Chartering and Field of Membership for Federal Credit Unions, 30988-30996 [E7-10398]

Agencies

• National Credit Union Administration

[Federal Register Volume 72, Number 107 (Tuesday, June 5, 2007)]
[Proposed Rules]
[Pages 30988-30996]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-10398]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701


Chartering and Field of Membership for Federal Credit Unions

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

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SUMMARY: The NCUA Board is proposing amendments to its chartering and 
field of membership manual to update community chartering policies in 
response to NCUA's experience with reviewing applications of credit 
unions seeking community charters. These changes include clarifying the 
documentation requirements for a local community and adding a public 
comment procedure for certain types of multiple political jurisdiction 
community charter applications.

DATES: Comments must be postmarked or received by August 6, 2007.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web Site: https://www.ncua.gov/
RegulationsOpinionsLaws/proposedregs/proposedregs.html. Follow the 
instructions for submitting comments.
     E-mail: Address to regcomments@ncua.gov. Include ``[Your 
name] Comments on Proposed Rule IRPS 07-1,'' in the e-mail subject 
line.
     Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
     Mail: Address to Mary F. 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; Frank Kressman, Staff 
Attorney, Office of General Counsel, or Robert Leonard, Program 
Officer, Office of Examination and Insurance, 1775 Duke Street, 
Alexandria, Virginia 22314 or telephone (703) 518-6540 or (703) 518-
6396.

SUPPLEMENTARY INFORMATION:

A. History

    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 (IRPS) 03-1. 68 FR 18333 (Apr. 
15, 2003). The policy is set forth in IRPS 03-1 and implements credit 
union field of membership law under the Federal Credit Union Act. In 
2006, NCUA issued amendments to the Chartering Manual chapter on 
underserved areas. NCUA IRPS 06-1, 71 FR 36667 (Jun. 28, 2006).
    The Board issued its last comprehensive rulemaking regarding its 
chartering policy in the spring of 2003. 68 FR 18333 (Apr. 15, 2003). 
Over the past four years, NCUA's Field of Membership Taskforce has 
monitored and reviewed the implementation of IRPS 03-1 and its 
amendments in an effort to improve consistency and provide a basis for 
further clarifications and modifications, if necessary. In response to 
this continued oversight, and requests from the NCUA Board, staff has 
identified issues that need clarification and are the basis for this 
proposal.

B. Proposed Chartering Manual Changes

    Chapter 2 Field of Membership Requirements for Community Credit 
Unions: Section V--Community Charter Requirements.

Background

    In 1998 Congress passed the Credit Union Membership Access Act 
(``CUMAA'') and reiterated its longstanding support for credit unions, 
noting that they ``have the specif[ic] mission of meeting the credit 
and savings needs of consumers, especially persons of modest means.'' 
Public Law 105-219, section 2, 112 Stat. 913 (August 7, 1998). The 
Federal Credit Union Act (``FCUA'') grants the NCUA Board broad general 
rulemaking authority over federal credit unions. 12 U.S.C. 1766(a). In 
passing CUMAA Congress amended the FCUA and specifically delegated to 
the Board the authority to define by regulation the meaning of a 
``well-defined local community'' for federal credit union community 
charters. 12 U.S.C. 1759(g).
    In developing a working regulatory definition of a local community 
the Board has been mindful of the statutory language as well as its 
important responsibility to ensure that it charters safe and sound 
credit unions that can provide a broad range of financial services to 
as many people in the community as possible.
    Since 2000 there has been significant growth in the number of 
credit unions with community charters. The majority of these have come 
from conversions of credit unions with single and multiple

[[Page 30989]]

