Chartering and Field of Membership
| Published date | 14 September 2020 |
| Citation | 85 FR 56498 |
| Record Number | 2020-16988 |
| Section | Rules and Regulations |
| Court | National Credit Union Administration |
56498
Federal Register / Vol. 85, No. 178 / Monday, September 14, 2020 / Rules and Regulations
1
84 FR 59989.
2
References to CSAs or portions thereof in this
final rule should be understood to carry this 2.5
million population limit. As noted above, an
applicant may select an entire CSA as its WDLC if
its population is 2.5 million or below. Alternatively,
if the CSA’s population is greater than 2.5 million,
the applicant may still base its WDLC on the CSA,
but must select an individual, contiguous portion
of the CSA that has a population no greater than
2.5 million. Applicants also have the option of
requesting areas outside these parameters. However,
because these types of areas are not presumptive
WDLCs, applicants must submit a narrative and
supporting documentation establishing how the
residents interact or share common interests. Please
refer to NCUA Letter to Federal Credit Unions 18–
FCU–02 (https://www.ncua.gov/regulation-
supervision/letters-credit-unions-other-guidance/
requests-serve-well-defined-local-community-using-
narrative-approach) for additional background.
Where: Total Lamp Arc Power is the sum of
the lamp arc powers for all lamps
operated by the ballast as measured in
section 2.5.5 of this appendix, Input
Power is as determined by section 2.5.6
of this appendix, and b is equal to the
frequency adjustment factor in Table 1 of
this appendix.
2.6.2. Calculate Power Factor (PF) as
follows (do not round values of input power,
input voltage, and input current prior to
calculation):
Where: Input Power is measured in
accordance with section 2.5.6 of this
appendix, Input Voltage is measured in
accordance with section 2.5.7 of this
appendix, and Input Current is measured
in accordance with section 2.5.8 of this
appendix.
3. Standby Mode Procedure
3.1. The measurement of standby mode
power is required to be performed only if a
manufacturer makes any representations with
respect to the standby mode power use of the
fluorescent lamp ballast. When there is a
conflict, the language of the test procedure in
this appendix takes precedence over IEC
62301 (incorporated by reference; see
§ 430.3). Specifications in referenced
standards that are not clearly mandatory are
mandatory. Manufacturer’s instructions, such
as ‘‘instructions for use’’ referenced in IEC
62301 mean the manufacturer’s instructions
that come packaged with or appear on the
unit, including on a label. It may include an
online manual if specifically referenced (e.g.,
by date or version number) either on a label
or in the packaged instructions. Instructions
that appear on the unit take precedence over
instructions available electronically, such as
through the internet.
3.2. Test Setup
3.2.1. Take all measurements with
instruments as specified in section 2.2 of this
appendix. Fluorescent lamp ballasts that are
designed and marketed for connection to
control devices must be tested with all
commercially available compatible control
devices connected in all possible
configurations. For each configuration, a
separate measurement of standby power must
be made in accordance with section 3.4 of
this appendix.
3.2.2. Connect each ballast to the
maximum number of lamp(s) as specified in
section 2.3 (specifications in 2.3.3.1 are
optional) of this appendix. Note: ballast
operation with reference lamp(s) is not
required.
3.3. Test Conditions
3.3.1. Establish and maintain test
conditions in accordance with section 2.4 of
this appendix.
3.4. Test Method and Measurements
3.4.1. Turn on all of the lamps at full light
output.
3.4.2. Send a signal to the ballast
instructing it to have zero light output using
the appropriate ballast communication
protocol or system for the ballast being
tested.
3.4.3. Stabilize the ballast prior to
measurement using one of the methods as
specified in section 5 of IEC 62301.
3.4.4. Measure the standby mode energy
consumption in watts using one of the
methods as specified in section 5 of IEC
62301.
[FR Doc. 2020–14646 Filed 9–11–20; 8:45 am]
BILLING CODE 6450–01–P
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Part 701
RIN 3133–AF06
Chartering and Field of Membership
AGENCY
: National Credit Union
Administration (NCUA).
ACTION
: Final rule.
SUMMARY
: The NCUA Board (Board) is
amending its chartering and field of
membership (FOM) rules with respect to
applicants and existing federal credit
unions (FCUs) seeking a community
charter approval, expansion, or
conversion, in response to an August
2019 opinion and order issued by the
D.C. Circuit Court of Appeals. First, the
Board is re-adopting a provision to
allow an applicant to designate a
Combined Statistical Area (CSA), or an
individual, contiguous portion thereof,
as a well-defined local community
(WDLC), provided that the chosen area
has a population of 2.5 million or less.
Second, with respect to communities
based on a Core-Based Statistical Area
(CBSA), or a portion thereof, the Board
is providing additional explanation to
support its decision to eliminate the
requirement to serve the CBSA’s core
area as provided for in its
comprehensive 2016 FOM rulemaking
known as FOM1. Third, the Board is
clarifying existing requirements and
adding an explicit provision to its rules
regarding potential discrimination in
the FOM selection for CSAs and CBSAs.
DATES
: This final rule is effective
September 14, 2020.
FOR FURTHER INFORMATION CONTACT
: For
program issues: Martha Ninichuk,
Director, or JeanMarie Komyathy,
Deputy Director; Office of Credit Union
Resources and Expansion, at 1775 Duke
Street, Alexandria, VA 22314 or
telephone (703) 518–1140. For legal
issues: Ian Marenna, Associate General
Counsel, or Marvin Shaw, Staff
Attorney, Office of General Counsel, at
the above address or telephone (703)
518–6540.
SUPPLEMENTARY INFORMATION
:
I. Background
In a notice of proposed rulemaking
and supplemental statement published
on November 7, 2019,
1
the Board: (1)
Proposed to re-adopt the presumptive
WDLC option consisting of a CSA or an
individual, contiguous portion of a CSA,
provided that the chosen area, whether
it is an entire CSA or a portion of one,
is no more than 2.5 million;
2
(2)
explained further, with additional
reasoning and factual support, the basis
for eliminating the core area service
requirement for FCUs that choose a
CBSA as a WDLC; and (3) proposed to
amend the NCUA’s regulations
regarding community FOM
applications, amendments, and
expansions for CSAs and CBSAs to
require the applicant to explain why it
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12 U.S.C. 1753.
