**7535-01-U**

# NATIONAL CREDIT UNION ADMINISTRATION

# 12 CFR Part 701

# Chartering and Field of Membership for Federal Credit Unions

**AGENCY:** National Credit Union Administration (NCUA).

**ACTION:** Proposed rule.

**SUMMARY:** The NCUA Board is proposing amendments to its chartering
and field of membership manual to update community chartering policies
in response to NCUA's experience with reviewing applications of credit
unions seeking community charters. These changes include clarifying the
documentation requirements for a local community and adding a public
comment procedure for certain types of multiple political jurisdiction
community charter applications.

**DATES:** Comments must be postmarked or received by August 6, 2007.

**ADDRESSES:** You may submit comments by any of the following methods
(Please send comments by one method only):

• Federal eRulemaking Portal: http://www.regulations.gov. Follow the
instructions for submitting comments.

• NCUA Web Site:
http://www.ncua.gov/RegulationsOpinionsLaws/proposedregs/proposedregs.html.
Follow the instructions for submitting comments.

• E-mail: Address to regcomments@ncua.gov. Include \"\[Your name\]
Comments on Proposed Rule IRPS 07-1,\" in the e-mail subject line.

• Fax: (703) 518-6319. Use the subject line described above for e-mail.

• Mail: Address to Mary F. Rupp, Secretary of the Board, National Credit
Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428.

• Hand Delivery/Courier: Same as mail address.

**FOR FURTHER INFORMATION CONTACT:** Michael J. McKenna, Deputy General
Counsel; John K. Ianno, Senior Trial Attorney; Frank Kressman, Staff
Attorney, Office of General Counsel, or Robert Leonard, Program Officer,
Office of Examination and Insurance, 1775 Duke Street, Alexandria,
Virginia 22314 or telephone (703) 518-6540 or (703) 518-6396.

**SUPPLEMENTARY INFORMATION**

**A.** **History**

NCUA\'s chartering and field of membership policy is set out in NCUA\'s
Chartering and Field of Membership Manual (Chartering Manual),
Interpretive Ruling and Policy Statement (IRPS) 03-1. 68 Fed. Reg. 18333
(Apr. 15, 2003). The policy is set forth in IRPS 03-1 and implements
credit union field of membership law under the Federal Credit Union Act.
In 2006, NCUA issued amendments to the Chartering Manual chapter on
underserved areas. NCUA

IRPS 06-1, 71 Fed. Reg. 36667 (Jun. 28, 2006).

The Board issued its last comprehensive rulemaking regarding its
chartering policy in the spring of 2003. 68 Fed. Reg. 18333 (Apr. 15,
2003). Over the past four years, NCUA's Field of Membership Taskforce
has monitored and reviewed the implementation of IRPS 03-1 and its
amendments in an effort to improve consistency and provide a basis for
further clarifications and modifications, if necessary. In response to
this continued oversight, and requests from the NCUA Board, staff has
identified issues that need clarification and are the basis for this
proposal.

# Proposed Chartering Manual Changes:

[Chapter 2 Field of Membership Requirements for Community Credit Unions:
Section V- Community Charter Requirements.]{.underline}

**[Background:]{.underline}**

In 1998 Congress passed the Credit Union Membership Access Act ("CUMAA")
and reiterated its longstanding support for credit unions, noting that
they "have the specif\[ic\] mission of meeting the credit and savings
needs of consumers, especially persons of modest means." Pub. L. No.
105-219, § 2, 112 Stat. 913 (August 7, 1998). The Federal Credit Union
Act ("FCUA") grants the NCUA Board broad general rulemaking authority
over federal credit unions. 12 U.S.C. § 1766(a). In passing CUMAA
Congress amended the FCUA and specifically delegated to the Board the
authority to define by regulation the meaning of a "well-defined local
community" for federal credit union community charters. 12 U.S.C. §
1759(g).

In developing a working regulatory definition of a local community the
Board has been mindful of the statutory language as well as its
important responsibility to ensure that it charters safe and sound
credit unions that can provide a broad range of financial services to as
many people in the community as possible.

Since 2000 there has been significant growth in the number of credit
unions with community charters. The majority of these have come from
conversions of credit unions with single and multiple common bond fields
of membership. In 2000 approximately 8.6% of federal credit union
charters were community charters. By the end of 2006 approximately 22.5%
of federal charters were community charters. The proportion of federal
credit union members that belong to federal community charters increased
significantly by the end of 2006 to 32.6%, surpassed only by the
proportion of members in multiple common bond credit unions which at the
end of 2006 was 52.3%. The increasing number of federal community
charters has resulted in an increasing amount of assets concentrated in
federal community charters. At the end of 2006 approximately 29.5% of
all federal credit union assets were in community charters. As time
passes and the membership profiles of these credit unions change from
associational or occupational based to community based fields of
membership, community charters are likely to enhance the delivery of
financial services to individuals at all income levels throughout the
communities they serve.

Community charters are playing an increasingly important role in helping
credit unions fulfill the longstanding mission envisioned by Congress in
passing the FCUA and restated in 1998 with the passage of CUMAA. Given
their increasing significance it is critical that NCUA apply its
expertise to approve community charter applications for local
communities that are conducive to that mission, that are sized and
structured in a way that assures the credit union's financial stability
and long term viability, and where the applicant's proposal demonstrates
the ability to offer credit union service to as many people as possible.
Today community charters are collectively in sound financial condition.
As of March 2007, over eighty percent of federal community charters have
CAMEL composite ratings of one or two. Federal community charters also
generally report strong levels of net worth. As of December 31, 2006,
federal community charters had an aggregate net worth ratio of 11.48%.

