[Federal Register Volume 61, Number 57 (Friday, March 22, 1996)]
[Rules and Regulations]
[Pages 11721-11728]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-6701]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
Federal Credit Union Field of Membership and Chartering Policy
AGENCY: National Credit Union Administration (``NCUA'').
ACTION: Final rule and final amendments to Interpretive Ruling and
Policy Statement 94-1 (``IRPS 96-1'').
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SUMMARY: The NCUA Board is updating the references to federal credit
union chartering, field of membership modifications and conversions.
The NCUA Board is issuing amendments to its field of membership
policies. One change will require senior citizen and retiree groups to
meet the same conditions as other associational groups in order to
qualify for a federal credit union charter or addition to an existing
charter through a field of membership amendment. The Board is also
issuing five amendments to clarify operational issues. The amendments
clarify: The application of field of membership requirements to
mergers; the streamlined expansion procedure; the documentation
requirements for low-income communities; the use of surveys to support
a community common bond; and appeal procedures.
EFFECTIVE DATE: July 1, 1996.
FOR FURTHER INFORMATION CONTACT: Michael J. McKenna, Staff Attorney,
Office of General Counsel, 1775 Duke Street, Alexandria, Virginia
22314-3428 or telephone (703) 518-6540.
SUPPLEMENTARY INFORMATION:
A. Background
In 1984, NCUA adopted a policy which permitted federal credit
unions (FCUs) to accept senior citizen and retiree members through the
formation of associations. The only requirement for adding these
associations to a credit union charter was a written request from the
FCU to the NCUA; no request from the group or copy of the association's
charter or bylaws was necessary. As a result, many FCUs added senior
citizen/retiree associations to their charters. Subsequent policy
statements, including Interpretive Ruling and Policy Statement 94-1
(IRPS 94-1) (the ``Chartering Manual''), continued this policy. 59 FR
29066 (June 3, 1994).
In 1994, two bank trade associations and six Texas commercial banks
filed suit against Communicators FCU of Houston, Texas, as a result of
several additions to the FCU's field of membership. The suit
challenged, among other additions, the 1994 addition of a senior
citizen/retiree group formed solely for the purpose of acquiring credit
union service. While upholding the other field of membership additions,
the court vacated the addition of the senior citizen/retiree
association and permanently enjoined NCUA from adding any similar
associations to the FCU. Texas Bankers Association, et al. v. NCUA, et
al., 1995 WL 328319 (D.D.C., May 31, 1995) (the ``Communicators FCU''
decision). On September 28, 1995, partly in response to the
Communicators FCU decision, the Board issued proposed amendments to the
Chartering Manual. 60 Fed. Reg. 51396 (October 4, 1995).
B. Comments
Seventy comments were received. Comments were received from thirty-
four federal credit unions, two state chartered credit unions, seven
state credit union leagues and three national credit union trade
associations. The comments were generally positive and supported most
of the proposed amendments.
The Board also received comments from twenty-five banking
associations. Briefly summarized, the bank commenters support NCUA's
proposed amendment to require senior citizen/retiree groups to meet the
same conditions as other associational groups before seeking to charter
or join a federal credit union. The bank commenters argue against
permitting federal credit unions that have adopted the ``once a member,
always a member'' bylaw to continue serving members based on their
membership in the senior citizen group. Many of the bank commenters
also request that NCUA re-examine its policies relating to all forms of
select group field of membership expansions.
The Senior Citizen and Retiree Association Policy
The Board proposed to modify its senior citizen/retiree policy to
require such groups to meet associational common bond requirements
before seeking to join or charter an FCU. Twenty-three commenters agree
with NCUA that senior citizen and retiree groups should meet the same
criteria as other associational groups before seeking to charter or
join a federal credit union.
Sixteen commenters disagreed with the Board's proposal. Seven of
these commenters believe that such groups are an underserved segment of
the population. They believe that a formal organization with bylaws and
officer and membership requirements should be sufficient for senior
citizen associations. Two commenters recommend that NCUA treat senior
citizen groups the same as low-income groups. Two commenters state that
the conversion of an existing group to a bona fide association should
not require that the association be completely divorced from the credit
union. They suggest that a senior citizen/retiree group could have
bylaws that permit the group to have the same directors as the credit
union and conduct their annual meeting concurrently with the credit
union's annual meeting. One commenter suggests that the final
amendments clarify that a credit union may help senior groups meet the
associational common bond requirement.
The Board believes the policy modification is an appropriate
response to the Communicators FCU decision and is adopting the proposed
amendment in final. In determining whether a group satisfies this
common bond requirement, NCUA will consider the totality of the
circumstances, such as whether the members pay dues, have voting
rights, hold office, hold meetings, have a purpose other than to obtain
credit union services, whether there is interaction among members and
whether the group has its own bylaws. See, Chapter 1, Section II.B. of
the Chartering Manual, 59 FR at 29076. Provided operational area
requirements are met, senior citizen/retiree associations formed for
purposes other than seeking credit union service will qualify to join
an existing FCU. The Board is not requiring such associations to have a
specific type of internal structure. Moreover, the Board continues to
stress that an FCU may assist a senior citizen group to form an
association that will qualify under the Chartering Manual.
[[Page 11722]]
The Board also requested comment on how to address members of
existing senior citizen/retiree groups which do not meet the proposed
characteristics of an association. The Board proposed that such groups
must meet the normal associational common bond requirements to enroll
new senior citizen/retiree group members. If the credit union has
adopted the ``once a member, always a member'' bylaw, it may continue
to serve its current members. Fourteen commenters agree with this
proposal. One commenter believes it would be unfair to current senior
citizen members to deny them credit union service and benefits because
of a change in NCUA policy.
