CUNA Regulatory Comment Call


November 22, 2002

NATIONAL CREDIT UNION ADMINISTRATION PROPOSES FIELD OF MEMBERSHIP POLICY CHANGES FOR FEDERAL CREDIT UNIONS


(Major Rule for Federal Credit Unions)

EXECUTIVE SUMMARY

  • The NCUA Board is seeking comments for 60 days on proposed changes to the agency’s Chartering and Field of Membership Manual for Federal Credit Unions (Interpretative Ruling and Policy Statement (02-5).

  • The changes are designed to facilitate the ability of federal credit unions to add new groups, consistent with the Federal Credit Union Act and to improve NCUA’s capabilities to process applications for FOM expansions.

  • It is clear that NCUA also views these changes as strengthening the federal credit union system and contributing to the safety and soundness of federal credit unions by supporting their ability to grow.

  • Several states have in the last few years, expanded their restrictions on field of membership for state chartered credit unions. NCUA believes that it is necessary to ease current regulatory limits on federal credit union FOM provisions in order to support dual chartering and enhance the value of the federal charter in light of state changes.

  • According to NCUA since 1998, 143 federal credit unions have converted from the federal charter to state charters, citing FOM restrictions as the primary reason.

  • Comments are due to NCUA by February 3, 2003. Comments may be directed to Becky Baker, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. Comments may also be faxed to (703) 518-6319 or e-mailed to regcomments@ncua.gov. (Please send comments by one method only.) Because of the relatively short comment period, please provide your comments, via email to CUNA by January 15, 2003 at mdunn@cuna.com, CUNA’s SVP and Associate General Counsel Mary Dunn. CUNA’s Federal Credit Union Subcommittee will be developing the association’s comments.

Highlights of the Proposed Change

Overlapping Fields of Membership

  • The Board is proposing to eliminate virtually all provisions that afford field of membership protection for a federal credit union in a particular market in situations in which its field of membership is identical or closely similar to another credit union(s) in the same area. The Board must still implement the few statutory provisions in the Federal Credit Union Act that require an overlap analysis, which is a review by NCUA of whether a FOM expansion would have a negative impact on another credit union serving some or all of the same potential members.

  • Under the proposal, overlaps involving groups of less than 3,000 would be classified as an incidental overlap and no overlap analysis would be required, facilitating the expansion. Currently, NCUA’s policy is stricter and requires more frequent overlap analyses. Overlap analysis on select group expansions for multiple group credit unions of 3000 or more would continue, as required by statute.

  • This would mean that there would be no overlap analysis in situations where a single group federal credit union overlaps any other charter; where a multiple group credit union overlaps a community credit; or where a multiple group credit union overlaps another multiple group credit union and the group involved is less than 3,000.

  • If any credit union wants an existing exclusionary clause removed which was implemented under current NCUA policy, then it will be approved as a housekeeping amendment. No overlap analysis would be required.

  • If two or more credit unions involved in an overlapped field of membership want to retain an exclusionary clause previously approved, no action is required.

Branching Around Service Facilities For Select Group Expansions

  • Under current NCUA policy, a select group may be included in the field of membership of a federal credit union that is within reasonable proximity to the location of the group. This means that the credit union’s “service facility” must be reasonably proximate to the group.

  • For purposes of select group additions, NCUA is proposing that service facilities include ATMs that are wholly-owned by the credit union, and shared service centers if there is an ownership interest by the credit union.

  • As required by the Federal Credit Union Act, a federal credit union that wants to include underserved areas would still be required to maintain a physical presence more than an ATM or shared service facility.

Associational Common Bond

  • The FOM policy details what is required for a credit union to obtain a federal charter based on an associational common bond. Currently, there are three mandatory requirements, which must all be met: the association must hold meetings open to al members; sponsor other activates which demonstrate that the members of the group meet; and have an authoritative definition of who may join the association. Other factors may also be considered.

  • Under the proposal, there would be no mandatory requirements. Those requirements would be merged into the list of factors that NCUA would consider in determining whether an associational common bond exists.

  • Thus, the agency would make its determination on a totality of circumstances analysis, whether than focusing on a review of whether three mandatory requirements were met.

  • The proposed rule also clarifies that national associations may qualify for credit union membership in their entirety, if the headquarters of the association are within “reasonable proximity” to the credit union, that is within the service area of a service facility. (NCUA is also proposing changes to “reasonable proximity,” which are addressed below.

Occupational Common Bond – Trade, Industry or Profession

  • The proposed rule would provide some additional flexibility for a single occupational common bond credit union by allowing it to have a field of membership based on a “TIP.” This would be a single occupational common bond encompassing a well-defined trade, industry or profession (TIP). The TIP would have to be narrowly defined and include geographic limitations corresponding to the credit union’s current or planned service area. A new or converting credit union would be required to submit a business plan addressing how it will serve the defined TIP and verify membership.

  • Under the proposal a multiple group credit union would not be able to include a TIP, because the agency is concerned about “potential complexity.”

Further Improvements to Expedite Select Group Expansions of Less than 3000

  • Under the proposal, for groups of less than 3,000, NCUA would not perform an economic analysis to determine if the group could sustain a separate credit union. NCUA would continue to perform such an analysis for a group of 3000 or more, under a provision in the Federal Credit Union Act

  • NCUA stresses that the proposal rule would not preclude a group with less than 3000 from applying to charter its own credit union, if it chose to do so.

Community Charters – Definition of a Local Community

  • Under current NCUA policy, a single political jurisdiction that is under 300,000 in population or is in multiple contiguous jurisdictions that are less than 200,000 may be presumed to be a well-defined community that does not require additional documentation to show that a community exists.