The Board continues to recognize two important characteristics in a
local community charter. First, there must be some geographic certainty
to the community boundaries, e.g., they must be well-defined; and next,
there should be sufficient social and economic activity among enough
community members to assure that a viable community exists.
Historically, we have expressed this latter requirement as "interaction
and/or shared common interests." Chartering Manual, Chapter 2, V.A.1.
This approach is consistent with the longstanding mission of credit
unions reiterated by Congress in the findings section of CUMAA, when it
noted that, \"to promote thrift and credit extension, a meaningful
affinity and bond among members manifested by a commonality of routine
interaction, shared and related work experiences, interests, or
activities . . . is essential to the fulfillment of the public mission
of credit unions.\" Pub. L. No. 105-219, § 2, 112 Stat. 913 (August 7,
1998).

The Board has gained broad experience in reviewing what constitutes a
well-defined local community through the analysis and approval of
numerous community charter conversions and expansions. In this process
the Board has exercised its regulatory judgment in determining whether,
in a particular case, a well-defined local community exists. This
involves the application of its expertise to the question of whether a
proposed area has a sufficient level of interaction and/or shared common
interests to be considered a well-defined local community in which a
credit union can flourish and successfully provide thrift, credit, and
other financial services to members of the community.

The Board's experience also indicates that there is ample uncertainty
among applicants regarding two important issues, particularly in
connection with applications involving large multi-jurisdictional areas.
First, how does an applicant best demonstrate interaction and/or shared
common interests? Second, what amount of evidence is required in a
particular case?

In an attempt to address these concerns the Board is proposing to modify
the definition of what constitutes a well-defined local community to
utilize objective measurable standards when appropriate, as well as to
revise some of the documentation requirements for other types of local
community charters. These proposed changes should make it easier for an
applicant to determine and demonstrate whether a proposed area is a
well-defined local community while at the same time maintaining the use
of many of the most significant indicia of interaction and/or shared
interests. The Board believes that this proposal will result in more
objective application of the standards, less difficulty for applicants,
and more efficient use of agency resources. The Board looks forward to
public comments on all aspects of these proposed changes.

**1. [Presumptive Local Communities.]{.underline}**

**a. [Single Political Jurisdiction.]{.underline}**

The Federal Credit Union Act provides that a "community credit union"
consists of "persons or organizations within a well-defined local
community, neighborhood, or rural district." 12 U.S.C. §1759(b)(3). The
Act expressly requires the Board to apply its regulatory expertise and
define what constitutes a well-defined local community. 12 U.S.C. §
1759(g). It has done so in the Chartering Manual, Chapter 2, Section V,
Community Charter Requirements. In 2003, the Board, after issuing notice
and seeking comments, issued IRPS 03-1 that stated any county, city, or
smaller political jurisdiction, regardless of population size, is by
definition a local community. 68 Fed. Reg. 18334, 18337 (Apr. 15, 2003).
Under this definition, no documentation demonstrating that the political
jurisdiction is a well-defined local community is required.

After four years of experience, the Board has reviewed this definition
of well-defined local community and still finds it compelling. The Board
finds that a single governmental unit below the state level is
well-defined and local, consistent with the governmental system in the
United States consisting of a local, state, and federal government
structure. A single political jurisdiction also has strong indicia of a
community, including common interests and interaction among residents.
Local governments by their nature generally must provide residents with
common services and facilities, such as educational, police, fire,
emergency, water, waste, and medical services. Further, a single
political jurisdiction frequently has other indicia of a well-defined
local community identified in the Chartering Manual as acceptable
examples of documentation, such as a major trade area, employment
patterns, local organizations and/or a local newspaper. Such examples of
commonalities are indicia that single political jurisdictions are
well-defined local communities where residents have common interests
and/or interact.

**[b. Statistical Areas.]{.underline}**

The Board's experience has been that well-defined local communities can
come in various population and geographic sizes. While the statutory
language 'local community' does imply some limit, Congress has directed
NCUA to establish a regulatory definition consistent with the mission of
credit unions. While single political jurisdictions below the state
level meet the definition of a well-defined local community, nothing
precludes a larger area comprised of multiple political jurisdictions
from also meeting the regulatory definition. There is no statutory
requirement or economic rationale that compels the Board to charter only
the smallest well-defined local community in a particular area.

The Board's experience has been that applicants have the most difficulty
in preparing applications involving larger areas with multiple political
jurisdictions. This is because, as the population and area increase and
multiple jurisdictions are involved, there is often conflicting evidence
both for and against interaction and/or shared common interests. This
often causes some confusion to the applicant about what evidence is
required and what criteria are considered to be most significant under
such circumstances.

The current chartering manual provides examples of the types of
information an applicant can provide that would normally evidence
interaction and/or shared common interests. These include but are not
limited to: (1) defined political jurisdictions; (2) major trade areas;
(3) shared common facilities; (4) organizations within the community
area; and (5) newspapers or other periodicals about the area.

These examples are helpful but the Board's experience is that very often
in situations involving multiple jurisdictions, where it has determined
that a well-defined local community exists, interaction or common
interests are evidenced by a major trade area that is an economic hub,
usually a dominant city, county or equivalent, containing a significant
portion of the area's employment and population. This central core often
acts as a nucleus drawing a sufficiently large critical mass of area
residents into the core area for employment and other social activities
such as entertainment, shopping, and educational pursuits. By providing
jobs to residents from outside the dominant core area it also provides
income that then generates further interaction both in the hub and in
outlying areas as those individuals spend their earnings for a wide
variety of purposes in outlying counties where they live. This
commonality through interaction and/or shared common interests in
connection with an economic hub is conducive to a credit union's success
and supports a finding that such an area is a local community.

The Board views evidence that an area is anchored by a dominant trade
area or economic hub as a strong indication that there is sufficient
interaction and/or common interests to support a finding of a local
community capable of sustaining a credit union. This type of geographic
model greatly increases the likelihood that the residents of the
community manifest a "commonality of routine interaction, shared and
related work experiences, interests, or activities . . ." that are
essential to support a strong healthy credit union capable of providing
financial services to members throughout the area. Pub. L. No. 105-219,
§ 2(3), 112 Stat. 913 (August 7, 1998).

