[Federal Register Volume 65, Number 114 (Tuesday, June 13, 2000)]
[Proposed Rules]
[Pages 37065-37084]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-14782]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 65, No. 114 / Tuesday, June 13, 2000 / 
Proposed Rules

[[Page 37065]]



NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701


Organization and Operations of Federal Credit Unions

AGENCY: National Credit Union Administration.

ACTION: Proposed rule.

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SUMMARY: The NCUA Board is proposing amendments to its chartering and 
field of membership manual to update chartering policies and further 
streamline the select group application process. These proposed 
amendments result from NCUA's experience addressing field of membership 
issues and concerns that surfaced after the adoption of the current 
chartering and field of membership policies.

DATES: Comments must be postmarked or received by August 14, 2000.

ADDRESSES: Comments should be directed to Becky Baker, Secretary of the 
Board. Mail or hand deliver comments to: National Credit Union 
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. Fax 
comments to (703) 518-6319. E-Mail comments to <a href="/cdn-cgi/l/email-protection#10727f7162747d71797c507e7365713e777f66"><span class="__cf_email__" data-cfemail="5f3d303e2d3b323e36331f313c2a3e71383029">[email protected]</span></a>. 
Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: J. Leonard Skiles, Chairman, Field of 
Membership Task Force, 4807 Spicewood Springs Road, Suite 5200, Austin, 
Texas 78759 or telephone (512) 231-7900; Michael J. McKenna, Senior 
Staff Attorney, Office of General Counsel, 1775 Duke Street, 
Alexandria, Virginia 22314 or telephone (703) 518-6540; Lynn K. 
McLaughlin, Program Officer, Office of Examination and Insurance, 1775 
Duke Street, Alexandria, Virginia 22314 or telephone (703) 518-6360.

SUPPLEMENTARY INFORMATION: In 1998, Congress updated the laws on field 
of membership with the passage of the Credit Union Membership Access 
Act (``CUMAA''). On August 31, 1998, the NCUA Board issued a proposed 
rule that revised and updated NCUA's chartering and field of membership 
policies. 62 FR 49164 (September 14, 1998). On December 17, 1998, the 
NCUA Board issued a final rule with an effective date of January 1, 
1999. When the NCUA Board issued its final rule it instructed the Field 
of Membership Taskforce to coordinate and monitor implementation of the 
new chartering policies and make necessary recommendations for policy 
clarifications and amendments to IRPS 99-1.
    Shortly after the effective date of the rule, the American Bankers 
Association (American Bankers) sought a preliminary injunction from the 
United States District Court for the District of Columbia (the Court) 
against NCUA to enjoin the final rule. On March 10, 2000, the Court 
denied the American Bankers' motion. After the Court denied the 
American Bankers' motion for a preliminary injunction, the American 
Bankers along with the Independent Community Bankers of America 
(Community Bankers), filed an amended complaint consisting of seventeen 
counts. On March 30, 2000, the Court dismissed all of the challenges by 
the American Bankers and Community Bankers to IRPS 99-1.
    Over the past eighteen months, NCUA's Field of Membership Taskforce 
has monitored and reviewed the implementation of IRPS 99-1 in an effort 
to improve consistency and provide a basis, if necessary, for further 
clarifications and modifications. In response to this continued 
oversight, the Field of Membership Taskforce provided a report to the 
Board this year. The findings and recommendations are in response to 
issues that either arose during the past eighteen months or were 
identified by the NCUA Board as issues that needed clarification.

A. Proposed Amendments

1. Occupational Common Bond

    Independent Contractors. Chapter 2, Section II.A of the Chartering 
Manual states:

    So that NCUA may monitor any potential field of membership 
overlaps, each group to be served (e.g., employees of subsidiaries, 
franchisees, and contractors) must be separately listed in Section 5 
of the charter.

    63 FR 73022 (December 30, 1998). It was the NCUA Board's intent 
that companies with a strong dependency relationship should be 
specifically named in the credit union's charter in order to monitor 
overlaps. However, in some cases, such as when the group possessing the 
dependency relationship is comprised of numerous sole proprietors or 
independent contractors, it would be burdensome to list each 
contractor, and any overlap would be immaterial. For example, there may 
be hundreds of independent drivers for any particular cab company. 
Therefore, the NCUA Board is proposing to amend the language in the 
section on occupational common bonds so that in situations where 
multiple contractors, who qualify based on a strong dependency 
relationship, are sole proprietors, the regional director may determine 
that more generalized wording is acceptable.

2. Associational Common Bond

    Students Groups. Under IRPS 99-1, students are considered 
occupational groups. This permits single occupational common bond 
credit unions to serve persons employed or attending the same school. 
However, it does not allow single associational charters, such as 
faith-based groups that operate schools, to include students in their 
charters. While a single common bond church credit union can serve the 
church's employees, including faculty and staff, it cannot serve the 
students unless the credit union changes its charter type to multiple 
common bond. This policy restriction is confusing and causes undue 
problems for some credit unions. To remedy this situation, the NCUA 
Board believes that student groups should be considered as either 
associational or occupational, depending on the circumstances.
    Given the history of student groups, there is a basis and precedent 
for re-defining this common bond to allow greater flexibility. For 
example, over the years, student groups have been treated differently.
    As early as 1967, students could be included in the field of 
membership of a federal credit union chartered primarily to serve 
faculty and other employees of a college or university. That policy re-
stated the earlier position that it did not appear economically 
advisable to charter a credit union with

[[Page 37066]]

a field of membership limited to students.
    In IRPS 89-1 as well as IRPS 94-1, it was determined that student 
groups could constitute a valid associational common bond and could 
qualify for a charter. In IRPS 99-1, however, students again became 
part of an occupational common bond. This change addressed the problem 
of adding students to occupational school based credit unions, but it 
created an unanticipated problem with associational based faith credit 
unions. For example, many churches sponsor and operate schools. The 
resulting issue with this change was whether students at church schools 
could be added without changing the common bond type of the credit 
union (faith based credit unions have an associational common bond).
    There is no question that the students of church schools share a 
common bond with the church, but by policy, the students could not be 
added without going through the expansion procedures and changing the 
nature of the credit union. The NCUA Board does not believe this is 
desired or equitable. The NCUA Board believes that students are a 
unique group that can be considered either occupational or 
associational depending on the circumstances. That is, a student group, 
by itself or when combined with school employees, can be or constitute 
part of an occupational common bond. When part of a church group, the 
student group can be treated as part of an associational common bond. 
Therefore the NCUA Board is proposing to amend Chapter 2, Section III 
A.1. of IRPS 99-1 to reflect this view.
    While not requiring a policy change, several other issues involving 
students have arisen in the last eighteen months that require 
clarification. NCUA, by policy, will not consider a student group below 
the elementary level, in and of itself, as constituting a valid group 
(employees and students of an elementary school would still be a valid 
group). Additionally, students of martial arts, sports camps, and other 
similar social/recreational training programs do not constitute a valid 
associational group simply because they are enrolled in the program. It 
is the intent of IRPS 99-1 and these amendments that students must be 
tied to some academic endeavor or occupational based training program 
(i.e., college, trade school). Finally, student associational groups 
must also provide evidence of a valid organization. This can be in the 
form of bylaws, charter or other equivalent documentation. It is 
important that the existence of a valid association be determined.
    Tiered Voting. In determining whether a group qualifies as an 
associational group, one of the criteria NCUA considers is whether the 
members of the group have voting rights. While NCUA will evaluate the 
totality of circumstances in reaching its decision, a member's ability 
to vote is a significant factor, especially when differentiating 
between bona fide associations and client-customer relationships.
    Questions have arisen whether this criterion requires each member 
of the group to vote directly for an official of the association. NCUA 
has found that some large associations have adopted voting procedures 
where members vote for delegates who, in turn, cast their votes for 
officials. This voting structure constructively meets the intent of the 
field of membership policy. Examples of this may include churches where 
the lay persons elect delegates who attend the regional or national 
meetings to elect the national officers and labor unions that may be 
similarly structured. Therefore, where such voting structures exist, 
the association will be considered to have met the voting requirement 
criterion.
Documentation Requirements
    Generally, IRPS 99-1 requires that an association provide 
documentation that it is a valid association. In addressing this issue 
in IRPS 99-1, language was included that indicated that the best method 
to demonstrate an organization was a valid association was through a 
charter or bylaws, or other equivalent documentation. The NCUA Board 
has found that in some cases, particularly at the local level, some 
faith based associations may not possess bylaws or a charter. In those 
cases, it is not necessary to have a copy of a charter or bylaws, but 
it is necessary to be able to document in some way, i.e., other 
equivalent documentation, that it is a valid association. For example, 
a church may not have bylaws or a charter, but it should be able to 
obtain some other documentation demonstrating it is a legally 
constituted church. Often, this can come from the presiding official of 
the church.

3. Multiple Common Bond Credit Unions

Expedited Process for Groups of 500 or Less
    In the chartering process, as well as the addition of select groups 
to a multiple common bond credit union, economic advisability is 
critically important. NCUA has long taken the position that no charter 
should be granted unless a determination is made that the credit union 
``will be viable and that it will provide needed services to its 
members,'' and will have a ``reasonable opportunity to succeed.'' To 
ignore these basic, yet very important, chartering requirements would 
create unnecessary and undue risks to the National Credit Union Share 
Insurance Fund (NCUSIF). Equally important is the fact that members of 
a credit union that has no reasonable chance of success are needlessly 
harmed. Therefore, it is the responsibility of NCUA to assure that if a 
credit union is chartered, it has, at a minimum, a reasonable 
opportunity to succeed in today's financial marketplace. This issue was 
thoroughly discussed in the preamble to IRPS 99-1.
    The addition of groups to a multiple common bond credit union also 
takes into consideration economic advisability, as well as other 
criteria. CUMAA requires that before the addition of any group is 
approved, the NCUA Board must determine, in writing, that:
    (1) The applicant credit union has not engaged in any material 
unsafe or unsound practices within the preceding 1-year period;
    (2) The applicant credit union is adequately capitalized (this 
definition is legally different from the definition in Prompt 
Corrective Action);
    (3) The applicant credit union has the administrative capability to 
serve the proposed membership;
    (4) The benefit to the members outweighs any potential harm the 
expansion may have on another credit union; and
    (5) The applicant credit union has met such additional requirements 
as the Board may prescribe.
    An administrative process must be established to address these 
issues, particularly since the statute requires that the determination 
must be in writing.
    The economic advisability of a group forming a separate credit 
union is also an essential element of consideration before a group can 
be added to a multiple common bond credit union. The statute clearly 
sets forth this standard. It states:

    [T]he Board shall--(A) encourage the formation of separately 
chartered credit unions instead of approving an application to 
include an additional group within the field of membership of an 
existing credit union whenever practicable and consistent with 
reasonable standards for the safe and sound operation of the credit 
union. * * *

12 U.S.C.1759 (f)(1)(A). Consequently, NCUA must determine in writing 
not only that the five statutory criteria are

[[Page 37067]]

met, but it must also make the determination that the group is not 
economically advisable for the group to form a separate credit union. 
The burden, as it should be, is on NCUA to make this determination. 
This assessment is essentially the same assessment that NCUA would make 
if the group requested a separate charter, i.e., does it have a 
reasonable chance of survival? That is, regardless of the size of the 
group, NCUA must determine if the group could stand on its own as a 
separate credit union. If the group could safely form its own credit 
union, then the statute requires that the group be encouraged to form 
its own credit union.
    As set forth in the preamble to IRPS 99-1, it remains the intent of 
the Board that every group being added to a multiple common bond credit 
union should be analyzed to determine whether it has the capability and 
desire to support an independent operation. This requirement, however, 
must be balanced with operational feasibility. To overlook the 
complexities of providing financial services will only lead to future 
supervisory problems. The regulatory approach, therefore, should 
consider known economic factors and the likelihood of success in 
establishing and managing a new credit union in today's marketplace. To 
restate what was discussed in IRPS 99-1, it is the intent that a group 
desiring a separate charter should have every reasonable opportunity to 
form a new credit union, but this desire must be balanced against known 
economic hurdles and start-up operational requirements. Similarly, a 
larger group lacking the interest to charter and operate a separate 
credit union should be closely analyzed since desire and initiative are 
critical to its overall success.
    In addressing these requirements in relation to the historical data 
related to chartering new credit unions, the NCUA Board established an 
expedited process in IRPS 99-1 for groups of 200 or less primary 
potential members. Although a written determination regarding the 
various statutory criteria is still required, the expedited process 
allowed for the streamlined processing of groups of 200 or less since 
the Board found that a group of 200 or less, in almost all cases, would 
not be economically advisable. Thus, this past year, applicant credit 
unions applying to add a group of 200 or less simply had to complete 
the Form 4015-EZ. Additionally, no overlap analysis was required for 
these small groups.
    A review of the empirical data of the last eighteen months has 
convinced the NCUA Board that the expedited processing number should be 
raised. The data indicates that a substantial majority of the multiple 
group expansions approved, 91.3 percent, were groups of 200 or less. 
Further, 96.7 percent of the approved expansions constituted groups of 
500 or less. Overall, only 2 percent of all applications for multiple 
group expansions were denied. In every case involving a group of 500 or 
less, NCUA found that the group could not reasonably establish an 
economically viable stand-alone credit union. In fact, the smallest 
federal credit union chartered in 1999 had a primary potential 
membership of 2,000. The smallest state credit union chartered in 1999 
had a primary potential membership of 1,651.
    The NCUA Board believes that based on the historical experience of 
1999 and early 2000, plus other chartering data since 1990, that the 
expedited processing number for adding groups should be raised to 500. 
\1\ In conjunction with this proposal, the NCUA Board is also proposing 
that the overlap analysis required of groups of 200 or more should be 
raised to 500.
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    \1\ Since 1990, 5 credit unions with 500 or less primary 
potential members were chartered. Of those 5, 3 remain active. Since 
1990, 11 credit unions with primary potential members of 501-1000 
were chartered. Of those 11, 8 remain active. Of the 119 federal and 
state credit unions chartered since 1990, 16 had primary potential 
members of 1000 or less.
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Adequate Capitalization for Multiple Common Bond Credit Union 
Expansions
    In the preamble to the proposed rule and the preamble to IRPS 99-1 
the NCUA Board addressed the issue of defining the statutory term 
``adequate capitalization'' for the addition of select groups to 
multiple common bond credit unions. It was noted in the more extended 
discussion in the preamble to the final rule that a reason for the 
policy change in 1982 allowing select group expansions was to assist 
credit unions in diversifying their fields of membership for safety and 
soundness reasons. Since that rationale is also applicable today, the 
NCUA Board specifically included in the final rule for single common 
bond and community credit unions the possibility that an expansion 
could be approved notwithstanding the credit union's financial or 
operational problems. One of the statutory requirements for the 
addition of select groups for a multiple common bond credit union, 
however, is that the credit union be adequately capitalized. However, 
adequate capitalization was not defined by the statute. Consequently, 
the Board provided its rationale in the preamble to IRPS 99-1 why 6 
percent capitalization for a credit union in existence more than 10 
years should be considered adequate for field of membership purposes. 
In particular, the Board stated:

    [A] 6 percent capitalization for field of membership expansions 
for multiple common bond credit unions chartered more than 10 years 
is reasonable and establishes a standard that, while not meeting the 
average capitalization level of federal credit unions, is indicative 
of a credit union that generally is managed in a safe and sound 
manner.

