there are differences in the three types of charters, special rules, which are fully discussed in the following sections of this Chapter, may apply to each.
I.A.2—Special Low-Income Rules
Generally, federal credit unions can only grant loans and provide services to persons who have joined the credit union. The Federal Credit Union Act states that one of the purposes of federal credit unions is “to serve the productive and provident credit needs of individuals of modest means.” Although field of membership requirements are applicable, special rules set forth in Chapter 3 may apply to low-income designated credit unions and those credit unions assisting low-income groups or to a federal credit union that adds an underserved community to its field of membership.
II—Occupational Common Bond
II.A.1—General
A single occupational common bond federal credit union may include in its field of membership all persons and entities who share that common bond
in Chapter 3 may apply to low-income designated credit unions and those credit unions assisting low-income groups or to a federal credit union that adds an underserved community to its field of membership.
II—Occupational Common Bond
II.A.1—General
A single occupational common bond federal credit union may include in its field of membership all persons and entities who share that common bond. NCUA permits a person's membership eligibility in a single occupational common bond group to be established in five ways:
• Employment (or a long-term contractual relationship equivalent to employment) in a single corporation or other legal entity makes that person part of a single occupational common bond;
• 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;
• Employment or attendance at a school makes that person part of a single occupational common bond (see Chapter 2, Section III.A.1); or
• Employment in the same Trade, Industry, or Profession (TIP) (see Chapter 2, Section II.A.2).
A geographic limitation is not a requirement for a single occupational common bond. However, for purposes of describing the field of membership, the geographic areas being served may be included in the charter. For example:
• Employees, officials, and persons who work regularly under contract in Miami, Florida, for ABC Corporation and subsidiaries;
• 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
. For example:
• Employees, officials, and persons who work regularly under contract in Miami, Florida, for ABC Corporation and subsidiaries;
• 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.
The corporation or other legal entity (i.e., the employer) may also be included in the common bond—e.g., “ABC Corporation.” The corporation or legal entity will be defined in the last clause in Section 5 of the credit union's charter.
A charter applicant must provide documentation to establish that the single occupational common bond requirement has been met.
Some examples of single occupational common bonds are:
• 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,
• 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 MMLLJS contractor who work regularly at the U.S
ted and appointed officials of municipal government in Parma,
• 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 MMLLJS contractor 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);
• Employees of and students attending Georgetown University (common bond—same occupation);
• Employees of all the schools supervised by the Timbrook Board of Education in Timbrook, Georgia (common bond—same employer); or
• All licensed nurses in Fairfax County, Virginia (occupational common bond TIP).
Some examples of insufficiently defined single occupational common bonds are:
• Employees of manufacturing firms in Seattle, Washington (no defined occupational sponsor; overly broad TIP);
• Persons employed or working in Chicago, Illinois (no occupational common bond).
II.A.2—Trade, Industry, or Profession
A common bond based on employment in a trade, industry, or profession can include employment at any number of corporations or other legal entities that—while not under common ownership—have a common bond by virtue of producing similar products, providing similar services, or participating in the same type of business
Illinois (no occupational common bond).
II.A.2—Trade, Industry, or Profession
A common bond based on employment in a trade, industry, or profession can include employment at any number of corporations or other legal entities that—while not under common ownership—have a common bond by virtue of producing similar products, providing similar services, or participating in the same type of business.
While proposed or existing single common bond credit unions have some latitude in defining a trade, industry, or profession occupational common bond, it cannot be defined so broadly as to include groups in fields which are not closely related. For example, the manufacturing industry, energy industry, communications industry, retail industry, or entertainment industry would not qualify as a TIP because each industry lacks the necessary commonality. However, textile workers, realtors, nurses, teachers, police officers, or U.S. military personnel are closely related and each would qualify as a TIP.
The common bond relationship must be one that demonstrates a narrow commonality of interests within a specific trade, industry, or profession. If a credit union wants to serve a physician TIP, it can serve all physicians, but that does not mean it can also serve all clerical staff in the physicians' offices. However, if the TIP is based on the health care industry, then clerical staff would be able to be served by the credit union because they work in the same industry and have the same commonality of interests.
