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					                                                                                                                                   Tuesday,
                                                                                                                                   June 17, 2008




                                                                                                                                   Part II

                                                                                                                                   National Credit
                                                                                                                                   Union
                                                                                                                                   Administration
                                                                                                                                   12 CFR Part 701
                                                                                                                                   Organization and Operations of Federal
                                                                                                                                   Credit Unions; Proposed Rule
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                                             34366                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules

                                             NATIONAL CREDIT UNION                                   General Counsel; or Steven W.                               Anticipating the possibility of
                                             ADMINISTRATION                                          Widerman, Trial Attorney, Office of                      periodic additions to the then-existing
                                                                                                     General Counsel, 1775 Duke Street,                       distress criteria, the Chartering Manual
                                             12 CFR Part 701                                         Alexandria, Virginia 22314 or telephone                  incorporated by reference other criteria
                                             RIN 3133–AD48                                           (703) 518–6540.                                          that the CDFI Fund might establish in
                                                                                                     SUPPLEMENTARY INFORMATION:                               the future. 67 FR 20013, 20017 (April
                                             Organization and Operations of                                                                                   24, 2002). The distress criteria that
                                             Federal Credit Unions                                   I. Background                                            apply today are the same ones that
                                                                                                        In 1998, Congress enacted the Credit                  applied in 1998, except that the
                                             AGENCY:  National Credit Union                                                                                   ‘‘distressed housing’’ criterion has been
                                                                                                     Union Membership Access Act
                                             Administration (NCUA).                                                                                           replaced by county ‘‘net migration loss.’’
                                                                                                     (CUMAA), Public Law 105–219, 112
                                             ACTION: Proposed rule.                                  Stat. 914 (1998). Among other things,                    12 CFR 1805.201(b)(3)(D)(5) (2008).
                                                                                                     CUMAA authorized the NCUA Board to                          The proposed rule (Interpretive
                                             SUMMARY: NCUA seeks public comment                                                                               Ruling and Policy Statement 08–2) is
                                             on four proposals to modify its                         allow multiple common bond credit
                                                                                                     unions to serve members residing in                      intended to update and clarify the
                                             Chartering and Field of Membership                                                                               existing process of approving credit
                                             Manual to update and clarify the                        ‘‘underserved areas,’’ provided the
                                                                                                     credit union establishes and maintains a                 union service to ‘‘underserved areas.’’
                                             process of approving credit union                                                                                Public comments on the proposed
                                             service to ‘‘underserved areas.’’ The first             facility there. 12 U.S.C. 1759(c)(2). For
                                                                                                     an area to be ‘‘underserved,’’ CUMAA                     modifications are welcome. To facilitate
                                             proposal clarifies the procedure for                                                                             the consideration of these comments,
                                             establishing that an ‘‘underserved area’’               requires the NCUA Board to determine
                                                                                                     that a local community, neighborhood                     the NCUA Board urges commenters to
                                             qualifies as a local community. The                                                                              organize and label their comments to
                                             second addresses the application of the                 or rural district is an ‘‘investment area’’
                                                                                                     as defined in the Community                              correspond to the topics and issues
                                             economic distress criteria that                                                                                  discussed below.
                                             determine whether an area combining                     Development Banking and Financial
                                             multiple geographic units is sufficiently               Institutions Act of 1994 (‘‘CDFI Act’’),                 II. Discussion of Proposed Rule
                                             ‘‘distressed’’ to qualify as                            12 U.S.C. 4702(16), and also that it is
                                                                                                     ‘‘underserved * * * by other depository                  A. Definition of a Local Community
                                             ‘‘underserved.’’ The third would update
                                             the documentation and clarify the scope                 institutions.’’ 1 12 U.S.C. 1759(c)(2)(A).                  To be eligible for approval as an
                                             requirements for demonstrating that a                      The CDFI Act defines an ‘‘investment                  ‘‘underserved area,’’ a proposed area
                                             proposed area has ‘‘significant unmet                   area’’ as a geographic area that                         first must qualify as a ‘‘local
                                             needs’’ for loans and applicable                        ‘‘encompasses or is located in an                        community, neighborhood or rural
                                             financial services. The final proposal                  empowerment zone or enterprise                           district’’ (‘‘local community’’). 12 U.S.C.
                                             recognizes that meaningful data from                    community designated under [26 U.S.C.                    1759(c)(2)(A); S. Rep. No. 193, 105th
                                             NCUA and the federal banking agencies                   1391]’’; or that ‘‘meets the objective                   Cong., 2d Sess. 6 (1998); H.R. Rep. No.
                                             will be available to assess whether an                  criteria of economic distress developed                  105–472, 105th Cong., 2d Sess. 19
                                             area is ‘‘underserved by other                          by the [Community Development                            (1998). The Chartering Manual’s criteria
                                             depository institutions.’’                              Financial Institutions] Fund’’ (‘‘CDFI                   for establishing a ‘‘local community’’ for
                                                                                                     Fund’’) and also ‘‘has significant unmet                 ‘‘underserved area’’ purposes deviates
                                             DATES: Comments must be received on
                                                                                                     needs for loans or equity investments.’’                 somewhat from the ‘‘well-defined local
                                             or before August 18, 2008.                              12 U.S.C. 4702(16). The Fund                             community’’ criteria elsewhere in the
                                             ADDRESSES: You may submit comments                      established ‘‘criteria of economic                       Manual.
                                             by any of the following methods (Please                 distress’’ and implemented the                              When a proposed area qualifies as a
                                             send comments by one method only):                      ‘‘significant unmet needs’’ criterion by                 ‘‘presumptive community’’ (multiple
                                                • Federal eRulemaking Portal: http://                regulation. 12 CFR 1805.201(d) and (e)                   political jurisdictions with a total
                                             www.regulations.gov. Follow the                         (1998); 12 CFR 1805.104(dd) (1998).                      population of 500,000 or less; or an area
                                             instructions for submitting comments.                      To reflect the enactment of CUMAA                     within a Metropolitan Statistical Area
                                                • NCUA Web Site: http://                             and its introduction of ‘‘underserved                    with a population of 1 million or less)
                                             www.ncua.gov/                                           areas,’’ NCUA revised its Chartering and                 the Chartering Manual’s chapter on
                                             RegulationsOpinionsLaws/                                Field of Membership Manual                               community chartering requires a credit
                                             proposed_regs/proposed_regs.html.                       (‘‘Chartering Manual’’) in 1998,                         union to complete the presumption by
                                             Follow the instructions for submitting                  replacing the previous authority to serve                submitting a letter ‘‘describing how the
                                             comments.                                               low-income communities and                               area meets the standards for community
                                                • E-mail: Address to                                 associations. 12 CFR 701.1 (1999). As                    interaction and/or common interests’’
                                             regcomments@ncua.gov. Include ‘‘[Your                   revised, the Chartering Manual                           within in the proposed area.2 Id. Ch. 2,
                                             name] Comments on Proposed Rule Part                    implemented the statutory definition of                  § V.A.1. The chapter on ‘‘underserved
                                             701.1’’ in the e-mail subject line.                     ‘‘underserved area’’ and incorporated                    areas’’ does not require an equivalent
                                                • Fax: (703) 518–6319. Use the                       the then-existing CDFI criteria for                      letter to establish that a proposed
                                             subject line described above for e-mail.                establishing a ‘‘distressed’’ area. 63 FR                ‘‘underserved area’’ is a ‘‘presumptive
                                                • Mail: Address to Mary Rupp,                        71998 (December 30, 1998). Those                         community.’’ Manual, Ch. 3, § III.A.
                                             Secretary of the Board, National Credit                 criteria addressed median family                            The disparity concerning the letter
                                             Union Administration, 1775 Duke                         income, poverty, unemployment,                           supporting a ‘‘presumptive community’’
                                             Street, Alexandria, Virginia 22314–                     distressed housing, county population                    provides an opportunity to reconsider
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                                             3428.                                                   loss, and significant unmet needs for
                                                • Hand Delivery/Courier: Same as                     loans and equity investments. 63 FR at                     2 When the letter supporting a ‘‘presumptive

                                             mail address.                                           72015, 72042.                                            community’’ fails to present sufficient evidence of
                                                                                                                                                              community interaction and/or common interests,
                                             FOR FURTHER INFORMATION CONTACT:
                                                                                                                                                              the credit union may be required to provide a full
                                             Michael J. McKenna, Deputy General                        1 A ‘‘depository institution’’ is defined to include   analysis to support that the area is a well-defined
                                             Counsel; John K. Ianno, Associate                       insured credit unions. 12 U.S.C. 461(b)(1)(A)(iv).       local community. Manual, Ch. 2 § V.A.1.



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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                                                  34367

                                             whether the letter is needed at all to                  Second, the proposed area’s boundaries                  are discussed below and the internet
                                             establish a local community in the                      may be nontraditional, consisting of a                  address of each is cited in the footnotes.
                                             context of either a community charter or                riverbank, a railroad line or an interstate             In any case, it is useful to understand in
                                             an ‘‘underserved area.’’ The original                   highway, for example. 63 FR at 72038–                   a step-by-step progression how the
                                             purpose of the letter in the community                  72039. Further, the proposed area may                   economic distress criteria operate.
                                             charter context was to supplement the                   even bisect the traditional geographic                     Metro or Non-Metro Location. The
                                             record with qualitative evidence of                     units and political subdivisions upon                   initial step is to determine whether a
                                             interaction and common interests                        which the CDFI Fund relies. Finally,                    proposed area is located within or
                                             within the community. The NCUA                          when evaluating an ‘‘investment area,’’                 outside a ‘‘Metropolitan Area’’ as
                                             Board invites public comment on                         the CDFI Fund considers only the                        designated by the Office of Management
                                             whether a supporting letter is necessary                number of persons who reside there. In                  and Budget (‘‘OMB’’). 12 CFR
                                             to further that purpose when a multiple                 contrast, when deciding whether to add                  1805.104(ff). In practice, the CDFI Fund
                                             group credit union seeks to add an                      a proposed area to its field of                         deems a proposed area to be located
                                             ‘‘underserved area.’’ To ensure                         membership, a credit union considers                    within a Metropolitan Area if it is
                                             consistency, the proposed rule revises                  potential membership from among the                     located within an OMB-designated
                                             the chapter on ‘‘underserved areas’’ to                 persons who reside, work, worship or                    ‘‘Metropolitan Statistical Area’’
                                             incorporate the definition of ‘‘well                    attend school there. These distinctions                 (‘‘MSA’’), and vice versa. 44 U.S.C.
                                             defined local community’’ set forth in                  tend to complicate the translation of a                 3504(e)(3)(E). OMB updates its MSA
                                             the chapter on community chartering.                    proposed ‘‘underserved area’’ into the                  designations annually; however, to
                                             That definition will be revised                         geographic units envisioned by the CDFI                 ensure consistency with the CDFI
                                             depending on the Board’s evaluation of                  Fund’s economic distress criteria.                      Fund’s distress criteria, which are
                                             the comments received on the letter                        In the decade since CUMAA, a                         measured according to the most recent
                                             requirement.                                            plethora of economic and demographic                    decennial Census, the proposed rule
                                                                                                     data has become available over the                      relies solely on the MSA designations
                                             B. Criteria of Economic Distress                        Internet, and there has been a manifold                 that correspond to the same decennial
                                                The proposed rule addresses the                      increase in the number of people who                    census, rather than on updated
                                             practical incompatibility between credit                have Internet access. Convenient on-line                designations.4
                                             union service to a local community and                  access to relevant data has considerably                   The location within or outside a
                                             the CDFI Fund’s economic distress                       simplified the task of translating an                   Metropolitan Area dictates the
                                             criteria that apply to determine whether                ‘‘underserved area’’ into the geographic                ‘‘geographic unit(s)’’ into which the
                                             a proposed area is an ‘‘investment area,’’              units that the CDFI Fund uses to apply                  proposed area must be translated in
                                             thus qualifying it as ‘‘underserved.’’ To               the economic distress criteria that                     order to apply the economic distress
                                             qualify as a ‘‘local community,                         define an ‘‘investment area.’’ Therefore,               criteria. The geographic units prescribed
                                             neighborhood or rural district,’’ the                   this proposed rule revisits NCUA’s rules                for a Metropolitan area (‘‘Metro units’’)
                                             proposed area must be a ‘‘single, well-                 for qualifying an ‘‘underserved area’’                  are a census tract, a block group, and an
                                             defined’’ area so as to facilitate the                  primarily to update and conform its                     American Indian or Alaskan Native
                                             mandatory interaction and common                        approach to present circumstances.                      area. 12 CFR 1805.201(b)(3)(ii)(B)
                                             interests that signify a common bond                       As a preliminary matter, a proposed                  (2008). The geographic units prescribed
                                             among its residents. 65 FR 37065,                       area qualifies as an ‘‘investment area’’                for a Non-Metropolitan area (‘‘Non-
                                             37072, 37082 (June 13, 2000). This has                  without regard to the economic distress                 Metro units’’) are a county (or
                                             always meant that the parts of a                        and ‘‘significant unmet needs’’ criteria if             equivalent area), a ‘‘minor civil division
                                             proposed area must be contiguous,                       it is presently designated an                           that is a unit of local government,’’ an
                                             regardless of any other prerequisites for               ‘‘Empowerment Zone’’ or an ‘‘Enterprise                 incorporated place, a census tract, a
                                             credit union service that apply. Because                Community.’’ 12 CFR                                     block numbering area, a block group, or
                                             of this restriction, NCUA evaluates a                   1805.201(b)(3)(ii)(A)(3). Empowerment                   an American Indian or Alaskan Native
                                             ‘‘local community, neighborhood or                      Zones and Enterprise Communities                        area. Id. In either case, the proposed
                                             rural district’’—whether seeking                        were designated by the U.S. Department                  area must consist entirely of whole
                                             approval as an ‘‘underserved area’’ or                  of Housing and Urban Development and                    Metro or Non-Metro units; it cannot
                                             otherwise—strictly as a single, unified                 the U.S. Department of Agriculture                      consist of fractional units (e.g., half of a
                                             entity.                                                 between 1993 and 1996. These                            census tract or half of a county). A
                                                In several respects, the ‘‘single unified            designations have since largely                         proposed area that is partly within and
                                             entity’’ approach is incompatible with                  expired,3 so most proposed areas will                   partly outside a Metropolitan Area (e.g.,
                                             the ‘‘geographic units’’ the CDFI Fund                  not be able to bypass the economic                      that straddles an MSA’s boundary) must
                                             utilizes to apply its economic distress                 distress and ‘‘significant unmet needs’’                be evaluated using Metro units because
                                             criteria. First, the areas that the CDFI                criteria of an ‘‘investment area.’’                     they are the largest permissible unit that
                                             Fund is asked to certify as ‘‘investment                   For proposed areas that do not benefit               is common to all parts of the area.
                                             areas’’ conform from the outset to                      from an Empowerment Zone or                                Single Metro or Non-Metro Unit. To
                                             prescribed census units (e.g., tracts or                Enterprise Community designation, the                   qualify as an ‘‘investment area,’’ a
                                             blocks) or political subdivisions,                      availability of certain on-line resources               proposed area consisting of a single
                                             allowing each such geographic unit or                   will make it easier to apply the                        whole Metro unit (e.g., a single census
                                             group of units to be treated as a separate              economic distress criteria. The on-line                 tract) or a single whole Non-Metro unit
                                             ‘‘investment area.’’ 12 CFR                             resources that correspond to each step                  (e.g., a single county) must as a whole
                                             1805.201(b)(3)(ii)(B) (2008). In contrast,                                                                      meet one of the following distress
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                                             an ‘‘underserved area’’ that a credit                     3 Unexpired Empowerment Zones and Enterprise          criteria, as reported by the most recent
                                             union proposes to add may be drawn                      Communities are identified at: http://www.hud.gov/
                                             without regard to prescribed geographic                 offices/cpd/economicdevelopment/programs/rc/              4 For MSA designations that correspond to the
                                                                                                     tour/index.cfm. At this link, select a state from the   2000 decennial Census, see ‘‘Metropolitan Areas
                                             units or political boundaries, reflecting               map or list, then select from the ‘‘RC/EZ/EC            and Components, 1999, with FIPS Codes’’ (6/30/99
                                             the area’s status as a single unified                   Communities’’ shown to generate a map of the            revised 1/28/02) at: http://www.census.gov/
                                             entity (i.e., a well-defined community).                designated areas.                                       population/estimates/metro-city/99mfips.txt



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                                             34368                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules

                                             decennial census published by the U.S.                  ‘‘distressed’’ tract within a group to                    For the proposed area as a whole, the IA
                                             Bureau of the Census (‘‘decennial                       qualify under any one of the criteria.                    Worksheet shows: Whether the
                                             Census’’):                                              Also, the decennial Census itself does                    population of the non-‘‘distressed’’ units
                                                • Unemployment. Unemployment                         not apply the 85% population threshold                    is less than 15 percent of the whole
                                             rate at least 1.5 times the national                    to a proposed area consisting of                          area’s population (i.e., applies the 85%
                                             average; or                                             multiple contiguous units; it only                        population threshold); the exact
                                                • Poverty. At least 20 percent (20%)                 reports whether an individual unit                        percentage of the area’s population that
                                             of the population lives in poverty. 12                  meets an applicable distress criterion.                   resides in the non-‘‘distressed’’ units;
                                             CFR 1805.201(b)(3)(ii)(D)(1) and (3)                       A proposed area consisting either of a                 the total population of the non-
                                             (2008).                                                 single Metro or Non-Metro unit, or of                     ‘‘distressed’’ units; and whether the
                                                If the proposed area consists of a                   multiple contiguous units in which the                    combined units are contiguous. When
                                             single Metro unit of any kind, it may                   ‘‘distressed’’ units represent at least 85                the IA Worksheet indicates that a
                                             also meet the following criterion, as                   percent of the area’s population, will                    proposed area does not qualify as
                                             reported by the most recent decennial                   meet the definition of an ‘‘investment                    ‘‘distressed,’’ none of these details is
                                             Census:                                                 area’’ provided that, as explained below,                 provided.
                                                • Metro Area Median Family Income.                   it also has ‘‘significant unmet needs’’ for                  At present, the ‘‘My CDFI Fund’’ Web
                                             Median family income (‘‘MFI’’) at or                    loan products and applicable financial                    site’s analysis is the most expeditious
                                             below 80 percent (80%) of either the                    services.                                                 means of establishing that a proposed
                                             Metro Area’s MFI or the national Metro                     Resources for Determining If Distress                  area is sufficiently ‘‘distressed,’’ thus
                                             Area MFI, whichever is greater.                         Criteria Are Met. The CDFI Fund’s ‘‘My                    conserving credit union resources. To
                                                If the proposed area consists of a                   CDFI Fund’’ Web site is an invaluable                     benefit from the convenience of the ‘‘My
                                             single Non-Metro unit of any kind, it                   resource for determining whether a                        CDFI Fund’’ Web site, the NCUA Board
                                             may also meet the following criterion, as               proposed area is ‘‘distressed,’’ but only                 encourages credit unions to conform
                                             reported by the most recent decennial                   if the area’s unit(s) conform to one or                   their proposed ‘‘underserved areas’’ to
                                             Census:                                                 more census tracts or counties, or to an                  the ‘‘geographic units’’ the site is
                                                • Non-Metro Area Median Family                       independent city (which is treated as                     limited to—census tracts and county
                                             Income. MFI at or below 80 percent                      equivalent to a county); the site is not                  boundaries, as the case may be.
                                             (80%) of either the statewide Non-Metro                 equipped to analyze any other kind of                        Approval to Serve an Already
                                             Area’s MFI or the national Non-Metro                    geographic unit.5 Using its ‘‘Information                 Approved ‘‘Underserved Area’’. Once a
                                             Area MFI, whichever is greater.                         and Mapping System’’ feature, the ‘‘My                    credit union is initially approved to
                                                12 CFR 1805.201(b)(3)(ii)(D)(2)(i) and               CDFI Fund’’ Web site allows the user to                   serve an area that qualifies as
                                             (ii) (2008).                                            enter selected units that it then analyzes                ‘‘underserved,’’ other credit unions may
                                                Finally, if the proposed area consists               individually and as a proposed area.                      be approved to serve the area provided
                                             of a single Non-Metro county, it may                    The analysis reflects the most recent                     it is ‘‘underserved’’ at the time they
                                             meet one of the following two                           decennial Census data.6 The results are                   apply. The proposed rule
                                             additional criteria, as reported by the                 displayed on a comprehensive                              ‘‘grandfathers’’ all credit unions
                                             most recent decennial Census:                           ‘‘Investment Area/Hot Zone Worksheet’’                    approved to serve an area while it
                                                • County Population Loss. County’s                   (‘‘IA Worksheet’’).                                       qualifies as ‘‘underserved,’’ allowing
                                             population loss of at least 10 percent                     For each unit individually, the IA                     them to continue serving that area in the
                                             (10%) between the most recent and the                   Worksheet shows: Whether it is located                    event it no longer qualifies. To
                                             preceding decennial census; or                          within an MSA; its total population; its                  terminate the approval to serve an area
                                                • County Migration Loss. County’s net                poverty rate; the percent of benchmark                    that no longer is ‘‘underserved’’ would
                                             migration loss of at least 5 percent (5%)               MFI; the unemployment rate; and most                      penalize the credit union for its efforts
                                             in the 5-year period preceding the most                 importantly, whether the unit is                          to bring an adequate level of service to
                                             recent decennial census.                                ‘‘distressed’’ under the distress criteria.7              the area.
                                                12 CFR 1805.201(b)(3)(ii)(D)(4) and (5)                                                                           An area that previously was approved
                                             (2008).                                                    5 The ‘‘My CDFI Fund’’ Web site’s ‘‘Information        as ‘‘underserved’’ may still qualify as
                                                Multiple Contiguous Metro or Non-                    and Mapping System’’ (‘‘CIMS’’) is available at:          ‘‘distressed’’ when the proposed rule is
                                             Metro Units. If a proposed area consists                https://www.cdfifund.gov/myCDFI/Organization/             applied using the decennial Census in
                                                                                                     Mapping/Mapping.asp The ‘‘Welcome to CIMS’’
                                             of multiple contiguous Metro units (e.g.,               page explains the options for identifying ‘‘CDFI          effect when the new applicant applies.
                                             a group of adjoining census tracts) or                  Investment Areas’’ and a ‘‘Mapping System                 When that is the case, the new applicant
                                             multiple contiguous Non-Metro units                     Overview and Tutorial.’’ The ‘‘My CDFI Fund’’ Web         must show at the time it applies that the
                                             (e.g., a group of adjoining counties), the              site is accessible to registered users through an         area still has ‘‘significant unmet needs
                                                                                                     organizational account holder. For instructions on
                                             area is subject to a population threshold               how to become a registered user, see http://              for loans and financial services’’ (to
                                             that does not apply to a proposed area                  www.ncua.gov/CreditUnionDevelopment//                     qualify as an ‘‘investment area’’) and
                                             consisting of a single unit. Thus, when                 Underserved/underserved.html. Under the                   still is ‘‘underserved by other depository
                                             a proposed area consists of multiple                    ‘‘Expanding into Investment Areas’’ section is a link     institutions’’ (to qualify as
                                                                                                     entitled ‘‘Instructions to Use the CDFI Web site.’’
                                             contiguous units, at least 85 percent                      6 Typically, there is an 18-month lag between the
                                                                                                                                                               ‘‘underserved’’). These criteria may
                                             (85%) of the area’s total population                    taking of a decennial U.S. Census and the                 become more difficult to meet as the
                                             must reside within the units that                       publication of the results. Thus, for example, the        number of depository institutions
                                             ‘‘together meet one of the [applicable                  results of the 2000 census became available when          serving the area increases.
                                                                                                     published in 2002 and will remain the most recent            Issues for Comment. The NCUA Board
                                             distress] criteria’’ set forth above (‘‘the             census until the results of the 2010 census are
                                             85% population threshold’’). 12 CFR                                                                               invites public comment on the
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                                                                                                     published.
                                             1805.201(b)(3)(ii)(C)(2) (2008).                           7 The ‘‘My CDFI Fund’’ Web site implies that it        application of the economic distress
                                                The language of the 85% population                   determines whether a proposed area ‘‘qualifies as
                                             threshold suggests that all of the                      an investment area.’’ If so, it would not be necessary    or proposed area is ‘‘distressed,’’ meaning that an
                                                                                                     for an applicant to meet a further criterion—             applicant still must independently demonstrate the
                                             ‘‘distressed’’ units must qualify as such               demonstrating ‘‘significant unmet needs for loans,’’      proposed area’s ‘‘significant unmet needs for
                                             under the same criterion, but in                        etc., within the proposed area. In fact, it is apparent   loans,’’ etc., in order to qualify as an ‘‘investment
                                             practice, the CDFI Fund allows each                     that the Web site determines only whether a unit          area.’’