63 FR 72009 (December 30, 1998). In addition to the exception for 
credit unions chartered less than 10 years, low-income credit unions 
were also provided flexibility in meeting the capitalization 
requirement. Low-income credit unions or credit unions chartered less 
than ten years will be considered adequately capitalized for field of 
membership purposes provided they are making reasonable progress toward 
meeting the 6 percent net worth requirement.
    In further addressing this issue, the Board stated that:

    [A] restoration capitalization plan, which was a basis for the 
1982 policy and which remains operationally desirable, is not 
consistent with the statutory requirement in CUMAA that, before an 
expansion can be granted, the credit union must be adequately 
capitalized. A capitalization restoration plan, while operationally 
desirable, could essentially render the statutory requirement that 
the credit union be adequately capitalized meaningless. A ten-year 
window to obtain a capitalization level of 6 percent is reasonable, 
obtainable and consistent with prudent safety and soundness goals.

63 FR 72009 (December 30, 1998). The NCUA Board continues to support 
this view. That is, under normal circumstances, credit unions should be 
able to achieve a 6 percent capitalization level within 10 years. 
However, the NCUA Board also believes that for reasons totally outside 
the control of the credit union, such as sponsor problems, temporary 
asset fluctuations or economic downturns, a credit union may 
temporarily drop below or not be able to achieve or sustain a 6 percent 
capitalization level. These situations need to be addressed in view of 
the statutory adequate capitalization requirement. Since the addition 
of select groups is one way to reverse adverse economic trends, the 
NCUA Board believes that the exception provided newly chartered or low-
income designated credit unions should also apply if the credit union 
is otherwise operationally sound and has the administrative capability 
to add and

[[Page 37068]]

serve new groups effectively. Accordingly, the regional director should 
be given the latitude to make a determination that any credit union 
with less than 6 percent net worth is adequately capitalized for field 
of membership purposes if the credit union is making reasonable 
progress toward meeting the requirement. An element of consideration is 
whether the addition of a select group would facilitate improvement in 
the capitalization level. For example, if a reasonable plan is in 
place, and the addition of a select group would not adversely affect 
the credit union's capitalization goal, then the lower than 6 percent 
capital level should not be a reason for denying the addition of the 
group. Therefore, the NCUA Board is proposing to amend Chapter 2, 
Section IV.B.2 of the Chartering Manual to provide the regional 
director with this discretionary authority.
Reasonable Proximity for Select Group Expansions
    In addressing the issue of reasonable proximity and the addition of 
a select group, the question was raised how NCUA would respond if a 
select group was located a considerable distance from the credit union, 
but no other credit unions are within closer proximity that could or 
are willing to serve the group. In this situation, the nonavailability 
of other credit unions is a factor that should be considered in 
determining whether the group is within reasonable proximity. This 
interpretation does not require a change in the chartering manual.
    A second issue was also raised regarding the policies affecting the 
addition of groups that are within reasonable proximity of a service 
facility (this term includes a service center, branch or shared branch 
or any offsite credit union location that meets the definition of a 
service facility). This issue is particularly important in view of the 
networking system of state and national shared service centers, most of 
which technically meet NCUA's service facility definition. These shared 
service centers permit participation by credit unions without 
requiring, in many cases, an ownership interest. The identical or near 
identical nature of the shared service centers in the state and 
national networking system with the definition of a service facility in 
IRPS 99-1 has created confusion and, therefore, must be clarified.
    Although IRPS 99-1 states that a credit union can expand around a 
shared service facility, it was never the intent that a credit union 
that was simply part of a service center networking system should be 
permitted to add groups around any of the numerous shared service 
center locations without an ownership interest. Consequently, the 
current policy guidance has been that expansions around shared service 
facilities would not be permitted unless the shared service facility 
was locally owned by a credit union. The rationale for this position is 
statutory.
    CUMAA requires that NCUA shall first encourage the formation of 
separately chartered credit unions. If the formation of a separate 
credit union is not practicable or consistent with the standards set 
forth in the statute, then a select group can be included in the 
``field of membership of a credit union that is within reasonable 
proximity to the location of the group.'' 12 USC 1759 (f)(1)(B). The 
statute then delineates a number of approval criteria that must be 
satisfied before a select group can be added.
    In defining reasonable proximity, the Board stated that the group 
to be added must be within the ``service area'' of a ``service 
facility'' of the credit union. Service facility was defined to mean a 
place where shares are accepted for members' accounts, loan 
applications are accepted, and loans are disbursed. This definition 
includes a credit union owned branch, a shared branch, a mobile branch, 
an office operated on a regularly scheduled weekly basis, or a credit 
union owned electronic facility that meets, at a minimum, these 
requirements. This definition does not include an ATM.
    While not entirely clear in the preamble to IRPS 99-1 or in the 
policy itself, it was the Board's intent that expansions would be 
limited to select groups that were within reasonable proximity to a 
credit union, as it was ultimately defined.
    The state and national networking service center system, if used to 
allow the addition of groups, generally would not conform to the 
statutory requirements. For example, a credit union in Texas could add 
groups within reasonable proximity to a service center in Georgia or 
the hundreds of other service centers located in the United States, 
even though there was no ownership interest in the service centers, by 
virtue of its membership or participation in the service center 
network.
    The issue is, can credit unions that are linked to service centers 
through a state or national network use that linkage, without 
ownership, to expand their fields of membership by adding select groups 
located within the service area of those service centers? It is the 
Board's belief that to allow a credit union to expand around any 
service center not local to or not having an ownership interest by that 
credit union would be inconsistent with the statute. However, it is the 
Board's view that the current policy is overly restrictive and that the 
threshold for allowing the addition of groups around a shared service 
facility should be modified.
    The Board is amending Chapter 2, Section 4.A.1 of the Chartering 
Manual to permit the addition of groups around shared service 
facilities if the credit union either (1) owns directly or through a 
CUSO or similar organization, at least a 5 percent interest in the 
service facility or (2) the service facility is local to the credit 
union and the credit union is an authorized participant in the service 
center.
Multiple Common Bond Documentation Requirements
    During 1999, there were a number of questions and issues related to 
the documentation requirements that must be satisfied to add select 
groups. The most questioned requirement related to what information the 
groups needed to provide relative to why the formation of a separate 
credit union for the group is not practical or consistent with safety 
and soundness standards. While this information is found on Form 4015, 
IRPS 99-1 did not specifically delineate that the letter from the group 
must include information on its ability to form a separate credit 
union. To clarify this issue, the NCUA Board is proposing additional 
clarifying language be added to Chapter II, IV.B.3 as follows:
    Why the formation of a separate credit union for the group is not 
practical or consistent with safety and soundness standards. Some of 
the areas the credit union may consider include:
    <bullet> Member location--whether the membership is widely 
dispersed or concentrated in a central location.
    <bullet> Demographics--the employee turnover rate, economic status 
of the group's members, and whether the group is more apt to consist of 
savers and/or borrowers.
    <bullet> Market competition--the availability of other financial 
services.
    <bullet> Desired services and products--the type of services the 
group desires in comparison to the type of services a new credit union 
could offer.
    <bullet> Sponsor subsidies--the availability of operating 
subsidies.
    <bullet> Employee interest--the extent of the employees' interest 
in obtaining a credit union charter.
    <bullet> Evidence of past failure--whether the group previously had 
its own credit

[[Page 37069]]

union or previously filed for a credit union charter.
    <bullet> Administrative capacity to provide services--will the 
group have the management expertise to provide the services requested.

    A credit union need not address every item on this list, simply 
those issues that are relevant to its particular request. As stated in 
the proposed language, a credit union is responsible for obtaining from 
groups over 500 primary potential members information regarding the 
factors NCUA will evaluate to determine whether a group can form its 
own credit union. NCUA reserves the right to contact the groups 
directly to discuss economic advisability criteria. Direct contact 
often expedites the process.
Voluntary Mergers
    Consistent with current policy, two single common bond credit 
unions that share the same common bond (same field of membership) can 
voluntarily merge. For example, corporation A is nationally based. As a 
result of being nationally based, it has several credit unions that are 
not geographically restricted serving its employees. These single 
common bond credit unions share the same common bond and field of 
membership. Accordingly, by policy, no analysis of the groups are 
required to determine if they can stand on their own and the credit 
unions can voluntarily merge.
    Similarly, if corporation A is served by a single common bond 
credit union and corporation B is served by a single common bond credit 
union, the two single common bond credit unions can merge if one 
corporation is acquired by the other. In other words, if corporation A 
purchases corporation B, then the two single common bond credit unions 
share the same common bond and there is no restriction on the two 
credit unions voluntarily merging. Again, no analysis is required, 
other than to determine they share the same common bond.
    The two situations described above have not presented a problem 
this past year. However, if in the examples provided above, one of the 
credit unions is a healthy multiple common bond credit union, the 
result can be entirely different. In some cases this places an undue 
burden on the credit unions and often presents potential long term 
supervisory concerns. For example, if in the second example the credit 
union serving corporation B is a multiple common bond credit union, and 
corporation A purchases corporation B, under current policy, if the 
primary field of membership in corporation B's credit union has more 
than 3,000 primary potential members and every other group is less than 
3,000 primary potential members, then NCUA still must analyze each 
group of 3,000 or more potential members to determine whether the 
formation of a separate credit union is practical. This is a harsh 
result when both credit unions essentially share the same common bond.
    The NCUA Board believes that if there is an intervening event, such 
as a corporate acquisition or restructuring, and the two credit unions 
have a substantial overlap of their fields of membership (in other 
words, the field of membership of both credit unions that results from 
the restructuring corporations), then the two credit unions should be 
allowed to voluntarily merge without analyzing that group's ability to 
form its own credit union.
    Using the examples above, if corporation A, served by a single 
common bond credit union, purchases corporation B, served by a multiple 
common bond credit union, then employees of B can join credit union A 
if credit union A's field of membership already includes all employees 
of A. That is, corporation B employees are now corporation A employees 
and therefore are a part of credit union A's common bond. Further, even 
if credit union A were a multiple common bond credit union, policy 
would permit the addition of the employees of corporation B. It would 
be treated as an expansion, but processed as a housekeeping amendment. 
The only restriction is that credit union A cannot serve the other 
groups in credit union B without satisfying the select group expansion 
requirements. In many cases, the end result is almost a total overlap 
of the field of membership of both credit unions.
    The almost total overlap is critical to this issue since, in 
reality, no new select groups that do not already have credit union 
service are being added. The criteria for multiple common bond 
expansions includes the statutory guidance that the NCUA Board must 
encourage the formation of separately chartered credit unions. This 
language assumes that the group does not already have credit union 
service available to it, and before adding the select group to another 
credit union, the agency must first encourage, if reasonable, a 
separate charter, and then make the determination whether the group can 
stand on its own as a separate entity. This analysis is relevant to new 
unaffiliated groups, not groups already included in the field of 
membership.
    In addressing this issue, some credit unions decide to voluntarily 
merge since they essentially share the same field of membership. In 
other words, what was once two separate groups being served by two 
separate credit unions is now one group being served by two separate 
credit unions. In this situation, particularly if they apply to 
voluntarily merge, there is no interest in sustaining two credit 
unions. Consequently, merger is often the best alternative.
    If the remaining groups are less than 3,000 primary potential 
members, they are incidental to the field of membership and should not 
be the basis for jeopardizing what otherwise is a sound business 
decision in the interests of the members and the NCUSIF.
    Finally, in some instances, the acquiring corporation wants only 
one credit union serving its employees--not two. How does a healthy 
credit union dissolve? Obviously, it can voluntarily liquidate, but 
that is hardly the logical alternative. Allowing a merger in this 
situation is appropriate and supportable.
    Therefore, in light of the reasons stated above, the NCUA Board is 
proposing a modification to its merger policy to permit the voluntary 
merger of credit unions with fields of membership that substantially 
overlap. That is, if the two credit unions share the same primary field 
of membership, and each of the remaining select groups have primary 
potential members less than 3,000, then the remaining groups will be 
considered incidental and the credit unions should be allowed to merge. 
However, non-primary groups greater than 3,000 would not be considered 
incidental.
Supervisory Mergers
    When safety and soundness concerns are present, NCUA may approve 
the merger of any federally insured credit union. The NCUA Board is 
proposing to amend Chapter II, Section IV.D.2 of the Chartering Manual 
to clarify that abandonment by the management and/or officials and an 
inability to find replacements, loss of sponsor support, serious and 
persistent record keeping problems, sustained material decline in 
financial condition, or other serious or persistent circumstances are 
examples that may constitute grounds for merging a credit union due to 
supervisory concerns. This amendment is consistent with the guidance 
provided this past year in evaluating whether a merger was voluntary or 
supervisory.

[[Page 37070]]

Common Bond Charter Conversions
    Chapter 2 Section IV.F of the Chartering Manual states that:

    Once a multiple common bond credit union converts to a single 
occupational or assocational credit union, it cannot convert back to 
a multiple common bond credit union for a period of three years, 
unless there are safety and soundness concerns.

