73 FR 73392 (Dec. 2, 2008)

**7535-01-U                                                                **

**NATIONAL CREDIT UNION ADMINISTRATION**

**12 CFR Part 701**

**RIN #3133-AD48**

**Organization and Operations of Federal Credit Unions;**

**Underserved Areas (IRPS 08-2)**

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

**ACTION**:    Final Rule

**SUMMARY**:  NCUA is adopting a final rule implementing four
modifications to its Chartering and Field of Membership Manual to update
and clarify the process of approving credit union service to
"underserved areas." First, the rule clarifies the procedure for
establishing that an "underserved area" qualifies as a local community.
Second, it makes explicit the process for applying the economic distress
criteria that determine whether an area combining multiple geographic
units is sufficiently "distressed" to qualify as "underserved." Third,
it updates the documentation and clarifies the scope requirements for
demonstrating that a proposed area has "significant unmet needs" for
loans and financial services. Finally, the rule utilizes data provided
by NCUA on the location of depository institution facilities to
determine whether an area is "underserved by other depository
institutions" according to the presence of their facilities within the
area.

**[D]{.smallcaps}ates**:  This rule is effective \[insert date 30 days
after Federal Register publication.\]

**FOR FURTHER INFORMATION CONTACT**:  Michael J. McKenna, Deputy General
Counsel; John K. Ianno, Associate General Counsel; or Steven W.
Widerman, Trial Attorney, Office of General Counsel, 1775 Duke Street,
Alexandria, Virginia 22314, or telephone (703) 518-6540.

**SUPPLEMENTARY INFORMATION:**

In this preamble, the version of Chapter 3, section III, of the
Chartering and Field of Membership Manual, entitled "Service to
Underserved Communities," that is presently in effect is referred to as
"the existing rule," cited as "IRPS 06-1," and located at 71 FR 36667
(June 28, 2006). The version of Chapter 3, section III, as modified in
the proposed rule is referred to as "the proposed rule," cited as "Prop.
Rule," and located at 73 FR 34366 (June 17, 2008). The version of
Chapter 3, section III, adopted in this rule is referred to as "the
final rule," cited as "App. B, Ch. 3, §III.," and located in Appendix B
[infra]{.underline}.

The rest of the Chartering and Field of Membership Manual presently in
effect ([i.e.]{.underline}, other than Chapter 3, section III) is
referred to in the preamble as "the Chartering Manual," cited as "IRPS
03-1," and published in Appendix B to the proposed rule, 73 FR at 34371
[et seq]{.underline}.

**I.  BACKGROUND**

A. [Authority to Serve Underserved Areas]{.underline}.

1\. [Credit Union Membership Access Act]{.underline}. In 1998, Congress
enacted the Credit Union Membership Access Act ("CUMAA"), Pub. L.
105-219, 112 Stat. 914 (1998), authorizing the NCUA Board to allow
multiple common bond credit unions to serve members residing in
"underserved areas," provided the credit union establishes and maintains
a facility there. 12 U.S.C. 1759(c)(2). For an area to be "underserved,"
CUMAA requires the NCUA Board to determine that the area is: (1) a
"local community" that (2) qualifies as an "investment area" as defined
in the Community Development Banking and Financial Institutions Act of
1994 ("CDFI Act"), [id]{.underline}. §4702(16), and (3) is "underserved
. . . by other depository institutions."[^1] [Id]{.underline}.
§1759(c)(2)(A). By incorporating the CDFI Act's definition of an
"investment area," CUMAA's "underserved area" authority also
incorporated the regulations implementing that definition.

The CDFI Act defines an "investment area" as a geographic area that,
unless it is presently designated an Empowerment Zone or Enterprise
Community,[^2] "meets the objective criteria of economic distress
developed by the \[Community Development Financial Institutions\] Fund"
("CDFI Fund" or "Fund") and also "has significant unmet needs for loans
or equity investments." [Id]{.underline}. §4702(16). By regulation, the
CDFI Fund adopted a definition of "investment area" that established
"criteria of economic distress" and implemented the "significant unmet
needs" criterion. 12 C.F.R. 1805.201(b)(3)(ii) (2008). The regulation
dictates that "\[a\]n Investment Area shall meet specific geographic and
other criteria" prescribed in the CDFI Fund's "investment area"
definition. [Id]{.underline}. §§1805.201(b)(3)(i), 1805.104(dd).
Further, the regulation gives the Fund sole discretion to determine
whether these criteria are fulfilled. [Id]{.underline}. §1805.201(a)(5).

2\. [CDFI "Investment Area" Definition]{.underline}. Under the CDFI
Fund's distress criteria, a proposed "investment area's" location within
or outside a designated Metropolitan Area (a "Metro" or "Non-Metro"
area, respectively) determines the "geographic unit(s)" into which the
area must be translated in order to apply the economic distress
criteria. [Id]{.underline}. §1805.104(ff). For a Metro area, the
permissible geographic units are limited to: a census tract; a block
group; and an American Indian or Alaskan Native area. [Id]{.underline}.
§1805.201(b)(3)(ii)(B). For a Non-Metro area, the permissible geographic
units are limited to: "a county (or equivalent area); minor civil
division that is a unit of local government; incorporated place; census
tract; block numbering area; block group; and an American Indian or
Alaskan Native area." [Id]{.underline}.

The CDFI regulation designates as "distressed" a proposed area that
meets the applicable economic distress criteria as reported by the most
recent decennial U.S. Census. [Id]{.underline}. §1805.201(b)(3)(ii)(D).
How the distress criteria apply in each case depends on which geographic
units are permitted (based on the area's designation as Metro or
Non-Metro) and whether the area consists of a single geographic unit or
multiple contiguous units. A Metro proposed area consisting of a single
census tract, for example, must meet the distress criterion for either
unemployment, poverty, or median family income. [Id]{.underline}.
§1805.201(b)(3)(ii)(D)(1) and (3). A Non-Metro proposed area consisting
of a single county, for example, must meet the distress criterion for
either unemployment, poverty, median family income or, if the area is a
county, population loss or migration loss. [Id]{.underline}.
§1805.201(b)(3)(ii)(D)(1), (3), (4) and (5).

A proposed area consisting of [multiple contiguous]{.underline}
geographic units ([e.g]{.underline}. adjoining census tracts in a Metro
area or adjoining counties in a Non-Metro area) may combine "distressed"
and non-"distressed" units. However, that area must satisfy a population
threshold requiring the "distressed" units---those that "together meet
one of the \[applicable distress\] criteria"---to represent at least 85
percent of the area's total population ("85% population threshold").
[Id]{.underline}. §1805.201(b)(3)(ii)(C)(2).

Finally, to qualify as an "investment area," the proposed area also must
"have significant unmet needs for loans or equity investments." 12
U.S.C. 4702(16)(A)(ii). The CDFI regulation deems this criterion to be
fulfilled when "a narrative analysis . . . adequately demonstrates a
pattern of \[such\] unmet needs" within the proposed area. 12 C.F.R.
1805.201(b)(3)(ii)(E).

