[Federal Register Volume 62, Number 209 (Wednesday, October 29, 1997)]
[Proposed Rules]
[Pages 56134-56137]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-28587]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 62, No. 209 / Wednesday, October 29, 1997 /
Proposed Rules
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
Organization and Operations of Federal Credit Unions
AGENCY: National Credit Union Administration.
ACTION: Proposed rule and request for comments.
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SUMMARY: The NCUA Board requests comment on the issue of field of
membership overlaps and the use of exclusionary clauses. Also, the NCUA
Board proposes to update the requirements for obtaining a community
charter. The proposal clarifies the documentation requirements
necessary for a new, expanding or converting community charter. Most
importantly, the credit union must document its plan to serve all
segments of the community. The proposal also clarifies the authority of
the NCUA Board to take supervisory and/or administrative action against
a credit union that fails to follow its marketing plan and/or business
plan to serve all segments of the community.
DATES: Comments on the proposed amendments to Sec. 701.1 of NCUA's
regulations and IRPS 94-1 (section B of the Supplementary Information)
must be received by November 28, 1997. Comments on Section A of the
Supplementary Information regarding the request for comments must be
postmarked or received by December 29, 1997.
ADDRESSES: Comments should be directed to Becky Baker, Secretary of the
Board. Mail or hand deliver comments to: National Credit Union
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. Fax
comments to (703) 518-6319. E-Mail comments to boardmail@ncua.gov.
Please send comments by one method only.
FOR FURTHER INFORMATION CONTACT: J. Leonard Skiles, President, Asset
Management and Assistance Center, 4807 Spicewood Springs Road, Suite
5100, Austin, Texas 78759, or telephone (512) 795-0999; Stephen E.
Austin, Director of Supervision, Office of Examination and Insurance,
1775 Duke Street, Alexandria, Virginia, or telephone (703) 518-6360;
Lynn K. McLaughlin, Program Officer, at the above address and telephone
number; Michael J. McKenna, Staff Attorney, Office of General Counsel,
at the above address or telephone (703) 518-6540.
SUPPLEMENTARY INFORMATION:
A. Overlaps and Exclusion Clauses
Overlaps in credit union fields of membership have increased in
recent years due to a number of factors. The overlaps primarily are a
result of more credit unions either being chartered as community credit
unions, or existing occupational/associational based charters making
application to convert to community charters. Also, many state
regulators routinely permit overlaps of not only state chartered credit
unions, but also federally chartered credit unions. As a result, issues
relating to the competitive relationship between overlapped credit
unions, particularly a community charter and any occupational/
associational based credit union within the community charter's area of
operations, are being reviewed. Data on the implications to both the
credit unions and the members of federal credit unions directly
competing with one another is limited but it is recognized that credit
unions are an integral part of a dynamic and constantly changing
financial marketplace. It is, therefore, important to identify all
potential issues as they relate to the policy on overlaps. For example:
From the perspective of the credit union member, what harm
or benefit is derived from exclusionary clauses?
Is overlap protection necessary for a credit union
properly serving its members?
What confusion, if any, is created for a credit union
member when he or she is unable to join a community credit union
because he/she is part of an excluded group?
Do overlapping fields of membership increase or decrease
services to the member?
Should the NCUA Board consider safety and soundness
concerns in the advent of credit unions with overlapping fields of
membership?
Will small credit unions and credit unions chartered to
serve low-income areas be affected by overlapping fields of membership?
Do overlapping fields of membership affect the
``cooperative spirit'' philosophy as articulated and practiced in the
credit union movement?
Should other factors, such as mutual consent, be taken
into consideration in allowing or not allowing overlaps?
Should federal credit unions gain tangible, quantifiable
regulatory competitive protection from other federal credit unions, but
not from state chartered credit unions?
What are state policies and experience on overlaps?
Do newly chartered, low-income, or any other types of
credit union need overlap protection?
Should the size of either the overlapped or overlapping
credit union be taken into consideration in permitting or not
permitting the overlap?
Issues relating to overlaps must be thoroughly analyzed in order to
develop a revised policy on overlaps. Accordingly, the Board invites
comments on the issues related to NCUA's overlap policy and the use of
exclusion clauses.
B. Community Service Amendments
NCUA's community chartering policy is not affected by the
injunction issued in the consolidated cases of First National Bank and
Trust Co., et al. v. NCUA and the American Bankers Association v. NCUA
et al., which was partially stayed by the Court of Appeals on December
24, 1996. Current policy requires that a community charter must be
based on ``a well-defined neighborhood, community, or rural district.''
Given the diversity of community characteristics throughout the
country, NCUA's policy is to limit the community to a single,
geographically well-defined area where residents have common interests
or interact. NCUA recognizes four types of affinity on which a
community charter can be based--persons who live in, worship in, go to
school in, or work in the community. More than one community credit
union may serve the same community area.
