[Federal Register Volume 63, Number 19 (Thursday, January 29, 1998)]
[Rules and Regulations]
[Pages 4372-4374]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2076]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701


Organization and Operations of Federal Credit Unions

AGENCY: National Credit Union Administration.

ACTION: Final amendment to interpretive ruling and policy statement 94-
1 (IRPS 98-1).

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SUMMARY: The NCUA Board is updating the requirements for a credit union 
converting to a community charter. The final amendment deletes the 
requirement that a credit union converting to a community charter 
provide evidence of community support, since such evidence is not 
necessary for the agency to determine the economic viability of the 
credit union.

EFFECTIVE DATE: March 1, 1998.

ADDRESSES: National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia 22314-3428.

FOR FURTHER INFORMATION CONTACT: J. Leonard Skiles, President, Asset 
Management and Assistance Center, 4807 Spicewood Springs Road, Suite 
5100, Austin, Texas 78759, or telephone (512) 795-0999; Lynn K. 
McLaughlin, Program Officer, Office of Examination and Insurance, 1775 
Duke Street, Alexandria, Virginia 22314-3428, or telephone (703) 518-
6360; Michael J. McKenna, Staff Attorney, Office of General Counsel, at 
the above address or telephone (703) 518-6540.

SUPPLEMENTARY INFORMATION:

A. Comments

    On October 22, 1997, the NCUA Board proposed clarifying amendments 
on what is necessary for the approval of a community charter (62 FR 
56134 (October 29, 1997)). Sixty-four comments were received. Comments 
were received from forty-two federal credit unions, two state-chartered 
credit unions, thirteen state credit union leagues, four national 
credit union trade associations, one state regulatory agency, one 
consumer group and one banking association.

B. Serving All Segments of the Community

    In the proposal, the Board stated that all community charters must 
be prepared to serve all segments of the community. The Board suggested 
that membership and loan penetration rates, among other factors, could 
be reviewed to assess how well the credit union is serving the entire 
community. The proposal also would have required that a credit union 
receiving a community charter review its business plan regularly, as 
well as membership and loan penetration rates throughout the community, 
to determine if the community is being adequately served. The Board 
specifically proposed that a new community charter or a credit union 
converting to a community charter be held accountable for its business 
plan/marketing strategy outlining how it will serve the entire 
community. The proposal also would have required that a credit union 
converting to a community charter provide information on the groups 
being served. Finally, the Board proposed deleting the requirement that 
a credit union converting to a community charter provide written 
evidence of community support such as letters of support, petitions or 
surveys.
    At this time, the Board is addressing only one aspect of the 
proposal regarding credit unions converting to a community charter. The 
Board needs further time to study the remaining proposed amendments to 
ensure that they are necessary and will not unduly burden credit 
unions. The Board plans on addressing these issues in the near future 
and will respond to the issues raised by the commenters at that time.

C. Written Evidence of Community Support

    As stated above, the Board proposed deleting the requirement that a 
credit union converting to a community charter provide written evidence 
of community support such as letters of support, petitions or surveys. 
Twenty-nine commenters do not believe a credit union applying to 
convert to a community charter should be required to provide evidence 
of community support. Most of these commenters find the current 
requirement to be burdensome. Seven commenters specifically stated that 
the validity of

[[Page 4373]]

these documents is questionable and the effort to obtain such 
documentation is time-consuming and expensive. Some commenters believe 
that community leaders are reluctant to give support because they fear 
a backlash from banks. Three commenters support any action by NCUA to 
simplify the application process and reduce the processing time for 
community charter conversions. Most of these commenters believe that 
credit union management is better able to gauge the depth of community 
support than a petition or survey. Two commenters stated that a letter 
from the board of directors showing evidence of the attitude of the 
credit union's sponsors and members toward a conversion should be 
sufficient documentation. One commenter stated that the elimination of 
this requirement offers modest relief from the burden of providing 
information in support of the conversion request.
    Ten commenters believe a credit union applying to convert to a 
community charter should be required to provide evidence of community 
support before the conversion can be approved. Two commenters believe 
this evidence is a key element to any good marketing plan and would 
provide the credit union with valuable information about its new market 
as well as an introduction to potential new constituencies. These 
commenters state further that this evidence is useful to NCUA in making 
its determination whether the applied for area actually constitutes a 
community. One commenter also believes this evidence helps build a 
substantial administrative record in case of a legal challenge. One 
commenter believes that credit unions wishing to convert to a community 
charter should be required to demonstrate community support in a manner 
validating the credit union's business plan. One commenter, although 
opposing this amendment, believes that, if we delete this requirement 
for converting credit unions, we should also eliminate it for new 
credit unions.
    The NCUA Board believes that providing evidence of written support 
is expensive, burdensome and not a reliable indicator of the economic 
viability of the converting credit union. Such evidence is still needed 
for a new charter so that the agency may accurately determine the 
economic viability of the new credit union. Economic viability of an 
existing credit union is self-evident. Furthermore, a converting credit 
union can still submit such evidence if it believes it would be helpful 
to demonstrate that the area is a well-defined community where 
residents interact or will support some other aspect of the credit 
union's business plan or marketing strategy.
    The final amendment deletes the requirement for a converting credit 
union to provide written evidence of community support. Nothing in this 
final amendment changes or relaxes the requirement that a credit union 
converting to a community charter must demonstrate that the proposed 
community is a well-defined area where residents interact.