    Although this section is rather straightforward it can have 
unintended consequences. This past year a multiple common bond credit 
union divested itself of its select groups so that it could expand its 
primary potential membership strictly in conformance with single common 
bond policies. Shortly after converting to a single common bond, the 
sponsor restructured and sold what had been a major part of the 
potential single common bond. While the credit union can continue to 
serve the members of record from this group, it cannot take in new 
members from the group without converting back to a multiple common 
bond. Present field of membership policy does not allow for this unless 
there are safety and soundness concerns.
    As has been previously noted, corporate reorganizations and 
restructuring have increased dramatically this past year, and it is 
expected that the pace of last year will continue. This type of problem 
was not anticipated. The intent of the restrictive language in current 
policy is to prevent credit unions from circumventing the statute by 
dropping its select groups, becoming a single common bond credit union 
and adding other single common bond groups (a single common bond credit 
union can add groups within its common bond without regard to location 
or size), and then converting back by adding new groups or the groups 
it dropped when it became a single common bond credit union.
    In the situation described above, circumstances beyond the credit 
union's control entirely altered the primary reason the credit union 
converted to a single common bond credit union. To eliminate this 
deleterious result from unexpected corporate reorganizations/
restructuring, the NCUA Board is proposing to permit a credit union to 
continue to serve any group included in or added to its single common 
bond field of membership at the time of conversion to a single common 
bond credit union for a period of three years from the date of 
conversion, even if the group is later sold, spun-off or otherwise 
divested as a result of a corporate reorganization/restructuring. If 
the credit union elects to continue to serve any sold, spun-off or 
otherwise divested group, then it must convert back to a multiple 
common bond credit union on the third anniversary of the date of 
conversion. During this three-year period, it will continue to be 
treated as a single common bond credit union.
Conversions of Multiple Common Bond Credit Unions
    The NCUA Board is proposing that Chapter IV, Section II. be amended 
to clarify that a state chartered multiple common bond credit union 
that converts to a federal charter may retain in its field of 
membership any group that it was serving at the time of conversion. Any 
subsequent additions or amendments to the field of membership must 
comply with federal field of membership policies. Additionally, the 
NCUA Board is clarifying that if any state chartered credit union that 
was considered under state law to be a single common bond credit union, 
but under federal rules would be classified a multiple common bond 
credit union, converts to a federal charter, the charter type must be 
changed to reflect federal policy.
    The NCUA Board is also proposing an amendment to Chapter IV, 
Section III.A of the Chartering Manual to clarify that a federal credit 
union converting to state charter remains responsible for the operating 
fee for the year in which it converts. Currently, this fee is not pro 
rated.

4. Corporate Restructuring for Occupational Common Bond Credit Unions 
and Multiple Common Bond Credit Unions

    This past year, the most challenging and complex field of 
membership issues involved the loss or dilution of a field of 
membership as a result of corporate reorganization or restructuring. 
This issue was addressed in IRPS 99-1, however, the current policy does 
not completely set forth the resolution of various, and sometime 
numerous, consequences of a corporate restructuring/reorganization, 
particularly when the credit unions involved are reluctant, and in some 
cases refuse, to mutually address the problem.
    Corporate restructuring, under previous field of membership 
policies, could be more easily resolved since those policies allowed 
greater flexibility when a credit union added a new group, or continued 
service to a group that no longer was in its field of membership.
    CUMAA, however, placed new restrictions on the addition of new 
groups relative to size and reasonable proximity. What was previously a 
relatively simple process became more problematic because of the 
requirement to determine if the change could be handled as a 
housekeeping amendment, or whether it required the credit union to 
apply for an expansion. If it was considered an expansion, then all the 
requirements relative to adding a new group applied. To illustrate this 
problem, consider the following example:

    Credit union A serves occupational group A and credit union B 
serves occupational group B. Occupational group A buys occupational 
group B. Can credit union A now serve occupational group B? What 
happens to credit union B? Can it continue to serve its old field of 
membership, or has it lost its field of membership and now must 
convert to another type of credit union or voluntarily liquidate or 
merge? If credit union B continues to operate, can it also serve 
occupational group A? What happens if in the acquisition both groups 
are totally integrated and they are no longer separately 
identifiable? What happens if it is a merger and the credit unions 
cannot reasonably determine if the new field of membership can 
easily be divided?

    Often, one of the credit unions is significantly smaller than the 
other. In this instance, should credit union A, if it is the smaller of 
the two, receive a field of membership windfall and credit union B be 
left without a viable field of membership. In other words, should 
either credit union A or B be advantaged or adversely impacted by a 
corporate restructuring/reorganization over which they have no control. 
Lastly, what happens if the new corporation chooses to only allow one 
credit union to serve its employees? What is NCUA's responsibility in 
trying to determine who should serve whom?
    This example, while relatively simple factually, is occurring with 
greater frequency, and there are no simple answers. It is further 
complicated if one of the credit unions is a multiple common bond 
charter. In fact, experience has demonstrated that the variations on 
this example are endless. Most often, the corporate change results in a 
significant hardship for one of the credit unions. It is anticipated 
that the number of corporate reorganizations and acquisitions will 
continue to climb thus impacting a larger number of credit unions.
    Current written policy is not clear on how to resolve these type of 
issues. Further, in the development of current policy, all the 
ramifications of the problems resulting from corporate restructuring 
and acquisitions were not fully considered. Consequently, after 
considerable review of this issue, the NCUA Board believes that the 
current policy must be clarified in order to provide credit unions 
affected by this

[[Page 37071]]

common occurrence, and over which they have no control, more equitable 
treatment. The NCUA Board does not believe that Congress intended that 
credit unions should be forced to liquidate because of a corporate 
reorganization/restructuring. Consequently, the NCUA Board is of the 
view that in a corporate restructuring situation, greater flexibility 
must be allowed so that both credit unions can serve the same field of 
membership.
    For single common bond credit unions, the NCUA Board is proposing 
an amendment to clarify actual practice that if the group comprising 
the single common bond of a credit union merges with, or is acquired 
by, another group, the credit unions originally serving both groups can 
serve the new group resulting from the merger or acquisition after 
receiving a housekeeping amendment. In other words, it will be 
permissible for both credit unions to serve the same single common bond 
group. However, the credit unions may agree to divide the field of 
membership in some way. To clarify this practice, additional language 
is proposed to state that unless an agreement is reached limiting the 
overlap resulting from the corporate restructuring, NCUA will permit a 
complete overlap of the credit unions' fields of membership.
    For multiple common bond credit unions, the NCUA Board is proposing 
a clarifying amendment to reflect that when two groups merge, or one 
group is acquired by the other, and each is in the field of membership 
of a credit union, then both (or all affected) credit unions can serve 
the resulting merged or acquired group, subject to any existing 
geographic limitation and without regard to any overlap provisions by a 
housekeeping amendment to its charter. As with single common bond 
credit unions, both credit unions will be allowed to serve the new 
group resulting from the merger, buyout or acquisition, and the credit 
unions can mutually divide the new field of membership. If they do not 
agree to a division of the field of membership, then a total overlap 
will be permitted. The NCUA Board believes this to be in the best 
interests of the credit unions and the members and the safety and 
soundness concerns that evolve when a credit union loses its field of 
membership.
    Finally, it is important to note that the NCUA Board does not 
believe this policy clarification is in violation of CUMAA or its 
intent since new unaffiliated groups are not being added. Rather, the 
same potential membership, in terms of numbers, have the ability to 
choose to join one or both credit unions.
    These changes do no alter the current policy that a multiple common 
bond credit union can, by a housekeeping amendment, continue to 
maintain in its field of membership groups that have been sold, spun-
off, or merged.

5. Commmunity Charters

    Chapter 2, Section V.A.2 of the Chartering Manual states that an 
``ethnic neighborhood, a rural area, a city, and a county with 300,000 
or less residents will generally have sufficient interaction and/or 
common interests to meet community charter requirements.'' Chapter 2, 
Section V.A.2 of the Chartering Manual further states that:

    In most cases, the ``well-defined local community, neighborhood, 
or rural district'' requirement will be met if (1) the area to be 
served is in a recognized single political jurisdiction, i.e., a 
county or its political equivalent or any contiguous political 
subdivisions contained therein, and if the population of the 
requested well-defined area does not exceed 300,000, or (2) the area 
to be served is in multiple contiguous political jurisdictions, 
i.e., a county or its political equivalent or any political 
subdivisions contained therein and if the population of the 
requested well-defined area does not exceed 200,000. If the proposed 
area meets either of these this criteria, the credit union must only 
submit a letter describing how the area meets the standards for 
community interaction or common interests.

    The NCUA Board included this statement in the final rule to define 
those situations based on historical data that generally meet the 
community requirements. As a consequence of the historical data, which 
is further supported by NCUA's experience in 1999 for presumptive 
community charters, NCUA only requires a letter describing how the 
particular area meets the standards for community interaction or common 
interests. This was not intended to suggest that geographical areas 
with populations larger than 300,000, for example, would not qualify 
for a community charter. There is no negative presumption for larger 
geographical areas. Simply, more detailed documentation will be 
necessary to support that the proposed area is a well-defined 
community. In fact, the NCUA Board has approved six community charters 
with a population in excess of 300,000 under IRPS 99-1.
Community Action Plan (CAP)
    Currently, credit unions are required to submit both a business and 
marketing plan with any proposed, converting or expanding community 
charter application. A business and marketing plan is also critical in 
evaluating the application for a newly chartered community credit 
union. It is anticipated that the marketing plan for either an 
expansion, conversion or chartering of a community charter will address 
how the credit union intends to serve the entire community.
    However, very often, this aspect of the marketing plan may be very 
general and not specific to low-income or underserved areas.
    The development of the marketing plan is solely within the purview 
of the credit union and is important in that it provides the strategy 
to achieve the objectives set forth in the business plan. NCUA has not 
previously required that the marketing plan be specific as to any one 
issue, but IRPS 99-1 does require that it address how the entire 
community will be served.
    One of the goals of the Federal Credit Union Act is to make credit 
available to people of small means. Therefore, the NCUA Board is 
proposing that the chartering manual be revised to require that any 
type of application related to expanding, converting or chartering a 
community credit union include not only the required business and 
marketing plan, but also a community action plan (CAP) that will be 
periodically updated by the board of directors of the credit union and 
reviewed periodically by NCUA. There is no evidence to support that 
community credit unions have failed to fulfill their responsibility to 
serve the entire community. However, since service to the entire 
community is an essential consideration for community charters, it is 
appropriate that NCUA set forth its regulatory expectations in this 
regard. Existing community credit unions will also be expected to 
review their business and marketing plans and develop a CAP, which if 
approved in a final rule, should be in place no later than December 31, 
2001.
    The business plan would continue to address the documentation 
requirements set forth in Chapter 1 of the Chartering and Field of 
Membership Manual; however, the CAP would supplement the marketing plan 
by specifically addressing the credit union's plan to market its 
services to the entire community, including underserved or low-income 
areas (if applicable). This may include current or future delivery 
systems, such as ATMs, 24 hour voice response system, internet web 
sites, current or future customized programs to assist community 
residents such as credit counseling and budgeting, and current or 
future service facility locations. An important component of CAP is 
that it will specifically focus on providing services to the entire 
community consistent with sound business principles, and in

[[Page 37072]]

particular less advantaged economic groups or groups with historically 
less access to financial services within its community field of 
membership.
    Internal guidelines to examiners would require them to periodically 
review a community credit union's CAP and its overall effectiveness in 
meeting the goals outlined in the plan. In the event a community credit 
union failed to reasonably follow its CAP, the regional director would 
have discretion to pursue appropriate supervisory actions.

6. Underserved Areas

    The addition of underserved areas, as defined in Chapter 3 of IRPS 
99-1, to the field of memberships of operating credit unions has been 
identified as a priority by the Board. Additionally, some credit unions 
have pointed out that the requirements for adding an underserved area 
are difficult to document. Consequently, the Board believes that the 
current policies on adding underserved areas should be modified in 
order to more easily achieve the statutory intent of providing service 
to the greatest number of people of small means.
    Three criteria must be met before an underserved area can be added 
to any federal credit union's field of membership. First, the area must 
be a local community. Second, the area must also be classified as an 
investment area as defined in section 103(16) of the Community 
Development Banking and Financial Institutions Act of 1994 (12 U.S.C. 
4703 (16)) and meet any additional requirements the Board may impose 
(the Board has not imposed any additional requirements). Third, the 
credit union adding the underserved area must establish and maintain an 
office or facility in the local community, neighborhood, or rural 
district.
    After reviewing the statutory intent of service to underserved 
areas and the overall goal of improving credit union service to these 
areas, the NCUA Board proposes to modify the current polices relating 
to each of the three criteria in order to encourage further development 
of credit union activities in underserved areas and thereby improve 
financial services to those most in need.
    IRPS 99-1 articulates a presumption policy for communities within a 
single political jurisdiction if the population does not exceed 
300,000, or, if within multiple contiguous political jurisdictions, the 
population does not exceed 200,000. Under IRPS 99-1, however, 
interaction or common interests still must be demonstrated. The NCUA 
Board believes an impediment to facilitating service to underserved 
areas is the current policy requiring the applicant credit union to 
establish that there is interaction or common interests in the 
underserved area.
    In previous policies, the NCUA Board has determined that an area 
where a majority of residents meeting NCUA's definition of low-income 
could in and of itself be the basis for a common bond. Similarly, the 
NCUA Board believes that in certain cases, if an area otherwise meets 
the requirements of an underserved area, then additional documentation 
will not be necessary to establish that it is a local community where 
the residents have common interests or interact.
    Accordingly, if the area meets the requirements for an investment 
area, and the size of the investment area, whether contained wholly or 
in part of a single political jurisdiction or multiple political 
jurisdictions, meets the presumptive criteria established in IRPS 99-1, 
then the credit union will not have to demonstrate common interests or 
interaction among the residents. Accordingly, Chapter III, Section III, 
should be amended to state that the ``well-defined local community, 
neighborhood, or rural district'' requirement will be met if:
    (1) The underserved area to be served is in a recognized single 
political jurisdiction, i.e., a county or its political equivalent or 
any contiguous political subdivisions contained therein, and if the 
population of the requested well-defined area does not exceed 300,000, 
or
    (2) The underserved area to be served is in multiple contiguous 
political jurisdictions, i.e., a county or its political equivalent or 
any political subdivisions contained therein and if the population of 
the requested well-defined area does not exceed 200,000.
    However, should the underserved area exceed these limits, the 
credit union must document the area meets the local community criteria 
outlined in Chapter 2, Section V.A.2, Documentation Requirements of 
IRPS 99-1.
    The statute further requires that the local community, 
neighborhood, or rural district must be an investment area that is 
underserved. The Community Development Banking and Financial 
Institutions Act of 1994 delineates seven criteria, any one of which is 
sufficient to establish an area as an investment area. In six of those 
criteria, there is the requirement that there must be ``significant 
unmet needs for loans or equity investments.'' The Board has the 
authority to determine what constitutes significant unmet needs for 
loans or equity investments. In this instance, if the proposed area 
meets the poverty, median family income, unemployment, distressed 
housing, or population loss criteria as set forth in the Community 
Development Banking and Financial Institutions Act of 1994, then the 
Board will presume that there are significant unmet needs for loans or 
equity investments.
    Finally, the third potential problem area in providing service to 
an underserved area is the statutory requirement that the ``credit 
union establishes and maintains an office or facility in the local 
community, neighborhood, or rural district at which credit union 
services are available.'' NCUA has determined that this statutory test 
will be met if one of two requirements is met.
    First, at the time the underserved area is added to the credit 
union's field of membership, a plan must be in place to establish and 
maintain an office or facility within two years. In addition to a 
permanent office or facility, this requirement may also be satisfied 
through periodic service to the underserved area through the use of a 
mobile office, an office open at select times each week, a service 
facility or shared branches or shared service facilities. A credit 
union that has multiple underserved areas in its field of membership 
must meet the statutory requirement for each underserved area unless 
the underserved areas are contiguous.
    Second, if a credit union has a preexisting office within close 
proximity to the underserved area(s), then it will not be required to 
maintain an office or facility within the underserved area. Close 
proximity will be determined on a case-by-case basis, but the office 
must be readily accessible to the residents and the distance from the 
underserved area will not be an impediment to a majority of the 
residents to transact credit union business.
    In addition to the amendments discussed above, the Board desires to 
provide incentives to further encourage the addition of underserved 
areas. In this regard, the NCUA Board is considering one or more 
incentives for credit unions adding underserved communities if the 
underserved community is a minimum population size. Comments are 
specifically requested on what the population size of the underserved 
area should be in order for the credit union to qualify for one or more 
of the following incentives:
    <bullet> The asset base used to compute the credit union's 
operating fee will be frozen for a two-year period.

