[Federal Register Volume 63, Number 19 (Thursday, January 29, 1998)]
[Rules and Regulations]
[Pages 4372-4374]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2076]
=======================================================================
-----------------------------------------------------------------------
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
Organization and Operations of Federal Credit Unions
AGENCY: National Credit Union Administration.
ACTION: Final amendment to interpretive ruling and policy statement 94-
1 (IRPS 98-1).
-----------------------------------------------------------------------
SUMMARY: The NCUA Board is updating the requirements for a credit union
converting to a community charter. The final amendment deletes the
requirement that a credit union converting to a community charter
provide evidence of community support, since such evidence is not
necessary for the agency to determine the economic viability of the
credit union.
EFFECTIVE DATE: March 1, 1998.
ADDRESSES: National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428.
FOR FURTHER INFORMATION CONTACT: J. Leonard Skiles, President, Asset
Management and Assistance Center, 4807 Spicewood Springs Road, Suite
5100, Austin, Texas 78759, or telephone (512) 795-0999; Lynn K.
McLaughlin, Program Officer, Office of Examination and Insurance, 1775
Duke Street, Alexandria, Virginia 22314-3428, or telephone (703) 518-
6360; Michael J. McKenna, Staff Attorney, Office of General Counsel, at
the above address or telephone (703) 518-6540.
SUPPLEMENTARY INFORMATION:
A. Comments
On October 22, 1997, the NCUA Board proposed clarifying amendments
on what is necessary for the approval of a community charter (62 FR
56134 (October 29, 1997)). Sixty-four comments were received. Comments
were received from forty-two federal credit unions, two state-chartered
credit unions, thirteen state credit union leagues, four national
credit union trade associations, one state regulatory agency, one
consumer group and one banking association.
B. Serving All Segments of the Community
In the proposal, the Board stated that all community charters must
be prepared to serve all segments of the community. The Board suggested
that membership and loan penetration rates, among other factors, could
be reviewed to assess how well the credit union is serving the entire
community. The proposal also would have required that a credit union
receiving a community charter review its business plan regularly, as
well as membership and loan penetration rates throughout the community,
to determine if the community is being adequately served. The Board
specifically proposed that a new community charter or a credit union
converting to a community charter be held accountable for its business
plan/marketing strategy outlining how it will serve the entire
community. The proposal also would have required that a credit union
converting to a community charter provide information on the groups
being served. Finally, the Board proposed deleting the requirement that
a credit union converting to a community charter provide written
evidence of community support such as letters of support, petitions or
surveys.
At this time, the Board is addressing only one aspect of the
proposal regarding credit unions converting to a community charter. The
Board needs further time to study the remaining proposed amendments to
ensure that they are necessary and will not unduly burden credit
unions. The Board plans on addressing these issues in the near future
and will respond to the issues raised by the commenters at that time.
C. Written Evidence of Community Support
As stated above, the Board proposed deleting the requirement that a
credit union converting to a community charter provide written evidence
of community support such as letters of support, petitions or surveys.
Twenty-nine commenters do not believe a credit union applying to
convert to a community charter should be required to provide evidence
of community support. Most of these commenters find the current
requirement to be burdensome. Seven commenters specifically stated that
the validity of
[[Page 4373]]
these documents is questionable and the effort to obtain such
documentation is time-consuming and expensive. Some commenters believe
that community leaders are reluctant to give support because they fear
a backlash from banks. Three commenters support any action by NCUA to
simplify the application process and reduce the processing time for
community charter conversions. Most of these commenters believe that
credit union management is better able to gauge the depth of community
support than a petition or survey. Two commenters stated that a letter
from the board of directors showing evidence of the attitude of the
credit union's sponsors and members toward a conversion should be
sufficient documentation. One commenter stated that the elimination of
this requirement offers modest relief from the burden of providing
information in support of the conversion request.
Ten commenters believe a credit union applying to convert to a
community charter should be required to provide evidence of community
support before the conversion can be approved. Two commenters believe
this evidence is a key element to any good marketing plan and would
provide the credit union with valuable information about its new market
as well as an introduction to potential new constituencies. These
commenters state further that this evidence is useful to NCUA in making
its determination whether the applied for area actually constitutes a
community. One commenter also believes this evidence helps build a
substantial administrative record in case of a legal challenge. One
commenter believes that credit unions wishing to convert to a community
charter should be required to demonstrate community support in a manner
validating the credit union's business plan. One commenter, although
opposing this amendment, believes that, if we delete this requirement
for converting credit unions, we should also eliminate it for new
credit unions.
The NCUA Board believes that providing evidence of written support
is expensive, burdensome and not a reliable indicator of the economic
viability of the converting credit union. Such evidence is still needed
for a new charter so that the agency may accurately determine the
economic viability of the new credit union. Economic viability of an
existing credit union is self-evident. Furthermore, a converting credit
union can still submit such evidence if it believes it would be helpful
to demonstrate that the area is a well-defined community where
residents interact or will support some other aspect of the credit
union's business plan or marketing strategy.
The final amendment deletes the requirement for a converting credit
union to provide written evidence of community support. Nothing in this
final amendment changes or relaxes the requirement that a credit union
converting to a community charter must demonstrate that the proposed
community is a well-defined area where residents interact.