common bond fields of membership. In 2000 approximately 8.6% of federal 
credit union charters were community charters. By the end of 2006 
approximately 22.5% of federal charters were community charters. The 
proportion of federal credit union members that belong to federal 
community charters increased significantly by the end of 2006 to 32.6%, 
surpassed only by the proportion of members in multiple common bond 
credit unions which at the end of 2006 was 52.3%. The increasing number 
of federal community charters has resulted in an increasing amount of 
assets concentrated in federal community charters. At the end of 2006 
approximately 29.5% of all federal credit union assets were in 
community charters. As time passes and the membership profiles of these 
credit unions change from associational or occupational based to 
community based fields of membership, community charters are likely to 
enhance the delivery of financial services to individuals at all income 
levels throughout the communities they serve.
    Community charters are playing an increasingly important role in 
helping credit unions fulfill the longstanding mission envisioned by 
Congress in passing the FCUA and restated in 1998 with the passage of 
CUMAA. Given their increasing significance it is critical that NCUA 
apply its expertise to approve community charter applications for local 
communities that are conducive to that mission, that are sized and 
structured in a way that assures the credit union's financial stability 
and long term viability, and where the applicant's proposal 
demonstrates the ability to offer credit union service to as many 
people as possible. Today community charters are collectively in sound 
financial condition. As of March 2007, over eighty percent of federal 
community charters have CAMEL composite ratings of one or two. Federal 
community charters also generally report strong levels of net worth. As 
of December 31, 2006, federal community charters had an aggregate net 
worth ratio of 11.48%.
    The Board continues to recognize two important characteristics in a 
local community charter. First, there must be some geographic certainty 
to the community boundaries, e.g., they must be well-defined; and next, 
there should be sufficient social and economic activity among enough 
community members to assure that a viable community exists.
    Historically, we have expressed this latter requirement as 
``interaction and/or shared common interests.'' Chartering Manual, 
Chapter 2, V.A.1. This approach is consistent with the longstanding 
mission of credit unions reiterated by Congress in the findings section 
of CUMAA, when it noted that, ``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 * * * is essential to the 
fulfillment of the public mission of credit unions.'' Public Law 105-
219, section 2, 112 Stat. 913 (August 7, 1998).
    The Board has gained broad experience in reviewing what constitutes 
a well-defined local community through the analysis and approval of 
numerous community charter conversions and expansions. In this process 
the Board has exercised its regulatory judgment in determining whether, 
in a particular case, a well-defined local community exists. This 
involves the application of its expertise to the question of whether a 
proposed area has a sufficient level of interaction and/or shared 
common interests to be considered a well-defined local community in 
which a credit union can flourish and successfully provide thrift, 
credit, and other financial services to members of the community.
    The Board's experience also indicates that there is ample 
uncertainty among applicants regarding two important issues, 
particularly in connection with applications involving large multi-
jurisdictional areas. First, how does an applicant best demonstrate 
interaction and/or shared common interests? Second, what amount of 
evidence is required in a particular case?
    In an attempt to address these concerns the Board is proposing to 
modify the definition of what constitutes a well-defined local 
community to utilize objective measurable standards when appropriate, 
as well as to revise some of the documentation requirements for other 
types of local community charters. These proposed changes should make 
it easier for an applicant to determine and demonstrate whether a 
proposed area is a well-defined local community while at the same time 
maintaining the use of many of the most significant indicia of 
interaction and/or shared interests. The Board believes that this 
proposal will result in more objective application of the standards, 
less difficulty for applicants, and more efficient use of agency 
resources. The Board looks forward to public comments on all aspects of 
these proposed changes.
1. Presumptive Local Communities
a. Single Political Jurisdiction
    The Federal Credit Union Act provides that a ``community credit 
union'' consists of ``persons or organizations within a well-defined 
local community, neighborhood, or rural district.'' 12 U.S.C. 
1759(b)(3). The Act expressly requires the Board to apply its 
regulatory expertise and define what constitutes a well-defined local 
community. 12 U.S.C. 1759(g). It has done so in the Chartering Manual, 
Chapter 2, Section V, Community Charter Requirements. In 2003, the 
Board, after issuing notice and seeking comments, issued IRPS 03-1 that 
stated any county, city, or smaller political jurisdiction, regardless 
of population size, is by definition a local community. 68 FR 18334, 
18337 (Apr. 15, 2003). Under this definition, no documentation 
demonstrating that the political jurisdiction is a well-defined local 
community is required.
    After four years of experience, the Board has reviewed this 
definition of well-defined local community and still finds it 
compelling. The Board finds that a single governmental unit below the 
state level is well-defined and local, consistent with the governmental 
system in the United States consisting of a local, state, and federal 
government structure. A single political jurisdiction also has strong 
indicia of a community, including common interests and interaction 
among residents. Local governments by their nature generally must 
provide residents with common services and facilities, such as 
educational, police, fire, emergency, water, waste, and medical 
services. Further, a single political jurisdiction frequently has other 
indicia of a well-defined local community identified in the Chartering 
Manual as acceptable examples of documentation, such as a major trade 
area, employment patterns, local organizations and/or a local 
newspaper. Such examples of commonalities are indicia that single 
political jurisdictions are well-defined local communities where 
residents have common interests and/or interact.
b. Statistical Areas
    The Board's experience has been that well-defined local communities 
can come in various population and geographic sizes. While the 
statutory language `local community' does imply some limit, Congress 
has directed NCUA to establish a regulatory definition consistent with 
the mission of credit unions. While single political jurisdictions 
below the state level meet the definition of a well-defined local

[[Page 30990]]

