[Federal Register Volume 71, Number 18 (Friday, January 27, 2006)]
[Proposed Rules]
[Pages 4530-4532]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-908]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 71, No. 18 / Friday, January 27, 2006 / 
Proposed Rules

[[Page 4530]]



NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701


Organization and Operations of Federal Credit Unions

AGENCY: National Credit Union Administration (NCUA).

ACTION: Notice of proposed rulemaking (NPR).

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SUMMARY: NCUA is issuing proposed amendments to its rules regarding 
service to underserved areas. These amendments are being proposed 
because of NCUA's experience addressing field of membership issues and 
the uncertainty resulting from recent litigation challenging existing 
chartering policy. This proposed rule will ensure continued reliable 
and efficient service to federal credit union members located in 
underserved areas.

DATES: Comments must be received on or before March 28, 2006.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web site: http://www.ncua.gov/news/proposed_regs/
proposed_regs.html. Follow the instructions for submitting comments.
     E-mail: Address to regcomments@ncua.gov. Include ``[Your 
name] Comments on Proposed Rule Part 701.1'' in the e-mail subject 
line.
     Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.

FOR FURTHER INFORMATION CONTACT: Michael J. McKenna, Deputy General 
Counsel, John K. Ianno, Senior Trial Attorney, or Regina Metz, Staff 
Attorney, Office of General Counsel, 1775 Duke Street, Alexandria, 
Virginia 22314 or telephone (703) 518-6540.

SUPPLEMENTARY INFORMATION

A. Background

    NCUA's chartering and field of membership policy is set out in 
NCUA's Chartering and Field of Membership Manual (Chartering Manual), 
Interpretive Ruling and Policy Statement 03-1. 68 FR 18333, Apr. 15, 
2003. The policy is incorporated by reference in NCUA's regulations at 
12 CFR 701.1.
    In establishing a federal credit union system Congress recognized 
that a primary purpose was to make credit more available to persons of 
modest means. This goal has been a long-standing priority of the NCUA 
Board. From 1994 through 1998, NCUA rules permitted federal credit 
unions, regardless of charter type, to include low-income communities 
and associations in their field of membership.
    In 1998 Congress passed the Credit Union Membership Access Act 
(CUMAA) in order to codify the authority of NCUA to charter multiple 
common-bond credit unions. Pub. L. 105-219, 112 Stat. 914 (1998). As 
part of that legislation, Congress expressly recognized that multiple 
common-bond credit unions would be authorized to serve persons or 
organizations within an area that was underserved. CUMAA also provided 
a definition of an ``underserved area.'' In response, NCUA changed its 
field of membership regulations to utilize the term ``underserved 
area'' and its definition, instead of the previous authority for all 
charter types to serve low-income communities and associations. Since 
then, service to underserved areas, as defined in Chapter 3 of the 
Chartering Manual, has remained a priority of the NCUA Board.
    Recently certain Utah banks and the American Bankers Association 
(collectively the Bankers) have filed suit challenging NCUA's policy 
related to adding underserved areas. The Bankers' complaint recognizes 
that CUMAA expressly authorizes the chartering of multiple common-bond 
credit unions but argues that the legislation permits only that type of 
charter to serve underserved areas.
    One of CUMAA's primary purposes was to codify in statute the 
legality of multiple common-bond credit unions. NCUA believes that the 
statutory language also reflects Congress' intent to make clear that 
this new charter type was authorized to add underserved areas, not as 
the Bankers argue, to prohibit the other two federal charter types from 
doing so. This conclusion is supported by the legislative history and 
the fact that at the time Congress enacted CUMAA it was aware of NCUA's 
long-standing policy allowing all federal charters to serve communities 
and groups in need of additional financial services.
    NCUA is mindful of the ongoing litigation and recognizes that the 
statutory language is susceptible to different interpretations. We 
believe that these issues create a degree of uncertainty about the 
continued authority of non-multiple common-bond credit unions to serve 
underserved areas. We are concerned about the financial effect of 
continuing to approve new requests to serve underserved areas by non-
multiple common-bond credit unions that then invest resources in 
serving these areas. We also believe that it is unfair to provide 
persons of limited means with needed financial services where the 
possibility exists that they could suddenly be deprived of those 
services.
    Faced with this uncertainty, on December 29, 2005, the NCUA Board 
issued a moratorium suspending that portion of its chartering policy 
allowing non-multiple-common-bond credit unions to add new underserved 
areas. That moratorium will remain in place until further notice.
    Since establishing a moratorium the NCUA has conducted a 
comprehensive review of its underserved area policy. As a result of 
this review, the NCUA Board believes it prudent to propose two 
amendments to its field of membership policy. Both changes will apply 
only prospectively.
    The first change will limit the addition of new underserved areas 
to only multiple common-bond credit unions.
    The second change is to the definition and location of the service 
facility when adding underserved areas. The Board believes that a 
physical presence in the underserved areas is likely to assure better 
service to members in these locations. The definition of a service 
facility and where it may be located has