[[Page 37073]]

    <bullet> The operating fee will be reduced by ten percent or more 
per year until the total reduction equals $20,000 over a maximum five-
year period.
    <bullet> The assets of the underserved area will not be included in 
the calculation of the credit union's operating fee for 5 years.
    <bullet> Fixed assets in the underserved area will not be counted 
toward the fixed asset limitation of Sec. 701.35 of NCUA's Rules and 
Regulations. In addition, the credit union would be exempt from the 
charitable donation regulation, Sec. 701.25 and would be allowed to 
increase the dollar threshold from $100,000 to $250,000 when an 
appraisal is required, Sec. 722.3(a)(1).
    It is the Board's intent that the final amendments include some 
form of incentives. The NCUA Board is requesting comments on these 
proposed incentives and any others that would increase service to 
underserved areas.

7. Miscellaneous Issues

Single Common Bond Status
    There has been a lingering question relative to the status of 
single common bond credit unions as of the date of enactment of CUMAA 
if the corporate sponsor subsequently reorganizes/restructures. For 
example, if corporation A is served by a single common bond credit 
union as of the date of enactment of CUMAA, but subsequent to the date 
of enactment corporation A restructures and spins off a division, can 
the single common bond credit union continue to serve the spun off 
division (no longer a part of corporation A) without converting to a 
multiple common bond credit union?
    The position consistently followed by NCUA was that the credit 
union would have to convert to a multiple common bond credit union in 
order to continue to serve the spun off group. This was consistent with 
the statute because members of the group could still be served, even 
though they may not have been members of the credit union at the time 
of CUMAA's enactment.
    This position has created unnecessary hardships for several credit 
unions. As a result, the NCUA Board has revisited this issue and 
believes that the previous position should be modified. The rationale 
for this modification is two-fold. First, the statute states:

    (ii) a member of any group whose members constituted a portion 
of the membership of any Federal credit union as of that date of 
enactment shall continue to be eligible to become a member of that 
credit union, by virtue of membership in that group, after that date 
of enactment.

12 U.S.C 1759(c)(1)(A)(ii). Clearly, the credit union can continue to 
serve any member of the group that was part of the field of membership 
as of the date of enactment. Second, the successor language in CUMAA 
states:

    If the common bond of any group referred to in subparagraph (A) 
is defined by any particular organization or business entity, 
subparagraph (A) shall continue to apply with respect to any 
successor to the organization or entity.

12 U.S.C. 1759(c)(1)(B). In other words, if the group was included in 
the field of membership of a credit union, that group can remain in the 
field of membership regardless of a change in that group's corporate 
status. For example, name change, move to a different location, 
acquisition of new subsidiaries, etc.

    The above statutory provisions make it clear that groups within a 
credit union's field of membership as of the date of enactment can 
continue to be served. The only question is, must the status of the 
credit union change in light of the statutory definition of the types 
of credit unions? Upon further review, the NCUA Board is modifying its 
position on this issue since no new non single common bond groups are 
being added. Therefore, the NCUA Board is classifying any credit union 
that was a single common bond credit union as of the date of enactment 
of the statute as a single common bond credit union provided it does 
not add any new groups to its field of membership after the date of 
enactment. That is, to remain a single common bond credit union, it can 
only serve those groups that constituted part of the single common bond 
at the time CUMAA was enacted.
Low-Income Communities Added Under IRPS 94-1
    IRPS 94-1 permitted any credit union to include in its field of 
membership, without regard to location, communities and associational 
groups satisfying the low-income definition.\2\ The purpose of this 
policy was to facilitate the making of credit union service available 
to persons in low-income communities. The only other requirement for 
the addition of a low-income community was that the area so designated 
in fact met community standards. Although the courts did not address 
this particular issue or overturn any polices related to service to 
low-income communities, CUMAA affirmatively provided authority for 
federal credit unions to add any person within a local community, 
neighborhood, or rural district if the local community, neighborhood or 
rural district is (1) an investment area that is underserved and (2) 
the credit union establishes and maintains an office or facility in the 
designated investment or underserved area. 12 U.S.C. 1759(c)(2).
---------------------------------------------------------------------------

    \2\ Majority of the residents fall at or below 80 percent of the 
median household income of the nation or who make less than 80 
percent of the average for all wage earners as established by the 
Bureau of Labor Statistics.
---------------------------------------------------------------------------

    There are seven tests for an underserved investment area, any one 
of which will satisfy the requirement. The authority granted in CUMAA 
for federal credit unions is a broader standard than the low-income 
requirement definition in IRPS 94-1 in that it encompasses a 
significantly larger low-income base. One of the tests for an 
underserved investment area is that the ``median family income is at or 
below 80 percent of the Metropolitan Area median family income or the 
national Metropolitan Area median family income; and the area has 
significant unmet needs for loans or equity investments.'' \3\ In many 
instances, this one test can be less stringent than the previous 
requirement under IRPS 94-1.
---------------------------------------------------------------------------

    \3\ Chartering and Field of Membership Manual, Chapter III, 
Section III.
---------------------------------------------------------------------------

    As has been repeatedly noted and even referenced in CUMAA, credit 
unions have the specified mission of meeting the credit and savings 
needs of consumers, especially persons of modest means. This is 
reflected in the statutory authority to serve underserved investment 
areas. Throughout IRPS 99-1, the Board took note of this statutory 
mandate and adopted policies that encourage and promote credit union 
services to low-income groups and communities. This continues to be the 
NCUA Board's approach.
    This discussion is necessary in light of the fact IRPS 99-1 does 
not directly address the status of low-income communities added under 
IRPS 94-1 since that term was essentially subsumed in the definition of 
an underserved area in IRPS 99-1. In other words, if the low-income 
community added under IRPS 94-1 meets the definition of an underserved 
investment area, and the credit union maintains an office in the low-
income community, then it meets the requirements of IRPS 99-1.
    The problem that has arisen relates to the continued service to the 
low-income community added under IRPS 94-1, which is no longer 
recognized under IRPS 99-1, if the credit union converts to a different 
charter type. \4\ Current policy is that the grandfather provision no 
longer applies once the charter type

[[Page 37074]]

is converted. However, this policy, as it relates to low-income 
communities and underserved investment areas, is overly restrictive in 
view of the broad mandate of the statute to provide credit union 
services to people of modest means.
---------------------------------------------------------------------------

    \4\ If the credit union does not convert its charter type, it 
can continue to serve the low-income community added under IRPS 94-1 
pursuant to the grandfather provision in CUMAA.
---------------------------------------------------------------------------

    Based on the authority provided by CUMAA, the ability to serve 
people of modest means was expanded, not restricted. As previously 
mentioned, any number of other criteria were provided to broaden the 
``modest means'' base. The primary limiting factor was the 
establishment and maintenance of an office in the area to be served. 
The NCUA Board has determined that any low-income community added under 
IRPS 94-1 will qualify as an underserved investment area. If, however, 
the credit union does not maintain an office in the low-income 
community, before it can expand that portion of its field of 
membership, it must come into compliance with IRPS 99-1.

Express Chartering

    For many groups, obtaining NCUA's approval for a federal credit 
union charter is a time-consuming process that generally takes many 
months, sometimes as long as two years. It has been NCUA's experience 
that organizers have encountered difficulties in developing 
comprehensive business plans, operating policies and reasonable 
financial projections. To help achieve the agency's goals of 
encouraging the formation of credit unions and to make quality credit 
union service available to all eligible persons, the chartering 
procedures were reviewed by staff to determine if the application 
process could be modified to:
    (1) Expedite the chartering process, and
    (2) Achieve the agency's goal, as set forth in the Strategic Plan, 
of facilitating the formation of new credit unions.
    After review of the current policy and procedures (IRPS 99-1), and 
considering the overall fail/success ratio of new charters, \5\ the 
NCUA Board has determined that the chartering process can be 
streamlined without creating any undue risks to the National Credit 
Union Share Insurance Fund provided reasonable safeguards are 
implemented. To accomplish this goal, Express Chartering Procedures 
(ECP) are being implemented. To implement ECP, it is not necessary to 
amend IRPS 99-1. As faster approval of charter applications will result 
from standardized policies and business plans, and documentation of 
member and sponsor support. While the level of service of a new charter 
will initially be limited under ECP, credit union officials can enhance 
business plans and policies to increase services as they gain 
experience operating the credit union. Furthermore, with the addition 
of Economic Development Specialists in each region, more direct 
assistance, in conjunction with other organizations, can be provided to 
newly chartered credit unions. This assistance should provide increased 
opportunities to expand credit unions services in newly chartered 
credit unions.
---------------------------------------------------------------------------

    \5\ Between 1990-1999, 119 credit unions were chartered. Of 
those chartered, 95 remain active for an overall 80% active status.
---------------------------------------------------------------------------

    In order to charter a federal credit union, a group must possess:
    (1) An appropriate common bond or be a well-defined local 
community, neighborhood, or rural district;
    (2) The subscribers must be of good character and fit to represent 
the credit union; and
    (3) The establishment of the credit union must be economically 
advisable.
    Each of these legal requirements were examined by NCUA to determine 
where changes could be made to expedite the chartering process. The 
NCUA Board's analysis of each requirement is addressed below:

Common Bond/Community

    The inability of the charter applicant to establish the existence 
of an acceptable common bond type or community often contributes to the 
length of time it takes to process a new charter application. This 
basic requirement in the chartering process is statutory and must be 
satisfied. For single and multiple common bond credit unions, the 
existence of an association or employer generally satisfies the field 
of membership requirement, and, therefore, is not problematic. 
Conversely, a community charter applicant is more likely to encounter 
delay in its effort to establish that the proposed geographic 
boundaries constitute a ``local community.'' With the implementation of 
IRPS 99-1, and its streamlined procedures for certain communities, it 
is believed that this particular problem has been adequately addressed; 
therefore, the NCUA Board is not making any changes to this 
requirement.

Fitness of Management and Officials

    In order to determine management's fitness to serve, NCUA performs 
both background criminal and credit checks on the proposed credit 
union's prospective officials and subscribers. (12 U.S.C. 1790a and 12 
CFR 701.14) It often takes up to two months before receiving the 
results of background criminal investigations. However, rarely is 
adverse information uncovered during this process. Furthermore, the 
regions can and will approve a charter subject to receipt of the 
background review information. If adverse information is uncovered, the 
officials are charged with finding a suitable replacement. If the 
charter has already been granted, it is not suspended or canceled.
    In some cases, the applicant group will be required to replace one 
or more of the proposed officials because of adverse credit checks. 
This also can result in a processing delay, but, generally, the delay 
is not extended. Additionally, and most importantly, due to safety and 
soundness concerns, it is important that credit checks be performed.
    Because of the importance of background checks and NCUA's overall 
statutory responsibility to ensure the fitness of officials, the NCUA 
Board is not making any changes to this requirement.

Economic Advisability

    To determine whether a proposed credit union would be economically 
viable, the group must submit a detailed business plan, as outlined in 
IRPS 99-1. The plan must contain a number of elements, including 
evidence of member support, proposed policies, evidence of subsidies, 
and pro forma financial projections.
    Most often, delays in chartering a new credit union result from 
deficiencies in the group's business plan. For example, projections may 
not be reasonable, or policies may be incomplete or unacceptable. For 
new subscribers this is a particularly burdensome process and often 
requires the assistance of consultants and/or NCUA staff. It is also 
the one area that procedural modifications can be made without 
undermining the overall goal of obtaining an acceptable business plan.
    It is during the development of the business plan that many groups 
decide that they do not have the expertise to run a credit union. In 
other words, the development of a business plan acts as a check and 
balance for those who mistakenly believe that chartering and running a 
credit union is an easy task. This accounts for the low percentage of 
groups that actually complete the chartering process. Although this has 
some safety and soundness benefits, the NCUA Board believes that if 
procedures can be put in place that allow applicant groups to maintain 
their initial momentum, more credit unions will be chartered and the 
entire process of developing a meaningful business plan will be better 
understood and

[[Page 37075]]

appreciated. Accordingly, the NCUA Board believes that those 
requirements relating to the development of a business plan can be 
modified to allow for expeditious charter approval, but restrict 
services offered until the credit union completes a more thorough 
business plan. The more thorough business plan is now required before 
the charter can be approved.

Express Chartering Program

    The NCUA Board has given the Office of Examination and Insurance 
the responsibility to implement ECP. The ECP procedures will utilize 
standardized forms, NCUA on-site assistance, and certain restrictions 
on the initial services that may be offered. The ECP will be reviewed 
on an annual basis, by the Office of Examination and Insurance, to 
determine whether it is achieving its intended purpose without creating 
additional risks to the National Credit Unions Share Insurance Fund.
    The ECP will use, to the greatest extent possible, standardized 
forms to facilitate the issuance of a charter early during the 
chartering process. They include:
    <bullet> Standard business plan for limited services;
    <bullet> Standard member survey format--this will include all 
applicable data needed to analyze the group's initial financial 
projections (initial pledge, systematic savings, etc.);
    <bullet> Standard policies (shares, lending, investments, etc.); 
and
    <bullet> Standard forms for sponsor support, grants, and nonmember 
deposits (where applicable). Often, letters of support are inconclusive 
or the terms are unclear. Standard forms should help to eliminate this 
problem.
    Initially, credit unions using ECP will only be able to offer 
regular shares and signature loans not exceeding predetermined amounts. 
This will enable the officials to familiarize themselves with basic 
credit union operations and cash management skills. The Letter of 
Understanding and Agreement (LUA) that always accompanies a new charter 
will include this restriction. An applicant credit union can elect not 
to use ECP.
    Once a credit union demonstrates it can manage these limited 
responsibilities, the officials can submit a new credit union prepared 
business plan to expand services (e.g., share drafts, credit cards, 
etc.). This further refinement of the business plan can be accomplished 
in stages with increased responsibilities and services offered 
commensurate with the approved business plan.
    The advantage of the early ECP is that once the credit union is 
chartered, some services can be offered, and the officials will gain 
experience and knowledge in the operation of a credit union as they 
prepare a more detailed business plan. It is also believed that the 
importance of a business plan will be better appreciated if the 
officials are actually engaged in operating the credit union.
    While NCUA's resources are limited, judicious use of NCUA staff to 
work with qualifying groups would be beneficial. The ECP will make use 
of the regional EDSs to guide the group through the application 
process. Once the group is chartered, the EDS and examiner will work 
with the credit union, as they do now.

