Proposed Rule2023-03684
Chartering and Field of Membership
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 28, 2023
Issuing agencies
National Credit Union Administration
Abstract
The NCUA Board (Board) is proposing to amend its chartering and field of membership (FOM) rules with respect to the provision of financial services to low- and moderate-income communities and expanding access to safe, fair, and affordable financial services and products generally. The Board is also proposing several changes to the FOM rules to streamline application requirements and clarify procedures. These proposed amendments result from the agency's experience in addressing FOM issues relating to community charters and service to underserved areas, along with its study of FOM issues in the Board's Advancing Communities through Credit, Education, Stability, and Support (ACCESS) initiative. The Board is also requesting feedback about several aspects of FOM issues for consideration with respect to future policy refinements. Due to the scope and complexity of both the proposed changes and the additional issues presented for feedback, the Board is providing a 90- day comment period. Consistent with the guidance the NCUA provided in Interpretative Ruling and Policy Statement 87-2 (NCUA IRPS 87-2-- Developing and Reviewing Government Regulations) the Board is extending the comment period beyond the typical 60 days because it believes it will benefit from an additional opportunity for public input on these issues.
Full Text
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<title>Federal Register, Volume 88 Issue 39 (Tuesday, February 28, 2023)</title>
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[Federal Register Volume 88, Number 39 (Tuesday, February 28, 2023)]
[Proposed Rules]
[Pages 12606-12621]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-03684]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
[NCUA-2022-0179]
RIN 3133-AF46
Chartering and Field of Membership
AGENCY: National Credit Union Administration (NCUA).
ACTION: Notice of proposed rulemaking.
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SUMMARY: The NCUA Board (Board) is proposing to amend its chartering
and field of membership (FOM) rules with respect to the provision of
financial services to low- and moderate-income communities and
expanding access to safe, fair, and affordable financial services and
products generally. The Board is also proposing several changes to the
FOM rules to streamline
[[Page 12607]]
application requirements and clarify procedures. These proposed
amendments result from the agency's experience in addressing FOM issues
relating to community charters and service to underserved areas, along
with its study of FOM issues in the Board's Advancing Communities
through Credit, Education, Stability, and Support (ACCESS) initiative.
The Board is also requesting feedback about several aspects of FOM
issues for consideration with respect to future policy refinements. Due
to the scope and complexity of both the proposed changes and the
additional issues presented for feedback, the Board is providing a 90-
day comment period. Consistent with the guidance the NCUA provided in
Interpretative Ruling and Policy Statement 87-2 (NCUA IRPS 87-2--
Developing and Reviewing Government Regulations) the Board is extending
the comment period beyond the typical 60 days because it believes it
will benefit from an additional opportunity for public input on these
issues.
DATES: Comments must be received on or before May 30, 2023.
ADDRESSES: You may submit comments by any of the following methods
(Please send comments by one method only):
<bullet> Federal eRulemaking Portal: <a href="https://www.regulations.gov/">https://www.regulations.gov/</a>.
Follow the instructions for submitting comments for Docket Number NCUA-
2022-0179.
<bullet> NCUA website: <a href="https://www.ncua.gov/regulation-supervision/rulemakings-proposals-comment">https://www.ncua.gov/regulation-supervision/rulemakings-proposals-comment</a>. Follow the instructions for submitting
comments.
<bullet> USPS/Hand Delivery/Courier: Address to Melane Conyers-
Ausbrooks, Secretary of the Board, National Credit Union
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428.
Public Inspection: You may view all public comments on the Federal
eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a>, as submitted, except
for those we cannot post for technical reasons. The NCUA will not edit
or remove any identifying or contact information from the public
comments submitted. If you are unable to access public comments on the
internet, you may contact the NCUA for alternative access by calling
(703) 518-6540 or emailing <a href="/cdn-cgi/l/email-protection#236c64606e424a4f634d4056420d444c55"><span class="__cf_email__" data-cfemail="29666e6a6448404569474a5c48074e465f">[email protected]</span></a>.
FOR FURTHER INFORMATION CONTACT: Office of Credit Union Resources and
Expansion (CURE): Rita Woods, Division Director (703) 518-1157; Susan
Ryan, Division Director (703-664-3957); Leilani Stamper, Program
Officer (703) 664-3839; Sheila Snock, Program Officer (703) 664-3106;
or Paul Dibble, Program Officer (703) 664-3164 at 1775 Duke Street,
Alexandria, VA 22314. Office of General Counsel: Robert Leonard,
Compliance Officer; Ian Marenna, Associate General Counsel; Marvin Shaw
and Ariel Pereira, Senior Staff Attorneys, Office of General Counsel,
at the above address or telephone (703) 518-6540.
SUPPLEMENTARY INFORMATION:
I. Background
A. Overview of Proposed Rule
The proposed rule would make nine changes to the Chartering and
Field of Membership Manual (the Manual) to enhance consumer access to
financial services, while reducing duplicative or unnecessary paperwork
and administrative requirements.\1\ The Board's goal in proposing these
changes is to eliminate unnecessary burdens while enhancing the
agency's focus on the core principles of credit union membership. The
proposed changes cover underserved areas, community-based FOMs, and
some more broadly applicable FOM provisions.
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\1\ The Board has codified the Manual in 12 CFR 701, Appendix B.
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The proposed rule would make four changes on underserved areas that
multiple common bond federal credit unions (FCUs) may seek to add to
their FOMs. The changes would streamline existing application
requirements and clarify the role of data and criteria that other
federal agencies provide relating to underserved areas.
The proposed rule would also simplify application requirements for
community-based FCUs by eliminating the need to submit redundant or
less useful information and providing a standard form for business and
marketing plans. The proposed rule would eliminate the business and
marketing plan requirement for certain federally insured, state-
chartered credit unions that seek to convert to a federal charter while
serving the same community FOM. The proposed rule would also expand the
community-based FOM affinities--relationships between a person and the
geographic community--to recognize the growth of telecommuting and
remote work for companies headquartered in a community and to better
capture the ongoing bond between individuals within a field of
membership and their immediate family members following the death of a
member.\2\
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\2\ The Manual's glossary currently defines ``immediate family
member'' as ``A spouse, child, sibling, parent, grandparent, or
grandchild. This includes stepparents, stepchildren, stepsiblings,
and adoptive relationships.''
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Finally, the Board is proposing a technical clarification and
correction on the process for the NCUA to review and approve the
character and fitness of a prospective FCU's management and officials.
The following sections include a legal overview and then a detailed
discussion of the proposed regulatory changes.
B. Legal Authority and Overview
In adopting the Credit Union Membership Access Act of 1998 (CUMAA),
which amended the Federal Credit Union Act, Congress reiterated its
longstanding support for credit unions, emphasizing their ``specific
mission of meeting the credit and savings needs of consumers,
especially persons of modest means.'' \3\ In Section 2 of CUMAA,
Congress set forth the following findings:
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\3\ Public Law 105-218, 112 Stat. 912 (Aug. 7, 1998).
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(1) The American credit union movement began as a cooperative
effort to serve the productive and provident credit needs of
individuals of modest means.
(2) Credit unions continue to fulfill this public purpose, and
current members and membership groups should not face divestiture from
the financial services institutions of their choice as a result of
recent court action.
(3) To promote thrift and credit extension, a meaningful affinity
and bond among members, manifested by a commonality of routine
interaction, shared and related work experiences, interests, or
activities, or the maintenance of an otherwise well understood sense of
cohesion or identity is essential to fulfillment of credit unions'
public mission.
(4) Credit unions, unlike many other participants in the financial
services market, are exempt from Federal and most State taxes because
they are member-owned, democratically operated, not-for-profit
organizations generally managed by volunteer boards of directors and
because they have the specific mission of meeting the credit and
savings needs of consumers, especially persons of modest means.
(5) Improved credit union safety and soundness provisions will
enhance the public benefit that citizens receive from these cooperative
financial service institutions.
The congressional findings are bolstered by specific provisions of
CUMAA. For instance, Title II of that law addresses ``credit union
membership,'' including the express
[[Page 12608]]
provision in section 109 for the Board to establish regulations to
encourage the chartering of community and multiple common bond FCUs.
This section includes provisions encouraging formation of FCUs to
provide financial services to underserved communities and people of
modest means. Section 109's provisions allowed multiple common bond
credit unions to expand service opportunities to underserved
communities. Title II of CUMAA mandates that the Board protect the
National Credit Union Share Insurance Fund (NCUSIF) by issuing stricter
safety-and-soundness provisions, including enhanced accounting
standards in section 201. Title III of CUMAA includes capitalization
and net worth requirements to ``resolve the problems of the insured
credit unions at the least possible long-term loss to the [NCUSIF].''
Title III also sets forth specific mandates, including issuing
regulations for prompt corrective action; capitalization requirements,
including the submission of net worth restoration plans; earnings
retention requirements, and prior written approval requirements for
credit unions that are not adequately capitalized; certification of
NCUSIF equity ratios; increased share insurance premiums; and periodic
evaluation of access to liquidity. Title IV of CUMAA includes
assurances for independent decision-making in connection with certain
charter conversions.
As CUMAA indicates, Congress directed the Board to consider
multiple responsibilities, including encouraging access to financial
services for people of modest means, encouraging competition among
providers of financial services, and protecting taxpayers by enhancing
the safety and soundness of the credit union system and protecting the
NCUSIF.
Under the FCU Act, seven or more individuals may charter an FCU by
presenting a proposed charter (referred to in the FCU Act as the
``organization certificate'') to the Board.\4\ These individuals,
referred to as ``subscribers,'' must state the number of shares
subscribed by each and describe the FCU's proposed FOM.\5\ An FOM
consists of those persons and entities eligible for membership based on
an FCU's type of charter. Before granting an FCU charter, the Board
must complete an appropriate investigation and determine the character
and fitness of the subscribers, the economic advisability of
establishing the FCU, and the conformity of the proposed charter with
the FCU Act.\6\
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\4\ 12 U.S.C. 1753.
\5\ 12 U.S.C. 1753(3), (5).
\6\ 12 U.S.C. 1754.
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The FCU Act provides a choice among several charter types: a single
group sharing a single occupational or associational common bond; \7\ a
multiple common bond consisting of groups that each have a distinct
occupational or associational common bond among members of the group;
\8\ and a community consisting of ``persons or organizations within a
well-defined local community, neighborhood, or rural district.'' \9\
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\7\ 12 U.S.C. 1759(b)(1).
\8\ Id. 1759(b)(2)(A).
\9\ Id. 1759(b)(3).
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C. Regulatory Overview
The Manual, incorporated as Appendix B to Part 701 of the NCUA
regulations,\10\ implements the chartering and FOM requirements that
the FCU Act establishes for FCUs. The Manual provides that the NCUA
will grant a charter if the FOM requirements are met, the subscribers
are of good character and fit to represent the proposed FCU, and the
establishment of the FCU is economically advisable.\11\ In addition,
``[i]n unusual circumstances . . . [the] NCUA may examine other
factors, such as other federal law or public policy, in deciding if a
charter should be approved.'' \12\
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\10\ Appendix B to 12 CFR part 701. The Manual addresses all
aspects of chartering FCUs. In that respect, it is similar to the
regulations of the Office of the Comptroller of the Currency
applicable to the chartering of national banks or federal savings
associations. 12 CFR part 5.
\11\ Manual, Chapter 1, Section I.
\12\ Id.