community, nothing precludes a larger area comprised of multiple 
political jurisdictions from also meeting the regulatory definition. 
There is no statutory requirement or economic rationale that compels 
the Board to charter only the smallest well-defined local community in 
a particular area.
    The Board's experience has been that applicants have the most 
difficulty in preparing applications involving larger areas with 
multiple political jurisdictions. This is because, as the population 
and area increase and multiple jurisdictions are involved, there is 
often conflicting evidence both for and against interaction and/or 
shared common interests. This often causes some confusion to the 
applicant about what evidence is required and what criteria are 
considered to be most significant under such circumstances.
    The current chartering manual provides examples of the types of 
information an applicant can provide that would normally evidence 
interaction and/or shared common interests. These include but are not 
limited to: (1) Defined political jurisdictions; (2) major trade areas; 
(3) shared common facilities; (4) organizations within the community 
area; and (5) newspapers or other periodicals about the area.
    These examples are helpful but the Board's experience is that very 
often in situations involving multiple jurisdictions, where it has 
determined that a well-defined local community exists, interaction or 
common interests are evidenced by a major trade area that is an 
economic hub, usually a dominant city, county or equivalent, containing 
a significant portion of the area's employment and population. This 
central core often acts as a nucleus drawing a sufficiently large 
critical mass of area residents into the core area for employment and 
other social activities such as entertainment, shopping, and 
educational pursuits. By providing jobs to residents from outside the 
dominant core area it also provides income that then generates further 
interaction both in the hub and in outlying areas as those individuals 
spend their earnings for a wide variety of purposes in outlying 
counties where they live. This commonality through interaction and/or 
shared common interests in connection with an economic hub is conducive 
to a credit union's success and supports a finding that such an area is 
a local community.
    The Board views evidence that an area is anchored by a dominant 
trade area or economic hub as a strong indication that there is 
sufficient interaction and/or common interests to support a finding of 
a local community capable of sustaining a credit union. This type of 
geographic model greatly increases the likelihood that the residents of 
the community manifest a ``commonality of routine interaction, shared 
and related work experiences, interests, or activities * * *'' that are 
essential to support a strong healthy credit union capable of providing 
financial services to members throughout the area. Public Law 105-219, 
section 2(3), 112 Stat. 913 (August 7, 1998).
    The Office of Management and Budget (``OMB'') publishes statistics 
that identify geographic areas that exhibit these important criteria. 
The Board is familiar with and has utilized these statistics. In the 
past four years the agency has approved in excess of 50 community 
charters involving Metropolitan Statistical Areas, usually involving a 
community based around a dominant core trade area.
    The Board believes that when statistics can demonstrate the 
existence of such relevant characteristics it is appropriate to presume 
that sufficient interaction and/or common interests exist to support a 
viable community based credit union. In such situations the area should 
be entitled to a presumption that it meets the regulatory definition of 
a local community.
    Certain areas do not have one dominant economic hub. Other areas 
may contain two or more dominant hubs. These situations diminish the 
persuasiveness of the evidence and make it inappropriate to engage in 
the presumption. In those instances the Board proposes to seek public 
comment and require additional evidence in order to assure that its 
critical analysis considers all relevant evidence.
    On December 27, 2000, OMB published Standards for Defining 
Metropolitan and Micropolitan Statistical Areas. 65 FR 82228. The 
following definitions established by OMB are relevant here:
    Core Based Statistical Area (``CBSA'')--``A statistical geographic 
entity consisting of the county or counties associated with at least 
one core (urbanized area or urban cluster) of at least 10,000 
population, plus adjacent counties having a high degree of social and 
economic integration with the core as measured through commuting ties 
with the counties containing the core. Metropolitan and Micropolitan 
Statistical Areas are the two categories of Core Based Statistical 
Areas.'' 65 FR 82238 (Dec. 27, 2000).
    Metropolitan Division--``A county or group of counties within a 
Core Based Statistical Area that contains a core with a population of 
at least 2.5 million.'' 65 FR 82238 (Dec. 27, 2000). OMB recognizes 
that Metropolitan Divisions often function as distinct, social, 
economic, and cultural areas within a larger Metropolitan Statistical 
Area. See OMB Bulletin No. 07-01, December 18, 2006.
    Metropolitan Statistical Area (``MSA'')--``A Core Based Statistical 
Area associated with at least one urbanized area that has a population 
of at least 50,000. The Metropolitan Statistical Area comprises the 
central county or counties containing the core, plus adjacent outlying 
counties having a high degree of social and economic integration with 
the central county as measured through commuting.'' 65 FR 82238 (Dec. 
27, 2000).
    Micropolitan Statistical Area (``MicroSA'')--``A Core Based 
Statistical Area associated with at least one urban cluster that has a 
population of at least 10,000, but less than 50,000. The Micropolitan 
Statistical Area comprises the central county or counties containing 
the core, plus adjacent outlying counties having a high degree of 
social and economic integration with the central county as measured 
through commuting.'' 65 FR 82238 (Dec. 27, 2000).
    Demonstrated commuting patterns supporting a high degree of social 
and economic integration are a very significant factor in community 
chartering, particularly in situations involving large areas with 
multiple political jurisdictions. In a community based model 
significant interaction through commuting patterns into one central 
area or urban core strengthens the membership of a credit union and 
allows a community based credit union to efficiently serve the needs of 
the membership throughout the area. Such data demonstrates a high 
degree of interaction through the major life activity of working and 
activities associated with employment. Large numbers of residents share 
common interests in the various economic and social activities 
contained within the core economic area.
    Historically, commuting has been an uncomplicated method of 
demonstrating functional integration. NCUA agrees with OMB's conclusion 
that ``Commuting to work is an easily understood measure that reflects 
the social and economic integration of geographic areas.'' 65 FR 82233 
(Dec. 27, 2000). The Board also finds compelling OMB's conclusion that 
commuting patterns within statistical areas demonstrate a high degree 
of social and economic integration with the central county. OMB's 
threshold for

[[Page 30991]]

