[Federal Register Volume 76, Number 37 (Thursday, February 24, 2011)]
[Rules and Regulations]
[Pages 10209-10212]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-4071]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 704

RIN 3133-AD80


Corporate Credit Unions

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final Interpretive Ruling and Policy Statement 11-02.

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SUMMARY: The NCUA Board is issuing a final Interpretive Ruling and 
Policy Statement (IRPS) setting forth the requirements and process for 
chartering corporate Federal credit unions.

DATES: This IRPS is effective March 28, 2011.

FOR FURTHER INFORMATION CONTACT: Lisa Henderson, Staff Attorney, Office 
of General Counsel, at the address above or telephone: (703) 518-6540; 
or Dave Shetler, Deputy Director, Office of Corporate Credit Unions, at 
the address above or telephone: (703) 518-6640.

SUPPLEMENTARY INFORMATION:

A. Background

    NCUA recently finalized changes to its Corporate Credit Union Rule, 
12 CFR part 704. 75 FR 64786 (October 20, 2010). These changes, as well 
as NCUA's other efforts to resolve the problems created by the legacy 
assets remaining in the corporate credit union (corporate) system, are 
likely to result in a fundamental restructuring of that system. As part 
of this restructuring, NCUA believes that some groups of natural person 
credit unions (NPCUs) may wish to form new corporates. Previous 
corporate chartering guidance had been withdrawn; accordingly, on 
September 24, 2010, the NCUA Board issued a proposed IRPS setting forth 
the requirements and process for chartering corporate Federal credit 
unions (FCUs). 75 FR 60651 (October 1, 2010).
    The proposed IRPS set forth requirements for prospective new 
corporate FCUs and NCUA's standards for evaluating applications. It 
also included detailed timelines for processing charter applications.
    The public comment period for the proposed IRPS closed on November 
1, 2010. NCUA received six comment letters on the proposed IRPS. The 
commenters generally supported the IRPS but asked for clarification 
regarding certain provisions and/or suggested minor changes.

B. Comments

General Comments

    One commenter observed that the Board has suggested the possibility 
of permitting special purpose corporates and asked whether the IRPS 
would apply to an entity organized as a special purpose corporate. The 
Board notes that any entity chartered as a ``corporate credit union'' 
would be subject to the IRPS.

Specific Comments

Section II--Subscribers
    This section of the proposed IRPS provided that seven or more 
natural person representatives of natural person credit unions 
(NPCUs)--``the subscribers''--may charter a corporate FCU.
    Two commenters stated that it was not clear whether each natural 
person subscriber must represent a different NPCU. They recommended a 
clarification requiring at least seven subscribers from at least seven 
different NPCUs but that there be some latitude, on a case-by-case 
basis, for the subscribers to represent fewer NPCUs. The Board believes 
it is important that, without exception, each natural person subscriber 
represent a different NPCU, and has clarified the final IRPS 
accordingly. This requirement furthers the goal of developing broad 
membership support for any potential new charter and is consistent with 
the requirement in Sec.  704.14(a)(4) of the NCUA Regulations that no 
individual may serve on the board if any corporate member would have 
more than one representative on the board. 12 CFR 704.14(a)(4).
Section III--Economic Advisability; Subsection B--Proposed Management's 
Character and Fitness
    This subsection of the proposal provided that NCUA would conduct 
background and credit investigations on prospective officials and 
employees to establish each applicant's character and ability to 
effectively handle financial matters. The proposal listed some factors 
that could lead to disapproval of a prospective official or employee, 
including criminal convictions, indictments, acts of fraud and 
dishonesty, serious or unresolved past due credit obligations, and 
bankruptcies. This subsection also noted that NCUA needs assurance that 
the management team would have the requisite skills--including 
leadership--to make the proposed corporate a success.
    One commenter suggested that instead of providing factors NCUA may 
consider, the IRPS should state that these factors are the only ones 
NCUA will consider. The commenter further stated that an indictment 
alone should not be a factor, as an individual might not be convicted. 
The Board declines to change the list of factors or to make them 
exclusive. To help ensure that corporate officials and employees have 
the highest integrity, NCUA needs to have the flexibility to consider 
any and all matters that may bear on an applicant's character, 
including indictments and other factors that might not be listed. No 
one factor is necessarily dispositive, however, and depending on the 
circumstances, the fact that an applicant has been indicted might not 
lead to his or her disapproval.
    One commenter stated that ``leadership'' should not be included as 
a factor, as the IRPS does not provide the criteria NCUA would use to 
assess leadership quality. The commenter pointed to Sec.  701.14 of the 
NCUA Regulations, governing change in officials of newly-chartered or 
troubled condition credit unions. Paragraph (e) of that section allows 
NCUA to disapprove an individual's service based on his or her 
``competence, experience, character, or integrity.'' The commenter 
suggested that these criteria should be the focus of NCUA's evaluation 
of prospective corporate officials. The Board disagrees. As noted 
above, the IRPS already provides for NCUA consideration of a 
prospective official or employee's character and ability to handle 
financial matters. Leadership is an additional quality that includes 
the demonstrated ability to establish an organizational vision, 
prioritize activities, and lead the organization to successfully 
accomplish its goals.
Section III, Subsection C--Member Support
    This subsection required that subscribers demonstrate a sufficient 
customer base for the proposed corporate in the form of membership 
applications, capital and share commitments, and commitments to use the 
corporate's services. Specifically, it stated that the capital plan 
must show how the corporate would keep its total capital at 4 percent 
or more of its moving daily average net assets (MDANA) at all times 
beginning when NCUA issues the charter.
    Several commenters questioned how this could be calculated on the 
day the