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                                                                       Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                                                      34369

                                             criteria, including whether a proposed                   (2008). In practice, the CDFI Fund                       D. Underserved by Other Depository
                                             area should be required to conform to                    accepts a one-page Narrative Statement                   Institutions
                                             county or census tract boundaries, as                    describing the significant unmet capital                    The CDFI Fund’s ‘‘significant unmet
                                             the case may be, so that census tracts                   or financial services of a proposed area.                needs’’ test focuses on the need for
                                             apply uniformly to areas located within                  ‘‘CDFI Certification Application’’ (June                 products and services within a proposed
                                             a Metropolitan Area, and counties apply                  2007) at 11. The analysis must be                        area. In contrast, CUMAA’s demand that
                                             uniformly to areas located outside a                     supported by relevant statistical                        a proposed area be ‘‘underserved * * *
                                             Metropolitan Area.                                       evidence. There are no definitive                        by other depository institutions’’
                                             C. Significant Unmet Needs for Loans or                  standards of evaluation; the statements                  focuses on the presence of providers of
                                             Financial Services                                       are evaluated on a case-by-case basis.                   products and services within the area.
                                                Apart from applying the economic                         Instead of a presumption of                           CUMAA did not specify a methodology
                                             distress criteria, the CDFI Fund                         ‘‘significant unmet needs,’’ the proposed                for determining whether a proposed
                                             definition of an ‘‘investment area’’                     rule revises the Chartering Manual to                    area meets this test; instead, it broadly
                                             requires a showing of ‘‘significant                      require a credit union to support its                    refers to unspecified ‘‘data of the
                                             unmet needs for loans or equity                          ‘‘underserved area’’ application with a                  [NCUA] Board and the Federal banking
                                             investments’’ within the proposed area.                  one-page ‘‘Narrative Statement’’                         agencies.’’ 12 U.S.C. 1759(c)(2)(A)(ii).
                                             12 U.S.C. 4702(16)(A)(ii). Because credit                demonstrating a pattern of ‘‘significant                    In the decade since CUMAA, raw data
                                             unions are not authorized to offer equity                unmet needs’’ in the proposed area for                   has accumulated within government on
                                             investments, the scope of this ‘‘unmet                   loans or for one or more of the financial                branch locations and the volume of
                                             needs’’ test initially was limited by                    services that credit unions are                          business in certain products and
                                             definition to the unmet needs for loans.8                authorized to offer. However, a credit                   services, but meaningful and reliable
                                             In implementing the ‘‘significant unmet                  union may choose which of these                          data on these points has only recently
                                             needs test,’’ the CDFI Fund added the                    services to address and need not address                 become readily accessible. This data
                                             alternative of addressing the unmet                      all of them.                                             makes it possible to quantify and
                                             needs for a range of financial services                     Under the proposed rule, the                          compare the presence of financial
                                             including many that credit unions are                    Narrative Statement on ‘‘significant                     institution facilities in a given area. The
                                             authorized to offer: Checking accounts,                  unmet needs’’ must be supported by                       proposed rule suggests a flexible
                                             savings accounts, check cashing, money                   relevant, objective statistical data                     methodology that relies on publicly
                                             orders, certified checks, automated                      reflecting, among other things, loan and                 available population data and data on
                                             teller machines, deposit taking, safe                    financial services activity in the                       the location of financial institution
                                             deposit box services, and other similar                  proposed area—much of which is now                       branches.
                                             services.9 12 CFR                                        publicly available over the Internet. The                   Concentration of Facilities. The
                                             1805.102(b)(3)(ii)(A)(2).                                Narrative Statement also may be                          proposed methodology compares two
                                                From 1998 through 2000, NCUA                          supplemented by objective testimonial                    measures to determine whether an area
                                             permitted the ‘‘significant unmet needs’’                evidence. The supporting data and                        is adequately served according to the
                                             showing to be made through the                           evidence should be appended to the                       concentration of depository institution
                                             Business Plan required to be developed                   Narrative Statement.                                     facilities within the area. The first
                                             by a credit union seeking to add an                                                                               measure—which sets a benchmark level
                                             ‘‘underserved area.’’ 63 FR at 72042.                       In addressing a proposed area’s unmet                 of adequate service—is the ratio of
                                             The Business Plan already was required                   needs, for example, a credit union might                 depository institution facilities to the
                                             to ‘‘identify the credit and depository                  focus on the need for cash operations to                 population of the non-‘‘distressed’’
                                             needs of the community and detail how                    replace check cashing outlets and on the                 tracts in a proposed area, regardless
                                             the credit union plans to serve those                    need for personal loans at reasonable                    whether those tracts are contiguous. In
                                             needs.’’ Id. For that reason, NCUA                       rates to replace pawn brokers, payday                    cases where there are no non-
                                             revised its policy to recognize that a                   lenders and rent-a-centers. To support                   ‘‘distressed’’ tracts within a proposed
                                             proposed area that is ‘‘distressed’’ is                  such a Narrative Statement, the credit                   area, a non-‘‘distressed’’ tract or larger
                                             presumed to have ‘‘significant unmet                     union might rely on statistics and                       unit immediately adjoining the
                                             needs.’’ 65 FR 64512, 64518 (Oct. 27,                    conclusions about these needs                            proposed area (e.g., county or city) may
                                             2000).                                                   published by the proposed area’s                         be used to set the benchmark ratio. The
                                                Since the enactment of CUMAA, the                     Chamber of Commerce.                                     second measure is the ratio of facilities
                                             CDFI Fund has modified the                                  Issues for Comment. Public                            to the combined population of all of the
                                             documentation and scope requirements                     commenters are invited to address the                    tracts within the proposed area.
                                             for a proposed area to meet the                          ‘‘significant unmet needs’’ criterion,                      As shown in the example below, if the
                                             ‘‘significant unmet needs’’ test. ‘‘Studies              including whether the Narrative                          benchmark ratio of facilities within the
                                             or other analyses’’ were originally                      Statement should be integrated into the                  non-‘‘distressed’’ tracts (column A
                                             required to ‘‘adequately demonstrate a                   Business Plan a credit union is already                  below) exceeds the ratio of facilities
                                             pattern of unmet needs for loans and                     required to submit. Further, the NCUA                    within all the tracts of the proposed area
                                             equity investments.’’ 12 CFR                             Board asks commenters to identify                        as a whole (column B below), the
                                             1805.301(e) (1998). As modified, a                       available statistical data that would                    proposed rule deems the area to be
                                             ‘‘narrative analysis’’ is the only                       assist credit unions in demonstrating                    ‘‘underserved by other depository
                                             supporting documentation now                             the unmet needs for loans and credit                     institutions,’’ and vice versa (column C
                                             required. 12 CFR 1805.201(b)(3)(ii)(E)                   union services in a proposed area.                       below):
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                                               8 Credit unions are not authorized to offer ‘‘equity   a purchase of secondary capital.’’ 12 CFR                generally offer. 12 CFR 1805.104(v) (2008). To these
                                             investments,’’ which are defined to include ‘‘a stock    1805.104(t) (2008).                                      financial services, the Fund also added certain
                                             purchase, a purchase of a partnership interest, a          9 The financial services credit unions are             ‘‘financial products’’ that, except for loans, credit
                                             purchase of a limited liability company                                                                           unions do not offer to their members. 12 CFR
                                                                                                      authorized to offer are drawn from the CDFI Fund’s
                                             membership interest, a loan made on such terms
                                                                                                      definition of ‘‘financial services’’ that institutions   1805.104(u) (2008).
                                             that it has sufficient characteristics of equity [and]



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                                             34370                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules




                                                The proposed methodology does not                    to assess whether a proposed area is                   Regulatory Procedures
                                             distinguish between Metro and Non-                      ‘‘underserved by other depository
                                                                                                                                                            Regulatory Flexibility Act
                                             Metro locations, and need not be limited                institutions,’’ and to identify sources of
                                             to census tracts as its unit of measure for             data on the location depository                          The Regulatory Flexibility Act
                                             each ratio. Census tracts are proposed as               institution facilities that is sorted by               requires NCUA to prepare an analysis to
                                             the unit of measure, however, because                   census tract.                                          describe any significant economic
                                             most credit unions are likely to have                                                                          impact a regulation may have on a
                                             already used them in determining                        E. Service Status Reports                              substantial number of small credit
                                             whether the proposed area is                                                                                   unions (primarily those under $10
                                                                                                       The current rule authorizes NCUA’s                   million in assets). The proposed
                                             sufficiently ‘‘distressed,’’ and thus will
                                                                                                     regional directors to obtain from FCUs                 amendments will not have a significant
                                             be familiar with the data and data
                                             sources associated with the tracts within               adding ‘‘underserved areas’’ reports on                economic impact on a substantial
                                             the area.                                               their success in serving members in                    number of small credit unions and
                                                Data on Population and Location of                   these areas. Manual, Ch. 3, § III.A. Some              therefore, a regulatory flexibility
                                             Facilities. Current tract-by-tract                      commenters have in the past                            analysis is not required.
                                             population data is available on-line                    recommended that NCUA affirmatively
                                                                                                     require these reports. That issue is not               Paperwork Reduction Act
                                             from the ‘‘My CDFI Fund’’ Web site’s IA
                                             Worksheet or from the most recent                       addressed in this proposed rulemaking                    This proposed rule imposes a
                                             decennial Census itself. Current data on                because the Board is as a separate matter              requirement that any multiple common
                                             the location of facilities of institutions              considering recommendations of                         bond federal credit union that wishes to
                                             insured by the Federal Deposit                          NCUA’s Outreach Task Force that                        add an underserved area must apply for
                                             Insurance Corporation (‘‘FDIC’’) or                     would call for NCUA to obtain                          the NCUA Board’s written approval to
                                             regulated by the Office of Thrift                       information from credit unions on                      do so. This proposed rule mandates
                                             Supervision is available on-line on the                 member income levels and products and                  certain specific information that must be
                                             FDIC’s ‘‘Summary of Deposits’’ webpage                  services offered to members, and to                    included in the application. NCUA
                                             sorted by state, county and MSA.10                      organize the data by census tract.                     requests public comment on all aspects
                                             Current data on the location of credit                  Consideration of the issue in this                     of the collection of information in this
                                             union facilities is collected by NCUA                   rulemaking would therefore be an                       proposed rule. Based upon past
                                             annually from a credit union’s ‘‘Report                 unnecessary duplication.                               experience NCUA anticipates
                                             of Officials.’’ NCUA plans to organize                                                                         approximately 100 applications per
                                             that data and make it available on-line                 F. Pending Applications To Serve an                    year. Given the type of information
                                             at the NCUA Web site. This data can be                  ‘‘Underserved Area’’                                   required to be included in the
                                             sorted manually on a tract-by-tract basis.                                                                     application, NCUA estimates a burden
                                                Issues for Comment. Public                             If, as a result of its review of public              of 8 hours per application and will
                                             commenters are invited to address the                   comments on this proposed rule, the                    revisit this estimate in light of the
                                             ‘‘underserved by other depository                       NCUA Board adopts a final rule                         comments NCUA receives.
                                             institutions’’ criterion, including                     modifying the current Chartering                         NCUA will submit the collection of
                                             whether the facilities of such                          Manual, the modifications will apply                   information requirements contained in
                                             institutions should be defined to                       prospectively. Pending applications for                this proposed rule to the Office of
                                             include ATMs and shared branches.                       approval to serve an ‘‘underserved area’’              Management and Budget (OMB) in
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                                             Further, the NCUA Board asks                            and applications received after the date               accordance with the Paperwork
                                             commenters to suggest methodologies                     of publication of this rule will be                    Reduction Act of 1995. 44 U.S.C. 3507.
                                             other than the concentration of facilities              deferred until the rulemaking process is               NCUA will use any comments received
                                                                                                     completed.                                             to develop its new burden estimates.
                                              10 FDIC Summary of Deposits webpage: http://                                                                  Comments on the collections of
                                                                                                                                                                                                        EP17JN08.000</MATH>




                                             www2.fdic.gov/sod/sodSummary.asp?baritem=3.                                                                    information should be sent to Office of


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                                             Management and Budget, Reports                          1999, Public Law 105–277, 112 Stat.                      • The occupational, associational, or
                                             Management Branch, New Executive                        2681 (1998).                                           multiple groups possess an appropriate
                                             Office Building, NCUA Desk Officer,                                                                            common bond or the community represents
                                                                                                     List of Subjects in 12 CFR Part 701                    a well-defined local community,
                                             Room 10202, 725 17th St., NW.,
                                                                                                                                                            neighborhood, or rural district;
                                             Washington, DC 20503; or by fax to                        Credit, Credit unions, Reporting and
                                                                                                                                                              • The subscribers are of good character
                                             (202) 395–6974; Attention: Desk Officer                 recordkeeping requirements.                            and are fit to represent the proposed credit
                                             for NCUA. Please send NCUA a copy of                      By the National Credit Union                         union; and
                                             any comments you submit to OMB.                         Administration Board on May 29, 2008.                    • The establishment of the credit union is
                                               NCUA made the following                               Mary Rupp,                                             economically advisable.
                                             assumptions about this proposed rule:                   Secretary of the Board.
                                                                                                                                                              Generally, these are the primary criteria
                                               • The likely respondents are multiple                                                                        that NCUA will consider. In unusual
                                             common bond federal credit unions.                        For the reasons stated above, 12 CFR                 circumstances, however, NCUA may examine
                                               • Estimated annual number of                          Part 701 is proposed to be amended as                  other factors, such as other federal law or
                                             respondents: 100.                                       follows:                                               public policy, in deciding if a charter should
                                               • Estimated average annual burden                                                                            be approved.
                                                                                                     PART 701—ORGANIZATION AND                                Unless otherwise noted, the policies
                                             hours per respondent: 8 hours.                                                                                 outlined in this manual apply only to federal
                                               • Estimated total annual disclosure                   OPERATION OF FEDERAL CREDIT
                                                                                                     UNIONS                                                 credit unions.
                                             and recordkeeping burden: 800 hours.
                                               In addition to comments on the                                                                               II—Types of Charters
                                                                                                       1. The authority citation for part 701
                                             proposed rule, NCUA invites comment                     continues to read as follows:                            The Federal Credit Union Act recognizes
                                             on:                                                                                                            three types of federal credit union charters—
                                               • The accuracy of NCUA’s estimate of                     Authority: 12 U.S.C. 1752(5), 1755, 1756,           single common bond (occupational and
                                             the burden of the information                           1757, 1759, 1761a, 1761b, 1766, 1767, 1782,            associational), multiple common bond (more
                                                                                                     1784, 1787, 1789. Section 701.6 is also                than one group each having a common bond
                                             collections;
                                                                                                     authorized by 15 U.S.C. 3717. Section 701.31           of occupation or association), and
                                               • Ways to minimize the burden of the                  is also authorized by 15 U.S.C. 1601, et seq.,         community.
                                             information collections on Federal                      42 U.S.C. 1981 and 3601–3610. Section                    The requirements that must be met to
                                             credit unions, including the use of                     701.35 is also authorized by 12 U.S.C. 4311–           charter a federal credit union are described
                                             automated collection techniques or                      4312.                                                  in Chapter 2. Special rules for credit unions
                                             other forms of information technology;                                                                         serving low-income groups are described in
                                                                                                       2. Section 701.1 is revised to read as
                                             and                                                                                                            Chapter 3.
                                               • Estimates of capital or start-up costs              follows:                                                 If a federal credit union charter is granted,
                                             and costs of operation, maintenance,                    § 701.1 Federal credit union chartering,               Section 5 of the charter will describe the
                                             and purchase of services to provide                     field of membership modifications, and                 credit union’s field of membership, which
                                             information.                                            conversions.                                           defines those persons and entities eligible for
                                                                                                                                                            membership. Generally, federal credit unions
                                               Recordkeepers are not required to                       National Credit Union Administration                 are only able to grant loans and provide
                                             respond to this collection of information               policies concerning chartering, field of               services to persons within the field of
                                             unless it displays a currently valid OMB                membership modifications, and                          membership who have become members of
                                             control number. NCUA is currently                       conversions are set forth in Interpretive              the credit union.
                                             requesting a control number for this                    Ruling and Policy Statement 08–2,                      III—Subscribers
                                             information collection from OMB.                        Chartering and Field of Membership
                                                                                                                                                               Federal credit unions are generally
                                             Executive Order 13132                                   Manual (IRPS 08–2) published as                        organized by persons who volunteer their
                                                                                                     Appendix B to this part. The Chartering                time and resources and are responsible for
                                               Executive Order 13132 encourages                      and Field of Membership Manual also is
                                             independent regulatory agencies to                                                                             determining the interest, commitment, and
                                                                                                     available on-line at http://                           economic advisability of forming a federal
                                             consider the impact of their actions on                 www.ncua.gov.                                          credit union. The organization of a successful
                                             state and local interests. In adherence to                3. Appendix B to 12 CFR Part 701 is                  federal credit union takes considerable
                                             fundamental federalism principles,                      added to read as follows:                              planning and dedication.
                                             NCUA, an independent regulatory                                                                                   Persons interested in organizing a federal
                                             agency as defined in 44 U.S.C. 3502(5),                 Appendix B To Part 701—Chartering                      credit union should contact one of the credit
                                             voluntarily complies with the executive                 and Field of Membership Manual                         union trade associations or the NCUA
                                             order. The proposed rule would not                                                                             regional office serving the state in which the
                                                                                                     Chapter 1
                                             have substantial direct effects on the                                                                         credit union will be organized. Lists of
                                             states, on the connection between the                   Federal Credit Union Chartering                        NCUA offices and credit union trade
                                                                                                                                                            associations are shown in the appendices.
                                             national government and the states, or                  I—Goals of NCUA Chartering Policy                      NCUA will provide information to groups
                                             on the distribution of power and                           The National Credit Union                           interested in pursuing a federal charter and
                                             responsibilities among the various                      Administration’s (NCUA) chartering and                 will assist them in contacting an organizer.
                                             levels of government. NCUA has                          field of membership policies are directed                 While anyone may organize a credit union,
                                             determined that this proposed rule does                 toward achieving the following goals:                  a person with training and experience in
                                             not constitute a policy that has                           • To encourage the formation of credit              chartering new federal credit unions is
                                             federalism implications for purposes of                 unions;                                                generally the most effective organizer.
                                             the executive order.                                       • To uphold the provisions of the Federal           However, extensive involvement by the
                                                                                                     Credit Union Act;                                      group desiring credit union service is
                                             The Treasury and General Government                        • To promote thrift and credit extension;           essential.
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                                             Appropriations Act, 1999                                   • To promote credit union safety and                   The functions of the organizer are to
                                                                                                     soundness; and                                         provide direction, guidance, and advice on
                                               The NCUA has determined that this                        • To make quality credit union service              the chartering process. The organizer also
                                             proposed rule would not affect family                   available to all eligible persons.                     provides the group with information about a
                                             well-being within the meaning of                           NCUA may grant a charter to single                  credit union’s functions and purpose as well
                                             section 654 of the Treasury and General                 occupational/associational groups, multiple            as technical assistance in preparing and
                                             Government Appropriations Act of                        groups, or communities if:                             submitting the charter application. Close



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                                             34372                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules

                                             communication and cooperation between the               chartered credit unions. If the application of           • Operating facilities, to include office
                                             organizer and the proposed members are                  a prospective official or employee to serve is         space/equipment and supplies, safeguarding
                                             critical to the chartering process.                     not acceptable to the regional director, the           of assets, insurance coverage, etc.;
                                                The Federal Credit Union Act requires that           group can propose an alternate to act in that            • Type of record keeping and data
                                             seven or more natural persons—The                       individual’s place. If the charter applicant           processing system;
                                             ‘‘subscribers’’—present to NCUA for approval            feels it is essential that the disqualified              • Detailed semiannual pro forma financial
                                             a sworn organization certificate stating at a           individual be retained, the individual may             statements (balance sheet, income and
                                             minimum:                                                appeal the regional director’s decision to the         expense projections) for 1st and 2nd year,
                                                • The name of the proposed federal credit            NCUA Board. If an appeal is pursued, action            including assumptions—e.g., loan and
                                             union;                                                  on the application may be delayed. If the              dividend rates;
                                                • The location of the proposed federal               appeal is denied by the NCUA Board, an                   • Plans for operating independently;
                                             credit union and the territory in which it will         acceptable new applicant must be provided                • Written policies (shares, lending,
                                             operate;                                                before the charter can be approved.                    investments, funds management, capital
                                                • The names and addresses of the                                                                            accumulation, dividends, collections, etc.);
                                             subscribers to the certificate and the number           IV.C—Member Support
                                                                                                                                                              • Source of funds to pay expenses during
                                             of shares subscribed by each;                              Economic advisability is a major factor in          initial months of operation, including any
                                                • The initial par value of the shares;               determining whether the credit union will be           subsidies, assistance, etc., and terms or
                                                • The detailed proposed field of                     chartered. An important consideration is the
                                             membership; and                                                                                                conditions of such resources; and
                                                • The fact that the certificate is made to
                                                                                                     degree of support from the field of                      • Evidence of sponsor commitment (or
                                                                                                     membership. The charter applicant must be              other source of support) if subsidies are
                                             enable such persons to avail themselves of
                                                                                                     able to demonstrate that membership support            critical to success of the federal credit union.
                                             the advantages of the Federal Credit Union
                                             Act.                                                    is sufficient to ensure viability.                     Evidence may be in the form of letters,
                                                False statements on any of the required                 NCUA has not set a minimum field of                 contracts, financial statements from the
                                             documentation filed in obtaining a federal              membership size for chartering a federal               sponsor, and any other such document on
                                             credit union charter may be grounds for                 credit union. Consequently, groups of any              which the proposed federal credit union can
                                             federal criminal prosecution.                           size may apply for a credit union charter and          substantiate its projections.
                                                                                                     be approved if they demonstrate economic                 While the business plan may be prepared
                                             IV—Economic Advisability                                advisability. However, it is important to note         with outside assistance, the subscribers and
                                             IV.A—General                                            that often the size of the group is indicative         proposed officials must understand and
                                                                                                     of the potential for success. For that reason,         support the submitted business plan.
                                               Before chartering a federal credit union,             a charter application with fewer than 3,000
                                             NCUA must be satisfied that the institution             primary potential members (e.g., employees             V—Steps in Organizing a Federal Credit
                                             will be viable and that it will provide needed          of a corporation or members of an                      Union
                                             services to its members. Economic                       association) may not be economically
                                             advisability, which is a determination that a                                                                  V.A—Getting Started
                                                                                                     advisable. Therefore, a charter applicant with
                                             potential charter will have a reasonable                a proposed field of membership of fewer than             Following the guidance contained
                                             opportunity to succeed, is essential in order           3,000 primary potential members may have               throughout this policy, the organizers should
                                             to qualify for a credit union charter.                                                                         submit wording for the proposed field of
                                                                                                     to provide more support than an applicant
                                               NCUA will conduct an independent on-site                                                                     membership (the persons, organizations and
                                                                                                     with a larger field of membership. For
                                             investigation of each charter application to                                                                   other legal entities the credit union will
                                                                                                     example, a small occupational or
                                             ensure that the proposed credit union can be                                                                   serve) to NCUA early in the application
                                                                                                     associational group may be required to
                                             successful. In general, the success of any                                                                     process for written preliminary approval. The
                                             credit union depends on: (a) The character              demonstrate a commitment for long-term
                                                                                                     support from the sponsor.                              proposed field of membership must meet all
                                             and fitness of management; (b) the depth of                                                                    common bond or community requirements.
                                             the members’ support; and (c) present and               IV.D—Present and Future Market                           Once the field of membership has been
                                             projected market conditions.                            Conditions—Business Plan                               given preliminary approval, and the
                                             IV.B—Proposed Management’s Character                       The ability to provide effective service to         organizer is satisfied the application has
                                             and Fitness                                             members, compete in the marketplace, and to            merit, the organizer should conduct an
                                                                                                     adapt to changing market conditions are key            organizational meeting to elect seven to ten
                                                The Federal Credit Union Act requires
                                                                                                     to the survival of any enterprise. Before              persons to serve as subscribers. The
                                             NCUA to ensure that the subscribers are of
                                                                                                     NCUA will charter a credit union, a business           subscribers should locate willing individuals
                                             good ‘‘general character and fitness.’’
                                                                                                     plan based on realistic and supportable                capable of serving on the board of directors,
                                             Prospective officials and employees will be
                                                                                                     projections and assumptions must be                    credit committee, supervisory committee,
                                             the subject of credit and background
                                             investigations. The investigation report must           submitted.                                             and as chief operating officer/manager of the
                                             demonstrate each applicant’s ability to                    The business plan should contain, at a              proposed credit union.
                                             effectively handle financial matters.                   minimum, the following elements:                         Subsequent organizational meetings may
                                             Employees and officials should also be                     • Mission statement;                                be held to discuss the progress of the charter
                                             competent, experienced, honest and of good                 • Analysis of market conditions, including          investigation, to announce the proposed slate
                                             character. Factors that may lead to                     if applicable, geographic, demographic,                of officials, and to respond to any questions
                                             disapproval of a prospective official or                employment, income, housing, and other                 posed at these meetings.
                                             employee include criminal convictions,                  economic data;                                           If NCUA approves the charter application,
                                             indictments, and acts of fraud and                         • Evidence of member support;                       the subscribers, as their final duty, will elect
                                             dishonesty. Further, factors such as serious               • Goals for shares, loans, and for number           the board of directors of the proposed federal
                                             or unresolved past due credit obligations and           of members;                                            credit union. The new board of directors will
                                             bankruptcies disclosed during credit checks                • Financial services needed/desired;                then appoint the supervisory committee.
                                             may disqualify an individual.                              • Financial services to be provided to              V.B—Charter Application Documentation
                                                NCUA also needs reasonable assurance                 members of all segments within the field of
                                             that the management team will have the                  membership;                                            V.B.1—General
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                                             requisite skills—particularly in leadership                • How/when services are to be                         As discussed previously in this Chapter,
                                             and accounting—and the commitment to                    implemented;                                           the organizer of a federal credit union charter
                                             dedicate the time and effort needed to make                • Organizational/management plan                    must, at a minimum, provide evidence that:
                                             the proposed federal credit union a success.            addressing qualification and planned training            • The group(s) possess an appropriate
                                                Section 701.14 of NCUA’s Rules and                   of officials/employees;                                common bond or the geographical area to be
                                             Regulations sets forth the procedures for                  • Continuity plan for directors, committee          served is a well-defined local community,
                                             NCUA approval of officials of newly                     members and management staff;                          neighborhood, or rural district;



