Subscribe
Share
Share
Embed
This podcast provides you the ability to listen to new regulatory guidance issued by the National Credit Union Administration, and occasionally the F D I C, the O C C, the F F I E C, or the C F P B. We will focus on new and material agency guidance, and historically important and still active guidance from past years that NCUA cites in examinations or conversations. This podcast is educational only and is not legal advice. We are sponsored by Credit Union Exam Solutions Incorporated. We also have another podcast called With Flying Colors where we provide tips for achieving success with the N C U A examination process and discuss hot topics that impact your credit union.
Samantha: Hello, this is Samantha Shares.
This episode covers Chartering
and Field of Membership.
The following is an audio
version of that document.
This podcast is educational
and is not legal advice.
We are sponsored by Credit Union
Exam Solutions Incorporated, whose
team has over two hundred and
forty years of National Credit
Union Administration experience.
We assist our clients with N C
U A so they save time and money.
If you are worried about a recent,
upcoming, or in process N C U A
examination, reach out to learn how they
can assist at Mark Treichel dot com.
Also check out our other podcast called
With Flying Colors where we provide tips
on how to achieve success with N C U A.
And now the document.
Summary.
The N C U A Board, referred to as the
Board, proposes to amend the associational
common bond provisions of its chartering
and field of membership, or F O M, rules.
The proposed F O M amendment would
clarify that requiring the purchase of
a product or service as a condition of
membership no longer automatically bars
eligibility as a recognized association.
The Board does not believe such an
automatic bar is required under the
Federal Credit Union, or F C U, Act,
and a client-customer relationship
as a condition of membership may
still be incidental in a manner that
permits an evaluation of the group's
activities and overall circumstances.
Supplementary Information.
Introduction.
Background.
The N C U A's Chartering and Field
of Membership Manual, incorporated as
Appendix B to part 701 of its regulations
and referred to as the Chartering
Manual, implements the Federal Credit
Union Act, or F C U Act, for F C U s.
The proposed rule would enhance
consumer access to financial services by
eliminating language in the Chartering
Manual that otherwise creates an
automatic bar rather than permits
evaluation of circumstances as a whole.
The Board's goal in proposing this change
is to center the core principles of
credit union membership and eliminate
an inflexible bar that goes beyond
the requirements of the F C U Act.
The proposed change affects
only the requirements for
associational common bonds.
Legal Authority.
The Board is issuing this proposed rule
pursuant to its rulemaking authority
under section 109 of the F C U Act.
Section 109, subsection d, paragraph 3,
directs the Board to issue guidelines
or regulations, after notice and
opportunity for comment, setting forth
the criteria that the Board will apply in
determining under this subsection whether
an additional group may be included
within the F O M category of an existing
multiple common bond federal credit union.
Sections 109, subsection a, and 109,
subsection f, paragraph 2, subparagraph
E, reference more general rulemaking
authority with respect to associational
groups and federal credit union F O M.
Under the F C U Act, the N C U A
is the chartering and supervisory
authority for F C U s and the
federal supervisory authority for
federally insured credit unions.
The F C U Act grants the N C U A a
broad mandate to issue regulations
governing both F C U s and all federally
insured, state-chartered credit unions.
Section 120 of the F C U Act is
a general grant of regulatory
authority and authorizes the Board
to prescribe regulations for the
administration of the F C U Act.
Accordingly, the F C U Act grants the
Board broad rulemaking authority to govern
F O M within the confines of the law.
The N C U A's F O M policies are
based on section 109 of the F C U Act.
This section provides for three types
of F C U charters: first, single
common bond, either occupational or
associational; second, multiple common
bond, meaning more than one group,
each having a common bond of occupation
or association; and third, community.
Section 109 also describes the membership
criteria for each of these three types of
charters and grants the Board rulemaking
authority with respect to each type.
In adopting the Credit Union Membership
Access Act of 1998, or C U M A A,
which amended the F C U Act, Congress
reiterated its longstanding support
for credit unions, emphasizing their
specific mission of meeting the
credit and savings needs of consumers,
especially persons of modest means.
Congress enacted C U M A A in part
to make clear the permissibility of
multiple common bond credit unions
after the Supreme Court ruled that the
pre-C U M A A provisions of the F C U
Act precluded multiple common bonds.
Through the provisions of C U M A A,
Congress directed the Board to encourage
access to financial services for people
of modest means, encourage competition
among providers of financial services,
and protect taxpayers by enhancing
the safety and soundness of the credit
union system and protecting the National
Credit Union Share Insurance Fund.
The Chartering Manual implements the
chartering and F O M requirements that
the F C U Act establishes for F C U s.
The Chartering Manual provides that the
N C U A will grant a charter if the F O
M requirements are met, the subscribers
are of good character and fit to represent
the proposed F C U, and the establishment
of the F C U is economically advisable.
In addition, in unusual circumstances, the
N C U A may examine other factors, such
as other federal law or public policy, in
deciding if a charter should be approved.
Each type of charter has
unique eligibility criteria for
persons and entities eligible
for inclusion in the F O M.