Thirteen commenters oppose NCUA's proposed treatment of senior
citizen/retiree groups that do not have associational characteristics.
Nine of these commenters recommend grandfathering any existing senior
citizen/retiree groups and allowing the credit unions to continue to
serve the groups. Two commenters state that the Communicators FCU
decision does not compel the Board to retroactively apply any new
policy it adopts. The comments from banking associations all opposed
permitting existing members to retain membership.
The Communicators FCU decision does not compel the Board to apply
its new policy retroactively. The Board considered whether to
grandfather existing groups in the final amendment. However, in light
of the rationale expressed in the Communicators FCU decision, the Board
believes that grandfathering groups that do not meet the requirements
of the new policy is inappropriate. Grandfathering the groups will
simply invite litigation without furthering any of NCUA's chartering
goals. Therefore, the Board is requiring that all existing senior
citizen groups meet standard associational common bond requirements or
be deleted from the charter. Many of these groups may already meet
these requirements. If the FCU has adopted the ``once a member, always
a member'' bylaw, it can continue to serve members who had joined based
on their membership in the senior citizen/retiree group. Any other
treatment would not be in the best interest of current members or the
credit unions to which they belong. An FCU that has a group that does
not meet the associational requirements in its field of membership
should delete the group by submitting a charter amendment to the
appropriate regional office. Compliance will be monitored through the
exam program.
Low-Income Associations
The Board did not propose any changes to the ability of a federal
credit union to add low-income associations that are formed solely for
the purpose of obtaining credit union service without meeting the
standard characteristics of an association. Thirteen commenters agreed
that credit unions should be allowed to add to low-income groups to
their field of membership. Three of these commenters stated that this
policy enables credit unions to serve groups not currently receiving
financial services. One commenter believes this policy is consistent
with credit unions' ``people helping people'' philosophy.
Five commenters stated that federal credit unions should not be
allowed to add low-income groups formed solely for the purpose of
seeking credit union service. Two of these commenters found no reason
to differentiate between senior citizen groups and low-income groups.
One of these commenters believes eliminating this policy would not
significantly affect the ability of low-income persons to join federal
credit unions. One commenter believes it is preferable for low-income
groups seeking credit union service to be encouraged to form a credit
union rather than to be included in the field of membership of an
existing credit union.
Congress and the NCUA Board have long recognized that special
efforts must be made for those who are attempting to serve the needs of
persons of limited means. The FCU Act was enacted ``to make more
available to people of small means credit for provident purposes
through a national system of cooperative credit.'' 12 U.S.C. 1751.
Congress established a special segment of credit unions serving
predominantly low-income members. 12 U.S.C. 1752(5). Congress also
established and funded a Community Development Revolving Loan Fund for
Credit Unions, designed to help, through loans to credit unions serving
predominantly low-income persons, in providing ``basic financial and
related services'' to low-income persons and in ``stimulating economic
activities * * * which will result in increased income, ownership and
employment opportunities for low-income residents.'' 12 CFR 705.2(a).
See also, 12 U.S.C. 1766(k) (giving the Board authority over the
Community Development Revolving Loan Fund for Credit Unions). NCUA
defines as ``low-income'' persons earning less than 80 percent of the
average for all wage earners and persons whose annual household income
falls at or below 80 percent of the median household income for the
nation. 12 CFR 701.32(d)(2). The Board believes that the current low
income credit union program continues to serve an important
governmental purpose and is therefore not modifying its low-income
association policy.
Clarifications of Operational Issues
The Board proposed five amendments to its chartering and field of
membership policies to clarify operational issues. The amendments
addressed: (1) the application of field of membership rules to credit
union mergers; (2) the use of the streamlined expansion procedure; (3)
the documentation requirements for low-income community credit unions
as well as low-income additions; (4) the use of surveys to support a
community charter; and (5) appeal procedures.
Mergers
A. Operational Area
The Board proposed to clarify how it applies operational and field
of membership requirements to mergers. The Board reiterated that
mergers will usually fall into the common bond addition or select group
addition category, but some may fall into both categories. In a merger,
common bond groups may be added to a federal credit union's field of
membership without regard to location. The Board then clarified that
for select group additions the field of membership requirements are met
for each merging group only if the group could have been added to the
continuing credit union without the benefit of the merger. The
continuing credit union would have to analyze each group in the merging
credit union's field of membership as if the continuing credit union
was expanding its own field of membership without a merger. Three
commenters support this proposal. One of these commenters believes that
a more expansive policy would give large credit unions a great
advantage over smaller credit unions in expanding their field of
membership. This commenter believes that most credit unions cannot
realistically provide quality service to members who live and work a
great distance from the credit union.
Thirty-four commenters disagree with the concept of applying
operational area requirements to ``select group additions'' in a
merger. Nineteen commenters believe that a discontinuing credit union's
groups should be added to the continuing credit union's charter. Nine
commenters believe that operational area is an anachronism in an era of
significant technological advancements. Three commenters
[[Page 11723]]
believe that mergers are a business decision that should best be left
to credit unions, not NCUA. Three commenters state that the proposal is
overly restrictive. Three commenters state that the clarification will
create additional paperwork and delay approval. Two commenters believe
the proposal will result in a decrease in the number of mergers. Two
commenters state that mergers should be based on the services the
continuing credit union can provide and the philosophical ``fit''
between the merging credit unions. One commenter believes that the
economic impact on other credit unions in a similar area should not be
the determining factor on whether a merger is approved or not. One
commenter suggests NCUA should be concerned with safety and soundness
issues and not field of membership issues when considering a merger.