The Office of Management and Budget ("OMB") publishes statistics that
identify geographic areas that exhibit these important criteria. The
Board is familiar with and has utilized these statistics. In the past
four years the agency has approved in excess of 50 community charters
involving Metropolitan Statistical Areas, usually involving a community
based around a dominant core trade area.

The Board believes that when statistics can demonstrate the existence of
such relevant characteristics it is appropriate to presume that
sufficient interaction and/or common interests exist to support a viable
community based credit union. In such situations the area should be
entitled to a presumption that it meets the regulatory definition of a
local community.

Certain areas do not have one dominant economic hub. Other areas may
contain two or more dominant hubs. These situations diminish the
persuasiveness of the evidence and make it inappropriate to engage in
the presumption. In those instances the Board proposes to seek public
comment and require additional evidence in order to assure that its
critical analysis considers all relevant evidence.

On December 27, 2000, OMB published Standards for Defining Metropolitan
and Micropolitan Statistical Areas. 65 Fed. Reg. 82228. The following
definitions established by OMB are relevant here:

**[Core Based Statistical Area ("CBSA")]{.underline}** -- "A statistical
geographic entity consisting of the county or counties associated with
at least one core (urbanized area or urban cluster) of at least 10,000
population, plus adjacent counties having a high degree of social and
economic integration with the core as measured through commuting ties
with the counties containing the core. Metropolitan and Micropolitan
Statistical Areas are the two categories of Core Based Statistical Areas
." 65 Fed. Reg. 82238 (Dec. 27, 2000).

**[Metropolitan Division]{.underline}** -- "A county or group of
counties within a Core Based Statistical Area that contains a core with
a population of at least 2.5 million." 65 Fed. Reg. 82238 (Dec. 27,
2000). OMB recognizes that Metropolitan Divisions often function as
distinct, social, economic, and cultural areas within a larger
Metropolitan Statistical Area. [See]{.underline} OMB Bulletin NO. 07-01,
December 18, 2006.

**[Metropolitan Statistical Area ("MSA")]{.underline}** -- "A Core Based
Statistical Area associated with at least one urbanized area that has a
population of at least 50,000. The Metropolitan Statistical Area
comprises the central county or counties containing the core, plus
adjacent outlying counties having a high degree of social and economic
integration with the central county as measured through commuting." 65
Fed. Reg. 82238 (Dec. 27, 2000).

**[Micropolitan Statistical Area ("MicroSA")]{.underline}** -- "A Core
Based Statistical Area associated with at least one urban cluster that
has a population of at least 10,000, but less than 50,000. The
Micropolitan Statistical Area comprises the central county or counties
containing the core, plus adjacent outlying counties having a high
degree of social and economic integration with the central county as
measured through commuting." 65 Fed. Reg. 82238 (Dec. 27, 2000).

Demonstrated commuting patterns supporting a high degree of social and
economic integration are a very significant factor in community
chartering, particularly in situations involving large areas with
multiple political jurisdictions. In a community based model significant
interaction through commuting patterns into one central area or urban
core strengthens the membership of a credit union and allows a community
based credit union to efficiently serve the needs of the membership
throughout the area. Such data demonstrates a high degree of interaction
through the major life activity of working and activities associated
with employment. Large numbers of residents share common interests in
the various economic and social activities contained within the core
economic area.

Historically, commuting has been an uncomplicated method of
demonstrating functional integration. NCUA agrees with OMB's conclusion
that "Commuting to work is an easily understood measure that reflects
the social and economic integration of geographic areas." 65 Fed. Reg.
82233 (Dec. 27, 2000). The Board also finds compelling OMB's conclusion
that commuting patterns within statistical areas demonstrate a high
degree of social and economic integration with the central county. OMB's
threshold for qualifying a county as an outlying county eligible for
inclusion in either a MSA or MicroSA is a threshold of 25% inter-county
commuting. OMB also considers a multiplier effect (a standard method
used in economic analysis to determine the impact of new jobs on a local
economy) that each commuter would have on the economy of the county in
which he or she lives and notes that a multiple of two or three
generally is accepted by economic development analysts for most areas.
65 Fed. Reg. 82233 (Dec. 27, 2000). "Applying such a measure in the case
of a county with the minimum 25 percent commuting requirement means that
the incomes of at least half of the workers residing in the outlying
county are connected either directly (through commuting to jobs located
in the central county) or indirectly (by providing services to local
residents whose jobs are in the central county) to the economy of the
central county or counties of the CBSA within which the county at issue
qualifies for inclusion." 65 Fed. Reg. 82233 (Dec. 27, 2000).

The Board is proposing the establishment of a standard statistical
definition of a well-defined local community. The Board believes that
the application of strictly statistical rules for determining whether a
CBSA should be presumed a well-defined local community has the advantage
of minimizing ambiguity and making the application process less time
consuming. While it finds evidence established in this manner to be
compelling, the Board believes that the reasonableness of the
presumption is further strengthened when additional factors establishing
the dominance of the core area are present. These additional factors are
also objective and easily measurable. First, as OMB has noted,
Metropolitan Divisions often function as distinct social, economic, and
cultural areas. In the Board's view this evidence detracts from the
cohesiveness of the CBSA. Accordingly, the proposal will not permit a
CBSA to meet the automatic definition of a well-defined local community
when it contains a Metropolitan Division. Next, the Board acknowledges
that not all areas of the country are the same and there may be a CBSA
that does not contain a sufficiently dominant core area or contains
several significant core areas. Such situations also dilute the
cohesiveness of the CBSA. For these reasons the Board proposes to
require that the CBSA contain a dominant core city, county, or
equivalent that contains the majority of all jobs and 1/3 of the total
population contained in the CBSA before the definition would be met.
These additional requirements will assure that the core area dominates
any other area within the CBSA with respect to jobs and population.
Applicants can find information about an area\'s population and number
of local jobs, based upon an analysis of where people who work in an
area reside, at the Bureau of the Census\' Internet site
([www.census.gov](http://www.census.gov/)).  Information about the
current definitions of CBSAs is available at the Office of Management
and Budget\'s Internet
site ([www.whitehouse.gov/omb](http://www.whitehouse.gov/omb)).
Applications for part of a CBSA are acceptable provided they include the
dominant core city, county, or equivalent.