4
12 U.S.C. 1753(5).
5
12 U.S.C. 1754.
6
12 U.S.C. 1759(b).
7
Appendix B to 12 CFR part 701 (Appendix B).
The Chartering Manual is a single regulation that
addresses all aspects of chartering FCUs. In that
respect, it is similar to regulations of the Office of
the Comptroller of the Currency (OCC) applicable
to the chartering of national banks or federal
savings associations. 12 CFR part 5.
8
Appendix B, Ch. 1, section I.
9
Id.
10
Public Law 105–219, 2, 112 Stat. 913 (Aug. 7,
1998).
11
12 U.S.C. 1759(b)(1).
12
Id. 1759(b)(2)(A).
13
Id. 1759(b)(3).
14
Id. 1759(g)(1)(A).
15
Id. 1759(g)(1)(B). The Circuit Court cited this
express delegation in its August 2019 decision,
which is discussed in detail below. Am. Bankers
Ass’n v. Nat’l Credit Union Admin., 934 F.3d 649,
663 (D.C. Cir. 2019).
16
Appendix B, Ch. 2, section V.A.2.
17
Appendix B, Ch. 2, section V.A.5.
18
75 FR 36257 (June 25, 2010).
19
Appendix B., Ch. 2., section V.A.2. The
Chartering Manual also contained this requirement
in 2003 under the narrative model. 68 FR 18334
(Apr. 15, 2003). ‘‘The well-defined local
community, neighborhood, or rural district may be
met if: The area to be served is 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.’’ (emphasis
added). While the specific wording of this provision
has been revised since 2003, the NCUA has always
required that a WDLC consist of a contiguous area,
dating back to 1999.
20
As explained in the 2010 final rule that
discontinued the use of the narrative model, the
Board ‘‘does not believe it is beneficial to continue
the practice of permitting a community charter
applicant to provide a narrative statement with
documentation to support the credit union’s
assertion that an area containing multiple political
jurisdictions meets the standards for community
interaction and/or common interests to qualify as a
WDLC. As [the proposed rule] noted, the narrative
approach is cumbersome, difficult for credit unions
to fully understand, and time consuming....
While not every area will qualify as a WDLC under
the statistical approach, NCUA stated it believes the
consistency of this objective approach will enhance
its chartering policy, assure the strength and
viability of community charters, and greatly ease
the burden for any community charter applicant.’’
75 FR 36257, 36260 (June 25, 2010).
21
75 FR 36257, 36259 (June 25, 2010).
selected its FOM and to demonstrate
that its selection will serve low- and
moderate-income segments of a
community. The proposed rule also
included express authority for the
NCUA to review and evaluate the
foregoing explanation and submission
regarding low- and moderate-income
individuals, and to reject an application
if the agency determines that the FCU’s
selection reflects discrimination. The
Board proposed to apply this provision
to CSAs and CBSAs. As detailed further
below, the Board is adopting and
finalizing all aspects of the proposed
rule without change. The following
sections provide background on this
rulemaking.
A. Overview
Under the Federal Credit Union Act
(Act), seven or more individuals may
create an FCU by presenting a proposed
charter (referred to in the Act as the
organization certificate) to the Board.
3
These individuals, referred to as
‘‘subscribers,’’ must pledge to deposit
funds for shares in the FCU and
describe the FCU’s proposed FOM.
4
An
FOM consists of those persons and
entities eligible for membership based
on an FCU’s type of charter. Before
granting an FCU charter, the Board must
complete an appropriate investigation
and determine the character and fitness
of the subscribers, the economic
advisability of establishing the FCU, and
the conformity of the proposed charter
with the Act.
5
Under the Act, FCUs may
choose from two general categories of
FOM: Common-bond and community.
6
The NCUA’s Chartering and Field of
Membership Manual, incorporated as
Appendix B to Part 701 of the NCUA
regulations (Chartering Manual),
7
implements the chartering and FOM
requirements that the Act establishes for
FCUs. The Chartering Manual provides
that the NCUA will grant a charter if the
FOM requirements are met, the
subscribers are of good character and fit
to represent the proposed FCU, and the
establishment of the FCU is
economically advisable.
8
In addition,
‘‘[i]n unusual circumstances . . . [the]
NCUA may examine other factors, such
as other federal law or public policy, in
deciding if a charter should be
approved.’’
9
In adopting the Credit Union
Membership Access Act of 1998
(CUMAA), which amended the Act,
Congress reiterated its longstanding
support for credit unions, noting their
‘‘specific mission of meeting the credit
and savings needs of consumers,
especially persons of modest means.’’
10
As amended by CUMAA, the Act
provides a choice among three charter
types: A single group sharing a single
occupational or associational common
bond;
11
a multiple common bond
consisting of groups each of which have
a distinct occupational or associational
common bond among members of the
group;
12
and a community consisting of
‘‘persons or organizations within a well-
defined local community,
neighborhood, or rural district.’’
13
Congress expressly delegated to the
Board substantial authority in the Act to
define what constitutes a WDLC,
neighborhood, or rural district for
purposes of ‘‘making any
determination’’ regarding a community
FCU,
14
and to establish applicable
criteria for any such determination.
15
To
qualify as a WDLC, neighborhood, or
rural district, the Board requires the
proposed area to have ‘‘specific
geographic boundaries,’’ such as those
of ‘‘a city, township, county (single or
multiple portions of a county) or a
political equivalent, school districts or a
clearly identifiable neighborhood.’’
16
The boundaries themselves may consist
of political borders, streets, rivers,
railroad tracks, or other static
geographical features.
17
The Board
continues to emphasize that common
interests or interaction among residents
within those boundaries are essential
features of a local community.
