Federal Register / Vol. 66, No. 245 / Thursday, December 20, 2001 / Rules and Regulations 65625

NATIONAL CREDIT UNION

ADMINISTRATION

12 CFR Part 701

Organization and Operations of

Federal Credit Unions

AGENCY: National Credit Union

Administration (NCUA).

ACTION: Interim final rule with request

for comments.

SUMMARY: The NCUA Board is amending

its chartering and field of membership

manual to make two changes to ease

regulatory burden on community

charters and to update the requirements

for a credit union to add an underserved

area to its charter. First, an existing

community charter need not document

in writing how it plans on serving the

entire community. Second, the Board is

updating the definition of an investment

area because of the release of new

census data and updated Community

Development Financial Institution Fund

standards. These amendments will help

reduce the costs for community charters

and make it easier for credit unions to

serve underserved areas.

DATES: Effective Date: This rule is

effective December 20, 2001. Comment

Date: Comments must be received on for

before February 19, 2002.

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. Or,

you may fax comments to (703) 518–

6319, or e-mail comments to

regcomments@ncua.gov. Please send

comments by one method only.

FOR FURTHER INFORMATION CONTACT: J.

Leonard Skiles, Chairman, Field of

Membership Task Force, at the above

address or telephone: (703) 518–6320 or

Michael J. McKenna, Senior Staff

Attorney, Division of Operations, Office

of General Counsel, at the above address

or telephone: (703) 518–6540.

SUPPLEMENTARY INFORMATION:

Background

NCUA’s chartering and field of

membership policy is set out in

Interpretive Ruling and Policy

Statement 99–1, Chartering and Field of

Membership Policy (IRPS 99–1), as

amended by IRPS 00–01 and IRPS 01–

01. The policy is incorporated by

reference in NCUA’s regulations at 12

CFR 701.1. It is also published as

NCUA’s Chartering and Field of

Membership Manual (Chartering

Manual), which is the document most

interested parties use and to which

references in the following discussion

are made.

Community Charters

Last year, the NCUA Board required

an existing community charter to

address, in either its marketing or

business plan or other appropriate

separate documentation, how it plans

on serving the entire community,

including how the credit union will

market to the community and what

products and services the credit union

will offer to assist underserved members

in the community. Some in the credit

union community refer to this as the

community action plan requirement or

as CAP, though the final rule does not

use that term. The NCUA Board stated

in the preamble to the final rule that

‘‘existing credit unions will have until

December 31, 2001 to have a plan in

place addressing how the credit union

will serve the entire community.’’ 65 FR

64512, 64518 (October 27, 2000). The

Board implemented this rule even while

recognizing that there was no tangible

evidence that credit unions were not

planning on serving their entire

community. In fact, the NCUA Board

stated that, based ‘‘on the comments of

community credit unions and the

submissions some of them provided,

many community credit unions already

have adopted plans and offer products

and services designed to serve the entire

community.’’ 65 FR 64512, 64517

(October 27, 2000).

The NCUA Board notes that, while it

certainly has the legal authority to

impose this regulatory requirement, it

has continued to review the necessity of

imposing it on a specific type of federal

credit union charter. The NCUA Board,

after discussing this issue further with

agency staff and the credit union

community, has decided to repeal this

regulatory requirement. This Board has

determined that requiring only certain

credit unions to adopt specific written

policies addressing service to the entire

community, where there is no evidence

credit unions are not attempting to serve

their entire communities, is not a

reasonable regulatory practice,

particularly when this regulatory

requirement raises little, if any, safety

and soundness concerns.

This Board believes that a regulation

that does not address a substantiated

concern or a potential problem is

unnecessary. In this case, absent

evidence that community charters are

not marketing their services to their

entire communities, removing the

regulatory requirement is prudent.

Underserved Areas

The addition of underserved areas, as

defined in Chapter 3 of the Chartering

Manual, to the field of membership of

operating credit unions is a continuing

priority of the NCUA Board. 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). Third, the credit union

adding the underserved area must

establish and maintain an office or

facility in the local community.

Last year, the NCUA Board made it

less burdensome for federal credit

unions to add underserved areas. 65 FR

64512 (October 27, 2000). The NCUA

Board modified its policy by stating that

a credit union would not have to

demonstrate common interests or

interaction for a local community if the

underserved area to be served is (1) in

a recognized 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) 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. The NCUA Board also stated

that it presumed that an underserved

area for purposes of the investment area

criteria would have significant unmet

needs for loans or equity investment if

the area met the poverty, median family

income, unemployment, distressed

housing, or population loss criteria set

forth in the Community Development

Banking and Financial Institutions Act

of 1994. Because of these changes and

greater interest by the credit union

community, the number of underserved

areas added to federal credit union’s

field of membership increased from 50

in 2000 to 231 as of November 30, 2001.

