CUNA Regulatory Comment Call

June 12, 2008

EXECUTIVE SUMMARY

• The National Credit Union Administration Board at its May 2008 meeting voted to seek comments on proposed changes to its Chartering and Field of Membership Manual regarding the requirements multiple group federal credit unions (FCUs) must meet in order to obtain approval to serve an "undeserved area."
• CUNA's comment letter will be developed under the auspices of the Federal Credit Union Subcommittee. However, the proposal is more complex than the current field of membership (FOM) provisions on underserved areas and if adopted, will add requirements that multiple group federal credit unions must meet in order to include new underserved areas that have not already been approved.
• Under the Federal Credit Union Act, an area that is "underserved" must be a local community, neighborhood, or rural district that is an "investment area" as defined in the Community Development Banking and Financial Institutions Act of 1994 (CDFI Act) (12 U.S.C. 5702(16)). The CDFI Act defines an "investment area" as a geographic area (or areas) that meet the Community Development Financial Institutions Fund's (CDFI Fund) criteria for "economic distress" and has "significant unmet" financial needs; or is in an empowerment zone or enterprise community.
• In order for an area to be "underserved" it must also be "underserved by other depository institutions based on data" from NCUA and federal banking regulators. (12 USC 1759(c)(2)(A)).
• While these statutory provisions are not new, the proposal would clarify how credit unions are able to meet these requirements.
• Under the proposal, whether a proposed underserved area is in or outside of a Metropolitan Area will determine how the federal credit union must meet the distress criteria.
• To demonstrate the area has "significant unmet needs, the proposal would require a one-page Narrative Statement" addressing the pattern of unmet needs in the area for loans or one or more credit union services. The business plan would also have to explain how the credit union plans to fulfill unmet needs for services identified in the statement.
• The proposal would clarify that approved areas must be underserved by other depository institutions, including credit unions. This requirement is met when the concentration of financial institution facilities in the non-distressed tracts in the area (or adjoining non-distressed tracts) is greater than the concentration of facilities in the total proposed area's tracts.
• The proposal would clarify that a multiple group FCU that serves an "underserved area" will not be able to receive the benefits of low-income designated credit unions, such as the use of nonmember deposits and access to the Community Development Revolving Loan Program for Credit Unions.
• Comments are due by August 18, 2008. Please submit your comments to CUNA by August 4, 2008.

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.coop; or mail them to Mary in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you have questions or would like a copy of the proposed rule. You may also access a copy of the proposed rule here.

Discussion

Since the adoption of the Credit Union Membership Access Act in 1998, NCUA has revised the FOM provisions on underserved areas three times( in 1999 to implement CUMAA; in 2002 to include underserved area criteria from the CDFI Fund; and in 2006 to prohibit community and single group credit unions from adding new underserved areas, as a result of the bankers' challenge).

The agency is again seeking to change the underserved provisions, this time to conform more closely to the requirements of the CDFI Fund and make other changes. As discussed below, while the agency has attempted to facilitate compliance through the use of information on the CDFI Fund's website for determining underserved areas, the proposal is more complicated than the current FOM policy and will require additional steps on the part of federal credit unions seeking to add underserved areas that the agency has not already approved.

FCU Act Requirements to Be an Underserved Area

The proposal would clarify that in order to be underserved, an area must: (1) be a local community, neighborhood or rural district; (2) meet the definition of an investment area under the CDFI Act; and (3) be underserved by other depository institutions based on data of NCUA and the federal banking regulators.

Local Community

The proposal would clarify that a proposed area must be a well-defined local community, neighborhood or rural district as defined in Chapter 2 of the FOM Manual. Currently, the underserved provisions rely on a somewhat different definition of this term than is used elsewhere in the manual.

Investment Area - Empowerment Zone

To be approved as underserved, the proposal would clarify that if the area is designated as an Empowerment Zone or Enterprise Community, it is automatically an investment area and no further criteria need be met. However, as the supplementary information notes, these designations, which were made by the U.S. Department of Housing and Urban Development and the U.S. Department of Agriculture between 1993 and 1996, have mostly expired and most proposed areas will not be able to qualify under these designations.