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                                                • The subscribers, prospective officials,            VI—Name Selection                                      cases, NCUA will require the prospective
                                             and employees are of good character and                    It is the responsibility of the federal credit      officials to adhere to certain operational
                                             fitness; and                                            union organizers or officials of an existing           guidelines. Generally, the agreement is for a
                                                • The establishment of the credit union is           credit union to ensure that the proposed               limited term of two to four years. A sample
                                             economically advisable.                                 federal credit union name or federal credit            Letter of Understanding and Agreement is
                                                As part of the application process, the              union name change does not constitute an               found in Appendix 2.
                                             organizer must submit the following forms,              infringement on the name of any corporation
                                             which are available in Appendix 4 of this                                                                      VII.B—Regional Director Approval
                                                                                                     in its trade area. This responsibility also
                                             Manual:                                                                                                           Once approved, the board of directors of
                                                                                                     includes researching any service marks or
                                                • Federal Credit Union Investigation                 trademarks used by any other corporation
                                                                                                                                                            the newly formed federal credit union will
                                             Report, NCUA 4001;                                                                                             receive a signed charter and standard bylaws
                                                                                                     (including credit unions) in its trade area.
                                                • Organization Certificate, NCUA 4008;                                                                      from the regional director. Additionally, the
                                                                                                     NCUA will ensure, to the extent possible,
                                                • Report of Official and Agreement to                                                                       officials will be advised of the name of the
                                                                                                     that the credit union’s name:                          examiner assigned responsibility for
                                             Serve, NCUA 4012;
                                                                                                        • Is not already being officially used by
                                                • Application and Agreements for                                                                            supervising and examining the credit union.
                                                                                                     another federal credit union;
                                             Insurance of Accounts, NCUA 9500; and
                                                                                                        • Will not be confused with NCUA or                 VII.C—Regional Director Disapproval
                                                • Certification of Resolutions, NCUA 9501.
                                                                                                     another federal or state agency, or with                 When a regional director disapproves any
                                                Each of these forms is described in more
                                                                                                     another credit union; and                              charter application, in whole or in part, the
                                             detail in the following sections.
                                                                                                        • Does not include misleading or                    organizer will be informed in writing of the
                                             V.B.2—Federal Credit Union Investigation                inappropriate language.                                specific reasons for the disapproval. Where
                                             Report, NCUA 4001                                          The last three words in the name of every           applicable, the regional director will provide
                                                The application for a new federal credit             credit union chartered by NCUA must be                 information concerning options or
                                             union will be submitted on NCUA 4001.                   ‘‘Federal Credit Union.’’                              suggestions that the applicant could consider
                                             State-chartered credit unions applying for                 The word ‘‘community,’’ while not                   for gaining approval or otherwise acquiring
                                             conversion to a federal charter will use                required, can only be included in the name             credit union service. The letter of denial will
                                             NCUA 4000. (See Chapter 4 for a full                    of federal credit unions that have been                include the procedures for appealing the
                                             discussion.) The organizer is required to               granted a community charter.                           decision.
                                             certify the information and recommend
                                                                                                     VII—NCUA REVIEW                                        VII.D—Appeal of Regional Director Decision
                                             approval or disapproval, based on the
                                             investigation of the request.                           VII.A—General                                             If the regional director denies a charter
                                             V.B.3—Organization Certificate, NCUA 4008                  Once NCUA receives a complete charter               application, in whole or in part, that decision
                                                                                                     application package, an acknowledgment of              may be appealed to the NCUA Board. An
                                                This document, which must be completed                                                                      appeal must be sent to the appropriate
                                             by the subscribers, includes the seven criteria         receipt will be sent to the organizer. At some
                                                                                                                                                            regional office within 60 days of the date of
                                             established by the Federal Credit Union Act.            point during the review process, a staff
                                                                                                                                                            denial and must address the specific reasons
                                             NCUA staff assigned to the case will assist in          member will be assigned to perform an on-
                                                                                                                                                            for denial. The regional director will then
                                             the proper completion of this document.                 site contact with the proposed officials and
                                                                                                                                                            forward the appeal to the NCUA Board.
                                                                                                     others having an interest in the proposed
                                             V.B.4—Report of Official and Agreement to                                                                      NCUA central office staff will make an
                                                                                                     federal credit union.
                                             Serve, NCUA 4012                                                                                               independent review of the facts and present
                                                                                                        NCUA staff will review the application
                                                This form documents general background                                                                      the appeal with a recommendation to the
                                                                                                     package and verify its accuracy and
                                             information of each official and employee of                                                                   NCUA Board.
                                                                                                     reasonableness. A staff member will inquire
                                             the proposed federal credit union. Each                                                                           Before appealing, the prospective group
                                                                                                     into the financial management experience               may, within 30 days of the denial, provide
                                             official and employee must complete and                 and the suitability and commitment of the
                                             sign this form. The organizer must review                                                                      supplemental information to the regional
                                                                                                     proposed officials and employees, and will             director for reconsideration. A
                                             each of the NCUA 4012s for elements that                make an assessment of economic
                                             would prevent the prospective official or                                                                      reconsideration will contain new and
                                                                                                     advisability. The staff member will also               material evidence addressing the reasons for
                                             employee from serving. Further, such factors            provide guidance to the subscribers in the
                                             as serious, unresolved past due credit                                                                         the initial denial. The regional director will
                                                                                                     proper completion of the Organization                  have 30 days from the date of the receipt of
                                             obligations and bankruptcies disclosed                  Certificate, NCUA 4008.
                                             during credit checks may disqualify an                                                                         the request for reconsideration to make a
                                                                                                        Credit and background investigations may            final decision. If the request is again denied,
                                             individual.                                             be conducted concurrently by NCUA with                 the applicant may proceed with the appeal
                                             V.B.5—Application and Agreements for                    other work being performed by the organizer            process within 60 days of the date of the last
                                             Insurance of Accounts, NCUA 9500                        and subscribers to reduce the likelihood of            denial. A second request for reconsideration
                                                This document contains the agreements                delays in the chartering process.                      will be treated as an appeal to the NCUA
                                             with which federal credit unions must                      The staff member will analyze the                   Board.
                                             comply in order to obtain National Credit               prospective credit union’s business plan for
                                                                                                     realistic projections, attainable goals,               VII.E—Commencement of Operations
                                             Union Share Insurance Fund (NCUSIF)
                                             coverage of member accounts. The document               adequate service to all segments of the field             Assistance in commencing operations is
                                             must be completed and signed by both the                of membership, sufficient start-up capital,            generally available through the various credit
                                             chief executive officer and chief financial             and time commitment by the proposed                    union trade organizations listed in Appendix
                                             officer. A federal credit union must qualify            officials and employees. Any concerns will             5.
                                             for federal share insurance.                            be reviewed with the organizer and discussed              All new federal credit unions are also
                                                                                                     with the prospective credit union’s officials.         encouraged to establish a mentor relationship
                                             V.B.6—Certification of Resolutions, NCUA                Additional on-site contacts by NCUA staff              with a knowledgeable, experienced credit
                                             9501                                                    may be necessary. The organizer and                    union individual or an existing, well-
                                                This document certifies that the board of            subscribers will be expected to take the steps         operated credit union. The mentor should
                                             directors of the proposed federal credit union          necessary to resolve any issues or concerns.           provide guidance and assistance to the new
                                             has resolved to apply for NCUSIF insurance              Such resolution efforts may delay processing           credit union through attendance at meetings
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                                             of member accounts and has authorized the               the application.                                       and general oversight. Upon request, NCUA
                                             chief executive officer and recording officer              NCUA staff will then make a                         will provide assistance in finding a qualified
                                             to execute the Application and Agreements               recommendation to the regional director                mentor.
                                             for Insurance of Accounts. Both the chief               regarding the charter application. The
                                             executive officer and recording officer of the          recommendation may include specific                    VIII—Future Supervision
                                             proposed federal credit union must sign this            provisions to be included in a Letter of                 Each federal credit union will be examined
                                             form.                                                   Understanding and Agreement. In most                   regularly by NCUA to determine that it



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                                             34374                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules

                                             remains in compliance with applicable laws              association, it will be designated as a                federal credit union that adds an underserved
                                             and regulations and to determine that it does           multiple common bond credit union.                     community to its field of membership.
                                             not pose undue risk to the NCUSIF. The                     Community: All community credit unions
                                             examiner will contact the credit union                  will be designated as such, followed by a              II—Occupational Common Bond
                                             officials shortly after approval of the charter         description of their geographic boundaries             II.A.1—General
                                             in order to arrange for the initial examination         (e.g. city or county).                                    A single occupational common bond
                                             (usually within the first six months of                    Credit unions desiring to confirm or submit         federal credit union may include in its field
                                             operation).                                             an application to change their designations            of membership all persons and entities who
                                                The examiner will be responsible for                 should contact the appropriate NCUA                    share that common bond. NCUA permits a
                                             monitoring the progress of the credit union             regional office.                                       person’s membership eligibility in a single
                                             and providing the necessary advice and                                                                         occupational common bond group to be
                                             guidance to ensure it is in compliance with             XII—Foreign Branching
                                                                                                                                                            established in five ways:
                                             applicable laws and regulations. The                      Federal credit unions are permitted to                  • Employment (or a long-term contractual
                                             examiner will also monitor compliance with              serve foreign nationals within their fields of         relationship equivalent to employment) in a
                                             the terms of any required Letter of                     membership wherever they reside provided               single corporation or other legal entity makes
                                             Understanding and Agreement. Typically,                 they have the ability, resources, and                  that person part of a single occupational
                                             the examiner will require the credit union to           management expertise to serve such persons.            common bond;
                                             submit copies of monthly board minutes and              Before a credit union opens a branch outside              • Employment in a corporation or other
                                             financial statements.                                   the United States, it must submit an                   legal entity with a controlling ownership
                                                The Federal Credit Union Act requires all            application to do so and have prior written            interest (which shall not be less than 10
                                             newly chartered credit unions, up to two                approval of the regional director. A federal           percent) in or by another legal entity makes
                                             years after the charter anniversary date, to            credit union may establish a service facility          that person part of a single occupational
                                             obtain NCUA approval prior to appointment               on a United States military installation or            common bond;
                                             of any new board member, credit or                      United States embassy without prior NCUA                  • Employment in a corporation or other
                                             supervisory committee member, or senior                 approval.                                              legal entity which is related to another legal
                                             executive officer. Section 701.14 of the                                                                       entity (such as a company under contract and
                                             NCUA Rules and Regulations sets forth the               Chapter 2
                                                                                                                                                            possessing a strong dependency relationship
                                             notice and application requirements. If                 Field of Membership Requirements for                   with another company) makes that person
                                             NCUA issues a Notice of Disapproval, the                Federal Credit Unions                                  part of a single occupational common bond;
                                             newly chartered credit union is prohibited                                                                        • Employment or attendance at a school
                                             from making the change.                                 I—Introduction
                                                                                                                                                            makes that person part of a single
                                                NCUA may disapprove an individual                    I.A.1—General                                          occupational common bond (see Chapter 2,
                                             serving as a director, committee member or                                                                     Section III.A.1); or
                                             senior executive officer if it finds that the              As set forth in Chapter 1, the Federal
                                                                                                     Credit Union Act provides for three types of              • Employment in the same Trade,
                                             competence, experience, character, or                                                                          Industry, or Profession (TIP) (see Chapter 2,
                                             integrity of the individual indicates it would          federal credit union charters—single
                                                                                                     common bond (occupational or                           Section II.A.2).
                                             not be in the best interests of the members                                                                       A geographic limitation is not a
                                             of the credit union or of the public to permit          associational), multiple common bond
                                                                                                     (multiple groups), and community. Section              requirement for a single occupational
                                             the individual to be employed by or                                                                            common bond. However, for purposes of
                                             associated with the credit union. If a Notice           109 (12 U.S.C. 1759) of the Federal Credit
                                                                                                     Union Act sets forth the membership criteria           describing the field of membership, the
                                             of Disapproval is issued, the credit union                                                                     geographic areas being served may be
                                             may appeal the decision to the NCUA Board.              for each of these three types of credit unions.
                                                                                                        The field of membership, which is                   included in the charter. For example:
                                             IX—Corporate Federal Credit Unions                      specified in Section 5 of the charter, defines            • Employees, officials, and persons who
                                                                                                     those persons and entities eligible for                work regularly under contract in Miami,
                                                A corporate federal credit union is one that
                                                                                                     membership. A single common bond federal               Florida, for ABC Corporation and
                                             is operated primarily for the purpose of
                                                                                                     credit union consists of one group having a            subsidiaries;
                                             serving other credit unions. Corporate federal
                                                                                                     common bond of occupation or association.                 • Employees of ABC Corporation who are
                                             credit unions operate under and are
                                                                                                     A multiple common bond federal credit                  paid from * * *;
                                             administered by the NCUA Office of
                                                                                                     union consists of more than one group, each               • Employees of ABC Corporation who are
                                             Corporate Credit Unions.
                                                                                                     of which has a common bond of occupation               supervised from * * *;
                                             X—Groups Seeking Credit Union Service                   or association. A community federal credit                • Employees of ABC Corporation who are
                                                NCUA will attempt to assist any group in             union consists of persons or organizations             headquartered in * * *; and/or
                                             chartering a credit union or joining an                 within a well-defined local community,                    • Employees of ABC Corporation who
                                             existing credit union. If the group is not              neighborhood, or rural district.                       work in the United States.
                                             eligible for federal credit union service,                 Once chartered, a federal credit union can             The corporation or other legal entity (i.e.,
                                             NCUA will refer the group to the appropriate            amend its field of membership; however, the            the employer) may also be included in the
                                             state supervisory authority where different             same common bond or community                          common bond—e.g., ‘‘ABC Corporation.’’
                                             requirements may apply.                                 requirements for chartering the credit union           The corporation or legal entity will be
                                                                                                     must be satisfied. Since there are differences         defined in the last clause in Section 5 of the
                                             XI—Field of Membership Designations                                                                            credit union’s charter.
                                                                                                     in the three types of charters, special rules,
                                               NCUA will designate a credit union based              which are fully discussed in the following                A charter applicant must provide
                                             on the following criteria:                              sections of this Chapter, may apply to each.           documentation to establish that the single
                                               Single Occupational: If a credit union                                                                       occupational common bond requirement has
                                                                                                     I.A.2—Special Low-Income Rules                         been met.
                                             serves a single occupational sponsor, such as
                                             ABC Corporation, it will be designated as an               Generally, federal credit unions can only              Some examples of single occupational
                                             occupational credit union. A single                     grant loans and provide services to persons            common bonds are:
                                             occupational common bond credit union may               who have joined the credit union. The                     • Employees of the Hunt Manufacturing
                                             also serve a trade, industry, or profession             Federal Credit Union Act states that one of            Company who work in West Chester,
                                             (TIP), such as all teachers.                            the purposes of federal credit unions is ‘‘to          Pennsylvania (common bond—same
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                                               Single Associational: If a credit union               serve the productive and provident credit              employer with geographic definition);
                                             serves a single associational sponsor, such as          needs of individuals of modest means.’’                   • Employees of the Buffalo Manufacturing
                                             the Knights of Columbus, it will be                     Although field of membership requirements              Company who work in the United States
                                             designated as an associational credit union.            are applicable, special rules set forth in             (common bond—same employer with
                                               Multiple Common Bond: If a credit union               Chapter 3 may apply to low-income                      geographic definition);
                                             serves more than one group, each of which               designated credit unions and those credit                 • Employees, elected and appointed
                                             has a common bond of occupation and/or                  unions assisting low-income groups or to a             officials of municipal government in Parma,



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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                                                34375

                                             Ohio (common bond—same employer with                    able to be served by the credit union because          employees in the industry. For example, an
                                             geographic definition);                                 they work in the same industry and have the            airline service TIP (industry) can serve an
                                                • Employees of Johnson Soap Company                  same commonality of interests.                         airline carrier (corporate account); however,
                                             and its majority owned subsidiary, Johnson                 If a credit union wants to include the              a nurses TIP (profession) could not serve a
                                             Toothpaste Company, who work in, are paid               airline services industry, it can serve airline        hospital (corporate account) because not
                                             from, are supervised from, or are                       and airport personnel but not passengers.              everyone working in the hospital shares the
                                             headquartered in Augusta and Portland,                  Clients or customers of the TIP are not                same profession.
                                             Maine (common bond—parent and                           eligible for credit union membership (e.g.,              If a TIP designated credit union wishes to
                                             subsidiary company with geographic                      patients in hospitals). Any company that is            convert to a different TIP or employer-based
                                             definition);                                            involved in more than one industry cannot              occupational common bond, or different
                                                • Employees of MMLLJS contractor who                 be included in an industry TIP (e.g., a                charter type, it only retains members of
                                             work regularly at the U.S. Naval Shipyard in            company that makes tobacco products, food              record after the conversion. The regional
                                             Bremerton, Washington (common bond—                     products, and electronics). However,                   director, for safety and soundness reasons,
                                             employees of contractors with geographic                employees of these companies may be                    may approve a TIP designated credit union
                                             definition);                                            eligible for membership in a variety of trade/         to convert to its original field of membership.
                                                • Employees, doctors, medical staff,                 profession occupational common bond TIPs.
                                             technicians, medical and nursing students                  Since a TIP must be narrowly defined, it            II.B—Occupational Common Bond
                                             who work in or are paid from the Newport                cannot include third party vendors and other           Amendments
                                             Beach Medical Center, Newport Beach,                    suppliers. For example, the steel suppliers to         II.B.1—General
                                             California (single corporation with                     the automobile industry would not be part of              Section 5 of every single occupational
                                             geographic definition);                                 the automobile industry TIP. However, the              federal credit union’s charter defines the
                                                • Employees of JLS, Incorporated and                 automobile industry includes manufacturers             field of membership the credit union can
                                             MJM, Incorporated working for the LKM Joint             and their automobile dealerships.                      legally serve. Only those persons or legal
                                             Venture Company in Catalina Island,                        In general, except for credit unions                entities specified in the field of membership
                                             California (common bond—same employer—                  currently serving a national field of                  can be served. There are a number of
                                             ongoing dependent relationship);                        membership or operating in multiple states,            instances in which Section 5 must be
                                                • Employees of and students attending                a geographic limitation is required for a TIP          amended by NCUA.
                                             Georgetown University (common bond—                     credit union. The geographic limitation will              First, a group sharing the credit union’s
                                             same occupation);                                       be part of the credit union’s charter and              common bond is added to the field of
                                                • Employees of all the schools supervised            generally correspond to its current or                 membership. This may occur through various
                                             by the Timbrook Board of Education in                   planned operational area. More than one                ways including agreement between the group
                                             Timbrook, Georgia (common bond—same                     federal credit union may serve the same                and the credit union directly, or through a
                                             employer); or                                           trade, industry, or profession, even if both           merger, corporate acquisition, purchase and
                                                • All licensed nurses in Fairfax County,             credit unions are in the same geographic               assumption (P&A), or spin-off.
                                             Virginia (occupational common bond TIP).                location.
                                                Some examples of insufficiently defined                                                                        Second, if the entire field of membership
                                                                                                        This type of occupational common bond is            is acquired by another corporation, the credit
                                             single occupational common bonds are:                   only available to single common bond credit
                                                • Employees of manufacturing firms in                                                                       union can serve the employees of the new
                                                                                                     unions. A TIP cannot be added to a multiple            corporation and any subsidiaries after
                                             Seattle, Washington (no defined occupational            common bond or community field of
                                             sponsor; overly broad TIP);                                                                                    receiving NCUA approval.
                                                                                                     membership.                                               Third, a federal credit union qualifies to
                                                • Persons employed or working in                        To obtain a TIP designation, the proposed
                                             Chicago, Illinois (no occupational common                                                                      change its common bond from:
                                                                                                     or existing credit union must submit a                    • A single occupational common bond to
                                             bond).                                                  request to the regional director. New charter          a single associational common bond;
                                             II.A.2—Trade, Industry, or Profession                   applicants must follow the documentation                  • A single occupational common bond to
                                                A common bond based on employment in                 requirements in Chapter 1. New charter                 a community charter; or
                                             a trade, industry, or profession can include            applicants and existing credit unions must                • A single occupational common bond to
                                             employment at any number of corporations                submit a business plan on how the credit               a multiple common bond.
                                             or other legal entities that—while not under            union will serve the group with the request               Fourth, a federal credit union removes a
                                             common ownership—have a common bond                     to serve the TIP. The business plan also must          portion of the group from its field of
                                             by virtue of producing similar products,                address how the credit union will verify the           membership through agreement with the
                                             providing similar services, or participating in         TIP. Examples of such verification include             group, a spin-off, or because a portion of the
                                             the same type of business.                              state licenses, professional licenses,                 group is no longer in existence.
                                                While proposed or existing single common             organizational memberships, pay statements,               An existing single occupational common
                                             bond credit unions have some latitude in                union membership, or employer certification.           bond federal credit union that submits a
                                             defining a trade, industry, or profession               The regional director must approve this type           request to amend its charter must provide
                                             occupational common bond, it cannot be                  of field of membership before a credit union           documentation to establish that the
                                             defined so broadly as to include groups in              can serve a TIP. Credit unions converting to           occupational common bond requirement has
                                             fields which are not closely related. For               a TIP can retain members of record but                 been met. The regional director must approve
                                             example, the manufacturing industry, energy             cannot add new members from its previous               all amendments to an occupational common
                                             industry, communications industry, retail               group or groups, unless it is part of the TIP.         bond credit union’s field of membership.
                                             industry, or entertainment industry would                  Section II.B on Occupational Common
                                                                                                     Bond Amendments does not apply to a TIP                II.B.2—Corporate Restructuring
                                             not qualify as a TIP because each industry
                                             lacks the necessary commonality. However,               common bond. Removing or changing a                       If the single common bond group that
                                             textile workers, realtors, nurses, teachers,            geographical limitation will be processed as           comprises a federal credit union’s field of
                                             police officers, or U.S. military personnel are         a housekeeping amendment. If safety and                membership undergoes a substantial
                                             closely related and each would qualify as a             soundness concerns are present, the regional           restructuring, the result is often that portions
                                             TIP.                                                    director may require additional information            of the group are sold or spun off. This
                                                The common bond relationship must be                 before the request can be processed.                   requires a change to the credit union’s field
                                             one that demonstrates a narrow commonality                 Section II.H, on Other Persons Eligible for         of membership. NCUA will not permit a
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                                             of interests within a specific trade, industry,         Credit Union Membership, applies to TIP                single common bond credit union to
                                             or profession. If a credit union wants to serve         based credit unions except for the corporate           maintain in its field of membership a sold or
                                             a physician TIP, it can serve all physicians,           account provision which only applies to                spun-off group to which it has been
                                             but that does not mean it can also serve all            industry based TIPs. Credit unions with                providing service unless the group otherwise
                                             clerical staff in the physicians’ offices.              industry based TIPs may include                        qualifies for membership in the credit union
                                             However, if the TIP is based on the health              corporations as members because they have              or the credit union converts to a multiple
                                             care industry, then clerical staff would be             the same commonality of interests as all               common bond credit union.