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Congress expressly delegated to the Board substantial authority in
the FCU Act to define what constitutes each type of community charter,
namely a well-defined local community, neighborhood, or rural
district.\13\ This authority assists the NCUA in ``making any
determination'' regarding a community FCU,\14\ and permits the Board to
establish applicable criteria for any such determination.\15\ To
qualify as a well-defined local community, neighborhood, or rural
district, the Board requires the proposed area to have ``specific
geographic boundaries,'' such as those of ``a city, township, county
(single or multiple portions of a county) or a political equivalent,
school districts, or a clearly identifiable neighborhood.'' \16\ The
boundaries themselves may consist of political borders, streets,
rivers, railroad tracks, or other static geographical features.\17\
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\13\ The Board notes that under the agency's interpretation of
this phrase, the term ``local'' applies solely to a well-defined
local community; it does not apply to a rural district. See 81 FR
88412, 88417 (Dec. 7, 2016) (The Board explained that the that the
proposal to expand the rural district option in 2016 was an
unreasonable interpretation of the terms ``rural'' and ``local''
rely on a pair of misconceptions, described as follows: (1) that
``local'' as used in section 1759(b) and (g) modifies ``rural
district,'' when in fact it does not, and (2) that a ``local'' area
and a ``rural'' area necessarily share similar characteristics,
which they inherently do not. In any case, a rural district by its
very nature typically covers an area that is too large to be
considered ``local.''). The Manual applies the ``well-defined''
modifier to communities (including neighborhoods through references
to this option in the discussion of community charters) and rural
districts. See 12 CFR part 701, app. B., ch. 2, sec. V.A.2
(referring to the boundaries of a ``well-defined rural district'').
\14\ Id. 1759(g)(1)(A).
\15\ Id. 1759(g)(1)(B). The D.C. Circuit Court of Appeals cited
this express delegation in an August 2019 decision. Am. Bankers
Ass'n v. Nat'l Credit Union Admin., 934 F.3d 649, 663 (D.C. Cir.
2019).
\16\ Manual, Chapter 2, Section V.A.2.
\17\ Manual, Chapter 2, Section V.A.5.
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The Board has periodically amended the Manual to further the
statutory goals set forth by Congress.\18\ The Board's goals in
revising and modernizing the Manual are as follows: (1) increasing
access for underserved communities; (2) providing objective and easily
administered criteria to potential applicants; (3) providing regulatory
relief while balancing safety-and-soundness concerns; and (4) enhancing
efficiency.
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\18\ 73 FR 73301 (Dec. 2, 2008). The Board updated and clarified
the process of approving credit union service to ``underserved
areas.'' First, the rule clarified the procedure for establishing
that an ``underserved area'' qualifies as a well-defined local
community, as that rule required. Second, it made explicit the
process for applying the economic distress criteria that determine
whether an area combining multiple geographic units is sufficiently
``distressed'' to qualify as ``underserved.'' Third, it updated the
documentation and clarified the scope requirements for demonstrating
that a proposed area has ``significant unmet needs'' for loans and
financial services. Fourth, the rule used data provided by NCUA on
the location of depository institution facilities to determine
whether an area is ``underserved by other depository institutions''
according to the presence of their facilities within the area.
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More recently, the Board has launched the Advancing Communities
through Credit, Education, Stability and Support (ACCESS) initiative to
increase the agency's focus on enabling credit unions to serve
underserved, unserved, or disadvantaged communities.\19\ A key tenet of
this coordinated, multi-disciplinary initiative is that expanding
access to safe, fair, and affordable credit allows more Americans to
build wealth, achieve financial prosperity, and create strong and
vibrant communities.
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\19\ See ACCESS, <a href="https://www.ncua.gov/support-services/access">https://www.ncua.gov/support-services/access</a>.
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Based on these considerations, the Board has actively explored ways
to enhance access to financial services for low- and moderate-income
communities. The NCUA 2021 Annual
[[Page 12609]]
Report, a February 2022 study by the Government Accountability Office
(GAO), and a June 2022 report by the Federal Financial Institutions
Examination Council (FFIEC) address the need for federal financial
regulators and financial institutions to expand access to unserved and
underserved communities.\20\
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\20\ The 2021 NCUA Annual Report is available at the link: 2021
NCUA Annual Report (pages 21-23).The GAO report is available at the
link: GAO-22-104468, Accessible Version, BANKING SERVICES:
Regulators Have Taken Actions to Increase Access, but Measurement of
Actions' Effectiveness Could Be Improved (February 2022). The report
by the FFIEC is available at this link: <a href="https://www.ffiec.gov/press/pr061622.htm">https://www.ffiec.gov/press/pr061622.htm</a>.
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These communities often comprise what have been called ``banking or
financial services deserts,'' and can be found in both urban and rural
areas. Such deserts often are home to communities high concentrations
of minorities, including those comprised of significant populations of
African Americans, Hispanic Americans, Native Americans, and Asian
Americans. Facilitating additional opportunities to add underserved
areas would allow FCUs to fill voids where no or few other local
options are available. The proposed rule changes may help FCUs willing
to reach out to the underserved and low- to moderate-income individuals
and seek a broader membership base.
In addition to changes to enhance access for low- and moderate-
income communities, the proposal includes potential improvements to the
Manual to simplify requirements and procedures based on agency
experience. Simplifying such requirements will facilitate more
consumers having access to safe, fair, affordable, and reliable
financial services at a federally insured credit union.
The Board has carefully considered the legal requirements
underlying the proposed rule and believes that the changes are
consistent with the FCU Act while reducing unnecessary requirements.
The proposed rule offers several changes to reduce burden by
simplifying the requirements for underserved area additions,
conversions from federally insured, state-chartered credit unions
(FISCUs) to FCUs, and community charter actions.
The rule would also correct multiple unintended consequences of
prior rules. One proposed change corrects a provision that may prevent
credit unions from expanding into underserved rural areas.
Specifically, the change would eliminate a limitation in which a rural
district, if an underserved area, must be in, or adjacent to, the state
in which the FCU has its headquarters. Another change corrects a
reference to a regulation addressing approval of credit union officials
that does not apply in the chartering process.
II. Summary of Proposed Changes and Request for Comments
A. Underserved Area Additions
In 1998, Congress enacted CUMAA, as discussed previously in this
preamble, which amended the FCU Act to authorize the Board to allow
multiple common bond FCUs to serve members residing in ``underserved
areas,'' provided the FCU establishes and maintains a facility
there.\21\ The Act currently permits only multiple common bond FCUs to
add underserved areas to their FOM beyond the common bond requirements
specified in the FCU Act. This option is an exception to the FCU Act's
general requirement that an FCU limit its membership to one of the
three options in the FCU Act (single common bond, multiple common bond,
or community).\22\
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\21\ 12 U.S.C. 1759(c)(2).
\22\ 12 U.S.C. 1759(b) (``Membership Field''), 1759(c)(2)
(``Exception for Underserved Areas'').
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The FCU Act defines an ``underserved area'' as (1) a ``local
community, neighborhood, or rural district'' that (2) meets the
definition of an ``investment area'' under section 103(16) of the
Community Development Banking and Financial Institutions Act of 1994
(CDFI Act) and (3) is ``underserved by other depository institutions''
based on data of the NCUA Board and the federal banking agencies.\23\
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\23\ 12 U.S.C. 4702(16).
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CDFI Investment Area Definition
As noted, the first criterion for an ``underserved area''
established by CUMAA is that the area meets the CDFI Act's definition
of an ``investment area.'' The CDFI Act defines an ``investment area''
as a geographic area that, unless it is presently designated an
Empowerment Zone or Enterprise Community, ``meets the objective
criteria of economic distress developed by the [CDFI] Fund'' and ``has
significant unmet needs for loans or equity investments.'' \24\ \25\ By
regulation, the CDFI Fund adopted a definition of investment area that
established criteria of economic distress and implemented the
significant unmet needs criterion.\26\ The regulation also dictates
that ``[a]n Investment Area shall meet specific geographic and other
criteria'' prescribed in the CDFI Fund's investment area
definition.\27\ Further, the regulation gives the CDFI Fund sole
discretion to determine whether these criteria are fulfilled.\28\
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\24\ The Board notes that as a practical matter these programs
are relatively inactive in that the U.S. Department of Housing and
Urban Development (HUD) has not approved new Empowerment Zones or
Enterprise Communities. These terms are defined in 26 U.S.C. 1391,
as referenced in 12 U.S.C. 4702(16), which defines ``investment
area'' for purposes of 12 U.S.C. 1759.
\25\ 12 U.S.C. 4702(13).
\26\ 12 CFR 1805.201(b)(3).
\27\ 12 CFR 1805.201(b)(3)(i).
\28\ 12 CFR 1805.201(a).
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Under the CDFI Fund's distress criteria, a proposed investment
area's location within or outside a designated Metropolitan Area (a
Metro or Non-Metro area, respectively) determines the geographic
unit(s) into which the area must be translated in order to apply the
economic distress criteria.\29\ For a Metro area, the permissible
geographic units are limited to a census tract or an American Indian or
Alaskan Native area.\30\ For a Non-Metro area, the permissible
geographic units are limited to a county (or equivalent area); minor
civil division that is a unit of a local government; incorporated
place; census tract; or an American Indian or Alaskan Native area.\31\
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\29\ 12 CFR 1805.201(b)(3)(ii)(B), (C).
\30\ 12 CFR 1805.201(b)(3)(ii)(B).
\31\ Id.
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The CDFI Fund's regulation designates as distressed a proposed area
that meets the applicable economic distress criteria as reported by the
most recent decennial U.S. Census.\32\ How the distress criteria apply
in each case depends on which geographic units are permitted (based on
the area's designation as Metro or Non-Metro) and whether the area
consists of a single geographic unit or multiple contiguous units. A
proposed Metro area consisting of a single census tract, for example,
must meet the distress criterion for either unemployment, poverty, or
median family income.\33\ A proposed Non-Metro area consisting of a
single county, for example, must meet the distress criterion for either
unemployment, poverty, median family income or, if the area is a
county, population loss or migration loss.\34\
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\32\ 12 CFR 1805.201(b)(3)(ii)(D).
\33\ Id. Sec. 1805.201(b)(3)(ii)(D)(1), (3).
\34\ Id. Sec. 1805.201(b)(3)(ii)(D)(1), (3), (4), (5).
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A proposed area consisting of multiple contiguous geographic units
(such as adjoining census tracts in a Metro area or adjoining counties
in a Non-Metro area) may combine distressed and non-distressed units.
But the area must satisfy a population threshold requiring the
distressed units--those that ``together meet one of the [applicable
distress] criteria''--to
[[Page 12610]]
represent at least 85 percent of the area's total population.\35\
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\35\ Id. Sec. 1805.201(b)(3)(ii)(C)(2).
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Finally, to qualify as an investment area, the proposed area must
also ``have significant unmet needs for loans or equity investments.''
\36\ The CDFI Fund regulation deems this criterion fulfilled when ``a
narrative analysis provided by the entity demonstrates a pattern of
unmet needs'' within the proposed area.\37\
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\36\ 12 U.S.C. 4702(16)(A)(ii).
\37\ <a href="https://www.ecfr.gov/current/title-12/section-1805.201">https://www.ecfr.gov/current/title-12/section-1805.201</a>.