Accordingly, the Board proposes establishing a new statistical
definition for a well-defined local community in cases involving
multiple political jurisdictions when the following three requirements
are met:

● The area must be a recognized CBSA or part thereof without a
Metropolitan Division; and

● The area must contain a dominant city, county or equivalent with a
majority of all jobs in the CBSA; and

● The dominant city, county or equivalent must contain at least 1/3 of
the CBSA's total population.

**2. [Federal Register notice and request for public
comment.]{.underline}**

Although there is no legal requirement to do so, the Board believes that
in situations where the CBSA does not exhibit the standards required to
meet the new statistical definition for a well-defined local community,
or the area does not qualify under the single political jurisdiction
definition, public notice and comment will assist it with its analysis
of whether the area in question is a well-defined local community
capable of supporting a community credit union while also informing the
public about the process. The public notice and comments will assist the
Board in its critical analysis of the evidence and provide the public
with an opportunity to provide timely comments and relevant information
to the NCUA on the proposed local community area the credit union is
seeking to serve.

Accordingly, for those community charter applications that do not meet
the established definitions of a well-defined local community, the Board
proposes to publish a notice in the [Federal Register]{.underline}. The
proposed rule contains a new section entitled "V.A.3 Public Notice and
Comment Procedures." The notice will solicit comments relevant to the
proposed community charter, including whether it meets the well-defined
local community requirements. The comments will be considered by the
agency before a decision on the application is made. The Board is
proposing a 30 calendar day comment period.

**3.** **[Documentation requirements for certain community charter
applicants.]{.underline}**

Currently under the Chartering Manual, multiple political jurisdictions
with populations of up to 500,000 and Metropolitan Statistical Areas
(MSAs) with populations of up to one million may qualify as a local
community based on a narrative description of the area. The narrative
must describe how the area meets the standards for community interaction
and/or common interests. The Board is proposing that applications for
areas containing multiple political jurisdictions that do not meet the
proposed statistical definition be subject to public notice and comment.
In those cases applicants will also be required to supplement the
narrative with supporting documentation demonstrating how the regulatory
requirements of a well-defined local community have been met.

This amendment would assure greater consistency in NCUA's application of
chartering requirements for all community charter applicants seeking to
serve multiple political jurisdictions. The proposed change would
clarify NCUA's expectation and inform applicants that statements in a
narrative must be substantiated through documentation.

The Board seeks to expand the well-defined local community documentation
section to provide more guidance to credit unions on the type of
evidence that demonstrates whether the area is a well-defined local
community. To accomplish this the Board is proposing to add language
providing more descriptive information and examples relevant to
establishing the existence of well-defined local communities in order to
clarify the degree of documentation required. For example, the Board
finds that population density and geographic size can be useful to
consider in determining whether the area is a well-defined local
community.

The Board also seeks to emphasize that community charter applicants can
provide NCUA with statistical data, such as on employment patterns, in
addition to third-party surveys and authoritative letters from
government or corporate officials. This type of documentation can be
used to support interaction and/or common interests among residents.

**4. [Five-year limitation.]{.underline}**

Since 2001, the Chartering Manual has exempted a community charter
applicant from submitting a narrative summary or documentation
supporting a request of a proposed community charter, amendment, or
conversion, with the same exact geographic area as one NCUA had
previously approved. The Board is proposing a five-year limitation on a
community charter applicant's use of this exemption. NCUA believes that
five years is an appropriate time period in which to allow applicants to
rely upon the narrative and documentation in past submissions. The Board
requests comment regarding whether this or another time period is
appropriate.

In some parts of the United States, economic growth and population
change can be dramatic over time. This means that documentation
supporting a proposed community for some areas may become outdated more
quickly than documentation supporting other areas where indicia of
community interaction and/or common interests may still be valid. With
this change NCUA seeks to strike a balance between requiring an
applicant to repeat the exercise of demonstrating a proposed area is a
well-defined local community, when NCUA already has made that exact
determination, and retaining an exemption based on a previous narrative
and documentation that may no longer be accurate. The Board is also
proposing adding a new heading "V.A.5 -- Previously Approved
Communities" to describe this exemption to make this provision more
reader-friendly. This limitation would not apply to applications that
meet the single political jurisdiction or statistical area definition of
local community.

**5. [Rural district.]{.underline}**

Since the passage of CUMAA, despite the separate statutory language
authorizing local community credit unions comprised of a rural district,
NCUA has not defined that term. NCUA's experience is that rural areas
often lack the normal indicia that NCUA considers in making a
determination that a proposed area is a well-defined local community.
Unlike the proposed statistical area definition, the Board is proposing
a definition that reflects an area that may lack the traditional
characteristics of interaction or shared common interests. Therefore,
the proposal does not require an applicant to demonstrate interaction or
shared common interests. The Board expects a rural district to be less
densely populated and frequently lacking any centralized urban core or
cluster. Although the proposed rural district may include contiguous
counties the Board also believes such a district should have a
relatively small, widely disbursed, population. Therefore, NCUA is
proposing to define a rural district as an area that is not in an MSA or
MicroSA and has a population density that does not exceed 100 people per
square mile where the total population of the rural district does not
exceed 100,000. This would exclude the majority of the United States
population that lives in and around large urban areas yet, based on
census data, still include the vast majority of counties in the United
States having fewer than 100,000 persons. Population density also varies
widely but many counties also have a density of less than 100 persons
per square mile. Together these requirements would assure that an area
under consideration as a rural district has both a small total
population and a relatively light population density. If the Board
adopts a definition it will modify the language throughout the
Chartering Manual to assure conformity.