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                                             34376                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules

                                               If the group comprising the single common             II.C.3—Regional Director Approval                      of the regional director of the merging credit
                                             bond of the credit union merges with, or is                If the regional director approves the               union, and, as applicable, the state
                                             acquired by, another group, the credit union            requested amendment, the credit union will             regulators.
                                             can serve the new group resulting from the              be issued an amendment to Section 5 of its                If a single occupational credit union wants
                                             merger or acquisition after receiving a                 charter.                                               to merge into a multiple common bond or
                                             housekeeping amendment.                                                                                        community credit union, Section IV.D or
                                                                                                     II.C.4—Regional Director Disapproval                   Section V.D of this Chapter, respectively,
                                             II.B.3—Economic Advisability
                                                                                                        When a regional director disapproves any            should be reviewed.
                                               Prior to granting a common bond                       application, in whole or in part, to amend the         II.D.2—Emergency Mergers
                                             expansion, NCUA will examine the                        field of membership under this chapter, the
                                             amendment’s likely effect on the credit                 applicant will be informed in writing of the:             An emergency merger may be approved by
                                             union’s operations and financial condition.                • Specific reasons for the action;                  NCUA without regard to common bond or
                                             In most cases, the information needed for                  • Options to consider, if appropriate, for          other legal constraints. An emergency merger
                                             analyzing the effect of adding a particular             gaining approval; and                                  involves NCUA’s direct intervention and
                                             group will be available to NCUA through the                • Appeal procedure.                                 approval. The credit union to be merged
                                             examination and financial and statistical                                                                      must either be insolvent or likely to become
                                                                                                     II.C.5—Appeal of Regional Director Decision            insolvent, and NCUA must determine that:
                                             reports; however, in particular cases, a
                                             regional director may require additional                   If a field of membership expansion request,            • An emergency requiring expeditious
                                             information prior to making a decision.                 merger, or spin-off is denied by the regional          action exists;
                                                                                                     director, the federal credit union may appeal             • Other alternatives are not reasonably
                                             II.B.4—Documentation Requirements                       the decision to the NCUA Board. An appeal              available; and
                                               A federal credit union requesting a                   must be sent to the appropriate regional                  • The public interest would best be served
                                             common bond expansion must submit an                    office within 60 days of the date of denial,           by approving the merger.
                                             Application for Field of Membership                     and must address the specific reason(s) for               If not corrected, conditions that could lead
                                             Amendment (NCUA 4015–EZ) to the                         the denial. The regional director will then            to insolvency include, but are not limited to:
                                             appropriate NCUA regional director. An                  forward the appeal to the NCUA Board.                     • Abandonment by management;
                                             authorized credit union representative must             NCUA central office staff will make an                    • Loss of sponsor;
                                             sign the request.                                       independent review of the facts and present               • Serious and persistent record keeping
                                                                                                     the appeal to the Board with a                         problems; or
                                             II.C—NCUA’s Procedures for Amending the                 recommendation.                                           • Serious and persistent operational
                                             Field of Membership                                        Before appealing, the credit union may,             concerns.
                                             II.C.1—General                                          within 30 days of the denial, provide                     In an emergency merger situation, NCUA
                                                                                                     supplemental information to the regional               will take an active role in finding a suitable
                                               All requests for approval to amend a
                                                                                                     director for reconsideration. A                        merger partner (continuing credit union).
                                             federal credit union’s charter must be                  reconsideration will contain new and                   NCUA is primarily concerned that the
                                             submitted to the appropriate regional                   material evidence addressing the reasons for           continuing credit union has the financial
                                             director.                                               the initial denial. The regional director will         strength and management expertise to absorb
                                             II.C.2—Regional Director’s Decision                     have 30 days from the date of the receipt of           the troubled credit union without adversely
                                               NCUA staff will review all amendment                  the request for reconsideration to make a              affecting its own financial condition and
                                             requests in order to ensure compliance with             final decision. If the request is again denied,        stability.
                                             NCUA policy.                                            the applicant may proceed with the appeal                 As a stipulated condition to an emergency
                                               Before acting on a proposed amendment,                process within 60 days of the date of the last         merger, the field of membership of the
                                             the regional director may require an on-site            denial. A second request for reconsideration           merging credit union may be transferred
                                             review. In addition, the regional director              will be treated as an appeal to the NCUA               intact to the continuing federal credit union
                                                                                                     Board.                                                 without regard to any common bond
                                             may, after taking into account the
                                                                                                                                                            restrictions. Under this authority, therefore, a
                                             significance of the proposed field of                   II.D—Mergers, Purchase and Assumptions,                single occupational common bond federal
                                             membership amendment, require the                       and Spin-Offs                                          credit union may take into its field of
                                             applicant to submit a business plan                        In general, other than the addition of              membership any dissimilar charter type.
                                             addressing specific issues.                             common bond groups, there are three                       The common bond characteristic of the
                                               The financial and operational condition of            additional ways a federal credit union with            continuing credit union in an emergency
                                             the requesting credit union will be                     a single occupational common bond can                  merger does not change. That is, even though
                                             considered in every instance. NCUA will                 expand its field of membership:                        the merging credit union is a multiple
                                             carefully consider the economic advisability               • By taking in the field of membership of           common bond or community, the continuing
                                             of expanding the field of membership of a               another credit union through a common bond             credit union will remain a single common
                                             credit union with financial or operational              or emergency merger;                                   bond credit union. Similarly, if the merging
                                             problems.                                                  • By taking in the field of membership of           credit union is also an unlike single common
                                               In most cases, field of membership                    another credit union through a common bond             bond, the continuing credit union will
                                             amendments will only be approved for credit             or emergency purchase and assumption                   remain a single common bond credit union.
                                             unions that are operating satisfactorily.               (P&A); or                                              Future common bond expansions will be
                                             Generally, if a federal credit union is having             • By taking a portion of another credit             based on the continuing credit union’s
                                             difficulty providing service to its current             union’s field of membership through a                  original single common bond.
                                             membership, or is experiencing financial or             common bond spin-off.                                     Emergency mergers involving federally
                                             other operational problems, it may have more                                                                   insured credit unions in different NCUA
                                             difficulty serving an expanded field of                 II.D.1—Mergers
                                                                                                                                                            regions must be approved by the regional
                                             membership.                                                Generally, the requirements applicable to           director where the continuing credit union is
                                               Occasionally, however, an expanded field              field of membership expansions found in this           headquartered, with the concurrence of the
                                             of membership may provide the basis for                 chapter apply to mergers where the                     regional director of the merging credit union
                                             reversing current financial problems. In such           continuing credit union has a federal charter.         and, as applicable, the state regulators.
                                             cases, an amendment to expand the field of              That is, the two credit unions must share a
                                                                                                                                                            II.D.3—Purchase and Assumption (P&A)
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                                             membership may be granted notwithstanding               common bond.
                                             the credit union’s financial or operational                Where the merging credit union is state-               Another alternative for acquiring the field
                                             problems. The applicant credit union must               chartered, the common bond rules applicable            of membership of a failing credit union is
                                             clearly establish that the expanded field of            to a federal credit union apply.                       through a consolidation known as a P&A. A
                                             membership is in the best interest of the                  Mergers must be approved by the NCUA                P&A has limited application because, in most
                                             members and will not increase the risk to the           regional director where the continuing credit          cases, the failing credit union must be placed
                                             NCUSIF.                                                 union is headquartered, with the concurrence           into involuntary liquidation. In the few



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                                             instances where a P&A may be appropriate,               favor, against, or not at all) will be transferred     a multiple common bond charter by adding
                                             the assuming federal credit union, as with              if the spin-off is approved by the voting              a non-common bond group that is within a
                                             emergency mergers, may acquire the entire               membership. Voting requirements for                    reasonable proximity of a service facility.
                                             field of membership if the emergency merger             federally insured state credit unions are              Groups within the existing charter may be
                                             criteria are satisfied. However, if the P&A             governed by state law.                                 retained and continue to be served. However,
                                             does not meet the emergency merger criteria,               Spin-offs involving federally insured credit        future amendments, including any
                                             it must be processed under the common bond              unions in different NCUA regions must be               expansions of the original single common
                                             requirements.                                           approved by all regional directors where the           bond group, must be done in accordance
                                                In a P&A processed under the emergency               credit unions are headquartered and the state          with multiple common bond policy.
                                             criteria, specified loans, shares, and certain          regulators, as applicable. Spin-offs in the
                                             other designated assets and liabilities,                same region also require approval by the state         II.G—Removal of Groups From the Field of
                                             without regard to common bond restrictions,             regulator, as applicable.                              Membership
                                             may also be acquired without changing the                                                                         A credit union may request removal of a
                                             character of the continuing federal credit              II.E—Overlaps
                                                                                                                                                            portion of the common bond group from its
                                             union for purposes of future field of                   II.E.1—General                                         field of membership for various reasons. The
                                             membership amendments.                                     An overlap exists when a group of persons           most common reasons for this type of
                                                If the purchased and/or assumed credit               is eligible for membership in two or more              amendment are:
                                             union’s field of membership does not share              credit unions. NCUA will permit single                    • The group is within the field of
                                             a common bond with the purchasing and/or                occupational federal credit unions to overlap          membership of two credit unions and one
                                             assuming credit union, then the continuing              any other charter without performing an                wishes to discontinue service;
                                             credit union’s original common bond will be             overlap analysis.                                         • The federal credit union cannot continue
                                             controlling for future common bond                                                                             to provide adequate service to the group;
                                             expansions.                                             II.E.2—Organizational Restructuring
                                                                                                                                                               • The group has ceased to exist;
                                                P&As involving federally insured credit                 A federal credit union’s field of                      • The group does not respond to repeated
                                             unions in different NCUA regions must be                membership will always be governed by the              requests to contact the credit union or refuses
                                             approved by the regional director where the             common bond descriptions contained in                  to provide needed support; or
                                             continuing credit union is headquartered,               Section 5 of its charter. Where a sponsor                 • The group initiates action to be removed
                                             with the concurrence of the regional director           organization expands its operations                    from the field of membership.
                                             of the purchased and/or assumed credit                  internally, by acquisition or otherwise, the              When a federal credit union requests an
                                             union and, as applicable, the state regulators.         credit union may serve these new entrants to           amendment to remove a group from its field
                                             II.D.4—Spin-Offs                                        its field of membership if they are part of the        of membership, the regional director will
                                                                                                     common bond described in Section 5. NCUA               determine why the credit union desires to
                                                A spin-off occurs when, by agreement of              will permit a complete overlap of the credit
                                             the parties, a portion of the field of                                                                         remove the group. If the regional director
                                                                                                     unions’ fields of membership.                          concurs with the request, membership will
                                             membership, assets, liabilities, shares, and               If a sponsor organization sells off a group,
                                             capital of a credit union are transferred to a                                                                 continue for those who are already members
                                                                                                     new members can no longer be served unless             under the ‘‘once a member, always a
                                             new or existing credit union. A spin-off is             they otherwise qualify for membership in the
                                             unique in that usually one credit union has                                                                    member’’ provision of the Federal Credit
                                                                                                     credit union or it converts to a multiple              Union Act.
                                             a field of membership expansion and the                 common bond charter.
                                             other loses a portion of its field of                      Credit unions must submit documentation             II.H—Other Persons Eligible for Credit Union
                                             membership.                                             explaining the restructuring and providing             Membership
                                                All common bond requirements apply                   information regarding the new organizational
                                             regardless of whether the spun-off group                                                                          A number of persons, by virtue of their
                                                                                                     structure.                                             close relationship to a common bond group,
                                             becomes a new credit union or goes to an
                                             existing federal charter.                               II.E.3—Exclusionary Clauses                            may be included, at the charter applicant’s
                                                The request for approval of a spin-off must             An exclusionary clause is a limitation              option, in the field of membership. These
                                             be supported with a plan that addresses, at             precluding the credit union from serving the           include the following:
                                             a minimum:                                              primary members of a portion of a group                   • Spouses of persons who died while
                                                • Why the spin-off is being requested;               otherwise included in its field of                     within the field of membership of this credit
                                                • What part of the field of membership is            membership. NCUA no longer grants                      union;
                                             to be spun off;                                         exclusionary clauses. Those granted prior to              • Employees of this credit union;
                                                • Whether the affected credit unions have            the adoption of this new chartering manual                • Persons retired as pensioners or
                                             a common bond (applies only to single                   will remain in effect unless the credit unions         annuitants from the above employment;
                                             occupational credit unions);                            agree to remove them or one of the affected               • Volunteers;
                                                • Which assets, liabilities, shares, and             credit unions submits a housekeeping                      • Members of the immediate family or
                                             capital are to be transferred;                          amendment to have it removed.                          household;
                                                • The financial impact the spin-off will                                                                       • Organizations of such persons; and
                                                                                                     II.F—Charter Conversion                                   • Corporate or other legal entities in this
                                             have on the affected credit unions;
                                                • The ability of the acquiring credit union             A single occupational common bond                   charter.
                                             to effectively serve the new members;                   federal credit union may apply to convert to              Immediate family is defined as spouse,
                                                • The proposed spin-off date; and                    a community charter provided the field of              child, sibling, parent, grandparent, or
                                                • Disclosure to the members of the                   membership requirements of the community               grandchild. This includes stepparents,
                                             requirements set forth above.                           charter are met. Groups within the existing            stepchildren, stepsiblings, and adoptive
                                                The spin-off request must also include               charter which cannot qualify in the new                relationships.
                                             current financial statements from the affected          charter cannot be served except for members               Household is defined as persons living in
                                             credit unions and the proposed voting ballot.           of record, or groups or communities obtained           the same residence maintaining a single
                                                For federal credit unions spinning off a             in an emergency merger or P&A. A credit                economic unit.
                                             group, membership notice and voting                     union must notify all groups that will be                 Membership eligibility is extended only to
                                             requirements and procedures are the same as             removed from the field of membership as a              individuals who are members of an
                                             for mergers (see Part 708 of the NCUA Rules             result of conversion. Members of record can            ‘‘immediate family or household’’ of a credit
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                                             and Regulations), except that only the                  continue to be served. Also, in order to               union member. It is not necessary for the
                                             members directly affected by the spin-off—              support a case for a conversion, the applicant         primary member to join the credit union in
                                             those whose shares are to be transferred—are            federal credit union may be required to                order for the immediate family or household
                                             permitted to vote. Members whose shares are             develop a detailed business plan as specified          member of the primary member to join,
                                             not being transferred will not be afforded the          in Chapter 2, Section V.A.3.                           provided the immediate family or household
                                             opportunity to vote. All members of the                    A single occupational common bond                   clause is included in the field of
                                             group to be spun off (whether they voted in             federal credit union may apply to convert to           membership. However, it is necessary for the



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                                             34378                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules

                                             immediate family member or household                    consider the totality of the circumstances,            equivalent documentation, including any
                                             member to first join in order for that person’s         which includes:                                        legal documents required by the state or
                                             immediate family member or household                       • Whether members pay dues;                         other governing authority.
                                             member to join the credit union. A credit                  • Whether members participate in the                   The associational sponsor itself may also
                                             union can adopt a more restrictive definition           furtherance of the goals of the association;           be included in the field of membership—e.g.,
                                             of immediate family or household.                          • Whether the members have voting rights.           ‘‘Sprocket Association’’—and will be shown
                                               Volunteers, by virtue of their close                  To meet this requirement, members need not             in the last clause of the field of membership.
                                             relationship with a sponsor group, may be               vote directly for an officer, but may vote for         III.A.2—Subsequent Changes to Association’s
                                             included. Examples include volunteers                   a delegate who in turn represents the                  Bylaws
                                             working at a hospital or school.                        members’ interests;
                                               Under the Federal Credit Union Act, once                 • Whether the association maintains a                  If the association’s membership or
                                             a person becomes a member of the credit                 membership list;                                       geographical definitions in its charter and
                                             union, such person may remain a member of                  • Whether the association sponsors other            bylaws are changed subsequent to the
                                             the credit union until the person chooses to            activities;                                            effective date stated in the field of
                                             withdraw or is expelled from the                           • The association’s membership eligibility          membership, the credit union must submit
                                             membership of the credit union. This is                 requirements; and                                      the revised charter or bylaws for NCUA’s
                                             commonly referred to as ‘‘once a member,                   • The frequency of meetings.                        consideration and approval prior to serving
                                             always a member.’’ The ‘‘once a member,                    A support group whose members are                   members of the association added as a result
                                             always a member’’ provision does not                    continually changing or whose duration is              of the change.
                                             prevent a credit union from restricting                 temporary may not meet the single                      III.A.3—Sample Single Associational
                                             services to members who are no longer                   associational common bond criteria. Each               Common Bonds
                                             within the field of membership.                         class of member will be evaluated based on                Some examples of associational common
                                                                                                     the totality of the circumstances. Individuals         bonds are:
                                             III—Associational Common Bond
                                                                                                     or honorary members who only make                         • Regular members of Locals 10 and 13,
                                             III.A.1—General                                         donations to the association are not eligible          IBEW, in Florida, who qualify for
                                                A single associational federal credit union          to join the credit union.                              membership in accordance with their charter
                                             may include in its field of membership,                    Educational groups—for example, parent-             and bylaws in effect on May 20, 2001;
                                             regardless of location, all members and                 teacher organizations, alumni associations,               • Members of the Hoosier Farm Bureau in
                                             employees of a recognized association. A                and student organizations in any school—               Grant, Logan, or Lee Counties of Indiana,
                                             single associational common bond consists of            and church groups may constitute                       who qualify for membership in accordance
                                             individuals (natural persons) and/or groups             associational common bonds.                            with its charter and bylaws in effect on
                                             (non-natural persons) whose members                        Student groups (e.g., students enrolled at a        March 7, 1997;
                                             participate in activities developing common             public, private, or parochial school) may                 • Members of the Shalom Congregation in
                                             loyalties, mutual benefits, and mutual                  constitute either an associational or                  Chevy Chase, Maryland;
                                             interests. Separately chartered associational           occupational common bond. For example,                    • Regular members of the Corporate
                                             groups can establish a single common bond               students enrolled at a church sponsored                Executives Association, located in
                                             relationship if they are integrally related and         school could share a single associational              Westchester, New York, who qualify for
                                             share common goals and purposes. For                    common bond with the members of that                   membership in accordance with its charter
                                             example, two or more churches of the same               church and may qualify for a federal credit            and bylaws in effect on December 1, 1997;
                                             denomination, Knights of Columbus                       union charter. Similarly, students enrolled at            • Members of the University of Wisconsin
                                             Councils, or locals of the same union can               a university, as a group by itself, or in              Alumni Association, located in Green Bay,
                                             qualify as a single associational common                conjunction with the faculty and employees             Wisconsin;
                                             bond.                                                   of the school, could share a single                       • Members of the Marine Corps Reserve
                                                Individuals and groups eligible for                  occupational common bond and may qualify               Officers Association; or
                                             membership in a single associational credit             for a federal credit union charter.                       • Members of St. John’s Methodist Church
                                             union can include the following:                           The terminology ‘‘Alumni of Jacksonville            and St. Luke’s Methodist Church, located in
                                                • Natural person members of the                      State University’’ is insufficient to                  Toledo, Ohio.
                                             association (for example, members of a union            demonstrate an associational common bond.                 Some examples of insufficiently defined
                                             or church members);                                     To qualify as an association, the alumni               single associational common bonds are:
                                                • Non-natural person members of the                  association must meet the requirements for                • All Lutherans in the United States (too
                                             association;                                            an associational common bond. The alumni               broadly defined); or
                                                • Employees of the association (for                  of a school must first join the alumni                    • Veterans of U.S. military service (group
                                             example, employees of the labor union or                association, and not merely be alumni of the           is too broadly defined; no formal association
                                             employees of the church); and                           school to be eligible for membership.                  of all members of the group).
                                                • The association.                                      Homeowner associations, tenant groups,                 Some examples of unacceptable single
                                                Generally, a single associational common             consumer groups, and other groups of                   associational common bonds are:
                                             bond does not include a geographic                      persons having an ‘‘interest in’’ a particular            • Alumni of Amos University (no formal
                                             definition and can operate nationally.                  cause and certain consumer cooperatives                association);
                                             However, a proposed or existing federal                 may also qualify as an association.                       • Customers of Fleetwood Insurance
                                             credit union may limit its field of                        Associations based primarily on a client-           Company (policyholders or primarily
                                             membership to a single association or                   customer relationship do not meet                      customer/client relationships do not meet
                                             geographic area. NCUA may impose a                      associational common bond requirements.                associational standards);
                                             geographic limitation if it is determined that          However, having an incidental client-                     • Employees of members of the Reston,
                                             the applicant credit union does not have the            customer relationship does not preclude an             Virginia Chamber of Commerce (not a
                                             ability to serve a larger group or there are            associational charter as long as the                   sufficiently close tie to the associational
                                             other operational concerns. All single                  associational common bond requirements are             common bond); or
                                             associational common bonds should include               met. For example, a fraternal association that            • Members of St. John’s Lutheran Church
                                             a definition of the group that may be served            offers insurance, which is not a condition of          and St. Mary’s Catholic Church located in
                                             based on the association’s charter, bylaws,             membership, may qualify as a valid                     Anniston, Alabama (churches are not of the
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                                             and any other equivalent documentation.                 associational common bond.                             same denomination).
                                                The common bond for an associational                    Applicants for a single associational               III.B—Associational Common Bond
                                             group cannot be established simply on the               common bond federal credit union charter or            Amendments
                                             basis that the association exists. In                   a field of membership amendment to include
                                             determining whether a group satisfies                   an association must provide, at the request of         III.B.1—General
                                             associational common bond requirements for              the regional director, a copy of the                      Section 5 of every associational federal
                                             a federal credit union charter, NCUA will               association’s charter, bylaws, or other                credit union’s charter defines the field of



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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                                                34379

                                             membership the credit union can legally                 III.C—NCUA Procedures for Amending the                    Before appealing, the credit union may,
                                             serve. Only those persons who, or legal                 Field of Membership                                    within 30 days of the denial, provide
                                             entities that, join the credit union and are            III.C.1—General                                        supplemental information to the regional
                                             specified in the field of membership can be                                                                    director for reconsideration. A
                                             served. There are three instances in which                 All requests for approval to amend a                reconsideration will contain new and
                                             Section 5 must be amended by NCUA.                      federal credit union’s charter must be                 material evidence addressing the reasons for
                                                First, a group that shares the credit union’s        submitted to the appropriate regional                  the initial denial. The regional director will
                                             common bond is added to the field of                    director.                                              have 30 days from the date of the receipt of
                                             membership. This may occur through various              III.C.2—Regional Director’s Decision                   the request for reconsideration to make a
                                             ways including agreement between the group                 NCUA staff will review all amendment                final decision. If the request is again denied,
                                             and the credit union directly, or through a             requests in order to ensure conformance to             the applicant may proceed with the appeal
                                             merger, purchase and assumption (P&A), or               NCUA policy.                                           process within 60 days of the date of the last
                                             spin-off.                                                  Before acting on a proposed amendment,              denial. A second request for reconsideration
                                                Second, a federal credit union qualifies to          the regional director may require an on-site           will be treated as an appeal to the NCUA
                                             change its common bond from:                            review. In addition, the regional director             Board.
                                                • A single associational common bond to              may, after taking into account the
                                             a single occupational common bond;                                                                             III.D—Mergers, Purchase and Assumptions,
                                                                                                     significance of the proposed field of                  and Spin-Offs
                                                • A single associational common bond to              membership amendment, require the
                                             a community charter; or                                                                                           In general, other than the addition of
                                                                                                     applicant to submit a business plan
                                                • A single associational common bond to              addressing specific issues.
                                                                                                                                                            common bond groups, there are three
                                             a multiple common bond.                                                                                        additional ways a federal credit union with
                                                                                                        The financial and operational condition of
                                                Third, a federal credit union removes a                                                                     a single associational common bond can
                                                                                                     the requesting credit union will be
                                             portion of the group from its field of                                                                         expand its field of membership:
                                                                                                     considered in every instance. The economic
                                             membership through agreement with the                                                                             • By taking in the field of membership of
                                                                                                     advisability of expanding the field of
                                             group, a spin-off, or a portion of the group                                                                   another credit union through a common bond
                                                                                                     membership of a credit union with financial
                                             is no longer in existence.                                                                                     or emergency merger;
                                                                                                     or operational problems must be carefully
                                                An existing single associational federal                                                                       • By taking in the field of membership of
                                                                                                     considered.
                                             credit union that submits a request to amend                                                                   another credit union through a common bond
                                                                                                        In most cases, field of membership
                                             its charter must provide documentation to                                                                      or emergency purchase and assumption
                                                                                                     amendments will only be approved for credit
                                             establish that the associational common bond                                                                   (P&A); or
                                                                                                     unions that are operating satisfactorily.
                                             requirement has been met. The regional                                                                            • By taking a portion of another credit
                                                                                                     Generally, if a federal credit union is having
                                             director must approve all amendments to an                                                                     union’s field of membership through a
                                                                                                     difficulty providing service to its current
                                             associational common bond credit union’s                                                                       common bond spin-off.
                                                                                                     membership, or is experiencing financial or
                                             field of membership.                                    other operational problems, it may have more           III.D.1—Mergers
                                             III.B.2—Organizational Restructuring                    difficulty serving an expanded field of                   Generally, the requirements applicable to
                                                If the single common bond group that                 membership.                                            field of membership expansions found in this
                                             comprises a federal credit union’s field of                Occasionally, however, an expanded field            section apply to mergers where the
                                             membership undergoes a substantial                      of membership may provide the basis for                continuing credit union is a federal charter.
                                             restructuring, the result is often that portions        reversing current financial problems. In such          That is, the two credit unions must share a
                                             of the group are sold or spun off. This is an           cases, an amendment to expand the field of             common bond.
                                             event requiring a change to the credit union’s          membership may be granted notwithstanding                 Where the merging credit union is state-
                                             field of membership. NCUA may not permit                the credit union’s financial or operational            chartered, the common bond rules applicable
                                             a single associational credit union to                  problems. The applicant credit union must              to a federal credit union apply.
                                             maintain in its field of membership a sold or           clearly establish that the expanded field of              Mergers must be approved by the NCUA
                                             spun-off group to which it has been                     membership is in the best interest of the              regional director where the continuing credit
                                             providing service unless the group otherwise            members and will not increase the risk to the          union is headquartered, with the concurrence
                                             qualifies for membership in the credit union            NCUSIF.                                                of the regional director of the merging credit
                                             or the credit union converts to a multiple              III.C.3—Regional Director Approval                     union, and, as applicable, the state
                                             common bond credit union.                                                                                      regulators.
                                                                                                        If the regional director approves the
                                                If the group comprising the single common                                                                      If a single associational credit union wants
                                                                                                     requested amendment, the credit union will
                                             bond of the credit union merges with, or is                                                                    to merge into a multiple common bond or
                                                                                                     be issued an amendment to Section 5 of its
                                             acquired by, another group, the credit union                                                                   community credit union, Section IV.D or
                                                                                                     charter.
                                             can serve the new group resulting from the                                                                     Section V.D of this Chapter, respectively,
                                                                                                     III.C.4—Regional Director Disapproval                  should be reviewed.
                                             merger or acquisition after receiving a
                                             housekeeping amendment.                                    When a regional director disapproves any            III.D.2—Emergency Mergers
                                                                                                     application, in whole or in part, to amend the
                                             III.B.3—Economic Advisability                                                                                     An emergency merger may be approved by
                                                                                                     field of membership under this chapter, the
                                                Prior to granting a common bond                                                                             NCUA without regard to common bond or
                                                                                                     applicant will be informed in writing of the:
                                                                                                                                                            other legal constraints. An emergency merger
                                             expansion, NCUA will examine the                           • Specific reasons for the action;
                                                                                                                                                            involves NCUA’s direct intervention and
                                             amendment’s likely impact on the credit                    • Options to consider, if appropriate, for
                                             union’s operations and financial condition.                                                                    approval. The credit union to be merged
                                                                                                     gaining approval; and
                                             In most cases, the information needed for                  • Appeal procedures.                                must either be insolvent or likely to become
                                             analyzing the effect of adding a particular                                                                    insolvent, and NCUA must determine that:
                                                                                                     III.C.5—Appeal of Regional Director Decision              • An emergency requiring expeditious
                                             group will be available to NCUA through the
                                             examination and financial and statistical                  If a field of membership expansion request,         action exists;
                                             reports; however, in particular cases, a                merger, or spin-off is denied by the regional             • Other alternatives are not reasonably
                                             regional director may require additional                director, the federal credit union may appeal          available; and
                                             information prior to making a decision.                 the decision to the NCUA Board. An appeal                 • The public interest would best be served
                                                                                                     must be sent to the appropriate regional               by approving the merger.
                                             III.B.4—Documentation Requirements                      office within 60 days of the date of denial               If not corrected, conditions that could lead
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                                                A federal credit union requesting a                  and must address the specific reason(s) for            to insolvency include, but are not limited to:
                                             common bond expansion must submit an                    the denial. The regional director will then               • Abandonment by management;
                                             Application for Field of Membership                     forward the appeal to the NCUA Board.                     • Loss of sponsor;
                                             Amendment (NCUA 4015–EZ) to the                         NCUA central office staff will make an                    • Serious and persistent record keeping
                                             appropriate NCUA regional director. An                  independent review of the facts and present            problems; or
                                             authorized credit union representative must             the appeal to the NCUA Board with a                       • Serious and persistent operational
                                             sign the request.                                       recommendation.                                        concerns.