[[Page 10210]]

charter is issued, given that MDANA is defined as ``the average of 
daily average net assets for the month being measured and the previous 
11 months.'' The Board agrees, and has clarified the IRPS to say that 
MDANA at the time of charter will be calculated as the corporate's net 
assets on the date of charter, and MDANA for successive months consists 
of the average of DANA for the month being measured and the previous 
months back to the date of charter.
    Two commenters felt that a newly-chartered corporate should be 
given more time to reach 4 percent. The Board disagrees. It is 
imperative that a corporate be adequately capitalized from the date of 
charter. A corporate with inadequate capital presents a risk both to 
its members and to the corporate system as a whole.
Section III, Subsection C--Present and Future Market Conditions--
Business Plan
    This subsection requires subscribers to submit a business plan 
based on realistic and supportable projections and assumptions that 
address a number of specific elements.
    One commenter stated that some elements of the required business 
plan were too specific and duplicative of other information. The 
commenter also expressed concern about NCUA keeping a charter 
application's business plan information confidential. The Board 
disagrees with these comments, believing that all of the information 
requested in the application is necessary and that NCUA has systems in 
place to keep application information confidential.
    Another commenter expressed concern that NCUA would not be 
sufficiently vigorous in its review of any proposed new corporate FCU's 
business plan to ensure that the plan is founded upon realistic and 
supportable projections and assumptions. The Board has directed staff 
to closely scrutinize any new charter application to determine that a 
proposed corporate is economically viable.
Section VI--NCUA Review
    This section of the proposal set out the process and timeline NCUA 
would follow in evaluating a charter application. Generally, NCUA's 
Office of Corporate Credit Unions (OCCU) field and central office staff 
would review an application and give it to the Board for the final 
decision. Two commenters argued that under the proposed timeline, it 
could take up to six months for the review and decision and that this 
was too long. While the Board believes it is important for NCUA to take 
time to fully evaluate all aspects of an application, it understands 
that there may be a situation in which corporate restructuring requires 
expedited consideration of an application. The Board pledges that NCUA 
will work diligently to ensure the needs of the corporate system are 
met.
    The proposed review process contemplated that OCCU staff and 
subscribers would work together at every step to ensure a complete 
application package that could be forwarded to the NCUA Board for a 
vote. One commenter, however, was concerned that OCCU staff might 
exercise a veto over any particular application by deciding not to 
forward it to the NCUA Board. To assuage this concern, the final IRPS 
provides subscribers with the right to petition the Board directly for 
a vote on a charter application where either (1) the OCCU Director has 
determined that the application does not merit approval, or (2) the 
subscribers believe, after some sufficient time to process the initial 
application, OCCU has moved too slowly on pushing the application to 
the Board. Accordingly, subscribers will have a 90 day window--
beginning from the date of an OCCU disapproval letter or 180 days from 
the date of initial application, whichever is earlier--to petition the 
Board for a direct vote on the application.
    Section VI also provided that if the Board approved a charter 
application, the officials must sign a Letter of Understanding and 
Agreement (LUA) imposing certain restrictions and requirements. Two 
commenters stated that the IRPS should clarify that the LUA will not 
impose any arbitrary restrictions that could hamper a corporate's 
growth. The Board assures the commenters that NCUA is committed to the 
success of any corporate it charters and will not act to harm the 
corporate.

C. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact any final regulation may 
have on a substantial number of small entities (those under $10 million 
in assets). The IRPS only applies to corporate credit unions, all of 
which have assets well in excess of $10 million. Accordingly, the Board 
certifies that this final rule 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

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency by rule creates a new paperwork burden on regulated 
entities or modifies an existing burden. 44 U.S.C. 3507(d); 5 CFR part 
1320. For purposes of the PRA, a paperwork burden may take the form of 
either a reporting or a recordkeeping requirement, both referred to as 
information collections.
    NCUA identified and described some information collection 
requirements in the proposed chartering process. As required by the 
PRA, NCUA has submitted a copy of this IRPS to the Office of Management 
and Budget (OMB) for its review and approval. While NCUA received 
comments on the proposed rule, no commenters specifically addressed the 
agency's estimates of burden hours as set out in the preamble to the 
proposed rule. Accordingly, NCUA anticipates that OMB will approve 
NCUA's submission and assign a collection number.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on State and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order.
    This 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 rule 
does not constitute a policy that has federalism implications for 
purposes of the executive order.
The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
    NCUA has determined that this final rule will not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Public Law 105-277, 112 
Stat. 2681 (1998).
Small Business Regulatory Enforcement Fairness Act
    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

[[Page 10211]]

issues a final rule as defined by section 551 of the Administrative 
Procedure Act, 5 U.S.C. 551. OMB's determination about whether this 
rule is a major rule is pending.

    By the National Credit Union Administration Board on February 
17, 2011.
Mary F. Rupp,
Secretary of the Board.

    Authority: 12 U.S.C. 1753, 1754, 1758, 1766.

Corporate Federal Credit Union Chartering Guidelines

I--Goals of NCUA Corporate Chartering Guidelines

    These guidelines are intended to achieve the following goals:
    <bullet> Uphold the provisions of the Federal Credit Union Act 
(Act);
    <bullet> Promote safety and soundness within the credit union 
industry; and
    <bullet> Provide quality services to members.
    NCUA will consider the above criteria as the primary factors in 
determining whether to approve a corporate Federal credit union (FCU) 
charter. In unusual circumstances, NCUA may consider other information 
in deciding if a charter should be approved, such as other Federal law 
or public policies.

II--Subscribers

    Seven or more natural person representatives of different natural 
person credit unions (NPCUs)--``the subscribers''--must present to NCUA 
for approval a sworn organization certificate stating at a minimum:
    <bullet> The name of the proposed corporate FCU;
    <bullet> The location of the proposed corporate FCU;
    <bullet> The names and addresses of the subscribers to the 
certificate and the number of shares subscribed by each;
    <bullet> The initial par value of the shares; and
    <bullet> The proposed field of membership.
    False statements on any of the required documentation filed in 
obtaining an FCU charter may be grounds for Federal criminal 
prosecution.

III--Economic Advisability

 A--General

    Before chartering a corporate FCU, NCUA must be satisfied that the 
institution will be viable and that it will provide needed services to 
its members. NCUA will conduct an independent investigation of each 
charter application to ensure that the proposed corporate credit union 
can be successful. In general, the success of any credit union depends 
on: (a) The character and fitness of management; (b) the depth of the 
members' support; and (c) present and projected market conditions.

B--Proposed Management's Character and Fitness

    The Act requires NCUA to ensure that the subscribers of Federal 
charters are of good ``general character and fitness.'' In addition, 
employees and officials must be competent, experienced, honest, and of 
good character.
    NCUA will conduct background and credit investigations on 
prospective officials and employees, and the reports must establish 
each applicant's character and ability to effectively handle financial 
matters. Factors that may lead to disapproval of a prospective official 
or employee include criminal convictions, indictments, and acts of 
fraud and dishonesty. Other factors, such as serious or unresolved past 
due credit obligations and bankruptcies disclosed during credit checks, 
may also disqualify an individual.
    NCUA also needs reasonable assurance that the management team will 
have the requisite skills--particularly in leadership, accounting, 
funds management, and payment systems risk--and the commitment to 
dedicate the time and effort needed to make the proposed corporate FCU 
a success.
    Section 701.14 of NCUA's Rules and Regulations sets forth the 
procedures for NCUA approval of officials of newly chartered FCUs, 
including corporate FCUs. If the application of a prospective official 
or employee to serve is not acceptable to NCUA's Director, Office of 
Corporate Credit Unions (OCCU), the group can propose an alternate to 
act in that individual's place. If the charter applicant feels it is 
essential that the disqualified individual be retained, the individual 
may appeal the OCCU's decision to the NCUA Board. If an appeal is 
pursued, action on the application may be delayed. If the appeal is 
denied by the NCUA Board, an applicant acceptable to NCUA must be 
provided before the charter can be approved.