Because the NCUA Board has less experience with rural districts, it
seeks public comment on whether it should adopt its proposed definition,
a definition used by one of the agencies discussed below, or some other
definition. Comment is also requested regarding whether a rural district
that consists of a non-metropolitan or rural area should be subject to
different analyses or documentation requirements than metropolitan or
suburban areas. The Board welcomes comments on what specific indicia may
be appropriate to demonstrate the existence of a rural district
consistent with the FCU Act.

When developing the proposed definition for rural district, the Board
considered the criteria other executive branch agencies use as a
framework for defining what is rural in the United States. These
agencies are the U.S. Census Bureau, the OMB, and the Economic Research
Service (ERS) of the U.S. Department of Agriculture (USDA). The table
that follows summarizes each agency's definition of what constitutes a
rural area.

+---------+------------------------------------------------------------+
| **A     | **Definition of Rural Area**                               |
| gency** |                                                            |
+---------+------------------------------------------------------------+
| U.S.    | The Census Bureau defines rural area by exclusion by       |
| Census  | considering areas [outside]{.underline} urbanized areas or |
| Bureau  | urban clusters rural.                                      |
|         |                                                            |
|         | -   The Census defines an *urbanized area* as an area      |
|         |     consisting of adjacent, densely settled, census block  |
|         |     groups and census blocks that meet minimum population  |
|         |     density requirements. The urbanized area definition    |
|         |     also includes adjacent densely settled census blocks   |
|         |     that collectively have a population of at least 50,000 |
|         |     people.                                                |
|         |                                                            |
|         | -   The Census defines u*rban clusters* as contiguous,     |
|         |     densely settled, census block groups and census blocks |
|         |     that meet minimum population density requirements.     |
|         |     This definition also includes adjacent densely settled |
|         |     census blocks that collectively have populations       |
|         |     ranging from 2,500 to less than 50,000 people.         |
|         |                                                            |
|         | -   The Census Bureau relies upon the standards            |
|         |     implemented by the OMB, as discussed below, for        |
|         |     classifying areas as metropolitan areas.               |
|         |                                                            |
|         | The Census Bureau considers all other areas rural.         |
|         |                                                            |
|         | \[Reference:                                               |
|         | http://frwebga                                             |
|         | te.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=2002_register& |
|         | docid=02-6186-filed.pdf\]                                  |
+---------+------------------------------------------------------------+
| OMB     | The OMB defines MSAs, or metropolitan areas, as central    |
|         | (core) counties with one or more urbanized areas, and      |
|         | outlying counties that are economically tied to the core   |
|         | counties as measured by work commuting. OMB uses the       |
|         | MicroSA classification to identify a non-metro county with |
|         | an urban cluster of at least 10,000 persons or more.       |
|         | Non-core counties are neither micro nor metro.             |
|         |                                                            |
|         | Agencies outside of OMB often designate non-metro counties |
|         | as rural.                                                  |
|         |                                                            |
|         | \[Reference:                                               |
|         | <ht                                                        |
|         | tp://www.whitehouse.gov/omb/bulletins/fy2007/b07-01.pdf>\] |
+---------+------------------------------------------------------------+
| ERS of  | ERS of the USDA considers areas rural if the OMB has not   |
| the     | designated any part of the area as an MSA or core county.  |
| USDA    |                                                            |
|         | ERS also consider some areas designated by OMB as MSAs     |
|         | rural based on their assessments of Census data and other  |
|         | agency research. ERS has developed several classifications |
|         | to measure rurality within individual MSAs.                |
|         |                                                            |
|         | ERS researchers who discuss conditions in rural America    |
|         | refer to non-MSA areas that include both micropolitan and  |
|         | non-core counties as rural areas. When the OMB classifies  |
|         | an area as a MicroSA, the ERS still considers these areas  |
|         | rural according to their definition. Rurality is a term    |
|         | used by the USDA ERS to explain the rural nature of an     |
|         | area.                                                      |
|         |                                                            |
|         | \[Reference:                                               |
|         | http://www.ers.usda.gov/Briefing/Rurality/WhatIsRural/\]   |
+---------+------------------------------------------------------------+

The Census Bureau, the OMB (by virtue of no MSA designation in the
area), and the ERS all provide definitions of rurality based on their
analysis of 2000 Census data.

**6. [More descriptive information related to business
plans.]{.underline}**

The Board is proposing to provide community charter applicants with more
consistent guidance regarding NCUA's practices for reviewing the
adequacy of business and marketing plans. Under the current Chartering
Manual, a credit union converting to or expanding its community charter
must provide, "a marketing plan that addresses how the community will be
served." The Board is proposing a clarification to the marketing plan
requirement to provide credit unions with additional guidance. The
proposal explains that the plan should include the financial products,
programs, and services to be provided to the entire community.

**7.** **[Community charter mergers]{.underline}.**

In general, where both credit unions are community charters, the
continuing credit union must meet the criteria for expanding the
community boundaries. A community credit union cannot merge into a
single occupational/associational, or multiple common bond credit union,
except in an emergency merger. However, a single occupational or

associational, or multiple common bond credit union can merge into a
community charter as long as the merging credit union has a service
facility within the community

boundaries or a majority of the merging credit union's field of
membership would qualify for membership in the community charter. While
a community charter may take in an occupational, associational, or
multiple common bond credit union in a merger, it will

remain a community charter. Groups within the merging credit union's
field of membership located outside of the community boundaries may not
continue to be served. The merging credit union must notify groups that
will be removed from the

field of membership as a result of the merger. However, the credit union
may continue to serve members of record.

NCUA is unaware of any particular problems in this merger context. We
are soliciting comments, however, to determine if there are any concerns
in this regard and, if so, what adjustments to NCUA's Chartering Manual
may be required.