Internet Expansion Requests

    The NCUA Board has given the Field of Membership Taskforce the 
oversight responsibility for the development of an Internet select 
group expansion process. This process would allow credit unions to 
submit requests for occupational groups of 500 or less online with an 
expedited approval by NCUA. When these proposed amendments are 
finalized the Board will provide more details.

8. Technical Amendment on the Title of the Section Regarding Immediate 
Family Members

    The Board is proposing to change the titles of Chapter 2, Section 
II.H, Chapter II, Section III.H. and Chapter II, Section IV. H. to 
``Other Person's Eligible for Credit Union Membership.'' This proposed 
technical amendment is appropriate to accurately conform the title to 
the policy contained in that section.

B. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a regulation may have on a 
substantial number of small credit unions (primarily those under $1 
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

    The NCUA Board has determined that the proposed community action 
plan requirements in IRPS 00-1 are covered under the Paperwork 
Reduction Act. NCUA is submitting a copy of this proposed rule to the 
Office of Management and Budget (OMB) for its review.
    The proposed amendment would require community federal credit 
unions to develop a community action plan to serve their members, 
including low-income members and low-income areas. The NCUA Board 
estimates that it will take an average of two hours for a federal 
credit union to comply with this community action plan requirement. The 
NCUA Board also estimates that 625 credit unions will have to develop 
this plan so the cumulative total annual paperwork burden is estimated 
to be approximately 1250 hours.
    The Paperwork Reduction Act of 1995 and OMB regulations require 
that the public be provided an opportunity to comment on paperwork 
requirements, including an agency's estimate of the burden of the 
paperwork requirements. The NCUA Board invites comment on: (1) Whether 
the paperwork requirements is necessary; (2) the accuracy of NCUA's 
estimate of the burden of the paperwork requirements; (3) ways to 
enhance the quality, utility, and clarity of the paperwork 
requirements; and (4) ways to minimize the burden of the paperwork 
requirements. Comments should be sent to: OMB Reports Management 
Branch, New Executive Office Building, Room 10202, Washington, D.C. 
20503; Attention: Alex T. Hunt, Desk Officer for NCUA. Please send NCUA 
a copy of any comments you submit to OMB.

Executive Order 12612

    Executive Order 12612 requires NCUA to consider the effect of its 
actions on state interests. These proposed amendments make no 
significant changes with respect to state credit unions and therefore, 
will not materially affect state interests.

C. Agency Regulatory Goal

    NCUA's goal is clear, understandable regulations that impose a 
minimal regulatory burden. We request your comments on whether the 
proposed amendments are understandable and minimally intrusive if 
implemented as proposed.

List of Subjects in 12 CFR Part 701

    Credit, Credit unions, Reporting and record keeping requirements.

    By the National Credit Union Administration Board on June 6, 
2000.
Becky Baker,
Secretary of the Board.
    Accordingly, NCUA proposes to amend 12 CFR part 701 as follows:

[[Page 37076]]

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., 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:


Sec. 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 99-1, Chartering and 
Field of Membership Policy (IRPS 99-1), as amended by IRPS 00-1. Copies 
may be obtained by contacting NCUA at the address found in 792.2(g)(1) 
of this chapter. The combined IRPS are incorporated into this section.


(Approved by the Office of Management and Budget under control number 
3133-0015.)

    Note: The text of the Interpretive Ruling and Policy Statement 
(IRPS 99-1) does not, and the following amendments will not, appear 
in the Code of Federal Regulations.

    3. In IRPS 99-1, Chapter 2, Section II.A is revised to read as 
follows:

    A single occupational common bond federal credit union may 
include in its field of membership all persons and entities who 
share that common bond. NCUA permits a person's membership 
eligibility in a single occupational common bond group to be 
established in four ways:
    <bullet> Employment (or a long-term contractual relationship 
equivalent to employment) in a single corporation or other legal 
entity makes that person part of an single occupational common bond;
    <bullet> Employment in a corporation or other legal entity with 
a controlling ownership interest (which shall not be less than 10 
percent) in or by another legal entity makes that person part of a 
single occupational common bond;
    <bullet> Employment in a corporation or other legal entity which 
is related to another legal entity (such as a company under contract 
and possessing a strong dependency relationship with another 
company) makes that person part of a single occupational common 
bond; or

    <bullet> Employment or attendance at a school makes that person 
part of a single occupational common bond (see Chapter 2, III.A.1).
    A geographic limitation is not a requirement for a single 
occupational common bond. However, for purposes of describing the 
field of membership, the geographic areas being served will be 
included in the charter. For example:
    <bullet> Employees, officials, and persons who work regularly 
under contract in Miami, Florida for ABC Corporation or the 
subsidiaries listed below;
    <bullet> Employees of ABC Corporation who are paid from * * *;
    <bullet> Employees of ABC Corporation who are supervised from * 
* *;
    <bullet> Employees of ABC Corporation who are headquartered in * 
* *; and/or
    <bullet> Employees of ABC Corporation who work in the United 
States.
    So that NCUA may monitor any potential field of membership 
overlaps, each group to be served (e.g., employees of subsidiaries, 
franchisees, and contractors) must be separately listed in Section 5 
of the charter. However, in situations where multiple contractors, 
who qualify based on a strong dependency relationship, are sole 
proprietors, the regional director may determine that more 
generalized wording is acceptable (e.g., ``non-incorporated owner-
operators who work regularly under contract to AJM Industries, Inc. 
in Glenville, New York'').
    The corporate or other legal entity (i.e., the employer) may 
also be included in the common bond--e.g., ``ABC Corporation.'' The 
corporation or legal entity will be defined in the last clause in 
Section 5 of the credit union's charter.
    A charter applicant must provide documentation to establish that 
the single occupational common bond requirement has been met.
    Some examples of a single occupational common bond are:
    <bullet> Employees of the Hunt Manufacturing Company who work in 
West Chester, Pennsylvania. (common bond--same employer with 
geographic definition);
    <bullet> Employees of the Buffalo Manufacturing Company who work 
in the United States. (common bond--same employer with geographic 
definition);
    <bullet> Employees, elected and appointed officials of municipal 
government in Parma, Ohio. (common bond--same employer with 
geographic definition);
    <bullet> Employees of Johnson Soap Company and its majority 
owned subsidiary, Johnson Toothpaste Company, who work in, are paid 
from, are supervised from, or are headquartered in Augusta and 
Portland, Maine. (common bond--parent and subsidiary company with 
geographic definition);
    <bullet> Employees of MMLLJS contractor who work regularly at 
the U.S. Naval Shipyard in Bremerton, Washington. (common bond--
employees of contractors with geographic definition);
    <bullet> Employees, doctors, medical staff, technicians, medical 
and nursing students who work in or are paid from the Newport Beach 
Medical Center, Newport Beach, California. (single corporation with 
geographic definition);
    <bullet> Employees of JLS, Incorporated and MJM, Incorporated 
working for the LKM Joint Venture Company in Catalina Island, 
California. (common bond--same employer--ongoing dependent 
relationship);
    <bullet> Employees of and students attending Georgetown 
University. (common bond--same occupation); or
    <bullet> Employees of all the schools supervised by the Timbrook 
Board of Education in Timbrook, Georgia. (common bond--same 
employer).
    Some examples of insufficiently defined single occupational 
common bonds are:
    <bullet> Employees of manufacturing firms in Seattle, 
Washington. (no defined occupational sponsor);
    <bullet> Persons employed or working in Chicago, Illinois. (no 
occupational common bond);
    <bullet> Employees of all colleges and universities in the State 
of Texas. (not a single occupational common bond); or
    <bullet> Employees of Timbrook School District and Swanbrook 
School District, in Burns, Georgia. (not a single occupational 
common bond).

    4. In IRPS 99-1, Chapter 2, Section III.A.1 is revised to read as 
follows:

    A single associational federal credit union may include in its 
field of membership, regardless of location, all members and 
employees of a recognized association. A single associational common 
bond consists of individuals (natural persons) and/or groups (non 
natural persons) whose members participate in activities developing 
common loyalties, mutual benefits, and mutual interests. Separately 
chartered associational groups can establish a single common bond 
relationship if they are integrally related and share common goals 
and purposes. For example, two or more churches of the same 
denomination, Knights of Columbus Councils, or locals of the same 
union can qualify as a single associational common bond.
    Individuals and groups eligible for membership in a single 
associational credit union can include the following:
    <bullet> Natural person members of the association (for example, 
members of a union or church members);

[[Page 37077]]

    <bullet> Non-natural person members of the association;
    <bullet> Employees of the association (for example, employees of 
the labor union or employees of the church); and
    <bullet> The association.
    Generally, a single associational common bond does not include a 
geographic definition. However, a proposed or existing federal 
credit union may limit its field of membership to a single 
association or geographic area. NCUA may impose a geographic 
limitation if it is determined that the applicant credit union does 
not have the ability to serve a larger group or there are other 
operational concerns. All single associational common bonds will 
include a definition of the group that may be served based on the 
effective date of the association's charter, bylaws, and any other 
equivalent documentation. If the associational charter crosses NCUA 
regional boundaries, each of the affected regional directors must be 
consulted prior to NCUA action on the charter.
    Qualifying associational groups must hold meetings open to all 
members, must sponsor other activities which demonstrate that the 
members of the group meet to accomplish the objectives of the 
association, and must have an authoritative definition of who is 
eligible for membership. Usually, this will be found in the 
association's charter and bylaws.
    The common bond for an associational group cannot be established 
simply on the basis that the association exists. In determining 
whether a group satisfies associational common bond requirements for 
a federal credit union charter, NCUA will consider the totality of 
the circumstances, such as:
    <bullet> Whether members pay dues;
    <bullet> Whether members participate in the furtherance of the 
goals of the association;
    <bullet> Whether the members have voting rights. To meet this 
requirement, members need not vote directly for an officer, but may 
vote for a delegate who in turn represents the members' interests;
    <bullet> Whether the association maintains a membership list;
    <bullet> The association's membership eligibility requirements; 
and
    <bullet> The frequency of meetings.
    A support group whose members are continually changing or whose 
duration is temporary may not meet the single associational common 
bond criteria. Individuals or honorary members who only make 
donations to the association are not eligible to join the credit 
union. Other classes of membership that do not meet to accomplish 
the goals of the association would not qualify.
    Educational groups--for example, parent-teacher organizations, 
alumni associations, and student organizations in any school--and 
church groups constitute associational common bonds and may qualify 
for a federal credit union charter.
    Student groups (e.g., students enrolled at a public, private, or 
parochial school) may constitute either an associational or 
occupational common bond. For example, students enrolled at a church 
sponsored school could share a single associational common bond with 
the members of that church and may qualify for a federal credit 
union charter. Similarly, students enrolled at a university, as a 
group by itself, or in conjunction with the faculty and employees of 
the school, could share a single occupational common bond and may 
qualify for a federal credit union charter (see Charter 2, II.A).
    Homeowner associations, tenant groups, co-ops, consumer groups, 
and other groups of persons having an ``interest in'' a particular 
cause and certain consumer cooperatives may also qualify as an 
association.
    The terminology ``Alumni of Jacksonville State University'' is 
insufficient to demonstrate an associational common bond. To qualify 
as an association, the alumni association must meet the requirements 
for an associational common bond. The alumni of a school must first 
join the alumni association, and not merely be alumni of the school 
to be eligible for membership.
    Associations based primarily on a client-customer relationship 
do not meet associational common bond requirements. However, having 
an incidental client-customer relationship does not preclude an 
associational charter as long as the associational common bond 
requirements are met. For example, a fraternal association that 
offers insurance, which is not a condition of membership, may 
qualify as a valid associational common bond.
    Applicants for a single associational common bond federal credit 
union charter or a field of membership amendment to include an 
association must provide, at the request of the regional director, a 
copy of the association's charter, bylaws, or other equivalent 
documentation, including any legal documents required by the state 
or other governing authority.
    The associational sponsor itself may also be included in the 
field of membership--e.g., ``Sprocket Association''--and will be 
shown in the last clause of the field of membership.

    5. In IRPS 99-1, Chapter 2, Section II.B.4 is revised to read as 
follows:

    A federal credit union requesting a common bond expansion must 
submit a formal written request, using the Application for Field of 
Membership Amendment (NCUA 4015) to the appropriate NCUA regional 
director. If a credit union is adding a group of 500 or less primary 
potential members, then the NCUA 4015-EZ should be used. The request 
must be signed by an authorized credit union representative.
    The NCUA 4015 (for groups in excess of 500 primary potential 
members) must be accompanied by the following:
    <bullet> A letter signed by an authorized representative of the 
group to be added. Wherever possible, this letter must be submitted 
on the group's letterhead stationery. The regional director may 
accept such other documentation or certification as deemed 
appropriate. This letter must indicate:

--How the group shares the credit union's occupational common bond;
--That the group wants to be added to the applicant federal credit 
union's field of membership;
--Whether the group presently has other credit union service 
available; and
--The number of persons currently included within the group to be 
added and their locations.

    <bullet> If the group is eligible for membership in any other 
credit union, documentation must be provided to support inclusion of 
the group under the overlap standards set forth in Section II.E of 
this Chapter.
    The NCUA 4015-EZ (for groups of 500 or less primary potential 
members) must be accompanied by the following:
    <bullet> A letter signed by an authorized representative of the 
group to be added. Wherever possible, this letter must be submitted 
on the group's letterhead stationery. The regional director may 
accept such other documentation or certification as deemed 
appropriate. This letter must indicate:

--How the group shares the credit union's occupational common bond;
--That the group wants to be added to the applicant federal credit 
union's field of membership; and
--The number of persons currently included within the group to be 
added and their locations.

    6. In IRPS 99-1, Chapter 2, Section III.B.4 is revised to read as 
follows:

    A federal credit union requesting a common bond expansion must 
submit a formal written request, using the Application for Field of 
Membership Amendment (NCUA 4015), to the appropriate NCUA regional 
director. If a credit union is adding a group of 500 or less primary 
potential members, then the NCUA 4015-EZ should be used. The request 
must be signed by an authorized credit union representative.
    NCUA 4015 (for groups in excess of 500 primary potential 
members) must be accompanied by the following:
    <bullet> A letter signed by an authorized representative of the 
group to be added. Wherever possible, this letter must be submitted 
on the group's letterhead stationery. The regional director may 
accept such other documentation or certification as deemed 
appropriate. This letter must indicate:

--How the group shares the credit union's associational common bond;
--That the group wants to be added to the applicant federal credit 
union's field of membership;
--Whether the group presently has other credit union service 
available; and
--The number of persons currently included within the group to be 
added and their locations.
    <bullet> The most recent copy of the group's charter and bylaws 
or equivalent documentation.
    <bullet> If the group is eligible for membership in any other 
credit union, documentation must be provided to support inclusion of 
the group under the overlap standards set forth in Section III.E of 
this Chapter.
    The NCUA 4015-EZ (for groups of 500 or less primary potential 
members) must be accompanied by the following:
    <bullet> A letter signed by an authorized representative of the 
group to be added.