C--Member Support

    An important chartering consideration is the degree of support from 
the field of membership. The charter applicant must demonstrate a 
sufficient customer base from which to draw business in the form of 
membership applications, capital and share commitments, and commitments 
to use the corporate FCU's services. The applicant must provide surveys 
and/or written commitments certifying to this potential membership base 
and capital commitment to the levels required by Part 704 of NCUA's 
Rules and Regulations. Although NCUA may work with a newly chartered 
corporate on a plan to meet the retained earnings requirements of Part 
704, the newly chartered corporate must have a viable plan to solicit 
and maintain sufficient contributed capital. Generally, the plan must 
show how the corporate FCU will keep its total capital at 4 percent or 
more of its moving daily average net assets (MDANA) at all times 
beginning on the date NCUA issues the charter. MDANA at the time of 
charter will be calculated as the corporate's net assets on the day of 
charter. MDANA for month one consists of the DANA for that month. MDANA 
for months two through eleven consists of the average of DANA for the 
month being measured and the previous months back to the date of 
charter.

D--Present and Future Market Conditions--Business Plan

    The ability to provide effective service to members, compete in the 
marketplace, and adapt to changing market conditions are key to the 
survival of any enterprise. Before NCUA will charter a corporate credit 
union, a charter applicant must submit a business plan based on 
realistic and supportable projections and assumptions. The business 
plan should contain, at a minimum, the following elements:
    (1) Mission statement;
    (2) Analysis of market conditions (i.e., economic prospects for the 
corporate credit union and availability of proposed financial services 
from alternative depository institutions);
    (3) Summary of survey results and/or customer base analysis;
    (4) Proposed financial services to be offered;
    (5) How and when services are to be implemented;
    (6) Anticipated corporate credit union staffing and credentials of 
key employees;
    (7) Physical facility--office and equipment;
    (8) Proposed recordkeeping, data processing, and communications 
systems and/or vendors;
    (9) Budget for the first three years;
    (10) Semiannual pro-forma financial statements for the first three 
years, including a listing of the assumptions used to develop the 
financial statements;
    (11) Goals for the number of members and shares under various 
scenarios;
    (12) Projected break-even or date of achieving independent 
operations;

[[Page 10212]]

    (13) Source of funds to pay expenses during the initial setup and 
early months of operation;
    (14) Written policies for shares, lending, investments, funds 
management, capital accumulation as required by Part 704, payment 
systems, and EDP;
    (15) Plan for continuity--directors, committee members, and senior 
management;
    (16) Evidence of commitment (i.e., letters and/or contracts used to 
substantiate projections); and
    (17) Services and marketing strategies for financial and 
correspondent services, including the ability of the proposed corporate 
credit union to efficiently deliver these products.

IV--Organizing a Corporate Federal Credit Union

    The subscribers must submit the following documentation to the NCUA 
Office of Corporate Credit Unions (OCCU) for processing:
    (1) NCUA Form 4001--Federal Credit Union Investigation Report. In 
completing the form, subscribers may disregard any reference to 
``common bond.'' In addition, where Section B.2 of the form requires a 
potential interest survey sample of at least 250 potential members, 
subscribers may use a sample of at least 30 potential members.
    (2) NCUA Form 4008--Organization Certificate. This document 
establishes the seven criteria required of subscribers by the Act and 
is signed by the subscribers and notarized. This document should be 
executed in duplicate.
    (3) NCUA Form 4012--Report of Officials and Agreement to Serve. 
This form documents general background information for each official 
and employee of the proposed corporate credit union. Each designee must 
complete and sign this form.
    (4) NCUA Form 9500--Application and Agreements for Insurance of 
Accounts. This document contains agreements FCUs must comply with in 
order to obtain NCUA insurance coverage of member accounts. The 
document must be completed and signed by both the chief executive 
officer and chief financial officer.
    (5) NCUA Form 9501--Certification of Resolutions. This document 
certifies the board of the proposed corporate credit union has resolved 
to apply for Federal insurance of member's accounts and has authorized 
the chief executive officer and chief financial officer to execute the 
Application and Agreements for Insurance of Accounts. Both the chief 
executive officer and recording officer of the proposed corporate 
credit union must sign this certification.