Until 2010, the Chartering Manual
required FCUs seeking to establish an
area as a WDLC to submit for NCUA
approval a narrative, supported by
documentation, that demonstrated
indicia of common interests or
interaction among residents of a
proposed community (the ‘‘narrative
model’’) if the community extended
beyond a single political jurisdiction
(SPJ).
18
A WDLC was (and still is)
required to consist of a contiguous area,
as reflected in the current text of the
Chartering Manual.
19
In 2010, the Board
replaced the narrative model in favor of
an objective model that provided FCUs
a choice between two statistically based
‘‘presumptive communities’’ that each
by definition qualifies as a WDLC (the
‘‘presumptive community model’’).
20
Further, the Board carefully considered
the expertise and reasoning of the
agencies that devised the statistical
areas in deciding to designate these
areas as WDLCs. In particular, the Board
noted its agreement with the Office of
Management and Budget (OMB) that
commuting patterns within statistical
areas demonstrate a high degree of
social and economic integration with
the central county.
21
Under the
presumptive community model,
approval is not automatic; rather, there
is a multiple-step process. Once a
presumptive WDLC is established, an
FCU is still required to demonstrate its
ability to serve its entire proposed
community, as demonstrated by the
required business and marketing plans.
Then, the NCUA’s staff, including the
Office of Credit Union Resources and
Expansion (CURE), the Office of General
Counsel (OGC), and Regional Offices,
review the application to ensure the
applicant has established that it can
serve its entire proposed community.
One kind of presumptive community
is an ‘‘[SPJ] . . . or any contiguous
portion thereof,’’ regardless of
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Appendix B, Ch. 2, section V.A.2 of the
Chartering Manual defines ‘‘single political
jurisdiction’’ as ‘‘a city, county, or their political
equivalent, or any single portion thereof.’’
23
A CBSA is composed of the country’s
Metropolitan Statistical Areas and Micropolitan
Statistical Areas. ‘‘Metropolitan Statistical Areas’’
are defined by OMB as having ‘‘at least one
urbanized area of 50,000 or more population, plus
adjacent territory that has a high degree of social
and economic integration with the core as measured
by commuting ties.’’ ‘‘Micropolitan Statistical
Areas’’ are identical to Metropolitan Statistical
Areas except that their urbanized areas are smaller,
i.e., the urbanized area contains at least 10,000 but
fewer than 50,000 people. A ‘‘Metropolitan
Division’’ is a subdivision of a large Metropolitan
Statistical Area. Specifically, a Metropolitan
Division is ‘‘a county or group of counties within
a Metropolitan Statistical Area that has a
population core of at least 2.5 million.’’ OMB
Bulletin No. 15–01 (July 15, 2015).
24
Id. ‘‘A total population cap of 2.5 million is
appropriate in a multiple political jurisdiction
context to demonstrate cohesion in the
community.’’ 75 FR 36257, 36260 (June 25, 2010).
25
80 FR 76748 (Dec. 10, 2015).
26
Similar to CSAs, as discussed in note 2, this
provision allows an applicant to serve an entire
CBSA if its population is no greater than 2.5
million. If the CBSA’s population exceeds 2.5
million, an applicant may still base its WDLC on
the CBSA but must select an individual, contiguous
area that has a population no greater than 2.5
million.
27
CSAs are composed of adjacent CBSAs that
share what OMB calls ‘‘substantial employment
interchange.’’ OMB characterizes CSAs as
‘‘representing larger regions that reflect broader
social and economic interactions, such as
wholesaling, commodity distribution, and weekend
recreational activities, and are likely to be of
considerable interest to regional authorities and the
private sector.’’ OMB Bulletin No. 15–01.
28
81 FR 88412 (Dec. 7, 2016).
29
81 FR 78748 (Nov. 9, 2016).
30
5 U.S.C. 702.
31
Am. Bankers Ass’n v. Nat’l Credit Union
Admin., 306 F. Supp. 3d 44 (D.D.C. 2018).
32
467 U.S. 837 (1984). Shortly after CUMAA’s s
enactment, the D.C. Circuit determined that the
Board acted within its delegated authority to issue
rules for multiple common bond and community
charters under Chevron in Am. Bankers Ass’n v.
Nat’l Credit Union Admin, 271 F.3d 262 (D.C. Cir.
2001).
33
83 FR 30289 (June 28, 2018).
population.
22
The second is a single
CBSA
23
(as defined above) as
designated by the U.S. Census Bureau,
or a well-defined portion thereof, which
under the 2010 final rule was subject to
a 2.5 million population limit.
24
B. 2015 and 2016 Rulemakings
On November 19, 2015, the Board
approved a proposed rule to amend
various provisions of the Chartering
Manual, including the WDLC and rural
district options for community FOMs
(2015 Proposed Rule).
25
As relevant
here, in the 2015 Proposed Rule, the
Board proposed to amend the
community FOM options by: (1)
Eliminating the requirement for an FCU
serving a CBSA to serve its core area; (2)
permitting FCUs to serve a portion of a
CBSA up to a 2.5 million population
limit, even if the CBSA’s total
population is greater than 2.5 million;
26
(3) permitting FCUs to serve CSAs,
27
which combine contiguous CBSAs, or a
portion of a CSA, provided that the
chosen area has a population no greater
than 2.5 million; (4) permitting FCUs to
apply to the NCUA to add adjacent areas
to existing WDLCs consisting of SPJs,
CBSAs, or CSAs, based on a showing of
interaction by residents on both sides of
the adjacent areas; and (5) increasing the
population limit for rural district FOMs
from the greater of 250,000 or 3 percent
of the relevant state’s population to 1
million, subject to a requirement that
the rural district not expand beyond the
states immediately contiguous to the
state in which the FCU has its
headquarters.
On October 27, 2016, the Board
approved two rulemakings relating to
the Chartering Manual. One was a final
rule and the other a proposed rule. In
the final rule,
28
the Board adopted the
five provisions of the 2015 Proposed
Rule that are set forth above (2016 Final
Rule, which is also known as FOM1). In
the proposed rule, the Board proposed
additional changes to the community
charter provisions (2016 Proposed
Rule).
