Proposed Rule Summary

Prepared by NASCUS Regulatory Affairs Department
December, 2015

 NCUA 12 CFR Part 701                                       FCU Field of Membership
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Federal Credit Union (FCU) field of membership (FOM) rules are incorporated as Appendix B to § 701 of its regulations. The rules (Chartering and FOM Manual) implement the FOM limitations established by the Federal Credit Union Act for FCUs.  The NCUA Board has proposed sweeping changes to the rules in an effort to expand FCU FOM. NCUA has stated that the proposed changes have been partially driven by NCUA’s perception that many state FOMs are more beneficial to SCUs.

Among the changes proposed by NCUA:

  • FCUs will be able to apply to convert to a community charter or expand an existing community charter without having to serve the core area if electing to serve a portion of a Core Based Statistical Area. 
  • NCUA’s population limit of 2.5 million people will apply to a Core Based Statistical Area or any well-defined portion thereof. 
  • An FCU will be able to apply to serve “Combined” Statistical Areas, as designated by the Office of Management and Budget.
  • An FCU could apply to serve an outside area contiguous to its existing Core Based Statistical Area or single political jurisdiction. 
  • The rural district population limit is increased to 1,000,000 – regardless of the state in which the majority of the district’s population is located.
  • Multiple Common Bond FCUs could use mobile banking for the proximity test and add contractors of their SEG groups

The rule applies only to FCUs. Federally insured state chartered credit unions (FISCUs) will continue to look to state law and regulation for field of membership.

As the proposed rule applies only to FCUs, NASCUS will not file comments.

You may read the proposed rule here.

Summary

Community Common Bond Credit Unions

Pursuant to §1759(b) of the Federal Credit Union Act (FCUA), FCUs with a community common bond are limited to “[p]ersons or organizations within a well-defined local community, neighborhood or rural district.” To qualify as a well-defined local community or rural district, the NCUA Board requires the proposed area to have “specific geographic boundaries.”

Currently, NCUA recognizes 2 objective geographic units as meeting the standard well-defined local community on their face:

  • A single political jurisdiction
  • U.S. Census Bureau-designated Core Based Statistical Area (with a 2.5 million population limit)

Under either of the above options, an FCU must demonstrate its ability to serve the proposed community by submitting its business and marketing plans along with the FOM application. NCUA is proposing the following changes to its rules regarding community FOMs:

  • Rescind the Core Area Requirement

NCUA proposes to repeal the core area service requirement for a community charter based on a Core Based Statistical Area (CBSA). This change would allow a FCU to serve a portion of CBSA if it so chooses rather than requiring that FCU to include the core.

NCUA would continue to evaluate the FCU’s ability to serve whatever portion of the CBSA it sought for its FOM.

  • Population Limit will be Applied to the Portion of the CBSA the FCU Seeks to Serve

Currently NCUA permits a portion of a CBSA to qualify as a well-defined local community only if the population of the whole CBSA is less than 2.5 million people. NCUA proposes modifying its “statistical area” definition to specify that “a Core Based Statistical Area, Metropolitan Division, or well-defined portion of either one, must itself have a population of 2.5 million or fewer people.” This change would allow a portion of a Core Based Statistical Area, or a Metropolitan Division within, to qualify as a well-defined local community when it meets the population limit solely as applied to that portion, even if the Core Based Statistical Area as a whole exceeds the limit.

  • Permitting “Combined Statistical Areas” to Qualify as a Well Defined Local Community

NCUA proposes incorporating OMB’s definition of “Combined Statistical Areas” into its definition of CBSAs, allowing OMB designated Combined Statistical Areas into a FCU FOM. The OMB combined areas must be contiguous, and must comport with the 2.5 million population limit. In addition, NCUA will continue to review each FCU’s business and marketing plans to determine its capability and success in serving its original and expanded community FOM.

  • Addition of an Adjacent Area to a Well-Defined Local Community

In its proposed rule, NCUA discusses the possibility that areas adjacent to a well-defined local community FOM may themselves need credit union services. NCUA therefore proposes to permit the addition of such an area to a FCU’s existing well defined local community if the FCU can show that residents in the existing local community and the adjacent area interact or share common interests. Under the proposal, the combined expanded community would be subject to the 2.5 million population limit for communities and 1 million population limit for rural districts.

A FCU seeking to add a bordering area to its community FOM will have to follow a streamlined set of business plan requirements contained in the rule.

  • Individual Congressional District as a Well-Defined Local Community

NCUA proposes reversing its policy prohibiting a Congressional district or a whole state as qualifying as a well-defined local community. Citing numerical comparisons of populations of  large community FOMs granted by NCUA compared to average Congressional district populations, NCUA notes that “Congressional districts, structured for purposes of federal representation, reflect interaction and common interests among each district’s constituents based on issues and matters decided at the federal level that affect them locally.” Upon that rationale, NCUA proposes recognizing each of the 435 Congressional districts as well defined local communities. This would include the 7 states comprised of a single Congressional district, creating 7 state-wide FOMs: Alaska, Delaware, Montana, North Dakota, South Dakota, Vermont and Wyoming.

As with other community charters, a FCU that applies to serve a Congressional district must submit a business and marketing plan demonstrating its ability and commitment to serve the entire community. There would be no population constraints on the Congressional district FOM.