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been modified. This will assure a physical presence in the area and 
further encourage a very active role by the credit union in the 
underserved area. There has been no change to the requirement that the 
service facility be established within two years.

B. Request for Comments

    The NCUA Board welcomes all comments on its existing policy 
regarding service to underserved areas. In addition we are particularly 
interested in comments related to the following areas:
    (1) NCUA's authority to permit expansions into underserved areas 
for all three federal charter types;
    (2) The impact of limiting expansions into underserved areas to 
only multiple common-bond credit unions;
    (3) Whether, if only multiple common-bond credit unions are 
permitted to add underserved areas, they should be permitted to retain 
these areas in the event they change charter type;
    (4) The type and extent of existing investment by non-multiple 
common-bond credit unions in underserved areas including for example; 
capital investment, loans, share deposits, and other programs targeting 
low income people; and
    (5) The impact to members of underserved areas, and non-multiple 
common-bond credit unions, of restrictions on the addition of new 
members in underserved areas they are currently serving.

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a regulation may have on a 
substantial number of small credit unions (primarily those under $10 
million in assets). The proposed amendments will not have a significant 
economic impact on a substantial number of small credit unions and 
therefore, a regulatory flexibility analysis is not required.

Paperwork Reduction Act

    The Office of Management and Budget control numbers assigned to 
Section 701.1 are 3133-0133 and 3133-0116. NCUA has determined that the 
proposed amendments will not increase paperwork requirements and a 
paperwork reduction analysis is not required.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. The proposed rule would not have substantial 
direct effects on the states, on the connection between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. NCUA has 
determined that this proposed rule does not constitute a policy that 
has federalism implications for purposes of the executive order.

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The NCUA 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 of 1999, Pub. L. 105-277, 112 
Stat. 2681 (1998).

List of Subjects in 12 CFR Part 701

    Credit, Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on January 19, 
2006.
Mary Rupp,
Secretary of the Board.
    For the reasons stated in the preamble, the National Credit Union 
Administration proposes to amend 12 CFR part 701 as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

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

    Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 
1761b, 1766, 1767, 1782, 1784, 1787, 1789. Section 701.6 is also 
authorized by 15 U.S.C. 3717. Section 701.31 is also authorized by 
15 U.S.C. 1601, et seq., 42 U.S.C. 1981 and 3601-3610. Section 
701.35 is also authorized by 12 U.S.C. 4311-4312.

    2. Section 701.1 is revised to read as follows:

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

    National Credit Union Administration policies concerning 
chartering, field of membership modifications, and conversions are set 
forth in Interpretive Ruling and Policy Statement 03-1, Chartering and 
Field of Membership Manual, as amended by IRPS 06-1, Copies may be 
obtained by contacting NCUA at the address found in Sec.  792.2(g)(1) 
of this chapter.

(Approved by the Office of Management and Budget under control 
number 3133-0015 and 3133-0116.)

    Note: The text of the IRPS 03-1, as amended by the IRPS 06-1, 
does not appear in the Code of Federal Regulations.