qualifying a county as an outlying county eligible for inclusion in 
either a MSA or MicroSA is a threshold of 25% inter-county commuting. 
OMB also considers a multiplier effect (a standard method used in 
economic analysis to determine the impact of new jobs on a local 
economy) that each commuter would have on the economy of the county in 
which he or she lives and notes that a multiple of two or three 
generally is accepted by economic development analysts for most areas. 
65 FR 82233 (Dec. 27, 2000). ``Applying such a measure in the case of a 
county with the minimum 25 percent commuting requirement means that the 
incomes of at least half of the workers residing in the outlying county 
are connected either directly (through commuting to jobs located in the 
central county) or indirectly (by providing services to local residents 
whose jobs are in the central county) to the economy of the central 
county or counties of the CBSA within which the county at issue 
qualifies for inclusion.'' 65 FR 82233 (Dec. 27, 2000).
    The Board is proposing the establishment of a standard statistical 
definition of a well-defined local community. The Board believes that 
the application of strictly statistical rules for determining whether a 
CBSA should be presumed a well-defined local community has the 
advantage of minimizing ambiguity and making the application process 
less time consuming. While it finds evidence established in this manner 
to be compelling, the Board believes that the reasonableness of the 
presumption is further strengthened when additional factors 
establishing the dominance of the core area are present. These 
additional factors are also objective and easily measurable. First, as 
OMB has noted, Metropolitan Divisions often function as distinct 
social, economic, and cultural areas. In the Board's view this evidence 
detracts from the cohesiveness of the CBSA. Accordingly, the proposal 
will not permit a CBSA to meet the automatic definition of a well-
defined local community when it contains a Metropolitan Division. Next, 
the Board acknowledges that not all areas of the country are the same 
and there may be a CBSA that does not contain a sufficiently dominant 
core area or contains several significant core areas. Such situations 
also dilute the cohesiveness of the CBSA. For these reasons the Board 
proposes to require that the CBSA contain a dominant core city, county, 
or equivalent that contains the majority of all jobs and \1/3\ of the 
total population contained in the CBSA before the definition would be 
met. These additional requirements will assure that the core area 
dominates any other area within the CBSA with respect to jobs and 
population. Applicants can find information about an area's population 
and number of local jobs, based upon an analysis of where people who 
work in an area reside, at the Bureau of the Census' Internet site 
(https://www.census.gov). Information about the current definitions of 
CBSAs is available at the Office of Management and Budget's Internet 
site (https://www.whitehouse.gov/omb). Applications for part of a CBSA 
are acceptable provided they include the dominant core city, county, or 
equivalent.
    Accordingly, the Board proposes establishing a new statistical 
definition for a well-defined local community in cases involving 
multiple political jurisdictions when the following three requirements 
are met:
     The area must be a recognized CBSA or part thereof without 
a Metropolitan Division; and
     The area must contain a dominant city, county or 
equivalent with a majority of all jobs in the CBSA; and
     The dominant city, county or equivalent must contain at 
least \1/3\ of the CBSA's total population.
2. Federal Register Notice and Request for Public Comment
    Although there is no legal requirement to do so, the Board believes 
that in situations where the CBSA does not exhibit the standards 
required to meet the new statistical definition for a well-defined 
local community, or the area does not qualify under the single 
political jurisdiction definition, public notice and comment will 
assist it with its analysis of whether the area in question is a well-
defined local community capable of supporting a community credit union 
while also informing the public about the process. The public notice 
and comments will assist the Board in its critical analysis of the 
evidence and provide the public with an opportunity to provide timely 
comments and relevant information to the NCUA on the proposed local 
community area the credit union is seeking to serve.
    Accordingly, for those community charter applications that do not 
meet the established definitions of a well-defined local community, the 
Board proposes to publish a notice in the Federal Register. The 
proposed rule contains a new section entitled ``V.A.3 Public Notice and 
Comment Procedures.'' The notice will solicit comments relevant to the 
proposed community charter, including whether it meets the well-defined 
local community requirements. The comments will be considered by the 
agency before a decision on the application is made. The Board is 
proposing a 30 calendar day comment period.
3. Documentation Requirements for Certain Community Charter Applicants
    Currently under the Chartering Manual, multiple political 
jurisdictions with populations of up to 500,000 and Metropolitan 
Statistical Areas (MSAs) with populations of up to one million may 
qualify as a local community based on a narrative description of the 
area. The narrative must describe how the area meets the standards for 
community interaction and/or common interests. The Board is proposing 
that applications for areas containing multiple political jurisdictions 
that do not meet the proposed statistical definition be subject to 
public notice and comment. In those cases applicants will also be 
required to supplement the narrative with supporting documentation 
demonstrating how the regulatory requirements of a well-defined local 
community have been met.
    This amendment would assure greater consistency in NCUA's 
application of chartering requirements for all community charter 
applicants seeking to serve multiple political jurisdictions. The 
proposed change would clarify NCUA's expectation and inform applicants 
that statements in a narrative must be substantiated through 
documentation.
    The Board seeks to expand the well-defined local community 
documentation section to provide more guidance to credit unions on the 
type of evidence that demonstrates whether the area is a well-defined 
local community. To accomplish this the Board is proposing to add 
language providing more descriptive information and examples relevant 
to establishing the existence of well-defined local communities in 
order to clarify the degree of documentation required. For example, the 
Board finds that population density and geographic size can be useful 
to consider in determining whether the area is a well-defined local 
community.
    The Board also seeks to emphasize that community charter applicants 
can provide NCUA with statistical data, such as on employment patterns, 
in addition to third-party surveys and authoritative letters from 
government or corporate officials. This type of documentation can be 
used to support