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Incorporation of Underserved Area Authorities Into the Manual
After Congress enacted CUMAA in 1998, the Board revised the Manual
to implement the new authority to allow service to underserved
areas.\38\ The NCUA's regulations define eligible areas (well-defined
local communities, neighborhoods, or rural districts) and how to test
whether an area is underserved by other depository institutions. The
investment area element draws from the CDFI Act, which the FCU Act
cites for this element. The Board has sought to maintain consistency in
the Manual with the CDFI Fund's economic distress criteria.\39\
Anticipating periodic changes to the economic distress criteria, the
Board included in the Manual a reference to revise or add additional
criteria that the CDFI Fund might adopt in the future.\40\ Interested
readers may also refer to the Board's preamble to Interpretive Ruling
and Policy Statement 2008-2, which contains additional information on
underserved areas.\41\
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\38\ 63 FR 71998 (Dec. 30, 1998).
\39\ The CDFI Fund applies its economic distress criteria in its
financial and technical assistance opportunities, which enhance
funding recipients' ability to provide financial products, financial
services, and development services in their target markets. See 12
CFR 1805.101; see also CDFI Fund, About Us, at https://
www.cdfifund.gov/
about#:~:text=Mission,investors%2C%20and%20financial%20service%20prov
iders.
\40\ 67 FR 20013, 20017 (Apr. 24, 2002).
\41\ 73 FR 73392 (Dec. 2, 2008).
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Proposed Amendments to the Manual for Underserved Areas
As noted in the preceding discussion, a multiple common bond FCU
that seeks to add an underserved area to its FOM as an investment area
must satisfy the CDFI Fund's economic distress criteria, among other
requirements.\42\ The current Manual essentially reiterates the
economic distress criteria that the CDFI Fund adopted or had in place
in 2008 and requires FCUs seeking to add underserved areas to satisfy
these requirements. Despite the acknowledgment of the potential for the
CDFI Fund to change the criteria over time, the NCUA has received
numerous inquiries about perceived conflicts between the Manual and the
CDFI Fund's current regulations and policies. A 2021 NCUA Legal Opinion
Letter details some of these issues, including the use of decennial
census data and the types of geographic units that may constitute an
underserved area.\43\
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\42\ The economic distress criteria do not apply to underserved
areas that qualify as Empowerment Zones or Enterprise Communities.
12 U.S.C. 4702(16)(B).
\43\ NCUA Legal Opinion Letter, Chartering and Field of
Membership Manual (July 9, 2021), available at <a href="https://www.ncua.gov/regulation-supervision/legal-opinions/2021/chartering-and-field-membership-manual">https://www.ncua.gov/regulation-supervision/legal-opinions/2021/chartering-and-field-membership-manual</a>.
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Based on this dynamic environment and on feedback the NCUA has
received from stakeholders, the Board is proposing four changes to the
requirements that apply to multiple common bond FCUs that seek to serve
underserved areas. The proposed changes would accomplish the following:
(1) clarify the Board's intent to provide flexibility to multiple
common bond FCUs serving underserved areas based on rural districts;
(2) clarify how the NCUA applies the CDFI Fund's economic distress
criteria, as the FCU Act requires;
(3) eliminate census block groups as a geographic unit for
composing underserved areas, in adherence to a regulatory change that
the CDFI Fund has adopted; and
(4) simplify and reduce the burden for FCUs on the required
statement of unmet needs that must accompany a request to serve an
underserved area.
1. Underserved Areas Based on Rural Districts
On October 27, 2016, the Board approved a final rule to Appendix B
to Part 701 of NCUA's regulations to change the definition of a rural
district, which is one subcategory of options for a community charter.
These changes increased the population limit to one million persons.
The final rule also added a restriction so that an area's boundaries
would not exceed the outer boundaries of the states that are
immediately contiguous to the state in which the credit union maintains
its headquarters (that is, not to exceed the outer perimeter of the
layer of states immediately surrounding the headquarters state).
The intent behind the headquarters restriction for a rural
district's boundaries for community-chartered credit unions was to
prevent areas from becoming overly broad, while at the same time
affording FCUs the opportunity to achieve sufficient scale so that
serving a sparsely populated area is economically viable. However, the
change made by the final rule also applies to underserved areas, thus
unintentionally curtailing the options available to multiple common
bond credit unions interested in adding to their FOMs underserved areas
consisting of rural districts. The change also created an inconsistency
between eligibility to add underserved areas consisting of rural
districts versus underserved areas consisting of communities or
neighborhoods, which did not include a geographic restriction in
relation to an FCU's headquarters.
The NCUA's objective to allow underserved area additions ``without
regard to location'' \44\ reflects the FCU Act's less restrictive
language in this area. Also, the addition of an undeserved area without
regard to location provides multiple common bond FCUs with the
opportunity to increase access to financial services for those in
underserved areas, particularly those of low- to-moderate income. Thus,
the headquarters restriction was intended to apply only to community
charter FCUs consisting of rural districts and not to underserved areas
consisting of rural districts. The proposed rule removes this
headquarters restriction for underserved areas.
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\44\ Manual, Chapter 3, Section III.A.
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Despite this proposed adjustment, the Board believes a number of
inherent constraints will continue to prevent the addition of
underserved rural districts from becoming overly broad. The underserved
rural district must continue to meet all the requirements for economic
distress to qualify as an investment area. This benchmark becomes more
challenging as a contiguous area becomes larger and more affluent
geographic units come in proximity with distressed geographic units.
The FCU's business and marketing plan must also demonstrate an ability
and intent to serve the entire area, which can be difficult for unduly
large areas. The Board invites comments as to whether it should
consider any additional requirements for an underserved area based on a
rural district. For example, in finalizing the proposed rule, should
the Board impose a new requirement that an underserved area based on a
rural district not have boundaries exceeding the states immediately
contiguous to the state in the geographic center of the underserved
area, in addition to other limitations that presently apply?
[[Page 12611]]
Depending on the feedback it receives from commenters, the Board may
modify this provision in the final rule to incorporate such a
requirement.
2. Application of CDFI Economic Distress Criteria
The Manual discusses the data an FCU and the NCUA will use to
decide whether an area meets the investment area criteria for a
proposed underserved area expansion. The Manual currently requires the
use of the most recent decennial U.S. census data. This proposal would
eliminate the term ``decennial'' and revise the applicable sections in
Chapter 3, Section III.B.2 and Section III.B.2.a., to clarify that the
census dataset should be consistent with the practices of the U.S.
Department of the Treasury in overseeing the CDFI Fund.
Both the Manual and the CDFI regulation use the phrase ``decennial
census'' when defining the term ``investment area.'' In a legal opinion
letter dated July 9, 2021,\45\ the NCUA communicated that for practical
and legal reasons the agency has discontinued the use of decennial data
and is currently using the U.S. Census Bureau's American Community
Survey (ACS) data. The use of ACS data allows for a more current
assessment of economic distress for geographic units under
consideration. Further, the CDFI Fund now uses ACS data in place of
decennial data for most of its programs.
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\45\ <a href="https://www.ncua.gov/regulation-supervision/legal-opinions/2021/chartering-and-field-membership-manual">https://www.ncua.gov/regulation-supervision/legal-opinions/2021/chartering-and-field-membership-manual</a> Interpretative Letter to
Samuel Brownell, CU Collaborate.
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The ACS functionally replaced the data the U.S. Census Bureau
derived, up until the 2000 decennial census, from the long form
distributed to a representative sample of citizens. Continuing to use
decennial long form data from 2000 or before, or its functional
equivalent ACS data designed to resemble the 2010 census as if derived
from the long form, would result in relying on data that is more than
10 years old. Conversely, data from more recent ACS sampling would
result in using the most contemporary census data, which according to
CDFI Fund staff has effectively replaced the decennial data.\46\
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\46\ The following link provides a high level overview of how
the Census Bureau introduced the ACS process to replace the long
form: <a href="https://www.census.gov/programs-surveys/decennial-census/about/census-acs.html">https://www.census.gov/programs-surveys/decennial-census/about/census-acs.html</a>.
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Further, continuing use of the stale decennial data would raise
logistical issues because the CDFI Fund has decided to replace
decennial data with the ACS. Most importantly, the CDFI Fund's staff
has advised the NCUA that not only is the CDFI Fund solely relying on
the ACS (except in certain geographic areas in which it is not
available), but it views the ACS as functionally equivalent to the
previous decennial data. CDFI Fund staff confirmed that the Fund
changed its definition of decennial, explaining that in 2006 Congress
directed the Census Bureau to replace the decennial census long form
data with the 5-year ACS data. The first 5-year ACS data was released
in 2010 (the 2006-2010 ACS), thereby replacing the decennial long form
data which was last collected in the 2000 decennial census.
With the release of the 2010 decennial census tracts and the first
full 5-year ACS data, the CDFI Fund adopted the 5-year ACS as the
successor to the decennial census long form data. Thus, the CDFI Fund
has determined that the statutory reference in the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 to ``decennial
census data'' has been functionally replaced by the Census Bureau with
the 5-year ACS that provides the socioeconomic data used for
determining program eligibility, such as investment areas.\47\
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\47\ Public Law 103-328.
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The Board believes it can best address these developments by
amending the Manual to cross-reference the CDFI Fund's economic
distress criteria, as the CDFI Fund may amend them from time to time.
This change would clarify that the NCUA defers to the CDFI Fund on
these criteria, which is appropriate under the FCU Act because the CDFI
Fund's economic distress criteria determine which areas are investment
areas that can count as underserved areas. The Manual would no longer
replicate these criteria, which the Board believes will reduce
confusion and inconsistencies as these criteria may change over time.
The Board notes that it would continue to make final determinations on
underserved area applications, including whether an FCU meets the
economic distress criteria. The proposed change would simply clarify
that, by statute, an investment area must meet the CDFI Fund's economic
distress criteria. The change would also better align the Manual with
the reference resources the CDFI Fund makes available on its website.
The Board invites comments on this change and specifically on
whether the Board should consider including a summary of the current
CDFI Fund criteria in the Manual, despite the increased opportunity for
inconsistencies, for reference along with a statement that FCUs must
follow the CDFI Fund's criteria. The Board is interested in input on
whether this approach would provide clearer information to FCUs on the
NCUA's position on the CDFI Fund's criteria. Depending on the feedback
it receives from commenters, the Board may include such a statement in
the final rule regulatory text solely for the sake of clarity.
3. Technical Update To Eliminate Census Block Group as a Permissible
Geographic Unit
The Manual outlines acceptable geographic units, which includes
census block groups, by a proposed underserved area's location for the
purpose of meeting the definition of an investment area.\48\ The Manual
also indicates that the proposed area must meet the CDFI definition of
investment area.\49\
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\48\ Manual, Chapter 3, Section III.B.2.a--Economic Distress
Criteria.
\49\ Manual, Chapter 3, Section III.B.2--Investment Area.
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The CDFI Fund deleted references to block groups in its regulatory
definition of geographic units that may constitute an investment area
in an interim final rule it issued in 2015.\50\ Specifically, in
defining geographic units, the CDFI Fund ceased including the term
``census block groups.'' For regulatory consistency, the Board believes
it is not appropriate to include a census block group as a geographic
unit. The Board notes that the CDFI Act does not expressly state that
geographic units for an investment area must be as defined by the CDFI
Fund; however, these units are tied closely to the CDFI Fund's economic
distress criteria and supplementary guidance and maps that the CDFI
Fund issues. The Board, therefore, finds it can best implement the
investment area provisions by following suit with the CDFI Fund's
elimination of the census block group geographic unit.
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\50\ 80 FR 52379 (Aug. 31, 2015).