[Chapter 3 Service To Underserved Communities: Section III.A-
General.]{.underline}

The FCUA defines an underserved area as a local community, neighborhood,
or rural district that is an "investment area" as defined in Section
103(16) of the Community Development Banking and Financial Institutions
Act of 1994. Currently Chapter 3 of the Chartering Manual provides that
for an underserved area, the well-defined local community, neighborhood,
or rural district requirement is met when the area meets the definition
of local community set forth in Section III.A.

The Board proposes to amend the language in this Section to conform it
with the proposed changes to the definition of local community by
removing the definitions from Chapter 3 and instead referring the reader
to Chapter 2 for the actual text of the definition. This change will
avoid confusion and eliminate any need for future changes to this
Section should the definitions contained in Chapter 2 change.

**Regulatory Procedures**

### Regulatory Flexibility Act

The Regulatory Flexibility Act requires NCUA to prepare an analysis to
describe any significant economic impact a regulation may have on a
substantial number of small credit unions, primarily those under ten
million dollars in assets. The proposed amendments will not have a
significant economic impact on a substantial number of small credit
unions and therefore, a regulatory flexibility analysis is not required.

### Paperwork Reduction Act

In accordance with the requirements of the Paperwork Reduction Act of
1995 (PRA), NCUA may not conduct or sponsor, and the respondent is not
required to respond to, an information collection unless it displays a
currently valid Office of Management and Budget (OMB) control number.
The OMB control number assigned to §701.1 is 3133-0015, and to the forms
included in Appendix D is 3133-0116. NCUA has determined that the
proposed amendments will not increase paperwork requirements and a
paperwork reduction analysis is not required.

### Executive Order 13132

Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. In
adherence to fundamental federalism principles, NCUA, an independent
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies
with the executive order. The proposed rule would not have substantial
direct effects on the states, on the connection between the national
government and the states, or on the distribution of power and
responsibilities among the various levels of government. NCUA has
determined that the proposed rule does not constitute a policy that has
federalism implications for purposes of the executive order because it
only applies to federal credit unions.

[The Treasury and General Government Appropriations Act, 1999 - -
Assessment of Federal Regulations and Policies on Families]{.underline}

The NCUA has determined that the proposed rules would not affect family
well-being within the meaning of section 654 of the Treasury and General
Government Appropriations Act of 1999, Pub. L. 105-277, 112 Stat. 2681
(1998).

# List of Subjects 

# 12 CFR part 701

Credit, Credit unions, Reporting and record keeping requirements.

By the National Credit Union Administration Board on May 24, 2007

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Mary Rupp

Secretary of the Board

Accordingly, NCUA proposes to amend 12 CFR part 701 as follows:

**PART 701-ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNION**

1\. The authority citation for part 701 continues to read as follows:

**Authority:** 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 1761b,
1766, 1767, 1782, 1784, 1787, 1789. Section 701.6 is also authorized by
15 U.S.C. 3717. Section 701.31 is also authorized by 15 U.S.C. 1601, et
seq., 42 U.S.C. 1981 and 3601-3610. Section 701.35 is also authorized by
12 U.S.C. 4311-4312.

2\. Section 701.1 is revised to read as follows:

> **§701.1 Federal credit union chartering, field of membership
> modifications, and conversions.**

National Credit Union Administration policies concerning chartering,
field of membership modifications, and conversions are set forth in the
Chartering and Field of Membership Policy, Interpretive Ruling and
Policy Statement (IRPS) 03-1, as amended by IRPS 06-1 and IRPS 07-1.
Copies may be obtained by contacting NCUA at the address found in
Section 792.2(g)(1) of this chapter.

(Approved by the Office of Management and Budget under control numbers
3133-0015 and 3133-0116)

Note: The text of the Interpretive Ruling and Policy Statement (IRPS
07-1) does not appear in the Code of Federal Regulations.

> 3\. Section V of Chapter 2 of IRPS 03-1, as amended by IRPS 06-1 and
> IRPS 07-1, is revised to read as follows:
>
> **Chapter 2**
>
> **V.A.1 \-- General**

Community charters must be based on a single, geographically
well-defined local community, neighborhood, or rural district. In a
well-defined local community or neighborhood, individuals must have
common interests and/or interact. More than one credit union may serve
the same community.

NCUA recognizes four types of affinity on which a community charter can
be based - persons who live in, worship in, attend school in, or work in
the community. Businesses and other legal entities within the community
boundaries may also qualify for membership.

NCUA has established the following requirements for community charters:

> • The geographic area\'s boundaries must be clearly defined;
>
> • The area is a "well-defined local, community, neighborhood, or rural
> district;" and

-   Individuals must have common interests and/or interact.

    **V.A.2 \-- Definition of Well-Defined Local Community**

    In addition to the documentation requirements in Chapter 1 to
    charter a credit union, a community credit union applicant must
    provide additional documentation addressing the proposed area to be
    served and community service policies.

    An applicant has the burden of demonstrating to NCUA that the
    proposed community area meets the statutory requirements of
    being: (1) well-defined, and (2) a local community, neighborhood, or
    rural district.

    "Well-defined" means the proposed area has specific geographic
    boundaries. Geographic boundaries may include a city, township,
    single, multiple, or portions of counties (or their political
    equivalent), school districts, or a clearly identifiable
    neighborhood. Although congressional districts and state boundaries
    are well-defined areas, they do not meet the requirement that the
    proposed area be a local community.

    The well-defined local community, neighborhood, or rural district
    requirement [is met]{.underline} if:

**● Single Political Jurisdiction -** The area to be served is in a
recognized single political jurisdiction, i.e., a city, county, or their
political equivalent, or any contiguous portion thereof.

● **Statistical Area --**

> ● The area is a recognized Core Based Statistical Area (CBSA) or part
> thereof without a Metropolitan Division; and
>
> ● The area contains a city, county or equivalent with a majority of
> all jobs in the CBSA; and
>
> ● The city, county or equivalent must contain at least 1/3 of the
> CBSA's total population.