If a credit union wants to include the airline services industry, it can serve airline and airport personnel but not passengers. Clients or customers of the TIP are not eligible for credit union membership ( e.g. , patients in hospitals). Any company that is involved in more than one industry cannot be included in an industry TIP ( e.g. , a company that makes tobacco products, food products, and electronics)
union wants to include the airline services industry, it can serve airline and airport personnel but not passengers. Clients or customers of the TIP are not eligible for credit union membership ( e.g. , patients in hospitals). Any company that is involved in more than one industry cannot be included in an industry TIP ( e.g. , a company that makes tobacco products, food products, and electronics). However, employees of these companies may be eligible for membership in a variety of trade/profession occupational common bond TIPs.
Since a TIP must be narrowly defined, it cannot include third party vendors and other suppliers. For example, the steel suppliers to the automobile industry would not be part of the automobile industry TIP. However, the automobile industry includes manufacturers and their automobile dealerships.
In general, except for credit unions currently serving a national field of membership or operating in multiple states, a geographic limitation is required for a TIP credit union. The geographic limitation will be part of the credit union's charter and generally correspond to its current or planned operational area. More than one federal credit union may serve the same trade, industry, or profession, even if both credit unions are in the same geographic location.
This type of occupational common bond is only available to single common bond credit unions. A TIP cannot be added to a multiple common bond or community field of membership.
To obtain a TIP designation, the proposed or existing credit union must submit a request to the regional director. New charter applicants must follow the documentation requirements in Chapter 1. New charter applicants and existing credit unions must submit a business plan on how the credit union will serve the group with the request to serve the TIP. The business plan also must address how the credit union will verify the TIP
the proposed or existing credit union must submit a request to the regional director. New charter applicants must follow the documentation requirements in Chapter 1. New charter applicants and existing credit unions must submit a business plan on how the credit union will serve the group with the request to serve the TIP. The business plan also must address how the credit union will verify the TIP. Examples of such verification include state licenses, professional licenses, organizational memberships, pay statements, union membership, or employer certification. The regional director must approve this type of field of membership before a credit union can serve a TIP. Credit unions converting to a TIP can retain members of record but cannot add new members from its previous group or groups, unless it is part of the TIP.
Section II.B on Occupational Common Bond Amendments does not apply to a TIP common bond. Removing or changing a geographical limitation will be processed as a housekeeping amendment. If safety and soundness concerns are present, the regional director may require additional information before the request can be processed.
Section II.H, on Other Persons Eligible for Credit Union Membership, applies to TIP based credit unions except for the corporate account provision which only applies to industry based TIPs. Credit unions with industry based TIPs may include corporations as members because they have the same commonality of interests as all employees in the industry. For example, an airline service TIP (industry) can serve an airline carrier (corporate account); however, a nurses TIP (profession) could not serve a hospital (corporate account) because not everyone working in the hospital shares the same profession.
If a TIP designated credit union wishes to convert to a different TIP or employer-based occupational common bond, or different charter type, it only retains members of record after the conversion
n serve an airline carrier (corporate account); however, a nurses TIP (profession) could not serve a hospital (corporate account) because not everyone working in the hospital shares the same profession.
If a TIP designated credit union wishes to convert to a different TIP or employer-based occupational common bond, or different charter type, it only retains members of record after the conversion. The regional director, for safety and soundness reasons, may approve a TIP designated credit union to convert to its original field of membership.
II.B—Occupational Common Bond Amendments
II.B.1—General
Section 5 of every single occupational federal credit union's charter defines the field of membership the credit union can legally serve. Only those persons or legal entities specified in the field of membership can be served. There are a number of instances in which Section 5 must be amended by NCUA.
First, a group sharing the credit union's common bond is added to the field of membership. This may occur through various ways including agreement between the group and the credit union directly, or through a merger, corporate acquisition, purchase and assumption (P&A), or spin-off.
Second, if the entire field of membership is acquired by another corporation, the credit union can serve the employees of the new corporation and any subsidiaries after receiving NCUA approval.
Third, a federal credit union qualifies to change its common bond from:
• 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 portion of the group from its field of membership through agreement with the group, a spin-off, or because a portion of the group is no longer in existence
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 portion of the group from its field of membership through agreement with the group, a spin-off, or because a portion of the group is no longer in existence.
An existing single occupational common bond federal credit union that submits a request to amend its charter must provide documentation to establish that the occupational common bond requirement has been met. The regional director must approve all amendments to an occupational common bond credit union's field of membership.