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The Board believes that the proposed change will adequately address
this development by replacing outdated quotations and paraphrases of
the CDFI Fund's criteria with a direct reference to the criteria, as
the CDFI Fund may change them from time to time.
4. Statement of Unmet Needs
The Board is proposing changes to the current requirements on
statements of unmet needs after assessing the agency's extensive
experience in processing underserved area requests. The CDFI Act, as
referenced in the FCU Act, requires an investment area to have
[[Page 12612]]
``significant unmet needs for loans or equity investments.'' \51\ This
element is separate from the economic distress criteria and the FCU Act
requirement for the area to be underserved by other depository
institutions. Currently, FCUs seeking to add an underserved area must
submit a one-page narrative outlining that the proposed service area
has significant unmet needs for credit union services (SUN statement).
The SUN statement must include support in the form of objective reasons
and/or accompanying documentation derived from an identified,
authoritative source. The Manual further indicates that third-party
documentation is most compelling.
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\51\ 12 U.S.C. 4702(13).
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While successful applicants generally have no difficulty in meeting
the SUN statement requirements, the NCUA has found that in some
instances FCUs view the requirement to submit a one-page document
discussing characteristics of the investment areas as burdensome,
especially when the NCUA can get this information from other sources.
As detailed in this subsection, the Board is proposing to remove the
length requirement and third-party data or support references that
neither the FCU Act nor the CDFI Fund's criteria require.
As discussed previously, for an area to qualify as underserved,
CUMAA requires the Board to determine that the area is (1) a local
community, neighborhood, or rural district which (2) qualifies as an
investment area as defined in the CDFI Act and (3) is underserved by
other depository institutions.\52\ By incorporating the CDFI Act's
definition of an investment area, CUMAA's underserved area authority
also incorporated the regulations implementing that definition. The
CDFI Act defines an investment area as a geographic area that, unless
it is presently designated an Empowerment Zone or Enterprise Community,
meets the objective criteria of economic distress developed by the CDFI
Fund and has significant unmet needs for loans or equity
investments.\53\ By regulation, the CDFI Fund adopted a definition of
investment area that established criteria of economic distress and
implemented the significant unmet needs criterion.\54\
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\52\ 12 U.S.C. 1759(c)(2)(A).
\53\ 12 U.S.C. 4702(16).
\54\ 12 CFR 1805.201(b)(3)(ii) (2008).
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The Board emphasizes that while the statute provides that an
investment area must meet the ``objective criteria of economic distress
developed by the [CDFI] Fund,'' it does not include the same
requirement for the significant unmet needs element of the definition.
Instead, the statute states only that an investment area must have
``significant unmet needs for loans and equity investments.'' Thus,
while the CDFI Fund's regulations and policies on this element are
significant, the Board believes it is not required to have identical
requirements if a different approach would meet the statutory standard.
As explained in detail in the rest of this subsection, the Board
believes a less prescriptive approach would continue to meet the
statutory standard and would not conflict with the CDFI Fund's
standards.
In a 2008 Interpretive Ruling and Policy Statement (IRPS) that
amended the NCUA's chartering rules (titled IRPS 08-2), the Board
updated and clarified the process of approving FCU service to an
underserved area. In part, the IRPS updated the documentation and
clarified the scope requirements for demonstrating that a proposed area
has significant unmet needs for loans and financial services. It also
provided a methodology to determine if an area is underserved by other
depository institutions. The IRPS codified the current SUN statement
requirement that the Board now proposes to change.
During the comment period for the Board's 2008 proposed rulemaking
that resulted in issuance of IRPS 08-2, the NCUA received 14 comments
addressing the proposal to require a narrative statement on significant
unmet needs.\55\ Nearly all commenters said the narrative statement was
redundant of the CDFI Fund's distress criteria, contending that, by
definition, a distressed area must have significant unmet needs for
loans and financial services. They believed the requirement would be a
costly, burdensome duplication of effort. The information to establish
significant unmet needs, the commenters further maintained, is too
difficult to find, too subjective to quantify, too difficult to
organize by census tracts, and too difficult to document.
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\55\ 73 FR 34365 (Aug. 18, 2008).
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As noted in the preamble to the 2008 proposed IRPS, the CDFI Fund
at that time accepted a one-page narrative statement describing the
significant unmet capital or financial services needs within a proposed
area.\56\ IRPS 08-2 noted that the analysis must be supported by
relevant, objective reasons or statistical data. The IRPS further noted
there are no definitive standards of evaluation and SUN statements are
evaluated on a case-by-case basis.
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\56\ Id., at 34369, citing to the ``CDFI Certification
Application'' (June 2007) at 11.
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In the preamble to IRPS 08-2, the NCUA concluded that it could not
interpret the distress criterion or the SUN criterion as redundant of
each other because the CDFI Act sets forth both criteria independently
in defining an investment area. To ensure a sound record, IRPS 08-2
required a one-page SUN statement in the business plan. The rule
required the business plan to explain how the credit union planned to
fulfill the unmet needs for loans and credit union services it
identified in its statement.
The Board has reconsidered this issue and believes the SUN
statement requirement, in its current form, duplicates other elements
of the application and imposes undue burden without adding material
value. The Board bases this conclusion on two separate findings, each
of which is sufficient on its own to support the proposed changes.
First, the CDFI Fund does not require a one-page narrative and does
not require third-party data or support. Thus, the Board sees no
continuing need to require the one-page narrative. Second, the CDFI
Fund considers the lack of financial institution branches in an
investment area as part of the SUN criterion. The Board believes that
its concentration of facilities test, which measures whether an area is
underserved by other depository institutions, directly addresses this
point and in most cases would support a finding of significant unmet
needs in an investment area.
The Board notes that it would still require the application to
cover significant unmet needs, which is consistent with the statement
in IRPS 08-2 that the underserved and significant unmet needs criteria
are separate by law and not redundant. And, in some cases, an area
could theoretically meet the concentration of facilities test but not
have significant unmet needs. The proposed rule change will not detract
from this principle and will instead merely reduce paperwork
requirements because a less prescriptive approach may still enable FCUs
to meet these separate statutory criteria.
Effect of Proposed Change on CDFI Certification Requirements
To determine whether the proposed changes may have unintended
consequences for CDFI certification, NCUA staff inquired into the CDFI
Fund's standards for certifying institutions as CDFIs. The Manual's
current requirement that the business plan identify the credit and
depository
[[Page 12613]]
needs of the community and detail how the credit union plans to serve
those needs can support a pattern of significant unmet needs for one or
more authorized credit union services.\57\ Therefore, the existing
credit and depository needs standard is a reasonable measure of
significant unmet needs, provided it addresses authorized credit union
services.
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\57\ IRPS 06-1, 71 FR at 36667 (June 22, 2006).
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The CDFI certification application requires the applicant to
provide a narrative description of the unmet capital or financial
services needs within each identified investment area but does not
specify the length of the narrative. Moreover, the CDFI Fund's
regulations do not require a separate section in the application for
the SUN statement. On this basis alone, the Board believes that FCUs
can demonstrate significant unmet needs without a strict one-page
requirement.
Further, the CDFI certification application (referred to as the
AMIS \58\ Submission Guide, updated as of November 2018) requires
simply that the applicant ``provide [a] narrative description(s) of the
significant unmet capital or financial service needs within each
identified Investment Area.'' The application requires no specific
length and does not call for third-party data or support. Considering
the CDFI Fund's requirements for this criterion, the Board finds it
reasonable to eliminate the length requirement for the SUN statement as
well as the third-party support reference.
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\58\ AMIS is an acronym standing for Awards Management
Information System.
---------------------------------------------------------------------------
The NCUA's separate concentration of facilities test for
underserved areas, which the Board adopted in IRPS 08-2, substantially
satisfies the CDFI Fund's standard when provided in a narrative
analysis. This test is the NCUA's methodology, as outlined in the
Manual, to determine whether an area is underserved by other insured
depository institutions.\59\ The requirement that an area be
underserved by other insured depository institutions is unique to the
FCU Act; the CDFI Act's investment area definition does not include
this element.
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\59\ Manual, Chapter 3, Section III.B.3.
---------------------------------------------------------------------------
The NCUA's test provides statistical data to support the
proposition that an area is underserved by other depository
institutions, namely that the area has fewer depository institution
facilities as compared to a non-distressed area, which sets a benchmark
level of adequate service. As the CDFI Fund's supplemental guidance
shows, the CDFI Fund allows data showing a lack of financial
institution branches in an investment area to help meet its significant
unmet needs requirement. For this reason, the NCUA's separate
requirement and test assure the agency that an area passing the test
would be likely to meet the significant unmet needs standard.
The NCUA's experience in applying the test supports this
conclusion. The NCUA has found that once an area meets the economic
distress criteria and is underserved by other depository institutions,
the area also has significant unmet needs. As a result, requiring FCUs
to identify the significant unmet needs in the level of detail that the
Manual currently requires often leads to redundant and time-consuming
data gathering that does not add material value.
For each of these independent reasons, the Board proposes to amend
the SUN statement requirement to eliminate any length requirement and
the reference to third-party support and instead require a statement
about the area's credit or depository needs and how the applicant will
meet the needs. As amended, this provision would still require the
business plan to address significant unmet needs. The Board believes
that this change would reduce burden on applicants while still
requiring compliance with the statutory standards. The provision would
also continue to allow the applicant to decide which of the following
needs to address in the statement: loans, share draft accounts, savings
accounts, check cashing, money orders, certified checks, automated
teller machines (ATMs), deposit taking, safe deposit box services, and
similar services. The Board is not proposing any changes to the list of
services.
B. Community Charter Conversions and Expansions
This proposed rule would make three changes to reduce the
regulatory burden for community charter applications or
conversions.\60\ Specifically, the proposed rule would (1) establish a
simplified business and marketing plan for community charter
applications, (2) provide a standardized, fillable application for
community charter conversion or expansion requests, and (3) eliminate
the requirement for FISCUs converting to a federal community charter to
submit a business and marketing plan under certain conditions.
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\60\ For the proposed changes discussed in this section,
references to community credit unions include those federal credit
unions serving a well-defined local community, neighborhood, or
rural district meeting the requirements specified by the NCUA Board.
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The FCU Act and the Manual require the NCUA to consider the
economic advisability of chartering a new FCU and expanding an existing
FOM.\61\ The business and marketing plan requirement in the Manual
achieves this by allowing the NCUA to consider whether a new FCU has
realistic assumptions that support its viability and plan to serve its
entire FOM. For expansion, the business and marketing plans help the
NCUA test an FCU's capacity to serve the new group or geographic area.
The Board continues to acknowledge the importance of these plans in
promoting economic advisability and service to the entire FOM that an
FCU seeks to serve.
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\61\ 12 U.S.C. 1754; Manual, Chapter 1, Section IV.
---------------------------------------------------------------------------
After studying the existing requirements and considering its
substantial experience in processing and reviewing various
applications, the Board is proposing targeted relief in this area.
These changes would not undermine the important goals that the plans
serve and would instead reduce or eliminate paperwork requirements
while sharpening the agency's focus on the substantive merits of each
application.
Simplified Business and Marketing Plan
In implementing the economic advisability requirement of the FCU
Act, the Manual requires the credit union to submit a business plan
containing specified elements, which currently apply to new FCU
charters and existing FCUs requesting a community charter conversion or
expansion.\62\
---------------------------------------------------------------------------
\62\ Manual, Chapter 2, Section V.A 4.
