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.

Proposed Rules Federal Register

37065

Vol. 65, No. 114

Tuesday, June 13, 2000

NATIONAL CREDIT UNION

ADMINISTRATION

12 CFR Part 701

Organization and Operations of

Federal Credit Unions

AGENCY: National Credit Union

Administration.

ACTION: Proposed rule.

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 boardmail@ncua.gov.

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 redefining 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

37066 Federal Register / Vol. 65, No. 114 / Tuesday, June 13, 2000 / Proposed Rules

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

Federal Register / Vol. 65, No. 114 / Tuesday, June 13, 2000 / Proposed Rules 37067

1Since 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.

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.

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 lowincome designated credit unions should

also apply if the credit union is

otherwise operationally sound and has

the administrative capability to add and

37068 Federal Register / Vol. 65, No. 114 / Tuesday, June 13, 2000 / Proposed Rules

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:

• Member location—whether the

membership is widely dispersed or

concentrated in a central location.

• 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.

• Market competition—the

availability of other financial services.

• Desired services and products—the

type of services the group desires in

comparison to the type of services a new

credit union could offer.

• Sponsor subsidies—the availability

of operating subsidies.

• Employee interest—the extent of

the employees’ interest in obtaining a

credit union charter.

• Evidence of past failure—whether

the group previously had its own credit

Federal Register / Vol. 65, No. 114 / Tuesday, June 13, 2000 / Proposed Rules 37069

union or previously filed for a credit

union charter.

• 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.

37070 Federal Register / Vol. 65, No. 114 / Tuesday, June 13, 2000 / Proposed Rules

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

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

37072 Federal Register / Vol. 65, No. 114 / Tuesday, June 13, 2000 / Proposed Rules

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 welldefined 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 welldefined 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:

• The asset base used to compute the

credit union’s operating fee will be

frozen for a two-year period.

Federal Register / Vol. 65, No. 114 / Tuesday, June 13, 2000 / Proposed Rules 37073

2Majority 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.

3Chartering and Field of Membership Manual,

Chapter III, Section III.

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.

• 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.

• The assets of the underserved area

will not be included in the calculation

of the credit union’s operating fee for 5

years.

• Fixed assets in the underserved area

will not be counted toward the fixed

asset limitation of § 701.35 of NCUA’s

Rules and Regulations. In addition, the

credit union would be exempt from the

charitable donation regulation, § 701.25

and would be allowed to increase the

dollar threshold from $100,000 to

$250,000 when an appraisal is required,

§ 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 twofold. 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).

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.

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

37074 Federal Register / Vol. 65, No. 114 / Tuesday, June 13, 2000 / Proposed Rules

5Between 1990–1999, 119 credit unions were

chartered. Of those chartered, 95 remain active for

an overall 80% active status.

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.

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 lowincome 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.

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

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

• Standard business plan for limited

services;

• Standard member survey format—

this will include all applicable data

needed to analyze the group’s initial

financial projections (initial pledge,

systematic savings, etc.);

• Standard policies (shares, lending,

investments, etc.); and

• 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 lowincome 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:

37076 Federal Register / Vol. 65, No. 114 / Tuesday, June 13, 2000 / Proposed Rules

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:

§ 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:

• 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;

• 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;

• 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

• 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:

• Employees, officials, and persons who

work regularly under contract in Miami,

Florida for ABC Corporation or the

subsidiaries listed below;

• Employees of ABC Corporation who are

paid from * * *;

• Employees of ABC Corporation who are

supervised from * * *;

• Employees of ABC Corporation who are

headquartered in * * *; and/or

• 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 owneroperators 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:

• Employees of the Hunt Manufacturing

Company who work in West Chester,

Pennsylvania. (common bond—same

employer with geographic definition);

• Employees of the Buffalo Manufacturing

Company who work in the United States.

(common bond—same employer with

geographic definition);

• Employees, elected and appointed

officials of municipal government in Parma,

Ohio. (common bond—same employer with

geographic definition);

• 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);

• Employees of MMLLJS contractor who

work regularly at the U.S. Naval Shipyard in

Bremerton, Washington. (common bond—

employees of contractors with geographic

definition);

• 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);

• 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);

• Employees of and students attending

Georgetown University. (common bond—

same occupation); or

• 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:

• Employees of manufacturing firms in

Seattle, Washington. (no defined

occupational sponsor);

• Persons employed or working in

Chicago, Illinois. (no occupational common

bond);

• Employees of all colleges and

universities in the State of Texas. (not a

single occupational common bond); or

• 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:

• Natural person members of the

association (for example, members of a union

or church members);

Federal Register / Vol. 65, No. 114 / Tuesday, June 13, 2000 / Proposed Rules 37077

• Non-natural person members of the

association;

• Employees of the association (for

example, employees of the labor union or

employees of the church); and

• 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:

• Whether members pay dues;

• Whether members participate in the

furtherance of the goals of the association;

• 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;

• Whether the association maintains a

membership list;

• The association’s membership eligibility

requirements; and

• 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, parentteacher 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 clientcustomer relationship do not meet

associational common bond requirements.