The NCUA Board is continuing to

update this section of the Chartering

Manual to encourage further

development of credit unions in

underserved areas and thereby improve

financial services to those most in need.

The primary reason for this update is

the release of the 2000 census.

The Chartering Manual provides

examples of what an investment area is

for the purpose of adding an

underserved area. The Federal Credit

Union Act defines an underserved area

65626 Federal Register / Vol. 66, No. 245 / Thursday, December 20, 2001 / Rules and Regulations

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 1994 law permits the Community

Development Financial Institutions

Fund of the United States Department of

the Treasury (CDFI Fund) to further

define investment areas. With the

release of the 2000 census as well as

further expansion of an investment area

by CDFI, the Board is updating the

definition of an investment area in

Chapter 3 of the Chartering Manual.

These changes will make the Chartering

Manual consistent with the data in the

2000 census as well as the modifications

promulgated by the CDFI Fund. These

amendments will ultimately make it

easier for credit unions to add

underserved areas and thus serve more

members of modest means.

Interim Final Rule

Since issuance of the community

service plan requirement, the credit

union community has continued to

debate its necessity and benefits. The

Board notes that previous comment was

overwhelmingly against this type of

provision and wishes to consider further

comment. The NCUA Board is issuing

this amendment to its chartering

regulation as an interim final rule

because it removes a burdensome

regulation and merely updates the

agencies definition of an investment

area for the purpose of adding

underserved areas. The Board believes

that both these actions are necessary

and in the public interest because of the

recent and sudden increase in credit

union asset growth and the current

uncertainty in the national economy.

Furthermore, the Board believes the

amendments further the public interest

in removing a potentially costly and

unnecessary regulatory burden and

promotes the efficient use of agency

resources and staff. Accordingly, for

good cause, the Board finds that,

pursuant to 5 U.S.C. 553(b)(3)(B), notice

and public procedures are

impracticable, unnecessary, and

contrary to the public interest; and,

pursuant to 5 U.S.C. 553(d)(3), the rule

shall be effective immediately and

without 30 days advance notice of

publication. Although the rule is being

issued as an interim final rule and is

effective immediately, the NCUA Board

encourages interested parties to submit

comment on whether the community

service plan requirement should be

deleted from the Chartering Manual and

the definition of investment area for the

purpose of adding underserved areas

should be finalized in the Chartering

Manual.

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 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

this interim final rule does not increase,

and will in fact reduce, paperwork

requirements under the Paperwork

Reduction Act and regulations of the

Office of Management and Budget.

Small Business Regulatory Enforcement

Fairness Act

The Small Business Regulatory

Enforcement Fairness Act of 1996 (Pub.

L. 104–121) provides generally for

congressional review of agency rules. A

reporting requirement is triggered in

instances where NCUA issues a final

rule as defined by section 551 of the

Administrative Procedures Act. 5 U.S.C.

551. The rule has been submitted to the

Office of Management and Budget for its

determination of whether this is a major

rule.

Executive Order 13132

Executive Order 13132 encourages

independent regulatory agencies to

consider the impact of their regulatory

actions on state and local interests. In

adherence to fundamental federalism

principles, NCUA, an independent

regulatory agency as defined in 44

U.S.C. 3502(5), voluntarily complies

with the executive order. This final rule

only applies to federal credit unions. It

will not have substantial direct effect on

the states, on the relationship between

the national government and the states,

or on the distribution of power and

responsibilities among the various

levels of government. NCUA has

determined that this rule does not

constitute a policy that has federalism

implications for purposes of the

executive order.

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

recordkeeping requirements.

By the National Credit Union

Administration Board on December 13, 2001.

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 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, IRPS 01–1 and IRPS 01–3. 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

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.

Federal Register / Vol. 66, No. 245 / Thursday, December 20, 2001 / Rules and Regulations 65627

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

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;

• Other documentation that demonstrates

that the area is a community where

individuals have common interests or

interact.

An applicant need not submit a narrative

summary or documentation to support a

proposed community charter, amendment or

conversion as a well-defined local

community, neighborhood, or rural district if

the NCUA has previously determined that

the same exact geographic area meets that

requirement in connection with

consideration of a prior application.