3\. [Chartering Manual]{.underline}. Following the enactment of CUMAA in
1998, NCUA revised its Chartering Manual to implement its new authority
to allow service to "underserved areas." [Id]{.underline}. §701.1
(1999). As then revised, Chapter 3, section III of the Chartering Manual
incorporated the statutory definition of "underserved area," including
the then-existing CDFI "distress" criteria and the CUMAA criterion
requiring the area to be "underserved by other depository institutions."
63 FR 71998 (December 30, 1998). In the event of periodic revisions to
the then-existing distress criteria, the Chartering Manual incorporated
by reference revised or additional criteria that the CDFI Fund might
adopt in the future. 67 FR 20013, 20017 (April 24, 2002).

B. [Comments on Proposed Rule]{.underline}

The NCUA Board published its proposed rule (Interpretive Ruling and
Policy Statement 08-2) updating and clarifying the process for approving
service to "underserved areas," with a 60-day comment period that closed
on August 18, 2008. 73 FR 34366. NCUA received comments from 23
commenters in response to the proposed rule---nine were
federally-chartered credit unions, two were state-chartered credit
unions, eight were state credit union leagues, two were credit union
industry trade associations, and two were banking industry trade
associations. The comments from credit union industry participants were
opposed to the proposed rule, while comments from banking industry trade
associations supported it. The comments on the proposed rule are
addressed below.

**II.   DISCUSSION OF COMMENTS ON PROPOSED RULE**

A. [Local Community]{.underline}.

1\. "[Local Community" Prerequisite]{.underline}. To be eligible for
approval as an "underserved area," the rule requires a proposed area to
qualify as a "local community, neighborhood or rural district" ("local
community"). IRPS 06-1, 71 FR at 36670-36671. The proposed rule
clarified, but did not alter, this requirement. It simply incorporated
by reference the sections of the Chartering Manual (Ch. 2, sections
V.A.1. and V.A.2.) where the existing "local community" criteria are
located, replacing the rule's summary of those criteria. Prop. Rule, 73
FR at 34385, 34388.

Clarification of the "local community" prerequisite generated nine
comments. The commenters insisted that interaction among residents of a
proposed area is irrelevant to whether an area is "underserved" and, in
fact, undermines the "underserved\" concept; that being "underserved" in
and of itself is evidence of sufficient interaction to bind the
residents together as a "local community"; and that meeting the CDFI
definition of an "investment area" establishes that an area is a "local
community." One commenter claimed that there is "neither a requirement
in the statutes, nor in NCUA regulations" that an area must be a "local
community." The gist of these comments is that an area otherwise
qualifying as "underserved" should not be subject to the "local
community" definition that applies to a community charter.

What these comments overlook is that CUMAA expressly imposes the "local
community" requirement as an independent criterion for approval as
"underserved." CUMAA authorizes a multiple common bond credit union to
include in its field of membership ("FOM") "any person [within a local,
community, neighborhood or rural district]{.underline} if--- (A) the
Board determines that [the local, community, neighborhood or rural
district]{.underline}" otherwise meets CUMAA's definition of an
"underserved area." 12 U.S.C. 1759(c)(2)(A) (emphasis added). The final
rule affirms this long-standing statutory requirement, modifying it only
to incorporate by reference the "local community" criteria set forth in
the Chartering Manual's chapter on community chartering. App. B, Ch. 3,
§III.B.1.

2\. [Supplemental Letter]{.underline}. Under the Chartering Manual's
chapter on community chartering, among the ways an area may qualify as a
"local community" is if it either consists of multiple political
jurisdictions with a total population of 500,000 or less, or is located
within a Metropolitan Statistical Area ("MSA") that has a population of
1 million or less (in either case a "multi-jurisdiction/MSA community").
IRPS 03-1, 73 FR at 34385. In such cases, the chapter on community
chartering requires a credit union to submit a supplemental letter
"describing how the area meets the standards for community interaction
and/or common interests" within in the proposed area.[^3]
[Id]{.underline}*.* In contrast, the Chartering Manual's chapter on
"underserved areas" does not require an equivalent letter to establish
that a proposed area is a multi-jurisdiction/MSA community. IRPS 06-1,
71 FR at 36670-36671.

The supplemental letter's purpose is to reinforce the "local community"
criterion with qualitative evidence of interaction and common interests
within the community. The proposed rule invited public comment on
whether the letter is needed at all to fortify a multi-jurisdiction/MSA
community in either the community chartering or "underserved area"
contexts. Prop. Rule, 73 FR at 3467. The invitation to comment on the
supplemental letter requirement attracted eleven comments---those who
oppose the requirement in either context, and those who oppose extending
it to proposed "underserved areas." Among those who oppose the letter
altogether, several commenters felt that it was unnecessarily
burdensome, insisting that NCUA should assume responsibility for
assembling qualitative evidence of interaction and common interests to
support the multi-jurisdiction/MSA community. Another commenter
pronounced the supplemental letter requirement redundant because it
demands proof of what already is seemingly presumed, making the
presumption conditional and thus not truly a presumption.

Among those who commented that "underserved areas" should remain exempt
from the supplemental letter requirement, nearly all objected that it
would be unnecessarily burdensome to comply. For that reason, one
commenter suggested making the requirement optional for "underserved
areas." Another insisted that ensuring consistency with community
charters does not justify burdening "underserved areas" that qualify as
multi-jurisdiction/MSA communities. Yet another predicted that
equalizing the burden between community charters and "underserved areas"
would encourage credit unions to choose conversion to a community
charter over adding an "underserved area." Concerned primarily with
uniformity, one commenter recommended an all-or-none approach: either
require the supplemental letter for multi-jurisdiction/MSA communities
in both the community charter and "underserved area" contexts or require
it in neither. These objections raised the issue of whether the burden
of submitting a supplemental letter is justified to support the approval
of a multi-jurisdiction/MSA community as "underserved."

CUMAA imposes the "local community" criterion on community charters and
"underserved areas" alike, but in fact there is a distinction between
them that makes a difference. As a commenter correctly pointed out, with
a community charter, the "local community" is the essential criterion of
the common bond among all of the credit union's members. It signifies a
level of interaction and/or common interests sufficient to sustain the
viability of the credit union itself. In contrast, the "local community"
comprising an "underserved area" is an accessory to an already viable
credit union whose FOM is based entirely on a pre-existing multiple
group common bond.

This distinction highlights a meaningful difference in scope and
significance between the "local community" that comprises a community
credit union's whole FOM, and the "local community" that represents only
a segment of a multiple group credit union's FOM---its "underserved
area." The differing role of a "local community" in each context has
convinced the Board that the demand for qualitative proof to meet the
"local community" criterion is greater for a community charter than for
an "underserved area." For that reason, the final rule preserves the
existing rule's exemption of a proposed "underserved area" from the
requirement to submit a supplemental letter explaining interaction and
common interests within a multi-jurisdiction/MSA community. App. B, Ch.
3, §III.B.1.

