73 FR 34366 (June 17, 2008)

**7535-01-U                                                                **

**NATIONAL CREDIT UNION ADMINISTRATION**

**12 CFR Part 701**

**RIN #3133-AD48**

**Organization and Operations of Federal Credit Unions**

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

**ACTION**:    Proposed Rule

**SUMMARY**:  NCUA seeks public comment on four proposals to modify its
Chartering and Field of Membership Manual to update and clarify the
process of approving credit union service to "underserved areas." The
first proposal clarifies the procedure for establishing that an
"underserved area" qualifies as a local community. The second addresses
the application of the economic distress criteria that determine whether
an area combining multiple geographic units is sufficiently "distressed"
to qualify as "underserved." The third would update the documentation
and clarify the scope requirements for demonstrating that a proposed
area has "significant unmet needs" for loans and applicable financial
services. The final proposal recognizes that meaningful data from NCUA
and the federal banking agencies will be available to assess whether an
area is "underserved by other depository institutions."

**[D]{.smallcaps}ates**:  Comments must be received on or before August
18, 2008.

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

-   [Federal eRulemaking Portal]{.underline}: 
    [[http://www.regulations.gov]{.underline}](http://www.regulations.gov/). 
    Follow the instructions for submitting comments.

-   [NCUA Web Site]{.underline}: 
    http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. 
    Follow the instructions for submitting comments.

-   [E-mail]{.underline}:  Address to
    [[regcomments@ncua.gov]{.underline}](mailto:regcomments@ncua.gov). 
    Include "\[Your name\] Comments on Proposed Rule Part 701.1" in the
    e-mail subject line.

-   [Fax]{.underline}:  (703) 518-6319.   Use the subject line described
    above for e-mail.

-   [Mail]{.underline}:   Address to Mary Rupp, Secretary of the Board,
    National Credit Union Administration, 1775 Duke Street, Alexandria,
    Virginia 22314-3428.

-   [Hand Delivery/Courier]{.underline}:  Same as mail address.

**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:**

**I.  BACKGROUND**

In 1998, Congress enacted the Credit Union Membership Access Act
(CUMAA), Pub. L. 105-219, 112 Stat. 914 (1998). Among other things,
CUMAA authorized 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 a local community, neighborhood or rural
district is an "investment area" as defined in the Community Development
Banking and Financial Institutions Act of 1994 ("CDFI Act "), 12 U.S.C.
4702(16), and also that it is "underserved . . . by other depository
institutions."[^1] 12 U.S.C. 1759(c)(2)(A).

The CDFI Act defines an "investment area" as a geographic area that
"encompasses or is located in an empowerment zone or enterprise
community designated under \[26 U.S.C. 1391\]; or that "meets the
objective criteria of economic distress developed by the \[Community
Development Financial Institutions\] Fund" ("CDFI Fund") and also "has
significant unmet needs for loans or equity investments." 12 U.S.C.
4702(16). The Fund established "criteria of economic distress" and
implemented the "significant unmet needs" criterion by regulation. 12
C.F.R. 1805.201(d) and (e) (1998); 12 C.F.R. 1805.104(dd) (1998).

To reflect the enactment of CUMAA and its introduction of "underserved
areas," NCUA revised its Chartering and Field of Membership Manual
("Chartering Manual") in 1998, replacing the previous authority to serve
low-income communities and associations. 12 C.F.R. 701.1 (1999). As
revised, the Chartering Manual implemented the statutory definition of
"underserved area" and incorporated the then-existing CDFI criteria for
establishing a "distressed" area. 63 FR 71998 (December 30, 1998). Those
criteria addressed median family income, poverty, unemployment,
distressed housing, county population loss, and significant unmet needs
for loans and equity investments. 63 FR at 72015, 72042.

Anticipating the possibility of periodic additions to the then-existing
distress criteria, the Chartering Manual incorporated by reference other
criteria that the CDFI Fund might establish in the future. 67 FR 20013,
20017 (April 24, 2002). The distress criteria that apply today are the
same ones that applied in 1998, except that the "distressed housing"
criterion has been replaced by county "net migration loss." 12 C.F.R.
1805.201(b)(3)(D)(5) (2008).

The proposed rule (Interpretive Ruling and Policy Statement 08-2) is
intended to update and clarify the existing process of approving credit
union service to "underserved areas." Public comments on the proposed
modifications are welcome. To facilitate the consideration of these
comments, the NCUA Board urges commenters to organize and label their
comments to correspond to the topics and issues discussed below.