[[Page 37078]]

Wherever possible, this letter must be submitted on the group's 
letterhead stationery. The regional director may accept such other 
documentation or certification as deemed appropriate. This letter 
must indicate:

--How the group shares the credit union's associational common bond;
--That the group wants to be added to the applicant federal credit 
union's field of membership;
--The number of persons currently included within the group to be 
added and their locations; and
    <bullet> The most recent copy of the group's charter and bylaws 
or equivalent documentation.

    7. In IRPS 99-1, Chapter 2, Section IV.B.3 is revised to read as 
follows:

    A multiple common bond credit union requesting a select group 
expansion must submit a formal written request, using the 
Application for Field of Membership Amendment (NCUA 4015) to the 
appropriate NCUA regional director. If a credit union is adding a 
group of 500 or less primary potential members, then the NCUA 4015-
EZ should be used. The request must be signed by an authorized 
credit union representative.
    The NCUA 4015 (for groups in excess of 500 primary potential 
members) must be accompanied by the following:
    <bullet> A letter signed by an authorized representative of the 
group to be added. Wherever possible, this letter must be submitted 
on the group's letterhead stationery. The regional director may 
accept such other documentation or certification as deemed 
appropriate. This letter must indicate:
--The group's occupational or associational common bond;
--That the group wants to be added to the federal credit union's 
field of membership;
--Whether the group presently has other credit union service 
available;
--The number of persons currently included within the group to be 
added and their locations;
--The group's proximity to credit union's nearest service facility, 
and
--Why the formation of a separate credit union for the group is not 
practical or consistent with safety and soundness standards, and 
provide comments on as many of the following factors that are 
applicable:

    <bullet> Member location--whether the membership is widely 
dispersed or concentrated in a central location.
    <bullet> Demographics--the employee turnover rate, economic 
status of the group's members, and whether the group is more apt to 
consist of savers and/or borrowers.
    <bullet> Market competition--the availability of other financial 
services.
    <bullet> Desired services and products--the type of services the 
group desires in comparison to the type of services a new credit 
union could offer.
    <bullet> Sponsor subsidies--the availability of operating 
subsidies.
    <bullet> Employee interest--the extent of the employees' 
interest in obtaining a credit union charter.
    <bullet> Evidence of past failure--whether the group previously 
had its own credit union or previously filed for a credit union 
charter.
    <bullet> Administrative capacity to provide services--will the 
group have the management expertise to provide the services 
requested.
    <bullet> If the group is eligible for membership in any other 
credit union, documentation must be provided to support inclusion of 
the group under the overlap standards set forth in Section IV.E of 
this Chapter; and
    <bullet> The most recent copy of the group's charter and bylaws 
or equivalent documentation (for associational groups).
    The NCUA 4015-EZ (for groups of 500 or less primary potential 
members) must be accompanied by the following:
    <bullet> A letter signed by an authorized representative of the 
group to be added. Wherever possible, this letter must be submitted 
on the group's letterhead stationery. The regional director may 
accept such other documentation or certification as deemed 
appropriate. This letter must indicate:

--How the group shares the credit union's occupational or 
associational common bond;
--That the group wants to be added to the applicant federal credit 
union's field of membership;
--The number of persons currently included within the group to be 
added and their locations; and
--The group's proximity to credit union's nearest service facility.

    <bullet> The most recent copy of the group's charter and bylaws 
or equivalent documentation (for associational groups).

    8. In IRPS 99-1, Chapter 2, Section II.E.1 is revised to read as 
follows:

    An overlap exists when a group of persons is eligible for 
membership in two or more credit unions. As a general rule, NCUA 
will not charter two or more credit unions to serve the same single 
occupational group. An overlap is permitted when the expansion's 
beneficial effect in meeting the convenience and needs of the 
members of the group proposed to be included in the field of 
membership clearly outweighs any adverse effect on the overlapped 
credit union. However, when two or more credit unions are attempting 
to serve the same occupational group, an overlap can be permitted.
    Proposed or existing credit unions must investigate the 
possibility of an overlap with federally insured credit unions prior 
to submitting an application for a proposed charter or expansion if 
the group(s) is greater than 500 primary potential members.
    When an overlap situation does arise, officials of the involved 
credit unions must attempt to resolve the overlap issue. If the 
matter is resolved between the affected credit unions, the applicant 
must submit a letter to that effect from the credit union whose 
field of membership already includes the subject group.
    If no resolution is possible or the overlapped credit union 
fails to provide a letter, an application for a new charter or field 
of membership expansion may still be submitted, but must also 
include information regarding the overlap and documented attempts at 
resolution. Documentation on the interests of the group, such as a 
petition signed by a majority of the group's members, will be 
strongly considered.
    An overlap will not be considered adverse to the overlapped 
credit union if:
    <bullet> The group has 500 or less primary potential members or 
the overlap is otherwise incidental in nature--i.e., the group of 
persons in question is so small as to have no material effect on the 
original credit union;
    <bullet> The overlapped credit union does not object to the 
overlap; or
    <bullet> There is limited participation by members or employees 
of the group in the original credit union after the expiration of a 
reasonable period of time.
    In reviewing the overlap, the regional director will consider:
    <bullet> The nature of the issue;
    <bullet> Efforts made to resolve the matter;
    <bullet> Financial effect on the overlapped credit union;
    <bullet> The desires of the group(s);
    <bullet> Whether the original credit union fails to provide 
requested service;
    <bullet> The desire of the sponsor organization; and
    <bullet> The best interests of the affected group and the credit 
union members involved.
    Potential overlaps of a federally insured state credit union's 
field of membership by a federal credit union will generally be 
analyzed in the same way as if two federal credit unions were 
involved. Where a federally insured state credit union's field of 
membership is broadly stated, NCUA will exclude its field of 
membership from any overlap protection.
    New charter applicants and every single occupational common bond 
group which comes before the regional director for affiliation with 
an existing federal credit union must advise the regional director 
in writing whether the group is included within the field of 
membership of any other credit union except a community charter. 
This notification requirement is not applicable to groups with 500 
or less primary potential members. If cases arise where the 
assurance given to a regional director concerning unavailability of 
credit union service is inaccurate, the misinformation is grounds 
for removal of the group from the federal credit union's charter.
    NCUA will permit single occupational federal credit unions to 
overlap community charters without performing an overlap analysis.

    9. In IRPS 99-1, Chapter 2, Section II.E.1 is revised to read as 
follows:

    A federal credit union's field of membership will always be 
governed by the common bond descriptions contained in Section 5 of 
its charter. Where a sponsor organization expands its operations 
internally, by acquisition or otherwise, the credit union may serve 
these new entrants to its field of membership if they are part of 
the common bond described in Section 5. Where acquisitions are made 
which add a new subsidiary, the group cannot be served until the 
subsidiary is included in the field of membership.

[[Page 37079]]

    Overlaps may occur as a result of restructuring or merger of the 
parent organization. Credit unions affected by organizational 
restructuring or merger should attempt to resolve overlap issues 
among themselves. If an agreement is reached, they must apply to 
NCUA for a modification of their fields of membership to reflect the 
groups each will serve. Unless an agreement is reached limiting the 
overlap resulting from the corporate restructuring, NCUA will permit 
a complete overlap of the credit unions' fields of membership.
    In addition, credit unions must submit to NCUA documentation 
explaining the restructuring and providing information regarding the 
new organizational structure. To help in future monitoring of 
overlaps, the credit union must identify divisions and subsidiaries 
and the locations of each. Where the sponsor and its employees 
desire to continue service, NCUA may use wording such as the 
following:
    <bullet> Employees of Lucky Corporation, formerly a subsidiary 
of Tool, Incorporated, located in Charleston, South Carolina.

    10. In IRPS 99-1, Chapter 2, Section III.E.1 is revised to read as 
follows:

    An overlap exists when a group of persons is eligible for 
membership in two or more credit unions. As a general rule, NCUA 
will not charter two or more credit unions to serve the same single 
associational group. An overlap is permitted when the expansion's 
beneficial effect in meeting the convenience and needs of the 
members of the group proposed to be included in the field of 
membership clearly outweighs any adverse effect on the overlapped 
credit union. However, when two or more credit unions are attempting 
to serve the same associational group, an overlap can be permitted.
    Proposed or existing credit unions must investigate the 
possibility of an overlap with federally insured credit unions prior 
to submitting an application for a proposed charter or expansion if 
the group(s) is greater than 500 primary potential members.
    When an overlap situation does arise, officials of the involved 
credit unions must attempt to resolve the overlap issue. If the 
matter is resolved between the credit unions, the applicant must 
submit a letter to that effect from the credit union whose field of 
membership already includes the subject group.
    If no resolution is possible or the overlapped credit union 
fails to provide a letter, an application for a new charter or field 
of membership expansion may still be submitted, but must also 
include information regarding the overlap and documented attempts at 
resolution. Documentation on the interests of the group, such as a 
petition signed by a majority of the group's members, will be 
strongly considered.
    An overlap will not be considered adverse to the overlapped 
credit union if:
    <bullet> The group has 500 or less primary potential members or 
the overlap is otherwise incidental in nature--i.e., the group of 
persons in question is so small as to have no material effect on the 
original credit union;
    <bullet> The overlapped credit union does not object to the 
overlap;
    <bullet> There is limited participation by members of the group 
in the original credit union after the expiration of a reasonable 
period of time; or
    <bullet> The field of membership is broadly stated, such as a 
national association.
    In reviewing the overlap, the regional director will consider:
    <bullet> The nature of the issue;
    <bullet> Efforts made to resolve the matter;
    <bullet> Financial effect on the overlapped credit union;
    <bullet> The desires of the group(s);
    <bullet> Whether the original credit union fails to provide 
requested service;
    <bullet> The desire of the sponsor organization; and
    <bullet> The best interests of the affected group and the credit 
union members involved.
    Potential overlaps of a federally insured state credit union's 
field of membership by a federal credit union will generally be 
analyzed in the same way as if two federal credit unions were 
involved. Where a federally insured state credit union's field of 
membership is broadly stated, NCUA will exclude its field of 
membership from any overlap protection.
    New charter applicants and every single associational common 
bond group which comes before the regional director for affiliation 
with an existing federal credit union must advise the regional 
director in writing whether the group is included within the field 
of membership of any other credit union except a community charter. 
This notification requirement is not applicable to groups with 500 
or less primary potential members. If cases arise where the 
assurance given to a regional director concerning unavailability of 
credit union service is inaccurate, the misinformation is grounds 
for removal of the group from the federal credit union's charter.
    NCUA will permit single associational federal credit unions to 
overlap community charters without performing an overlap analysis.

    11. In IRPS 99-1, Chapter 2, Section III.E.2 is revised to read as 
follows:

    A federal credit union's field of membership will always be 
governed by the common bond descriptions contained in Section 5 of 
its charter. Where a sponsor organization expands its operations 
internally, by acquisition or otherwise, the credit union may serve 
these new entrants to its field of membership if they are part of 
the common bond described in Section 5.
    Overlaps may occur as a result of restructuring or merger of the 
parent organization. Credit unions affected by organizational 
restructuring or merger should attempt to resolve overlap issues 
among themselves. If an agreement is reached, they must apply to 
NCUA for a modification of their fields of membership to reflect the 
groups each will serve. Unless an agreement is reached limiting the 
overlap resulting from the corporate restructuring, NCUA will permit 
a complete overlap of the credit unions' fields of membership.

    12. In IRPS 99-1, Chapter 2, Section IV.E.2 is revised to read as 
follows:

    A federal credit union's field of membership will always be 
governed by the field of membership descriptions contained in 
Section 5 of its charter. Where a sponsor organization expands its 
operations internally, by acquisition or otherwise, the credit union 
may serve these new entrants to its field of membership if they are 
part of any select group listed in Section 5. Where acquisitions are 
made which add a new subsidiary, the group cannot be served until 
the subsidiary is included in the field of membership.
    Overlaps may occur as a result of restructuring or merger of the 
parent organization. When such overlaps occur, each credit union 
must request a field of membership amendment to reflect the new 
groups each wishes to serve. The credit union can continue to serve 
any current group in its field of membership that is acquiring a new 
group or has been acquired by a new group. The new group cannot be 
served by the credit union until the field of membership amendment 
is approved by NCUA.
    Credit unions affected by organizational restructuring or merger 
should attempt to resolve overlap issues among themselves. Unless an 
agreement is reached limiting the overlap resulting from the 
corporate restructuring, NCUA will permit a complete overlap of the 
credit unions' fields of membership. When two groups merge, or one 
group is acquired by the other, and each is in the field of 
membership of a credit union, both (or all affected) credit unions 
can serve the resulting merged or acquired group, subject to any 
existing geographic limitation and without regard to any overlap 
provisions. This can be accomplished through a housekeeping 
amendment.
    In addition, credit unions must submit to NCUA documentation 
explaining the restructuring and providing information regarding the 
new organizational structure. To help in future monitoring of 
overlaps, the credit union must identify divisions and subsidiaries 
and the locations of each. Where the sponsor and its employees 
desire to continue service, NCUA may use wording such as the 
following:
    <bullet> Employees of MHS Corporation, formerly a subsidiary of 
Tool, Incorporated, located in Charleston, South Carolina.

    13. In IRPS 99-1, Chapter 2, Section IV.A.1 is revised to read as 
follows:

    A federal credit union may be chartered to serve a combination 
of distinct, definable single occupational and/or associational 
common bonds. This type of credit union is called a multiple common 
bond credit union. Each group in the field of membership must have 
its own occupational or associational common bond. For example, a 
multiple common bond credit union may include two unrelated 
employers, or two unrelated associations, or a combination of two or 
more employers or associations. Additionally, these groups must be 
within reasonable geographic proximity of the credit union. That is, 
the groups must be within the service

[[Page 37080]]

area of one of the credit union's service facilities. These groups 
are referred to as select groups. A multiple common bond credit 
union cannot expand using single common bond criteria.
    A federal credit union's service area is the area that can 
reasonably be served by the service facilities accessible to the 
groups within the field of membership. The service area will most 
often coincide with that geographic area primarily served by the 
service facility. Additionally, the groups served by the credit 
union must have access to the service facility. A service facility 
is defined as a place where shares are accepted for members' 
accounts, loan applications are accepted, and loans are disbursed. 
This definition includes a credit union owned branch, a mobile 
branch, an office operated on a regularly scheduled weekly basis, or 
a credit union owned electronic facility that meets, at a minimum, 
these requirements. A service facility also includes a shared branch 
if the credit union either (1) owns directly or through a CUSO or 
similar organization at least a 5 percent interest in the service 
facility, or (2) the service facility is local to the credit union 
and the credit union is an authorized participant in the service 
center. This definition does not include an ATM.
    The select group as a whole will be considered to be within a 
credit union's service area when:
    <bullet> A majority of the persons in a select group live, work, 
or gather regularly within the service area;
    <bullet> The group's headquarters is located within the service 
area; or
    <bullet> The group's ``paid from'' or ``supervised from'' 
location is within the service area.