II.B.2—Corporate Restructuring
If the single common bond group that comprises a federal credit union's field of membership undergoes a substantial restructuring, the result is often that portions of the group are sold or spun off. This requires a change to the credit union's field of membership. NCUA will not permit a single common bond credit union to maintain in its field of membership a sold or spun-off group to which it has been providing service unless the group otherwise qualifies for membership in the credit union or the credit union converts to a multiple common bond credit union.
If the group comprising the single common bond of the credit union merges with, or is acquired by, another group, the credit union can serve the new group resulting from the merger or acquisition after receiving a housekeeping amendment.
II.B.3—Economic Advisability
Prior to granting a common bond expansion, NCUA will examine the amendment's likely effect on the credit union's operations and financial condition. In most cases, the information needed for analyzing the effect of adding a particular group will be available to NCUA through the examination and financial and statistical reports; however, in particular cases, a regional director may require additional information prior to making a decision
, NCUA will examine the amendment's likely effect on the credit union's operations and financial condition. In most cases, the information needed for analyzing the effect of adding a particular group will be available to NCUA through the examination and financial and statistical reports; however, in particular cases, a regional director may require additional information prior to making a decision.
II.B.4—Documentation Requirements
A federal credit union requesting a common bond expansion must submit an Application for Field of Membership Amendment (NCUA 4015-EZ) to the appropriate NCUA regional director. An authorized credit union representative must sign the request.
II.C—NCUA's Procedures for Amending the Field of Membership
II.C.1—General
All requests for approval to amend a federal credit union's charter must be submitted to the appropriate regional director.
II.C.2—Regional Director's Decision
NCUA staff will review all amendment requests in order to ensure compliance with NCUA policy.
Before acting on a proposed amendment, the regional director may require an on-site review. In addition, the regional director may, after taking into account the significance of the proposed field of membership amendment, require the applicant to 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
union with financial or operational problems.
In most cases, field of membership amendments will only be approved for credit unions that are operating satisfactorily. Generally, if a federal credit union is having difficulty providing service to its current membership, or is experiencing financial or other operational problems, it may have more difficulty serving an expanded field of membership.
Occasionally, however, an expanded field of membership may provide the basis for reversing current financial problems. In such cases, an amendment to expand the field of membership may be granted notwithstanding the credit union's financial or operational problems. The applicant credit union must clearly establish that the expanded field of membership is in the best interest of the members and will not increase the risk to the NCUSIF.
II.C.3—Regional Director Approval
If the regional director approves the requested amendment, the credit union will be issued an amendment to Section 5 of its charter.
II.C.4—Regional Director Disapproval
When a regional director disapproves any application, in whole or in part, to amend the field of membership under this chapter, the applicant will be informed in writing of the:
• Specific reasons for the action;
• Options to consider, if appropriate, for gaining approval; and
• Appeal procedure.
II.C.5—Appeal of Regional Director Decision
If a field of membership expansion request, merger, or spin-off is denied by the regional director, the federal credit union may appeal the decision to the NCUA Board. An appeal must be sent to the appropriate regional office within 60 days of the date of denial, and must address the specific reason(s) for the denial. The regional director will then forward the appeal to the NCUA Board. NCUA central office staff will make an independent review of the facts and present the appeal to the Board with a recommendation
union may appeal the decision to the NCUA Board. An appeal must be sent to the appropriate regional office within 60 days of the date of denial, and must address the specific reason(s) for the denial. The regional director will then forward the appeal to the NCUA Board. NCUA central office staff will make an independent review of the facts and present the appeal to the Board with a recommendation.
Before appealing, the credit union may, within 30 days of the denial, provide supplemental information to the regional director for reconsideration. A reconsideration will contain new and material evidence addressing the reasons for the initial denial. The regional director will have 30 days from the date of the receipt of the request for reconsideration to make a final decision. If the request is again denied, the applicant may proceed with the appeal process within 60 days of the date of the last denial. A second request for reconsideration will be treated as an appeal to the NCUA Board.
II.D—Mergers, Purchase and Assumptions, and Spin-Offs
In general, other than the addition of common bond groups, there are three additional ways a federal credit union with a single occupational common bond can expand its field of membership:
• 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—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
rship through a common bond spin-off.