D. Groups Outside the Community

    The Board also proposed to eliminate the ability of a credit union 
converting to a community charter to continue to serve groups outside 
the new community boundaries. At this time, the Board is still 
considering the implications of such a policy change. As a practical 
matter, because of the injunction issued in the consolidated cases of 
First National Bank and Trust Co., et al. v. NCUA and the American 
Bankers Association v. NCUA, et al., which was partially stayed by the 
Court of Appeals on December 24, 1996, a credit union converting to a 
community charter cannot continue to serve groups outside the new 
community boundaries, but may only serve members of record. The Board 
plans on addressing this issue in the near future and will respond to 
the concern raised by the commenters at that time.

E. Ongoing Litigation

    Five commenters did not believe that this is the appropriate time 
to initiate changes to field of membership policies, because of the 
ongoing litigation involving multiple group credit unions. NCUA 
disagrees since NCUA's community chartering policy is not affected by 
the injunction issued in the consolidated cases of First National Bank 
and Trust Co., et al. v. NCUA and the American Bankers Association v. 
NCUA, et al., which was partially stayed by the Court of Appeals on 
December 24, 1996. Nor would other ongoing chartering litigation be 
affected because this change in policy modifies only the requirement 
for evidence of support for conversion to a community charter, not the 
requirement for evidence that the community to be served is a ``well-
defined community.''
    The NCUA Board believes it is necessary to address the 
documentation requirements for converting credit unions because 
questions regarding cost and value have been raised during NCUA Board 
review of requests by credit unions converting to community charters. 
The NCUA Board has not been provided with any compelling rationale that 
would justify a delay in amending this aspect of community chartering 
policy at this time.

F. 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 final amendment 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

    NCUA has determined that the final amendment does not increase 
paperwork requirements under the Paperwork Reduction Act of 1995 and 
regulations of the Office of Management and Budget (OMB). 60 FR 44978 
(August 29, 1995).

Executive Order 12612

    Executive Order 12612 requires NCUA to consider the effect of its 
actions on state interests. This final amendment makes no significant 
changes with respect to state credit unions and therefore, will not 
materially affect state interests.

Congressional Review

    Awaiting OMB determination.

List of Subjects in 12 CFR Part 701

    Credit, Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on January 22, 
1998.
Becky Baker,
Secretary of the Board.

    Accordingly, NCUA amends 12 CFR part 701 as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

    1. The authority citation for part 701 continues to read as 
follows:

    Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 
1761b, 1766, 1767, 1782, 1784, 1787, 1789. Section 701.6 is also 
authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by 
12 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:

[[Page 4374]]

Sec. 701.1  Federal credit union chartering, field of membership 
modifications, and conversions.

    National Credit Union Administration policies concerning 
chartering, field of membership modifications, and conversions are set 
forth in Interpretive Ruling and Policy Statement 94-1, Chartering and 
Field of Membership Policy (IRPS 94-1), as amended by IRPS 96-1 and 
IRPS 98-1. Copies may be obtained by contacting NCUA at the address 
found in Sec. 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.)

IRPS 94-1--[Amended]

    Note: The text of the Interpretive Ruling and Policy Statement 
(IRPS 94-1) does not, and the following amendments will not, appear 
in the Code of Federal Regulations.

    3. IRPS 94-1, Chapter 1, Section II.C.2 is amended by removing the 
words ``field of membership expansion or conversion to a community 
credit union''.
    4. In IRPS 94-1, Chapter 2, Section IV.B is revised to read as 
follows:
* * * * *

IV.B--Conversion to Community Charter

    An existing occupational, associational, or multiple group 
federal credit union may apply to convert to a community charter. In 
most cases, groups currently in the credit union's field of 
membership but outside the new community credit union's boundaries 
may be included in the new community charter.
    In order to support a case for a conversion to community 
charter, the applicant federal credit union must, in addition to the 
requirements for a community charter set forth in Chapter I (except 
for the requirement to demonstrate community support), develop a 
detailed business plan which may include, but not be limited to the 
following data:
    <bullet> Current financial statements, including the income 
statement and a summary of loan delinquency;
    <bullet> A map or maps showing both the existing and proposed 
boundaries for the field of membership, as well as existing and 
planned service facilities;
    <bullet> A written description of the area of community service 
for the proposed community credit union;
    <bullet> The most current population figures for the existing 
and proposed boundaries;
    <bullet> The source of the population information (census data 
are considered the most authoritative); the greater the population 
of the proposed area, the greater justification necessary to support 
the existence of the ``community'' and interaction among its 
residents;
    <bullet> Evidence that the proposed area is a ``community'' as 
defined in ``Community Common Bond'' in Chapter 1;
    <bullet> Information concerning the availability of financial 
services to the residents of the new area;
    <bullet> A list of credit unions with a home or branch office in 
the proposed area (If present credit union service to the residents 
of the new area is adequate, there may be no basis for the proposed 
conversion.);
    <bullet> The attitude of the current credit union sponsors and 
existing credit union members toward the proposed conversion; and
    <bullet> The anticipated financial impact on the credit union in 
terms of need for additional employees and fixed assets.
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[FR Doc. 98-2076 Filed 1-28-98; 8:45 am]
BILLING CODE 7535-01-U