Applicants may contact the appropriate

regional office to find out if the area they are

interested in has already been determined to

meet the community requirements. If the area

is the same as a previously approved area, an

applicant need only include a statement to

that effect in the application. Applicants may

be required to submit their own summary

and documentation regarding the community

requirements if NCUA has reason to believe

that prior submissions are not sufficient or

are no longer accurate.

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 to serve the entire community

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.

Community credit unions will be expected

to regularly review and to follow, to the

fullest extent economically possible, the

marketing and business plan submitted with

their application.

4. 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 (as reported in the most recently

completed decennial census):

• 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

65628 Federal Register / Vol. 66, No. 245 / Thursday, December 20, 2001 / Rules and Regulations

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 the most recent decennial

census and the previous decennial census of

at least 10 percent;

• An area located outside of a

Metropolitan Area with a county net

migration loss (out-migration minus inmigration) over the five-year period

preceding the most recent decennial census

of at least 5 percent;

• An area meeting the criteria for

economic distress that may be established by

the Community Development Financial

Institutions Fund (CDFI) of the United States

Department of the Treasury.

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.

[FR Doc. 01–31290 Filed 12–19–01; 8:45 am]

BILLING CODE 7535–01–U

NATIONAL CREDIT UNION

ADMINISTRATION

12 CFR Part 701

Organization and Operation of Federal

Credit Unions

AGENCY: National Credit Union

Administration (NCUA).

ACTION: Final rule.

SUMMARY: The NCUA Board is amending

its rule limiting compensation to

officials. The amendment changes the

definition of the term ‘‘compensation’’

to exclude the reimbursement or

payment of business-related travel costs

for an official to be accompanied by a

guest.

EFFECTIVE DATE: This rule is effective

January 22, 2002.

FOR FURTHER INFORMATION CONTACT:

Dianne M. Salva, Staff Attorney,

Division of Operations, Office of

General Counsel, National Credit Union

Administration, 1775 Duke Street,

Alexandria, Virginia 22314–3428, or

telephone (703) 518–6540.

SUPPLEMENTARY INFORMATION:

Background

NCUA published a proposal to amend

its regulation covering travel

reimbursements for guests

accompanying Federal Credit Union

(FCU) officials on business. 66 FR

40641, August 3, 2001. During the sixtyday comment period, NCUA received

thirty-seven comment letters. After

carefully considering the comments,

NCUA is publishing this final rule,

which is identical to the proposal.

The Federal Credit Union Act (the

FCU Act) and NCUA regulations

provide that only one board officer of an

FCU may be compensated as such and

that no other official may receive

compensation for serving as a board or

committee member. 12 U.S.C. 1761(c),

1761a; 12 CFR 701.33. NCUA has

defined compensation to exclude

reasonable and proper expense

reimbursement for costs incurred by

FCU officials in carrying out the

responsibilities of the positions to

which they were appointed or elected.

Section 701.33 currently permits

reimbursement of a board official and

one immediate family member for travel

expenses incurred in performing board

duties if the payment is necessary and

appropriate as determined by the FCU

board and is made in accordance with

written board policies and procedures.

12 CFR 701.33(b)(2)(i).

To give FCUs additional flexibility

regarding the reimbursement of

reasonable and proper expenses, NCUA

has determined to amend

§ 701.33(b)(2)(i) to use the term ‘‘guest’’

rather than ‘‘immediate family

member.’’ All other provisions of the

regulation remain unchanged. Travel

and reimbursement policies must still

provide for payment of only those costs

that are reasonable in relation to the

FCUs resources and financial condition.

NCUA cautions FCUs that this proposal

has no effect on Internal Revenue

Service (IRS) regulations regarding the

reporting and taxing of any payments or

reimbursements. FCUs should consult

their tax advisors or attorneys

concerning IRS requirements related to

their travel reimbursement policies.

Comments

NCUA received thirty-seven comment

letters. Seventeen letters were from

natural person credit unions and two

were from corporate credit unions. Two

were from credit union trade

associations. Eight were from state

credit union leagues and eight were

from credit union officials or other

individuals.

Twenty-seven of the commenters

strongly support the proposal and

applaud the agency efforts to minimize

government intrusion and maximize

flexibility.

Four commenters opposed it, pointing

to possible increases in costs to

members and concerns of its effect on

family unity. The NCUA Board expects

that any increase in costs to members

will be minor and will support the

business of the credit union.

Furthermore, any FCU that adopts a

new policy must still limit its travel

expenditures to amounts that are

reasonable in relation to its resources

and financial condition. Of course, the

amended rule does not require FCUs to

change their current travel expense

reimbursement or payment policies. The

NCUA Board determined to amend the