29
Specifically, the Board
proposed permitting an applicant for a
community charter to submit a narrative
to establish the existence of a WDLC as
an alternative to stand alongside the SPJ
and presumptive statistical community
options. According to the proposed rule,
the proposed narrative model would
serve the same purpose as in years prior
to 2010, when the narrative model was
used exclusively. Further, the Board
proposed permitting an FCU to
designate a portion of a statistical area
as its community without regard to
metropolitan division boundaries.
C. March 2018 Federal District Court
Decision
The American Bankers Association
(ABA) challenged several community
FOM provisions adopted in the 2016
Final Rule under the Administrative
Procedure Act (APA).
30
On March 29,
2018, the U.S. District Court for the
District of Columbia (District Court)
upheld, or left in place, three provisions
and vacated two provisions of the 2016
Final Rule).
31
The court held that
Congress had delegated sufficient
statutory authority to the Board to issue
such regulations under Chevron v.
Natural Resource Defense Council.
32
Specifically, the court upheld the
provision allowing an FCU to serve
areas within a CBSA that do not include
the CBSA’s core, holding that the
definition was a reasonable
interpretation of ‘‘local community’’ and
that the elimination of the core area
service requirement was supported by
the administrative record. The court
also upheld the provision allowing an
FCU to add an adjacent area to a
presumptive community, similarly
holding that this provision was
reasonable under the Act, and that the
Board chose reasonable factors to
evaluate whether adjacent areas are part
of the same local community. Also, the
court upheld the elimination of the
requirement that a CBSA as a whole
have a population of no more than 2.5
million in order for even a portion of the
CBSA to qualify as a WDLC, holding
that the plaintiff had waived this
challenge by failing to raise it in the
rulemaking.
The District Court vacated the
provision defining any individual
portion of a CSA, up to a population
limit of 2.5 million, as a WDLC, holding
that it was contrary to the Act. Finally,
the District Court vacated the provision
to increase the population limit to 1
million people for rural districts, also
finding it contrary to the Act.
Both parties appealed this decision.
The NCUA appealed the court’s rulings
on CSAs and rural districts. The ABA
appealed only the ruling on the core
area service requirement. The CSA and
rural district provisions remained
vacated while the appeal was pending.
Accordingly, the NCUA rescinded
approvals granted under those
provisions and ceased approving new
applications. The NCUA filed a notice
with the court on April 19, 2018, stating
that it did not interpret the court’s
March 29, 2018, order as mandating de-
listing of members who joined FCUs
under the vacated provisions. The
notice also stated that the ABA did not
intend to seek an order de-listing such
members.
D. 2018 Final Rule
On June 21, 2018, while the appeal
was pending, the Board adopted certain
limited aspects of the 2016 Proposed
Rule in a final rule (2018 Final Rule).
33
Specifically, the 2018 Final Rule
amended the Chartering Manual to: (1)
Allow an FCU seeking to serve a
community FOM to submit a narrative
to support its chosen area, as an
alternative to the presumptive
community options; and (2) eliminate
the requirement that a WDLC based on
a CBSA must be confined to a single
metropolitan division within a CBSA.
For the narrative model for establishing
a WDLC for a community FOM, the
Board established a public hearing
process for any such proposed
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Am. Bankers Ass’n v. Nat’l Credit Union
Admin., 934 F.3d 649 (D.C. Cir. 2019).
35
Id. at 664.
36
Id. at 665.
37
Id. at 665–66.
38
Id. at 666.
39
Id. at 661–62.
40
Id. at 672.
41
Id. at 672–73.
42
Id. at 673.
43
Id. at 674.
44
Id. at 670.
45
Id.
46
On October 4, 2019, the ABA filed a petition
for rehearing en banc with respect to the panel’s
ruling on the CSA and rural district provisions. The
NCUA responded to this petition, upon order of the
court, on November 21, 2019. On December 12,
2019, the D.C. Circuit issued a per curiam
(summary) order denying the petition. The Circuit
Court issued its mandate to terminate the appeal on
December 31, 2019, and the District Court entered
summary judgment in accordance with the mandate
on January 7, 2020. On March 11, 2020, the ABA
filed a petition for a writ for certiorari requesting
the U.S. Supreme Court review the Circuit Court
decision. On June 29, 2020, the Supreme Court
denied the ABA’s petition. 2020 WL 3492665.
community with a population greater
than 2.5 million. Further, with regard to
the change to CBSA limitations based
on metropolitan division boundaries, no
commenters objected to this technical
change. In addition, in light of the
March 2018 District Court Decision
vacating the CSA option, the Board
removed the CSA option from the
Chartering Manual while it amended the
portions of the Chartering Manual that
contained this option. The 2018 Final
Rule contained no statement on the
validity of the CSAs or any other
indication that the Board had decided to
abandon or re-visit this definition.
Because the 2016 Proposed Rule did not
propose any changes to the rural district
definition, the Board did not amend or
remove the rural district provision in
the 2018 Final Rule.
E. August 2019 Circuit Court Decision
On August 20, 2019, a three-judge
panel of the D.C. Circuit Court of
Appeals (Circuit Court) issued a
decision on the appeal.
34
The Circuit
Court, in a unanimous decision, found
that the Board acted within its statutory
authority and thus reversed the District
Court’s rulings on CSAs and rural
districts and directed the District Court
to enter summary judgment for the
NCUA on both issues. The Circuit Court
also reversed the ruling on the core area
service requirement for CBSAs,
remanding the issue to the agency for
further explanation without vacating the
provision.
With respect to CSAs and rural
districts up to 1 million people, the
Circuit Court held that both provisions
are consistent with the Act and were
reasonably explained. First, the court
found the CSA provision consistent
with the ‘‘local community’’ provision
of the Act.
35
Further, the Circuit Court
found that the CSA definition, which is
based on commuting relationships,
rationally advances the statutory
purpose of ensuring an affinity or
common bond among members.