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                                             34380                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules

                                                In an emergency merger situation, NCUA               III.D.4—Spin-Offs                                      its field of membership if they are part of the
                                             will take an active role in finding a suitable             A spin-off occurs when, by agreement of             common bond described in Section 5. NCUA
                                             merger partner (continuing credit union).               the parties, a portion of the field of                 will permit a complete overlap of the credit
                                             NCUA is primarily concerned that the                    membership, assets, liabilities, shares, and           unions’ fields of membership. If a sponsor
                                             continuing credit union has the financial               capital of a credit union are transferred to a         organization sells off a group, new members
                                             strength and management expertise to absorb             new or existing credit union. A spin-off is            can no longer be served unless they
                                             the troubled credit union without adversely             unique in that usually one credit union has            otherwise qualify for membership in the
                                             affecting its own financial condition and               a field of membership expansion and the                credit union or it converts to a multiple
                                             stability.                                              other loses a portion of its field of                  common bond.
                                                As a stipulated condition to an emergency            membership.                                               Credit unions must submit documentation
                                             merger, the field of membership of the                     All common bond requirements apply                  explaining the restructuring and providing
                                             merging credit union may be transferred                 regardless of whether the spun-off group               information regarding the new organizational
                                             intact to the continuing federal credit union           becomes a new credit union or goes to an               structure.
                                             without regard to any common bond                       existing federal charter.                              III.E.3—Exclusionary Clauses
                                             restrictions. Under this authority, therefore, a           The request for approval of a spin-off must            An exclusionary clause is a limitation
                                             single associational common bond federal                be supported with a plan that addresses, at            precluding the credit union from serving the
                                             credit union may take into its field of                 a minimum:                                             primary members of a portion of a group
                                             membership any dissimilar charter type.                    • Why the spin-off is being requested;              otherwise included in its field of
                                                The common bond characteristic of the                   • What part of the field of membership is           membership. NCUA no longer grants
                                             continuing credit union in an emergency                 to be spun off;                                        exclusionary clauses. Those granted prior to
                                             merger does not change. That is, even though               • Whether the affected credit unions have           the adoption of this new chartering manual
                                             the merging credit union is a multiple                  the same common bond (applies only to                  will remain in effect unless the credit unions
                                             common bond or community, the continuing                single associational credit unions);                   agree to remove them or one of the affected
                                             credit union will remain a single common                   • Which assets, liabilities, shares, and            credit unions submits a housekeeping
                                             bond credit union. Similarly, if the merging            capital are to be transferred;                         amendment to have it removed.
                                             credit union is an unlike single common                    • The financial impact the spin-off will
                                             bond, the continuing credit union will                  have on the affected credit unions;                    III.F—Charter Conversions
                                             remain a single common bond credit union.                  • The ability of the acquiring credit union            A single associational common bond
                                             Future common bond expansions will be                   to effectively serve the new members;                  federal credit union may apply to convert to
                                             based on the continuing credit union’s single              • The proposed spin-off date; and                   a community charter provided the field of
                                             common bond.                                               • Disclosure to the members of the                  membership requirements of the community
                                                Emergency mergers involving federally                requirements set forth above.                          charter are met. Groups within the existing
                                             insured credit unions in different NCUA                    The spin-off request must also include              charter which cannot qualify in the new
                                             regions must be approved by the regional                current financial statements from the affected         charter cannot be served except for members
                                             director where the continuing credit union is           credit unions and the proposed voting ballot.          of record, or groups or communities obtained
                                             headquartered, with the concurrence of the                 For federal credit unions spinning off a            in an emergency merger or P&A. A credit
                                             regional director of the merging credit union           group, membership notice and voting                    union must notify all groups that will be
                                             and, as applicable, the state regulators.               requirements and procedures are the same as            removed from the field of membership as a
                                                                                                     for mergers (see Part 708 of the NCUA Rules            result of conversion. Members of record can
                                             III.D.3—Purchase and Assumption (P&A)
                                                                                                     and Regulations), except that only the                 continue to be served. Also, in order to
                                                Another alternative for acquiring the field          members directly affected by the spin-off—             support a case for a conversion, the applicant
                                             of membership of a failing credit union is              those whose shares are to be transferred—are           federal credit union may be required to
                                             through a consolidation known as a P&A. A               permitted to vote. Members whose shares are            develop a detailed business plan as specified
                                             P&A has limited application because, in most            not being transferred will not be afforded the         in Chapter 2, Section V.A.3.
                                             cases, the failing credit union must be placed          opportunity to vote. All members of the                   A single associational common bond
                                             into involuntary liquidation. In the few                group to be spun off (whether they voted in            federal credit union may apply to convert to
                                             instances where a P&A may be appropriate,               favor, against, or not at all) will be transferred     a multiple common bond charter by adding
                                             the assuming federal credit union, as with              if the spin-off is approved by the voting              a non-common bond group that is within a
                                             emergency mergers, may acquire the entire               membership. Voting requirements for                    reasonable proximity of a service facility.
                                             field of membership if the emergency merger             federally insured state credit unions are              Groups within the existing charter may be
                                             criteria are satisfied. However, if the P&A             governed by state law.                                 retained and continue to be served. However,
                                             does not meet the emergency merger criteria,               Spin-offs involving federally insured credit        future amendments, including any
                                             it must be processed under the common bond              unions in different NCUA regions must be               expansions of the original single common
                                             requirements.                                           approved by all regional directors where the           bond group, must be done in accordance
                                                In a P&A processed under the emergency               credit unions are headquartered and the state          with multiple common bond policy.
                                             criteria, specified loans, shares, and certain          regulators, as applicable. Spin-offs in the
                                             other designated assets and liabilities,                same region also require approval by the state         III.G—Removal of Groups From the Field of
                                             without regard to common bond restrictions,             regulator, as applicable.                              Membership
                                             may also be acquired without changing the                                                                         A credit union may request removal of a
                                             character of the continuing federal credit              III.E—Overlaps                                         portion of the common bond group from its
                                             union for purposes of future field of                   III.E.1—General                                        field of membership for various reasons. The
                                             membership amendments.                                     An overlap exists when a group of persons           most common reasons for this type of
                                                If the purchased and/or assumed credit               is eligible for membership in two or more              amendment are:
                                             union’s field of membership does not share              credit unions. NCUA will permit single                    • The group is within the field of
                                             a common bond with the purchasing and/or                associational federal credit unions to overlap         membership of two credit unions and one
                                             assuming credit union, then the continuing              any other charters without performing an               wishes to discontinue service;
                                             credit union’s original common bond will be             overlap analysis.                                         • The federal credit union cannot continue
                                             controlling for future common bond                                                                             to provide adequate service to the group;
                                             expansions.                                             III.E.2—Organizational Restructuring                      • The group has ceased to exist;
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                                                P&As involving federally insured credit                 A federal credit union’s field of                      • The group does not respond to repeated
                                             unions in different NCUA regions must be                membership will always be governed by the              requests to contact the credit union or refuses
                                             approved by the regional director where the             common bond descriptions contained in                  to provide needed support; or
                                             continuing credit union is headquartered,               Section 5 of its charter. Where a sponsor                 • The group initiates action to be removed
                                             with the concurrence of the regional director           organization expands its operations                    from the field of membership.
                                             of the purchased and/or assumed credit                  internally, by acquisition or otherwise, the              When a federal credit union requests an
                                             union and, as applicable, the state regulators.         credit union may serve these new entrants to           amendment to remove a group from its field



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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                                                34381

                                             of membership, the regional director will               have its own occupational or associational             IV.B—Multiple Common Bond Amendments
                                             determine why the credit union desires to               common bond. For example, a multiple                   IV.B.1—General
                                             remove the group. If the regional director              common bond credit union may include two
                                             concurs with the request, membership will                                                                         Section 5 of every multiple common bond
                                                                                                     unrelated employers, or two unrelated
                                             continue for those who are already members                                                                     federal credit union’s charter defines the
                                                                                                     associations, or a combination of two or more
                                             under the ‘‘once a member, always a                                                                            field of membership and select groups the
                                                                                                     employers or associations. Additionally,
                                             member’’ provision of the Federal Credit                                                                       credit union can legally serve. Only those
                                                                                                     these groups must be within reasonable                 persons or legal entities specified in the field
                                             Union Act.                                              geographic proximity of the credit union.              of membership can be served. There are a
                                             III.H—Other Persons Eligible for Credit Union           That is, the groups must be within the service         number of instances in which Section 5 must
                                             Membership                                              area of one of the credit union’s service              be amended by NCUA.
                                                                                                     facilities. These groups are referred to as               First, a new select group is added to the
                                                A number of persons by virtue of their
                                             close relationship to a common bond group               select groups. A multiple common bond                  field of membership. This may occur through
                                             may be included, at the charter applicant’s             credit union cannot include a TIP or expand            agreement between the group and the credit
                                             option, in the field of membership. These               using single common bond criteria.                     union directly, or through a merger,
                                             include the following:                                     A federal credit union’s service area is the        corporate acquisition, purchase and
                                                • Spouses of persons who died while                  area that can reasonably be served by the              assumption (P&A), or spin-off.
                                             within the field of membership of this credit           service facilities accessible to the groups               Second, a federal credit union qualifies to
                                             union;                                                  within the field of membership. The service            change its charter from:
                                                • Employees of this credit union;                    area will most often coincide with that                   • A Single occupational or associational
                                                • Volunteers;                                        geographic area primarily served by the                charter to a multiple common bond charter;
                                                • Members of the immediate family or                 service facility. Additionally, the groups                • A multiple common bond to a single
                                             household;                                              served by the credit union must have access            occupational or associational charter;
                                                • Organizations of such persons; and                 to the service facility. The non-availability of          • A multiple common bond to a
                                                • Corporate or other legal entities in this          other credit union service is a factor to be           community charter; or
                                             charter.                                                considered in determining whether the group               • A community to a multiple common
                                                Immediate family is defined as spouse,               is within reasonable proximity of a credit             bond charter.
                                             child, sibling, parent, grandparent, or                                                                           Third, a federal credit union removes a
                                                                                                     union wishing to add the group to its field
                                             grandchild. This includes stepparents,                                                                         group from its field of membership through
                                                                                                     of membership.
                                             stepchildren, stepsiblings, and adoptive                                                                       agreement with the group, a spin-off, or
                                                                                                        A service facility for multiple common              because the group no longer exists.
                                             relationships.                                          bond credit unions is defined as a place
                                                Household is defined as persons living in            where shares are accepted for members’                 IV.B.2—Numerical Limitation of Select
                                             the same residence maintaining a single                                                                        Groups
                                                                                                     accounts, loan applications are accepted or
                                             economic unit.                                                                                                    An existing multiple common bond federal
                                                                                                     loans are disbursed. This definition includes
                                                Membership eligibility is extended only to                                                                  credit union that submits a request to amend
                                                                                                     a credit union owned branch, a mobile
                                             individuals who are members of an                                                                              its charter must provide documentation to
                                             ‘‘immediate family or household’’ of a credit           branch, an office operated on a regularly
                                                                                                     scheduled weekly basis, a credit union                 establish that the multiple common bond
                                             union member. It is not necessary for the                                                                      requirements have been met. The regional
                                             primary member to join the credit union in              owned ATM, or a credit union owned
                                                                                                     electronic facility that meets, at a minimum,          director must approve all amendments to a
                                             order for the immediate family or household                                                                    multiple common bond credit union’s field
                                             member of the primary member to join,                   these requirements. A service facility also
                                                                                                     includes a shared branch or a shared branch            of membership.
                                             provided the immediate family or household                                                                        NCUA will approve groups to a credit
                                             clause is included in the field of                      network if either: (1) The credit union has an
                                                                                                                                                            union’s field of membership if the agency
                                             membership. However, it is necessary for the            ownership interest in the service facility
                                                                                                                                                            determines in writing that the following
                                             immediate family member or household                    either directly or through a CUSO or similar
                                                                                                                                                            criteria are met:
                                             member to first join in order for that person’s         organization; or (2) the service facility is local        • The credit union has not engaged in any
                                             immediate family member or household                    to the credit union and the credit union is an         unsafe or unsound practice, as determined by
                                             member to join the credit union. A credit               authorized participant in the service center.          the regional director, which is material
                                             union can adopt a more restrictive definition           This definition does not include the credit            during the one year period preceding the
                                             of immediate family or household.                       union’s Internet Web site.                             filing to add the group;
                                                Volunteers, by virtue of their close                    The select group as a whole will be                    • The credit union is ‘‘adequately
                                             relationship with a sponsor group, may be               considered to be within a credit union’s               capitalized.’’ NCUA defines adequately
                                             included. One example is volunteers working             service area when:                                     capitalized to mean the credit union has a net
                                             at a church.                                               • A majority of the persons in a select             worth ratio of not less than 6 percent. For
                                                Under the Federal Credit Union Act, once             group live, work, or gather regularly within           low-income credit unions or credit unions
                                             a person becomes a member of the credit                 the service area;                                      chartered less than ten years, the regional
                                             union, such person may remain a member of                  • The group’s headquarters is located               director may determine that a net worth ratio
                                             the credit union until the person chooses to            within the service area; or                            of less than 6 percent is adequate if the credit
                                             withdraw or is expelled from the                           • The group’s ‘‘paid from’’ or ‘‘supervised         union is making reasonable progress toward
                                             membership of the credit union. This is                 from’’ location is within the service area.            meeting the 6 percent net worth requirement.
                                             commonly referred to as ‘‘once a member,                                                                       For any other credit union, the regional
                                             always a member.’’ The ‘‘once a member,                 IV.A.2—Sample Multiple Common Bond
                                                                                                     Field of Membership                                    director may determine that a net worth ratio
                                             always a member’’ provision does not                                                                           of less than 6 percent is adequate if the credit
                                             prevent a credit union from restricting                    An example of a multiple common bond                union is making reasonable progress toward
                                             services to members who are no longer                   field of membership is: ‘‘The field of                 meeting the 6 percent net worth requirement,
                                             within the field of membership.                         membership of this federal credit union shall          and the addition of the group would not
                                                                                                     be limited to the following:                           adversely affect the credit union’s
                                             IV—Multiple Occupational/Associational
                                                                                                        1. Employees of Teltex Corporation who              capitalization level;
                                             Common Bonds
                                                                                                     work in Wilmington, Delaware;                             • The credit union has the administrative
                                             IV.A.1—General
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                                                                                                        2. Partners and employees of Smith &                capability to serve the proposed group and
                                               A federal credit union may be chartered to            Jones, Attorneys at Law, who work in                   the financial resources to meet the need for
                                             serve a combination of distinct, definable              Wilmington, Delaware;                                  additional staff and assets to serve the new
                                             single occupational and/or associational                   3. Members of the M&L Association in                group;
                                             common bonds. This type of credit union is              Wilmington, Delaware, who qualify for                     • Any potential harm the expansion may
                                             called a multiple common bond credit union.             membership in accordance with its charter              have on any other credit union and its
                                             Each group in the field of membership must              and bylaws in effect on December 31, 1997.’’           members is clearly outweighed by the



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                                             34382                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules

                                             probable beneficial effect of the expansion.               Demographics—the employee turnover                  applicant to submit a business plan
                                             With respect to a proposed expansion’s effect           rate, economic status of the group’s members,          addressing specific issues.
                                             on other credit unions, the requirements on             and whether the group is more apt to consist              The financial and operational condition of
                                             overlapping fields of membership set forth in           of savers and/or borrowers.                            the requesting credit union will be
                                             Section IV.E of this Chapter are also                      Market competition—the availability of              considered in every instance. An expanded
                                             applicable; and                                         other financial services.                              field of membership may provide the basis
                                                • If the formation of a separate credit                 Desired services and products—the type of           for reversing adverse trends. In such cases, an
                                             union by such group is not practical and                services the group desires in comparison to            amendment to expand the field of
                                             consistent with reasonable standards for the            the type of services a new credit union could          membership may be granted notwithstanding
                                             safe and sound operation of a credit union.             offer.                                                 the credit union’s adverse trends. The
                                                A detailed analysis is required for groups              Sponsor subsidies—the availability of               applicant credit union must clearly establish
                                             of 3,000 or more primary potential members              operating subsidies.                                   that the approval of the expanded field of
                                             requesting to be added to a multiple common                The desire of the sponsor—the extent of             membership meets the requirements of
                                             bond credit union. It is incumbent upon the             the sponsor’s interest in supporting a credit          Section IV.B.2 of this Chapter and will not
                                             credit union to demonstrate that the                    union charter.                                         increase the risk to the NCUSIF.
                                             formation of a separate credit union by such               Employee interest—the extent of the
                                                                                                     employees’ interest in obtaining a credit              IV.C.3—Regional Director Approval
                                             a group is not practical. The group must
                                             provide evidence that it lacks sufficient               union charter.                                           If the regional director approves the
                                             volunteer and other resources to support the               Evidence of past failure—whether the                requested amendment, the credit union will
                                             efficient and effective operations of a credit          group previously had its own credit union or           be issued an amendment to Section 5 of its
                                             union or does not meet the economic                     previously filed for a credit union charter.           charter.
                                             advisability criteria outlined in Chapter 1. If            Administrative capacity to provide
                                                                                                     services—will the group have the                       IV.C.4—Regional Director Disapproval
                                             this can be demonstrated, the group may be
                                             added to a multiple common bond credit                  management expertise to provide the services              When a regional director disapproves any
                                             union’s field of membership.                            requested.                                             application, in whole or in part, to amend the
                                                                                                        • If the group is eligible for membership in        field of membership under this chapter, the
                                             IV.B.3—Documentation Requirements                       any other credit union, documentation must             applicant will be informed in writing of the:
                                                A multiple common bond credit union                  be provided to support inclusion of the group             • Specific reasons for the action;
                                             requesting a select group expansion must                under the overlap standards set forth in                  • Options to consider, if appropriate, for
                                             submit a formal written request, using the              Section IV.E of this Chapter; and                      gaining approval; and
                                             Application for Field of Membership                        • The most recent copy of the group’s                  • Appeal procedure.
                                             Amendment (NCUA 4015 or NCUA 4015–EZ)                   charter and bylaws or equivalent                       IV.C.5—Appeal of Regional Director Decision
                                             to the appropriate NCUA regional director.              documentation (for associational groups).
                                             An authorized credit union representative                                                                         If a field of membership expansion request,
                                                                                                     IV.B.4—Corporate Restructuring
                                             must sign the request.                                                                                         merger, or spin-off is denied by the regional
                                                                                                        If a select group within a federal credit           director, the federal credit union may appeal
                                                The NCUA 4015–EZ (for groups less than
                                                                                                     union’s field of membership undergoes a                the decision to the NCUA Board. An appeal
                                             3,000 potential members) must be
                                                                                                     substantial restructuring, a change to the             must be sent to the appropriate regional
                                             accompanied by the following:
                                                                                                     credit union’s field of membership may be              office within 60 days of the date of denial,
                                                • A letter, or equivalent documentation,
                                                                                                     required if the credit union is to continue to         and must address the specific reason(s) for
                                             from the group requesting credit union
                                                                                                     provide service to the select group. NCUA              the denial. The regional director will then
                                             service. This letter must indicate:                     permits a multiple common bond credit
                                                Æ That the group wants to be added to the                                                                   forward the appeal to the NCUA Board.
                                                                                                     union to maintain in its field of membership           NCUA central office staff will make an
                                             applicant federal credit union’s field of               a sold, spun-off, or merged select group to
                                             membership;                                                                                                    independent review of the facts and present
                                                                                                     which it has been providing service. This              the appeal to the Board with a
                                                Æ The number of persons currently                    type of amendment to the credit union’s
                                             included within the group to be added and                                                                      recommendation.
                                                                                                     charter is not considered an expansion;                   Before appealing, the credit union may,
                                             their locations; and                                    therefore, the criteria relating to adding new
                                                Æ The group’s proximity to credit union’s                                                                   within 30 days of the denial, provide
                                                                                                     groups are not applicable.
                                             nearest service facility.                                                                                      supplemental information to the regional
                                                                                                        When two groups merge and each is in the
                                                • The most recent copy of the group’s                field of membership of a credit union, then
                                                                                                                                                            director for reconsideration. A
                                             charter and bylaws or equivalent                                                                               reconsideration will contain new and
                                                                                                     both (or all affected) credit unions can serve
                                             documentation (for associational groups).                                                                      material evidence addressing the reasons for
                                                                                                     the resulting merged group, subject to any
                                                The NCUA 4015 (for groups of 3,000 or                existing geographic limitation and without             the initial denial. The regional director will
                                             more primary potential members) must be                 regard to any overlap provisions. However,             have 30 days from the date of the receipt of
                                             accompanied by the following:                           the credit unions cannot serve the other               the request for reconsideration to make a
                                                • A letter, or equivalent documentation,             multiple groups that may be in the field of            final decision. If the request is again denied,
                                             from the group requesting credit union                  membership of the other credit union.                  the applicant may proceed with the appeal
                                             service. This letter must indicate:                                                                            process within 60 days of the date of the last
                                                Æ That the group wants to be added to the            IV.C—NCUA’S Procedures for Amending the                denial. A second request for reconsideration
                                             federal credit union’s field of membership;             Field of Membership                                    will be treated as an appeal to the NCUA
                                                Æ Whether the group presently has other              IV.C.1—General                                         Board.
                                             credit union service available;
                                                                                                       All requests for approval to amend a                 IV.D—Mergers, Purchase and Assumptions,
                                                Æ The number of persons currently                    federal credit union’s charter must be                 and Spin-Offs
                                             included within the group to be added and               submitted to the appropriate regional
                                             their locations;                                                                                                 In general, other than the addition of select
                                                                                                     director.
                                                Æ The group’s proximity to credit union’s                                                                   groups, there are three additional ways a
                                             nearest service facility; and                           IV.C.2—Regional Director’s Decision                    multiple common bond federal credit union
                                                Æ Why the formation of a separate credit               NCUA staff will review all amendment                 can expand its field of membership:
                                             union for the group is not practical or                 requests in order to ensure conformance to               • By taking in the field of membership of
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                                             consistent with safety and soundness                    NCUA policy.                                           another credit union through a merger;
                                             standards. A credit union need not address                Before acting on a proposed amendment,                 • By taking in the field of membership of
                                             every item on the list, simply those issues             the regional director may require an on-site           another credit union through a purchase and
                                             that are relevant to its particular request:            review. In addition, the regional director             assumption (P&A); or
                                                Member location—whether the                          may, after taking into account the                       • By taking a portion of another credit
                                             membership is widely dispersed or                       significance of the proposed field of                  union’s field of membership through a spin-
                                             concentrated in a central location.                     membership amendment, require the                      off.