V--Name Selection

    It is the responsibility of the corporate FCU organizers to ensure 
that the proposed corporate FCU name does not constitute an 
infringement on the name of any corporation in its trade area. This 
responsibility also includes researching any service marks or 
trademarks used by any other corporation (including credit unions) in 
its trade area. NCUA will ensure, to the extent possible, that the 
corporate credit union's name:
    <bullet> Is not already officially being used by another FCU;
    <bullet> Will not be confused with NCUA or another Federal or State 
agency, or with another credit union; and
    <bullet> Does not include misleading or inappropriate language.
    The last three words in the name of every credit union chartered by 
NCUA must be ``Federal Credit Union.''

VI--NCUA Review

A--General

    OCCU will conduct an independent investigation of the corporate 
credit union's charter application to assess the economic and long-term 
viability of the proposed corporate credit union. OCCU field staff will 
conduct the review and, if necessary, perform an on-site contact with 
selected officials and others having an interest in the proposed 
corporate credit union.
    The review will include evaluation of proposed management's 
experience and suitability, commitment of proposed officials, and 
assessment of economic viability. OCCU field staff may also be called 
upon to assist subscribers in the proper completion of required forms 
and the Organization Certificate--NCUA Form 4008.
    OCCU field staff will thoroughly analyze the prospective corporate 
credit union's business plan for realistic projections, attainable 
goals, and time commitment. Any concerns will be reviewed with the 
subscribers and discussed with prospective officials.
    NCUA will follow the timeline set forth below in processing 
corporate charter applications:
    1. Within 30 days of receipt of the application, OCCU field staff 
will meet with the proposed officials and management team to evaluate 
the adequacy of management and the information provided and to discuss 
the corporate credit union's ability to begin operations and meet 
financial projections if the charter is approved.
    2. On completion of all required reviews, but no later than 60 days 
after the meeting described above, OCCU field staff will make a 
recommendation to the OCCU Director regarding the application. The 
recommendation may include provisional requirements to be completed 
prior to final approval of a corporate FCU charter.
    3. Within 30 days of receiving the OCCU field staff recommendation, 
the OCCU Director will determine if the application can be forwarded to 
NCUA Board for action or if it should be returned to the subscribers 
for more information.
    4. If the OCCU Director, after reviewing any additional 
information, believes the application has no merit, the OCCU Director 
may return the application to the subscribers as disapproved. If the 
OCCU Director believes the application has merit, the Director will 
forward the application to the Board, and the Board then has 60 days to 
vote on the proposed charter.
    5. Notwithstanding the above timeline, the subscribers may petition 
the Board directly for a vote on a pending application. The right to 
petition begins upon the earlier of these two dates:
    (a) The date of any OCCU disapproval described in paragraph 4 
above, or
    (b) 180 days from the date of initial charter application.
    Subscribers must ensure the Board receives any petition no later 
than 90 days following the earlier of these two dates. The Board will 
act on a timely petition no later than 60 days from the date of 
petition receipt.
    6. If the charter is approved, the officials must sign a ``Letter 
of Understanding and Agreement'' (LUA) before the corporate credit 
union can commence operations. This LUA will impose certain operational 
restrictions, require compliance with NCUA's Rules and Regulations and 
adoption of the standard Corporate FCU Bylaws, and contain several 
financial performance milestones that the new charter must meet, 
consistent with Part 704.

B--Finalization of New Charter

    If NCUA approves the charter application, the subscribers, as their 
final duty, will elect the board of directors for the newly chartered 
corporate FCU. The new board of directors will subsequently appoint the 
supervisory committee. The corporate FCU must then submit a report of 
officials to OCCU.

[FR Doc. 2011-4071 Filed 2-23-11; 8:45 am]
BILLING CODE 7535-01-P