**II.   DISCUSSION OF PROPOSED RULE**

A. [Definition of a Local Community]{.underline}.

To be eligible for approval as an "underserved area," a proposed area
first must qualify as a "local community, neighborhood or rural
district" ("local community"). 12 U.S.C. 1759(c)(2)(A); S. Rep. No. 193,
105^th^ Cong., 2d Sess. 6 (1998); H.R. Rep. No 105-472, 105^th^ Cong.,
2d Sess. 19 (1998). The Chartering Manual's criteria for establishing a
"local community" for "underserved area" purposes deviates somewhat from
the "well-defined local community" criteria elsewhere in the Manual.

When a proposed area qualifies as a "presumptive community" (multiple
political jurisdictions with a total population of 500,000 or less; or
an area within a Metropolitan Statistical Area with a population of 1
million or less) the Chartering Manual's chapter on community chartering
requires a credit union to complete the presumption by submitting a
letter "describing how the area meets the standards for community
interaction and/or common interests" within in the proposed area.[^2]
*Id.* Ch. 2, §V.A.1. The chapter on "underserved areas" does not require
an equivalent letter to establish that a proposed "underserved area" is
a "presumptive community." Manual, Ch. 3, §III.A.

The disparity concerning the letter supporting a "presumptive community"
provides an opportunity to reconsider whether the letter is needed at
all to establish a local community in the context of either a community
charter or an "underserved area." The original purpose of the letter in
the community charter context was to supplement the record with
qualitative evidence of interaction and common interests within the
community. The NCUA Board invites public comment on whether a supporting
letter is necessary to further that purpose when a multiple group credit
union seeks to add an "underserved area." To ensure consistency, the
proposed rule revises the chapter on "underserved areas" to incorporate
the definition of "well defined local community" set forth in the
chapter on community chartering. That definition will be revised
depending on the Board's evaluation of the comments received on the
letter requirement.

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

The proposed rule addresses the practical incompatibility between credit
union service to a local community and the CDFI Fund's economic distress
criteria that apply to determine whether a proposed area is an
"investment area," thus qualifying it as "underserved." To qualify as a
"local community, neighborhood or rural district," the proposed area
must be a "single, well-defined" area so as to facilitate the mandatory
interaction and common interests that signify a common bond among its
residents. 65 FR 37065, 37072, 37082 (June 13, 2000). This has always
meant that the parts of a proposed area must be contiguous, regardless
of any other prerequisites for credit union service that apply. Because
of this restriction, NCUA evaluates a "local community, neighborhood or
rural district"---whether seeking approval as an "underserved area" or
otherwise---strictly as a single, unified entity.

In several respects, the "single unified entity" approach is
incompatible with the "geographic units" the CDFI Fund utilizes to apply
its economic distress criteria. First, the areas that the CDFI Fund is
asked to certify as "investment areas" conform from the outset to
prescribed census units (e.g., tracts or blocks) or political
subdivisions, allowing each such geographic unit or group of units to be
treated as a separate "investment area." 12 C.F.R. 1805.201(b)(3)(ii)(B)
(2008). In contrast, an "underserved area" that a credit union proposes
to add may be drawn without regard to prescribed geographic units or
political boundaries, reflecting the area's status as a single unified
entity ([i.e.]{.underline}*,* a well-defined community). Second, the
proposed area's boundaries may be nontraditional, consisting of a
riverbank, a railroad line or an interstate highway, for example. 63 FR
at 72038-72039. Further, the proposed area may even bisect the
traditional geographic units and political subdivisions upon which the
CDFI Fund relies. Finally, when evaluating an "investment area," the
CDFI Fund considers only the number of persons who reside there. In
contrast, when deciding whether to add a proposed area to its field of
membership, a credit union considers potential membership from among the
persons who reside, work, worship or attend school there. These
distinctions tend to complicate the translation of a proposed
"underserved area" into the geographic units envisioned by the CDFI
Fund's economic distress criteria.

In the decade since CUMAA, a plethora of economic and demographic data
has become available over the Internet, and there has been a manifold
increase in the number of people who have Internet access. Convenient
on-line access to relevant data has considerably simplified the task of
translating an "underserved area" into the geographic units that the
CDFI Fund uses to apply the economic distress criteria that define an
"investment area." Therefore, this proposed rule revisits NCUA's rules
for qualifying an "underserved area" primarily to update and conform its
approach to present circumstances.