This rule will not affect occupational
common bond charters, community
charters, or federally insured
state-chartered credit unions.
It will affect the current associational
common bond requirements for single
and multiple common bond F C U s.
The Chartering Manual states that
a single common bond F C U consists
of one group having a common bond
of occupation or association.
A multiple common bond F C U consists of
more than one group, each of which has a
common bond of occupation or association.
The F O M rules define, in relevant part,
an associational common bond as a common
bond comprised of members of a recognized
association whose members participate in
activities developing common loyalties,
mutual benefits, and mutual interests.
Before enactment of C U M A A, the
N C U A established the principle
that an associational common bond
could not be based primarily on a
client or customer relationship.
In 1989, the Board stated that
associations based on a client or
customer relationship, such as an
insurance company's customers or
a buyer's club, do not qualify.
In 1998, the Board implemented C U M
A A through Interpretive Ruling and
Policy Statement, or I R P S, 99-1.
As part of a larger effort to update
the definition for associational common
bonds, the Board added clarifying
language that having an incidental
client-customer relationship does
not preclude an associational
charter as long as the associational
common bond requirements are met.
As an example of an incidental
client-customer relationship, the Board
also provided that a fraternal association
that offers insurance, which is not a
condition of membership, may qualify
as a valid associational common bond.
While C U M A A resurrected the
multiple common bond charter in
response to litigation, neither the F
C U Act nor C U M A A specify whether
a client-customer relationship would
be automatically disqualifying.
At present, the F O M rules state
that associations based primarily on a
client-customer relationship do not meet
associational common bond requirements.
The rules state, as an example of an
incidental client-customer relationship,
that a fraternal association that
offers insurance, which is not a
condition of membership, may qualify
as a valid associational common bond.
Thus, current F O M rules imply that a
fraternal association's requirement to
purchase insurance as a condition of
membership is automatically disqualifying.
This implication has led to the conclusion
that a fraternal association that
offers insurance may qualify as a valid
associational common bond only if the
purchase is not a condition of membership.
If the fraternal association requires
the purchase of insurance as a condition
of membership, it may not qualify
regardless of other factors that may
be relevant to determining whether
the association is based primarily
on a client-customer relationship.
The Board has carefully considered
the legal requirements underlying the
proposed rule and believes that the
changes are consistent with the F C
U Act while reducing confusion and
unnecessary restraints on eligibility.
Proposed Rule.
The proposed change would clarify that
requiring the purchase of a product or
service as a condition of membership
does not automatically disqualify an
associational group from eligibility,
provided that the client-customer
relationship continues to be
incidental to the group's activities.
In reviewing applications to determine
eligibility, the N C U A will consider
the entirety of the circumstances,
similar to its review of groups under
the totality of the circumstances test.
The particular details of a group's
structure, scope and degree of its
activities, and other operational
factors will determine whether
its relationship with its members
is primarily or incidentally a
client-customer relationship.
While requiring a product or service
as a condition of membership may reduce
the likelihood of eligibility, the
N C U A will nevertheless weigh the
totality of an associational group's
activities before determining whether
the client-customer relationship is
incidental to the common bond as a whole
and, therefore, permits eligibility.
Indicators of whether a client-customer
relationship is incidental include
whether it is secondary to the
primary purpose and mission of the
associational group or the central
purpose for which the group exists.
In other words, the client-customer
relationship may be supportive or
supplementary to the associational group's
activities and common bond, but it cannot
be the core reason for its existence.
Retail loyalty clubs, for
example, have a client-customer
relationship as their core reason
for existence and would not qualify.
The Board invites comments on
all aspects of the proposed rule.
Specifically, the Board seeks comment
on other relevant factors to determine
whether an association's relationship with
its members is primarily or incidentally
a client-customer relationship.
Regulatory Procedures.
Providing Accountability Through
Transparency Act of 2023.
The Providing Accountability Through
Transparency Act of 2023, referred
to as the Act, requires that a notice
of proposed rulemaking include the
internet address of a summary of not
more than 100 words in length of a
proposed rule, in plain language,
that shall be posted on the internet
website under section 206, subsection
d, of the E-Government Act of 2002,
commonly known as regulations dot gov.
The Act, under its terms, applies
to notices of proposed rulemaking
and does not expressly include
other types of documents that the
Board publishes voluntarily for
public comment, such as notices and
interim-final rules that request comment
despite invoking good cause to forgo
such notice and public procedure.
The Board, however, has elected
to address the Act's requirement
in these types of documents in
the interests of administrative
consistency and transparency.
In summary, the Board proposes to amend
the associational common bond provisions
of its chartering and F O M rules.
The proposed F O M amendment would
clarify that requiring the purchase of
a product or service as a condition of
membership no longer automatically bars
eligibility as a recognized association.
The Board does not believe such an
automatic bar is required under the F C
U Act, and a client-customer relationship
as a condition of membership may
still be incidental in a manner that
permits a holistic evaluation of the
group's activities and circumstances.
The proposal and the required summary
can be found at regulations dot gov.
Executive Orders 12866, 13563, and 14192.