Rural District Definition

Since 2013, NCUA’s FOM rules required a well-defined “Rural District” to meet the following:

  • the area’s total population cannot exceed the greater of either 250,000 people or 3% of the population of the state in which the majority of the proposed Rural District’s residents would be located
  • at least 50% of the proposed Rural District’s population must reside in census blocks or other geographic units designated as “rural” by the U.S. Census Bureau, or the proposed Rural District’s population density cannot exceed 100 persons/square mile.

NCUA is proposing raising the population limit under the “first prong” above to 1 million persons and eliminating the 3% alternate test. However, FCUs must continue to demonstrate the ability to serve the rural community as evidenced by submitted business and marketing plans that accompany FOM expansion applications. Other changes proposed by NCUA to “Rural District” FOM include:

  • an area may qualify as a “Rural District” either because it is among the “rural counties” identified by the CFPB or because the area has a population density of no more than 100 people/square mile.
  • a “Rural District” FOM eligible area may extend beyond a the boundaries of a single state, however, all states making up the area must be contiguous to the FCU’s state of headquarters.

Underserved Areas

The FCUA allows multiple common bond credit unions to add underserved communities to their FOMs provided the FCU establishes and maintains a facility in the underserved area. For a community to be underserved it must qualify:

(1) as a well-defined local community, neighborhood or rural district
(2) as an “investment area” under the Community Development Banking and Financial Institutions Act
(3) as “underserved” by other depository institutions (as defined [by the CDFI Act]) “based on data of the Board and  the Federal banking agencies.”

NCUA proposes to broaden the criteria for defining “underserved” as it relates to an otherwise qualifying community. The proposed rule would exclude non-community credit unions that don’t have an underserved area in the community in question from the calculation of available banking services as well as exclude non depository institutions such as trust companies.

NCUA is also proposing two alternative measure for underserved. The first would be to accept CFPB’s designation of “underserved counties.” The second would be to allow credit unions to make the case that despite the presence of financial institutions the actual products and services available tot the community in question is lacking. The credit union case must be based on “data of the Board and the Federal banking agencies.”

Multiple Common Bond

The FCU Act authorizes multiple common bond credit unions to expand through the addition of select groups having dissimilar common bonds, provided such a group does not exceed 3,000 members and the credit union has a service facility within “reasonable proximity” to the location of the group.

NCUA proposes to revise the definition of a “service facility” to extend it to members of occupational select groups, and members of pre-approved associational groups, who have access to the FCU’s products and services through an online internet channel such as a transactional website. In addition, NCUA seeks comment on whether to amend the definition of “service facility” to include one or more discreet political jurisdictions such as a county or city.

  • Inclusion of Select Employee Group Contractors in a Multiple Common Bond

Currently, NCUA allows single occupational common bond FCUs to add to membership not only the employees of the single entity, but the employees of any of that entities contractor provided the contractor has a “strong dependency relationship” with that sponsor.
NCUA proposes to extend this practice to multiple common bond FCUs as well.

  • Inclusion of Office/Industrial Park Tenants in a Multiple Common Bond

In the past, NCUA has recognized industrial parks as a special type of community charter. Now, NCUA proposes to permit a multiple common bond credit union to include as a SEG the employees of an industrial park’s tenants, subject to the following conditions:

  • each industrial park tenant within the group must have fewer than 3,000 employees working at a facility within the park
  • only those employees who work regularly at the park during their employer’s tenancy would be eligible for FCU membership

 

  • Streamlined Determination of Stand-Alone Feasibility of Groups Greater than 3,000

NCUA proposes several changes to its policies and processes regarding its assessment of the feasibility of the creation of stand-alone credit unions by groups of 3,000 people or more.

  • Streamlined application process - For multiple common bond expansions of groups of fewer than 3,000 members, the existing application process would be maintained (a written request using the FOM application; a letter from the group requesting credit union service and indicating the desire to be added to the FCU’s field of membership; the number of persons included in the group to be added; and the group’s proximity to the credit union’s nearest service facility).  For groups with between 3,000 and 5,000 members, NCUA will accept a written statement indicating the conditions prohibiting the group from forming its own viable FCU. NCUA will no longer require an overlap analysis of the proposed group. Groups with members in excess of 5,000 will continue to be subject to the full analysis and application process, however NCUA specifically seeks comments on whether to consider a larger number than 5,000 for this threshold.

Other Persons Eligible for Credit Union Membership

NCUA proposes authorizing FCUs to include within their common bond the honorably discharged veterans of any branch of the United States Armed Forces listed in the FCU’s charter.

Trade, Industry or Profession (“TIP”) as a Single Common Bond

NCUA’s TIP is a single occupational common bond based on employment at any number of corporations or other legal entities that, while not under common ownership, still have a common bond by reason of producing similar products, providing similar services, sharing the same profession or trade, or participating in the same industry.

To expand this common bond, NCUA proposes including within the definition of a TIP the employees of entities that have a strong dependency relationship on, and whose employees work directly with employees of, other entities within the same industry. This expansion would be similar to the “contractor” expansion discussed above for multiple common bonds.

For example, an FCU that serves a TIP of the airline industry might be able to add employees of air freight transportation companies, courier services, air passenger services, in-flight food services, airport security, baggage handling, and commercial janitorial, maintenance and repair services.