36
The
court also found that the definition
rationally advances the Act’s safety and
soundness purposes.
37
On this point,
the court found that allowing for larger
communities could promote the
economic viability of community
FCUs.
38
The court also held that the
2018 Final Rule’s removal of the CSA
option from the Chartering Manual did
not render that issue moot, citing
evidence of the Board’s intention to re-
promulgate this provision if the court
upheld it.
39
Second, the court held that the
expansion of the rural district definition
to areas including 1 million people is
consistent with the Act.
40
The court
found that the term ‘‘rural district’’ does
not connote specific population or
geographic constraints.
41
The court also
found that the Board reasonably
explained the expansion, including the
2016 Final Rule’s discussion of the
agency’s experience with several larger
rural districts under the pre-2016 rule.
42
On one limited issue, the Circuit
Court asked for additional explanation
in reversing the District Court’s ruling
on the core area service requirement and
directed the District Court to enter
summary judgment for the plaintiff on
this provision and remand, without
vacating, this provision to the agency for
further explanation.
43
The Circuit Court
held that this provision is consistent
with the Act, but that the 2016 Final
Rule did not adequately explain it in
light of the concern that commenters
raised about the potential for FCUs to
engage in redlining or gerrymandering
of CBSAs to avoid serving minority or
low-income individuals.
44
Accordingly,
the Circuit Court directed the District
Court to remand this provision without
vacating it, and noted that it expected
the Board to act ‘‘expeditiously.’’
45
The
Circuit Court did not prescribe a
specific deadline or procedure for the
Board to follow. Therefore, this
provision and approvals that the agency
has granted under it remain in effect.
Currently, the Chartering Manual does
not contain CSAs or portions thereof as
an option for a WDLC. As a result of the
Circuit Court finding the Board acted
within its authority, the Board proposed
to re-adopt the provision allowing a
CSA or an individual, contiguous
portion of a CSA, to be a presumptive
statistical-based WDLC, provided that
the chosen area has a population of no
more than 2.5 million. The 2016 Final
Rule’s expanded definition of rural
districts remained in the Chartering
Manual and was upheld by the court’s
decision. Accordingly, the Board did
not address rural districts in the
proposed rule.
46
Finally, the Board
provided further explanation and
support, and proposed to add a
provision to the Chartering Manual with
respect to potential discrimination to
address the Circuit Court decision. The
Board issued the proposed rule
promptly after the decision in light of
the Circuit Court’s expectation that the
agency act expeditiously to provide
further explanation on the CBSA core
area service requirement.
II. Summary of Proposed Rule and
Further Explanation of Core Area
Service Requirement
On November 7, 2019, the Board
published a notice proposing to amend
its FOM rules with respect to applicants
for a community charter approval,
expansion, or conversion, in response to
the Circuit Court’s August 2019 opinion
and order. First, the Board proposed re-
adopting a provision to allow an
applicant to designate a CSA, or an
individual, contiguous portion thereof,
as a WDLC, provided that the chosen
area has a population of 2.5 million or
less. Second, with respect to
communities based on a CBSA or a
portion thereof, the Board provided
additional explanation for its decision
to eliminate the core service
requirement in the 2016 Final Rule.
Third, the Board clarified existing
requirements and proposed to add an
explicit provision to its rules regarding
potential discrimination in the FOM
selection for CSAs and CBSAs.
III. Summary of Comments on the
Proposed Rule
The Board received approximately
128 comments, including from bank and
credit union trade associations, state
leagues and associations, credit unions,
and banks. A number of banks
submitted a form letter opposing the
proposal, particularly with respect to
the elimination of the core area service
provision.
Credit union-affiliated commenters
generally supported the proposal to
reinstate the CSA provision and
eliminate the CBSA core area service
requirement for community charters.
Several credit union-affiliated
commenters opposed additional
requirements for the marketing and
business plan to establish service to core
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The ABA’s submission included approximately
350 pages (14 pages were new comments, and the
remainder consisted of attachments that included
the ABA’s legal filings and the District Court and
Circuit Court decisions discussed above).
48
In contrast, Federal credit unions have $803
billion in assets, employ roughly 160,000 people,
safeguard $670 billion in shares and deposits, and
extended $561 billion in loans.
areas or low- and moderate-income
individuals, viewing such requirements
as unnecessary and burdensome.
Banks and bank trade associations
provided comments largely opposing
the proposed rule and the Board’s
objectives. These comments focused on
eliminating the core area service
requirement. Approximately 113 banks
submitted various form letters opposing
the proposal to eliminate the core
requirement. The form letters criticized
the proposal, emphasizing their belief
that ‘‘urban core areas deserve access to
financial services’’ and that the proposal
would result in redlining. These
commenters advocated that the Board
adopt provisions similar to those issued
by bank regulatory agencies that
implement the Community
Reinvestment Act (CRA). Specifically,
they requested community-chartered
credit unions account for low-,
moderate-, and middle-income census
tracts being excluded from the FOM and
whether financial services are
adequately being provided to those
areas. Further, these commenters
requested that an FCU be required to
explain how people in the excluded
core can access credit facilities if the
FCU does not include the core.
The ABA
47
stated that the CSA and
CBSA core provisions were ‘‘seriously
flawed’’ and should be withdrawn
unless the Board made significant
modifications. The ABA relied
extensively on the District Court
decision that was unanimously reversed
by the Circuit Court. Details of the
comments are provided below in the
discussion of the final rule.
IV. Final Rule
A. General
The Board has determined that it is
appropriate and consistent with the Act
to adopt the FOM chartering provisions
described above, as proposed.
Accordingly, the Board is amending its
FOM rules with respect to applicants for
a community charter approval,
expansion, or conversion, in response to
the 2019 opinion and order issued by
the Circuit Court. First, the Board is re-
adopting the provision to allow an
applicant to designate a CSA, or an
individual, contiguous portion thereof,
as a WDLC, provided that the chosen
area has a population of 2.5 million or
less. Second, with respect to
communities based on a CBSA or a
portion thereof, the Board is providing
additional explanation and support for
its decision to eliminate the requirement
to serve the CBSA’s core area, as
provided for in the 2016 Final Rule. In
light of comments and consistent with
the Circuit Court decision, the Board is
clarifying existing requirements and
adding an explicit provision to its rules
regarding potential discrimination in
the FOM selection for CSAs and CBSAs.