Investment Area - Distress Criteria

For all areas that are not Empowerment Zones or Enterprise Communities, the supplementary information to the proposal maps out the steps that must be taken to determine if an area qualifies as underserved. These include:

• Determine whether the area is within or outside of a "Metropolitan Area/Metropolitan Statistical Area" (MA/MSA) as designated by the Office of Management and Budget. The supplementary information provides the website to check whether an area is within an MA/MSA.
• Whether an area is within or outside an MA/MSA dictates the "geographic unit(s)" into which the proposed area must be translated in order to apply the economic distress criteria.
• The geographic units for a Metropolitan Area (metro units) are a census tract, block group and American Indian or Alaskan Native area. The geographic units for non-metro units are a county (or equivalent area) a "minor civil division that is a unit of local government," an incorporated plan, a census tract, block numbering area, a block group or an American Indian or Alaska Native area.
• Whether metro or non metro units, the area may not consist of fractional units and must consist entirely of whole metro or non-metro units. An area that is partly within and partly outside a metro unit must be available using metro units.
• If the area is a single metro or non-metro area, it must, as a whole, meet one of the following distress criteria:
  • An unemployment rate at least 1.5 times the national average; or
  • At least 20 percent of the population lives in poverty.
• Additional criteria, such as median family income, or in the case of a single non-metro county, population loss or migration loss may also be considered.
• For multiple contiguous metro or non-metro units there is the additional requirement that at least 85% of the area's total population reside within the units that meet the distress criteria.
• NCUA addresses resources for determining if an area is distressed and states that the "My CDFI Fund" website is invaluable but only if the area's units are one or more census tracts or counties or an independent city. "To benefit from the convenience of the 'My CDFI Fund' website, the NCUA Board encourages credit unions to conform their proposed 'underserved areas' to the 'geographic units'-the site is limited to census tract and county boundaries as the case may be."
• Once the distressed criteria have been met, the credit union must also determine if the area has "significant unmet (financial) needs." Under the proposal, a credit union would be required to provide a one-page Narrative Statement demonstrating a pattern of such unmet needs. The statement must be "supported by relevant, objective statistical data reflecting, among other things, loan and financial services activity in the proposal area-much of which is now publicly available over the Internet."
• The area must also be underserved by other depository institution facilities, which NCUA says includes credit unions. NCUA is proposing a process that credit unions would use to determine whether an area is underserved. The credit union would determine the ratio of facilities to the population in non-distressed tracts. It would then determine the ratio of facilities to the combined population of all of the tracts within the proposed area. If the first ratio exceeds the second, the area is underserved by other institutions.
• Service Status Reports can be required under the current policy, however according to NCUA, it is not addressing that matter in this proposal as the data collection program NCUA has already adopted would capture this information.
• Pending applications are being deferred until the rulemaking process is completed.

1. Is this process overly cumbersome?
   
   

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2. When an area other than an underserved area qualifies as a "presumptive community," a credit union must submit a letter describing how the area meets the qualifications for a community. NCUA is asking whether such a letter should be required for undeserved areas.
   
   

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3. Do you support the way NCUA would apply the economic distress criteria, including whether a proposed area should be required to conform to county or census tract boundaries so that census tracts apply to areas within a metro area and counties apply to areas outside of a metro area?
   
   

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4. Do you support the way NCUA is proposing to address "significant unmet needs," including the Narrative Statement?
   
   

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5. Are you aware of available statistical data that would assist credit unions in demonstrating the unmet needs for loans and services in a proposed area?
   
   

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6. Do you agree with the criteria used to address whether an area is underserved by other depository institutions?
   
   

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7. Should facilities to serve underserved areas include ATMs?
   
   

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8. Are there other approaches to determine whether an area is underserved by other institutions that would be better than those proposed by NCUA?
   
   

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9. Are there other issues you would like to comment on regarding this proposal?
   
   

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Copyright © 2008 - Credit Union National Association, Inc.