B. [Economic Distress Criteria]{.underline}.

1\. [Geographic Units]{.underline}. The rule implies, but does not
expressly indicate, that the CDFI Fund's geographic unit(s) and 85%
population threshold apply when implementing the economic distress
criteria. As the proposed rule explains, there is a fundamental
incompatibility between an "underserved area" and a CDFI "investment
area." Prop. Rule, 73 FR at 34367. A proposed "underserved area" comes
to the CDFI Fund's economic distress criteria already pre-packaged in
its own "geographic unit"---a single, well defined "local community"
consisting of a single jurisdiction or integrating multiple contiguous
jurisdictions---whereas an "investment area" is not similarly
pre-defined. 65 FR 37065, 37072, 37082 (June 13, 2000). This suggests
that it would be redundant to dissolve a single, already well-defined
"local community" into the applicable CDFI-designated geographic
unit(s), thus implicating a population threshold, to determine whether
the community is sufficiently "distressed."

For these reasons, the Board is concerned that the existing rule is not
explicit enough to ensure that the prescribed geographic unit(s) and
population threshold are implemented when applying the distress criteria
to a proposed area. IRPS 06-1, 71 FR at 36670-36671. Further, in the
decade since CUMAA, convenient on-line access to relevant data has
considerably simplified the task of translating an "underserved area"
into the geographic units the CDFI Fund prescribes for applying the
economic distress criteria that define an "investment area."

The proposed rule addressed this concern by updating and clarifying the
Chartering Manual in two significant respects to explicitly reflect the
CDFI Fund's "investment area" definition. For purposes of the economic
distress criteria, the proposed rule expressly required that a proposed
area must conform to the geographic unit(s) prescribed by CDFI, and that
an area combining "distressed" and non-"distressed" geographic units
must comply with the 85% population threshold.

NCUA received thirteen comments opposing the requirement to conform a
proposed area into CDFI-prescribed geographic units. Most stated for one
reason or another that a "local community's" own geographic and
political boundaries should trump the CDFI-designated geographic units.
Other commenters noted that the geographic unit(s) and population
threshold requirements do not apply to "underserved areas" in the first
place. One commenter stated that "the language in \[CUMAA\] directs
\[NCUA\] to use the community as the geographic basis for determining
whether an underserved area exists." Another commenter felt that census
tracts are an impractical measure because residents typically cannot
identify what census tract each resides in, and credit unions typically
do not market their products and services according to tract boundaries.
Yet another commenter confirmed that credit unions uniformly develop
their business plans according to geographic and political boundaries,
not census tract boundaries. One commenter predicted that conforming
proposed areas to census tracts will result in fewer and smaller
"underserved area" approvals.[^4] Nearly all of the commenters'
criticism addressed the use of census tracts. Recognizing that
"underserved areas" typically comprise an entire city or county located
within an MSA, the consensus of commenters advocated that such a whole
city or county should be treated as a single geographic unit for
purposes assessing whether a proposed area is "distressed."

NCUA received four comments opposing the imposition of the 85%
population threshold on a proposed area combining "distressed" and
non-"distressed" units. One dismissed the population threshold as a
"technical correction," while another objected that it departs from the
notion that a proposed "underserved area" already is a single entity. To
enhance the "distressed" population, a credit union trade association
proposed counting not only the residents of the "distressed" units, but
also the people who work, worship or go to school there, even though the
CDFI Fund limits a unit's population to its "residents." 12 C.F.R.
1805.201(b)(ii)(C)(2). Another commenter believed the population
threshold does not go far enough, and would require each and every
geographic unit within a proposed area to be "distressed," even though
the 85% population threshold allows some entirely non-"distressed" units
among a group of contiguous units. [Id]{.underline}.

Notwithstanding the comments, the final rule is explicit in requiring a
proposed area to conform to the geographic unit(s) prescribed by CDFI
according to whether an area is located within or outside a Metro area.
[Id]{.underline}. §1805.104(ff). For this purpose, the rule follows the
CDFI Fund's practice of deeming a proposed area located in a designated
MSA[^5] to be within a Metro area, and vice versa. App. B, Ch. 3,
§III.B.2.a. The rule then prescribes the corresponding applicable CDFI
geographic units---"Metro units" when a proposed area is located within
an MSA, and "Non-Metro units" when the area is located outside an MSA.
12 C.F.R. 1805.201(b)(3)(ii)(B).

A proposed area that is partly within and partly outside an MSA
([i.e]{.underline}., straddles an MSA's boundary) is deemed to be
entirely within a Metro area because the corresponding geographic units
include ones that are permissible for areas located either within or
outside an MSA ([e.g.]{.underline}, a census tract). Further, regardless
of its location, a proposed area must be comprised entirely of
[whole]{.underline} geographic units of single kind; it cannot have
fractional units (e.g., half of a census tract or half of a county). To
avoid fractional units, the proposed area should be conformed to the
next smallest applicable geographic unit ([e.g.]{.underline}, block
groups).

In the case of a proposed area consisting of multiple contiguous
geographic units ([e.g.]{.underline}, a group of adjoining census tracts
inside an MSA or a group of adjoining counties outside an MSA), the
final rule expressly imposes the 85% population threshold.
[Id]{.underline}. Thus, when a proposed area combines "distressed" and
non-"distressed" geographic units, the "distressed" units must represent
at least 85 percent of the area's total population. [Id]{.underline}.
§1805.201(b)(3)(ii)(C)(2) (2008).

The final rule follows the CDFI Fund's practice of allowing each
"distressed" unit within a group to qualify as such under any one of the
criteria; they do not all have to qualify under the same criterion. App.
B, Ch. 3, §III.B.2.a.

2\. [CDFI Fund Website]{.underline}. The rule is designed to work in
coordination with the CDFI Fund's "My CDFI Fund" website---an invaluable
resource for determining whether a proposed area is "distressed." The
website is equipped to analyze the most commonly used geographic units:
a census tract, a county or an independent city (which is treated as
equivalent to a county).[^6] The "My CDFI Fund" website's "Information
and Mapping System" feature allows the user to select and enter
geographic units that it then analyzes, individually and as a single
proposed area, using the most recent decennial Census data.[^7] The
results are displayed on a comprehensive "Investment Area/Hot Zone
Worksheet" ("CDFI Worksheet").

The CDFI Worksheet shows whether an individual geographic unit is
located within an MSA; its total population; its poverty rate; the
percent of benchmark MFI;[^8] the unemployment rate; and most
importantly, whether in the end the unit qualifies as "distressed."[^9]
For a proposed area that combines contiguous "distressed" and
non-"distressed" units, the CDFI Worksheet applies the 85% population
threshold to determine if the area's population is sufficiently
represented in the "distressed" units (which the decennial Census itself
does not do), determines that the combined units are contiguous, and
shows the tract-by-tract population. Compared to manually downloading
census data, the "My CDFI Fund" website's analysis of census tracts and
counties is a more expeditious way to establish that a proposed area is
sufficiently "distressed," thus conserving credit union resources.

