Federal Register / Vol. 76, No. 37 / Thursday, February 24, 2011 / Rules and Regulations 10209 

Dated: February 4, 2011. 

Lluana McCann, 

Director, Division of Financial Assistance 

Policy and Oversight, Office of the Chief 

Financial Officer, Department of Homeland 

Security. 

[FR Doc. 2011–3217 Filed 2–23–11; 8:45 am] 

BILLING CODE 9110–9B–P 

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. 

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had been withdrawn; accordingly, on 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 § 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 § 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 


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10210 Federal Register / Vol. 76, No. 37 / Thursday, February 24, 2011 / Rules and Regulations 

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 newlychartered 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 


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Federal Register / Vol. 76, No. 37 / Thursday, February 24, 2011 / Rules and Regulations 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: 

• Uphold the provisions of the 

Federal Credit Union Act (Act); 

• Promote safety and soundness 

within the credit union industry; and 

• 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: 

• The name of the proposed corporate 

FCU; 

• The location of the proposed 

corporate FCU; 

• The names and addresses of the 

subscribers to the certificate and the 

number of shares subscribed by each; 

• The initial par value of the shares; 

and 

• 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; 


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10212 Federal Register / Vol. 76, No. 37 / Thursday, February 24, 2011 / Rules and Regulations 

(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: 

• Is not already officially being used 

by another FCU; 

• Will not be confused with NCUA or 

another Federal or State agency, or with 

another credit union; and 

• 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 


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