The Board recognizes that how field of membership requirements
should be applied in a merger is a continuing controversy within the
credit union community. The Board wishes to reiterate that it is not
willing to discard operational area requirements in the merger context.
However, the Board believes that in response to changing technologies,
operational area requirements need to be reviewed, and not only in the
context of mergers. The Board is currently in the process of conducting
such a review and may issue new policies after the study is complete.
The Board's proposed clarification may, however, impose a paperwork
burden without providing any significant assistance in reaching NCUA's
field of membership goals. In light of the commenter's concerns and the
language of IRPS 94-1, the Board believes that the proposed
clarification was overly broad and has reconsidered its position.
Rather than requiring each group in the discontinuing field of
membership to be within the operational area of the continuing credit
union, any of the discontinuing credit union's groups that are within
the operational area of either credit union may be transferred intact
to the continuing credit union. Any group that is not within the
operational area of either federal credit union, prior to the
completion of the merger, will be deleted from the continuing credit
union's field of membership and only members of record will be
transferred to the continuing credit union.
This clarification should not significantly decrease the number of
mergers or impose a significant burden on credit unions wishing to
merge. Rather, it applies the operational area requirements to mergers
as required by IRPS 94-1 since a group could not ordinarily be added to
either credit union's field of membership if it was not within the
operational area of the credit union.
The Board also requested comment on whether mergers should be
limited to credit unions that primarily serve groups in the same
geographic location. One commenter supports this concept. Fourteen
commenters disagree and believe that credit unions should be able to
merge even if they do not primarily serve groups in the same geographic
area. Seven commenters believe that geographic location is unimportant
because of current and coming technologies. Four commenters state that
the standard for considering mergers should be whether the continuing
credit union can provide quality member services. One commenter
believes that financial soundness is more important than geographic
location. The Board is not placing any new geographic limitations on
mergers but is continuing to study whether it should modify how it
applies field of membership requirements to mergers.
B. Views of Overlapped Credit Unions
The Board requested comment on whether it should require NCUA
Regions to conduct an overlap analysis for merging credit unions and
whether an affected credit union should be notified of the merger and
be given an opportunity to comment or object. Twelve commenters wanted
both an overlap analysis and the opportunity to comment or object. One
of these commenters believes that some recent merger decisions have put
some smaller credit unions in a competitive disadvantage with larger
credit unions. One commenter believes that such an analysis is
necessary because of the potential harm to the overlapped credit union.
This commenter states that with respect to a preexisting overlap, NCUA
should review the effect a proposed merger may have on the nature of
any preexisting overlaps.
Sixteen commenters believe that NCUA should not require an overlap
analysis for a group in a discontinuing credit union's field of
membership that has service available from another credit union. Five
of these commenters believe the analysis is unnecessary since one was
conducted when the overlap was originally granted. Two commenters state
that there is no useful purpose in re-examining an existing overlap.
One commenter states that the merger should not adversely affect the
credit union anymore than it was affected by the original overlap. Two
commenters state that a merger does not add to the number of federal
credit unions a member can belong, it just replaces an existing overlap
with a different credit union.
The Board believes that conducting an analysis of a preexisting
overlap is unnecessary. Such a requirement would increase the burden on
the merging credit unions as well as NCUA without any corresponding
benefit. The Board believes that transferring a preexisting overlap to
the continuing credit would not ordinarily have a significant impact on
any other credit union. Consequently, the Board is not modifying its
existing policy which does not require the Region to conduct an overlap
analysis for merging credit unions.
The Board also requested comment on whether credit unions that may
be adversely affected by a merger should have the right to appeal the
Regional Director's determination. The Board also asked whether NCUA
should establish a formal process for credit unions to comment on a
merger prior to the Regional Director making a determination. Thirteen
commenters believe that NCUA should establish such a comment process;
twelve oppose the right to appeal the Regional Director's decision.
Four commenters state that such an appeal creates an unnecessary
obstacle to a merger and will delay the process. One of these
commenters believes that the appeal process will prove costly to NCUA
and credit unions.
The Board believes that a formal comment period will delay the
merger process and increase costs for credit unions and NCUA without
any corresponding benefits. Therefore, the Board is not establishing
such a process. However, the Board will continue to consider appeals
from credit unions that may be adversely affected by a merger through
the normal appeal process.
C. Waivers
An operational area waiver procedure is available when a state-
chartered credit union is merged into an FCU. The Board clarified that
the waiver is discretionary on the part of NCUA and permits groups
already receiving quality credit union services, who are located
outside of the credit union's operational area, to continue to have
credit union service after the merger. Two commenters recommend making
available to federal credit unions the operational area waiver
procedure. The Board does not believe the waiver procedure needs to be
extended to federal credit unions because in almost all cases involving
federal credit unions
[[Page 11724]]
operational area requirements will be met. The Board is clarifying in
the final amendments that the waiver is only available if the group is
not being served by any other credit union. The Board will continue to
review this area but is not making any further changes at this time.
Streamlined Expansion Procedure (SEP)
SEP permits well-operated federal credit unions to add small groups
of less than 100 persons with an occupational common bond to its field
of membership without prior NCUA approval. The group must be located
within 25 miles of the credit union's service facilities and in
general, the group must not have credit union service available. The
Board proposed three clarifications to this policy. First, the Board
proposed that a credit union may use SEP if the only other credit union
service available is from a community credit union. The Board is
adopting this proposal. Nineteen commenters supported this proposal.