C. [Significant Unmet Needs for Loans or Financial
Services]{.underline}.

In addition to determining that a proposed area is "distressed," the
CDFI Act's definition of an "investment area" requires the area to have
"significant unmet needs for loans or equity investments." 12 U.S.C.
4702(16)(A)(ii). To meet this criterion, the CDFI Fund requires "a
narrative analysis . . . adequately demonstrat\[ing\] a pattern of unmet
needs" for financial products and services within the proposed area. 12
C.F.R. 1805.201(b)(3)(ii)(E). Further, the Fund retains sole discretion
to determine whether this criterion is met. [Id]{.underline}.
§1805.201(a)(5).

The existing rule addresses this requirement through the business plan
that must be developed by a credit union seeking to add an "underserved
area." The business plan must "identify the credit and depository needs
of the community and detail how the credit union plans to serve those
needs." IRPS 06-1, 71 FR at 36671. To ensure a sound record, the
proposed rule followed the CDFI Fund's practice of requiring a credit
union to submit a one-page "narrative statement" demonstrating a pattern
of "significant unmet needs" in the proposed area for one or more of the
following financial products and services that credit unions are
authorized to offer: checking accounts, savings accounts, check cashing,
money orders, certified checks, automated teller machines, deposit
taking, safe deposit box services, and similar services ("authorized
credit union services").[^10] Prop. Rule, 73 FR at 34389.

To support the narrative statement, the proposed rule required relevant,
objective statistical data and allowed objective testimonial evidence.
The proposed rule then required the business plan to "explain how the
credit union plans to fulfill the unmet needs for loans and credit union
services identified in its Narrative Statement." [Id]{.underline}.
Commenters were invited to indicate whether the narrative statement
should be integrated into the business plan a credit union is already
required to submit, and to identify statistical data that would help to
establish unmet needs for loans and authorized credit union services.

NCUA received fourteen comments addressing the proposal to require a
narrative statement on "significant unmet needs." Nearly all of the
commenters felt the narrative statement was redundant of the CDFI
distress criteria, contending that by definition a "distressed" area
must have "significant" unmet needs" for loans and financial services.
They believed the requirement would be a costly, burdensome duplication
of effort. The information to establish "significant unmet needs," the
commenters further maintained, is too difficult to find, too subjective
to quantify, too difficult to organize by census tracts, and too
difficult to document other than by what one characterized as "documents
on steroids."

To alleviate these difficulties, the commenters urged NCUA to specify
the information that would establish "significant unmet needs," to
specify how and where to find it, to put it on the NCUA website, and to
suggest what kind of testimonial evidence would support it.
Alternatively, some commenters advocated that the narrative statement
either should be made optional or NCUA itself should assume
responsibility for documenting an area's "significant unmet needs." Two
commenters challenged the substance of the requirement. One observed
that the availability of financial services within an area doesn't
establish that they are accessible to all residents. The other believed
that only a comprehensive "broad based study" of all financial services
would suffice to establish "significant unmet needs" within a proposed
area. Finally, the commenters were split on the question whether the
narrative statement should stand alone or be included in the business
plan for the proposed area.

As noted in the proposed rule, 73 FR at 34389, the CDFI Fund itself
accepts a one-page narrative statement describing the significant unmet
capital or financial services within a proposed area. "CDFI
Certification Application" (June 2007) at 11. The analysis must be
supported by relevant, objective reasons or statistical data. There are
no definitive standards of evaluation; the statements are evaluated on a
case-by-case basis.

Neither the "distress" criterion nor the "significant unmet needs"
criterion can be interpreted as redundant of the other because both
criteria are set forth independently within the CDFI Act's "investment
area" definition. 12 U.S.C. 4702(16)(A). The existing requirement that
the business plan "identify the credit and depository needs of the
community and detail how the credit union plans to serve those needs"
(IRPS 06-1, 71 FR at 36671) is the functional equivalent of
"demonstrating a pattern of 'significant unmet needs' for one or more
\[authorized credit union services\]," as the proposed rule would
require. Prop. Rule, 73 FR at 34389. For this reason, the existing
"credit and depository needs" standard is a legitimate measure of
"significant unmet needs," provided it addresses authorized credit union
services.

Upon consideration of the comments and further inquiry into the CDFI
Fund's practices regarding fulfillment of the "significant unmet needs"
criterion, the final rule modifies the proposed narrative statement
requirement in the following respects. First, a credit union may meet
the "significant unmet needs" criterion by fulfilling the existing
requirement to "identify the credit and depository needs of the
community and detail how the credit union plans to serve those needs."
App. B, Ch. 3, §III.B.2.b. Second, a stand-alone narrative statement is
not required. Instead, a section of the business plan, one page in
length, and entitled "Significant Unmet Needs for Credit Union
Services," must address the existing "credit and depository needs"
criterion. [Id]{.underline}. Finally, no supporting statistical data is
required. Instead, the existence of each of the "credit and depository
needs" the credit union identifies and plans to serve must be supported
by objective reasons and/or accompanying documentation derived from an
identified, authoritative source of the credit union's choice. Third
party documentation is generally the most compelling. Anecdotal evidence
will not suffice. [Id]{.underline}.

D. [Underserved by Other Depository Institutions]{.underline}.

Independent of the CDFI Fund's "significant unmet needs" test, CUMAA
requires a proposed area to be "underserved . . . by other \[insured\]
depository institutions." CUMAA did not specify a methodology for making
this determination other than to provide that it must rely on
unspecified "data of the \[NCUA\] Board and the Federal banking
agencies." 12 U.S.C. 1759(c)(2)(A)(ii). To the extent such relevant and
meaningful data existed in raw form, it was not distilled and made
readily accessible until recently.

To determine whether a proposed area is underserved by other depository
institutions, the proposed rule compares the concentration of depository
institution facilities within the non-"distressed" portions of the
proposed area against the concentration of such facilities in the area
as a whole. Prop. Rule, 73 FR at 34389. Regardless of the geographic
units used to determine whether the proposed area is "distressed," this
comparison uses the area's census tracts as the unit of measure.

A comparison of two ratios determines a proposed area's concentration of
facilities. The first is the ratio of depository institution facilities
within a proposed area's non-"distressed" tracts (regardless whether
they are contiguous) to the combined population of those tracts. This
establishes a benchmark level of adequate service. The second is the
ratio of depository institution facilities among the all the tracts of
the proposed to the combined population of those tracts.

As shown below, if the facilities-to-population ratio (the benchmark)
within the non-"distressed" tracts (column A below) exceeds the same
facilities-to population ratio within the combined tracts of the
proposed area as a whole (column B below), the rule deems the area to be
"underserved by other depository institutions," and vice versa (column C
below).