II.D.1—Mergers
Generally, the requirements applicable to field of membership expansions found in this chapter apply to mergers where the continuing credit union has a federal charter. That is, the two credit unions must share a common bond.
Where the merging credit union is state-chartered, the common bond rules applicable to a federal credit union apply.
Mergers must be approved by the NCUA regional director where the continuing credit union is headquartered, with the concurrence of the regional director of the merging credit union, and, as applicable, the state regulators.
If a single occupational credit union wants to merge into a multiple common bond or community credit union, Section IV.D or Section V.D of this Chapter, respectively, should be reviewed.
II.D.2—Emergency Mergers
An emergency merger may be approved by NCUA without regard to common bond or other legal constraints. An emergency merger involves NCUA's direct intervention and approval. The credit union to be merged must either be insolvent or likely to become insolvent, and NCUA must determine that:
• 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
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. Under this authority, therefore, a single occupational common bond federal credit union may take into its field of membership any dissimilar charter type.
The common bond characteristic of the continuing credit union in an emergency merger does not change. That is, even though the merging credit union is a multiple common bond or community, the continuing credit union will remain a single common bond credit union. Similarly, if the merging credit union is also an unlike single common bond, the continuing credit union will remain a single common bond credit union. Future common bond expansions will be based on the continuing credit union's original single common bond.
Emergency mergers involving federally insured credit unions in different NCUA regions must be approved by the regional director where the continuing credit union is headquartered, with the concurrence of the regional director of the merging credit union and, as applicable, the state regulators.
II.D.3—Purchase and Assumption (P&A)
Another alternative for acquiring the field of membership of a failing credit union is through a consolidation known as a P&A. A P&A has limited application because, in most cases, the failing credit union must be placed into involuntary liquidation
he concurrence of the regional director of the merging credit union and, as applicable, the state regulators.
II.D.3—Purchase and Assumption (P&A)
Another alternative for acquiring the field of membership of a failing credit union is through a consolidation known as a P&A. A P&A has limited application because, in most cases, the failing credit union must be placed into involuntary liquidation. In the few
In a P&A processed under the emergency criteria, specified loans, shares, and certain other designated assets and liabilities, without regard to common bond restrictions, may also be acquired without changing the character of the continuing federal credit union for purposes of future field of membership amendments.
If the purchased and/or assumed credit union's field of membership does not share a common bond with the purchasing and/or assuming credit union, then the continuing credit union's original common bond will be controlling for future common bond expansions.
P&As involving federally insured credit unions in different NCUA regions must be approved by the regional director where the continuing credit union is headquartered, with the concurrence of the regional director of the purchased and/or assumed credit union and, as applicable, the state regulators.
II.D.4—Spin-Offs
A spin-off occurs when, by agreement of the parties, a portion of the field of membership, assets, liabilities, shares, and capital of a credit union are transferred to a new or existing credit union. A spin-off is unique in that usually one credit union has a field of membership expansion and the other loses a portion of its field of membership.
All common bond requirements apply regardless of whether the spun-off group becomes a new credit union or goes to an existing federal charter
ssets, liabilities, shares, and capital of a credit union are transferred to a new or existing credit union. A spin-off is unique in that usually one credit union has a field of membership expansion and the other loses a portion of its field of membership.
All common bond requirements apply regardless of whether the spun-off group becomes a new credit union or goes to an existing federal charter.
The request for approval of a spin-off must be supported with a plan that addresses, at a minimum:
• 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
• Disclosure to the members of the requirements set forth above.
The spin-off request must also include current financial statements from the affected credit unions and the proposed voting ballot.
For federal credit unions spinning off a group, membership notice and voting requirements and procedures are the same as for mergers (see Part 708 of the NCUA Rules and Regulations), except that only the members directly affected by the spin-off—those whose shares are to be transferred—are permitted to vote. Members whose shares are not being transferred will not be afforded the opportunity to vote. All members of the group to be spun off (whether they voted in favor, against, or not at all) will be transferred if the spin-off is approved by the voting membership. Voting requirements for federally insured state credit unions are governed by state law
shares are to be transferred—are permitted to vote. Members whose shares are not being transferred will not be afforded the opportunity to vote. All members of the group to be spun off (whether they voted in favor, against, or not at all) will be transferred if the spin-off is approved by the voting membership. Voting requirements for federally insured state credit unions are governed by state law.