One of those commenters requests that it be modified to protect
community credit unions serving smaller rural communities. Another
commenter that approved of the proposal states that there should be
some minimum overlap protection for community credit unions.
Six commenters do not believe credit unions should be able to use
SEP to overlap a community credit union. Three commenters believe any
overlap of a community credit union should be done through the normal
expansion process because the use of SEP could erode a community credit
union's potential for growth. One commenter believes that community
credit unions need overlap protection. One commenter states that if a
company is within a community's boundaries and being adequately served
by a community credit union, then no overlap should be permitted.
NCUA does not afford overlap protection to a community credit union
when it is overlapped by an occupational group. Chapter I, IV.B.1,
Chartering Manual, 59 FR at 29080. This long-standing policy is working
well and the Board is not convinced that it should be changed. Since
the standard policy is not being changed it is only logical to extend
the policy to SEP. To do otherwise would simply place an unnecessary
paperwork burden on credit unions and NCUA. Consequently, the Board is
adopting the proposed amendment in final.
Second, the Board proposed that, consistent with standard field of
membership expansions, the group as a whole will be considered to be
within a credit union's 25 mile limit when: a majority of the group's
members live or work within the 25 mile limit; or the group's
headquarters is located within the 25 mile limit; or the group's ``paid
from'' or ``supervised from'' location is within the 25 mile limit.
Eight commenters support this proposal. One commenter objects to the
proposed amendment. Eleven commenters believe that NCUA should
eliminate the 25 mile limit for SEP because they believe the concept of
operational area is outdated. Six commenters believe that groups added
to a credit union's field of membership under SEP should be required to
be within 25 miles of the credit union.
The Board believes the 25 mile limit for SEP is working well and
should not be modified at this time. The Board is adopting the proposed
amendment in final so that SEP's definition of a group's location is
consistent with standard field of membership expansions. To eliminate
any possible confusion the Board is reiterating that there is no
standard 25 mile operational area limit for standard field of
membership expansions.
Third, the Board proposed that if an FCU has SEP in its charter and
merges into a credit union without SEP, the continuing credit union
must submit a charter amendment and receive NCUA approval if it wishes
to use SEP. Nine commenters support this proposal. One commenter states
that applying for SEP is not a burden for credit unions. One commenter
believes that this proposal provides NCUA with appropriate control. One
commenter requests that NCUA clarify that if the continuing credit
union already had SEP it would not need to reapply after the merger.
One commenter believes that if either federal credit union in a merger
has SEP then the continuing credit union should maintain SEP.
The Board is adopting this proposed amendment in final to maintain
appropriate controls over SEP. The Board believes that the continuing
credit union's application for SEP can be accomplished as part of the
merger process. The Board is also clarifying that if the continuing
credit union already has SEP it need not reapply after the merger.
Documentation Requirements to Establish Low-Income Services
The Board proposed that for new low-income charters or community
expansions, the Regional Director would decide what documentation
satisfies the community common bond requirement. The Board is adopting
this proposal. Such documentation must clearly define the area's
geographic boundaries and the charter applicant must establish that the
area is recognized as a distinct ``neighborhood, community or rural
district.'' Chapter 1, Section II.C.1, Chartering Manual, 59 FR at
29077. Twelve commenters support this proposal. One commenter states
that depending on the circumstances the Regional Director may be better
able to determine documentation requirements. One commenter supports
this proposal if it will result in providing more flexibility for
groups seeking to charter low-income credit unions or for low-income
community expansions.
Five commenters state that the Regional Director should not be
allowed to determine the appropriate documentation for low-income
charters or low-income expansions. Three commenters believe that
documentation requirements for low-income credit unions and expansions
should be specific and uniform. Two of the commenters believe this
proposal will result in inconsistencies among the Regions.
The Board believes that in many cases, a low-income area already
has the common interest and characteristics of a community just by
lacking the basic financial services found in more affluent
communities. The Board also believes that allowing the Regional
Director to decide what documentation will satisfy the community common
bond requirement will provide NCUA with more flexibility in granting
low-income community charters and low-income community expansions. The
Board also expects that this amendment will minimize bureaucratic
hurdles and expedite making credit union service available to persons
in low-income communities. The Board will be monitoring the process to
assure consistent application among NCUA Regions.
Community Charters
The Board proposed to amend the Chartering Manual to clarify that
surveys are not always required to demonstrate a community charter. Ten
commenters agreed with this proposal and none opposed. Surveys should
not be required if other evidence is more relevant or more clearly
demonstrates the sentiment of the community. The Board is adopting the
proposed amendment in final.
Procedures for Appealing Chartering and Field of Membership
Determinations
The Board proposed that all appeals be made within 60 days of the
Regional Director's determination. Seventeen
[[Page 11725]]
commenters agree with this proposal; two commenters believe there
should be less time and four commenters oppose the proposed appeal
procedure.
Three commenters recommend that the appeal process for chartering
and field of membership should be the same as those adopted by NCUA for
examination issues. One commenter believes the current appeal process
is sufficient.
The Board believes that a timeframe should be established to deal
with appeals expeditiously and concludes that the 60 days proposed by a
majority of those commenting gives the credit union sufficient time to
appeal the region's determination. The Board also believes that it and
not the supervisory review committee is best suited to resolve field of
membership issues. The Board is adopting the proposed amendment in
final.