[Concentration of Depository Institution Facilities]{.underline}

+--------------+-----------------+-----------------+-----------------+
|              | A               | B               | C               |
+--------------+-----------------+-----------------+-----------------+
|              | *N              | *All census     | *All census     |
|              | on-"distressed" | tracts in       | tracts in       |
|              | census tracts   | proposed area*  | proposed area*  |
|              | only*           |                 |                 |
+--------------+-----------------+-----------------+-----------------+
| Population   | 15,000          | 100,000         | 100,000         |
|              |                 |                 |                 |
| (numerator)  |                 |                 |                 |
+--------------+-----------------+-----------------+-----------------+
| Facilities   | 100             | 571             | 800             |
|              |                 |                 |                 |
| (            |                 |                 |                 |
| denominator) |                 |                 |                 |
+--------------+-----------------+-----------------+-----------------+
| Ratio of     | 1:150           | 1:175           | 1:125           |
| facilities   |                 |                 |                 |
| to           | (1 facility for | (1 facility for | (1 facility for |
| population   | every 150       | every 175       | every 125       |
|              | persons)        | persons)        | persons)        |
| (co          |                 |                 |                 |
| ncentration) |                 |                 |                 |
+--------------+-----------------+-----------------+-----------------+
| *Example     | *Benchmark      | *"Underserved"* | *Not            |
| of:*         | ratio*          |                 | "Underserved"*  |
+--------------+-----------------+-----------------+-----------------+

The seventeen comments on this criterion were critical of using the
concentration of facilities to assess whether a proposed area is
"underserved by other depository institutions." Four commenters
criticized this methodology as a cumbersome, complex, time consuming and
labor intensive exercise. Others objected to the use of any methodology
not specifically prescribed by CUMAA (even though CUMAA didn't prescribe
any methodology). One commenter was concerned that an area without even
a single credit union facility still could be deemed [not]{.underline}
"underserved" due to the concentration of non-credit union facilities.
In such cases, this commenter urged, the area should be deemed
"underserved" by definition. In contrast, a commenter argued that the
presence of even a single depository intuition facility (even a credit
union's) should render the area [not]{.underline} "underserved" by such
institutions.

Several commenters emphasized that the physical presence of depository
institutions is not a reliable indicator of the availability, cost and
quality of products and services that would benefit an area's
underserved residents. They proposed various alternative methodologies
involving: the ratio of "banked" consumers or households to the
population of the "distressed" tracts compared to the whole area's
combined tracts; the distance of travel required to reach a facility;
the area's income and unemployment levels; a subjective "fact sensitive
inquiry"; a market analysis of current depository institution services;
an analysis of competitive market factors; and residents' use of
branches and ATMs. Regarding ATMs, two commenters noted the irony in the
possibility of counting them among depository institution facilities
while refusing to recognize them as a credit union "service facility"
for an "underserved area."

Finally, two commenters believed that the "underserved by other
depository institutions" criterion is misconceived in the first place.
In their view, an "underserved area" can never be too
"overserved["]{.underline} by other depository institutions because
their increasing presence expands consumer choice among products and
services, thereby stimulating competition and ultimately reducing price
of those products and services for the area's residents.

For the following reasons, the final rule adopts the concentration of
facilities methodology as proposed to assess whether a proposed area is
"underserved by other depository institutions." App. B, Ch. 3, §III.B.3.
First, the "significant unmet needs" criterion addresses the need for
products and services within a proposed area. In order not to duplicate
that, the concentration of facilities, by design, addresses the presence
of facilities that dispense those products and services. Second,
although there is merit to the alternative methodologies suggested by
the commenters, CUMAA requires the determination that an area is
"underserved by other depository institutions" to be "based on data of
the \[NCUA\] and the Federal banking agencies." 12 U.S.C.
1759(c)(2)(A)(ii). Therefore, in making this determination, NCUA is
compelled to rely on the limited, relevant data it and the banking
agencies have collected, to the exclusion of third party data.

Finally, taking into consideration the comments on the burden of
obtaining and organizing the data needed to calculate the facilities
versus population ratios, the final rule relaxes any such burden. For
the denominator of each ratio, the proposed rule required credit unions
to obtain current tract-by-tract population data. For the numerator of
each ratio, however, it required credit unions to also obtain the
tract-by-tract totals of the depository institution facilities using
several on-line resources.

Under the final rule, credit unions still are responsible for obtaining
tract-by-tract population data (from either the "My CDFI Fund" website
or the decennial Census) However, upon request to a regional office,
NCUA will be responsible for providing credit unions with tract-by-tract
totals of the number of insured depository institutions. Using
proprietary software, NCUA regional offices will be equipped to
determine and provide the total number of depository institution
facilities in each of the census tracts of a proposed area. The total
for each tract will combine not only credit union facilities (based on a
credit union's annual "Report of Officials") but non-credit union
facilities, and will exclude the ATMs of both. As a result, credit
unions can easily obtain the data needed to calculate the
facilities-to-population ratio of the "distressed" tracts and compare it
to the facilities-to-population ratio of the tracts of the area as a
whole.

E. [Approval to Serve an Already Approved "Underserved
Area"]{.underline}.

The statement in the existing rule that "More than one multiple common
bond federal credit union can serve the same underserved area" is
accurate but not complete. IRPS 06-1, 71 FR at 36670. The rule is vague
about whether an area must be requalified as "underserved" each time an
additional credit union seeks approval to serve it. The proposed rule
makes it clear that a credit union that was approved to serve an
"underserved area" is "grandfathered," but the "underserved area" itself
is not. App. B, Ch. 3, §III.D.

The distinction is that once a credit union receives approval to serve
an area that qualified as "underserved" at the time it was approved, the
credit union will be able to continue serving that area if and when it
no longer qualifies as "underserved." In contrast, if another credit
union subsequently seeks approval to serve the same "underserved area,"
the subsequent applicant must demonstrate that the area still qualifies
as "underserved," [i.e]{.underline}., is still "distressed," has
"significant unmet needs," and is "underserved by other depository
institutions" at the time it applies.

Ten commenters addressed the "grandfathering" issue. All of them praised
the "grandfathering" of credit unions that had been approved to serve an
"underserved area," but advocated "grandfathering" the already approved
"underserved areas" themselves as well so that other credit unions would
be free to serve them. One commenter criticized the reapproval
requirement as an unnecessary duplication of effort while another
charged that it was a "back-door return" to NCUA's old overlap
protection policy. One commenter proposed a compromise: if the final
rule will not permit "grandfathering" of "underserved areas" themselves
once it becomes effective, then the rule should expressly "grandfather"
all "underserved areas" approved under the existing rule prior to the
final rule's effective date under the rule. Recognizing the possibility
that an "undeserved area" may not remain underserved forever, one
commenter proposed limiting the "grandfathering" of "underserved areas"
themselves to a period of 5 years from the date each was first approved.
Another acknowledged that the greater the number of credit unions
serving an already approved "underserved area," the sooner the area's
"significant unmet needs" for credit unions services will be met.