As a preliminary matter, a proposed area qualifies as an "investment
area" without regard to the economic distress and "significant unmet
needs" criteria if it is presently designated an "Empowerment Zone" or
an "Enterprise Community." 12 C.F.R. 1805.201(b)(3)(ii)(A)(3).
Empowerment Zones and Enterprise Communities were designated by the U.S.
Department of Housing and Urban Development and the U.S. Department of
Agriculture between 1993 and 1996. These designations have since largely
expired,[^3] so most proposed areas will not be able to bypass the
economic distress and "significant unmet needs" criteria of an
"investment area."

For proposed areas that do not benefit from an Empowerment Zone or
Enterprise Community designation, the availability of certain on-line
resources will make it easier to apply the economic distress criteria.
The on-line resources that correspond to each step are discussed below
and the internet address of each is cited in the footnotes. In any case,
it is useful to understand in a step-by-step progression how the
economic distress criteria operate.

[Metro or Non-Metro Location]{.underline}. The initial step is to
determine whether a proposed area is located within or outside a
"Metropolitan Area" as designated by the Office of Management and Budget
("OMB"). 12 C.F.R. 1805.104(ff). In practice, the CDFI Fund deems a
proposed area to be located within a Metropolitan Area if it is located
within an OMB-designated "Metropolitan Statistical Area" ("MSA"), and
vice versa. 44 U.S.C. 3504(e)(3)(E). OMB updates its MSA designations
annually; however, to ensure consistency with the CDFI Fund's distress
criteria, which are measured according to the most recent decennial
Census, the proposed rule relies solely on the MSA designations that
correspond to the same decennial census, rather than on updated
designations.[^4]

The location within or outside a Metropolitan Area dictates the
"geographic unit(s)" into which the proposed area must be translated in
order to apply the economic distress criteria. The geographic units
prescribed for a Metropolitan area ("Metro units") are a census tract, a
block group, and an American Indian or Alaskan Native area. 12 C.F.R.
1805.201(b)(3)(ii)(B) (2008). The geographic units prescribed for a
Non-Metropolitan area ("Non-Metro units") are a county (or equivalent
area), a "minor civil division that is a unit of local government," an
incorporated place, a census tract, a block numbering area, a block
group, or an American Indian or Alaskan Native area. [Id]{.underline}.
In either case, the proposed area must consist entirely of whole Metro
or Non-Metro units; it cannot consist of fractional units (e.g., half of
a census tract or half of a county). A proposed area that is partly
within and partly outside a Metropolitan Area ([e.g.]{.underline}, that
straddles an MSA's boundary) must be evaluated using Metro units because
they are the largest permissible unit that is common to all parts of the
area.

[Single Metro or Non-Metro Unit]{.underline}. To qualify as an
"investment area," a proposed area consisting of a single whole Metro
unit ([e.g.]{.underline}, a single census tract) or a single whole
Non-Metro unit ([e.g]{.underline}., a single county) must as a whole
meet one of the following distress criteria, as reported by the most
recent decennial census published by the U.S. Bureau of the Census
("decennial Census"):

-   [Unemployment]{.underline}. Unemployment rate at least 1.5 times the
    national average; or

-   [Poverty]{.underline}. At least 20 percent (20%) of the population
    lives in poverty.

12 C.F.R. 1805.201(b)(3)(ii)(D)(1) and (3) (2008).

If the proposed area consists of a single Metro unit of any kind, it may
also meet the following criterion, as reported by the most recent
decennial Census:

-   [Metro Area Median Family Income]{.underline}. Median family income
    ("MFI") at or below 80 percent (80%) of either the Metro Area's MFI
    or the national Metro Area MFI, whichever is greater.

If the proposed area consists of a single Non-Metro unit of any kind, it
may also meet the following criterion, as reported by the most recent
decennial Census:

-   [Non-Metro Area Median Family Income]{.underline}. MFI at or below
    80 percent (80%) of either the statewide Non-Metro Area's MFI or the
    national Non-Metro Area MFI, whichever is greater.

12 C.F.R. 1805.201(b)(3)(ii)(D)(2)(i) and (ii) (2008).

Finally, if the proposed area consists of a single Non-Metro county, it
may meet one of the following two additional criteria, as reported by
the most recent 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.

12 C.F.R. 1805.201(b)(3)(ii)(D)(4) and (5) (2008).

[Multiple Contiguous Metro or Non-Metro Units]{.underline}. If a
proposed area consists of 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), the area is subject to a population threshold that does not
apply to a proposed area consisting of a single unit. Thus, when a
proposed area consists of multiple contiguous units, at least 85 percent
(85%) of the area's total population must reside within the units that
"together meet one of the \[applicable distress\] criteria" set forth
above ("the 85% population threshold"). 12 C.F.R.
1805.201(b)(3)(ii)(C)(2) (2008).