---------------------------------------------------------------------------
Chapter 2, Section V.A.4, of the Manual defines the business plan
requirements specific to community charter actions. The current
requirements are:
<bullet> Provide pro forma financial statements for a minimum of 24
months after the proposed conversion;
<bullet> Provide anticipated financial impact on the credit union,
including the need for additional employees and fixed assets, and the
associated costs;
<bullet> Provide a description of the current and proposed office/
branch structure, including a general description of the location(s);
parking availability, public transportation availability, drive-through
service, lobby capacity, or any other service feature illustrating
community access;
<bullet> Provide a marketing plan addressing how the community will
be served for the 24-month period after the
[[Page 12614]]
proposed conversion to a community charter, including detailing how the
credit union will implement its business plan; the unique needs of the
various demographic groups in the proposed community; how the credit
union will market to each group, particularly underserved groups; which
community-based organizations the credit union will target in its
outreach efforts; the credit union's marketing budget projections
dedicating greater resources to reaching new members; and the credit
union's timetable for implementation, not just a calendar of events;
<bullet> Provide details, terms, and conditions of the credit
union's financial products, programs, and services to be provided to
the entire community; and
<bullet> Provide maps showing the current and proposed service
facilities, ATMs, political boundaries, major roads, and other
pertinent information.
The Manual also provides for a streamlined business and marketing
plan for existing community charters applying to add bordering
areas.\63\ Existing community credit unions adding bordering areas may
continue to use the streamlined business and marketing plan, as the
proposed rule leaves this option intact. With respect to all other
community charter requests, the specific proposed modifications to the
existing plan requirements are discussed in the following paragraphs.
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\63\ Manual, Chapter 2, Section V.B 1.
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As noted, credit unions are currently required to provide a
description of the current and proposed office/branch structure,
including a general description of the location(s), parking
availability, public transportation availability, drive-through
service, lobby capacity, or any other service feature illustrating
community access. Under the proposed rule, the credit union would be
required to provide branch details to include how many service
facilities are in the area, whether the credit union participates in
shared branching, number of ATMs (owned and shared), any new branches
planned, use of electronic delivery channels, and how the credit union
will sign up low- and moderate-income individuals. By eliminating the
need for providing granular details about the branch structure, the
NCUA hopes to encourage applicants to spend more time determining how
to best meet the evolving needs of their members and considering
innovative service delivery channels like virtual banking.
The following is an example of a marketing budget that credit
unions could use for a 24-month period. Under the proposed rule, a
credit union may include all the various marketing media to set
marketing expectations and demonstrate their intent to reach new
members in the proposed community. The NCUA emphasizes that credit
unions would not be required to use the marketing media set forth in
the example.
Example Marketing Budget
Marketing Budget
----------------------------------------------------------------------------------------------------------------
Year-end Projected Projected
Category actual year 1 year 2
----------------------------------------------------------------------------------------------------------------
Social Media.................................................... $xx,xxx $xx,xxx $xx,xxx
Geofencing...................................................... xx,xxx xx,xxx xx,xxx
Special Program for New Branch.................................. xx,xxx xx,xxx xx,xxx
Direct Mail Campaign............................................ xx,xxx xx xxx xx,xxx
Television...................................................... xx,xxx xx,xxx xx,xxx
Radio........................................................... xx,xxx xx,xxx xx,xxx
-----------------------------------------------
Total....................................................... xx,xxx xx,xxx xx,xxx
----------------------------------------------------------------------------------------------------------------
The proposed rule would also remove the requirement that a credit
union provide ``details, terms, and conditions of the credit union's
financial products, programs, and services to be provided to the entire
community'' and instead include a question on whether the credit union
is full service, and if so, what unique or particularly interesting
products or services it offers.\64\ The NCUA believes there is no need
to list every product or service because the regulation defines full
service, and the agency wants credit unions to be able to focus their
application on products tailored to the needs of their FOM, especially
low-to-moderate income members. In addition, in most cases products and
services are listed on the credit union's website.
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\64\ The Manual defines full service as ``providing, at a
minimum, savings accounts, share draft accounts, mortgages, home-
equity loans, automobile loans, money orders, wire transfers,
interactive website, home banking, bill payment, and mobile
banking.''
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Standardized Fillable Application for Community Charter Requests
The NCUA receives several requests each year for an application
form for a community conversion or expansion request. The agency
addressed this need in part by providing templates for business and
marketing plans through NCUA Letters to FCUs 11-FCU-03 and 21-FCU-
01.\65\ However, because there is no NCUA form in the Manual for
applicants to request community charter actions, credit unions'
submissions can be voluminous and may not meet regulatory requirements.
The proposed rule would require the use of a fillable, standardized
application for all community charter actions. The standardized
application should better focus credit unions on critical requirements
and ensure uniform NCUA reviews across applications. The use of the
standardized application form should reduce the number of follow-up
requests from the NCUA for additional information. The proposed form is
available for review within the <a href="http://Regulations.gov">Regulations.gov</a> docket for this notice
of proposed rulemaking.
---------------------------------------------------------------------------
\65\ <a href="https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/community-charter-conversions-and-expansions">https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/community-charter-conversions-and-expansions</a>
and <a href="https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/community-charter-conversions-and-expansions">https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/community-charter-conversions-and-expansions</a>-
0.
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The proposed changes will not hinder the NCUA's ability to assess a
credit union's economic advisability and service to low-income members.
Although the proposed changes adjust the current process to require
less information in total, they better target the most useful
information, thereby enhancing the efficiency and effectiveness of NCUA
reviews.
The Board welcomes comments on all aspects of these proposed
changes and specifically requests comment on whether the new fillable
application
[[Page 12615]]
should be mandatory. The Board's intention is to reduce burden on
applicants and the agency by making the process simpler without
sacrificing the quality of the information and analysis. The Board is
interested in whether a free-form narrative option is preferrable and
may consider making the form optional, depending on the feedback from
commenters. The Board also requests comment on whether it should codify
the new form in the Manual. The advantage of codifying it is making it
more readily accessible, but the disadvantage is that even minor
changes may require a new notice-and-comment rulemaking to avoid
confusion.\66\ The Board may decide not to codify the form or label the
form as being subject to modification by CURE from time to time in the
final rule, depending on the feedback it receives from commenters.
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\66\ Some changes may meet the Administrative Procedure Act's
good cause exception to the general requirement for an agency to
provide the public prior notice and an opportunity for comment
before adopting a rule. See 5 U.S.C. 553. For example, non-
substantive changes may meet the ``unnecessary'' prong of the good
cause standard. See, e.g., Mack Trucks, Inc. v. E.P.A., 682 F.3d 87,
94 (D.C. Cir. 2012) (``This prong of the good cause inquiry is
`confined to those situations in which the administrative rule is a
routine determination, insignificant in nature and impact, and
inconsequential to the industry and to the public.'') (citation and
quotation mark omitted).
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Requirements for Community-Based State-Chartered Credit Union
Converting to an FCU
FISCUs converting to a federal community charter are currently also
subject to the business and marketing plan requirements discussed in
the preceding section of this preamble.\67\ The proposed rule
eliminates this requirement for FISCUs converting to a federal
community charter if they will continue to serve the same community.
The economic advisability of granting a community charter in a
conversion to a federal credit union is more readily determinable
because the applicant applying to convert is an existing insured credit
union whose management and operations the NCUA has examined or
supervised and that has an established history of serving the
community.
---------------------------------------------------------------------------
\67\ Manual, Chapter 2, Section V.A.4.
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The Manual defines the business and marketing plan requirements for
a community credit union. The business and marketing plan must
demonstrate the credit union's ``ability and commitment to serve the
entire community for which it seeks NCUA approval.'' \68\ The Board did
not propose changes to the charter conversion requirements in the 2016
FOM rulemakings on community charters. The Board acknowledges that it
relies on sound business and marketing plans to ensure that expanded
community chartering options are reasonable and viable.\69\
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\68\ Manual, Chapter 2, Section V.A.2.
\69\ See 81 FR 88412, at 88413 (Dec. 7, 2016) providing that
``What critics of repealing the `core area' service requirement
overlook is that NCUA has in place a supervisory process to assess
management's efforts to offer service to the entire community an FCU
seeks to serve. NCUA holds credit union management accountable for
the results of an annual evaluation that encompasses a community
FCU's implementation of its business and marketing plans, extending
for three [3] years after the credit union either is chartered,
converts, or expands. Experience confirms that the agency's
evaluations are a more effective means of ensuring that the low-
income and underserved populations are fairly served compared to the
rest of the community, in contrast to a requirement forcing a credit
union to serve the `core area' of the portion of a CBSA that
comprises its community.'' See also 81 FR 88412, at 8814 (``As with
any community an FCU seeks to serve, a Combined Statistical Area
would be subject to NCUA's practice of periodically reviewing the
FCU's implementation of its business and marketing plans to assess
its capability of, and success in, serving its original or
previously expanded community.'').
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In addition, the Manual implements the statutory requirements
governing the conversion of a state charter to a federal charter.\70\
In general, conversions ``are treated the same as any initial
application for a federal charter.'' \71\ However, ``[s]ince 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.'' \72\
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\70\ 12 U.S.C. 1771(b); Manual, Chapter 4, Section II.
\71\ Manual, Chapter 4, Section II.A.
\72\ Id.
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The Manual also requires that, ``[i]f 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, of this manual.'' \73\ Among other
requirements, this section notes how the NCUA will not approve an
application for a community charter consisting of all or a portion of a
combined statistical area or a core-based statistical area unless the
applicant demonstrates in its business and marketing plan the credit
union will (1) serve a community that is contiguous and (2) provide
financial services to low- and moderate-income and underserved people.
The NCUA must also ensure the credit union has not selected its service
area to exclude low- and moderate-income and underserved people or to
engage in illegal discrimination.\74\
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\73\ Id.
\74\ Manual, Chapter 2, Section V.A.8.
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The proposed rule would amend the Manual's business and marketing
plan requirement for FISCUs that already serve the community applying
to become a federal community charter. In place of the plan, the NCUA
would only require a FISCU to submit a statement addressing the
following three topics:
1. Does the existing community consist of a portion of a Core Based
Statistical area or Combined Statistical Area? If so, please explain
the credit union's basis for selecting its service area.
2. Describe products and services you offer or plan to offer to
low- and moderate-income and underserved members.
3. How will you market to the low- and moderate-income, and
underserved (economically distressed) people, and those with unique
needs, in the community?
The Board believes that the proposed removal of the business and
marketing plan requirement for FISCU conversions will not hinder the
NCUA's ability to assess the applicant's economic advisability and its
capacity to provide services to low- and moderate-income members. This
would be accomplished through the NCUA's review of the FISCU's
Financial Performance Report, review of examination reports, including
reports related to compliance with consumer financial protection and
fair lending statutes and regulations. The proposed changes will reduce
the time involved for both the credit union and NCUA staff.\75\
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\75\ During the period of 2011-2021, the NCUA approved 19 FISCUs
converting to federal community charters. The NCUA estimates
approximately 40 hours of paperwork burden for each charter
conversion.
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A FISCU converting to an FCU community charter would not be subject
to the NCUA's 3-year business and marketing plan review.\76\ The NCUA
believes it is able to review for non-discrimination through other
means, such as the FISCU's track record, state examination results,
including results related to any fair lending reviews, and other
information available to the agency.
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\76\ Manual, Chapter 2, Section V.A.4.