However, having an incidental clientcustomer 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:

• 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.

• 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:

• 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:

• 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.

• The most recent copy of the group’s

charter and bylaws or equivalent

documentation.

• 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:

• A letter signed by an authorized

representative of the group to be added.

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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

• 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:

• 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:

• Member location—whether the

membership is widely dispersed or

concentrated in a central location.

• 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.

• Market competition—the availability of

other financial services.

• Desired services and products—the type

of services the group desires in comparison

to the type of services a new credit union

could offer.

• Sponsor subsidies—the availability of

operating subsidies.

• Employee interest—the extent of the

employees’ interest in obtaining a credit

union charter.

• Evidence of past failure—whether the

group previously had its own credit union or

previously filed for a credit union charter.

• Administrative capacity to provide

services—will the group have the

management expertise to provide the services

requested.

• 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

• 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:

• 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.

• 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:

• 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;

• The overlapped credit union does not

object to the overlap; or

• 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:

• The nature of the issue;

• Efforts made to resolve the matter;

• Financial effect on the overlapped credit

union;

• The desires of the group(s);

• Whether the original credit union fails to

provide requested service;

• The desire of the sponsor organization;

and

• 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.

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

• 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:

• 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;

• The overlapped credit union does not

object to the overlap;

• There is limited participation by

members of the group in the original credit

union after the expiration of a reasonable

period of time; or

• The field of membership is broadly

stated, such as a national association.

In reviewing the overlap, the regional

director will consider:

• The nature of the issue;

• Efforts made to resolve the matter;

• Financial effect on the overlapped credit

union;

• The desires of the group(s);

• Whether the original credit union fails to

provide requested service;

• The desire of the sponsor organization;

and

• 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:

• 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

37080 Federal Register / Vol. 65, No. 114 / Tuesday, June 13, 2000 / Proposed Rules

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:

• A majority of the persons in a select

group live, work, or gather regularly within

the service area;

• The group’s headquarters is located

within the service area; or

• 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:

• 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;

• 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.

• 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;

• 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

• 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:

• The view of the overlapped credit

union(s);

• 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;

• 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;

• Whether the original credit union fails to

provide requested service;

• Financial effect on the overlapped credit

union;

• The desires of the group(s);

• The desire of the sponsor organization;

and

• 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

Federal Register / Vol. 65, No. 114 / Tuesday, June 13, 2000 / Proposed Rules 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 spunoff 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 statechartered, 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) welldefined, 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

37082 Federal Register / Vol. 65, No. 114 / Tuesday, June 13, 2000 / Proposed Rules

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:

• The defined political jurisdictions;

• Major trade areas (shopping patterns and

traffic flows);

• Shared/common facilities (for example,

educational, medical, police and fire

protection, school district, water, etc.);

• Organizations and clubs within the

community area;

• Newspapers or other periodicals

published for and about the area;

• 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;

• Common characteristics and background

of residents (for example, income, religious

beliefs, primary ethnic groups, similarity of

occupations, household types, primary age

group, etc.); or

• 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 welldefined 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:

• 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);

• An area where the percentage of the

population living in poverty is at least 20

percent;

• 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;

• An area outside of a Metropolitan Area,

where the median family income is at or

below 80 percent of the statewide nonMetropolitan Area median family income or

the national non-Metropolitan Area median

family income, whichever is greater;

• An area where the unemployment rate is

at least 1.5 times the national average;

• 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;

• An area located outside of a

Metropolitan Area with a county population

loss between 1980 and 1990 of at least 10

percent;

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

• Comply with state law regarding

conversion;

• File proof of compliance with NCUA;

• File the required conversion application,

proposed federal credit union organization

certificate, and other documents with NCUA;

• Comply with the requirements of the

Federal Credit Union Act, e.g., chartering and

reserve requirements; and

• 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:

• Notify NCUA prior to commencing the

process to convert to a state charter and state

the reason(s) for the conversion;

• 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

• 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:

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

2. Name and address of group:

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

(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: llllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

4. How many primary potential members (excluding immediate family and household

members) are in the group: llllllll

lllllllllllllllllllll

5. Attach a letter, on letterhead stationery if

possible, from the group requesting credit

union service. This letter must indicate:

b How the group shares the occupational

or associational common bond (for single

common bond additions only);

b That the group wants to be added to

the federal credit union’s field of

membership;

b The number of persons to be added

and the group’s location(s); and

b The group’s proximity to the credit

union’s nearest service facility (for multiple

common bond additions only).