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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                                                 34383

                                             IV.D.1—Voluntary Mergers                                are: abandonment of the management and/or              However, in the few instances where a P&A
                                                                                                     officials and an inability to find                     may occur, the assuming federal credit
                                             a. All Select Groups in the Merging Credit              replacements, loss of sponsor support,                 union, as with emergency mergers, may
                                             Union’s Field of Membership Have Less                   serious and persistent record keeping                  acquire the entire field of membership if the
                                             Than 3,000 Primary Potential Members.                   problems, sustained material decline in                emergency criteria are satisfied. Specified
                                                A voluntary merger of two or more federal            financial condition, or other serious or               loans, shares, and certain other designated
                                             credit unions is permissible as long as each            persistent circumstances.                              assets and liabilities, without regard to field
                                             select group in the merging credit union’s                                                                     of membership restrictions, may also be
                                                                                                     IV.D.3—Emergency Mergers
                                             field of membership has less than 3,000                                                                        acquired without changing the character of
                                             primary potential members. While the merger                An emergency merger may be approved by              the continuing federal credit union for
                                             requirements outlined in Section 205 of the             NCUA without regard to field of membership             purposes of future field of membership
                                             Federal Credit Union Act must still be met,             rules, the 3,000 numerical limitation, or other        amendments. Subsequent field of
                                             the requirements of Chapter 2, Section IV.B.2           legal constraints. An emergency merger                 membership expansions must be consistent
                                             of this manual are not applicable.                      involves NCUA’s direct intervention and                with multiple common bond policies.
                                                                                                     approval. The credit union to be merged                   P&As involving federally insured credit
                                             b. One or More Select Groups in the Merging
                                                                                                     must either be insolvent or likely to become           unions in different NCUA regions must be
                                             Credit Union’s Field of Membership Has                  insolvent, and NCUA must determine that:
                                             3,000 or More Primary Potential Members.                                                                       approved by the regional director where the
                                                                                                        • An emergency requiring expeditious                continuing credit union is headquartered,
                                                If the merging credit unions serve the same          action exists;                                         with the concurrence of the regional director
                                             group, and the group consists of 3,000 or                  • Other alternatives are not reasonably             of the purchased and/or assumed credit
                                             more primary potential members, then the                available; and                                         union and, as applicable, the state regulators.
                                             ability to form a separate credit union                    • The public interest would best be served
                                             analysis is not required for that group. If the         by approving the merger.                               IV.D.5—Spin-Offs
                                             merging credit union has any other groups                  If not corrected, conditions that could lead           A spin-off occurs when, by agreement of
                                             consisting of 3,000 or more primary potential           to insolvency include, but are not limited to:         the parties, a portion of the field of
                                             members, special requirements apply. NCUA                  • Abandonment by management;                        membership, assets, liabilities, shares, and
                                             will analyze each group of 3,000 or more                   • Loss of sponsor;                                  capital of a credit union are transferred to a
                                             primary potential members, except as noted                 • Serious and persistent record keeping             new or existing credit union. A spin-off is
                                             above, to determine whether the formation of            problems; or                                           unique in that usually one credit union has
                                             a separate credit union by such a group is                 • Serious and persistent operational                a field of membership expansion and the
                                             practical. If the formation of a separate credit        concerns.                                              other loses a portion of its field of
                                             union by such a group is not practical                     In an emergency merger situation, NCUA              membership.
                                             because the group lacks sufficient volunteer            will take an active role in finding a suitable            All common bond requirements apply
                                             and other resources to support the efficient            merger partner (continuing credit union).              regardless of whether the spun-off group
                                             and effective operations of a credit union or           NCUA is primarily concerned that the                   becomes a new charter or goes to an existing
                                             does not meet the economic advisable criteria           continuing credit union has the financial              federal charter.
                                             outlined in Chapter 1, the group may be                 strength and management expertise to absorb               The request for approval of a spun-off
                                             merged into a multiple common bond credit               the troubled credit union without adversely            group must be supported with a plan that
                                             union. If the formation of a separate credit            affecting its own financial condition and              addresses, at a minimum:
                                             union is practical, the group must be spun-             stability.                                                • Why the spin-off is being requested;
                                             off before the merger can be approved.                     As a stipulated condition to an emergency              • What part of the field of membership is
                                             c. Merger of a Single Common Bond Credit                merger, the field of membership of the                 to be spun off;
                                             Union Into a Multiple Common Bond Credit                merging credit union may be transferred                   • Which assets, liabilities, shares, and
                                             Union.                                                  intact to the continuing federal credit union          capital are to be transferred;
                                                                                                     without regard to any field of membership                 • The financial impact the spin-off will
                                                A financially healthy single common bond             restrictions including numerical limitation            have on the affected credit unions;
                                             credit union with a primary potential                   requirements. Under this authority, any                   • The ability of the acquiring credit union
                                             membership of 3,000 or more cannot merge                single occupational or associational common            to effectively serve the new members;
                                             into a multiple common bond credit union,               bond, multiple common bond, or community                  • The proposed spin-off date; and
                                             absent supervisory reasons, unless the                  charter may merger into a multiple common                 • Disclosure to the members of the
                                             continuing credit union already serves the              bond credit union and that credit union can            requirements set forth above.
                                             same group.                                             continue to serve the merging credit union’s              The spin-off request must also include
                                             d. Merger Approval.                                     field of membership. Subsequent field of               current financial statements from the affected
                                                If the merger is approved, the qualifying            membership expansions of the continuing                credit unions and the proposed voting ballot.
                                             groups within the merging credit union’s                multiple common bond credit union must be                 For federal credit unions spinning off a
                                             field of membership will be transferred intact          consistent with multiple common bond                   group, membership notice and voting
                                             to the continuing credit union and can                  policies.                                              requirements and procedures are the same as
                                             continue to be served.                                     Emergency mergers involving federally               for mergers (see Part 708 of the NCUA Rules
                                                Where the merging credit union is state-             insured credit unions in different NCUA                and Regulations), except that only the
                                             chartered, the field of membership rules                regions must be approved by the regional               members directly affected by the spin-off—
                                             applicable to a federal credit union apply.             director where the continuing credit union is          those whose shares are to be transferred—are
                                                Mergers must be approved by the NCUA                 headquartered, with the concurrence of the             permitted to vote. Members whose shares are
                                             regional director where the continuing credit           regional director of the merging credit union          not being transferred will not be afforded the
                                             union is headquartered, with the concurrence            and, as applicable, the state regulators.              opportunity to vote. All members of the
                                             of the regional director of the merging credit                                                                 group to be spun off (whether they voted in
                                                                                                     IV.D.4—Purchase and Assumption (P&A)
                                             union, and, as applicable, the state                                                                           favor, against, or not at all) will be transferred
                                             regulators.                                                Another alternative for acquiring the field         if the spin-off is approved by the voting
                                                                                                     of membership of a failing credit union is             membership. Voting requirements for
                                             IV.D.2—Supervisory Mergers                              through a consolidation known as a P&A.                federally insured state credit unions are
                                                The NCUA may approve the merger of any               Generally, the requirements applicable to              governed by state law.
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                                             federally insured credit union when safety              field of membership expansions found in this              Spin-offs involving federally insured credit
                                             and soundness concerns are present without              chapter apply to purchase and assumptions              unions in different NCUA regions must be
                                             regard to the 3,000 numerical limitation. The           where the purchasing credit union is a                 approved by all regional directors where the
                                             credit union need not be insolvent or in                federal charter.                                       credit unions are headquartered and the state
                                             danger of insolvency for NCUA to use this                  A P&A has limited application because, in           regulators, as applicable. Spin-offs in the
                                             statutory authority. Examples constituting              most cases, the failing credit union must be           same region also require approval by the state
                                             appropriate reasons for using this authority            placed into involuntary liquidation.                   regulator, as applicable.



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                                             34384                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules

                                             IV.E—Overlaps                                           IV.E.2—Overlap Issues as a Result of                   for a conversion, the applicant federal credit
                                             IV.E.1—General                                          Organizational Restructuring                           union may be required to develop a detailed
                                                                                                        A federal credit union’s field of                   business plan as specified in Chapter 2,
                                                An overlap exists when a group of persons                                                                   Section V.A.3.
                                             is eligible for membership in two or more               membership will always be governed by the
                                                                                                     field of membership descriptions contained                A multiple common bond federal credit
                                             credit unions, including state charters. An                                                                    union may apply to convert to a single
                                             overlap is permitted when the expansion’s               in Section 5 of its charter. Where a sponsor
                                                                                                     organization expands its operations                    occupational or associational common bond
                                             beneficial effect in meeting the convenience                                                                   charter provided the field of membership
                                             and needs of the members of the group                   internally, by acquisition or otherwise, the
                                                                                                     credit union may serve these new entrants to           requirements of the new charter are met.
                                             proposed to be included in the field of                                                                        Groups within the existing charter, which do
                                             membership clearly outweighs any adverse                its field of membership if they are part of any
                                                                                                     select group listed in Section 5. Where                not qualify in the new charter, cannot be
                                             effect on the overlapped credit union.                                                                         served except for members of record, or
                                                Credit unions must investigate the                   acquisitions are made which add a new
                                                                                                     subsidiary, the group cannot be served until           groups or communities obtained in an
                                             possibility of an overlap with federally                                                                       emergency merger or P&A. A credit union
                                             insured credit unions prior to submitting an            the subsidiary is included in the field of
                                                                                                     membership through a housekeeping                      must notify all groups that will be removed
                                             expansion request if the group has 3,000 or                                                                    from the field of membership as a result of
                                             more primary potential members. If cases                amendment.
                                                                                                        Overlaps may occur as a result of                   conversion.
                                             arise where the assurance given to a regional
                                             director concerning the unavailability of               restructuring or merger of the parent                  IV.G—Removal of Groups From the Field of
                                             credit union service is inaccurate, the                 organization. When such overlaps occur,                Membership
                                             misinformation may be grounds for removal               each credit union must request a field of                 A credit union may request removal of a
                                             of the group from the federal credit union’s            membership amendment to reflect the new                group from its field of membership for
                                             charter.                                                groups each wishes to serve. The credit                various reasons. The most common reasons
                                                When an overlap situation requiring                  union can continue to serve any current                for this type of amendment are:
                                             analysis does arise, officials of the expanding         group in its field of membership that is                  • The group is within the field of
                                             credit union must ascertain the views of the            acquiring a new group or has been acquired             membership of two credit unions and one
                                             overlapped credit union. If the overlapped              by a new group. The new group cannot be                wishes to discontinue service;
                                             credit union does not object, the applicant             served by the credit union until the field of             • The federal credit union cannot continue
                                             must submit a letter or other documentation             membership amendment is approved by                    to provide adequate service to the group;
                                             to that effect. If the overlapped credit union          NCUA.                                                     • The group has ceased to exist;
                                             does not respond, the expanding credit union               Credit unions affected by organizational               • The group does not respond to repeated
                                             must notify NCUA in writing of its attempt              restructuring or merger should attempt to              requests to contact the credit union or refuses
                                             to obtain the overlapped credit union’s                 resolve overlap issues among themselves.               to provide needed support;
                                             comments.                                               Unless an agreement is reached limiting the               • The group initiates action to be removed
                                                NCUA will approve an overlap if the                  overlap resulting from the corporate                   from the field of membership; or
                                             expansion’s beneficial effect in meeting the            restructuring, NCUA will permit a complete                • The federal credit union wishes to
                                             convenience and needs of the members of the             overlap of the credit unions’ fields of                convert to a single common bond.
                                             group clearly outweighs any adverse effect on           membership. When two groups merge, or one                 When a federal credit union requests an
                                             the overlapped credit union.                            group is acquired by the other, and each is            amendment to remove a group from its field
                                                In reviewing the overlap, the regional               in the field of membership of a credit union,          of membership, the regional director will
                                             director will consider:                                 both (or all affected) credit unions can serve         determine why the credit union desires to
                                                • The view of the overlapped credit                  the resulting merged or acquired group,                remove the group. If the regional director
                                             union(s);                                               subject to any existing geographic limitation          concurs with the request, membership will
                                                • Whether the overlap is incidental in               and without regard to any overlap provisions.          continue for those who are already members
                                             nature—the group of persons in question is              This is accomplished through a                         under the ‘‘once a member, always a
                                             so small as to have no material effect on the           housekeeping amendment.                                member’’ provision of the Federal Credit
                                             original credit union;                                     Credit unions must submit to NCUA                   Union Act.
                                                • Whether there is limited participation by          documentation explaining the restructuring
                                             members or employees of the group in the                and provide information regarding the new              IV.H—Other Persons Eligible for Credit
                                             original credit union after the expiration of           organizational structure.                              Union Membership
                                             a reasonable period of time;                            IV.E.3—Exclusionary Clauses                              A number of persons, by virtue of their
                                                • Whether the original credit union fails to            An exclusionary clause is a limitation              close relationship to a common bond group,
                                             provide requested service;                              precluding the credit union from serving the           may be included, at the charter applicant’s
                                                • Financial effect on the overlapped credit          primary members of a portion of a group                option, in the field of membership. These
                                             union;                                                  otherwise included in its field of                     include the following:
                                                • The desires of the group(s);                       membership. NCUA no longer grants                        • Spouses of persons who died while
                                                • The desire of the sponsor organization;            exclusionary clauses. Those granted prior to           within the field of membership of this credit
                                             and                                                     the adoption of this new chartering manual             union;
                                                • The best interests of the affected group           will remain in effect unless the credit unions           • Employees of this credit union;
                                             and the credit union members involved.                  agree to remove them or one of the affected              • Persons retired as pensioners or
                                                Generally, if the overlapped credit union            credit unions submits a housekeeping                   annuitants from the above employment;
                                             does not object, and NCUA determines that               amendment to have it removed.                            • Volunteers;
                                             there is no safety and soundness problem, the                                                                    • Members of the immediate family or
                                             overlap will be permitted.                              IV.F—Charter Conversion                                household;
                                                Potential overlaps of a federally insured               A multiple common bond federal credit                 • Organizations of such persons; and
                                             state credit union’s field of membership by             union may apply to convert to a community                • Corporate or other legal entities in this
                                             a federal credit union will generally be                charter provided the field of membership               charter.
                                             analyzed in the same way as if two federal              requirements of the community charter are                Immediate family is defined as spouse,
                                             credit unions were involved. Where a                    met. Groups within the existing charter                child, sibling, parent, grandparent, or
                                             federally insured state credit union’s field of         which cannot qualify in the new charter                grandchild. This includes stepparents,
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                                             membership is broadly stated, NCUA will                 cannot be served except for members of                 stepchildren, stepsiblings, and adoptive
                                             exclude its field of membership from any                record, or groups or communities obtained in           relationships.
                                             overlap protection.                                     an emergency merger or P&A. A credit union               Household is defined as persons living in
                                                NCUA will permit multiple common bond                must notify all groups that will be removed            the same residence maintaining a single
                                             federal credit unions to overlap community              from the field of membership as a result of            economic unit.
                                             charters without performing an overlap                  conversion. Members of record can continue               Membership eligibility is extended only to
                                             analysis.                                               to be served. Also, in order to support a case         individuals who are members of an



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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                                               34385

                                             ‘‘immediate family or household’’ of a credit              The well-defined local community,                   consideration of a prior application since
                                             union member. It is not necessary for the               neighborhood, or rural district requirement is         IRPS 99–1, as amended. Applicants may
                                             primary member to join the credit union in              met if:                                                contact the appropriate regional office to find
                                             order for the immediate family or household                • The area to be served is in a recognized          out if the area they are interested in has
                                             member of the primary member to join,                   single political jurisdiction, i.e., a city,           already been determined to meet the
                                             provided the immediate family or household              county, or their political equivalent, or any          community requirements. If the area is the
                                             clause is included in the field of                      contiguous portion thereof.                            same as a previously approved area, an
                                             membership. However, it is necessary for the               The well-defined local community,                   applicant need only include a statement to
                                             immediate family member or household                    neighborhood, or rural district requirement            that effect in the application. Applicants may
                                             member to first join in order for that person’s         may be met if:                                         be required to submit their own summary
                                             immediate family member or household                       • The area to be served is in multiple              and documentation regarding the community
                                             member to join the credit union. A credit               contiguous political jurisdictions, i.e., a city,      requirements if NCUA has reason to believe
                                             union can adopt a more restrictive definition           county, or their political equivalent, or any          that prior submissions are no longer accurate.
                                             of immediate family or household.                       contiguous portion thereof and if the                     A community credit union is frequently
                                                Volunteers, by virtue of their close                 population of the requested well-defined area          more susceptible to competition from other
                                             relationship with a sponsor group, may be               does not exceed 500,000; or                            local financial institutions and generally does
                                             included. Examples include volunteers                      • The area to be served is a Metropolitan           not have substantial support from any single
                                             working at a hospital or church.                        Statistical Area (MSA) or its equivalent, or a         sponsoring company or association. As a
                                                Under the Federal Credit Union Act, once             portion thereof, where the population of the           result, a community credit union will often
                                             a person becomes a member of the credit                 MSA or its equivalent does not exceed                  encounter financial and operational factors
                                             union, such person may remain a member of               1,000,000.                                             that differ from an occupational or
                                             the credit union until the person chooses to               If the proposed area meets either the               associational charter. Its diverse membership
                                             withdraw or is expelled from the                        multiple political jurisdiction or MSA                 may require special marketing programs
                                             membership of the credit union. This is                 criteria, the credit union must submit a letter        targeted to different segments of the
                                             commonly referred to as ‘‘once a member,                describing how the area meets the standards            community. For example, the lack of payroll
                                             always a member.’’ The ‘‘once a member,                 for community interaction and/or common                deduction creates special challenges in the
                                             always a member’’ provision does not                    interests.                                             development of savings promotional
                                             prevent a credit union from restricting                    If NCUA does not find sufficient evidence           programs and in the collection of loans.
                                             services to members who are no longer                   of community interaction and/or common                    Accordingly, it is essential for the
                                             within the field of membership.                         interests or if the area to be served does not         proposed community credit union to develop
                                             V—Community Charter Requirements                        meet the MSA or multiple political                     a detailed and practical business and
                                                                                                     jurisdiction requirements of the preceding             marketing plan for at least the first two years
                                             V.A.1—General                                                                                                  of operation. The proposed credit union must
                                                                                                     paragraph, the application must include
                                                Community charters must be based on a                documentation to support that it is a well-            not only address the documentation
                                             single, geographically well-defined local               defined local community, neighborhood, or              requirements set forth in Chapter 1, but also
                                             community, neighborhood, or rural district              rural district.                                        focus on the accomplishment of the unique
                                             where individuals have common interests                    It is the applicant’s responsibility to             financial and operational factors of a
                                             and/or interact. More than one credit union             demonstrate the relevance of the                       community charter.
                                             may serve the same community.                           documentation provided in support of the                  Community credit unions will be expected
                                                NCUA recognizes four types of affinity on            application. This must be provided in a                to regularly review and to follow, to the
                                             which a community charter can be based—                 narrative summary. The narrative summary               fullest extent economically possible, the
                                             persons who live in, worship in, attend                 must explain how the documentation                     marketing and business plan submitted with
                                             school in, or work in the community.                    demonstrates interaction and/or common                 their application.
                                             Businesses and other legal entities within the          interests. For example, simply listing                 V.A.3—Special Documentation Requirements
                                             community boundaries may also qualify for               newspapers and organizations in the area is            for a Converting Credit Union
                                             membership.                                             not sufficient to demonstrate that the area is
                                                NCUA has established the following                                                                             An existing federal credit union may apply
                                                                                                     a local community, neighborhood, or rural              to convert to a community charter. Groups
                                             requirements for community charters:                    district.
                                                • The geographic area’s boundaries must                                                                     currently in the credit union’s field of
                                                                                                        Examples of acceptable documentation                membership but outside the new community
                                             be clearly defined;                                     may include:
                                                • The area is a ‘‘well-defined local,                                                                       credit union’s boundaries may not be
                                                                                                        • The defined political jurisdictions;              included in the new community charter.
                                             community, neighborhood, or rural district;’’              • Major trade areas (shopping patterns and
                                             and                                                                                                            Therefore, the credit union is required to
                                                                                                     traffic flows);                                        notify groups that will be removed from the
                                                • Individuals must have common interests                • Shared/common facilities (for example,
                                             and/or interact.                                                                                               field of membership as a result of the
                                                                                                     educational, medical, police and fire                  conversion. Members of record can continue
                                             V.A.2—Documentation Requirements                        protection, school district, water, etc.);             to be served.
                                                In addition to the documentation                        • Organizations and clubs within the                   The documentation requirements set forth
                                             requirements set forth in Chapter 1 to charter          community area;                                        in Section V.A.2 of this Chapter must be met
                                             a credit union, a community credit union                   • Newspapers or other periodicals                   before a community charter can be approved.
                                             applicant must provide additional                       published for and about the area;                      In order to support a case for a conversion
                                             documentation addressing the proposed area                 • A local map designating the area to be            to community charter, the applicant federal
                                             to be served and community service policies.            served and locations of current and proposed           credit union must develop a business plan
                                                A community credit union must meet the               service facilities and a regional or state map         incorporating the following data:
                                             statutory requirements that the proposed                with the proposed community outlined; or                  • Pro forma financial statements for the
                                             community area is (1) well-defined, and (2)                • Other documentation that demonstrates             first two years after the proposed conversion,
                                             a local community, neighborhood, or rural               that the area is a community where                     including assumptions—e.g., member, share,
                                             district.                                               individuals have common interests and/or               loan, and asset growth;
                                                ‘‘Well-defined’’ means the proposed area             interact.                                                 • Marketing plan addressing how the
                                             has specific geographic boundaries.                        An applicant need not submit a narrative            community will be served;
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                                             Geographic boundaries may include a city,               summary or documentation to support a                     • Financial services to be provided to
                                             township, county (or its political equivalent),         proposed community charter, amendment or               members;
                                             or a clearly identifiable neighborhood.                 conversion as a well-defined local                        • A local map showing current and
                                             Although congressional districts and state              community, neighborhood or rural district if           proposed service facilities; and
                                             boundaries are well-defined areas, they do              the NCUA has previously determined that                   • Anticipated financial impact on the
                                             not meet the requirement that the proposed              the same exact geographic area meets that              credit union in terms of need for additional
                                             area be a local community.                              requirement in connection with                         employees and fixed assets.



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                                             34386                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules

                                                Before approval of an application to                 local community, neighborhood, or rural                V.C.5—Appeal of Regional Director Decision
                                             convert to a community credit union, NCUA               district).                                                If a field of membership expansion request,
                                             must be satisfied that the institution will be            • Persons who live in the first                      merger, or spin-off is denied by the regional
                                             viable and capable of providing services to its         congressional district of Florida. (does not           director, the federal credit union may appeal
                                             members.                                                meet the definition of local community,                the decision to the NCUA Board. An appeal
                                             V.A.4—Community Boundaries                              neighborhood, or rural district).                      must be sent to the appropriate regional
                                                The geographic boundaries of a community             V.B—Field of Membership Amendments                     office within 60 days of the date of denial
                                             federal credit union are the areas defined in                                                                  and must address the specific reason(s) for
                                                                                                        A community credit union may amend its              the denial. The regional director will then
                                             its charter. The boundaries can usually be              field of membership by adding additional
                                             defined using political borders, streets,                                                                      forward the appeal to the NCUA Board.
                                                                                                     affinities or removing exclusionary clauses.           NCUA central office staff will make an
                                             rivers, railroad tracks, etc.
                                                                                                     This can be accomplished with a                        independent review of the facts and present
                                                A community that is a recognized legal
                                                                                                     housekeeping amendment.                                the appeal to the NCUA Board with a
                                             entity, may be stated in the field of
                                                                                                        A community credit union also may                   recommendation.
                                             membership—for example, ‘‘Gus Township,
                                                                                                     expand its geographic boundaries. Persons                 Before appealing, the credit union may,
                                             Texas’’ or ‘‘Kristi County, Virginia.’’
                                                                                                     who live, work, worship, or attend school              within 30 days of the denial, provide
                                                A community that is a recognized MSA
                                             must state in the field of membership the               within the proposed well-defined local                 supplemental information to the regional
                                             political jurisdiction(s) that comprise the             community, neighborhood or rural district              director for reconsideration. A
                                             MSA.                                                    must have common interests and/or interact.            reconsideration will contain new and
                                                                                                     The credit union must follow the                       material evidence addressing the reasons for
                                             V.A.5—Special Community Charters                        requirements of Section V.A.3 of this chapter.         the initial denial. The regional director will
                                                A community field of membership may                                                                         have 30 days from the date of the receipt of
                                                                                                     V.C—NCUA Procedures for Amending the
                                             include persons who work or attend school                                                                      the request for reconsideration to make a
                                                                                                     Field of Membership
                                             in a particular industrial park, shopping                                                                      final decision. If the request is again denied,
                                             mall, office complex, or similar development.           V.C.1—General                                          the applicant may proceed with the appeal
                                             The proposed field of membership must have                 All requests for approval to amend a                process within 60 days of the date of the last
                                             clearly defined geographic boundaries.                  community credit union’s charter must be               denial. A second request for reconsideration
                                             V.A.6—Sample Community Fields of                        submitted to the appropriate regional                  will be treated as an appeal to the NCUA
                                             Membership                                              director. If a decision cannot be made within          Board.
                                                A community charter does not have to                 a reasonable period of time, the regional              V.D—Mergers, Purchase and Assumptions,
                                             include all four affinities (i.e., live, work,          director will notify the credit union.                 and Spin-Offs
                                             worship, or attend school in a community).              V.C.2—NCUA’s Decision                                     There are three additional ways a
                                             Some examples of community fields of                      The financial and operational condition of           community federal credit union can expand
                                             membership are:                                         the requesting credit union will be                    its field of membership:
                                                • Persons who live, work, worship, or                considered in every instance. The economic                • By taking in the field of membership of
                                             attend school in, and businesses located in             advisability of expanding the field of                 another credit union through a merger;
                                             the area of Johnson City, Tennessee, bounded            membership of a credit union with financial               • By taking in the field of membership
                                             by Fern Street on the north, Long Street on             or operational problems must be carefully              through a purchase and assumption (P&A); or
                                             the east, Fourth Street on the south, and Elm           considered.                                               • By taking a portion of another credit
                                             Avenue on the west;                                       In most cases, field of membership                   union’s field of membership through a spin-
                                                • Persons who live or work in Green                  amendments will only be approved for credit            off.
                                             County, Maine;                                          unions that are operating satisfactorily.
                                                • Persons who live, worship, or work in                                                                     V.D.1—Standard Mergers
                                                                                                     Generally, if a federal credit union is having
                                             and businesses and other legal entities                                                                           Generally, the requirements applicable to
                                                                                                     difficulty providing service to its current
                                             located in Independent School District No. 1,                                                                  field of membership expansions apply to
                                                                                                     membership, or is experiencing financial or
                                             DuPage County, Illinois;                                                                                       mergers where the continuing credit union is
                                                                                                     other operational problems, it may have more
                                                • Persons who live, worship, work (or                                                                       a community federal charter.
                                                                                                     difficulty serving an expanded field of
                                             regularly conduct business in), or attend                                                                         Where both credit unions are community
                                                                                                     membership.
                                             school on the University of Dayton campus,                                                                     charters, the continuing credit union must
                                                                                                       Occasionally, however, an expanded field
                                             in Dayton, Ohio;                                                                                               meet the criteria for expanding the
                                                                                                     of membership may provide the basis for
                                                • Persons who work for businesses located                                                                   community boundaries. A community credit
                                                                                                     reversing current financial problems. In such
                                             in Clifton Country Mall, in Clifton Park, New                                                                  union cannot merge into a single
                                                                                                     cases, an amendment to expand the field of
                                             York; or                                                                                                       occupational/associational, or multiple
                                                                                                     membership may be granted notwithstanding
                                                • Persons who live, work, or worship in                                                                     common bond credit union, except in an
                                             the Binghamton, New York, MSA, consisting               the credit union’s financial or operational
                                                                                                                                                            emergency merger. However, a single
                                             of Broome and Tioga Counties, New York.                 problems. The applicant credit union must              occupational or associational, or multiple
                                                Some examples of insufficiently defined              clearly establish that the expanded field of           common bond credit union can merge into a
                                             community field of membership definitions               membership is in the best interest of the              community charter as long as the merging
                                             are:                                                    members and will not increase the risk to the          credit union has a service facility within the
                                                • Persons who live or work within and                NCUSIF.                                                community boundaries or a majority of the
                                             businesses located within a 10-mile radius of           V.C.3—NCUA Approval                                    merging credit union’s field of membership
                                             Washington, DC (using a radius does not                   If the requested amendment is approved by            would qualify for membership in the
                                             establish a well-defined area);                         NCUA, the credit union will be issued an               community charter. While a community
                                                • Persons who live or work in the                    amendment to Section 5 of its charter.                 charter may take in an occupational,
                                             industrial section of New York, New York.                                                                      associational, or multiple common bond
                                             (not a well-defined neighborhood,                       V.C.4—NCUA Disapproval                                 credit union in a merger, it will remain a
                                             community, or rural district); or                         When NCUA disapproves any application                community charter.
                                                • Persons who live or work in the greater            to amend the field of membership, in whole                Groups within the merging credit union’s
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                                             Boston area. (not a well-defined                        or in part, under this chapter, the applicant          field of membership located outside of the
                                             neighborhood, community, or rural district).            will be informed in writing of the:                    community boundaries may not continue to
                                                Some examples of unacceptable local                    • Specific reasons for the action;                   be served. The merging credit union must
                                             communities, neighborhoods, or rural                      • If appropriate, options or suggestions             notify groups that will be removed from the
                                             districts are:                                          that could be considered for gaining                   field of membership as a result of the merger.
                                                • Persons who live or work in the State of           approval; and                                          However, the credit union may continue to
                                             California. (does not meet the definition of              • Appeal procedures.                                 serve members of record.