    14. In IRPS 99-1, Chapter 2, Section IV.B.2 is revised to read as 
follows:

    An existing multiple common bond federal credit union that 
submits a request to amend its charter must provide documentation to 
establish that the multiple common bond requirements have been met. 
All amendments to a multiple common bond credit union's field of 
membership must be approved by the regional director.
    NCUA will approve groups to a credit union's field of 
membership, if the agency determines in writing that the following 
criteria are met:
    <bullet> The credit union has not engaged in any unsafe or 
unsound practice, as determined by the regional director, which is 
material during the one year period preceding the filing to add the 
group;
    <bullet> The credit union is ``adequately capitalized.'' NCUA 
defines adequately capitalized to mean the credit union has a net 
worth ratio of not less than 6 percent. For low-income credit unions 
or credit unions chartered less than ten years, the regional 
director may determine that a net worth ratio of less than 6 percent 
is adequate if the credit union is making reasonable progress toward 
meeting the 6 percent net worth requirement. For any other credit 
union, the regional director may determine that a net worth ratio of 
less than 6 percent is adequate if the credit union is making 
reasonable progress toward meeting the 6 percent net worth 
requirement, and the addition of the group would not adversely 
affect the credit union's capitalization level.
    <bullet> The credit union has the administrative capability to 
serve the proposed group and the financial resources to meet the 
need for additional staff and assets to serve the new group;
    <bullet> Any potential harm the expansion may have on any other 
credit union and its members is clearly outweighed by the probable 
beneficial effect of the expansion. With respect to a proposed 
expansion's effect on other credit unions, the requirements on 
overlapping fields of membership set forth in Section IV.E of this 
Chapter are also applicable; and
    <bullet> If the formation of a separate credit union by such 
group is not practical and consistent with reasonable standards for 
the safe and sound operation of a credit union.
    A more detailed analysis is required for groups of 3,000 or more 
primary potential members requesting to be added to a multiple 
common bond credit union; however, only groups over 500 must address 
why they cannot form their own credit union. It is incumbent upon 
the credit union to demonstrate that the formation of a separate 
credit union by such a group is not practical. The group must 
provide evidence that it lacks sufficient volunteer and other 
resources to support the efficient and effective operations of a 
credit union or does not meet the economic advisability criteria 
outlined in Chapter 1. If this can be demonstrated, the group may be 
added to a multiple common bond credit union's field of membership.

    15. In IRPS 99-1, Chapter 2, Section IV.E.1 is revised to read as 
follows:

    An overlap exists when a group of persons is eligible for 
membership in two or more credit unions, including state charters. 
An overlap is permitted when the expansion's beneficial effect in 
meeting the convenience and needs of the members of the group 
proposed to be included in the field of membership clearly outweighs 
any adverse effect on the overlapped credit union.
    Proposed or existing credit unions must investigate the 
possibility of an overlap with federally insured credit unions prior 
to submitting an application for a proposed charter or expansion if 
the group(s) is greater than 500 primary potential members. An 
overlap analysis is not required for groups with 500 or less primary 
potential members.
    When an overlap situation requiring analysis does arise, 
officials of the expanding credit union must ascertain the views of 
the overlapped credit union. If the overlapped credit union does not 
object, the applicant must submit a letter or other documentation to 
that effect. If the overlapped credit union does not respond, the 
expanding credit union must notify NCUA in writing of its attempt to 
obtain the overlapped credit union's comments.
    NCUA will generally not approve an overlap unless the 
expansion's beneficial effect in meeting the convenience and needs 
of the members of the group proposed to be included in field of 
membership clearly outweighs any adverse effect on the overlapped 
credit union.
    In reviewing the overlap, the regional director will consider:
    <bullet> The view of the overlapped credit union(s);
    <bullet> Whether the overlap is incidental in nature--the group 
of persons in question is so small as to have no material effect on 
the original credit union;
    <bullet> Whether there is limited participation by members or 
employees of the group in the original credit union after the 
expiration of a reasonable period of time;
    <bullet> Whether the original credit union fails to provide 
requested service;
    <bullet> Financial effect on the overlapped credit union;
    <bullet> The desires of the group(s);
    <bullet> The desire of the sponsor organization; and
    <bullet> The best interests of the affected group and the credit 
union members involved.
    Generally, if the overlapped credit union does not object, and 
NCUA determines that there is no safety and soundness problem, the 
overlap will be permitted.
    Potential overlaps of a federally insured state credit union's 
field of membership by a federal credit union will generally be 
analyzed in the same way as if two federal credit unions were 
involved. Where a federally insured state credit union's field of 
membership is broadly stated, NCUA will exclude its field of 
membership from any overlap protection.
    New charter applicants and every select group which comes before 
the regional director for affiliation with an existing federal 
credit union must advise the regional director in writing whether 
the group is included within the field of membership of any other 
credit union. This requirement is not applicable to groups with 500 
or less primary potential members. If cases arise where the 
assurance given to a regional director concerning unavailability of 
credit union service is inaccurate, the misinformation is grounds 
for removal of the group from the federal credit union's charter.
    NCUA will permit multiple common bond federal credit unions to 
overlap community charters without performing an overlap analysis.

    16. In IRPS 99-1, Chapter 2, Section IV.D.1 is revised to read as 
follows:

    a. All select groups in the merging credit union's field of 
membership have less than 3,000 primary potential members.
    A voluntary merger of two or more federal credit unions is 
permissible as long as each select group in the merging credit 
union's field of membership has less than 3,000 primary potential 
members. While the merger requirements outlined in Section 205 of 
the Federal Credit Union Act must still be met, the requirements of 
Chapter 2, Section IV.B.2 of this manual are not applicable.
    b. One or more select groups in the merging credit union's field 
of membership has 3,000 or more primary potential members.
    If the merging credit unions serve the same group, and the group 
consists of 3,000 or more primary potential members, then the 
ability to form analysis is not required for that group. If the 
merging credit union has any other groups consisting of 3,000 or 
more primary potential members, special

[[Page 37081]]

requirements apply. NCUA will analyze each group of 3,000 or more 
primary potential members, except as noted above, to determine 
whether the formation of a separate credit union by such a group is 
practical. If the formation of a separate credit union by such a 
group is not practical because the group lacks sufficient volunteer 
and other resources to support the efficient and effective 
operations of a credit union or does not meet the economic advisable 
criteria outlined in Chapter 1, the group may be merged into a 
multiple common bond credit union. If the formation of a separate 
credit union is practical, the group must be spun-off before the 
merger can be approved.
    c. Merger of a single common bond credit union into a multiple 
common bond credit union.
    A financially healthy single common bond credit union with a 
primary potential membership in excess of 3,000 primary potential 
members cannot merge into a multiple common bond credit union, 
absent supervisory reasons.
    d. Merger approval.
    If the merger is approved, the qualifying groups within the 
merging credit union's field of membership will be transferred 
intact to the continuing credit union and can continue to be served.
    Where the merging credit union is state-chartered, the field of 
membership rules applicable to a federal credit union apply.
    Mergers must be approved by the NCUA regional director where the 
continuing credit union is headquartered, with the concurrence of 
the regional director of the merging credit union, and, as 
applicable, the state regulators.

    17. In IRPS 99-1, Chapter 2, Section IV.D.2 is revised to read as 
follows:

    The NCUA may approve the merger of any federally insured credit 
union when safety and soundness concerns are present without regard 
to the 3,000 numerical limitation. The credit union need not be 
insolvent or in danger of insolvency for NCUA to use this statutory 
authority. Examples constituting appropriate reasons for using this 
authority are: abandonment of the management and/or officials and an 
inability to find replacements, loss of sponsor support, serious and 
persistent record keeping problems, sustained material decline in 
financial condition, or other serious or persistent circumstances.

    18. In IRPS 99-1, Chapter 2, Section IV.F is revised to read as 
follows:

    A multiple common bond federal credit union may apply to convert 
to a community charter provided the field of membership requirements 
of the community charter are met. Groups within the existing charter 
which cannot qualify in the new charter cannot be served except for 
members of record, or groups or communities obtained in an emergency 
merger or P&A. A credit union must notify all groups that will be 
removed from the field of membership as a result of conversion. 
Members of record can continue to be served. Also, in order to 
support a case for a conversion, the applicant federal credit union 
may be required to develop a detailed business plan as specified in 
Chapter 1, Section IV.D.
    A multiple common bond federal credit union may apply to convert 
to a single occupational or associational common bond charter 
provided the field of membership requirements of the new charter are 
met. Groups within the existing charter which cannot qualify in the 
new charter cannot be served except for members of record, or groups 
or communities obtained in an emergency merger or P&A. A credit 
union must notify all groups that will be removed from the field of 
membership as a result of conversion. However, a credit union can 
continue to serve any group included in, or added to, its single 
common bond field of membership at the time of conversion to a 
single common bond credit union for a period of three years from the 
date of conversion if the group is later sold, spun-off or otherwise 
divested as a result of a corporate reorganization/restructuring. If 
the credit union elects to continue to serve any sold, spun-off or 
otherwise divested group after three years from the date of 
conversion, then it must convert back to a multiple common bond 
credit union. During this three-year period, it will continue to be 
treated as a single common bond credit union.
    Once a multiple common bond credit union converts to a single 
occupational or assocational credit union, it cannot convert back to 
a multiple common bond credit union for a period of three years, 
unless there are safety and soundness concerns.

    19. In IRPS 99-1, Chapter 2, Section II.B.2 is revised to read as 
follows:

    If the single common bond group that comprises a federal credit 
union's field of membership undergoes a substantial restructuring, 
the result is often that portions of the group are sold or spun off. 
This is an event which requires a change to the credit union's field 
of membership. NCUA will not permit a single common bond credit 
union to maintain in its field of membership a sold or spun-off 
group to which it has been providing service unless the group 
otherwise qualifies for membership in the credit union or if the 
credit union converts to a multiple common bond credit union.
    If the group comprising the single common bond of the credit 
union merges with, or is acquired by, another group, the credit 
union can serve the new group resulting from the merger or 
acquisition after receiving a housekeeping amendment.

    20. In IRPS 99-1, Chapter 2, Section III.B.2 is revised to read as 
follows:

    If the single common bond group that comprises a federal credit 
union's field of membership undergoes a substantial restructuring, 
the result is often that portions of the group are sold or spun off. 
This is an event which requires a change to the credit union's field 
of membership. NCUA may not permit a single associational credit 
union to maintain in its field of membership a sold or spun-off 
group to which it has been providing service unless the group 
otherwise qualifies for membership in the credit union or the credit 
union converts to a multiple common bond credit union.
    If the group comprising the single common bond of the credit 
union merges with, or is acquired by, another group, the credit 
union can serve the new group resulting from the merger or 
acquisition after receiving a housekeeping amendment.

    21. In IRPS 99-1, Chapter 2, Section IV.F is revised to read as 
follows:

    If a select group within a federal credit union's field of 
membership undergoes a substantial restructuring, a change to the 
credit union's field of membership may be required if the credit 
union is to continue to provide service to the select group. NCUA 
permits a multiple common bond credit union to maintain in its field 
of membership a sold, spun-off, or merged select group to which it 
has been providing service. This type of amendment to the credit 
union's charter is not considered an expansion; therefore the 
criteria relating to adding new groups are not applicable.
    When two groups merge and each is in the field of membership of 
a credit union, then both (or all affected) credit unions can serve 
the resulting merged group, subject to any existing geographic 
limitation and without regard to any overlap provisions. However, 
the credit unions cannot serve the other multiple groups that may be 
in the field of membership of the other credit union.

    22. In IRPS 99-1, Chapter 2, Section V.A.2 is revised to read as 
follows:

    In addition to the documentation requirements set forth in 
Chapter 1 to charter a credit union, a community credit union 
applicant must provide additional documentation addressing the 
proposed area to be served and community service policies.
    A community credit union is unique in that it must meet the 
statutory requirements that the proposed community area is (1) well-
defined, and (2) a local community, neighborhood, or rural district.
    ``Well-defined'' means the proposed area has specific geographic 
boundaries. Geographic boundaries may include a city, township, 
county (or its political equivalent), or clearly identifiable 
neighborhood. Although congressional districts or other political 
boundaries which are subject to occasional change, and state 
boundaries are well-defined areas, they do not meet the second 
requirement that the proposed area be a local community, 
neighborhood, or rural district.
    The meaning of local community, neighborhood, or rural district 
includes a variety of factors. Most prominent is the requirement 
that the residents of the proposed community area interact or have 
common interests. In determining interaction and/or common 
interests, a number of factors become relevant. For example, the 
existence of a single major trade area, shared governmental or civic 
facilities, or area newspaper is significant evidence of community 
interaction and/or common interests. Conversely, numerous trade 
areas, multiple taxing authorities, and multiple political 
jurisdictions, tend to diminish the characteristics of a local area.
    Population and geographic size are also significant factors in 
determining whether