Name and title of credit union boardauthorized representative (e.g., President/

CEO):

lllllllllllllllllllll

(Typed/Printed Name)

lllllllllllllllllllll

(Signature)

lllllllllllllllllllll

(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:

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

2. Name and address of the group:

lllllllllllllllllllll

lllllllllllllllllllll

37084 Federal Register / Vol. 65, No. 114 / Tuesday, June 13, 2000 / Proposed Rules

6A service facility is defined as a place where

shares are accepted for members’ accounts, loan

applications are accepted, and loans are disbursed. 7A 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.

(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:

b Section II.A for single occupational

common bond groups;

b Section III.A for single associational

common bond groups; or

b 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: llllllll

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):

lllllllllllllllllllll

lllllllllllllllllllll

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

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

(c) Describe the service area 7 primarily

served by the above service facility:

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

6. Is the group in the field of membership of

any other credit union? Yesll Noll If

yes, and the overlapped credit union is not

a community credit union or a non-federally

insured credit union, please address the

following:

b Provide the name and location of the

other servicing credit union:

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

b 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:

lllllllllllllllllllll

lllllllllllllllllllll

b 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:

lllllllllllllllllllll

lllllllllllllllllllll

7. Attach a letter, on letterhead stationery if

possible, from the group requesting credit

union service. This letter must indicate:

b How the group shares the occupational

or associational common bond (for single

common bond additions only);

b That the group wants to be added to the

federal credit union’s field of membership;

b Whether the group presently has other

credit union service available;

b The number of persons currently

included within the group to be added and

the group’s location(s);

b The group’s proximity to the credit

union’s nearest service facility (for multiple

common bond additions only); and

b 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:

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

lllllllllllllllllllll

Name and title of credit union boardauthorized representative (e.g., President/

CEO):

lllllllllllllllllllll

(Typed/Printed Name)

lllllllllllllllllllll

(Signature)

lllllllllllllllllllll

(Date)

[FR Doc. 00–14782 Filed 6–12–00; 8:45 am]

BILLING CODE 7535–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 2000–NM–96–AD]

RIN 2120–AA64

Airworthiness Directives; Airbus Model

A300 and A300–600 Series Airplanes

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Notice of proposed rulemaking

(NPRM).

SUMMARY: This document proposes the

adoption of a new airworthiness

directive (AD) that is applicable to

certain Airbus Model A300 and A300–

600 series airplanes. This proposal

would require repetitive inspections to

detect chafing and the existence of

repairs of the harness of the high-level

sensor of the fuel surge tanks, and to

detect chafe marks on the support

canisters of the magnetic level

indicators; and follow-on corrective

actions, if necessary. This proposal also

would require modification of the

harness for the high-level sensor of the

outer wing fuel tanks, which would

terminate certain repetitive inspections.

This proposal is prompted by issuance

of mandatory continuing airworthiness

information by a foreign civil

airworthiness authority. The actions

specified by the proposed AD are

intended to prevent chafing of the

harness of the high-level sensor, which

could result in a short circuit and

consequent fuel ignition source inside

the outer wing fuel tanks.

DATES: Comments must be received by

July 13, 2000.

ADDRESSES: Submit comments in

triplicate to the Federal Aviation

Administration (FAA), Transport

Airplane Directorate, ANM–114,

Attention: Rules Docket No. 2000–NM–

96–AD, 1601 Lind Avenue, SW.,

Renton, Washington 98055–4056.

Comments may be inspected at this

location between 9 a.m. and 3 p.m.,

Monday through Friday, except Federal

holidays.

The service information referenced in

the proposed rule may be obtained from

Airbus Industrie, 1 Rond Point Maurice

Bellonte, 31707 Blagnac Cedex, France.

This information may be examined at

the FAA, Transport Airplane

Directorate, 1601 Lind Avenue, SW.,

Renton, Washington.

FOR FURTHER INFORMATION CONTACT:

Norman B. Martenson, Manager,

International Branch, ANM–116,

Transport Airplane Directorate, 1601

Lind Avenue, SW., Renton, Washington

98055–4056; telephone (425) 227–2110;

fax (425) 227–1149.

SUPPLEMENTARY INFORMATION:

Comments Invited

Interested persons are invited to

participate in the making of the

proposed rule by submitting such

written data, views, or arguments as

they may desire. Communications shall

identify the Rules Docket number and

be submitted in triplicate to the address

specified above. All communications

received on or before the closing date

for comments, specified above, will be

considered before taking action on the

proposed rule. The proposals contained

in this notice may be changed in light

of the comments received.

Comments are specifically invited on

the overall regulatory, economic,

environmental, and energy aspects of

the proposed rule. All comments

submitted will be available, both before

and after the closing date for comments,

in the Rules Docket for examination by