[[Page 30992]]

interaction and/or common interests among residents.
4. Five-Year Limitation
    Since 2001, the Chartering Manual has exempted a community charter 
applicant from submitting a narrative summary or documentation 
supporting a request of a proposed community charter, amendment, or 
conversion, with the same exact geographic area as one NCUA had 
previously approved. The Board is proposing a five-year limitation on a 
community charter applicant's use of this exemption. NCUA believes that 
five years is an appropriate time period in which to allow applicants 
to rely upon the narrative and documentation in past submissions. The 
Board requests comment regarding whether this or another time period is 
appropriate.
    In some parts of the United States, economic growth and population 
change can be dramatic over time. This means that documentation 
supporting a proposed community for some areas may become outdated more 
quickly than documentation supporting other areas where indicia of 
community interaction and/or common interests may still be valid. With 
this change NCUA seeks to strike a balance between requiring an 
applicant to repeat the exercise of demonstrating a proposed area is a 
well-defined local community, when NCUA already has made that exact 
determination, and retaining an exemption based on a previous narrative 
and documentation that may no longer be accurate. The Board is also 
proposing adding a new heading ``V.A.5--Previously Approved 
Communities'' to describe this exemption to make this provision more 
reader-friendly. This limitation would not apply to applications that 
meet the single political jurisdiction or statistical area definition 
of local community.
5. Rural District
    Since the passage of CUMAA, despite the separate statutory language 
authorizing local community credit unions comprised of a rural 
district, NCUA has not defined that term. NCUA's experience is that 
rural areas often lack the normal indicia that NCUA considers in making 
a determination that a proposed area is a well-defined local community. 
Unlike the proposed statistical area definition, the Board is proposing 
a definition that reflects an area that may lack the traditional 
characteristics of interaction or shared common interests. Therefore, 
the proposal does not require an applicant to demonstrate interaction 
or shared common interests. The Board expects a rural district to be 
less densely populated and frequently lacking any centralized urban 
core or cluster. Although the proposed rural district may include 
contiguous counties the Board also believes such a district should have 
a relatively small, widely disbursed, population. Therefore, NCUA is 
proposing to define a rural district as an area that is not in an MSA 
or MicroSA and has a population density that does not exceed 100 people 
per square mile where the total population of the rural district does 
not exceed 100,000. This would exclude the majority of the United 
States population that lives in and around large urban areas yet, based 
on census data, still include the vast majority of counties in the 
United States having fewer than 100,000 persons. Population density 
also varies widely but many counties also have a density of less than 
100 persons per square mile. Together these requirements would assure 
that an area under consideration as a rural district has both a small 
total population and a relatively light population density. If the 
Board adopts a definition it will modify the language throughout the 
Chartering Manual to assure conformity.
    Because the NCUA Board has less experience with rural districts, it 
seeks public comment on whether it should adopt its proposed 
definition, a definition used by one of the agencies discussed below, 
or some other definition. Comment is also requested regarding whether a 
rural district that consists of a non-metropolitan or rural area should 
be subject to different analyses or documentation requirements than 
metropolitan or suburban areas. The Board welcomes comments on what 
specific indicia may be appropriate to demonstrate the existence of a 
rural district consistent with the FCU Act.
    When developing the proposed definition for rural district, the 
Board considered the criteria other executive branch agencies use as a 
framework for defining what is rural in the United States. These 
agencies are the U.S. Census Bureau, the OMB, and the Economic Research 
Service (ERS) of the U.S. Department of Agriculture (USDA). The table 
that follows summarizes each agency's definition of what constitutes a 
rural area.

------------------------------------------------------------------------
                Agency                      Definition of rural area
------------------------------------------------------------------------
U.S. Census Bureau...................  The Census Bureau defines rural
                                        area by exclusion by considering
                                        areas outside urbanized areas or
                                        urban clusters rural.
                                        The Census defines an
                                        urbanized area as an area
                                        consisting of adjacent, densely
                                        settled, census block groups and
                                        census blocks that meet minimum
                                        population density requirements.
                                        The urbanized area definition
                                        also includes adjacent densely
                                        settled census blocks that
                                        collectively have a population
                                        of at least 50,000 people.
                                        The Census defines urban
                                        clusters as contiguous, densely
                                        settled, census block groups and
                                        census blocks that meet minimum
                                        population density requirements.
                                        This definition also includes
                                        adjacent densely settled census
                                        blocks that collectively have
                                        populations ranging from 2,500
                                        to less than 50,000 people.
                                        The Census Bureau relies
                                        upon the standards implemented
                                        by the OMB, as discussed below,
                                        for classifying areas as
                                        metropolitan areas.
                                       The Census Bureau considers all
                                        other areas rural. [Reference:
                                        https://frwebgate.access.gpo.gov/
cgi-bin/getdoc.cgi?dbname=2002_
                                        register&docid=02-6186-
                                        filed.pdf]
OMB..................................  The OMB defines MSAs, or
                                        metropolitan areas, as central
                                        (core) counties with one or more
                                        urbanized areas, and outlying
                                        counties that are economically
                                        tied to the core counties as
                                        measured by work commuting. OMB
                                        uses the MicroSA classification
                                        to identify a non-metro county
                                        with an urban cluster of at
                                        least 10,000 persons or more.
                                        Non-core counties are neither
                                        micro nor metro.
                                       Agencies outside of OMB often
                                        designate non-metro counties as
                                        rural. [Reference: https://
www.whitehouse.gov/omb/bulletins/
fy2007/b07-01.pdf]
ERS of the USDA......................  ERS of the USDA considers areas
                                        rural if the OMB has not
                                        designated any part of the area
                                        as an MSA or core county.
                                       ERS also consider some areas
                                        designated by OMB as MSAs rural
                                        based on their assessments of
                                        Census data and other agency
                                        research. ERS has developed
                                        several classifications to
                                        measure rurality within
                                        individual MSAs.