What all the commenters but one fail to consider is that, with the
passage of time, an "underserved area" may not continue to meet the
definition of an "investment area." Once a new decennial Census is
published, the area may no longer be "distressed" according to CDFI
criteria. Over time, the credit union(s) approved to serve the area may
succeed in meeting some or all of the area's "significant unmet needs"
for credit union services. As more depository institutions locate
facilities within the area, the concentration ratio may shift to reflect
that the area finally is adequately served by other depository
institutions.

At the time of approval as "underserved," a proposed area must meet the
CDFI definition of an "investment area." For that reason, the final rule
cannot assume that a once approved "underserved area" remains frozen in
time regardless of changing circumstances that may disqualify it as an
"investment area." Accordingly, the final rule continues to
"grandfather" credit unions that are approved to serve "underserved
areas," but does not "grandfather" the "underserved areas" themselves.
App. B, Ch. 3, §III.D. However, the final rule does not require an
applicant seeking to serve an already approved area to demonstrate that
the area still is "distressed" if no new decennial Census has been
published since the area was last determined to be "distressed."

**REGULATORY PROCEDURES**

[Regulatory Flexibility Act]{.underline}

The Regulatory Flexibility Act requires NCUA to prepare an analysis to
describe any significant economic impact a regulation may have on a
substantial number of small credit unions (primarily those under \$10
million in assets).  These final amendments to the existing regulation
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]{.underline}

This final rule imposes a requirement that any multiple common bond
federal credit union that wishes to add an "underserved area" must apply
for the NCUA Board's written approval to do so. Based upon past
experience, NCUA anticipates approximately 100 applications per year.
This rule mandates certain specific information that must be included in
the application. NCUA solicited public comment on all aspects of the
collection of information this rule entails. Having considered the
comments and the type of information required to be obtained and
included in the application, NCUA estimates a burden of 40 hours per
application.

[Executive Order 13132]{.underline}

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 final rule will not have substantial
direct effects on the states, on the connection between the national
government and the states, or on the distribution of power and
responsibilities among the various levels of government.  NCUA has
determined that this final does not constitute a policy that has
federalism implications for purposes of the executive order.

[The Treasury and General Government Appropriations Act,
1999]{.underline}

The NCUA has determined that this final rule 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).

[Small Business Regulatory Enforcement Fairness Act]{.underline}

The Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L.
104-121) (SBREFA) provides generally for congressional review of agency
rules. A reporting requirement is triggered in instances where NCUA
issues a final rule as defined by section 551 of the APA. 5 U.S.C. 551.
The Office of Management and Budget has determined that this rule is not
a major rule for purposes of SBREFA. As required by SBREFA, NCUA will
file the appropriate reports with Congress and the General Accounting
Office so this rule may be reviewed.

**List of Subjects**

**12 CFR Part 701**

Credit, Credit unions, Reporting and record keeping requirements

By the National Credit Union Administration Board on November 20, 2008.

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

                                                              Mary Rupp

                                                               Secretary
of the Board

For the reasons stated above, 12 CFR Part 701 is amended as follows:

**PART 701-ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS**

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

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

2.  Section 701.1 is revised to read as follows: 

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

National Credit Union Administration policies concerning chartering,
field of membership modifications, and conversions are set forth in
Interpretive Ruling and Policy Statement 08-2, Chartering and Field of
Membership Manual (IRPS 08-2) published as Appendix B to this part. The
Chartering and Field of Membership Manual also is available on-line at
[www.ncua.gov](http://www.ncua.gov/).

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

**Note:**  The *Federal Register* requires the full *Chartering and
Field of Membership Manual* to be published as an Appendix to Part 701
rather than to be incorporated by reference in the regulatory text.
Accordingly, when the Federal Register publishes this final rule, the
rule text below will be reflected in Chapter 3, Subchapter III, of the
*Manual* published as Appendix B to Part 701.

3.  Appendix B to 12 CFR Part 701 is revised as follows:

**Appendix B to Part 701 \-- Chartering and Field of Membership Manual**

\* \* \* \* \*

Chapter 3, Subchapter III, Service to Underserved Communities, is
revised to read as follows:

**III.A. \-- General**

A multiple common bond federal credit union may include in its field of
membership, without regard to location, an "underserved area" as defined
by the Federal Credit Union Act.  12 U.S.C. 1759(c)(2). The addition of
an "underserved area" will not change the charter type of the multiple
common bond federal credit union.  More than one multiple common-bond
federal credit union can serve the same "underserved area," provided
each credit union is approved as provided below. 

By adding an "underserved area," a multiple common bond federal credit
union does not become eligible to receive the benefits afforded to
low-income designated credit unions, such as expanded use of nonmember
deposits and access to the Community Development Revolving Loan Program
for Credit Unions

**III.B. -- "Underserved Area" Defined**

The Federal Credit Union Act defines an "underserved area" as (1) a
"local community, neighborhood, or rural district" that (2) meets the
definition of an "investment area" under section 103(16) of the
Community Development Banking and Financial Institutions Act of 1994
("CDFI"), 12 U.S.C. 4702(16), and (3) is "underserved by other
depository institutions" based on data of the NCUA Board and the federal
banking agencies. 

**III.B.1. -- Local Community**

To be eligible for approval as "underserved," a proposed area must be a
well-defined local community, neighborhood, or rural district as defined
in Chapter 2, sections V.A.1. and V.A.2. of this Manual. However, if the
proposed area qualifies as a community either because it consists of
multiple political jurisdictions with a total population of 500,000 or
less, or is within a Metropolitan Statistical Area ("MSA") that has a
population of 1 million or less, the applicant is not required to submit
a supplemental letter describing how the area meets the standards for
community interaction and/or common interests.

**III.B.2. -- Investment Area**

To be approved as an "underserved area," the proposed area must meet the
CDFI definition of an "investment area." [Id]{.underline}. §4702(16). A
proposed area that, at the time the credit union applies, is designated
in its entirety as an Empowerment Zone or Enterprise Community
(i[d]{.underline}. §1391) automatically qualifies as an "investment
area"; no further criteria of an "investment area" must be met.
[Id]{.underline}. §4702(16)(B). A proposed area that is not designated
as such must qualify as an "investment area" under "the objective
criteria of economic distress" developed by the CDFI Fund ("distress
criteria") based on current decennial U.S. Census data, and also must
have "significant unmet needs" for loans and financial services that
credit unions are authorized to offer to their members.
[Id]{.underline}. §4702(16)(A).

> **III.B.2.a. \-- Economic Distress Criteria**

[Geographic Unit(s) By Proposed Area's Location]{.underline}. The
location of a proposed "underserved area" either within or outside of an
MSA corresponding to the most recent completed decennial census
published by the U.S. Bureau of the Census ("decennial Census")
determines the geographic unit(s) that apply to determine whether the
area meets the distress criteria.