The Board also requested comment on whether there should be a time
limit on the Board to render a decision on the appeal. Fourteen
commenters believe there should be such a time limit. Nine commenters
suggest 60 days, four suggest 30 days and one suggests 10 days. Two
commenters believe that the Board's time limit for deciding an appeal
could be extended if there were extenuating circumstance or good cause.
Two commenters state that there should be a procedure to protect credit
unions from possible retaliation as a result of their appeal.
Recent experience leads the Board to believe that flexibility is
necessary to respond to unique circumstances. The appealing credit
union does not necessarily want the Board's determination fast, they
want it correct. The Board is setting a goal of 90 days to render a
decision. The Board will investigate any claim by a credit union that
believes it is being singled out by NCUA because of its proper use of
the appeal process to immediately contact the Board.
Miscellaneous Comments
There were several comments received which did not address
themselves to specific requests for comment. Three commenters believe
that charter amendments and mergers which create virtually unlimited
fields of membership violate the cooperative nature of credit unions
and dilute the principle of the common bond. One commenter, discussing
operational area requirements, stated that if a select group feels they
will be better served by a credit union 1000 miles away instead of the
neighboring credit union then the select group should be permitted to
be added to the field of membership of the distant credit union. One
commenter states that NCUA should develop policies that would prohibit
overlapping memberships. The Board is continuing to review operational
area and overlaps and will take these comments into consideration when
studying the issues.
One commenter states that the Regions should be required to make
field of membership expansion determinations within 10 days. In fact,
most determinations are made within a 10 day period. There are
circumstances, however, which make it difficult to meet this goal.
One commenter requests that students should be part of the
community common bond so that persons who attend any educational
institution located in a community would be eligible to join a credit
union whose field of membership includes that community. The Board
agrees. The Board believes that a student is working for the purpose of
the community common bond and therefore a person going to school within
a community but is not living within the community boundaries is deemed
to be working in the community for field of membership purposes. One
commenter believes that NCUA should not allow a federal credit union to
add low-income communities to their field of membership. The Board
disagrees. The policy is working well and has increased the number of
low-income people receiving credit union service.
Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires the NCUA to prepare an
analysis to describe any significant economic impact a proposed
regulation may have on a substantial number of small credit unions
(primarily those under $1 million in assets). The changes to NCUA
policy resulting from the adoption of these amendments to the IRPS do
not have a significant economic impact on a substantial number of small
credit unions. The changes are either legally required or simply
clarify existing policy. Accordingly, the Board determines and
certifies that this final rule does not have a significant economic
impact on a substantial number of small credit unions and that a
Regulatory Flexibility Act analysis is not required.
Paperwork Reduction Act
NCUA has determined that the requirement for a FCU to delete from
its charter senior citizen/retiree groups that do not meet standard
associational requirements do constitute a collection of information
under the Paperwork Reduction Act. The Paperwork Reduction Act and
regulations of the Office of Management and Budget (OMB) require that
the public be provided an opportunity to comment on information
collection requirements, including an agency's estimate of burden of
the collection of information.
NCUA estimates that it should take an average of 15 minutes for an
FCU to prepare and submit the required charter amendment. NCUA
estimates that approximately 300 FCUs will need to submit the charter
amendment, resulting in a total of 75 burden hours. This increase in
burden will only occur once.
The NCUA Board invites comment on (1) whether the collection of
information is necessary for the proper performance of the functions of
NCUA including whether the information will have practical utility; (2)
the accuracy of NCUA's estimate of the burden of the collection of
information; (3) ways to enhance the quality, utility, and clarity of
the information to be collected; and (4) ways to minimize the burden of
the collection on respondents, including through the use of automated
collection techniques or other forms of information technology. Send
comments to Suzanne Beauchesne, National Credit Union Administration,
1775 Duke Street, Alexandria, VA 22314-3428. Comments should be
postmarked by May 21, 1996.
Executive Order 12612
Executive Order 12612 requires NCUA to consider the effect of its
actions on state interests. The proposed amendments apply to federal
credit unions as well as state chartered credit unions that seek to
become federal credit unions. Therefore, the actions will not affect
state interests.
List of Subjects in 12 CFR Part 701
Credit unions, Reporting and recordkeeping requirements.
By the National Credit Union Administration Board on March 13,
1996.
Becky Baker,
Secretary of the Board.
Accordingly, NCUA amends 12 CFR part 701 as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
1. The authority citation for part 701 continues to read as
follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a,
1761b, 1766, 1767, 1782, 1784, 1787, 1789. Section 701.6 is also
authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by
15 U.S.C 1601 et seq.;
[[Page 11726]]
42 U.S.C. 1981 and 3601-3610. Section 701.35 is also authorized by
42 U.S.C 4311-4312.
2. Section 701.1 is revised to read as follows:
Sec. 701.1 Federal credit union chartering, field of membership
modifications, and conversions.
National Credit Union Administration practice and procedure
concerning chartering, field of membership modifications, and
conversions are set forth in Interpretive Ruling and Policy Statement
94-1--Chartering and Field of Membership Policy (IRPS 94-1), as amended
by IRPS 96-1. Both IRPS are incorporated into this section.
(Approved by the Office of Management and Budget under control
number 3133-0015)
Note: The text of the interpretive ruling and policy statement
(IRPS 94-1) does not and the following amendments will not appear in
the Code of Federal Regulations.