D. Groups Outside the Community
The Board also proposed to eliminate the ability of a credit union
converting to a community charter to continue to serve groups outside
the new community boundaries. At this time, the Board is still
considering the implications of such a policy change. As a practical
matter, because of the injunction issued in the consolidated cases of
First National Bank and Trust Co., et al. v. NCUA and the American
Bankers Association v. NCUA, et al., which was partially stayed by the
Court of Appeals on December 24, 1996, a credit union converting to a
community charter cannot continue to serve groups outside the new
community boundaries, but may only serve members of record. The Board
plans on addressing this issue in the near future and will respond to
the concern raised by the commenters at that time.
E. Ongoing Litigation
Five commenters did not believe that this is the appropriate time
to initiate changes to field of membership policies, because of the
ongoing litigation involving multiple group credit unions. NCUA
disagrees since NCUA's community chartering policy is not affected by
the injunction issued in the consolidated cases of First National Bank
and Trust Co., et al. v. NCUA and the American Bankers Association v.
NCUA, et al., which was partially stayed by the Court of Appeals on
December 24, 1996. Nor would other ongoing chartering litigation be
affected because this change in policy modifies only the requirement
for evidence of support for conversion to a community charter, not the
requirement for evidence that the community to be served is a ``well-
defined community.''
The NCUA Board believes it is necessary to address the
documentation requirements for converting credit unions because
questions regarding cost and value have been raised during NCUA Board
review of requests by credit unions converting to community charters.
The NCUA Board has not been provided with any compelling rationale that
would justify a delay in amending this aspect of community chartering
policy at this time.
F. Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact a regulation may have on a
substantial number of small credit unions (primarily those under $1
million in assets). The final amendment will not have a significant
economic impact on a substantial number of small credit unions and
therefore a regulatory flexibility analysis is not required.
Paperwork Reduction Act
NCUA has determined that the final amendment does not increase
paperwork requirements under the Paperwork Reduction Act of 1995 and
regulations of the Office of Management and Budget (OMB). 60 FR 44978
(August 29, 1995).
Executive Order 12612
Executive Order 12612 requires NCUA to consider the effect of its
actions on state interests. This final amendment makes no significant
changes with respect to state credit unions and therefore, will not
materially affect state interests.
Congressional Review
Awaiting OMB determination.
List of Subjects in 12 CFR Part 701
Credit, Credit unions, Reporting and recordkeeping requirements.
By the National Credit Union Administration Board on January 22,
1998.
Becky Baker,
Secretary of the Board.
Accordingly, NCUA amends 12 CFR part 701 as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
1. The authority citation for part 701 continues to read as
follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a,
1761b, 1766, 1767, 1782, 1784, 1787, 1789. Section 701.6 is also
authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by
12 U.S.C. 1601 et seq., 42 U.S.C. 1981 and 3601-3610. Section 701.35
is also authorized by 12 U.S.C. 4311-4312.
2. Section 701.1 is revised to read as follows:
[[Page 4374]]
Sec. 701.1 Federal credit union chartering, field of membership
modifications, and conversions.
National Credit Union Administration policies concerning
chartering, field of membership modifications, and conversions are set
forth in Interpretive Ruling and Policy Statement 94-1, Chartering and
Field of Membership Policy (IRPS 94-1), as amended by IRPS 96-1 and
IRPS 98-1. Copies may be obtained by contacting NCUA at the address
found in Sec. 792.2(g)(1) of this chapter. The combined IRPS are
incorporated into this section.
(Approved by the Office of Management and Budget under control
number 3133-0015.)
IRPS 94-1--[Amended]
Note: The text of the Interpretive Ruling and Policy Statement
(IRPS 94-1) does not, and the following amendments will not, appear
in the Code of Federal Regulations.
3. IRPS 94-1, Chapter 1, Section II.C.2 is amended by removing the
words ``field of membership expansion or conversion to a community
credit union''.
4. In IRPS 94-1, Chapter 2, Section IV.B is revised to read as
follows:
* * * * *
IV.B--Conversion to Community Charter
An existing occupational, associational, or multiple group
federal credit union may apply to convert to a community charter. In
most cases, groups currently in the credit union's field of
membership but outside the new community credit union's boundaries
may be included in the new community charter.
In order to support a case for a conversion to community
charter, the applicant federal credit union must, in addition to the
requirements for a community charter set forth in Chapter I (except
for the requirement to demonstrate community support), develop a
detailed business plan which may include, but not be limited to the
following data:
Current financial statements, including the income
statement and a summary of loan delinquency;
A map or maps showing both the existing and proposed
boundaries for the field of membership, as well as existing and
planned service facilities;
A written description of the area of community service
for the proposed community credit union;
The most current population figures for the existing
and proposed boundaries;
The source of the population information (census data
are considered the most authoritative); the greater the population
of the proposed area, the greater justification necessary to support
the existence of the ``community'' and interaction among its
residents;
Evidence that the proposed area is a ``community'' as
defined in ``Community Common Bond'' in Chapter 1;
Information concerning the availability of financial
services to the residents of the new area;
A list of credit unions with a home or branch office in
the proposed area (If present credit union service to the residents
of the new area is adequate, there may be no basis for the proposed
conversion.);
The attitude of the current credit union sponsors and
existing credit union members toward the proposed conversion; and
The anticipated financial impact on the credit union in
terms of need for additional employees and fixed assets.
* * * * *
[FR Doc. 98-2076 Filed 1-28-98; 8:45 am]
BILLING CODE 7535-01-U