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This proposed change would not apply to single or multiple common
bond FISCUs converting to an FCU community charter. These credit unions
would have to submit a business and marketing plan. This change would
also not apply to non-federally insured credit unions. As stated
previously, the NCUA has an opportunity to conduct ongoing reviews of
FISCUs that provide insight into the credit union's management and
operations. Because
[[Page 12616]]
the NCUA does not have the same opportunity with non-federally insured
credit unions, the Board believes that the basis for this change is not
applicable. The Board specifically invites comments on whether to treat
any conversions of non-federally insured credit unions differently in
this respect. After reviewing any input from commenters on this issue,
the Board may consider expanding this flexibility to non-federally
insured credit unions in finalizing the proposed rule.
C. Groups Sharing a Common Bond With Community Areas
The Board is also proposing a targeted addition to the affinity
groups eligible for membership in community FCUs.\77\ The Manual
defines an affinity as a relationship on which a community charter is
based. The affinity concept, which the FCU Act does not set forth or
restrict, complements the community FOM. The community FOM tells a
prospective member which geographic area is relevant--a well-defined
local community, neighborhood, or rural district. The affinities tell
them which relationships to that area are enough to make a bond
suitable for membership.
---------------------------------------------------------------------------
\77\ For this section, references to community credit unions
include those federal credit unions serving a well-defined local
community, neighborhood, or rural district meeting the requirements
specified by the NCUA Board.
---------------------------------------------------------------------------
The Manual currently defines four types of affinity groups eligible
for membership in FCUs serving communities or rural districts, namely
persons who live in, worship in, attend school in, or work in the
community or rural district.\78\
---------------------------------------------------------------------------
\78\ Manual, Chapter 2, Section V.A.1.
---------------------------------------------------------------------------
While the current regulatory structure is generally effective, it
imposes limits on credit unions serving, or desiring to serve, a
community which has employers with staff located outside the community
boundaries. This limitation potentially discourages credit unions from
pursuing a federal community charter if they have an existing working
relationship with the employees of an employer headquartered within its
operational area, but would, upon converting, lose the ability to serve
the employer's staff working from another location.
The Board is also concerned the current affinities permitted for
community credit unions do not satisfactorily address changing trends
in the workplace. Most significantly, the concept of employment
location has changed over time, particularly in the post-COVID-19 world
which increased the trend for telecommuting and decentralized
workplaces. Advances in technology have significantly changed how
employees conduct work and communicate with one another, and there is
less of a need for persons working for the same entity to share a
common work location. Although the concept of where people work is
changing, especially through the increase in the number of persons
working from remote locations, we also believe individuals in another
locale who are employed by a company headquartered in the community
still maintain important ties to their company's headquarters.
Since March 2020, the collective efforts of companies to adapt to
the COVID-19 pandemic offer even more pronounced evidence of how a
staff member's physical location has become less important in
maintaining an employment affinity that enables an employer to
accomplish its mission. Subsequent to the pandemic, employers may
generally be more likely to structure operations to accommodate more
geographically dispersed workforces. As a result, the current
constraints affecting FCUs serving well-defined local communities,
neighborhoods, or rural districts could have a more adverse impact as
employees in many workplaces now work at home in remote locations which
are not in a commutable distance from the company's physical location.
As of June 30, 2022, there were 1,009 community chartered FCUs with
$253.7 billion in assets that provide service to over 17 million
members. The overwhelming majority of existing community charters began
as single or multiple common bond credit unions, and many had to
sacrifice the ability to serve persons working for employers in the
community if those employees resided outside the community. This change
will permit these FCUs to maintain or expand their membership base,
promote financial inclusion, and expand access to credit union services
to more individuals.
To address this limitation, the Board proposes adding a fifth
affinity to include a paid employee for a legal entity headquartered in
the community, neighborhood, or rural district. The Board believes this
rule change will help FCUs adapt to serve everyone with ties to a
community by providing employees access to a community credit union
with which they have a bond through their employer, even if they do not
physically work in the well-defined local community or rural district.
The addition of the ``paid employee for a legal entity
headquartered in the well-defined local community, neighborhood or
rural district'' also has safety-and-soundness benefits to FCUs. It
will allow community FCUs to reduce their risk to localized economic
downturns and disasters. In addition, it will help address the reality
that more employers are moving to a business model in which more staff
members can work in remote locations.
D. Eligibility of Immediate Family Members of Decedents
The Board is also proposing an update to the groups of persons who
may join an FCU based on a common bond with its members or the FCU.
Many of these provisions, including those on spouses of persons who
died while within the field of membership, volunteers, and pensioners,
were in the NCUA's chartering regulations and policies before CUMAA and
reflected the agency's judgment on which relationships show a common
bond that supports extending membership eligibility.\79\ The proposed
update would modestly expand an existing option to reflect changes in
society and alleviate logistical hurdles to funds transfer and
succession for FCU members.
---------------------------------------------------------------------------
\79\ See 44 FR 43737, 43739 (July 26, 1979) (proposed rule on
chartering that discussed the common bond that certain persons have
with the basic group that an FCU serves).
---------------------------------------------------------------------------
Under the current options available for FCUs to enroll secondary
members, immediate family or household members of decedents are not
eligible for membership unless the person was a spouse of a person who
died while within the field of membership of the credit union. As a
result of the survivors not retaining membership eligibility, the Board
has learned FCUs may lose the funds the decedents held in the credit
union to another financial institution, along with any goodwill
associated with a longstanding relationship the credit union had with
the decedent.
Immediate family or household members who are not surviving spouses
may not have joined a federal credit union when the decedent was still
living due to an oversight, lack of awareness regarding eligibility, or
a perceived lack of need in cases where the decedent handled the
finances of the family or household. Also, in the case of accounts
established in joint tenancy, a survivor may have mistakenly believed
he or she already is a member.
The Board proposes amending the Manual to address these concerns
and minimize the potential for future confusion, especially when a
consumer is undergoing a period of bereavement. The amendment will
update the definition of secondary members for
[[Page 12617]]
each common bond type to include every member of a decedent's immediate
family or household for a 6-month period following the decedent's
passing.
In developing the proposed rule change, the Board patterned the
agency's approach after the principles the NCUA already recognizes in
its share insurance regulation, which allows a grace period of 6 months
for survivors of a decedent to restructure accounts to maintain
coverage after a member passes away. This provision allows survivors to
act as if the decedent were still living for the purposes of
maintaining an insured coverage relationship with the credit union when
possible.\80\
---------------------------------------------------------------------------
\80\ 12 CFR 745.2(e) provides that a member's death will not
affect the member's share insurance coverage for 6 months following
death, unless someone restructures the deceased member's account(s)
before 6 months are up.
---------------------------------------------------------------------------
If the NCUA followed the same principle relative to general
membership enrollment, it would allow a similar grace period after a
member or individual who is within the field of membership passes away
for survivors to exercise a right that existed while the member or
potential member was still living. In addition to being consistent with
language on insurance coverage, it would avoid a situation that allows
eligibility for survivors in perpetuity even if they themselves are not
otherwise within the field of membership. Allowing eligibility in
perpetuity could create problems verifying eligibility and stretches
the assertion that an individual is eligible based on his or her
relationship to the decedent, which may have ended many years prior.
While the Board believes the proposed rule offers a fair approach to
handling a sensitive issue, it welcomes comments as to whether an
alternative timeframe is appropriate.
The Board, while welcoming comments on any aspect of this proposed
rule change, specifically requests comment on a potential variation on
the proposal which would allow immediate family members, other than a
surviving spouse, to join the FCU after a person's death only if the
decedent was a member of the credit union, as opposed to being just a
potential member, at the time of death. This option would preserve the
right of a surviving spouse of a member or potential member to remain
eligible for credit union membership as permitted under the current
regulatory framework. It would, however, only allow eligibility for
other members of the immediate family or household for 6 months if
their ties were with an actual, not potential, member who passed away.
The Board requests comments to better understand the membership
succession needs of FCUs and consumers when faced with the loss of a
member of the immediate family or household.
E. Updated References for Review of Prospective Management and
Officials
This proposed rule makes a technical clarification and correction
to the Manual provision regarding the agency's evaluation and
disapproval of directors and other management officials for applicants
for NCUSIF coverage. The goal of the change is to reduce confusion for
applicants and provide a clearer explanation of which authorities
govern this review process.
Section 201(c) of the FCU Act requires the NCUA to ensure that the
management of applicants for insurance are of good ``general character
and fitness.'' \81\ Chapter 1, Section IV.B., of the Manual implements
this statutory requirement. Separately, section 104 of the FCU Act
states ``an investigation shall be made for the purpose of determining
. . . the general character and fitness of subscribers'' to the FCU
organization certificate in the Board's approval of a new FCU
charter.\82\ An FCU's subscribers--the individuals who seek to charter
a new FCU--often apply to serve as officials of the prospective FCU.
---------------------------------------------------------------------------
\81\ 12 U.S.C. 1781(c).
\82\ 12 U.S.C. 1754.
---------------------------------------------------------------------------
The present wording of the Manual incorrectly cites to the NCUA
regulation in Sec. 701.14, which does not pertain to sections 104 or
201(c) of the FCU Act. The regulation implements section 212 of the FCU
Act, which provides separate statutory authority for disapproval of
directors and management officials of certain federally insured credit
unions.\83\ The regulation only applies in cases of federally insured
credit unions in troubled condition or newly chartered credit unions
(defined in Sec. 701.14(c)(1)(ii) as those chartered for less than 2
years).\84\ These requirements, including time limitations for
application review and approval, do not apply to credit unions that are
applying for an FCU charter or insurance of member of accounts. The
Manual and Sec. 701.14 apply similar standards to prospective
directors and management officials, but under the FCU Act and the
NCUA's regulations, these procedures are distinct.
---------------------------------------------------------------------------
\83\ 12 U.S.C. 1790a.
\84\ 12 CFR 701.14(a).
---------------------------------------------------------------------------
The proposed rule removes the reference to Sec. 701.14 in Chapter
1, Section IV.B., of the Manual to clarify that the NCUA relies on the
authority of section 201(c) of the FCU Act in disapproving a director
or other management official of an applicant for NCUSIF coverage, as
well as section 104 on the character and fitness of FCU subscribers.
The proposed change does not alter the NCUA's current procedures for
such disapprovals. By proposing this change, the Board intends solely
to ensure the accuracy and clarity of the Manual.
III. Questions for Commenters on Possible Future Actions
The Board is also interested in seeking input from commenters to
inform future policies or rulemaking outside the scope of this proposed
rule. In addition to the specific requests for comment included with
the discussion of proposed changes elsewhere in this preamble, the
Board welcomes comments on the following topics, which the Board may
address in future actions but not in connection with this proposed rule
or any final rule based on the proposed rule.
Application of ``well-defined'' to underserved areas. Currently,
the Manual applies the ``well-defined'' requirement to communities,
neighborhoods, and rural districts that an applicant seeks to serve as
an underserved area.\85\ But, the FCU Act does not apply this term in
the provision on underserved areas. The statute requires that these
areas may include persons or organizations within a ``local community,
neighborhood, or rural district.'' If the Board revisits the current
requirement, how would commenters recommend the Board describe the
required boundaries for a qualifying area? Currently, the ``well-
defined'' requirement is defined as having specific geographic
boundaries. How would commenters recommend that the Board distinguish a
well-defined area from one that may not need to be well-defined? Should
the Board consider amending the ``well-defined'' definition to provide
a clear basis to distinguish such areas?
---------------------------------------------------------------------------
\85\ Manual, Chapter 3, Section III.B.1.