The language of the 85% population threshold suggests that all of the
"distressed" units must qualify as such under the s*ame* criterion, but
in practice, the CDFI Fund allows each "distressed" tract within a group
to qualify under any one of the criteria. Also, the decennial Census
itself does not apply the 85% population threshold to a proposed area
consisting of multiple contiguous units; it only reports whether an
individual unit meets an applicable distress criterion.

A proposed area consisting either of a single Metro or Non-Metro unit,
or of multiple contiguous units in which the "distressed" units
represent at least 85 percent of the area's population, will meet the
definition of an "investment area" provided that, as explained below, it
also has "significant unmet needs" for loan products and applicable
financial services.

[Resources for Determining If Distress Criteria Are Met]{.underline}.
The CDFI Fund's "My CDFI Fund" website is an invaluable resource for
determining whether a proposed area is "distressed," but only if the
area's unit(s) conform to one or more census tracts or counties, or to
an independent city (which is treated as equivalent to a county); the
site is not equipped to analyze any other kind of geographic unit.[^5]
Using its "Information and Mapping System" feature, the "My CDFI Fund"
website allows the user to enter selected units that it then analyzes
individually and as a proposed area. The analysis reflects the most
recent decennial Census data.[^6] The results are displayed on a
comprehensive "Investment Area/Hot Zone Worksheet" ("IA Worksheet").

For each unit individually, the IA Worksheet shows: whether it is
located within an MSA; its total population; its poverty rate; the
percent of benchmark MFI; the unemployment rate; and most importantly,
whether the unit is "distressed" under the distress criteria.[^7] For
the proposed area as a whole, the IA Worksheet shows: whether the
population of the non-"distressed" units population is less than 15
percent of the whole area's population (i.e., applies the 85% population
threshold); the exact percentage of the area's population that resides
in the non-"distressed" units; the total population of the
non-"distressed" units; and whether the combined units are contiguous.
When the IA Worksheet indicates that a proposed area does not qualify as
"distressed," none of these details is provided.

At present, the "My CDFI Fund" website's analysis is the most
expeditious means of establishing that a proposed area is sufficiently
"distressed," thus conserving credit union resources. To benefit from
the convenience of the "My CDFI Fund" website, the NCUA Board encourages
credit unions to conform their proposed "underserved areas" to the
"geographic units" the site is limited to\--census tract and county
boundaries, as the case may be.

[Approval to Serve an Already Approved "Underserved Area"]{.underline}.
Once a credit union is initially approved to serve an area that
qualifies as "underserved," other credit unions may be approved to serve
the area provided it is "underserved" at the time they apply. The
proposed rule "grandfathers" all credit unions approved to serve an area
while it qualifies as "underserved," allowing them to continue serving
that area in the event it no longer qualifies. To terminate the approval
to serve an area that no longer is "underserved" area would penalize the
credit union for its efforts to bring an adequate level of service to
the area.

An area that previously was approved as "underserved" may still qualify
as "distressed" when the proposed rule is applied using the decennial
Census in effect when the new applicant applies. When that is the case,
the new applicant must show at the time it applies that the area still
has "significant unmet needs for loans and financial services (to
qualify as an "investment area") and still is "underserved by other
depository institutions" (to qualify as "underserved"). These criteria
may become more difficult to meet as the number of depository
institutions serving the area increases.

[Issues for Comment]{.underline}. The NCUA Board invites public comment
on the application of the economic distress criteria, including whether
a proposed area should be required to conform to county or census tract
boundaries, as the case may be, so that that census tracts apply
uniformly to areas located within a Metropolitan Area, and counties
apply uniformly to areas located outside a Metropolitan Area.

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

Apart from applying the economic distress criteria, the CDFI Fund
definition of an "investment area" requires a showing of "significant
unmet needs for loans or equity investments" within the proposed area.
12 U.S.C. 4702(16)(A)(ii). Because credit unions are not authorized to
offer equity investments, the scope of this "unmet needs" test initially
was limited by definition to the unmet needs for loans. [^8] In
implementing the "significant unmet needs test," the CDFI Fund added the
alternative of addressing the unmet needs for a range of financial
services including many 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 other similar services.[^9] 12 C.F.R.
1805.102(b)(3)(ii)(A)(2).