[[Page 30993]]

 
                                       ERS researchers who discuss
                                        conditions in rural America
                                        refer to non-MSA areas that
                                        include both micropolitan and
                                        non-core counties as rural
                                        areas. When the OMB classifies
                                        an area as a MicroSA, the ERS
                                        still considers these areas
                                        rural according to their
                                        definition. Rurality is a term
                                        used by the USDA ERS to explain
                                        the rural nature of an area.
                                       [Reference: https://
www.ers.usda.gov/Briefing/
 Rurality/WhatIsRural/]
------------------------------------------------------------------------

    The Census Bureau, the OMB (by virtue of no MSA designation in the 
area), and the ERS all provide definitions of rurality based on their 
analysis of 2000 Census data.
6. More Descriptive Information Related to Business Plans
    The Board is proposing to provide community charter applicants with 
more consistent guidance regarding NCUA's practices for reviewing the 
adequacy of business and marketing plans. Under the current Chartering 
Manual, a credit union converting to or expanding its community charter 
must provide, ``a marketing plan that addresses how the community will 
be served.'' The Board is proposing a clarification to the marketing 
plan requirement to provide credit unions with additional guidance. The 
proposal explains that the plan should include the financial products, 
programs, and services to be provided to the entire community.
7. Community Charter Mergers
    In general, where both credit unions are community charters, the 
continuing credit union must meet the criteria for expanding the 
community boundaries. A community credit union cannot merge into a 
single occupational/associational, or multiple common bond credit 
union, except in an emergency merger. However, a single occupational or 
associational, or multiple common bond credit union can merge into a 
community charter as long as the merging credit union has a service 
facility within the community boundaries or a majority of the merging 
credit union's field of membership would qualify for membership in the 
community charter. While a community charter may take in an 
occupational, associational, or multiple common bond credit union in a 
merger, it will remain a community charter. Groups within the merging 
credit union's field of membership located outside of the community 
boundaries may not continue to be served. The merging credit union must 
notify groups that will be removed from the field of membership as a 
result of the merger. However, the credit union may continue to serve 
members of record.
    NCUA is unaware of any particular problems in this merger context. 
We are soliciting comments, however, to determine if there are any 
concerns in this regard and, if so, what adjustments to NCUA's 
Chartering Manual may be required.
    Chapter 3 Service To Underserved Communities: Section III.A--
General.
    The FCUA 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. Currently Chapter 3 of the 
Chartering Manual provides that for an underserved area, the well-
defined local community, neighborhood, or rural district requirement is 
met when the area meets the definition of local community set forth in 
Section III.A.
    The Board proposes to amend the language in this Section to conform 
it with the proposed changes to the definition of local community by 
removing the definitions from Chapter 3 and instead referring the 
reader to Chapter 2 for the actual text of the definition. This change 
will avoid confusion and eliminate any need for future changes to this 
Section should the definitions contained in Chapter 2 change.

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 ten 
million dollars 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

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (PRA), NCUA may not conduct or sponsor, and the respondent is 
not required to respond to, an information collection unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number. The OMB control number assigned to Sec.  701.1 is 3133-
0015, and to the forms included in Appendix D is 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 the proposed rule does not constitute a policy that has 
federalism implications for purposes of the executive order because it 
only applies to federal credit unions.

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

    The NCUA has determined that the proposed rules 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 May 24, 
2007.
Mary Rupp,
Secretary of the Board.
    Accordingly, NCUA proposes to amend 12 CFR part 701 as follows:

PART 701--ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNION

    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,

[[Page 30994]]

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 the Chartering and Field of Membership Policy, Interpretive 
Ruling and Policy Statement (IRPS) 03-1, as amended by IRPS 06-1 and 
IRPS 07-1. Copies may be obtained by contacting NCUA at the address 
found in Section 792.2(g)(1) of this chapter.

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

    Note: The text of the Interpretive Ruling and Policy Statement 
(IRPS 07-1) does not appear in the Code of Federal Regulations.

    3. Section V of Chapter 2 of IRPS 03-1, as amended by IRPS 06-1 and 
IRPS 07-1, is revised to read as follows:

Chapter 2

V.A.1--General

    Community charters must be based on a single, geographically well-
defined local community, neighborhood, or rural district. In a well-
defined local community or neighborhood, individuals must have common 
interests and/or interact. More than one credit union may serve the 
same community.
    NCUA recognizes four types of affinity on which a community charter 
can be based--persons who live in, worship in, attend school in, or 
work in the community. Businesses and other legal entities within the 
community boundaries may also qualify for membership.
    NCUA has established the following requirements for community 
charters:
     The geographic area's boundaries must be clearly defined;
     The area is a ``well-defined local, community, 
neighborhood, or rural district;'' and
     Individuals must have common interests and/or interact.