Spin-offs involving federally insured credit unions in different NCUA regions must be approved by all regional directors where the credit unions are headquartered and the state regulators, as applicable. Spin-offs in the same region also require approval by the state regulator, as applicable.
II.E—Overlaps
II.E.1—General
An overlap exists when a group of persons is eligible for membership in two or more credit unions. NCUA will permit single occupational federal credit unions to overlap any other charter without performing an overlap analysis.
II.E.2—Organizational Restructuring
A federal credit union's field of membership will always be governed by the common bond descriptions contained in Section 5 of its charter. Where a sponsor organization expands its operations internally, by acquisition or otherwise, the credit union may serve these new entrants to its field of membership if they are part of the common bond described in Section 5. NCUA will permit a complete overlap of the credit unions' fields of membership.
If a sponsor organization sells off a group, new members can no longer be served unless they otherwise qualify for membership in the credit union or it converts to a multiple common bond charter.
Credit unions must submit documentation explaining the restructuring and providing information regarding the new organizational structure.
II.E.3—Exclusionary Clauses
An exclusionary clause is a limitation precluding the credit union from serving the primary members of a portion of a group otherwise included in its field of membership. NCUA no longer grants exclusionary clauses
bond charter.
Credit unions must submit documentation explaining the restructuring and providing information regarding the new organizational structure.
II.E.3—Exclusionary Clauses
An exclusionary clause is a limitation precluding the credit union from serving the primary members of a portion of a group otherwise included in its field of membership. NCUA no longer grants exclusionary clauses. Those granted prior to the adoption of this new chartering manual will remain in effect unless the credit unions agree to remove them or one of the affected credit unions submits a housekeeping amendment to have it removed.
II.F—Charter Conversion
A single occupational common bond federal credit union may apply to convert to a community charter provided the field of membership requirements of the community charter are met. Groups within the existing charter which cannot qualify in the new charter cannot be served except for members of record, or groups or communities obtained in an emergency merger or P&A. A credit union must notify all groups that will be removed from the field of membership as a result of conversion. Members of record can continue to be served. Also, in order to support a case for a conversion, the applicant federal credit union may be required to develop a detailed business plan as specified in Chapter 2, Section V.A.3.
A single occupational common bond federal credit union may apply to convert to a multiple common bond charter by adding a non-common bond group that is within a reasonable proximity of a service facility. Groups within the existing charter may be retained and continue to be served. However, future amendments, including any expansions of the original single common bond group, must be done in accordance with multiple common bond policy.
II.G—Removal of Groups From the Field of Membership
A credit union may request removal of a portion of the common bond group from its field of membership for various reasons
in the existing charter may be retained and continue to be served. However, future amendments, including any expansions of the original single common bond group, must be done in accordance with multiple common bond policy.
II.G—Removal of Groups From the Field of Membership
A credit union may request removal of a portion of the common bond group from its field of membership for various reasons. The most common reasons for this type of amendment are:
• The group is within the 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 desires to remove the group. If the regional director concurs with the request, membership will continue for those who are already members under the “once a member, always a member” provision of the Federal Credit Union Act.
II.H—Other Persons Eligible for Credit Union Membership
A number of persons, by virtue of their close relationship to a common bond group, may be included, at the charter applicant's option, in the field of membership. These include the following:
• 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 the immediate family or household;
• Organizations of such persons; and
• Corporate or other legal entities in this charter.
Immediate family is defined as spouse, child, sibling, parent, grandparent, or grandchild
d of membership of this credit union;
• Employees of this credit union;
• Persons retired as pensioners or annuitants from the above employment;
• Volunteers;
• Members of the immediate family or household;
• Organizations of such persons; and
• Corporate or other legal entities in this charter.
Immediate family is defined as spouse, child, sibling, parent, grandparent, or grandchild. This includes stepparents, stepchildren, stepsiblings, and adoptive relationships.
Household is defined as persons living in the same residence maintaining a single economic unit.
Membership eligibility is extended only to individuals who are members of an “immediate family or household” of a credit union member. It is not necessary for the primary member to join the credit union in order for the immediate family or household member of the primary member to join, provided the immediate family or household clause is included in the field of membership. However, it is necessary for the
Volunteers, by virtue of their close relationship with a sponsor group, may be included. Examples include volunteers working at a hospital or school.