[Within MSA]{.underline}. For a proposed area located, in whole or in
part, within an MSA, the permissible geographic units ("Metro units")
for implementing the economic distress criteria are: (i) a census tract;
(ii) a block group; and (iii) an American Indian or Alaskan Native area.
12 C.F.R. 1805.201(b)(3)(ii)(B) (2008). For ease of implementation, it
is advisable to use a census tract as the proposed area's Metro unit.

[Outside MSA]{.underline}. For a proposed area that is located entirely
outside an MSA, the permissible units ("Non-Metro units") for
implementing the economic distress criteria are: (i) a county or
equivalent area; (ii) a minor civil division that is a unit of local
government; (iii) an incorporated place; (iv) a census tract; (v) a
block numbering area; (vi) a block group; and (vii) an American Indian
or Alaskan Native area. [Id]{.underline}. For ease of implementation, it
is advisable to use either a census tract or county, as the case may be,
as the proposed area's Non-Metro unit.

[Proposed Area Consisting of a Single Metro Unit]{.underline}. A
proposed area consisting of a single whole Metro unit
([e.g.]{.underline}, a single census tract located within an MSA) must
meet one of the following distress criteria, as reported by the most
recent decennial Census:

-   [Unemployment]{.underline}. The proposed area's unemployment rate is
    at least 1.5 times the national average; or

-   [Poverty]{.underline}. At least 20 percent (20%) of the proposed
    area's population lives in poverty; or

-   [Median Family Income]{.underline}. The proposed area's Median
    Family Income ("MFI") is at or below 80 percent (80%) of either the
    MFI of the corresponding MSA, or of the national MFI for Metro
    Areas, whichever is greater; or

-   [Other Criterion]{.underline}. Any other economic distress criterion
    the CDFI Fund may adopt in the future.

[Id]{.underline}. §1805.201(b)(3)(ii)(D)(1), (2)(i) and (3) (2008).

[Proposed Area Consisting of a Single Non-Metro Unit]{.underline}. A
proposed area consisting of a single whole Non-Metro unit
([e.g.]{.underline}, a single county located outside an MSA) must meet
one of the following distress criteria, as reported by the most recent
decennial Census:

-   [Unemployment]{.underline}. The proposed area's unemployment rate is
    at least 1.5 times the national average; or

-   [Poverty]{.underline}. At least 20 percent (20%) of the proposed
    area's population lives in poverty; or

-   [Median Family Income]{.underline}. The proposed area's MFI is at or
    below 80 percent (80%) of either the corresponding state's Non-Metro
    MFI or the national MFI for Non-Metro Areas, whichever is greater;
    or

-   [Other Criterion]{.underline}. Any other economic distress criterion
    the CDFI Fund may adopt in the future.

[Id]{.underline}. §1805.201(b)(3)(ii)(D)(1), (2)(ii) and (3) (2008).
Alternatively, a proposed area consisting of a single Non-Metro county
(located outside an MSA) may instead meet either of the following two
criteria, as reported by the decennial Census:

-   [County Population Loss]{.underline}. County's population loss of at
    least 10 percent (10%) between the most recent and the preceding
    decennial census; or

-   [County Migration Loss]{.underline}. County's net migration loss of
    at least 5 percent (5%) in the 5-year period preceding the most
    recent decennial census.

[Id]{.underline}. §1805.201(b)(3)(ii)(D)(4)-(5) (2008).

[Proposed Area Consisting of Multiple Contiguous Units]{.underline}.
When a proposed area consists of either multiple contiguous Metro units
([e.g.]{.underline}, a group of adjoining census tracts) or multiple
contiguous Non-Metro units ([e.g.]{.underline}, a group of adjoining
counties), a population threshold applies when implementing the economic
distress criteria. At least 85 percent (85%) of the area's total
population must reside within the units that are "distressed,"
[i.e]{.underline}, that meet one of the applicable economic distress
criteria above, as reported by the decennial Census (Unemployment,
Poverty and MFI for census tracts plus, for counties only, Population
Loss and Migration Loss); the balance of the area's population may
reside in the non-"distressed" tract(s). The population threshold is
met, and the whole proposed area qualifies as "distressed," when the
"distressed" units represent at least 85 percent of the area's total
population.

**III.B.2.b -- Proposed Area's "Significant Unmet Needs."**

A proposed area that is "distressed" also must display "significant
unmet needs" for loans or for one or more of the financial services
credit unions are authorized to offer. To meet this criterion, the
credit union must include within its Business Plan a section, one page
in length, entitled "Significant Unmet Needs for Credit Union Services"
("SUN section") that establishes the existence of such unmet needs by
identifying the credit and depository needs of the community and
detailing how the credit union plans to serve those needs. The credit
union may choose which among the following "credit and depository needs"
to address in the SUN section: loans, share draft accounts, savings
accounts, check cashing, money orders, certified checks, automated
teller machines, deposit taking, safe deposit box services, and similar
services. The existence of each "credit and depository need" the credit
union identifies and plans to serve must be supported by objective
reasons and/or accompanying documentation derived from an identified,
authoritative source of the credit union's choice. Third party
documentation generally is the most compelling.

**III.B.3 -- Underserved by Other Depository Institutions**.

A proposed area that meets the CDFI definition of an "investment area"
([i.e]{.underline}, is "distressed" and has "significant unmet needs")
must also be underserved by other insured depository institutions,
including credit unions. 12 U.S.C. 1759(c)(2)(A)(ii). This statutory
criterion is met when the concentration of depository institution
facilities among the population of the proposed area's non-"distressed"
tracts\--which sets a benchmark level of adequate service\--is greater
than the concentration of facilities among the population of all of the
proposed area's census tracts combined. If there are no non-"distressed"
tracts within a proposed area, a non-"distressed" census tract or larger
geographic unit ([e.g.]{.underline}, city or county) of the credit
union's choice that adjoins the proposed area may be used to set the
benchmark concentration ratio.

Without regard to a proposed area's location within or outside an MSA,
this criterion compares two ratios: the ratio of facilities to the
population of the non-"distressed" tracts (the benchmark) versus the
same facilities-to-population ratio among all the tracts of the proposed
area as a whole. If the benchmark ratio is greater than the ratio for
the whole area, then the area is "underserved by other depository
institutions," and vice versa.

**III.C. \-- NCUA Approval**

If NCUA approves the request to add an "underserved area," the credit
union will be issued an amendment to Section 5 of its charter.

**III.D. \-- Approval to Serve an Already Approved "Underserved Area"**
Once a credit union is initially approved to serve an "underserved
area," other credit unions that subsequently apply may be approved to
serve the same area. To be approved, the area must qualify as
"underserved" at the time the new applicant applies. An applicant must
demonstrate the area continues to be "distressed", as provided above,
only if a new decennial Census has been published since the date the
area was last approved. In any case, the applicant must demonstrate that
the area still has "significant unmet needs" for loans or credit union
services (to qualify as an "investment area"), and remains "underserved
by other depository institutions" (to qualify as "underserved").