  • The Board is proposing that any city, county, or smaller political jurisdiction, as defined by law, is a local community. or documentation demonstrating that the area is a community is required. Documentation would still required to demonstrate that the credit union has a business and marketing plan to serve the entire community and that the credit union has the financial ability to serve the entire community.

  • The Board is also proposing that any area that is a metropolitan statistical area (MSA) or its equivalent, or a portion thereof, with up to one million residents, may be local community. The credit union must submit a letter describing how the area meets the standards for community interaction and/or common interests. NCUA may request more detailed documentation to support that the proposed area is a well-defined local community based on interaction and/or common interests. Because the interaction standard of a MSA becomes more difficult to assume the larger the population of the MSA, the proposed rule has required MSA’s in excess of one million to further document their local community interaction standards.

  • In addition, under the proposal an area of multiple political jurisdictions, that are not part of a single MSA, with up to 500,000 residents may be a local community. The credit union must submit a letter describing how the area meets the standards for community interaction and/or common interests. NCUA may request more detailed documentation to support that the proposed area is a well-defined local community based on interaction and/or common interests.

  • If a FCU does not meet these criteria, it may still be able to show sufficient evidence of community interaction and common interests. In that situation, the credit union must provide sufficient documentation demonstrating that the area to be served complies with NCUA’s community charter requirements, such as clearly defined geographic boundaries, well-defined community, interaction and common interests within the community.

Common Bond Conversions

  • NCUA regulations now provide for a general three-year prohibition on converting from occupational, associational, or multiple group charter to another type of charter (this prohibition never applied to a credit union wishing to convert to a community charter). The proposed rule would remove these time constraints.

Charter Conversions

  • A state charter converting to federal charter would be able to retain groups obtained through a state’s emergency field of membership provision.

  • The NCUA Board is also seeking comment on ways it can streamline conversions from state to federal charter, arguments as to why a state charter could retain its field of membership when converting to a federal charter.

Appeal Process Revisions

  • Under the proposal, a second reconsideration of an FOM application denial, if not approved by the region, would be treated as an appeal to the NCUA Board under the proposed rule and would expedite the review process.

  • Similar provisions would be added regarding applications for underserved areas.

Miscellaneous Clarifications To Other Regulations– Proposed Rules

  • The Board is clarifying that existing or proposed branches on United States military installations or United States embassies are unaffected by the Board’s proposal on foreign branching. Other types of foreign branching must follow proposed rule Part 741.11

  • The Board would also streamline authorization for corporate accounts by adopting a standard clause for single and multiple group credit unions' corporate and other business sponsors instead of listing them individually. Also, entities that conduct a pattern of business in a community could be eligible to join a community credit union.

  • Regarding spin-offs, the proposed would clarify that all members of the group to be spun off, regardless of how they voted, will be transferred to the new credit union if the spin-off is approved by the voting membership.

Questions to Consider

  • Do you support NCUA’s proposed changes to virtually eliminate overlap protection and considerations regarding field of membership policy?

    Yes____ No____

    Please explain your response.









  • Should federal credit unions be allowed to branch around an ATM or shared service facility as NCUA is proposing?

    Yes____ No____

    Please explain your response.









  • Should the proposal eliminate the mandatory requirements for the definition of “association common bond” and replace them with a test based on the totality of the circumstances, as NCUA is proposing?

    Yes____ No____

    Please explain your response.











  • Should national associations be allowed to qualify as a select group or field of membership as NCUA is proposing, if the association’s headquarters are within reasonable proximity of the credit union’s service facility?

    Yes____ No____

    Please explain your response.









  • Do you support NCUA’s proposal regarding occupational credit unions to allow them to have a single common bond that is based on an industry, trade or profession?

    Yes____ No____

    Please explain your response.









  • Do the proposed changes regarding community charters, associational and occupational fields of membership jeopardize or strengthen reasonable notions of the concept of “common bond?”

    Yes____ No____

    Please explain your response.









  • Do you agree with NCUA that it is not required to perform an economic analysis for additions involving groups of less than 3,000?

    Yes____ No____

    Please explain your response.









  • Do you agree with NCUA that broader areas, as NCUA is proposing, serving larger groups should meet the definition of community?

    Yes____ No____

    Please explain your response.









  • If you do not agree with NCUA regarding the proposed requirements for a community credit union, what factors do you feel should be included in the FOM policy to demonstrate that a well-defined community exists?

    Yes____ No____

    Please explain your response.









  • More specifically, do you agree with the changes NCUA is proposing regarding the size and population of a community to allow more credit unions to obtain a community charter or community charter expansions with reduced documentation requirements?

    Yes____ No____

    Please explain your response.









  • NCUA feels that it does not have the statutory authority to allow a federal credit union that converts to community charter to retain a group it served prior to the conversion, which is outside of the community. Are credit unions that want to convert to community charter disadvantaged by this policy and would you recommend changing it if a legal basis can be established for doing so?

    Yes____ No____

    Please explain your response.









  • Should credit unions converting from state to federal charter be allowed to retain groups that might not be permissible had the credit union been a federal all along?

    Yes____ No____

    Please explain your response.









  • Do you support NCUA’s changes regarding the appeals process?

    Yes____ No____

    Please explain your response.









  • Do you have other comments about the proposal you would like to share?









If you have any questions about this revised proposal, please contact Associate General Counsel Mary Dunn (mdunn@cuna.com) by e-mail or by phone at 1-800-356-9655.

Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com
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