[[Page 37082]]

the area is local in nature. A large population in a small 
geographic area or a small population in a large geographic area may 
meet NCUA community chartering requirements. For example, an ethnic 
neighborhood, a rural area, a city, and a county with 300,000 or 
less residents will generally have sufficient interaction and/or 
common interests to meet community charter requirements. While this 
may most often be true, it does not preclude community charters 
consisting of multiple counties or local areas with populations of 
any size from meeting community charter requirements.
    Conversely, a larger population in a large geographic area may 
not meet NCUA community chartering requirements. It is more 
difficult for a major metropolitan city, a densely populated county, 
or an area covering multiple counties with significant population to 
have sufficient interaction and/or common interests, and to 
therefore demonstrate that these areas meet the requirement of being 
``local.'' In such cases, documentation supporting the interaction 
and/or common interests will be greater than the evidence necessary 
for a smaller and less densely populated area.
    In most cases, the ``well-defined local community, neighborhood, 
or rural district'' requirement will be met if (1) the area to be 
served is in a recognized single political jurisdiction, i.e., a 
county or its political equivalent or any contiguous political 
subdivisions contained therein, and if the population of the 
requested well-defined area does not exceed 300,000, or (2) the area 
to be served is in multiple contiguous political jurisdictions, i.e. 
a county or its political equivalent or any political subdivisions 
contained therein and if the population of the requested well-
defined area does not exceed 200,000. If the proposed area meets 
either of these criteria, the credit union must only submit a letter 
describing how the area meets the standards for community 
interaction or common interests.
    If NCUA does not find sufficient evidence of community 
interaction or common interests, more detailed documentation will be 
necessary to support that the proposed area is a well-defined 
community. The credit union must also provide evidence of the 
political jurisdiction(s) and population. Evidence of the political 
jurisdiction(s) should include maps designating the area to be 
served. One map must be a regional or state map with the proposed 
community outlined. The other map must outline the proposed 
community and the identifying geographic characteristics of the 
surrounding areas.
    If the area to be served does not meet the political 
jurisdiction(s) and population requirements of the preceding 
paragraph, or if required by NCUA, the application must include 
documentation to support that it is a well-defined local community, 
neighborhood, or rural district. It is the applicant's 
responsibility to demonstrate the relevance of the documentation 
provided in support of the application. This must be provided in a 
narrative summary. The narrative summary must explain how the 
documentation demonstrates interaction or common interests. For 
example, simply listing newspapers and organizations in the area is 
not sufficient to demonstrate that the area is a local community, 
neighborhood, or rural district.
    Examples of acceptable documentation may include:
    <bullet> The defined political jurisdictions;
    <bullet> Major trade areas (shopping patterns and traffic 
flows);
    <bullet> Shared/common facilities (for example, educational, 
medical, police and fire protection, school district, water, etc.);
    <bullet> Organizations and clubs within the community area;
    <bullet> Newspapers or other periodicals published for and about 
the area;
    <bullet> Maps designating the area to be served. One map must be 
a regional or state map with the proposed community outlined. The 
other map must outline the proposed community and the identifying 
geographic characteristics of the surrounding areas;
    <bullet> Common characteristics and background of residents (for 
example, income, religious beliefs, primary ethnic groups, 
similarity of occupations, household types, primary age group, 
etc.); or
    <bullet> Other documentation that demonstrates that the area is 
a community where individuals have common interests or interact.
    A community credit union is frequently more susceptible to 
competition from other local financial institutions and generally 
does not have substantial support from any single sponsoring company 
or association. As a result, a community credit union will often 
encounter financial and operational factors that differ from an 
occupational or associational charter. Its diverse membership may 
require special marketing programs targeted to different segments of 
the community. For example, the lack of payroll deduction creates 
special challenges in the development of savings promotional 
programs and in the collection of loans.
    Accordingly, it is essential for the proposed community credit 
union to develop a detailed and practical business and marketing 
plan for at least the first two years of operation. The proposed 
credit union must not only address the documentation requirements 
set forth in Chapter 1, but also focus on the accomplishment of the 
unique financial and operational factors of a community charter.
    In addition, proposed and existing community credit unions must 
develop a community action plan (CAP). The CAP supplements the 
credit union's marketing plan by specifically addressing how the 
credit union plans to market its services to the entire community, 
including any underserved or low-income areas, if applicable. This 
may include current or future delivery systems, such as ATMs, 24 
hour voice response system, internet web sites, current or future 
customized programs to assist community residents such as credit 
counseling and budgeting, and current or future service facility 
locations.
    Community credit unions boards will be expected to regularly 
review and to follow, to the fullest extent economically possible, 
the marketing and/or business plan submitted with their application. 
The boards of community credit unions will also be expected to 
periodically review and update the CAP to determine if all segments 
of the community are being served. If a credit union fails to make 
reasonable efforts to follow its community action plan, NCUA may 
initiate appropriate supervisory action.


    23. In IRPS 99-1, Chapter 3, Section III is revised to read as 
follows:

    All federal credit unions may include in their fields of 
membership, without regard to location, communities satisfying the 
definition for serving underserved areas in the Federal Credit Union 
Act. More than one federal credit union can serve the same 
underserved area. The Federal Credit Union Act defines an 
underserved area as a local community, neighborhood, or rural 
district that is an ``investment area'' as defined in Section 
103(16) of the Community Development Banking and Financial 
Institutions Act of 1994.
    The ``well-defined local community, neighborhood, or rural 
district'' requirement will be met if (1) the area to be served is 
in a recognized single political jurisdiction, i.e., a county or its 
political equivalent or any contiguous political subdivisions 
contained therein, and if the population of the requested well-
defined area does not exceed 300,000 or (2) the area to be served is 
in multiple contiguous political jurisdictions, i.e., a county or 
its political equivalent or any political subdivisions contained 
therein and if the population of the requested well-defined area 
does not exceed 200,000. If the proposed area meets either of these 
criteria and meets the definition of an investment area that is 
underserved, then it is presumed to be a local community, 
neighborhood, or rural district.
    An investment area includes any of the following:
    <bullet> An area encompassed or located in an Empowerment Zone 
or Enterprise Community designated under section 1391 or the 
Internal Revenue Code of 1996 (26 U.S.C. 1391);
    <bullet> An area where the percentage of the population living 
in poverty is at least 20 percent;
    <bullet> An area in a Metropolitan Area where the median family 
income is at or below 80 percent of the Metropolitan Area median 
family income or the national Metropolitan Area median family 
income, whichever is greater;
    <bullet> An area outside of a Metropolitan Area, where the 
median family income is at or below 80 percent of the statewide non-
Metropolitan Area median family income or the national non-
Metropolitan Area median family income, whichever is greater;
    <bullet> An area where the unemployment rate is at least 1.5 
times the national average;
    <bullet> An area where the percentage of occupied distressed 
housing (as indicated by lack of complete plumbing and occupancy of 
more than one person per room) is at least 20 percent;
    <bullet> An area located outside of a Metropolitan Area with a 
county population loss between 1980 and 1990 of at least 10 percent;

[[Page 37083]]

    In addition, the local community, neighborhood, or rural 
district must be underserved, based on data considered by the NCUA 
Board and the Federal banking agencies.
    Once an underserved area has been added to a federal credit 
union's field of membership, the credit union must establish and 
maintain an office or facility in the community within two years. A 
service facility is defined as a place where shares are accepted for 
members' accounts, loan applications are accepted and loans are 
disbursed. This definition includes a credit union owned branch, a 
shared branch, a mobile branch, an office operated on a regularly 
scheduled weekly basis, or a credit union owned electronic facility 
that meets, at a minimum, these requirements. This definition does 
not include an ATM.
    If a credit union has a preexisting office within close 
proximity to the underserved area, then it will not be required to 
maintain an office or facility within the underserved area. Close 
proximity will be determined on a case-by-case basis, but the office 
must be readily accessible to the residents and the distance from 
the underserved area will not be an impediment to a majority of the 
residents to transact credit union business.
    The federal credit union adding the underserved community must 
document that the community meets the definition for serving 
underserved areas in the Federal Credit Union Act. The charter type 
of a federal credit union adding such a community will not change 
and therefore the credit union will not be able to receive the 
benefits afforded to low-income designated credit unions, such as 
expanded use of non member deposits and access to the Community 
Development Revolving Loan Program for Credit Unions.
    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 identify the credit and depository needs of the 
community and detail how the credit union plans to serve those 
needs. 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 underserved area are being met as well as 
requiring such reports before NCUA allows a federal credit union to 
add an additional underserved area.

    24. In IRPS 99-1, Chapter 4, Section II is revised to read as 
follows:

    Any state-chartered credit union may apply to convert to a 
federal credit union. In order to do so it must:
    <bullet> Comply with state law regarding conversion;
    <bullet> File proof of compliance with NCUA;
    <bullet> File the required conversion application, proposed 
federal credit union organization certificate, and other documents 
with NCUA;
    <bullet> Comply with the requirements of the Federal Credit 
Union Act, e.g., chartering and reserve requirements; and
    <bullet> Be granted federal share insurance by NCUA.
    Conversions are treated the same as any initial application for 
a federal charter, including mandatory on-site examination by NCUA. 
NCUA will also consult with the appropriate state authority 
regarding the credit union's current financial condition, management 
expertise, and past performance. Since the applicant in a conversion 
is an ongoing credit union, the economic advisability of granting a 
charter is more readily determinable than in the case of an initial 
charter applicant.
    A converting state credit union's field of membership must 
conform to NCUA's chartering policy. The field of membership will be 
phrased in accordance with NCUA chartering policy. Subsequent 
changes must conform to NCUA chartering policy in effect at that 
time. The converting credit union may continue to serve members of 
record.
    If the converting credit union is a multiple group charter and 
the new federal charter is a multiple group, then the new federal 
charter may retain in its field of membership any group that the 
state credit union was serving at the time of conversion. Any 
subsequent additions or amendments to the credit union's field of 
membership must comply with federal field of membership policies.
    If the converting credit union is a community charter and the 
new federal charter is community-based, it must meet the community 
field of membership requirements set forth in Chapter 2, Section V. 
If the state chartered credit union's community boundary is more 
expansive than the approved federal boundary, only members of record 
outside of the new community boundary may continue to be served.

    25. In IRPS 99-1, Chapter 4, Section III.A is revised to read as 
follows:

    Any federal credit union may apply to convert to a state credit 
union. In order to do so, it must:
    <bullet> Notify NCUA prior to commencing the process to convert 
to a state charter and state the reason(s) for the conversion;
    <bullet> Comply with the requirements of Section 125 of the 
Federal Credit Union Act that enable it to convert to a state credit 
union and to cease being a federal credit union; and
    <bullet> Comply with applicable state law and the requirements 
of the state regulator.
    It is important that the credit union provide an accurate 
disclosure of the reasons for the conversion. These reasons should 
be stated in specific terms, not as generalities. The federal credit 
union converting to a state charter remains responsible for the 
entire operating fee for the year in which it converts.

    26. In IRPS 99-1, Chapter 2, the title of Sections II.H, III.H, and 
IV.F is revised to read as ``Other Person's Eligible for Credit Union 
Membership.''
    27. In IRPS 99-1, Appendix D, Form 4015EZ is revised to read as 
follows:

Application for Field of Membership Amendment NCUA Form 4015-EZ

Use Only for Expansions Covering Groups of 500 Persons or Less

    Attach a separate application for each group included in your 
request for expansion. The application must be complete or it will 
be returned unprocessed.

1. Name and address of credit union:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------

2. Name and address of group:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------

(If the group is an association, include a copy of the association's 
Charter/Bylaws or other equivalent organizational documentation.)
3. Provide the proposed field of membership wording:------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
4. How many primary potential members (excluding immediate family and 
household members) are in the group:-----------------------------------
----------------------------------------------------------------------

5. Attach a letter, on letterhead stationery if possible, from the 
group requesting credit union service. This letter must indicate:

    {time}   How the group shares the occupational or associational 
common bond (for single common bond additions only);
    {time}   That the group wants to be added to the federal credit 
union's field of membership;
    {time}   The number of persons to be added and the group's 
location(s); and
    {time}   The group's proximity to the credit union's nearest 
service facility (for multiple common bond additions only).

Name and title of credit union board-authorized representative 
(e.g., President/CEO):

----------------------------------------------------------------------
(Typed/Printed Name)
----------------------------------------------------------------------
(Signature)
----------------------------------------------------------------------
(Date)

28. In IRPS 99-1, Appendix D, Form 4015 is revised to read as 
follows:

Application for Field of Membership Amendment NCUA Form 4015

Use Only for Expansions Covering Groups of More Than 500 Persons

    For expansions covering groups of 500 or less persons--use the 
short form application, NCUA 4015-EZ.
    Attach a separate application for each group included in your 
request for expansion. The application must be complete or it will 
be returned unprocessed.

1. Name and address of credit union:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------

2. Name and address of the group:
----------------------------------------------------------------------
----------------------------------------------------------------------

[[Page 37084]]

(If the group is an association, include a copy of the association's 
Charter/Bylaws or other equivalent organizational documentation.)

3. Provide the proposed field of membership wording. Use the example 
wording found in NCUA's Chartering and Field of Membership Manual, 
Chapter 2:

    {time}  Section II.A for single occupational common bond groups;
    {time}  Section III.A for single associational common bond 
groups; or
    {time}  Section IV.A for multiple common bond fields of 
membership.

4. How many primary potential members (excluding immediate family 
and household members) are in the group: ________________
5. (a) For multiple common bond expansions, what is the distance 
between the group's location and your credit union's nearest service 
facility \6\ to which the group has access (Reference Chapter 2, 
Section IV.A.1):
---------------------------------------------------------------------------

    \6\ A service facility is defined as a place where shares are 
accepted for members' accounts, loan applications are accepted, and 
loans are disbursed.
---------------------------------------------------------------------------

----------------------------------------------------------------------
----------------------------------------------------------------------

(b) What is the address of this service facility:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------

(c) Describe the service area \7\ primarily served by the above 
service facility:
---------------------------------------------------------------------------

    \7\ A federal credit union's service area is the area that can 
reasonably be served by the service facility accessible to the 
groups within the field of membership. It will most often coincide 
with that geographic area primarily served by the service facility.
---------------------------------------------------------------------------

----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------

6. Is the group in the field of membership of any other credit 
union? Yes____ No____ If yes, and the overlapped credit union is not 
a community credit union or a non-federally insured credit union, 
please address the following:
    {time}  Provide the name and location of the other servicing 
credit union:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------

    {time}  Include a letter from the overlapped credit union 
indicating whether it concurs or objects to the overlap. If the 
overlapped credit union objects or fails to respond, document 
attempts to resolve the issue:
----------------------------------------------------------------------
----------------------------------------------------------------------

    {time}  Explain how the expansion's beneficial effect in meeting 
the convenience and needs of the members of the group clearly 
outweighs any adverse effect on the overlapped credit union:
----------------------------------------------------------------------
----------------------------------------------------------------------

7. Attach a letter, on letterhead stationery if possible, from the 
group requesting credit union service. This letter must indicate:
    {time}  How the group shares the occupational or associational 
common bond (for single common bond additions only);
    {time}  That the group wants to be added to the federal credit 
union's field of membership;
    {time}  Whether the group presently has other credit union 
service available;
    {time}  The number of persons currently included within the 
group to be added and the group's location(s);
    {time}  The group's proximity to the credit union's nearest 
service facility (for multiple common bond additions only); and
    {time}  Why the formation of a separate credit union for the 
group is not practical or consistent with safety and soundness 
standards (for multiple common bond additions only). The formation 
of a separate credit union may not be practical if the group lacks 
sufficient volunteers or resources to support the operation of a 
credit union or does not meet the economic advisability criteria 
outlined in Chapter 1 of NCUA's Chartering and Field of Membership 
Manual.

8. Other comments:
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------

Name and title of credit union board-authorized representative 
(e.g., President/CEO):

----------------------------------------------------------------------
(Typed/Printed Name)
----------------------------------------------------------------------
(Signature)
----------------------------------------------------------------------
(Date)

[FR Doc. 00-14782 Filed 6-12-00; 8:45 am]
BILLING CODE 7535-01-P


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