Under the Federal Credit Union Act, once a person becomes a member of the credit union, such person may remain a member of the credit union until the person chooses to withdraw or is expelled from the membership of the credit union. This is commonly referred to as “once a member, always a member.” The “once a member, always a member” provision does not prevent a credit union from restricting services to members who are no longer within the field of membership.
III—Associational Common Bond
III.A.1—General
A single associational federal credit union may include in its field of membership, regardless of location, all members and employees of a recognized association
r, always a member.” The “once a member, always a member” provision does not prevent a credit union from restricting services to members who are no longer within the field of membership.
III—Associational Common Bond
III.A.1—General
A single associational federal credit union may include in its field of membership, regardless of location, all members and employees of a recognized association. A single associational common bond consists of individuals (natural persons) and/or groups (non-natural persons) whose members participate in activities developing common loyalties, mutual benefits, and mutual interests. Separately chartered associational groups can establish a single common bond relationship if they are integrally related and share common goals and purposes. For example, two or more churches of the same denomination, Knights of Columbus Councils, or locals of the same union can qualify as a single associational common bond.
Individuals and groups eligible for membership in a single associational credit union can include the following:
• 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 and can operate nationally. However, a proposed or existing federal credit union may limit its field of membership to a single association or geographic area. NCUA may impose a geographic limitation if it is determined that the applicant credit union does not have the ability to serve a larger group or there are other operational concerns. All single associational common bonds should include a definition of the group that may be served based on the association's charter, bylaws, and any other equivalent documentation
ngle association or geographic area. NCUA may impose a geographic limitation if it is determined that the applicant credit union does not have the ability to serve a larger group or there are other operational concerns. All single associational common bonds should include a definition of the group that may be served based on the association's charter, bylaws, and any other equivalent documentation.
The common bond for an associational group cannot be established simply on the basis that the association exists. In determining whether a group satisfies associational common bond requirements for a federal credit union charter, NCUA will consider the totality of the circumstances, which includes:
• Whether members pay dues;
• Whether members participate in the furtherance of the goals of the association;
• Whether the members have voting rights. To meet this requirement, members need not vote directly for an officer, but may vote for a delegate who in turn represents the members' interests;
• Whether the association maintains a membership list;
• Whether the association sponsors other activities;
• The association's membership eligibility requirements; 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. Each class of member will be evaluated based on the totality of the circumstances. Individuals or honorary members who only make donations to the association are not eligible to join the credit union.
Educational groups—for example, parent-teacher organizations, alumni associations, and student organizations in any school—and church groups may constitute associational common bonds.
Student groups (e.g., students enrolled at a public, private, or parochial school) may constitute either an associational or occupational common bond
to the association are not eligible to join the credit union.
Educational groups—for example, parent-teacher organizations, alumni associations, and student organizations in any school—and church groups may constitute associational common bonds.
Student groups (e.g., students enrolled at a public, private, or parochial school) may constitute either an associational or occupational common bond. For example, students enrolled at a church sponsored school could share a single associational common bond with the members of that church and may qualify for a federal credit union charter. Similarly, students enrolled at a university, as a group by itself, or in conjunction with the faculty and employees of the school, could share a single occupational common bond and may qualify for a federal credit union charter.
The terminology “Alumni of Jacksonville State University” is insufficient to demonstrate an associational common bond. To qualify as an association, the alumni association must meet the requirements for an associational common bond. The alumni of a school must first join the alumni association, and not merely be alumni of the school to be eligible for membership.
Homeowner associations, tenant groups, consumer groups, and other groups of persons having an “interest in” a particular cause and certain consumer cooperatives may also qualify as an association.
Associations based primarily on a client-customer relationship do not meet associational common bond requirements. However, having an incidental client-customer relationship does not preclude an associational charter as long as the associational common bond requirements are met. For example, a fraternal association that offers insurance, which is not a condition of membership, may qualify as a valid associational common bond
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, including any legal documents required by the state or other governing authority.
The associational sponsor itself may also be included in the field of membership—e.g., “Sprocket Association”—and will be shown in the last clause of the field of membership.
III.A.2—Subsequent Changes to Association's Bylaws
If the association's membership or geographical definitions in its chart

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Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/FR_PRORULE_E8-12946. Check the current official text before relying on it. Not legal advice.