Each of these three topics is discussed
below.
B. Statutory Background and General
Principles
Before responding to specific
comments, the Board believes it is
appropriate to explain the overall
statutory basis for its FOM regulations
applicable to chartering FCUs. In
Section 2 of CUMAA, Congress set forth
its ‘‘Findings’’ as follows:
The Congress finds the following:
(1) The American credit union
movement began as a cooperative effort
to serve the productive and provident
credit needs of individuals of modest
means.
(2) Credit unions continue to fulfill
this public purpose, and current
members and membership groups
should not face divestiture from the
financial services institutions of their
choice as a result of recent court action.
(3) 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, or the
maintenance of an otherwise well
understood sense of cohesion or identity
is essential to fulfillment of credit
unions’ public mission.
(4) Credit unions, unlike many other
participants in the financial services
market, are exempt from Federal and
most State taxes because they are
member-owned, democratically
operated, not-for-profit organizations
generally managed by volunteer boards
of directors and because they have the
specific mission of meeting the credit
and savings needs of consumers,
especially persons of modest means.
(5) Improved credit union safety and
soundness provisions will enhance the
public benefit that citizens receive from
these cooperative financial service
institutions.
These congressional findings—to
encourage and improve financial access
to credit to people of modest means, to
enhance consumer choice, community
affinity and common bonds, and to
promote the safety and soundness of
credit unions—are bolstered by specific
provisions of CUMAA. For instance,
Title 1 of that law addresses ‘‘credit
union membership,’’ including the
express provision in section 109 for the
Board to establish regulations to
encourage the chartering of community
and multiple common bond FCUs. This
section includes provisions encouraging
formation of FCUs to encourage
providing financial services to
underserved communities and people of
modest means. Title II of CUMAA
mandates that the Board protect the
National Credit Union Share Insurance
Fund (NCUSIF) by issuing stricter safety
and soundness provisions, including
enhanced accounting standards in
section 201. Title III of CUMAA
includes capitalization and net worth
requirements to ‘‘resolve the problems
of the insured credit unions at the least
possible long-term loss to the
[NCUSIF].’’ Title III also sets forth
specific mandates, including issuing
regulations for prompt corrective action;
capitalization requirements (including
the submission of net worth restoration
plans; earnings retention requirements;
and prior written approval requirements
for credit unions that are not adequately
capitalized); certification of NCUSIF
equity ratios; increased share insurance
premiums; and periodic evaluation of
access to liquidity. Title IV of CUMAA
includes assurances for independent
decision making in connection with
certain charter conversions. Congress
patterned these safety and soundness
provisions after provisions applicable to
the Federal Deposit Insurance
Corporation (FDIC) and other banking
regulatory agencies to ensure the safety
and soundness of banks and protect the
FDIC’s insurance fund.
As CUMAA indicates, Congress
directed the Board to consider multiple
responsibilities, including encouraging
access for financial services to people of
modest means, encouraging competition
among providers of financial services,
and protecting taxpayers by enhancing
the safety and soundness of the credit
union system and protecting the
NCUSIF. In contrast, banks have a more
limited focus, including the interests of
shareholders. This is illustrated in the
ABA’s comment letter, which states that
the organization ‘‘represents banks of all
sizes and charters and is the voice of the
nation’s $18 trillion banking industry,
which is composed of small, regional,
and large banks that together employ
more than 2 million people, safeguard
more than $414 trillion in deposits, and
extend $10.4 trillion in loans.’’
48
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Am. Bankers Ass’n, 934 F.3d at 663.
50
On a non-substantive point, the ABA in its
petition for rehearing en banc incorrectly referred
to the NCUA’s organic statute as the National Credit
Union Act. Id. at 3.
51
Id. at 1.
52
Id. at 8.
53
Id. at 1–2.
54
The DOJ brief noted that ‘‘people can readily
refer to the Combined Statistical Areas of Midland-
Odessa in Texas, Appleton-Oshkosh-Neenah in
Wisconsin, El Paso-Las Cruces on the Texas-New
Mexico border, or Joplin-Miami on the Missouri-
Oklahoma border as being ‘local communities,’ as
these towns clearly share strong economic and
social ties.’’
55
Id. at 3.
56
Id. at 4.
57
Id. at 16.
58
The Chartering Manual is all contained within
Appendix B.
59
ABA Petition for Rehearing at 16.
60
934 F.3d at 668.
61
See FDIC Deposit Insurance Handbook at
https://www.fdic.gov/regulations/applications/
depositinsurance/handbook.pdf. For the OCC’s
procedures, see 12 CFR part 5.
62
See the Federal Reserve Board’s procedures at
https://www.federalreserve.gov/faqs/banking_
12779.htm.
Although the ABA’s comment seems
to oppose the Board’s authority to
construe the statute and promulgate
substantive FOM rules based on
consideration of the purposes of the Act,
the Circuit Court made clear that
Congress entrusted the NCUA with an
express delegation of authority to
reasonably construe the statutory field
of membership terms, and to promulgate
appropriate rules.
49
The Board also
wishes to clarify the record in light of
inaccurate statements in parts of the
ABA’s comments and litigation motions
(which were appended to the ABA’s
comment letter).
50
Examples of factual
misstatements in the ABA’s ‘‘Petition
for Rehearing En Banc for Appellee-
Cross-Appellant,’’ which the ABA
attached to its comment on this
rulemaking, include the following. The
Board wishes to clarify and correct these
points, which pertain to the rulemaking
generally:
•The ABA states that CSAs
‘‘automatically qualify as ‘local
communities’ ’’
51
and ‘‘The agency
retains no discretion to determine that
any application of its ‘local community’
or ‘rural district’ rule is
unreasonable.’’