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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                                                 34387

                                                Where a state-chartered credit union is              apply to purchase and assumptions where                favor, against, or not at all) will be transferred
                                             merging into a community federal credit                 the purchasing credit union is a federal               if the spin-off is approved by the voting
                                             union, the continuing federal credit union’s            charter.                                               membership. Voting requirements for
                                             field of membership will be worded in                      A P&A has limited application because, in           federally insured state credit unions are
                                             accordance with NCUA policy. Any                        most instances, the failing credit union must          governed by state law.
                                             subsequent field of membership expansions               be placed into involuntary liquidation.
                                                                                                     However, in the few instances where a P&A              V.E—Overlaps
                                             must comply with applicable amendment
                                             procedures.                                             may occur, the assuming federal credit                 V.E.1—General
                                                Mergers must be approved by the NCUA                 union, as with emergency mergers, may                    Generally, an overlap exists when a group
                                             regional director where the continuing credit           acquire the entire field of membership if the          of persons is eligible for membership in two
                                             union is headquartered, with the concurrence            emergency criteria are satisfied.                      or more credit unions. NCUA will permit
                                             of the regional director of the merging credit             In a P&A processed under the emergency              community credit unions to overlap any
                                             union, and, as applicable, the state                    criteria, specified loans, shares, and certain         other charters without performing an overlap
                                             regulators.                                             other designated assets and liabilities may            analysis.
                                             V.D.2—Emergency Mergers                                 also be acquired without regard to field of
                                                                                                                                                            V.E.2—Exclusionary Clauses
                                                                                                     membership restrictions and without
                                                An emergency merger may be approved by               changing the character of the continuing                 An exclusionary clause is a limitation
                                             NCUA without regard to field of membership              federal credit union for purposes of future            precluding the credit union from serving the
                                             requirements or other legal constraints. An             field of membership amendments.                        primary members of a portion of a group or
                                             emergency merger involves NCUA’s direct                    If the P&A does not meet the emergency              community otherwise included in its field of
                                             intervention and approval. The credit union             criteria, then only members of record can be           membership. NCUA no longer grants
                                             to be merged must either be insolvent or                obtained unless they otherwise qualify for             exclusionary clauses. Those granted prior to
                                             likely to become insolvent, and NCUA must               membership in the community charter.                   the adoption of this new chartering manual
                                             determine that:                                            P&As involving federally insured credit             will remain in effect unless the credit unions
                                                • An emergency requiring expeditious                 unions in different NCUA regions must be               agree to remove them or one of the affected
                                             action exists;                                          approved by the regional director where the            credit unions submits a housekeeping
                                                • Other alternatives are not reasonably              continuing credit union is headquartered,              amendment to have it removed.
                                             available; and                                          with the concurrence of the regional director
                                                • The public interest would best be served                                                                  V.F—Charter Conversions
                                                                                                     of the purchased and/or assumed credit
                                             by approving the merger.                                union and, as applicable, the state regulators.           A community federal credit union may
                                                If not corrected, conditions that could lead                                                                convert to a single occupational or
                                             to insolvency include, but are not limited to:          V.D.4—Spin-Offs                                        associational, or multiple common bond
                                                • Abandonment by management;                            A spin-off occurs when, by agreement of             credit union. The converting credit union
                                                • Loss of sponsor;                                   the parties, a portion of the field of                 must meet all occupational, associational,
                                                • Serious and persistent record keeping; or          membership, assets, liabilities, shares, and           and multiple common bond requirements, as
                                                • Serious and persistent operational                 capital of a credit union are transferred to a         applicable. The converting credit union may
                                             concerns.                                               new or existing credit union. A spin-off is            continue to serve members of record of the
                                                In an emergency merger situation, NCUA               unique in that usually one credit union has            prior field of membership as of the date of
                                             will take an active role in finding a suitable          a field of membership expansion and the                the conversion, and any groups or
                                             merger partner (continuing credit union).               other loses a portion of its field of                  communities obtained in an emergency
                                             NCUA is primarily concerned that the                    membership.                                            merger or P&A. A change to the credit
                                             continuing credit union has the financial                  All field of membership requirements                union’s field of membership and designated
                                             strength and management expertise to absorb             apply regardless of whether the spun-off               common bond will be necessary.
                                             the troubled credit union without adversely             group goes to a new or existing federal                   A community credit union may convert to
                                             affecting its own financial condition and               charter.                                               serve a new geographical area provided the
                                             stability.                                                 The request for approval of a spin-off must         field of membership requirements of V.A.3 of
                                                As a stipulated condition to an emergency            be supported with a plan that addresses, at            this chapter are met. Members of record of
                                             merger, the field of membership of the                  a minimum:                                             the original community can continue to be
                                             merging credit union may be transferred                    • Why the spin-off is being requested;              served.
                                             intact to the continuing federal credit union              • What part of the field of membership is
                                             without regard to any field of membership               to be spun off;                                        V.G—Other Persons With a Relationship to
                                             restrictions, including the service facility               • Whether the field of membership                   the Community
                                             requirement. Under this authority, a federal            requirements are met;                                     A number of persons who have a close
                                             credit union may take in any dissimilar field              • Which assets, liabilities, shares, and            relationship to the community may be
                                             of membership.                                          capital are to be transferred;                         included, at the charter applicant’s option, in
                                                Even though the merging credit union is a               • The financial impact the spin-off will            the field of membership. These include the
                                             single common bond credit union or multiple             have on the affected credit unions;                    following:
                                             common bond credit union or community                      • The ability of the acquiring credit union            • Spouses of persons who died while
                                             credit union, the continuing credit union will          to effectively serve the new members;                  within the field of membership of this credit
                                             remain a community charter. Future                         • The proposed spin-off date; and                   union;
                                             community expansions will be based on the                  • Disclosure to the members of the                     • Employees of this credit union;
                                             continuing credit union’s original                      requirements set forth above.                             • Volunteers in the community;
                                             community area.                                            The spin-off request must also include                 • Members of the immediate family or
                                                Emergency mergers involving federally                current financial statements from the affected         household; and
                                             insured credit unions in different NCUA                 credit unions and the proposed voting ballot.             • Organizations of such persons.
                                             regions must be approved by the regional                   For federal credit unions spinning off a               Immediate family is defined as spouse,
                                             director where the continuing credit union is           portion of the community, membership                   child, sibling, parent, grandparent, or
                                             headquartered, with the concurrence of the              notice and voting requirements and                     grandchild. This includes stepparents,
                                             regional director of the merging credit union           procedures are the same as for mergers (see            stepchildren, stepsiblings, and adoptive
                                             and, as applicable, the state regulators.               Part 708 of the NCUA Rules and                         relationships.
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                                                                                                     Regulations), except that only the members                Household is defined as persons living in
                                             V.D.3—Purchase and Assumption (P&A)                     directly affected by the spin-off—those                the same residence maintaining a single
                                                Another alternative for acquiring the field          whose shares are to be transferred—are                 economic unit.
                                             of membership of a failing credit union is              permitted to vote. Members whose shares are               Membership eligibility is extended only to
                                             through a consolidation known as a P&A.                 not being transferred will not be afforded the         individuals who are members of an
                                             Generally, the requirements applicable to               opportunity to vote. All members of the                ‘‘immediate family or household’’ of a credit
                                             community expansions found in this chapter              group to be spun off (whether they voted in            union member. It is not necessary for the



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                                             34388                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules

                                             primary member to join the credit union in              presumed to be serving predominantly low-              low-income individuals to gain access to
                                             order for the immediate family or household             income members. A low-income designation               credit union service.
                                             member of the primary member to join,                   for a new credit union charter may be based               NCUA permits credit union chartering and
                                             provided the immediate family or household              on a majority of the potential membership.             field of membership amendments based on
                                             clause is included in the field of                                                                             associational groups formed for the sole
                                             membership. However, it is necessary for the            II.B—Special Programs                                  purpose of making credit union service
                                             immediate family member or household                       A credit union with a low-income                    available to low-income persons. The
                                             member to first join in order for that person’s         designation has greater flexibility in                 association must be defined so that all of its
                                             immediate family member or household                    accepting nonmember deposits insured by                members will meet the low-income
                                             member to join the credit union. A credit               the NCUSIF, are exempt from the aggregate              definition of Section 701.34 of the NCUA
                                             union can adopt a more restrictive definition           loan limit on business loans, and may offer            Rules and Regulations. Any multiple
                                             of immediate family or household.                       secondary capital accounts to strengthen its           common bond credit union can add low-
                                               Under the Federal Credit Union Act, once              capital base. It also may participate in special       income associations to their fields of
                                             a person becomes a member of the credit                 funding programs such as the Community                 membership.
                                             union, such person may remain a member of               Development Revolving Loan Program for                    A low-income designated community
                                             the credit union until the person chooses to            Credit Unions (CDRLP) if it is involved in the         federal credit union has additional latitude in
                                             withdraw or is expelled from the                        stimulation of economic development and                serving persons who are affiliated with the
                                             membership of the credit union. This is                 community revitalization efforts.                      community. In addition to serving members
                                             commonly referred to as ‘‘once a member,                   The CDRLP provides both loans and grants            who live, work, worship, or attend school in
                                             always a member.’’ The ‘‘once a member,                 for technical assistance to low-income credit          the community, a low-income community
                                             always a member’’ provision does not                    unions. The requirements for participation in          federal credit union may also serve persons
                                             prevent a credit union from restricting                 the revolving loan program are in Part 705 of          who participate in programs to alleviate
                                             services to members who are no longer                   the NCUA Rules and Regulations. Only                   poverty or distress, or who participate in
                                             within the field of membership.                         operating credit unions are eligible for               associations headquartered in the
                                                                                                     participation in this program.                         community.
                                             Chapter 3
                                                                                                     II.C—Low-Income Documentation                             Examples of a low-income designated
                                             Low-Income Credit Unions and Credit                                                                            community and an associational-based low-
                                             Unions Serving Underserved Areas                           A federal credit union charter applicant or         income federal credit union are as follows:
                                                                                                     existing credit union wishing to receive a                • Persons who live in [the target area];
                                             I—Introduction                                          low-income designation should forward a                persons who work, worship, attend school, or
                                               One of the primary reasons for the creation           separate request for the designation to the            participate in associations headquartered in
                                             of federal credit unions is to make credit              regional director, along with appropriate              [the target area]; persons participating in
                                             available to people of modest means for                 documentation supporting the request.
                                                                                                                                                            programs to alleviate poverty or distress
                                             provident and productive purposes. To help                 For community charter applicants, the
                                                                                                                                                            which are located in [the target area];
                                             NCUA fulfill this mission, the agency has               supporting material should include the
                                                                                                                                                            incorporated and unincorporated
                                             established special operational policies for            median household income or annual wage
                                                                                                                                                            organizations located in [the target area] or
                                             federal credit unions that serve low-income             figures for the community to be served. If this
                                                                                                                                                            maintaining a facility in [the target area]; and
                                             groups and underserved areas. The policies              information is unavailable, the applicant
                                                                                                                                                            organizations of such persons.
                                             provide a greater degree of flexibility that            should identify the individual zip codes or
                                                                                                                                                               • Members of the Canarsie Economic
                                             will enhance and invigorate capital infusion            census tracts that comprise the community
                                                                                                                                                            Assistance League, in Brooklyn, NY, an
                                             into low-income groups, low-income                      and NCUA will assist in obtaining the
                                                                                                                                                            association whose members all meet the low-
                                             communities, and underserved areas. These               necessary demographic data.
                                                                                                        Similarly, if single occupational or                income definition of Section 701.34 of the
                                             unique policies are necessary to provide                                                                       NCUA Rules and Regulations.
                                             credit unions serving low-income groups                 associational or multiple common bond
                                             with financial stability and potential for              charter applicants cannot supply income data           III—Service to Underserved Communities
                                             controlled growth and to encourage the                  on its potential members, they should
                                                                                                                                                               A multiple common bond federal credit
                                             formation of new charters as well as the                provide the regional director with a list
                                                                                                                                                            union may include in its field of
                                             delivery of credit union services in low-               which includes the number of potential
                                                                                                                                                            membership, without regard to location, an
                                             income communities.                                     members, sorted by their residential zip
                                                                                                                                                            ‘‘underserved area’’ as defined by the Federal
                                                                                                     codes, and NCUA will assist in obtaining the
                                             II—Low-Income Credit Union                                                                                     Credit Union Act. 12 U.S.C. 1759(c)(2). The
                                                                                                     necessary demographic data.
                                                                                                                                                            addition of an ‘‘underserved area’’ will not
                                             II.A—Defined                                               An existing credit union can perform a
                                                                                                     loan or membership survey to determine if              change the charter type of the multiple
                                                A credit union serving predominantly low-            the credit union is primarily serving low-             common bond federal credit union. More
                                             income members may be designated as a low-              income members.                                        than one multiple common-bond federal
                                             income credit union. Section 701.34 of                                                                         credit union can serve the same
                                             NCUA’s Rules and Regulations defines the                II.D—Third Party Assistance                            ‘‘underserved area,’’ if approved as provided
                                             term ‘‘low-income members’’ as those                       A low-income federal credit union charter           below.
                                             members:                                                applicant may contract with a third party to              The Federal Credit Union Act defines an
                                                • Who make less than 80 percent of the               assist in the chartering and low-income                ‘‘underserved area’’ as (1) a ‘‘local
                                             average for all wage earners as established by          designation process. If the charter is granted,        community, neighborhood, or rural district’’
                                             the Bureau of Labor Statistics; or                      a low-income credit union may contract with            that (2) meets the definition of an
                                                • Whose annual household income falls at             a third party to provide necessary                     ‘‘investment area’’ under section 103(16) of
                                             or below 80 percent of the median household             management services. Such contracts should             the Community Development Banking and
                                             income for the nation as established by the             not exceed the duration of one year subject            Financial Institutions Act of 1994 (‘‘CDFI’’),
                                             Census Bureau.                                          to renewal.                                            12 U.S.C. 4702(16), and (3) is ‘‘underserved
                                                The term ‘‘low-income members’’ also                                                                        by other depository institutions’’ based on
                                             includes members who are full-time or part-             II.E—Special Rules for Low-Income Federal              data of the NCUA Board and the federal
                                             time students in a college, university, high            Credit Unions                                          banking agencies.
                                             school, or vocational school.                              In recognition of the unique efforts needed            (1) Local Community. To be eligible for
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                                                To obtain a low-income designation from              to help make credit union service available            approval as ‘‘underserved,’’ a proposed area
                                             NCUA, an existing credit union must                     to low-income groups, NCUA has adopted                 must be a well-defined local community,
                                             establish that a majority of its members meet           special rules that pertain to low-income               neighborhood, or rural district as defined in
                                             the low-income definition. An existing                  credit union charters, as well as field of             Chapter 2, sections V.A.1. and V.A.2. of this
                                             community credit union that serves a                    membership additions for low-income credit             Manual.
                                             geographic area where a majority of residents           unions. These special rules provide                       (2) Investment Area. To be approved as an
                                             meet the annual income standard is                      additional latitude to enable underserved,             ‘‘underserved area,’’ the proposed area must



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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                                                 34389

                                             meet the CDFI definition of an ‘‘investment                • Non-Metro Area Median Family Income.              concentration of depository institution
                                             area.’’ 12 U.S.C. 4702(16). A proposed area             MFI at or below 80 percent (80%) of either             facilities among the population of the
                                             that, at the time the credit union applies, is          the statewide Non-Metro Area’s MFI or the              proposed area’s non-‘‘distressed’’ tracts—
                                             designated in its entirety as an Empowerment            national Non-Metro Area MFI, whichever is              which sets a benchmark level of adequate
                                             Zone or Enterprise Community (12 U.S.C.                 greater.                                               service—is greater than the concentration of
                                             1391) automatically qualifies as an                        • 12 CFR 1805.201(b)(3)(ii)(D)(2)(i) and (ii)       facilities among the population of all of the
                                             ‘‘investment area’’; no further criteria must be        (2008).                                                proposed area’s census tracts combined. If
                                             met. 12 U.S.C. 4702(16)(B).                                Finally, if a Non-Metro proposed area               there are no non-‘‘distressed’’ tracts within a
                                                Otherwise, to qualify as an ‘‘investment             consists of a single county, it may meet one           proposed area, an immediately adjoining
                                             area,’’ the proposed area must meet ‘‘the               of the following two criteria, as reported by          non-‘‘distressed’’ census tract or larger unit
                                             objective criteria of economic distress’’               the decennial Census:                                  (e.g., city or county) may be used to set the
                                             developed by the CDFI Fund (‘‘distress                     • County Population Loss. County’s                  benchmark concentration ratio.
                                             criteria’’), and also must demonstrate that the         population loss of at least 10 percent (10%)              Without regard to a proposed area’s
                                             area has ‘‘significant unmet needs’’ for loans          between the most recent and the preceding              location, this process compares two ratios:
                                             and financial services credit unions are                decennial census; or                                   The ratio of facilities to the population of the
                                             authorized to offer to their members. 12                   • County Migration Loss. County’s net               non-‘‘distressed’’ tracts (the benchmark)
                                             U.S.C. 4702(16)(A).                                     migration loss of at least 5 percent (5%) in           versus the same ratio in the proposed area as
                                                (3) Location of Proposed ‘‘Underserved               the 5-year period preceding the most recent            a whole. If the benchmark ratio is greater
                                             Area’’. The location of a proposed area either          decennial census.                                      than the whole area’s ratio, then the area
                                             within or outside of a Metropolitan Area                12 CFR 1805.201(b)(3)(ii)(D)(4)–(5) (2008).            meets the ‘‘underserved by other depository
                                             determines the geographic unit(s) a credit                                                                     institutions’’ criterion, and vice versa.
                                             union must apply to determine whether the                  (5) Proposed Area Consisting of Multiple
                                                                                                     Contiguous Units. A proposed area consisting              (8) Approval To Serve an Area Already
                                             area meets the distress criteria. An area is                                                                   Approved as ‘‘Underserved’’. Once a credit
                                             deemed to be Metropolitan if it is located, in          of multiple contiguous units, either Metro
                                                                                                     (e.g., a group of adjoining census tracts) or          union is initially approved to serve an
                                             whole or in part, within a ‘‘metropolitan                                                                      ‘‘underserved area,’’ other credit unions that
                                             statistical area’’ (‘‘MSA’’) that corresponds to        Non-Metro (e.g., a group of adjoining
                                                                                                     counties), is subject to a population threshold        subsequently apply may be approved to serve
                                             the most recent completed decennial census                                                                     the same area. To be approved, the area must
                                             published by the U.S. Bureau of the Census              when implementing the economic distress
                                                                                                     criteria. At least 85 percent (85%) of the             qualify as ‘‘underserved’’ at the time the new
                                             (‘‘decennial Census’’); an area that is located                                                                applicant applies. Thus, that applicant will
                                             entirely outside such an MSA is deemed to               area’s total population must reside within the
                                                                                                     units that are ‘‘distressed,’’ i.e, meet one of        have to demonstrate as provided above that
                                             be Non-Metropolitan.
                                                                                                     the applicable economic distress criteria              the area still is ‘‘distressed’’ according to the
                                                For a Metropolitan proposed area, the
                                                                                                     above, as reported by the decennial Census             decennial Census then in effect, and still has
                                             permissible units (‘‘Metro units’’) for
                                                                                                     (Unemployment, Poverty and MFI for census              ‘‘significant’’ unmet needs for loans or credit
                                             implementing the economic distress criteria
                                                                                                     tracts plus, for counties only, Population             union services (to qualify as an ‘‘investment
                                             are: a census tract, a block group, and an
                                             American Indian or Alaskan Native area. 12              Loss and Migration Loss). The population               area’’). Finally, the new applicant must
                                             CFR 1805.201(b)(3)(ii)(B) (2008). For a Non-            threshold is met, and the whole proposed               demonstrate that the area still is
                                             Metropolitan proposed area, the permissible             area qualifies as ‘‘distressed,’’ when the             ‘‘underserved by other depository
                                             units (‘‘Non-Metro units’’) are: a county (or           ‘‘distressed’’ units represent at least 85             institutions’’ (to qualify as ‘‘underserved’’).
                                             equivalent area), a minor civil division that           percent of the area’s total population.                   (9) Service Facility. Once an ‘‘underserved
                                             is a unit of local government, an incorporated             (6) Proposed Area’s ‘‘Significant Unmet             area’’ has been added to a federal credit
                                             place, a census tract, a block numbering area,          Needs’’ for Loans and Financial Services. A            union’s field of membership, the credit union
                                             a block group, or an American Indian or                 proposed area that is ‘‘distressed’’ also must         must establish within two years, and
                                             Alaskan Native area. Id. When possible, it is           display ‘‘significant unmet needs’’ for loans          maintain, an office or service facility in the
                                             advisable to use a census tract as the                  or one or more of the following financial              community. A service facility is defined as a
                                             proposed area’s Metro unit and either a                 services credit unions are authorized to offer:        place where shares are accepted for members’
                                             census tract or county as its Non-Metro unit,           Share draft accounts, savings accounts, check          accounts, loan applications are accepted and
                                             as the case may be.                                     cashing, money orders, certified checks,               loans are disbursed. By definition, a service
                                                (4) Proposed Area Consisting of a Single             automated teller machines, deposit taking,             facility includes a credit union-owned
                                             Metro Unit. A proposed area consisting of a             safe deposit box services, and other similar           branch, a shared branch, a mobile branch, or
                                             single whole unit, either Metro (e.g., a single         services (‘‘credit union services’’). To meet          an office operated on a regularly scheduled
                                             census tract) or Non-Metro (e.g., a single              this criterion, the credit union must submit           weekly basis or a credit union owned
                                             county), must meet one of the following                 for NCUA approval a one-page ‘‘Narrative               electronic facility that meets, at a minimum,
                                             distress criteria, as reported by the most              Statement of Unmet Needs’’ (‘‘Narrative                the above requirements. This definition does
                                             recent decennial Census:                                Statement’’) indicating a pattern of unmet             not include an ATM or the credit union’s
                                                • Unemployment. Unemployment rate at                 needs in the proposed area for loans or one            Internet Web site.
                                             least 1.5 times the national average; or                or more credit union services. The credit                 (10) Business Plan. A federal credit union
                                                • Poverty. At least 20 percent (20%) of the          union may choose which credit union                    that desires to include an underserved
                                             population lives in poverty.                            services to address and need not address all           community in its field of membership must
                                                • Other Criterion. Any other economic                of them.                                               first develop a business plan specifying how
                                             distress criterion the CDFI Fund may adopt                 The Narrative Statement must be                     it will serve the community. The business
                                             in the future.                                          supported by relevant, objective statistical           plan, at a minimum, must explain how the
                                             12 CFR 1805.201(b)(3)(ii)(D)(1) and (3)                 data reflecting, among other things, financial,        credit union plans to fulfill the unmet needs
                                             (2008).                                                 demographic, economic or loan activity                 for loans and credit union services identified
                                                If the proposed area consists of a single            pertaining to the proposed area. The                   in its Narrative Statement. The credit union
                                             Metro unit of any kind, it may also meet the            supporting statistical data (which should be           will be expected to regularly review the
                                             following criterion, as reported by the most            appended to the Narrative Statement) may be            business plan to determine if the community
                                             recent decennial Census:                                supplemented by objective testimonial                  is being adequately served. The regional
                                                • Metro Area Median Family Income.                   evidence.                                              director may require periodic service status
                                             Median family income (‘‘MFI’’) at or below                 (7) Underserved by Other Depository                 reports from a credit union about the
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                                             80 percent (80%) of either the Metro Area’s             Institutions. A proposed area that meets the           ‘‘underserved area’’ to ensure that the needs
                                             MFI or the national Metro Area MFI,                     CDFI definition of an ‘‘investment area’’ (i.e,        of the community are being met as well as
                                             whichever is greater.                                   is ‘‘distressed’’ and has ‘‘significant unmet          requiring such reports before NCUA allows a
                                                If the proposed area consists of a single            needs’’) must also be underserved by other             multiple common bond federal credit union
                                             Non-Metro unit of any kind, it may also meet            depository institutions, including credit              to add an additional ‘‘underserved area.’’
                                             the following criterion, as reported by the             unions. 12 U.S.C. 1759(c)(2)(A)(ii). This                 (11) Low Income Benefits. A multiple
                                             most recent decennial Census:                           statutory criterion is met when the                    common bond federal credit union that



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                                             34390                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules

                                             serves an ‘‘underserved area’’ will not be able         and regulations also apply to federally                   • Conversion of State Charter to Federal
                                             to receive the benefits afforded to low-                insured state chartered credit unions.                 Charter (NCUA 4000);
                                             income designated credit unions, such as                   There are two types of charter conversions:            • Organization Certificate (NCUA 4008).
                                             expanded use of nonmember deposits and                  Federal charter to state charter and state             Only Part (3) and the signature/notary section
                                             access to the Community Development                     charter to federal charter. Common bond and            should be completed and, where applicable,
                                             Revolving Loan Program for Credit Unions.               community requirements are not an issue                signed by the credit union officials.
                                                                                                     from NCUA’s standpoint in the case of a                   • Report of Officials and Agreement To
                                             IV—Appeal Procedures for Underserved                    federal to state charter conversion. The               Serve (NCUA 4012);
                                             Areas                                                   procedures and forms relevant to both types               • The Application to Convert From State
                                             IV.A—NCUA Approval                                      of charter conversion are included in                  Credit Union To Federal Credit Union
                                                                                                     Appendix 4.                                            (NCUA 4401);
                                                If the requested underserved area is
                                                                                                                                                               • The Application and Agreements for
                                             approved by NCUA, the credit union will be              II—Conversion of a State Credit Union to a
                                             issued an amendment to Section 5 of its                                                                        Insurance of Accounts (NCUA 9500);
                                                                                                     Federal Credit Union
                                             charter.                                                                                                          • Certification of Resolution (NCUA 9501);
                                                                                                     II.A—General Requirements                                 • Written evidence regarding whether the
                                             IV.B—NCUA Disapproval                                      Any state-chartered credit union may                state regulator is in agreement with the
                                               When NCUA disapproves any application                 apply to convert to a federal credit union. In         conversion proposal; and
                                             to add an underserved area, in whole or in              order to do so it must:                                   • Business plan, as appropriate, including
                                             part, under this chapter, the applicant will be            • Comply with state law regarding                   the most current financial report and
                                             informed in writing of the:                             conversion and file proof of compliance with           delinquent loan schedule.
                                               • Specific reasons for the action;                    NCUA;                                                     If the state charter is applying to become
                                               • Options to consider, if appropriate, for               • File the required conversion application,         a federal community charter, it must also
                                             gaining approval; and                                   proposed federal credit union organization             comply with the documentation
                                               • Appeal procedures.                                  certificate, and other documents with NCUA;            requirements included in Chapter 2, Section
                                                                                                        • Comply with the requirements of the               V.A.2 of this manual.
                                             IV.C—Appeal of Regional Director Decision
                                                                                                     Federal Credit Union Act, e.g., chartering and         II.C—NCUA Consideration of Application To
                                                If the regional director denies an                   reserve requirements; and                              Convert
                                             underserved area request, the federal credit               • Be granted federal share insurance by
                                             union may appeal the decision to the NCUA               NCUA.                                                  II.C.1—Review by the Regional Director
                                             Board. An appeal must be sent to the                       Conversions are treated the same as any                The application will be reviewed to
                                             appropriate regional office within 60 days of           initial application for a federal charter,             determine that it is complete and that the
                                             the date of denial and must address the                 including an on-site examination by NCUA               proposal is in compliance with Section 125
                                             specific reason(s) for the denial. The regional         where appropriate. NCUA will also consult              of the Federal Credit Union Act. This review
                                             director will then forward the appeal to the            with the appropriate state authority regarding         will include a determination that the state
                                             NCUA Board. NCUA central office staff will              the credit union’s current financial                   credit union’s field of membership is in
                                             make an independent review of the facts and             condition, management expertise, and past              compliance with NCUA’s chartering policies.
                                             present the appeal to the NCUA Board with               performance. Since the applicant in a                  The regional director may make further
                                             a recommendation.                                       conversion is an ongoing credit union, the             investigation into the proposal and may
                                                Before appealing, the credit union may,              economic advisability of granting a charter is         require the submission of additional
                                             within 30 days of the denial, provide                   more readily determinable than in the case of          information to support the request to convert.
                                             supplemental information to the regional                an initial charter applicant.
                                             director for reconsideration. A                                                                                II.C.2—On-Site Review
                                                                                                        A converting state credit union’s field of
                                             reconsideration will contain new and                    membership must conform to NCUA’s                         NCUA may conduct an on-site examination
                                             material evidence addressing the reasons for            chartering policy. The field of membership             of the books and records of the credit union.
                                             the initial denial. The regional director will          will be phrased in accordance with NCUA                Non-federally insured credit unions will be
                                             have 30 days from the date of the receipt of            chartering policy. However, if the converting          assessed an insurance application fee.
                                             the request for reconsideration to make a               credit union is a multiple group charter and           II.C.3—Approval by the Regional Director
                                             final decision. If the request is again denied,         the new federal charter is a multiple group,           and Conditions to the Approval
                                             the applicant may proceed with the appeal               then the new federal charter may retain in its
                                             process within 60 days of the date of the last                                                                    The conversion will be approved by the
                                                                                                     field of membership any group that the state
                                             denial. A second request for reconsideration                                                                   regional director if it is in compliance with
                                                                                                     credit union was serving at the time of
                                             will be treated as an appeal to the NCUA                                                                       Section 125 of the Federal Credit Union Act
                                                                                                     conversion. Subsequent changes must
                                             Board.                                                  conform to NCUA chartering policy in effect            and meets the criteria for federal insurance.
                                                                                                     at that time.                                          Where applicable, the regional director will
                                             Chapter 4                                                                                                      specify any special conditions that the credit
                                                                                                        If the converting credit union is a
                                             Charter Conversions                                     community charter and the new federal                  union must meet in order to convert to a
                                                                                                     charter is community-based, it must meet the           federal charter, including changes to the
                                             I—Introduction                                                                                                 credit union’s field of membership in order
                                                                                                     community field of membership
                                                A charter conversion is a change in the              requirements set forth in Chapter 2, Section           to conform to NCUA’s chartering policies.
                                             jurisdictional authority under which a credit           V of this manual. If the state-chartered credit        Some of these conditions may be set forth in
                                             union operates.                                         union’s community boundary is more                     a Letter of Understanding and Agreement
                                                Federal credit unions receive their charters         expansive than the approved federal                    (LUA), which requires the signature of the
                                             from NCUA and are subject to its                        boundary, only members of record outside of            officials and the regional director.
                                             supervision, examination, and regulation.               the new community boundary may continue                II.C.4—Notification
                                                State-chartered credit unions are                    to be served.                                             The regional director will notify both the
                                             incorporated in a particular state, receiving              The converting credit union, regardless of          credit union and the state regulator of the
                                             their charter from the state agency                     charter type, may continue to serve members            decision on the conversion.
                                             responsible for credit unions and subject to            of record. The converting credit union may
                                             the state’s regulator. If the state-chartered           retain in its field of membership any group            II.C.5—NCUA Disapproval
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                                             credit union’s deposits are federally insured,          or community added pursuant to state                      When NCUA disapproves any application
                                             it will also fall under NCUA’s jurisdiction.            emergency provisions.                                  to convert to a federal charter, the applicant
                                                A federal credit union’s power and                                                                          will be informed in writing of the:
                                             authority are derived from the Federal Credit           II.B—Submission of Conversion Proposal to                 • Specific reasons for the action;
                                             Union Act and NCUA Rules and Regulations.               NCUA                                                      • Options to consider, if appropriate, for
                                             State-chartered credit unions are governed by              The following documents must be                     gaining approval; and
                                             state law and regulation. Certain federal laws          submitted with the conversion proposal:                   • Appeal procedures.



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                                             II.C.6—Appeal of Regional Director Decision             and the state regulator of the date of the             III.B—Special Provisions Regarding Federal
                                                If a conversion to a federal charter is              conversion.                                            Share Insurance
                                             denied by the regional director, the applicant          II.E.2—Assumption of Assets and Liabilities               If the federal credit union intends to
                                             credit union may appeal the decision to the                As of the effective date of the conversion,         continue federal share insurance after the
                                             NCUA Board. An appeal must be sent to the               the federal credit union will be the owner of          conversion to a state credit union, it must
                                             appropriate regional office within 60 days of           all of the assets and will be responsible for          submit an Application for Insurance of
                                             the date of denial and must address the                 all of the liabilities and share accounts of the       Accounts (NCUA 9600) to the regional
                                             specific reason(s) for the denial. The regional         state credit union.                                    director at the time it requests approval of the
                                             director will then forward the appeal to the                                                                   conversion proposal. The regional director
                                             NCUA Board. NCUA central office staff will              II.E.3—Board of Directors’ Meeting                     has the authority to approve or disapprove
                                             make an independent review of the facts and                Upon receipt of its federal charter, the            the application.
                                             present the appeal to the NCUA Board with               board will hold its first meeting as a federal            If the converting federal credit union does
                                             a recommendation.                                       credit union. At this meeting, the board will          not intend to continue federal share
                                                Before appealing, the credit union may,              transact such business as is necessary to              insurance or if its application for continued
                                             within 30 days of the denial, provide                   complete the conversion as approved and to             insurance is denied, insurance will cease in
                                             supplemental information to the regional                operate the credit union in accordance with            accordance with the provisions of Section
                                             director for reconsideration. The request will          the requirements of the Federal Credit Union           206 of the Federal Credit Union Act.
                                             not be considered as an appeal, but a request           Act and NCUA Rules and Regulations.                       If, upon its conversion to a state credit
                                             for reconsideration by the regional director.              As of the commencement of operations, the           union, the federal credit union will be
                                             The regional director will have 30 business             accounting system, records, and forms must             terminating its federal share insurance or
                                             days from the date of the receipt of the                conform to the standards established by                converting from federal to non-federal share
                                             request for reconsideration to make a final             NCUA.                                                  insurance, it must comply with the
                                             decision. If the application is again denied,           II.E.4—Credit Union’s Name                             membership notice and voting procedures set
                                             the credit union may proceed with the appeal                                                                   forth in Section 206 of the Federal Credit
                                             process to the NCUA Board within 60 days                   Changing of the credit union’s name on all          Union Act and Part 708 of NCUA’s Rules and
                                             of the date of the last denial by the regional          signage, records, accounts, investments, and           Regulations, and address the criteria set forth
                                             director.                                               other documents should be accomplished as              in Section 205(c) of the Federal Credit Union
                                                                                                     soon as possible after conversion. The credit          Act.
                                             II.D—Action by Board of Directors                       union has 180 days from the effective date of             Where the state credit union will be non-
                                             II.D.1—General                                          the conversion to change its signage and               federally insured, federal insurance ceases on
                                                                                                     promotional material. This requires the credit         the effective date of the charter conversion.
                                                Upon being informed of the regional
                                                                                                     union to discontinue using any remaining               If it will be otherwise uninsured, then federal
                                             director’s preliminary approval, the board
                                                                                                     stock of ‘‘state credit union’’ stationery             insurance will cease one year after the date
                                             must:
                                                                                                     immediately, and discontinue using credit              of conversion subject to the restrictions in
                                                • Comply with all requirements of the
                                                                                                     cards, ATM cards, etc., within 180 days after          Section 206(d)(1) of the Federal Credit Union
                                             state regulator that will enable the credit
                                                                                                     the effective date of the conversion, or the           Act. In either case, the state credit union will
                                             union to convert to a federal charter and
                                                                                                     reissue date, whichever is later. The regional         be entitled to a refund of the federal credit
                                             cease being a state credit union;
                                                                                                     director has the discretion to extend the              union’s NCUSIF capitalization deposit after
                                                • Obtain a letter or official statement from
                                                                                                     timeframe for an additional 180 days.                  the final date on which any of its shares are
                                             the state regulator certifying that the credit
                                                                                                     Member share drafts with the state-chartered           federally insured.
                                             union has met all of the state requirements
                                                                                                     name can be used by the members until                     The NCUA Board reserves the right to
                                             and will cease to be a state credit union upon
                                             its receiving a federal charter. A copy of this         depleted.                                              delay the refund of the capitalization deposit
                                             document must be submitted to the regional              II.E.5—Reports to NCUA                                 for up to one year if it determines that
                                             director;                                                                                                      payment would jeopardize the NCUSIF.
                                                                                                        Within 10 business days after
                                                • Obtain a letter from the private share             commencement of operations, the recently               III.C—Submission of Conversion Proposal to
                                             insurer (includes excess share insurers), if            converted federal credit union must submit             NCUA
                                             applicable, certifying that the credit union            to the regional director the following:
                                             has met all withdrawal requirements. A copy                                                                       Upon approval of a proposition for
                                                                                                        • Report of Officials (NCUA 4501); and              conversion by a majority vote of the board of
                                             of this document must be submitted to the                  • Financial and Statistical Reports, as of
                                             regional director; and                                                                                         directors at a meeting held in accordance
                                                                                                     the commencement of business of the federal            with the federal credit union’s bylaws, the
                                                • Submit a statement of the action taken to          credit union.
                                             comply with any conditions imposed by the                                                                      conversion proposal will be submitted to the
                                             regional director in the preliminary approval           III—Conversion of a Federal Credit Union to            regional director and will include:
                                             of the conversion proposal and, if applicable,          a State Credit Union                                      • A current financial report;
                                             submit the signed LUA.                                                                                            • A current delinquent loan schedule;
                                                                                                     III.A—General Requirements                                • An explanation and appropriate
                                             II.D.2—Application for a Federal Charter                                                                       documents relative to any changes in
                                                                                                        Any federal credit union may apply to
                                                When the regional director has received              convert to a state credit union. In order to do        insurance of member accounts;
                                             evidence that the board of directors has                so, it must:                                              • A resolution of the board of directors;
                                             satisfactorily completed the actions described             • Notify NCUA prior to commencing the                  • A proposed Notice of Special Meeting of
                                             above, the federal charter and new Certificate          process to convert to a state charter and state        the Members (NCUA 4221);
                                             of Insurance will be issued.                            the reason(s) for the conversion;                         • A copy of the ballot to be sent to all
                                                The credit union may then complete the                  • Comply with the requirements of Section           members (NCUA 4506);
                                             conversion as discussed in the following                125 of the Federal Credit Union Act that                  • If the credit union intends to continue
                                             section. A denial of a conversion application           enable it to convert to a state credit union           with federal share insurance, an application
                                             can be appealed. Refer to Section II.C.6 of             and to cease being a federal credit union; and         for insurance of accounts (NCUA 9600);
                                             this chapter.                                              • Comply with applicable state law and                 • Evidence that the state regulator is in
                                                                                                     the requirements of the state regulator.               agreement with the conversion proposal; and
                                             II.E—Completion of the Conversion
                                                                                                        It is important that the credit union                  • A statement of reasons supporting the
                                             II.E.1—Effective Date of Conversion
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                                                                                                     provide an accurate disclosure of the reasons          request to convert.
                                                The date on which the regional director              for the conversion. These reasons should be            III.D—Approval of Proposal To Convert
                                             approves the Organization Certificate and the           stated in specific terms, not as generalities.
                                             Application and Agreements for Insurance of             The federal credit union converting to a state         III.D.1—Review by the Regional Director
                                             Accounts is the date on which the credit                charter remains responsible for the entire                The proposal will be reviewed to
                                             union becomes a federal credit union. The               operating fee for the year in which it                 determine that it is complete and is in
                                             regional director will notify the credit union          converts.                                              compliance with Section 125 of the Federal



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                                             Credit Union Act. The regional director may                Æ Specify the purpose, time and place of            accompanied by the federal charter and the
                                             make further investigation into the proposal            the meeting;                                           federal insurance certificate. A copy of the
                                             and require the submission of additional                   Æ Include a brief, complete, and accurate           financial reports as of the preceding month-
                                             information to support the request.                     statement of the reasons for and against the           end should be submitted at this time.
                                             III.D.2—Conditions to the Approval                      proposed conversion, including any effects it             • The regional director will notify the
                                                                                                     could have upon share holdings, insurance of           credit union and the state regulator in writing
                                                The regional director will specify any                                                                      of the receipt of evidence that the credit
                                                                                                     member accounts, and the policies and
                                             special conditions that the credit union must                                                                  union has been authorized to operate as a
                                                                                                     practices of the credit union;
                                             meet in order to proceed with the conversion.                                                                  state credit union.
                                                                                                        Æ Specify the costs of the conversion, i.e.,
                                             III.D.3—Approval by the Regional Director               changing the credit union’s name,                         • The credit union shall cease to be a
                                                The proposal will be approved by the                 examination and operating fees, attorney and           federal credit union as of the effective date
                                             regional director if it is in compliance with           consulting fees, tax liability, etc.;                  of the state charter.
                                             Section 125 and, in the case where the state               Æ Inform the members that they have the                • If the regional director finds a material
                                             credit union will no longer be federally                right to vote on the proposal at the meeting,          deviation from the provisions that would
                                             insured, the notice and voting requirements             or by written ballot to be filed not later than        invalidate any steps taken in the conversion,
                                             of Section 206 of the Federal Credit Union              the date and time announced for the annual             the credit union and the state regulator shall
                                             Act.                                                    meeting, or at the special meeting called for          be promptly notified in writing. This notice
                                                                                                     that purpose;                                          may be either before or after the copy of the
                                             III.D.4—Notification
                                                                                                        Æ Be accompanied by a Federal to State              state charter is filed with the regional
                                                The regional director will notify both the           Conversion—Ballot for Conversion Proposal              director. The notice will inform the credit
                                             credit union and the state regulator of the             (NCUA 4506); and                                       union as to the nature of the adverse
                                             decision on the proposal.                                  Æ State in bold face type that the issue will       findings. The conversion will not be effective
                                             III.D.5—NCUA Disapproval                                be decided by a majority of members who                and completed until the improper actions
                                                When NCUA disapproves any application                vote.                                                  and steps have been corrected.
                                             to convert to a state charter, the applicant               • The proposed conversion must be                      • Upon ceasing to be a federal credit
                                             will be informed in writing of the:                     approved by a majority of all of the members           union, the credit union shall no longer be
                                                • Specific reasons for the action;                   who vote on the proposal, a quorum being               subject to any of the provisions of the Federal
                                                • If appropriate, options or suggestions             present, in order for the credit union to              Credit Union Act, except as may apply if
                                             that could be considered for gaining                    proceed further with the proposition,                  federal share insurance coverage is
                                             approval; and                                           provided federal insurance is maintained. If           continued. The successor state credit union
                                                • Appeal procedures.                                 the proposed state-chartered credit union              shall be immediately vested with all of the
                                                                                                     will not be federally insured, 20 percent of           assets and shall continue to be responsible
                                             III.D.6—Appeal of Regional Director Decision                                                                   for all of the obligations of the federal credit
                                                                                                     the total membership must participate in the
                                                If the regional director denies a conversion         voting, and of those, a majority must vote in          union to the same extent as though the
                                             to a state charter, the applicant credit union          favor of the proposal. Ballots cast by                 conversion had not taken place. Operation of
                                             may appeal the decision to the NCUA Board.              members who did not attend the meeting but             the credit union from this point will be in
                                             An appeal must be sent to the appropriate               who submitted their ballots in accordance              accordance with the requirements of state
                                             regional office within 60 days of the date of           with instructions above will be counted with           law and the state regulator.
                                             denial and must address the specific                    votes cast at the meeting. In order to have a             • If the regional director is satisfied that
                                             reason(s) for the denial. The regional director                                                                the conversion has been accomplished in
                                                                                                     suitable record of the vote, the voting at the
                                             will then forward the appeal to the NCUA                                                                       accordance with the approved proposal, the
                                                                                                     meeting should be by written ballot as well.
                                             Board. NCUA central office staff will make an                                                                  federal charter will be canceled.
                                                                                                        • The board of directors shall, within 10
                                             independent review of the facts and present                                                                       • There is no federal requirement for
                                                                                                     days, certify the results of the membership
                                             the appeal to the NCUA Board with a                                                                            closing the records of the federal credit union
                                             recommendation.                                         vote to the regional director. The statement
                                                                                                     shall be verified by affidavits of the Chief           at the time of conversion or for the manner
                                                Before appealing, the credit union may,                                                                     in which the records shall be maintained
                                             within 30 days of the denial, provide                   Executive Officer and the Recording Officer
                                                                                                     on NCUA 4505.                                          thereafter. The converting credit union is
                                             supplemental information to the regional                                                                       advised to contact the state regulator for
                                             director for reconsideration. The request will          III.F—Compliance With State Laws                       applicable state requirements.
                                             not be considered as an appeal, but a request
                                                                                                        If the proposal for conversion is approved             • The credit union shall neither use the
                                             for reconsideration by the regional director.
                                                                                                     by a majority of all members who voted, the            words ‘‘Federal Credit Union’’ in its name
                                             The regional director will have 30 business
                                                                                                     board of directors will:                               nor represent itself in any manner as being
                                             days from the date of the receipt of the
                                             request for reconsideration to make a final                • Ensure that all requirements of state law         a federal credit union.
                                             decision. If the application is again denied,           and the state regulator have been                         • Changing of the credit union’s name on
                                             the credit union may proceed with the appeal            accommodated;                                          all signage, records, accounts, investments,
                                             process to the NCUA Board within 60 days                   • Ensure that the state charter or the              and other documents should be
                                             of the date of the last denial by the regional          license has been received within 90 days               accomplished as soon as possible after
                                             director.                                               from the date the members approved the                 conversion. Unless it violates state law, the
                                                                                                     proposal to convert; and                               credit union has 180 days from the effective
                                             III.E—Approval of Proposal by Members                      • Ensure that the regional director is kept         date of the conversion to change its signage
                                                The members may not vote on the proposal             informed as to progress toward conversion              and promotional material. This requires the
                                             until it is approved by the regional director.          and of any material delay or of substantial            credit union to discontinue using any
                                             Once approval of the proposal is received,              difficulties which may be encountered.                 remaining stock of ‘‘federal credit union’’
                                             the following actions will be taken by the                 If the conversion cannot be completed               stationery immediately, and discontinue
                                             board of directors:                                     within the 90-day period, the regional                 using credit cards, ATM cards, etc., within
                                                • The proposal must be submitted to the              director should be informed of the reasons             180 days after the effective date of the
                                             members for approval and a date set for a               for the delay. The regional director may set           conversion, or the reissue date, whichever is
                                             meeting to vote on the proposal. The                    a new date for the conversion to be                    later. The regional director has the discretion
                                             proposal may be acted on at the annual                  completed.                                             to extend the timeframe for an additional 180
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                                             meeting or at a special meeting for that                                                                       days. Member share drafts with the federal
                                             purpose. The members must also be given the             III.G—Completion of Conversion                         chartered name can be used by the members
                                             opportunity to vote by written ballot to be                In order for the conversion to be                   until depleted. If the state credit union is not
                                             filed by the date set for the meeting.                  completed, the following steps are necessary:          federally insured, it must change its name
                                                • Members must be given advance notice                  • The board of directors will submit a copy         and must immediately cease using any credit
                                             (NCUA 4221) of the meeting at which the                 of the state charter to the regional director          union documents referencing federal
                                             proposal is to be submitted. The notice must:           within 10 days of its receipt. This will be            insurance.



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                                               • If the state credit union is to be federally        (Approved by the Office of Management and
                                             insured, the regional director will issue a             Budget under control numbers 3133–0015
                                             new insurance certificate.                              and 3133–0116)
                                                                                                     BILLING CODE 7535–01–P
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                                             34404                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.012</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34405
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.013</MATH>




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                                             34406                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.014</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34407
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.015</MATH>




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                                             34408                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.016</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34409
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.017</MATH>




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                                             34410                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.018</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34411
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.019</MATH>




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                                             34412                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.020</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34413
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.021</MATH>




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                                             34414                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.022</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34415
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.023</MATH>




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                                             34416                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.024</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34417
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.025</MATH>




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                                             34418                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.026</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34419
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.027</MATH>




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                                             34420                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.028</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34421
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.029</MATH>




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                                             34422                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.030</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34423
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.031</MATH>




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                                             34424                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.032</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34425
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.033</MATH>




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                                             34426                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.034</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34427
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.035</MATH>




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                                             34428                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.036</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34429
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.037</MATH>




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                                             34430                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.038</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34431
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.039</MATH>




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                                             34432                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.040</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34433
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.041</MATH>




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                                             34434                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.042</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34435
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.043</MATH>




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                                             34436                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.044</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34437
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.045</MATH>




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                                             34438                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.046</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34439
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.047</MATH>




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                                             34440                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.048</MATH>




                                        VerDate Aug<31>2005   18:41 Jun 16, 2008   Jkt 214001   PO 00000   Frm 00076   Fmt 4701   Sfmt 4725   E:\FR\FM\17JNP2.SGM   17JNP2
                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34441
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.049</MATH>




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                                             34442                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.050</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34443
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.051</MATH>




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                                             34444                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.052</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34445
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.053</MATH>




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                                             34446                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.054</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34447
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.055</MATH>




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                                             34448                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.056</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34449
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.057</MATH>




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                                             34450                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.058</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34451
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.059</MATH>




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                                             34452                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.060</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34453
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.061</MATH>




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                                             34454                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.062</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34455
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.063</MATH>




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                                             34456                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.064</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34457
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.065</MATH>




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                                             34458                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.066</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34459
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.067</MATH>




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                                             34460                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.068</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34461
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.069</MATH>




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                                             34462                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                             EP17JN08.070</MATH>




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                                                                      Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules                          34463
jlentini on PROD1PC65 with PROPOSALS2




                                                                                                                                                                                     EP17JN08.071</MATH>




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                                             34464                    Federal Register / Vol. 73, No. 117 / Tuesday, June 17, 2008 / Proposed Rules
jlentini on PROD1PC65 with PROPOSALS2




                                             [FR Doc. E8–12946 Filed 6–16–08; 8:45 am]
                                                                                                                                                                             EP17JN08.072</MATH>




                                             BILLING CODE 7535–01–C




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