● **Rural District --**

● The district has well-defined geographic boundaries;

> ● The district or any part thereof is not contained in an MSA or
> MicroSA;
>
> ● The district does not have a population density in excess of 100
> people per square mile; and
>
> ● The total population of the district does not exceed 100,000 people.

The OMB definitions of CBSA and Metropolitan Division may be found at 65
Fed. Reg. 82238 (Dec. 27, 2000). They are incorporated herein by
reference. Access to these definitions is available through the main
page of the Federal Register website at www.gpoaccess.gov/fr/index.html.

If the proposed area does not meet the single political jurisdiction,
statistical area or rural district definitions, the application will be
subject to the public notice and comment procedures contained in V.A.3
and the applicant must submit a narrative description and supporting
documentation proving how the area meets the standards for community
interaction and/or common interests. See Section V.A.4 -- Community
Documentation Requirements.

**V.A.3 \-- Public Notice Procedures**

If the proposed area does not meet the single political jurisdiction,
statistical area, or rural district definitions cited in Section V.A.2
above, NCUA will publish a notice in the Federal Register regarding the
community application. The notice will include the name of the credit
union and identify the geographic area of the proposed community. The
notice will solicit comments in favor of or in opposition to the
proposed community charter including whether the proposed area meets the
well-defined local community requirements of this manual. The comment
period will normally be 30 calendar days but may be extended at NCUA's
discretion. Responses to the notice must be sent to the NCUA Board
Secretary.

**V.A.4 \-- Community Documentation Requirements**

For areas not defined as a well-defined local community or rural
district, an applicant has the burden of demonstrating the relevance of
the documentation provided in support of an application. This must be
provided in a narrative format that explains how the documentation
demonstrates that the community is a well-defined area and the residents
interact and/or share common interests. For example, simply listing
newspapers and organizations in the area is not sufficient to
demonstrate that the area is a local community.

a\) Well-defined Area Documentation

To establish that the area is well-defined, an application must include:

-   the geographic boundaries and size (square miles) of the community;
    and

```{=html}
<!-- -->
```
-   a local map designating the area to be served and a regional or
    state map with the proposed community outlined.

    b\) Local Community Documentation

    To establish the area is a local community, the applicant needs to
    provide sufficient, persuasive documentation. Examples of criteria
    that NCUA considers relevant to documenting an application include
    but are not limited to the criteria set forth below. NCUA suggests
    that an applicant address these criteria but not every criteria must
    be met for NCUA to determine the area is a well-defined local
    community. NCUA will base its determination on the totality of the
    evidence provided by the applicant. NCUA will consider the
    following:

[Employment]{.underline}

-   Identify the major employers, as well as their locations, within the
    community. Provide data showing the extent that these employers draw
    employees from throughout the community.

-   Provide data on the percentage of individuals who work within the
    community. Include information on the percentage of individuals who
    work within their county of residence, as well as those who commute
    to other counties both within and outside the community.

[Major trade areas]{.underline}

-   Identify the major shopping centers. Provide data showing the extent
    that residents of the community use these facilities.

-   Identify the major sports and entertainment venues (e.g., stadiums,
    arenas). Provide data showing the extent that residents of the
    community attend these events.

-   Identify the traffic flows and commuting patterns within the
    community. Provide data showing the extent of interaction and/or
    common interests in the community.

[Population concentrations]{.underline}

-   Identify varying population concentrations (i.e., urban vs. rural)
    within the community. Provide data showing how the population
    distribution facilitates interaction and/or common interests in the
    community.

[Shared/common facilities]{.underline}

-   Healthcare -- identify major hospitals, including any special
    healthcare facilities, such as regional trauma centers. Provide data
    showing the extent that residents of the community use these
    facilities.

-   Public services and facilities -- identify community-wide shared
    government services, such as police, fire protection, public
    utilities, park districts, and public transportation. Provide data
    showing the extent that residents of the community use these
    services and facilities.

-   Education -- Identify major colleges and universities, as well as
    large local school districts within the community. Include
    enrollment statistics showing the extent the community residents are
    enrolled at these institutions.

[Governmental and quasi-governmental organizations]{.underline}

-   Identify organizations such as economic development commissions,
    regional planning boards, and labor or transportation districts that
    serve the community.

-   Identify the service areas of these organizations, and how the
    purpose of these organizations promotes interaction and/or common
    interests in the community, and the extent to which the residents
    use the services they provide.

[Organizations and clubs within the community]{.underline}

-   Identify groups such as charitable organizations, chambers of
    commerce, Girl or Boy Scout Councils, and religious dioceses that
    serve the community.

-   Include statistics that identify the service areas of these
    organizations, and the extent to which the residents use the
    services they provide.

[Festivals and community events]{.underline}

-   Identify any major festivals or community events.

-   Provide attendance figures that show the degree and extent of
    participation by residents of the community.

[Newspapers, periodicals, or other media]{.underline}

-   Identify the major newspapers, television, and radio stations, along
    with their marketing/service areas. Include subscription and
    viewer/listening statistics.

[Other documentation]{.underline}

-   Include any other documentation that demonstrates that the area is a
    community where individuals have common interests and/or interact.

    Documentation can include statistical data, surveys, and/or letters
    from government or corporate officials such as:

```{=html}
<!-- -->
```
-   written statements by officials of a shopping mall, hospital,
    educational establishment, airport, etc. that the individuals using
    their facilities are from the community requested;

-   surveys completed by an outside firm or the credit union as long as
    they sufficiently document how the survey was performed and why it
    is statistically valid.

    The applicant has the burden of analyzing the documentation provided
    and explaining how it satisfies the requirements of interaction
    and/or common interests required by this manual. The level of
    documentation must be commensurate with the geographic size and
    population of the proposed local community.