The Board believes it is important, for reasons discussed below, to
provide
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clarification to credit unions on what is necessary for the approval of
a request to convert to a community charter. The Board wishes to ensure
that credit unions requesting to convert have fully considered the
challenges in serving an entire community. Community credit unions are
frequently more susceptible to competition from other local financial
institutions and do not have a sponsoring company or association. The
lack of a payroll deduction makes it more difficult to develop a
savings promotion program and in the collection of loans. A diverse
membership base creates new challenges in developing an appropriate
business plan and marketing strategy, especially if this diverse
population is located in a rural community. This guidance also applies
to newly established community credit unions as well as credit unions
wishing to expand their community boundaries.
IRPS 94-1, as amended by IRPS 96-1, specifies certain requirements
that must be satisfied before a community charter can be granted.
Integral to the current approval process for a community charter is the
requirement that a business plan and marketing strategy for serving the
community must be submitted. The business plan requirements, primarily
an analysis of the market area, a service market strategy, an
organizational/management plan, and financial plan, remain the same.
However, further guidance has been requested on what constitutes an
acceptable business plan/marketing strategy for approval as a community
charter. In particular, questions have arisen regarding the NCUA
Board's expectations relative to a community charter. In response to
these questions, the NCUA Board believes it is necessary to clarify
certain aspects regarding how a credit union intends to serve a
community as evidenced by its business plan/marketing strategy.
First, the Board is clarifying that all community charters must be
prepared to serve all segments of the community. The credit union must
be willing and able within a reasonable period to not only serve, but
also to market, to a diverse membership base, which should generally
reflect the make-up of the community. This may require community credit
unions to develop special marketing programs or services and products
for different segments of the community. This type of information needs
to be addressed in either the business plan or the marketing plan. Most
importantly, this amendment highlights the fundamental difference
between a community charter and other types of charters. That is, a
community charter must make reasonable and prudent efforts to market
its services to all segments of the community. An overall marketing
strategy that primarily targets one segment, or select segments, of the
community to the exclusion of others will not be acceptable. Membership
and loan penetration rates, among other factors, will be reviewed to
assess how well the credit union is serving the entire community.
Second, the Board is also clarifying that a new community charter
or a credit union converting to a community charter will be held
accountable for its business plan/marketing strategy outlining how it
will serve the entire community submitted to NCUA as part of the
approval process. Of course, there may be safety and soundness
concerns, as well as other reasons, why a credit union did not follow
or could not meet its business plan or marketing strategy objectives.
Such reasons would be factored into any review by NCUA before a
decision is made to take any supervisory and or administrative action.
For example, if a credit union established and then implemented a
special marketing plan for a group in specific need of credit union
service within the community, and, notwithstanding its best efforts to
attract membership from and provide service to that group the
penetration rate is lower than projected, then failure to meet the
business plan would not be cause for supervisory action. The NCUA Board
recognizes that local marketplace factors may influence the time tables
and even the ability to meet the business plan, though reasonable due
diligence to meet the plan is expected.
Third, the Board is clarifying that the requirements set forth in
Chapter I of the Chartering Manual to obtain a community charter,
except for any requirements to demonstrate community support, also
apply to an existing credit union converting to a community charter.
The Board is requesting comment on the deletion of the requirements in
IRPS 94-1 to provide written evidence of community support such as
letters of support, petitions, or surveys.
A converting credit union must provide information on the groups
being served, including penetration rates of all segments of its field
of membership, marketing efforts to service the current field of
membership and any special programs the credit union may have sponsored
to assist groups in need of credit union services, such as adding a
low-income community to its field of membership or mentoring a low-
income community.
Finally, the Board is proposing to eliminate the ability of a
credit union converting to a community charter to continue to serve
groups outside the new community boundaries. Continued service to
occupational and associational groups outside the community is not
consistent with the nature of a community charter. This proposal is
consistent with NCUA's policy regarding new community charters. Credit
unions could continue to serve members of record of groups outside the
community boundaries.
C. Thirty-Day Comment Period
These proposed amendments are being issued with a thirty (30) day
comment period since the amendments are simply clarifying the Board's
policy on community charters and explicitly stating the Board's
implicit enforcement authority. Because these are technical amendments
the Board believes a 30 day comment period is appropriate. Requests for
comment is being expedited due to ongoing work requirements of NCUA's
Field of Membership Task Force and the number of pending community
charter conversions.
Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact a regulation may have on a
substantial number of small credit unions (primarily those under $1
million in assets). The proposed 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
NCUA has determined that the proposed amendments do not increase
paperwork requirements under the Paperwork Reduction Act of 1995 and
regulations of the Office of Management and Budget (OMB). 60 FR 44978
(August 29, 1995).
Executive Order 12612
Executive Order 12612 requires NCUA to consider the effect of its
actions on state interests. This proposed amendment makes no
significant changes with respect to state credit unions and therefore,
will not materially affect state interests.
Congressional Review
NCUA has determined that this is not a major rule under 5 U.S.C.
Chapter 8.
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List of Subjects in 12 CFR Part 701
Credit, Credit unions, Reporting and recordkeeping requirements.
By the National Credit Union Administration Board on October 22,
1997.
Hattie Ulan,
Acting Secretary of the Board.