3. In IRPS 94-1, Chapter 1, Section II.C.2 is revised to read as
follows:
II.C.2--Special Documentation Requirements
Information to support that the area chosen represents one well-
defined area, distinguishable from the immediate surrounding areas,
includes: -
Political jurisdictions;
Major trade areas (shopping patterns);
Traffic flows;
Shared/common facilities (for example, educational,
medical, police and fire protection, school district, water, etc.);
Organizations/clubs whose membership is made up
exclusively of persons within the area;
Newspapers or other periodicals published for and about
the area;
Census tracts;
Common characteristics and background of residents (for
example, income, religious beliefs, primary ethnic groups,
similarity of occupations, household types, primary age group,
etc.);
History of area; and
In general, what causes the chosen area and its
residents to be distinguishable from the immediate surrounding areas
and residents--some examples are old, well-established ethnic
neighborhoods, planned communities and small/rural towns or rural
counties.
The following information must be provided to support a need for
a community credit union or community field of membership expansion:
A list of credit unions presently in the area and those
credit union's positions regarding a new charter or field of
membership expansion; and
A list of other financial institutions (for example,
banks, savings and loan associations) that service the area.
Written documentation reflecting support for the
application for the charter, field of membership expansion or
conversion to a community credit union may be in the form of
letters, surveys, studies, pledges, or a petition. Other types of
evidence may also be acceptable. If a survey is used it should
reflect the following:
For the residents of the community:
-Approximate number contacted
Number in favor of the credit union
Number against the credit union
Number who will join the credit union
Number who have pledged initial and/or systematic savings and amount
of pledges
For the employers in the community:
Number of area employers and number of employees
Number contacted
Number in favor of the credit union
Number against the credit union
Number willing to provide payroll deductions to the credit union
Number willing to provide other type(s) of support to the credit
union
For community organizations (including churches):
Number in area and number of members
Number contacted
Number in favor of the credit union
Number against the credit union
Number willing to provide some type of support to the credit union,
i.e., advertising facilities, etc.
Letters of support from area civic leaders
If the community is also a recognized legal entity, it may be
served as, or be included in, the field of membership--for example,
``DEF Township, Kansas'' or ``GHI County, Minnesota.''
4. In IRPS 94-1, Chapter 1, Section V.A.2 is revised to read as
follows:
V.A.2--Special Common Bond Rules for Low-Income Federal Credit Unions
Generally, a low-income credit union is chartered as a community
or associational credit union. The Regional Director will determine
whether the applicants have provided sufficient evidence to
demonstrate the need for a low-income community charter. Such
evidence must establish that the geographic area's boundaries are
clearly defined and that the area is recognized as a distinct
neighborhood, community, or rural district. A low-income credit
union that has a community common bond may include the following
language in its field of membership:
``Persons who live in [the target area]; persons who regularly
work, worship, perform volunteer services, or participate in
associations headquartered in [the target area]; persons
participating in programs to alleviate poverty or distress which are
located in [the target area]; incorporated and unincorporated
organizations located in [the target area] or maintaining a facility
in [the target area]; and organizations of such persons.''
In recognition of the special efforts needed to help make credit
union service available to persons in low-income communities, NCUA
permits credit union chartering and field of membership amendments
based on associational groups formed for the sole purpose of making
credit union service available to low-income persons. The
association must be defined so that all its members will meet the
low-income definition of Part 701.32 of NCUA's Regulations. The
association, in documenting its low-income membership, may use the
same types of documentation as are currently permitted for
determining whether a community is low-income under Part 701.32 of
NCUA's Regulations.
In addition, a proposed or existing low-income federal credit
union whether community or associationally based, may include in its
field of membership, without regard to location, one or more groups
constituting an occupational, associational or community common
bond. Except for the operational area requirements, the proposed or
existing credit union must meet all the requisites for including the
group in its charter. Moreover, the proposed or existing credit
union must take care to ensure that it will continue to meet the
requirements for low-income status.
5. In IRPS 94-1, Chapter 1, Section V.A.3 is revised to read as
follows:
V.A.3--Special Common Bond Rules for Other Federal Credit Unions
Seeking To Serve Low-Income Persons
In the interest of making credit union service available to
persons in low-income communities, NCUA also permits any
occupational, associational, multiple group, or community federal
credit union to include in its field of membership, without regard
to location, communities and associational groups satisfying the
low-income definition of Part 701.32 of NCUA's Regulations. The
associational group may be formed for the sole purpose of providing
eligibility for federal credit union service, but must comprise only
persons meeting NCUA's low-income definition.
The federal credit union adding the low-income community or
association must document that the community or association meets
the low income definition in Part 701.32 of NCUA's Regulations, just
as is required for a designated low-income credit union. The
Regional Director will ensure that the proposed low-income community
addition is sufficient to establish a community common bond. A
federal credit union adding such a community or association,
however, would not be able to receive the benefits, such as expanded
use of non member deposits and access to the Community Development
Revolving Loan Program for Credit Unions, offered to low-income
credit unions.
A federal credit union that desires to include a low-income
community or association in its field of membership must first
develop a business plan specifying how it will serve the entire low-
income community. The business plan, at a minimum, must identify the
credit and depository needs of the low-income community or
association and detail how the credit union plans to serve those
needs. The credit union will be expected to regularly review the
business plan as well as loan penetration rates in the community to
determine if the community is being adequately served. NCUA will
require periodic service status reports on its service
[[Page 11727]]
to the low-income community and may review the credit union's
service to low-income persons during examinations.
6. In IRPS 94-1, Chapter 1, Section V.B is deleted and Sections
V.C. and V.D. are redesignated V.B and V.C, respectively.