    **V.A.5 \-- Previously Approved Communities**

    An applicant need not submit a narrative summary or documentation to
    support a proposed community charter, amendment or conversion as a
    well-defined local community, neighborhood or rural district if the
    NCUA has previously determined that the same, exact geographic area
    meets that requirement in connection with consideration of a prior
    application; provided that the initial application for the area was
    approved no more than five years before the date of the current
    application. Applicants may contact the appropriate regional office
    to find out if the area they are interested in has already been
    determined to meet the community requirements.

    If the area is the same as a previously approved area, an applicant
    need only include a statement to that effect in the application.
    Applicants may be required to submit their own summary and
    documentation regarding the community requirements if NCUA, in its
    discretion, believes it is appropriate to do so, for example, if
    there has been a significant change in the population of the area
    since it was previously approved. This requirement does not apply to
    applications that meet the single political jurisdiction or
    statistical area definition of local community.

    **V.A.6 \-- Business Plan Requirements for a Community Credit
    Union**

    A community credit union is frequently more susceptible to
    competition from other local financial institutions and generally
    does not have substantial support from any single sponsoring company
    or association. As a result, a community credit union will often
    encounter financial and operational factors that differ from an
    occupational or associational charter. Its diverse membership may
    require special marketing programs targeted to different segments of
    the community. For example, the lack of payroll deduction creates
    special challenges in the development and promotion of savings
    programs and in the collection of loans.

    If the local community requested does not meet the requirements of
    V.A.2 then the documentation requirements in Section V.A.4 of this
    Chapter must be met before a community charter can be approved.

    In all cases, in order to support a case for a conversion to
    community charter, an applicant federal credit union must develop a
    business plan incorporating the following data:

    • pro forma financial statements for a minimum of 24 months after
    the proposed conversion, including the underlying assumptions and
    rationale for projected member, share, loan, and asset growth;

    • anticipated financial impact on the credit union, including the
    need for additional employees and fixed assets, and the associated
    costs;

    • a description of the current and proposed office/branch structure,
    including a general description of the location(s); parking
    availability, public transportation availability, drive-through
    service, lobby capacity, or any other service feature illustrating
    community access;

    • marketing plan addressing how the community will be served for the
    24-month period after the proposed conversion to a community
    charter, including the projected marketing budget, promotions, and
    time line;

    • details, terms and conditions of the credit union's financial
    products, programs, and services to be provided to the entire
    community; and

    • maps showing the current and proposed service facilities, ATMs,
    political boundaries, major roads, and other pertinent information.

    An existing federal credit union may apply to convert to a community
    charter. Groups currently in the credit union's field of membership,
    but outside the new community credit union's boundaries, may not be
    included in the new community charter. Therefore, the credit union
    must notify groups that will be removed from the field of membership
    as a result of the conversion. Members of record can continue to be
    served.

    Before approval of an application to convert to a community credit
    union, NCUA must be satisfied that the credit union will be viable
    and capable of providing services to its members.

    Community credit unions will be expected to regularly review and to
    follow, to the fullest extent economically possible, the marketing
    and business plans submitted with their applications.

    **V.A.7 \-- Community Boundaries**

    The geographic boundaries of a community federal credit union are
    the areas defined in its charter. The boundaries can usually be
    defined using political borders, streets, rivers, railroad tracks,
    etc.

    A community that is a recognized legal entity may be stated in the
    field of membership \-- for example, "Gus Township, Texas,"
    "Isabella City, Georgia," or "Fairfax County, Virginia."

    A community that is a recognized MSA must state in the field of
    membership the political jurisdiction(s) that comprise the MSA.

    **V.A.8 \-- Special Community**

    **Charters**

    A community field of membership may include persons who work or
    attend school in a particular industrial park, shopping mall, office
    complex, or similar development. The proposed field of membership
    must have clearly defined geographic boundaries.

    **V.A.9 \-- Sample Community**

    **Fields of Membership**

    A community charter does not have to include all four affinities
    (i.e., live, work, worship, or attend school in a community). Some
    examples of community fields of membership are:

    • Persons who live, work, worship, or attend school in, and
    businesses located in the area of Johnson City, Tennessee, bounded
    by Fern Street on the north, Long Street on the east, Fourth Street
    on the south, and Elm Avenue on the west;

    • Persons who live or work in Green County, Maine;

    • Persons who live, worship, or work in and businesses and other
    legal entities located in Independent School District No. 1, DuPage
    County, Illinois;

    • Persons who live, worship, work (or regularly conduct business
    in), or attend school on the University of Dayton campus, in Dayton,
    Ohio;

```{=html}
<!-- -->
```
-   Persons who work for businesses located in Clifton Country Mall, in
    Clifton Park, New York; or

-   Persons who live, work, or worship in the Binghamton, New York, MSA,
    consisting of Broome and Tioga Counties, New York.

    Some Examples of insufficiently defined local communities,
    neighborhoods, or rural districts are:

    • Persons who live or work within and businesses located within a
    ten-mile radius of Washington, D.C. (using a radius does not
    establish a well-defined area);

    • Persons who live or work in the industrial section of New York,
    New York. (not a well-defined neighborhood, community, or rural
    district); or

    • Persons who live or work in the greater Boston area. (not a
    well-defined neighborhood, community, or rural district).

    Some examples of unacceptable local communities, neighborhoods, or
    rural districts are:

    • Persons who live or work in the State of California. (does not
    meet the definition of local community, neighborhood, or rural
    district).

    • Persons who live in the first congressional district of Florida.
    (does not meet the definition of local community, neighborhood, or
    rural district).

4\. Section III.A of Chapter 3 of IRPS 03-1, as amended by IRPS 06-1 and
IRPS 07-1, is revised by removing the second and third full paragraphs
and the bulleted paragraphs in between them and adding in their place
two paragraphs to read as follows:

For an underserved area, the well-defined local community, neighborhood,
or rural district requirement is met if the area to be served meets the
definition of a local community contained in Chapter 2 V.A.2.

If the area to be served does not meet the single political jurisdiction
or statistical definition contained in Chapter 2 V.A.2, the application
must include documentation to support that it is a well-defined local
community, neighborhood, or rural district.