52
In fact, such a CSA
would be a ‘‘presumptive community’’
for which an applicant requests
approval and provides a business and
marketing plan to support an
application. Then, NCUA staff in CURE
reviews the application and in
consultation with OGC for legal issues
and the Office of Examination and
Insurance and the Regional Office for
safety and soundness concerns, may
grant, deny or seek additional
information.
•The ABA incorrectly states that
there were ‘‘hundreds of examples—and
not a single counter-example—showing
the agency’s definitions fall outside the
reasonable range of ambiguity of those
terms.’’
53
In oral argument before the
Circuit Court, on behalf of the Board,
the Department of Justice provided
several examples.
54
•The ABA incorrectly states
Congress added the term ‘‘local’’ in the
1998 Act and then the Supreme Court
‘‘reversed one such effort which would
have allowed credit unions to be
comprised of multiple unrelated
employer groups (NCUA v. First Nat’l
Bank & Trust, 522 U.S. 479 (1998).
55
In
fact, the Supreme Court ruling came
first on February 25, 1998, and then
several months later Congress enacted
CUMAA on August 7, 1998, including
adding the term ‘‘local.’’ Also, the term
‘‘local’’ applies to community charters,
while the Supreme Court decision
focused on associational common
bonds.
•The ABA references ‘‘as applied’’
challenges in 2004 in Utah and 2008 in
Pennsylvania.
56
In fact, these cases
challenged the sufficiency of
administrative determinations that the
NCUA made under the narrative model
to establishing a community charter;
this is a regulatory framework which
has not been in effect for over a decade
and was superseded by the new
presumptive community rules adopted
by notice-and-comment rulemaking in
2010 and supplemented in 2016. Thus,
these pre-2010 cases are not relevant to
the current challenge to presumptive
communities set forth in the 2016 Final
Rule.
The ABA also errs in stating: ‘‘The
panel relied on a separate regulation
that requires credit unions to submit a
business plan showing how the credit
union would serve the proposed ‘local
community.’ ’’
57
In fact, both the
presumptive community provisions for
CSAs and CBSAs and the business and
marketing plan requirements are in the
same regulation.
58
The ABA further
argued that ‘‘[t]he rule leaves the agency
with no discretion to determine that a
particular application of its rule is
unreasonable.’’
59
In fact, for the reasons
noted above, approval for a presumptive
community is not automatic; an
applicant must establish through its
business and marketing plan that it can
serve the community, as the Circuit
Court observed.
60
All charter
applications involve an iterative process
between an applicant and the agency,
with agency staff requiring the applicant
to make modifications in approximately
95 percent of these applications. The
NCUA chartering process is in this
regard comparable to those that the
federal banking agencies administer.
61
For example the Federal Reserve
Board’s application materials state:
‘‘Starting a bank involves a long
organization process that could take a
year or more, and permission from at
least two regulatory authorities.
Extensive information about the
organizer(s), the business plan, senior
management team, finances, capital
adequacy, risk management
infrastructure, and other relevant factors
must be provided to the appropriate
authorities.’’
62
C. Proposal To Re-Adopt the CSA
Community Charter Option
The Board proposed allowing a CSA
(or a single portion thereof) to be a
presumptive WDLC, subject to a 2.5
million population limit. In the
proposed rule, the Board proposed to re-
adopt this option in light of the Circuit
Court decision reversing the District
Court and upholding this provision in
the 2016 Final Rule. The Board
observed that the factual record
regarding CSAs is materially identical to
what existed in 2016. The only change
that the Board proposed from the CSA
option adopted in the 2016 Final Rule
is clarifying language in the text of the
Chartering Manual on the requirement
that an FCU select a single, contiguous
portion of a CSA to meet the WDLC
requirement. The Board sought
comments on this proposed action
generally and specifically requested
comments beyond the many it
considered when it first adopted the
CSA provision in FOM1.
Commenters generally supported the
proposal to readopt the CSA provision.
The ABA was the only commenter
opposing it; no other bank-affiliated
commenter addressed this proposal. In
contrast, credit union commenters
stated that CSAs are ‘‘sufficiently
compact to promote interaction and
common interests among its residents’’
and thus qualify as a WDLC. Other
commenters stated that re-proposing
this provision is consistent with the
evolution in servicing members, as
technology, financial services, and
communities change. One commenter
stated that adopting the CSA option is
consistent with OMB designations that
establish that there are sufficient
interactions and common interests.
Some commenters provided examples of
CSAs, noting that cities in a CSA are
‘‘intrinsically linked through both
recreation and work.’’
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Am. Bankers Ass’n, 934 F.3d at 656. See also
with respect to CSAs: ‘‘The NCUA possesses vast
discretion to define terms because Congress
expressly has given it such power. But the authority
is not boundless. The agency must craft a
reasonable definition consistent with the Act’s text
and purposes; that is central to the review we apply
at Chevron’s second step. Here, the NCUA’s
definition meets the standard.’’ Id. at 664.
64
Id. at 665–66.
65
Id. at 666–67.
66
Id. at 668.
In opposing the proposal, the ABA
stated that defining a CSA as a ‘‘single
local community’’ is unreasonable and
unlawful. The ABA largely relied on the
District Court opinion, which was
unanimously reversed by the Circuit
Court. The ABA provided examples of
CSAs that it believes might not be a
WDLC and contended that CSAs have a
‘‘daisy-chain nature’’ in which opposite
ends have little connection. It then
stated that the Circuit Court indicated
that some CSAs might not be a WDLC
and thus could be challenged on an ‘‘as
applied’’ basis. The ABA further stated
that the term ‘‘local community’’ should
not automatically include a CSA.
Rather, it stated that any presumption
that a CSA is a local community should
be rebuttable. The ABA further stated
that the Board should not adopt these
provisions while litigation remains
pending, including the possibility of an
appeal to the Supreme Court.