Accordingly, NCUA proposes to amend 12 CFR part 701 as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
1. The authority citation for part 701 continues to read as
follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a,
1761b, 1766, 1767, 1782, 1784, 1787, 1789. Section 701.6 is also
authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by
12 U.S.C. 1601, et seq., 42 U.S.C. 1981 and 3601-3610. Section
701.35 is also authorized by 12 U.S.C. 4311-4312.
2. Section 701.1 is revised to read as follows:
Sec. 701.1 Federal credit union chartering, field of membership
modifications, and conversions.
National Credit Union Administration policies concerning
chartering, field of membership modifications, and conversions are set
forth in Interpretive Ruling and Policy Statement 94-1, Chartering and
Field of Membership Policy (IRPS 94-1), as amended by IRPS 96-1 and
IRPS 97-1. Copies may be obtained by contacting NCUA at the address
found in Sec. 792.2(g)(1) of this chapter. The combined IRPS are
incorporated into this section.
(Approved by the Office of Management and Budget under control number
3133-0015.)
Note: The text of the Interpretive Ruling and Policy Statement
(IRPS 94-1) does not, and the following amendments will not, appear
in the Code of Federal Regulations.
1. In IRPS 94-1, Chapter 1, Section IV.A.4.b is revised to read as
follows:
IV.A.4.b.--Special Requirements for Community Credit Unions
Community credit unions are frequently more susceptible to
competition from other local financial institutions and generally do
not have substantial support from any single sponsoring company or
association. Additionally, community credit unions must be prepared to
serve all segments of the community. As a result, a community charter
will often encounter financial and operational factors that differ from
an occupational and associational charter serving select or defined
groups. This results primarily from the fact that a community credit
union will have a more diverse and possibly geographically dispersed
membership base, which should generally reflect the make-up of the
community. This diverse membership potential may require special
marketing programs targeted to different segments of the community. For
example, the lack of payroll deduction creates special challenges in
the development of savings promotional programs and in the collection
of loans. Accordingly, it is essential for the proposed community
charter to develop a detailed and practical business plan for at least
the first three years of operation that focuses on the accomplishment
of the unique financial and operational factors of a community charter.
The business plan shall contain, but not necessarily be limited to, the
following:
Analysis of market area--geographic, demographic,
employment, income, housing, and economic data;
Service/marketing strategy for all segments of the
community--financial and other services to be provided, new member/
share/loan promotion policies and procedures and income generation
strategy;
Organizational/management plan--qualification and planned
training of officials/employees, operating facilities to include office
space/equipment and supplies, accounting system, safeguarding of
assets, insurance coverage, etc.; and
Financial plan--sources and application of funds
statements and pro forma balance sheet and income/expense statements
and assumptions.
Community credit unions will be required to follow the marketing
and/or business plan submitted with their application. In the event any
community credit union fails to follow its marketing and/or business
plan, supervisory and/or administrative actions may be taken against
the credit union. If the business plan is not sufficiently detailed or
does not satisfactorily address how the credit union will serve all
segments of the community, the charter request may be conditionally
approved by NCUA subject to the credit union's agreement of the imposed
conditions.
A community credit union will be expected to regularly review its
business plan as well as membership and loan penetration rates
throughout the community to determine if the entire community is being
adequately served. NCUA may require periodic service status reports on
its service to the community and will review the credit union's service
to the entire community during examinations.
2. In IRPS 94-1, Chapter 2, Section IV.B is revised to read as
follows:
IV.B--Conversion to Community Charter
An existing occupational, associational, or multiple group federal
credit union may apply to convert to a community charter. In order to
support a case for a conversion to community charter, the applicant
federal credit union must, in addition to the requirements for a
community charter set forth in Chapter I (except for the requirement to
demonstrate community support), develop a detailed business plan which
may include, but not be limited to the following data:
Current financial statements, including the income
statement and a summary of loan delinquency;
A map or maps showing both the existing and proposed
boundaries for the field of membership, as well as existing and planned
service facilities;
A written description of the area of community service for
the proposed community credit union;
The most current population figures for the existing and
proposed boundaries;
The source of the population information (census data are
considered the most authoritative); the greater the population of the
proposed area, the greater justification necessary to support the
existence of the ``community'' and interaction among its residents;
Evidence that the proposed area is a ``community'' as
defined in ``Community Common Bond'' in Chapter 1;
Information concerning the availability of financial
services to the residents of the new area;
A list of credit unions with a home or branch office in
the proposed area (If present credit union service to the residents of
the new area is adequate, there may be no basis for the proposed
conversion.);
Information regarding the attitude of the current credit
union sponsors and existing credit union members toward the proposed
conversion (a letter from the board of directors of the credit union is
sufficient evidence);
Information on the groups presently being served, to
include, but not necessarily limited to, income data on its membership,
the penetration rate of the current field of membership, core group,
and any low to moderate group, and any special programs the credit
union sponsored to serve a low to moderate group; and
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The anticipated financial impact on the credit union in
terms of need for additional employees and fixed assets.
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[FR Doc. 97-28587 Filed 10-28-97; 8:45 am]
BILLING CODE 7535-01-P