**III.E. \-- Business Plan.**

A federal credit union that desires to include an underserved community
in its field of membership must first develop, and submit for approval,
a business plan specifying how it will serve the community.  In
addition, the business plan must include a SUN section as provided in
section III.B.2.b. above. The credit union will be expected to regularly
review the business plan to determine if the community is being
adequately served.  The regional director may require periodic service
status reports from a credit union about the "underserved area" to
ensure that the needs of the community are being met, and must require
such reports before NCUA allows a multiple common bond federal credit
union to add an additional "underserved area." 

**III.F. \-- Service Facility.**

Once an "underserved area" has been added to a federal credit union's
field of membership, the credit union must establish within two years,
and maintain, an office or service facility in the community.  A service
facility is defined as a place where shares are accepted for members'
accounts, loan applications are accepted and loans are disbursed.  By
definition, a service facility includes a credit union-owned branch, a
shared branch, a mobile branch, or an office operated on a regularly
scheduled weekly basis or a credit union owned electronic facility that
meets, at a minimum, the above requirements. This definition does not
include an ATM or the credit union's Internet website. 

**IV \-- APPEAL PROCEDURES FOR DENIAL OF UNDERSERVED AREA**

**IV.A. \-- NCUA Disapproval**

When NCUA disapproves any application to add an "underserved area" in
whole or in part, under this chapter, the applicant will be informed in
writing of the:

-   specific reasons for the action;

-   options to consider, if appropriate, for gaining approval; and

-   appeal procedures.

> **IV.B. \-- Appeal of Regional Director Decision**

If the regional director denies an "underserved area" request, the
federal credit union may appeal the decision to the NCUA Board. An
appeal must be sent to the appropriate regional office within 60 days of
the date of denial and must address the specific reason(s) for the
denial. The regional director will then forward the appeal to the NCUA
Board. NCUA central office staff will make an independent review of the
facts and present the appeal to the NCUA Board with a recommendation.

Before appealing, the credit union may, within 30 days of the denial,
provide supplemental information to the regional director for
reconsideration. A reconsideration will contain new and material
evidence addressing the reasons for the initial denial. The regional
director will have 30 days from the date of the receipt of the request
for reconsideration to make a final decision. If the request is again
denied, the applicant may proceed with the appeal process within 60 days
of the date of the last denial. A second request for reconsideration
will be treated as an appeal to the NCUA Board.

[^1]: By definition, a "depository institution" is insured and includes
    credit unions. 12 U.S.C. 461(b)(1)(A)(iv).

[^2]: A proposed area that is currently designated an Empowerment Zone
    or Enterprise Community automatically qualifies as an "investment
    area"; no further "investment area" criteria must be met. 12 U.S.C.
    4702(16)(B). Unexpired Empowerment Zones and Enterprise Communities
    are identified at:
    [www.hud.gov/offices/cpd/economicdevelopment/programs/rc/tour/index.cfm](http://www.hud.gov/offices/cpd/economicdevelopment/programs/rc/tour/index.cfm).
    A "CDFI Worksheet" produced as explained [infra]{.underline} by the
    "My CDFI Fund" website is not a reliable source for current
    Empowerment Zone or Enterprise Community designations.

[^3]: There are two instances in when a credit union must provide a full
    analysis to establish that a proposed area is a well-defined "local
    community." The first is when an area is unable to qualify as a
    community under either the "single political jurisdiction" criterion
    or the multi-jurisdiction/MSA criteria in section V.A.2. The second
    is when the area does qualify as a community under the
    multi-jurisdiction/MSA criteria, but the supplemental letter fails
    to present sufficient evidence of community interaction and/or
    common interests. IRPS 03-1, 73 FR at 34385.

[^4]: It is not necessarily true that conforming the boundaries of a
    proposed area to census tracts will result in fewer and smaller
    approvals. For example, a credit union recently added an
    \"underserved area\" comprising a large part of Los Angeles County,
    CA, which when conformed to census tracts, qualified as distressed
    under population threshold.

[^5]: To ensure consistency with the CDFI Fund's distress criteria,
    which are measured according to the most recent decennial Census,
    the final rule relies solely on the MSA designations that correspond
    to the same decennial census, rather than on the Office of
    Management and Budget's updated annual designations. For MSA
    designations that correspond to the 2000 decennial Census, see
    "Metropolitan Areas and Components, 1999, with FIPS Codes" (6/30/99
    revised 1/28/02) at:
    <http://www.census.gov/population/estimates/metro-city/99mfips.txt>

[^6]: The "My CDFI Fund" website's "Information and Mapping System"
    ("CIMS") is available at:
    <https://www.cdfifund.gov/myCDFI/Organization/Mapping/Mapping.asp>
    The "Welcome to CIMS" page explains the options for identifying
    "CDFI Investment Areas" and a "Mapping System Overview and
    Tutorial." The "My CDFI Fund" website is accessible to registered
    users through an organizational account holder. For instructions on
    how to become a registered user, see
    [http://www.ncarea.gov/CreditUnionDevelopment//Underserved/underserved.html](http://www.ncua.gov/CreditUnionDevelopment//Underserved/underserved.html).
    Under the "Expanding into Investment Areas" section is a link
    entitled "Instructions to Use the CDFI Website."

[^7]: Typically, there is an 18-month lag between the taking of a
    decennial U.S. Census and the publication of the results. Thus, for
    example, the results of the 2000 census became available when
    published in 2002 and will remain the most recent census until the
    results of the 2010 census are published.

[^8]: The "My CDFI Fund" website apparently does not compare a
    geographic unit's MFI against the [national]{.underline} MFI for
    Metro Areas and Non-Metro Areas, as the case may be, which is a
    prescribed alternative. 12 C.F.R. 1805.201(b)(ii)(D)(2). The CDFI
    Fund is working to fix this flaw, but in the meantime a credit union
    can compare a unit's MFI against the national MFI as determined by
    the U.S. Census to determine if that changes the area's initial
    non-"distressed" result. Current national MFI data is available from
    the U.S. Census at: <http://censtats.census.gov/pub/Profiles.shtml>
    (Enter "U.S. Summary" and then "metro").

[^9]: The "My CDFI Fund" website implies that it determines whether a
    proposed area "qualifies as an investment area." It does not. The
    website determines only whether a proposed area's geographic units
    are "distressed." An applicant still must independently demonstrate
    the proposed area's "significant unmet needs for loans," etc., in
    order to qualify as an "investment area."

[^10]: The financial services credit unions are authorized to offer are
    drawn from the CDFI Fund's definition of "financial services" that
    institutions generally offer. 12 C.F.R. 1805.104(v). To these
    financial services, the Fund also added certain "financial products"
    that, except for loans, credit unions do not offer to their members.
    [Id]{.underline}. §1805.104(u) (2008).