After reviewing the comments in light
of the unanimous Circuit Court decision
to affirm the Board’s adoption of a CSA
as a presumptive community, the Board
has determined that it is appropriate
and consistent with the Act to amend
the Chartering Manual to allow a CSA
to be re-established as a presumptive
WDLC. Much of the ABA’s argument
relied on the District Court decision that
was unanimously rejected by the three-
judge Circuit Court panel. In applying
Chevron, the Circuit Court stated: ‘‘We
appreciate the District Court’s
conclusions, made after a thoughtful
analysis of the Act. But we ultimately
disagree with many of them. In this
facial challenge, we review the rule not
as armchair bankers or geographers, but
rather as lay judges cognizant that
Congress expressly delegated certain
policy choices to the NCUA. After
considering the Act’s text, purpose, and
legislative history, we hold the agency’s
policy choices ‘entirely appropriate’ for
the most part. Chevron, 467 U.S. at
865.’’
63
With respect to CSAs, the
Circuit Court, in rejecting the District
Court’s analysis, stated:
In addition to being consistent with the
Act’s text, the Combined Statistical Area
definition rationally advances the Act’s
underlying purposes. In the 1998
amendments, Congress made two relevant
findings about purpose. First, legislators
found ‘‘essential’’ to the credit-union system
a ‘‘meaningful affinity and bond among
members, manifested by a commonality of
routine interaction [;] shared and related
work experiences, interests, or activities [;] or
the maintenance of an otherwise well-
understood sense of cohesion or identity.’’
§ 2, 112 Stat. at 914. Second, Congress
highlighted the importance of ‘‘credit union
safety and soundness,’’ because a credit
union on firm financial footing ‘‘will enhance
the public benefit that citizens receive.’’
64
The Circuit Court explicitly rejected
the ABA’s assertion that CSAs have a
‘‘daisy chain’’ nature, linking multiple
metropolitan areas that have nothing to
do with those at opposite ends of the
chain. As the court stated:
[T]he NCUA’s definition does not readily
create general, widely dispersed regions. Cf.
First Nat’l Bank III, 522 U.S. at 502
(indicating that community credit unions
may not be ‘composed of members from an
unlimited number of unrelated geographical
units’. Combined Statistical Areas are
geographical units well-accepted within the
government. See [81 FR at 88414]. Because
they essentially are regional hubs, the
Combined Statistical Areas concentrate
around central locations.... The NCUA
rationally believed that such ‘real-world
interconnections would qualify as the type of
mutual bonds suggested by the term ‘local
community.’ . . . Thus, the agency
reasonably determined that Combined
Statistical Areas ‘‘simply unif[y], as a single
community,’’ already connected neighboring
regions. [See 81 FR at 88,415.]
65
The ABA’s misinterpretation of the
Chevron doctrine was further
repudiated by the entire Circuit Court,
which rejected the ABA’s petition for a
rehearing en banc. The Board
emphasizes that the ABA repeatedly
misstates the regulatory framework for
approving a presumptive community,
both in its court filings and in its
comment letter on the proposed rule.
Under the regulatory provisions in the
Chartering Manual, established by
notice-and-comment rulemaking, there
is no automatic approval of an
application based on a CSA. Rather, an
applicant would have to establish in its
application that it can serve the entire
community, as documented in its
business and marketing plan. A further
constraint on any such CSA or portion
thereof is that its population cannot
exceed 2.5 million people. As the
Circuit Court noted:
We might well agree with the District Court
that the approval of such a geographical area
would contravene the Act. But even so, the
Association would need much more to
mount its facial pre-enforcement challenge in
this case. As the Supreme Court repeatedly
has held, ‘‘the fact that petitioner can point
to a hypothetical case in which the rule
might lead to an arbitrary result does not
render the rule’’ facially invalid. Am. Hosp.
Ass’n v. NLRB, 499 U.S. 606, 619 (1991); see
also EPA v. EME Homer City Generation, L.P.
(EME Homer), 572 U.S. 489, 524 (2014) (‘‘The
possibility that the rule, in uncommon
particular applications, might exceed [the
agency]’s statutory authority does not
warrant judicial condemnation of the rule in
its entirety.’’); INS v. Nat’l Ctr. for
Immigrants’ Rights, Inc., 502 U.S. 183, 188
(1991) (‘‘That the regulation may be invalid
as applied in s[ome] cases . . . does not
mean that the regulation is facially invalid
because it is without statutory authority.’’);
cf. Barnhart v. Thomas, 540 U.S. 20, 29
(2003) (‘‘Virtually every legal (or other) rule
has imperfect applications in particular
circumstances.’’).
Here, the Association’s complaint and
the District Court’s accompanying worry
strike us as too conjectural. The NCUA
must assess the ‘‘economic advisability
of establishing’’ the proposed credit
union before approving it, [12 U.S.C.
1754], and as part of the assessment, the
organizers must propose a ‘‘realistic’’
business plan showing how the
institution and its branches would serve
all members in the local community, see
[12 CFR. part 701, app. B, ch. 1 section
IV.D.] The Association has failed to
demonstrate the plausibility of a local
community that is defined like the
hypothetical narrow, multi-state strip
and accompanies a realistic business
plan. And if the agency were to receive
and approve such an application, a
petitioner can make an as-applied
challenge. See, e.g., EME Homer, 572
U.S. at 523–24; Buongiorno, 912 F.2d at
510.
66
Thus, existing regulatory provisions
guard against the extreme examples
posited by the ABA, which claims
incorrectly that the Board must approve
them under the Chartering Manual. The
Board agrees with the ABA and the
Circuit Court that any application for a
presumptive community, including one
based on a CSA, can be challenged on
an as applied, case-by-case basis. Given
this regulatory framework, which is
subject to judicial review, the Board
agrees with the Circuit Court’s reasoning
in concluding that re-establishing the
CSA as a presumptive community is
entirely consistent with the express
authority delegated to the Board by
Congress. This provision also advances
the Act’s dual purposes of promoting
common bonds while addressing safety
and soundness considerations by
ensuring that FCUs remain
economically viable.
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