From 1998 through 2000, NCUA permitted the "significant unmet needs"
showing to be made through the business plan required to be developed by
a credit union seeking to add an "underserved area." 63 FR at 72042. The
business plan already was required to "identify the credit and
depository needs of the community and detail how the credit union plans
to serve those needs." [Id.]{.underline} For that reason, NCUA revised
its policy to recognize that a proposed area that is "distressed" is
presumed to have "significant unmet needs." 65 FR 64512, 64518 (Oct. 27,
2000).

Since the enactment of CUMAA, the CDFI Fund has modified the
documentation and scope requirements for a proposed area to meet the
"significant unmet needs" test. "Studies or other analyses" were
originally required to "adequately demonstrate a pattern of unmet needs
for loans and equity investments." 12 C.F.R. 1805.301(e) (1998). As
modified, a "narrative analysis" is the only supporting documentation
now required. 12 C.F.R. 1805.201(b)(3)(ii)(E) (2008). In practice, the
CDFI Fund accepts a one-page narrative statement describing the
significant unmet capital or financial services a proposed area. "CDFI
Certification Application" (June 2007) at 11. The analysis must be
supported by relevant statistical evidence. There are no definitive
standards of evaluation; the statements are evaluated on a case-by-case
basis.

Instead of a presumption of "significant unmet needs," the proposed rule
revises the Chartering Manual to require a credit union to support its
"underserved area" application with a one-page "narrative statement"
demonstrating a pattern of "significant unmet needs" in the proposed
area for loans or for one or more of the financial services that credit
unions are authorized to offer. However, a credit union may choose which
of these services to address and need not address all of them.

Under the proposed rule, the narrative statement on "significant unmet
needs" must be supported by relevant, objective statistical data
reflecting, among other things, loan and financial services activity in
the proposed area\--much of which is now publicly available over the
Internet. The narrative statement also may be supplemented by objective
testimonial evidence. The supporting data and evidence should be
appended to the narrative statement.

In addressing a proposed area's unmet needs, for example, a credit union
might focus on the need for cash operations to replace check cashing
outlets and on the need for personal loans at reasonable rates to
replace pawn brokers, payday lenders and rent-a-centers. To support such
a Narrative Statement, the credit union might rely on statistics and
conclusions about these needs published by the proposed area's Chamber
of Commerce.

[Issues for Comment]{.underline}. Public commenters are invited to
address the "significant unmet needs" criterion, including whether the
Narrative Statement should be integrated into the Business Plan a credit
union is already required to submit. Further, the NCUA Board asks
commenters to identify available statistical data that would assist
credit unions in demonstrating the unmet needs for loans and credit
union services in a proposed area.

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

The CDFI Fund's "significant unmet needs" test focuses on the need for
products and services within a proposed area. In contrast, CUMAA's
demand that a proposed area be "underserved . . . by other depository
institutions" focuses on the presence of *providers* of products and
services within the area. CUMAA did not specify a methodology for
determining whether a proposed area meets this test; instead, it broadly
refers to unspecified "data of the \[NCUA\] Board and the Federal
banking agencies." 12 U.S.C. 1759(c)(2)(A)(ii).

In the decade since CUMAA, raw data has accumulated within government on
branch locations and the volume of business in certain products and
services, but meaningful and reliable data on these points has only
recently become readily accessible. This data makes it possible to
quantify and compare the presence of financial institution facilities in
a given area. The proposed rule suggests a flexible methodology that
relies on publicly available population data and data on the location of
financial institution branches.

[Concentration of Facilities]{.underline}. The proposed methodology
compares two measures to determine whether an area is adequately served
according to the concentration of depository institution facilities
within the area. The first measure\--which sets a benchmark level of
adequate service\--is the ratio of depository institution facilities to
the population of the non-"distressed" tracts in a proposed area,
regardless whether those tracts are contiguous. In cases where there are
no non-"distressed" tracts within a proposed area, a non-"distressed"
tract or larger unit immediately adjoining the proposed area (e.g.,
county or city) may be used to set the benchmark ratio. The second
measure is the ratio of facilities to the combined population of all of
the tracts within the proposed area.