V.A.2--Definition of Well-Defined Local Community

    In addition to the documentation requirements in Chapter 1 to 
charter a credit union, a community credit union applicant must provide 
additional documentation addressing the proposed area to be served and 
community service policies.
    An applicant has the burden of demonstrating to NCUA that the 
proposed community area meets the statutory requirements of being: (1) 
Well-defined, and (2) a local community, neighborhood, or rural 
district.
     ``Well-defined'' means the proposed area has specific 
geographic boundaries. Geographic boundaries may include a city, 
township, single, multiple, or portions of counties (or their political 
equivalent), school districts, or a clearly identifiable neighborhood. 
Although congressional districts and state boundaries are well-defined 
areas, they do not meet the requirement that the proposed area be a 
local community.
    The well-defined local community, neighborhood, or rural district 
requirement is met if:
     Single Political Jurisdiction--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.
     Statistical Area--
     The area is a recognized Core Based Statistical Area 
(CBSA) or part thereof without a Metropolitan Division; and
     The area contains a city, county or equivalent with a 
majority of all jobs in the CBSA; and
     The city, county or equivalent must contain at least \1/3\ 
of the CBSA's total population.
     Rural District--
     The district has well-defined geographic boundaries;
     The district or any part thereof is not contained in an 
MSA or MicroSA;
     The district does not have a population density in excess 
of 100 people per square mile; and
     The total population of the district does not exceed 
100,000 people.
    The OMB definitions of CBSA and Metropolitan Division may be found 
at 65 FR 82238 (Dec. 27, 2000). They are incorporated herein by 
reference. Access to these definitions is available through the main 
page of the Federal Register Web site at https://www.gpoaccess.gov/fr/
index.html.
    If the proposed area does not meet the single political 
jurisdiction, statistical area or rural district definitions, the 
application will be subject to the public notice and comment procedures 
contained in V.A.3 and the applicant must submit a narrative 
description and supporting documentation proving how the area meets the 
standards for community interaction and/or common interests. See 
Section V.A.4--Community Documentation Requirements.

V.A.3--Public Notice Procedures

    If the proposed area does not meet the single political 
jurisdiction, statistical area, or rural district definitions cited in 
Section V.A.2 above, NCUA will publish a notice in the Federal Register 
regarding the community application. The notice will include the name 
of the credit union and identify the geographic area of the proposed 
community. The notice will solicit comments in favor of or in 
opposition to the proposed community charter including whether the 
proposed area meets the well-defined local community requirements of 
this manual. The comment period will normally be 30 calendar days but 
may be extended at NCUA's discretion. Responses to the notice must be 
sent to the NCUA Board Secretary.

V.A.4--Community Documentation Requirements

    For areas not defined as a well-defined local community or rural 
district, an applicant has the burden of demonstrating the relevance of 
the documentation provided in support of an application. This must be 
provided in a narrative format that explains how the documentation 
demonstrates that the community is a well-defined area and the 
residents interact and/or share common interests. For example, simply 
listing newspapers and organizations in the area is not sufficient to 
demonstrate that the area is a local community.
(a) Well-Defined Area Documentation
    To establish that the area is well-defined, an application must 
include:
     The geographic boundaries and size (square miles) of the 
community; and
     a local map designating the area to be served and a 
regional or state map with the proposed community outlined.
(b) Local Community Documentation
    To establish the area is a local community, the applicant needs to 
provide sufficient, persuasive documentation. Examples of criteria that 
NCUA considers relevant to documenting an application include but are 
not limited to the criteria set forth below. NCUA suggests that an 
applicant address these criteria but not every criteria must be met for 
NCUA to determine the area is a well-defined local community. NCUA will 
base its determination on the totality of the evidence provided by the 
applicant. NCUA will consider the following:

[[Page 30995]]

Employment
     Identify the major employers, as well as their locations, 
within the community. Provide data showing the extent that these 
employers draw employees from throughout the community.
     Provide data on the percentage of individuals who work 
within the community. Include information on the percentage of 
individuals who work within their county of residence, as well as those 
who commute to other counties both within and outside the community.
Major Trade Areas
     Identify the major shopping centers. Provide data showing 
the extent that residents of the community use these facilities.
     Identify the major sports and entertainment venues (e.g., 
stadiums, arenas). Provide data showing the extent that residents of 
the community attend these events.
     Identify the traffic flows and commuting patterns within 
the community. Provide data showing the extent of interaction and/or 
common interests in the community.
Population Concentrations
     Identify varying population concentrations (i.e., urban 
vs. rural) within the community. Provide data showing how the 
population distribution facilitates interaction and/or common interests 
in the community.
Shared/Common Facilities
     Healthcare--identify major hospitals, including any 
special healthcare facilities, such as regional trauma centers. Provide 
data showing the extent that residents of the community use these 
facilities.
     Public services and facilities--identify community-wide 
shared government services, such as police, fire protection, public 
utilities, park districts, and public transportation. Provide data 
showing the extent that residents of the community use these services 
and facilities.
     Education--Identify major colleges and universities, as 
well as large local school districts within the community. Include 
enrollment statistics showing the extent the community residents are 
enrolled at these institutions.
Governmental and Quasi-Governmental Organizations
     Identify organizations such as economic development 
commissions, regional planning boards, and labor or transportation 
districts that serve the community.
     Identify the service areas of these organizations, and how 
the purpose of these organizations promotes interaction and/or common 
interests in the community, and the extent to which the residents use 
the services they provide.
Organizations and Clubs Within the Community
     Identify groups such as charitable organizations, chambers 
of commerce, Girl or Boy Scout Councils, and religious dioceses that 
serve the community.
     Include statistics that identify the service areas of 
these organizations, and the extent to which the residents use the 
services they provide.
Festivals and Community Events
     Identify any major festivals or community events.
     Provide attendance figures that show the degree and extent 
of participation by residents of the community.
Newspapers, Periodicals, or Other Media
     Identify the major newspapers, television, and radio 
stations, along with their marketing/service areas. Include 
subscription and viewer/listening statistics.
Other Documentation
     Include any other documentation that demonstrates that the 
area is a community where individuals have common interests and/or 
interact.
    Documentation can include statistical data, surveys, and/or letters 
from government or corporate officials such as:
     Written statements by officials of a shopping mall, 
hospital, educational establishment, airport, etc. that the individuals 
using their facilities are from the community requested;
     Surveys completed by an outside firm or the credit union 
as long as they sufficiently document how the survey was performed and 
why it is statistically valid.
    The applicant has the burden of analyzing the documentation 
provided and explaining how it satisfies the requirements of 
interaction and/or common interests required by this manual. The level 
of documentation must be commensurate with the geographic size and 
population of the proposed local community.