    3. IRPS 03-1, Chapter 3, Section III.A is revised to read as 
follows:
    A multiple common-bond federal credit union may include in its 
field of membership, without regard to location, communities satisfying 
the definition of underserved areas in the Federal Credit Union Act. 
Adding an underserved area will not change the charter type of the 
multiple common-bond federal credit union. More than one multiple 
common-bond federal credit union can serve the same underserved area. 
The Federal Credit Union Act defines an underserved area as a local 
community, neighborhood, or rural district that is an ``investment 
area'' as defined in Section 103(16) of the Community Development 
Banking and Financial Institutions Act of 1994.
    For an underserved area, the well-defined local community, 
neighborhood, or rural district requirement is met if:
     The area to be served is in a recognized single political 
jurisdiction, i.e., a city, county, or their political equivalent, or 
any contiguous portion thereof;
     The area to be served is in multiple contiguous political 
jurisdictions, i.e., a city, county, or their political equivalent, or 
any contiguous portion thereof and if the population of the requested 
well-defined area does not exceed 500,000; or
     The area to be served is a Metropolitan Statistical Area 
(MSA) or its equivalent, or a portion thereof, where the population of 
the MSA or its equivalent does not exceed 1,000,000.
    If the area to be served does not meet the MSA or multiple 
political jurisdiction requirements outlined above, the application 
must include documentation to support that it is a well-defined local 
community, neighborhood, or rural district.
    For an underserved area, an investment area includes any of the 
following (as reported in the most recently completed decennial census 
or equivalent government data):
     An area that wholly consists of or is wholly located 
within an Empowerment Zone or Enterprise Community designated under 
section 1391 of the Internal Revenue Code (26 U.S.C. 1391);

[[Page 4532]]

     An area where the percentage of the population living in 
poverty is at least 20 percent;
     An area in a Metropolitan Area where the median family 
income is at or below 80 percent of the Metropolitan Area median family 
income or the national Metropolitan Area median family income, 
whichever is greater;
     An area outside of a Metropolitan Area, where the median 
family income is at or below 80 percent of the statewide non-
Metropolitan Area median family income or the national non-Metropolitan 
Area median family income, whichever is greater;
     An area where the unemployment rate is at least 1.5 times 
the national average;
     An area meeting the criteria for economic distress that 
may be established by the Community Development Financial Institutions 
Fund (CDFI) of the United States Department of the Treasury.
    In addition, the local community, neighborhood, or rural district 
must be underserved, based on data considered by the NCUA Board and the 
Federal banking agencies.
    Once an underserved area has been added to a federal credit union's 
field of membership, the credit union must establish and maintain an 
office or service facility in the community within two years. A service 
facility is defined as a place where shares are accepted for members' 
accounts, loan applications are accepted and loans are disbursed. This 
definition includes a credit union owned branch, a shared branch, a 
mobile branch, or an office operated on a regularly scheduled weekly 
basis. This definition does not include an ATM or the credit union's 
Internet Web site.
    The federal credit union adding the underserved community must 
document that the community meets the definition for serving 
underserved areas in the Federal Credit Union Act. The charter type of 
a multiple common-bond federal credit union adding such a community 
will not change. Therefore, the multiple common-bond federal credit 
union will not be able to receive the benefits afforded to low-income 
designated credit unions, such as expanded use of nonmember deposits 
and access to the Community Development Revolving Loan Program for 
Credit Unions.
    A federal credit union that desires to include an underserved 
community in its field of membership must first develop a business plan 
specifying how it will serve the community. The business plan, at a 
minimum, must identify the credit and depository needs of the community 
and detail how the credit union plans to serve those needs. The credit 
union will be expected to regularly review the business plan to 
determine if the community is being adequately served. The regional 
director may require periodic service status reports from a credit 
union about the underserved area to ensure that the needs of the 
community are being met as well as requiring such reports before NCUA 
allows a multiple common-bond federal credit union to add an additional 
underserved area.

[FR Doc. E6-908 Filed 1-26-06; 8:45 am]
BILLING CODE 7535-01-P