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

Concentration of Depository Institution Facilities

+--------------+-----------------+-----------------+-----------------+
|              | A               | B               | C               |
+--------------+-----------------+-----------------+-----------------+
| *Example     | *Benchmark      | *"Underserved"* | *Not            |
| of:*         | ratio*          |                 | "Underserved"*  |
+--------------+-----------------+-----------------+-----------------+
|              | *N              | *All census     | *All census     |
|              | on-"distressed" | tracts in       | tracts in       |
|              | census tracts   | proposed area*  | proposed area*  |
|              | only*           |                 |                 |
+--------------+-----------------+-----------------+-----------------+
| Facilities   | 100             | 571             | 800             |
|              |                 |                 |                 |
| (numerator)  |                 |                 |                 |
+--------------+-----------------+-----------------+-----------------+
| Population   | 15,000          | 100,000         | 100,000         |
|              |                 |                 |                 |
| (            |                 |                 |                 |
| 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) |                 |                 |                 |
+--------------+-----------------+-----------------+-----------------+

The proposed methodology does not distinguish between Metro and
Non-Metro locations, and need not be limited to census tracts as its
unit of measure for each ratio. Census tracts are proposed as the unit
of measure, however, because most credit unions are likely to have
already used them in determining whether the proposed area is
sufficiently "distressed," and thus will be familiar with the data and
data sources associated with the tracts within the area.

[Data on Population and Location of Facilities]{.underline}. Current
tract-by-tract population data is available on-line from the "My CDFI
Fund" website's IA Worksheet or from the most recent decennial Census
itself. Current data on the location of facilities of institutions
insured by the Federal Deposit Insurance Corporation ("FDIC") or
regulated by the Office of Thrift Supervision is available on-line on
the FDIC's "Summary of Deposits" webpage sorted by state, county and
MSA.[^10] Current data on the location of credit union facilities is
collected by NCUA annually from a credit union's "Report of Officials."
NCUA plans to organize that data and make it available on-line at the
NCUA website. This data can be sorted manually on a tract-by-tract
basis.

[Issues for Comment]{.underline}. Public commenters are invited to
address the "underserved by other depository institutions" criterion,
including whether the facilities of such institutions should be defined
to include ATMs and shared branches. Further, the NCUA Board asks
commenters to suggest methodologies other than the concentration of
facilities to assess whether a proposed area is "underserved by other
depository institutions," and to identify sources of data on the
location depository institution facilities that is sorted by census
tract.

E.  [Service Status Reports.]{.underline}

The current rule authorizes NCUA's regional directors to obtain from
FCUs adding "underserved areas" reports on their success in serving
members in these areas. Manual, Ch. 3, §III.A. Some commenters have in
the past recommended that NCUA affirmatively require these reports. That
issue is not addressed in this proposed rulemaking because the Board is
as a separate matter considering recommendations of NCUA's Outreach Task
Force that would call for NCUA to obtain information from credit unions
on member income levels and products and services offered to members,
and to organize the data by census tract. Consideration of the issue in
this rulemaking would therefore be an unnecessary duplication.

F. [Pending Applications to Serve an "Underserved Area"]{.underline}.

If, as a result of its review of public comments on this proposed rule,
the NCUA Board adopts a final rule modifying the current Chartering
Manual, the modifications will apply prospectively. Pending applications
for approval to serve an "underserved area" and applications received
after the date of publication of this rule will be deferred until the
rulemaking process is completed.

**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).  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]{.underline}

This proposed 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. This proposed rule
mandates certain specific information that must be included in the
application. NCUA requests public comment on all aspects of the
collection of information in this proposed rule. Based upon past
experience NCUA anticipates approximately 100 applications per year.
Given the type of information required to be included in the
application, NCUA estimates a burden of 8 hours per application and will
revisit this estimate in light of the comments NCUA receives.

NCUA will submit the collection of information requirements contained in
this proposed rule to the Office of Management and Budget (OMB) in
accordance with the Paperwork Reduction Act of 1995. 44 U.S.C. 3507.
NCUA will use any comments received to develop its new burden estimates.
Comments on the collections of information should be sent to Office of
Management and Budget, Reports Management Branch, New Executive Office
Building, NCUA Desk Officer, Room 10202, 725 17^th^ St., NW, Washington,
D.C. 20503; or by fax to (202) 395-6974; Attention: Desk Officer for
NCUA. Please send NCUA a copy of any comments you submit to OMB.

NCUA made the following assumptions about this proposed rule:

-   The likely respondents are multiple common bond federal credit
    unions.

-   Estimated annual number of respondents: 100**.**

-   Estimated average annual burden hours per respondent: 8 hours.