7. In IRPS 94-1, Chapter 1, Section VIII.D is revised to read as
follows:
VIII.D--Appeal of Regional Director's Decision
If the Regional Director denies a charter application, the group
may appeal the decision to the NCUA Board. If not included with the
denial notice, a copy of these procedures may be obtained from the
appropriate region. An appeal will be sent to the regional office
within sixty days of the denial. The Regional Director will then
forward the appeal to the NCUA Board. NCUA central office staff will
make an independent review of the facts and present the appeal with
recommendations to the Board.
Before appealing, the prospective group may, within thirty days
of the denial, provide supplemental information to the Regional
Director for reconsideration. In these cases, the request will not
be considered as an appeal but as a request for reconsideration by
the regional director. If the request is again denied, the group may
proceed with the appeal process.
8. In IRPS 94-1, Chapter 2, Section II.A.3.a is revised to read as
follows:
II.A.3.a--General
The special rules for credit unions serving low-income persons
and serving employees at industrial parks, shopping centers and
similar facilities apply equally to field of membership additions.
However, there are two special situations unique to existing federal
credit unions: (1) corporate restructurings and (2) plant or base
closings, and other kinds of distress to a substantial portion of a
credit union's membership.
9. In IRPS 94-1, Chapter 2, Section III.A is revised to read as
follows:
III.A--Mergers
Generally, the standards applicable to field of membership
amendments found in Section II of this chapter apply to mergers
where the continuing credit union is a federal charter. This
requires analyzing each group in the merging credit union's field of
membership. Groups in the merging credit union that are within the
operating area of either credit union may be transferred intact into
the continuing credit union. Merger applicants must provide NCUA
with their own analysis of how the proposed field of membership of
the continuing credit union conforms to this policy. For those
groups from the merging credit union that do not meet operational
area requirements, unless granted a waiver under the procedure for
merging state chartered credit unions, only the members of record
will be transferred to the continuing credit union.
Where the merging credit union is state chartered, the field of
membership rules for a credit union converting to a federal charter
apply with the following differences:
In a merger involving a common bond addition, the
requirements to provide a request for credit union service from the
corporate, associational, or other unit to be added is not required,
since the unit already has credit union service.
In a merger involving a select group addition:
For the same reason as above, the requirement for a letter from
each group included in the credit union's field of membership is not
required.
Where a state credit union is merging into a federal credit
union, the operational area requirement may be waived if it can
demonstrate that the group does not have other credit union service
available and the credit union will continue to be able to provide
quality credit union service to the group. In determining quality of
services, NCUA will consider the number of members of the group who
are using the credit union's services. The waiver is discretionary
on the part of NCUA and will be strictly scrutinized. The waiver
will only be granted if supported by clear and convincing evidence.
Absent any waivers, only members of record of groups that do not
meet operational area requirements will be transferred to the
continuing credit union. Upon merging, the state credit union's
field of membership will be worded to conform to the NCUA standards
set forth in Chapter 1. Any subsequent field of membership
amendments must comply with applicable amendment procedures.
In a merger of a community credit union into a federal
credit union of any type, the continuing credit union may be
permitted to continue to provide service to the merging credit
union's members of record as of the merger date where the
operational area requirement is satisfied. Except in the case of an
emergency merger or where the continuing credit union is low-income,
the continuing federal credit union can obtain only the members of
record of the merging community credit union.
Where both credit unions are community charters, the
continuing credit union is a federal credit union, and the criteria
for expanding the service area of a community federal credit union
(as discussed previously in this Chapter) are satisfied, the entire
field of membership of the merging credit union may be added to the
continuing federal credit union's charter.
Mergers must be approved by all affected NCUA regional
directors, and, as applicable, the state regulators.
10. In IRPS 94-1, Chapter 2, Section III.B. is revised to read as
follows:
III.B--Emergency Mergers
NCUA may approve emergency mergers without regard to field of
membership or other legal constraints. An emergency merger involves
NCUA's direct intervention. The credit union to be merged must
either be insolvent or be likely to become insolvent within 12
months and NCUA must determine that:
An emergency requiring expeditious action exists;
Other alternatives are not reasonably available; and
The public interest would best be served by approving
the merger.
In an emergency merger situation, NCUA takes an active role in
finding a suitable merger partner (continuing credit union). NCUA is
primarily concerned that the continuing credit union has the
financial strength and management expertise to absorb the troubled
credit union without adversely affecting its own financial condition
and stability.
As a stipulated condition to an emergency merger, the field of
membership of the merging credit union may be transferred intact to
the continuing federal credit union without regard to any field of
membership restrictions and without changing the character of the
continuing federal credit union for future amendments. Under this
authority, therefore, a federal credit union may take into its field
of membership a group defined by a community or associational common
bond permitted under state law, regardless of whether that common
bond definition could be approved under the Federal Credit Union
Act. If a federal credit union which has added groups or communities
under an emergency merger later proposes to merge with another
federal credit union, the groups or communities added pursuant to
the emergency merger will not be subject to operational area or
field of membership analysis.
11. In IRPS 94-1, Chapter 2, Section VIII.B is revised to read as
follows:
VIII.B--Streamlined Expansion Procedure (SEP) for Small Occupational
Groups
In keeping with the goals of NCUA chartering policy to provide
service to all eligible groups desiring credit union service, well
operated federal credit unions except those designated as
``distressed'' may take advantage of the SEP for adding occupational
groups to their fields of membership.
To use this procedure, the federal credit union's board of
directors must first apply to their respective NCUA regional
director for a charter amendment. The charter amendment request must
be signed by the presiding officer of the board of directors.