---------------------------------------------------------------------------
Concentration of facilities. Currently, the Manual provides three
options for an applicant to establish that a proposed underserved area
is underserved by other depository institutions, as the FCU Act
requires.\86\ First, the Manual provides for a specific calculation
based on the non-distressed tracts within an area. This is the test the
NCUA runs to see whether an area qualifies. Second, the Manual provides
that an
[[Page 12618]]
underserved county, as designated by the Consumer Financial Protection
Bureau, will qualify as underserved for purposes of this test. Third,
the Manual provides that an area may qualify based on a credit union's
own ``metric'' if the credit union's measure is based on data from the
NCUA or other federal banking agencies. Do commenters believe these
options, including the current flexibility for an applicant to provide
its own data and analysis, provide sufficient latitude to establish
that an area is underserved? What additional measures or metrics do
commenters recommend, and could they fit within the third option
described in this paragraph? Alternatively, should the Board consider
adopting an additional option based on a national benchmark of
depository institution facilities? What sources do commenters recommend
the Board consider in studying this issue?
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\86\ 12 U.S.C. 1759(c)(2)(A)(ii); 12 CFR 701, Manual, Chapter 3,
Section III.B.3.
---------------------------------------------------------------------------
Neighborhoods as a chartering option. Currently, the Manual does
not include a detailed description and set of specific criteria to
define a permissible charter based on a neighborhood, as 12 U.S.C.
1759(b) allows. In the agency's experience, communities (and likely
rural districts) typically subsume neighborhoods. The proposed rule
contains some minor elaboration and suggested clarifications on
neighborhoods but is not proposing any substantive changes. Should the
Board consider proposing or otherwise developing guidance or
requirements for neighborhood-based charters? Do commenters believe
that some neighborhoods may extend beyond or not be co-extensive with a
community or rural district in some instances? Would development of
this option assist FCUs in expanding access to financial services?
IV. Regulatory Procedures
Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) applies to rulemaking in
which an agency creates a new or amends existing information collection
requirements.\87\ For purposes of the PRA, an information collection
requirement may take the form of a reporting, recordkeeping, or a
third-party disclosure requirement. The NCUA may not conduct or
sponsor, and the respondent is not required to respond to, an
information collection unless it displays a valid Office of Management
and Budget (OMB) control number. The current information collection
requirements for the Chartering and Field of Membership Manual are
approved under OMB control number 3133-0015.
---------------------------------------------------------------------------
\87\ 44 U.S.C. 3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------
The proposed rule would introduce a simplified application for
community-based FCUs by eliminating duplicative and unused reporting
and providing a standard format for business and marketing plans. The
NCUA estimates that 50 percent of the respondents of the current
application will use the new simplified version for an estimated
reduction of 560 burden hours.
The proposed rule would also eliminate the one-page narrative and
third-party data from FCUs seeking to add an underserved area. The
elimination of this reporting requirement is estimated to reduce the
burden by 2 hours per response to complete the application for a total
reduction of 42 burden hours.
A FISCU converting to a federal community charter is currently
subject to the business and marketing plan requirements. The proposed
rule would eliminate this requirement for FISCUs when converting to a
federal community charter if they already serve the same community. It
is estimated that one FISCU would fall in this category. A reduction of
2 burden hours would be due to the elimination of this reporting
requirement.
A program change attributed with this proposed rulemaking is
estimated to reduce the overall burden hours by 604.
OMB Control Number: 3133-0015.
Title of information collection: Chartering and Field of Membership
Manual, 12 CFR 701.1, App. B to Part 701.
Estimated number respondents: 8,245.
Estimated number of responses per respondent: 1.
Estimated total annual responses: 8,245.
Estimated total annual burden hours per response: 0.53.
Estimated total annual burden hours: 15,619.
The NCUA invites comments on: (a) Whether the proposed collection
of information is necessary for the proper performance of the functions
of the agency, including whether the information will have practical
utility; (b) the accuracy of the agency's estimate of the burden of the
proposed collection of information, including the validity of the
methodology and assumptions used; (c) ways to enhance the quality,
utility, and clarity of the information to be collected; and (d) ways
to minimize the burden of the collection of information on those who
are to respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology; and (e) estimates of capital or
start-up costs and cost of operation, maintenance, and purchase of
services to provide information.
All comments are a matter of public record. Interested persons are
invited to submit written comments to (1) <a href="http://www.reginfo.gov/public/do/PRAMain">www.reginfo.gov/public/do/PRAMain</a> (find this particular information collection by selecting the
agency under ``Currently under Review'') or to (2) National Credit
Union Administration, 1775 Duke Street, Suite 6032, Alexandria,
Virginia 22314; or email at <a href="/cdn-cgi/l/email-protection#ffafadbebc9092929a918b8cbf919c8a9ed1989089"><span class="__cf_email__" data-cfemail="2b7b796a684446464e455f586b45485e4a054c445d">[email protected]</span></a>.
Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. The
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive order to adhere to fundamental
federalism principles. This proposed rule only applies to FCUs and
would not have substantial direct effects 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. Although the rule, in part, streamlines some of the
requirements for converting from a FISCU to an FCU, the NCUA's
experience generally indicates the application process itself has not
been a determinative factor in an existing credit union's choice of
jurisdictional authority. Accordingly, the NCUA believes that the
effect of this change on the states would be limited. The NCUA has
therefore determined that this rule does not constitute a policy that
has federalism implications for purposes of the executive order.
Assessment of Federal Regulations and Policies on Families
The Board has determined that this proposed rule would not affect
family well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, 1999.\88\ Although the provision
on extending membership eligibility to surviving family members may
affect members and their families by extending access to financial
services, the Board does not believe that the change would affect
family well-being as described in factors included in the legislation,
which include the effect of the action on the stability and safety of
the family; on parental authority and rights in the education,
supervision, and
[[Page 12619]]
nurture of their children; on the ability of families support their
functions or substitutes governmental activity for these functions; and
on increases or decreases to disposable income. The Board's proposed
change would potentially affect where family members access funds after
a members' death, but the proposal would not affect access to the funds
themselves.
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\88\ Public Law 105-277, 112 Stat. 2681 (1998).
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List of Subjects in 12 CFR Part 701
Credit Unions.
By the NCUA Board on February 16, 2023.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons stated in the preamble, the NCUA Board proposes to
amend 12 CFR part 701, as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
0
1. The authority citation for part 701 continues to read as follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759,
1761a, 1761b, 1766, 1767, 1782, 1784, 1785, 1786, 1787, 1788, 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 42 U.S.C. 4311-4312.
0
2. In appendix B to part 701:
0
a. Amend chapter 1 by revising section IV.B;
0
b. Amend chapter 2 by:
0
i. Revising sections II.H, III.H, IV.J, and V.A.1;
0
ii. Redesignating section V.A as section V.A.4 and revising it; and
0
iii. Revising section V.G;
0
c. Amend chapter 3 by:
0
i. Adding a new sentence at the end of section III.B.1;
0
ii. Revising section III.B.2;
0
iii. Removing section III.B.2a; and
0
iv. Redesignating section III.B.2.b as section III.B.2.a and revising
it;
0
d. Amend chapter 4 by revising section II.B; and
0
e. Amend Appendix 1 Glossary by revising the definition of
``Affinity''.
The revisions and addition read as follows:
Appendix B to Part 701--Chartering and Field of Membership Manual
Chapter 1--Federal Credit Union Chartering
* * * * *
IV--Economic Advisability
* * * * *
IV.B--Character and Fitness Analysis
Section 104 of the Federal Credit Union Act, 12 U.S.C. 1754,
requires NCUA to ensure that the subscribers are of good ``general
character and fitness.'' Section 201(c) of the Federal Credit Union
Act, 12 U.S.C. 1781(c), requires NCUA to consider the ``general
character and fitness'' of management in reviewing an application by
a credit union for insurance of member accounts. Prospective
officials and employees, including those who elect to serve on a
voluntary basis, will be the subject of credit and background
investigations. In many cases, a federal credit union's
subscribers--the individuals who seek to charter a new credit
union--simultaneously apply to serve as officials of the proposed
charter. The investigation report must demonstrate each applicant's
ability to effectively handle financial matters. Employees and
officials should also be competent, experienced, honest, and of good
character. Factors that may lead to disapproval of a prospective
official or employee include criminal convictions, indictments, and
acts of fraud and dishonesty. Further, factors such as serious or
unresolved past due credit obligations and bankruptcies disclosed
during credit checks may disqualify an individual.
NCUA also needs reasonable assurance that the management team
will have the requisite skills--particularly in leadership and
accounting--and the commitment to dedicate the time and effort
needed to make the proposed federal credit union a success.
Section 201 of the Federal Credit Union Act, 12 U.S.C. 1781(c),
sets forth the criteria for evaluation of the general character and
fitness of the management of a credit union that applies to the NCUA
Board for federal share insurance of member accounts. The Federal
Credit Union Act, 12 U.S.C. 1754, requires an appropriate
investigation be made into the general character and fitness of the
subscribers to the organization certificate before the organization
certificate may be approved. If the application of a prospective
official or employee to serve is not acceptable to the Office of
Credit Union Resources and Expansion Director, the group can propose
an alternate to act in that individual's place. If the charter
applicant feels it is essential that the disqualified individual be
retained, the individual may appeal the Office of Credit Union
Resources and Expansion Director's decision to the NCUA Board. If an
appeal is pursued, action on the application may be delayed. If the
appeal is denied by the NCUA Board, an acceptable new applicant must
be provided before the charter can be approved.
* * * * *
Chapter 2--Field of Membership Requirements for Federal Credit Unions
* * * * *
II--Occupational Common Bond
* * * * *
II.H--Other Persons Eligible for Credit Union Membership
A number of persons, by virtue of their close relationship to a
common bond group, may be included, at the charter applicant's
option, in the field of membership. These include the following:
<bullet> Employees of this credit union;
<bullet> Persons retired as pensioners or annuitants from the
above employment;
<bullet> Volunteers;
<bullet> Members of the immediate family or household, including
those of a member or person eligible for membership who died no
longer than 6 months prior to the date of the application for credit
union membership;
<bullet> Honorably discharged veterans who served in any of the
Armed Services of the United States listed in this charter;
<bullet> Organizations of such persons; and
<bullet> Corporate or other legal entities in this charter.
Immediate family is defined as spouse, child, sibling, parent,
grandparent, or grandchild. This includes stepparents, stepchildren,
stepsiblings, and adoptive relationships.
Household is defined as persons living in the same residence
maintaining a single economic unit. Membership eligibility is
extended only to individuals who are members of an ``immediate
family or household'' of a credit union member. It is not necessary
for the primary member to join the credit union in order for the
immediate family or household member of the primary member to join,
provided the immediate family or household clause is included in the
field of membership. However, it is necessary for the immediate
family member or household member to first join in order for that
person's immediate family member or household member to join the
credit union. A credit union can adopt a more restrictive definition
of immediate family or household.
Volunteers, by virtue of their close relationship with a sponsor
group, may be included. Examples include volunteers working at a
hospital or school.
Under the Federal Credit Union Act, once a person becomes a
member of the credit union, such person may remain a member of the
credit union until the person chooses to withdraw or is expelled
from the membership of the credit union. This is commonly referred
to as ``once a member, always a member.'' The ``once a member,
always a member'' provision does not prevent a credit union from
restricting services to members who are no longer within the field
of membership.