-   Estimated total annual disclosure and recordkeeping burden: 800
    hours**.**

In addition to comments on the proposed rule, NCUA invites comment on:

-   The accuracy of NCUA\'s estimate of the burden of the information
    collections;

-   Ways to minimize the burden of the information collections on
    Federal credit unions, including the use of automated collection
    techniques or other forms of information technology; and

-   Estimates of capital or start‑up costs and costs of operation,
    maintenance, and purchase of services to provide information.

Recordkeepers are not required to respond to this collection of
information unless it displays a currently valid OMB control number.
NCUA is currently requesting a control number for this information
collection from OMB.

[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 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 this proposed rule 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 proposed 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).

**List of Subjects**

**12 CFR Part 701**

Credit, Credit unions, Reporting and record keeping requirements

By the National Credit Union Administration Board on May 22, 2008.

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

                                                              Mary Rupp

                                                               Secretary
of the Board

For the reasons stated above, 12 CFR Part 701 is proposed to be 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 proposed rule, the
rule text below will be reflected in Chapter 3, Subchapter III, of the
*Manual* published as an Appendix to Part 701. [See]{.underline} 73 FR
34366, 34388 (June 17, 2008).

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:

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," if approved
as provided below. 

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. 

\(1\) [Local Community]{.underline}. 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.

\(2\) [Investment Area]{.underline}. To be approved as an "underserved
area," the proposed area must meet the CDFI definition of an "investment
area." 12 U.S.C. 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 (12 U.S.C. 1391) automatically qualifies as an
"investment area"; no further criteria must be met. 12 U.S.C.
4702(16)(B).

Otherwise, to qualify as an "investment area," the proposed area must
meet "the objective criteria of economic distress" developed by the CDFI
Fund ("distress criteria"), and also must demonstrate that the area has
"significant unmet needs" for loans and financial services credit unions
are authorized to offer to their members. 12 U.S.C. 4702(16)(A).

\(3\) [Location of Proposed "Underserved Area"]{.underline}. The
location of a proposed area either within or outside of a Metropolitan
Area determines the geographic unit(s) a credit union must apply to
determine whether the area meets the distress criteria. An area is
deemed to be Metropolitan if it is located, in whole or in part, within
a "metropolitan statistical area" ("MSA") that corresponds to the most
recent completed decennial census published by the U.S. Bureau of the
Census ("decennial Census"); an area that is located entirely outside
such an MSA is deemed to be Non-Metropolitan.

For a Metropolitan proposed area, the permissible units ("Metro units")
for implementing the economic distress criteria are: a census tract, a
block group, and an American Indian or Alaskan Native area . 12 C.F.R.
1805.201(b)(3)(ii)(B) (2008). For a Non-Metropolitan proposed area, the
permissible units ("Non-Metro units") are: a county (or equivalent
area), a minor civil division that is a unit of local government, an
incorporated place, a census tract, a block numbering area, a block
group, or an American Indian or Alaskan Native area. [Id]{.underline}.
When possible, it is advisable to use a census tract as the proposed
area's Metro unit and either a census tract or county as its Non-Metro
unit, as the case may be.

\(4\) [Proposed Area Consisting of a Single Metro Unit]{.underline}. A
proposed area consisting of a single whole unit, either Metro
([e.g.]{.underline}, a single census tract) or Non-Metro
([e.g]{.underline}., a single county), must meet one of the following
distress criteria, as reported by the most recent decennial Census:

-   [Unemployment]{.underline}. Unemployment rate at least 1.5 times the
    national average; or

-   [Poverty]{.underline}. At least 20 percent (20%) of the population
    lives in poverty.

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

12 C.F.R. 1805.201(b)(3)(ii)(D)(1) and (3) (2008).

If the proposed area consists of a single Metro unit of any kind, it may
also meet the following criterion, as reported by the most recent
decennial Census:

-   [Metro Area Median Family Income]{.underline}. Median family income
    ("MFI") at or below 80 percent (80%) of either the Metro Area's MFI
    or the national Metro Area MFI, whichever is greater.

If the proposed area consists of a single Non-Metro unit of any kind, it
may also meet the following criterion, as reported by the most recent
decennial Census:

-   [Non-Metro Area Median Family Income]{.underline}. MFI at or below
    80 percent (80%) of either the statewide Non-Metro Area's MFI or the
    national Non-Metro Area MFI, whichever is greater.

12 C.F.R. 1805.201(b)(3)(ii)(D)(2)(i) and (ii) (2008).

Finally, if a Non-Metro proposed area consists of a single county, it
may meet one 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.