V.A.5--Previously Approved Communities

    An applicant need not submit a narrative summary or documentation 
to support a proposed community charter, amendment or conversion as a 
well-defined local community, neighborhood or rural district if the 
NCUA has previously determined that the same, exact geographic area 
meets that requirement in connection with consideration of a prior 
application; provided that the initial application for the area was 
approved no more than five years before the date of the current 
application. Applicants may contact the appropriate regional office to 
find out if the area they are interested in has already been determined 
to meet the community requirements.
    If the area is the same as a previously approved area, an applicant 
need only include a statement to that effect in the application. 
Applicants may be required to submit their own summary and 
documentation regarding the community requirements if NCUA, in its 
discretion, believes it is appropriate to do so, for example, if there 
has been a significant change in the population of the area since it 
was previously approved. This requirement does not apply to 
applications that meet the single political jurisdiction or statistical 
area definition of local community.

V.A.6--Business Plan Requirements for a Community Credit Union

    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.
    If the local community requested does not meet the requirements of 
V.A.2 then the documentation requirements in Section V.A.4 of this 
Chapter must be met before a community charter can be approved.
    In all cases, in order to support a case for a conversion to 
community charter, an applicant federal credit union must develop a 
business plan incorporating the following data:
     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;
     Anticipated financial impact on the credit union, 
including the need for

[[Page 30996]]

additional employees and fixed assets, and the associated costs;
     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;
     Marketing plan addressing how the community will be served 
for the 24-month period after the proposed conversion to a community 
charter, including the projected marketing budget, promotions, and time 
line;
     Details, terms and conditions of the credit union's 
financial products, programs, and services to be provided to the entire 
community; and
     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.

V.A.7--Community Boundaries

    The geographic boundaries of a community federal credit union are 
the areas defined in its charter. The boundaries can usually be defined 
using political borders, streets, rivers, railroad tracks, etc.
    A community that is a recognized legal entity may be stated in the 
field of membership--for example, ``Gus Township, Texas,'' ``Isabella 
City, Georgia,'' or ``Fairfax County, Virginia.''
    A community that is a recognized MSA must state in the field of 
membership the political jurisdiction(s) that comprise the MSA.

V.A.8--Special Community

Charters
    A community field of membership may include persons who work or 
attend school in a particular industrial park, shopping mall, office 
complex, or similar development. The proposed field of membership must 
have clearly defined geographic boundaries.

V.A.9--Sample Community

Fields of Membership
    A community charter does not have to include all four affinities 
(i.e., live, work, worship, or attend school in a community). Some 
examples of community fields of membership are:
     nPersons who live, work, worship, or attend school in, and 
businesses located in the area of Johnson City, Tennessee, bounded by 
Fern Street on the north, Long Street on the east, Fourth Street on the 
south, and Elm Avenue on the west;
     Persons who live or work in Green County, Maine;
     Persons who live, worship, or work in and businesses and 
other legal entities located in Independent School District No. 1, 
DuPage County, Illinois;
     Persons who live, worship, work (or regularly conduct 
business in), or attend school on the University of Dayton campus, in 
Dayton, Ohio;
     Persons who work for businesses located in Clifton Country 
Mall, in Clifton Park, New York; or
     Persons who live, work, or worship in the Binghamton, New 
York, MSA, consisting of Broome and Tioga Counties, New York.
    Some Examples of insufficiently defined local communities, 
neighborhoods, or rural districts are:
     Persons who live or work within and businesses located 
within a ten-mile radius of Washington, DC (using a radius does not 
establish a well-defined area);
     Persons who live or work in the industrial section of New 
York, New York. (not a well-defined neighborhood, community, or rural 
district); or
     Persons who live or work in the greater Boston area. (not 
a well-defined neighborhood, community, or rural district).
    Some examples of unacceptable local communities, neighborhoods, or 
rural districts are:
     Persons who live or work in the State of California. (does 
not meet the definition of local community, neighborhood, or rural 
district).
     Persons who live in the first congressional district of 
Florida. (does not meet the definition of local community, 
neighborhood, or rural district).
    4. Section III.A of Chapter 3 of IRPS 03-1, as amended by IRPS 06-1 
and IRPS 07-1, is revised by removing the second and third full 
paragraphs and the bulleted paragraphs in between them and adding in 
their place two paragraphs to read as follows:
    For an underserved area, the well-defined local community, 
neighborhood, or rural district requirement is met if the area to be 
served meets the definition of a local community contained in Chapter 2 
V.A.2.
    If the area to be served does not meet the single political 
jurisdiction or statistical definition contained in Chapter 2 V.A.2, 
the application must include documentation to support that it is a 
well-defined local community, neighborhood, or rural district.

 [FR Doc. E7-10398 Filed 6-4-07; 8:45 am]
BILLING CODE 7535-01-P