III--Associational Common Bond
* * * * *
III.H--Other Persons Eligible for Credit Union Membership
A number of persons by virtue of their close relationship to a
common bond group may be included, at the charter applicant's
option, in the field of membership. These include the following:
<bullet> Employees of this credit union;
<bullet> Volunteers;
<bullet> Members of the immediate family or household, including
those of a member or person eligible for membership who died no
longer than 6 months prior to the date of the application for credit
union membership;
<bullet> Honorably discharged veterans who served in any of the
Armed Services of the United States in this charter;
<bullet> Organizations of such persons; and
<bullet> Corporate or other legal entities in this charter.
[[Page 12620]]
Immediate family is defined as spouse, child, sibling, parent,
grandparent, or grandchild. This includes stepparents, stepchildren,
stepsiblings, and adoptive relationships.
Household is defined as persons living in the same residence
maintaining a single economic unit.
Membership eligibility is extended only to individuals who are
members of an ``immediate family or household'' of a credit union
member. It is not necessary for the primary member to join the
credit union in order for the immediate family or household member
of the primary member to join, provided the immediate family or
household clause is included in the field of membership. However, it
is necessary for the immediate family member or household member to
first join in order for that person's immediate family member or
household member to join the credit union. A credit union can adopt
a more restrictive definition of immediate family or household.
Volunteers, by virtue of their close relationship with a sponsor
group, may be included. One example is volunteers working at a
church.
Under the Federal Credit Union Act, once a person becomes a
member of the credit union, such person may remain a member of the
credit union until the person chooses to withdraw or is expelled
from the membership of the credit union. This is commonly referred
to as ``once a member, always a member.'' The ``once a member,
always a member'' provision does not prevent a credit union from
restricting services to members who are no longer within the field
of membership.
IV--Multiple Occupational/Associational Common Bonds
* * * * *
IV.J--Other Persons Eligible for Credit Union Membership
A number of persons, by virtue of their close relationship to a
common bond group, may be included, at the charter applicant's
option, in the field of membership. These include the following:
<bullet> Employees of this credit union;
<bullet> Persons retired as pensioners or annuitants from the
above employment;
<bullet> Volunteers;
<bullet> Members of the immediate family or household, including
those of a member or person eligible for membership who died no
longer than 6 months prior to the date of the application for credit
union membership;
<bullet> Honorably discharged veterans who served in any of the
Armed Services of the United States in this charter;
<bullet> Organizations of such persons; and
<bullet> Corporate or other legal entities in this charter.
Immediate family is defined as spouse, child, sibling, parent,
grandparent, or grandchild. This includes stepparents, stepchildren,
stepsiblings, and adoptive relationships.
Household is defined as persons living in the same residence
maintaining a single economic unit.
Membership eligibility is extended only to individuals who are
members of an ``immediate family or household'' of a credit union
member. It is not necessary for the primary member to join the
credit union in order for the immediate family or household member
of the primary member to join, provided the immediate family or
household clause is included in the field of membership. However, it
is necessary for the immediate family member or household member to
first join in order for that person's immediate family member or
household member to join the credit union. A credit union can adopt
a more restrictive definition of immediate family or household.
Volunteers, by virtue of their close relationship with a sponsor
group, may be included. Examples include volunteers working at a
hospital or church.
Under the Federal Credit Union Act, once a person becomes a
member of the credit union, such person may remain a member of the
credit union until the person chooses to withdraw or is expelled
from the membership of the credit union. This is commonly referred
to as ``once a member, always a member.'' The ``once a member,
always a member'' provision does not prevent a credit union from
restricting services to members who are no longer within the field
of membership
V--Community Charter Requirements
V.A.1--General
There are two types of community charters. One is based on a
single, geographically well- defined local community or
neighborhood; the other is a rural district. More than one credit
union may serve the same community.
NCUA recognizes five types of affinity on which both a community
charter, including a well-defined local community or neighborhood,
and a rural district can be based on persons who live in, worship
in, attend school in, work in, or are a paid employee for a legal
entity headquartered in the community or rural district. Businesses
and other legal entities within the community boundaries or rural
district may also qualify for membership.
NCUA has established the following requirements for community
charters:
<bullet> The geographic area's boundaries must be clearly
defined; and
<bullet> The area is a well-defined local community or a rural
district.
* * * * *
V.A.4.--Business Plan Requirements for a Community Credit Union
For the purpose of this section, references to community credit
unions include those federal credit unions serving a well-defined
local community, neighborhood, or rural district meeting the
requirements specified by the NCUA Board. 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 and promotion of savings programs and
in the collection of loans. Accordingly, to support an application
for a community charter, an applicant federal credit union must
submit a business plan incorporating the following data in the form
prescribed by the NCUA:
<bullet> Pro forma financial statements for a minimum of 24
months after the proposed conversion, including the underlying
assumptions and rationale for projected member, share, loan, and
asset growth;
<bullet> Anticipated financial impact on the credit union,
including the need for additional employees and fixed assets, and
the associated costs;
<bullet> A description of the number and location of service
facilities in the community, whether the credit union participates
in shared branching, the number of ATMs owned or shared by the
credit union in the community, any new branches the credit union
plans to establish in the community, the credit union's use of
electronic delivery channels, and how the credit union will provide
services to low- and moderate-income individuals;
<bullet> A marketing plan, including a budget, addressing how
the community will be served for the 24-month period after the
proposed conversion to a community charter, including detailing: How
the credit union will implement its business plan; the unique needs
of the various demographic groups in the proposed community; how the
credit union will market to each group, particularly underserved
groups; and the credit union's timetable for implementation, not
just a calendar of events; and
<bullet> Maps showing the current and proposed service
facilities, ATMs, political boundaries, major roads, and other
pertinent information.
An existing federal credit union may apply to convert to a
community charter. Groups currently in the credit union's field of
membership, but outside the new community credit union's boundaries,
may not be included in the new community charter. Therefore, the
credit union must notify groups that will be removed from the field
of membership as a result of the conversion. Members of record can
continue to be served.
Before approval of an application to convert to a community
credit union, NCUA must be satisfied that the credit union will be
viable and capable of providing services to its members.
Community credit unions will be expected to regularly review and
to follow, to the fullest extent economically possible, the
marketing and business plans submitted with their applications.
Additionally, NCUA will follow up with an FCU every year for 3 years
after the FCU has been granted a new or expanded community charter,
and at any other intervals NCUA believes appropriate, to determine
if the FCU is satisfying the terms of its marketing and business
plans.
An FCU failing to satisfy those terms will be subject to
supervisory action. As part of this review process, the regional
office or Office of National Examinations and Supervision Director
will report to the NCUA Board instances where an FCU is failing to
[[Page 12621]]
satisfy the terms of its marketing and business plan and indicate
what supervisory actions the region or ONES intends to take.
* * * * *
V.G--Other Persons With a Relationship to the Community
A number of persons who have a close relationship to the
community may be included, at the charter applicant's option, in the
field of membership. These include the following:
<bullet> Employees of this credit union;
<bullet> Volunteers in the community;
<bullet> Members of the immediate family or household, including
those of a member or person eligible for membership who died no
longer than 6 months prior to the date of the application for credit
union membership; and
<bullet> Organizations of such persons
Immediate family is defined as spouse, child, sibling, parent,
grandparent, or grandchild. This includes stepparents, stepchildren,
stepsiblings, and adoptive relationships.
Household is defined as persons living in the same residence
maintaining a single economic unit. Membership eligibility is
extended only to individuals who are members of an ``immediate
family or household'' of a credit union member. It is not necessary
for the primary member to join the credit union in order for the
immediate family or household member of the primary member to join,
provided the immediate family or household clause is included in the
field of membership. However, it is necessary for the immediate
family member or household member to first join in order for that
person's immediate family member or household member to join the
credit union. A credit union can adopt a more restrictive definition
of immediate family or household.
Under the Federal Credit Union Act, once a person becomes a
member of the credit union, such person may remain a member of the
credit union until the person chooses to withdraw or is expelled
from the membership of the credit union. This is commonly referred
to as ``once a member, always a member.'' The ``once a member,
always a member'' provision does not prevent a credit union from
restricting services to members who are no longer within the field
of membership.
Chapter 3--Low-Income Credit Unions and Credit Unions Serving
Underserved Areas
* * * * *
III--Service to Underserved Communities
III.B.1--Local Community
* * * For areas qualifying as a rural district under this
section III, the boundaries are not limited to the outer boundaries
of the states that are immediately contiguous to the state in which
the credit union maintains its headquarters.
II.B.2--Investment Area
To be approved as an ``underserved area,'' the proposed area
must meet the CDFI definition of an ``investment area,'' as
developed pursuant to The Community Development Banking and
Financial Institutions Act of 1994, as amended from time to time.
III.B.2.a--Proposed Area's ``Significant Unmet Needs''
A proposed area that is ``distressed'' also must display
``significant unmet needs'' for loans or for one or more of the
financial services credit unions are authorized to offer. To meet
this criterion, the credit union must include within its Business
Plan a narrative description, entitled ``Significant Unmet Needs for
Credit Union Services'' (``SUN statement''), that identifies the
credit and depository needs of the community and details how the
credit union plans to serve those needs. The credit union may choose
which among the following ``credit and depository needs'' to address
in the SUN statement: loans, share draft accounts, savings accounts,
check cashing, money orders, certified checks, automated teller
machines, deposit taking, safe deposit box services, and similar
services.
* * * * *
Chapter 4--Charter Conversions
* * * * *
II--Conversion of a State Credit Union to a Federal Credit Union
* * * * *
II.B--Submission of Conversion Proposal to NCUA
The following documents must be submitted with the conversion
proposal:
<bullet> Conversion of State Charter to Federal Charter (NCUA
4000);
<bullet> Organization Certificate (NCUA 4008). Only Part (3) and
the signature/notary section should be completed and, where
applicable, signed by the credit union officials.
<bullet> Report of Officials and Agreement to Serve (NCUA 4012);
<bullet> The Application to Convert from State Credit Union to
Federal Credit Union (NCUA 4401);
<bullet> The Application and Agreements for Insurance of
Accounts (NCUA 9500);
<bullet> Certification of Resolution (NCUA 9501);
<bullet> Written evidence regarding whether the state regulator
is in agreement with the conversion proposal; and
<bullet> Business plan, including the most current financial
report and delinquent loan schedule. A state-chartered community
credit union converting to a federal charter is not required to
submit a business plan or a marketing plan if the credit union will
serve the same community or a portion thereof that it served as a
state charter. However, if the state credit union is a community
credit union consisting of all or part of a CSA or a CBSA, the state
credit union must submit written evidence of its compliance with the
requirements of Chapter 2, Section V.A.8. Further, if the state
credit union proposes to amend its field of membership, the Office
of Credit Union Resources and Expansion Director may, after taking
into account the significance of the proposed amendment, require the
applicant to submit a business plan addressing specific issues (see
Chapter 2, Section II.C.2).
If the state charter is applying to become a federal community
charter, it must also comply with the documentation requirements
included in Chapter 2, Section V.A.2 of this Manual.
* * * * *
APPENDIX 1 GLOSSARY
* * * * *
Affinity--A relationship upon which a community charter is
based. Acceptable affinities include living, working, worshiping,
attending school, or being a paid employee of a legal entity
headquartered in a well-defined local community, neighborhood, or
rural district.
* * * * *
[FR Doc. 2023-03684 Filed 2-27-23; 8:45 am]
BILLING CODE 7535-01-P
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</html>Indexed from Federal Register on February 28, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.