The following is a sample amendment for permitting a federal
credit union to use the SEP authority:
Groups of persons with occupational common bonds which are
located within 25 miles of one of the credit union's service
facilities, which have provided a written request for service to the
credit union, which do not presently have credit union service
available, other than through a community credit union, which have
no more members in the group than the maximum number established by
the NCUA Board for additions under this provision: Provided,
however, that the National Credit Union Administration may
permanently or temporarily revoke the power to add groups under this
provision upon a finding, in the Agency's discretion, that
permitting additions under this provision are not in the best
interests of the credit union, its members, or the National Credit
Union Share Insurance Fund.
[[Page 11728]]
Once NCUA has approved the amendment and the credit union board
has adopted it, the SEP authority may be implemented. The charter
amendment permits approved federal credit unions to immediately
begin serving employee groups meeting criteria set forth in this
section. Under this procedure, there is no formal NCUA action
necessary on each group being added.
The maximum number of persons for each group of employees which
may be added under SEP will be established by the NCUA Board from
time to time. The number will be based on potential primary
members--that is, the persons sharing the basic occupational
affinity to each sponsor group; family members and other derivative
members are not included in the SEP limit. Several groups may be
simultaneously added using these procedures; however, the maximum
number of persons for each group must fall within the SEP limit.
The SEP does not apply to associational groups since NCUA must
review membership requirements and geographical area prior to these
groups being added to a field of membership. The procedure also does
not apply to community charter expansions, because of the more
individualized analysis required.
The following SEP steps and documentation requirements must be
adhered to:
The federal credit union must complete, for each group
to be added, an Application for Field of Membership Amendment form,
NCUA 4015, shown in Appendix D.
The federal credit union must obtain a letter, on the
group's letterhead where possible, signed by an official
representative identified by title, requesting credit union service
and stating that the group does not have any other credit union
service available from any associational, occupational or multiple
group credit union.
The group must be located within 25 miles of one of the
federal credit union's service facilities. The group will be
considered to be within the 25 mile limit when: (1) a majority of
the group's members live or work within the 25 mile limit; or (2)
the group's headquarters is located within the 25 mile limit; or (3)
the group's ``paid from'' or ``supervised from'' location is within
the 25 mile limit.
The group must indicate the number of potential
members--the number of employees--seeking service.
The federal credit union must maintain the above
documentation permanently with its charter.
The federal credit union must maintain a control log of
groups added to its field of membership under the SEP procedure. The
control log must include the date the group obtained service, the
name and location of the sponsor group, the number of potential
primary members added, the number of miles to the nearest main or
branch office, the federal credit union board of director's approval
of the group and the date approved. See Appendix D for the SEP
Control Log, NCUA 4016.
The groups added under SEP must be reported to the
federal credit union's board at the next regular board meeting and
made a part of the meeting minutes.
The control log and other SEP documentation must be
made available to NCUA upon request.-
The regional director may from time to time request service
status reports on groups added under SEP. It is advisable to use
some method, such as a sponsor prefix added to the member account
number, to readily access data for such groups.
Should a federal credit union fail to provide quality credit
union service, as determined by the group's members or employees, to
a group added under SEP, NCUA may subsequently permit dual
membership with another credit union.
Should a federal credit union fail to follow the above
procedures or deteriorate financially or operationally, NCUA, at its
discretion, may revoke the SEP privilege.
If a federal credit union that has SEP in its charter merges
with another federal credit union that does not have SEP, the
continuing credit union, if it desires to have SEP, must submit a
charter amendment and receive approval from NCUA to implement SEP.
Otherwise, the groups obtained by the merging credit union through
SEP must be listed specifically in the continuing credit union's
field of membership or a reference to the merging credit union's SEP
log must be made in the continuing credit union's field of
membership as of the date of the merger.
12. In IRPS 94-1, Chapter 2, Section VIII.G is revised to read as
follows:
VIII.G--Appeal of Regional Director Decision
If a field of membership expansion, merger, or spin-off is
denied by the Regional Director, the federal credit union may appeal
the decision to the NCUA Board. If not included with the denial
notice, a copy of these procedures may be obtained from the Regional
Director who made the decision. An appeal must be sent to the
appropriate regional office within sixty days of the denial. The
Regional Director will then forward the appeal to the NCUA Board.
NCUA central office staff will make an independent review of the
facts and present the appeal to the Board with a recommendation.
The federal credit union may, within thirty days of the denial,
request reconsideration and provide supplemental information to the
regional director. The request for reconsideration will not be
considered an appeal but will toll the sixty day requirement to file
an appeal until a ruling is received on the request for
reconsideration.
13. In IRPS 94-1, Chapter 3, Section 3.H, is added as follows:
III.H--Appeal of Regional Director Decision
If a conversion to a state charter is denied by the Regional
Director, the credit union may appeal the decision to the NCUA
Board. If not included with the denial notice, a copy of these
procedures may be obtained from the Regional Director who made the
decision. An appeal must be sent to the appropriate regional office
within sixty days of the denial. The Regional Director will then
forward the appeal to the NCUA Board. NCUA central office staff will
make an independent review of the facts and present the appeal to
the Board with a recommendation.
The federal credit union may, within thirty days of the denial,
request reconsideration and provide supplemental information to the
regional director. The request for reconsideration will not be
considered an appeal but will toll the sixty day requirement to file
an appeal until a ruling is received on the request for
reconsideration.
[FR Doc. 96-6701 Filed 3-21-96; 8:45 am]
BILLING CODE 7535-01-U