12 C.F.R. 1805.201(b)(3)(ii)(D)(4)-(5) (2008).

\(5\) [Proposed Area Consisting of Multiple Contiguous
Units]{.underline}. A proposed area consisting of multiple contiguous
units, either Metro ([e.g.]{.underline}, a group of adjoining census
tracts) or Non-Metro ([e.g.]{.underline}, a group of adjoining
counties), is subject to a population threshold 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}, 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 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.

\(6\) [Proposed Area's "Significant Unmet Needs" for Loans and Financial
Services]{.underline}. A proposed area that is "distressed" also must
display "significant unmet needs" for loans or one or more of the
following financial services credit unions are authorized to offer:
share draft accounts, savings accounts, check cashing, money orders,
certified checks, automated teller machines, deposit taking, safe
deposit box services, and other similar services ("credit union
services"). To meet this criterion, the credit union must submit for
NCUA approval a one-page "Narrative Statement of Unmet Needs"
("Narrative Statement") indicating a pattern of unmet needs in the
proposed area for loans or one or more credit union services. The credit
union may choose which credit union services to address and need not
address all of them.

The Narrative Statement must be supported by relevant, objective
statistical data reflecting, among other things, financial, demographic,
economic or loan activity pertaining to the proposed area. The
supporting statistical data (which should be appended to the Narrative
Statement) may be supplemented by objective testimonial evidence.

\(7\) [Underserved by Other Depository Institutions]{.underline}. 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 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, an immediately adjoining non-"distressed" census
tract or larger unit ([e.g.]{.underline}, city or county) may be used to
set the benchmark concentration ratio.

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

\(8\) [Approval to Serve an Area Already Approved as
"Underserved"]{.underline}. 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. Thus,
that applicant will have to demonstrate as provided above that the area
still is "distressed" according to the decennial Census then in effect,
and still has "significant unmet needs for loans or credit union
services (to qualify as an "investment area"). Finally, the new
applicant must demonstrate that the area still is "underserved by other
depository institutions" (to qualify as "underserved").

\(9\) [Service Facility]{.underline}. 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 web site. 

\(10\) [Business Plan]{.underline}. A federal credit union that desires
to include an underserved community in its field of membership must
first develop a business plan specifying how it will serve the
community.  The business plan, at a minimum, must explain how the credit
union plans to fulfill the unmet needs for loans and credit union
services identified in its Narrative Statement. 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 as well as requiring such reports before NCUA allows a multiple
common bond federal credit union to add an additional "underserved
area." 

\(11\) [Low Income Benefits]{.underline}. A multiple common bond federal
credit union that serves an "underserved area" will not be able 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. 

[^1]: A "depository institution" is defined to include insured credit
    unions. 12 U.S.C. 461(b)(1)(A)(iv).

[^2]: When the letter supporting a "presumptive community" fails to
    present sufficient evidence of community interaction and/or common
    interests, the credit union may be required to provide a full
    analysis to support that the area is a well-defined local community.
    Manual, Ch. 2, §V.A.1.

[^3]: 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).
    At this link, select a state from the map or list, then select from
    the "RC/EZ/EC Communities" shown to generate a map of the designated
    areas.

[^4]: 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>

[^5]: 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.ncua.gov/CreditUnionDevelopment//Underserved/underserved.html>.
    Under the "Expanding into Investment Areas" section is a link
    entitled "Instructions to Use the CDFI Website."

[^6]: 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.

[^7]: The "My CDFI Fund" website implies that it determines whether a
    proposed area "qualifies as an investment area." If so, it would not
    be necessary for an applicant to meet a further
    criterion\--demonstrating "significant unmet needs for loans," etc.,
    within the proposed area. In fact, it is apparent that the website
    determines only whether a unit or proposed area is "distressed,"
    meaning that an applicant still must independently demonstrate the
    proposed area's "significant unmet needs for loans," etc., in order
    to qualify as an "investment area."

[^8]: Credit unions are not authorized to offer "equity investments,"
    which are defined to include "a stock purchase, a purchase of a
    partnership interest, a purchase of a limited liability company
    membership interest, a loan made on such terms that it has
    sufficient characteristics of equity \[and\] a purchase of secondary
    capital." 12 C.F.R. 1805.104(t) (2008).

[^9]: 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) (2008). To these
    financial services, the Fund also added certain "financial products"
    that, except for loans, credit unions do not offer to their members.
    12 C.F.R. 1805.104(u) (2008).

[^10]: FDIC Summary of Deposits webpage:
    <http://www2.fdic.gov/sod/sodSummary.asp?barItem=3>