Pursuant to Executive Order 12866,
Regulatory Planning and Review, as amended
by Executive Order 14215, a determination
must be made whether a regulatory action
is significant and therefore subject to
review by the Office of Management and
Budget, or O M B, in accordance with
the requirements of the Executive Order.
Executive Order 13563, Improving
Regulation and Regulatory Review,
supplements and reaffirms the principles,
structures, and definitions governing
contemporary regulatory review
established in Executive Order 12866.
This proposed rule was drafted and
reviewed in accordance with Executive
Order 12866 and Executive Order 13563.
This proposed rule eliminates an
excessively burdensome, bright-line
rule to allow a principles-based
determination consistent with the
parameters of the F C U Act and is
consistent with Executive Order 13563.
O M B has determined that this proposed
rule is not a significant regulatory
action as defined in section 3, subsection
f, paragraph 1, of Executive Order 12866.
Executive Order 14192, Unleashing
Prosperity Through Deregulation, requires
that any new incremental costs associated
with new regulations shall, to the
extent permitted by law, be offset by the
elimination of existing costs associated
with at least 10 prior regulations.
This proposed rule is expected
to be a deregulatory action for
purposes of Executive Order 14192.
Regulatory Flexibility Act.
The Regulatory Flexibility Act
generally requires an agency to conduct
a regulatory flexibility analysis of
any rule subject to notice and comment
rulemaking requirements, unless the
agency certifies that the rule will not
have a significant economic impact on
a substantial number of small entities.
If the agency makes such a certification,
it shall publish the certification
at the time of publication of either
the proposed rule or the final rule,
along with a statement providing the
factual basis for such certification.
For purposes of this analysis,
the N C U A considers small credit
unions to be those having under one
hundred million dollars in assets.
The Board fully considered the potential
economic impacts of the regulatory
amendments on small credit unions.
The proposed amendments would alleviate
burden and provide regulatory relief to
single associational groups and multiple
common bond F C U s of all sizes.
The regulatory relief is difficult
to quantify and creates only a
limited additional flexibility
with respect to applications to add
associational groups to the F O M.
Accordingly, based on its best
assessment at this time, the N C U A
certifies the proposed rule would not
have a significant economic impact on a
substantial number of small credit unions.
Paperwork Reduction Act.
The Paperwork Reduction Act of 1995,
or P R A, generally provides that an
agency may not conduct or sponsor, and
notwithstanding any other provision of
law, a person is not required to respond
to, a collection of information, unless
it displays a currently valid Office of
Management and Budget control number.
The P R A applies to rulemakings in which
an agency creates a new or amends existing
information collection requirements.
For purposes of the P R A, an information
collection requirement may take the
form of a reporting, recordkeeping, or
a third-party disclosure requirement.
The N C U A has determined that the
changes addressed in this proposed rule
do not create a new information collection
or revise an existing information
collection as defined by the P R A.
Executive Order 13132 on Federalism.
Executive Order 13132 encourages certain
agencies to consider the impact of their
actions on state and local interests.
The N C U A, an agency as defined in
44 U S C 3502, paragraph 5, complies
with the executive order to adhere
to fundamental federalism principles.
This proposed rule would
only apply to F C U s.
The N C U A expects that any effect on
states or on the distribution of power
and responsibilities among the various
levels of government will be minor.
The proposed changes would mainly clarify
and provide relief with respect to
the existing regulations and guidance
in this area and are not intended to
affect the division of responsibilities
between the N C U A and state regulatory
authorities with oversight of federally
insured, state-chartered credit unions.
The rulemaking would therefore not
have direct effect on the states,
the relationship between the national
government and the states, or on the
distribution of power and responsibilities
among the various levels of government.
Assessment of Federal Regulations
and Policies on Families.
The N C U A has determined that this
proposed rule would not affect family
well-being within the meaning of
section 654 of the Treasury and General
Government Appropriations Act, 1999.
The proposed rule relates to
associational groups seeking to form
single common bond F C U s and multiple
common bond F C U s seeking to add
associational groups to their F O Ms.
Any effect on family well-being
is expected to be indirect.
List of Subjects in 12 C F R Part 701.
Advertising, Aged, Civil rights,
Credit, Credit unions, Fair housing,
Individuals with disabilities,
Insurance, Marital status discrimination,
Mortgages, Religious discrimination,
Reporting and recordkeeping
requirements, Sex discrimination,
Signs and symbols, Surety bonds.
By the National Credit Union
Administration Board, this
6th day of April, 2026.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons stated in the preamble,
the N C U A Board proposes to amend 12
C F R part 701, Appendix B as follows.
Part 701, Organization and
Operation of Federal Credit Unions.
The authority citation for part
701 continues to read as follows.
Authority: 12 U S C 1752, paragraph
5; 1755; 1756; 1757; 1758; 1759;
1761a; 1761b; 1766; 1767; 1782;
1784; 1785; 1786; 1787; and 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 through 3610.
Section 701.35
is also authorized by 42
U S C 4311 through 4312.
Appendix B to Part 701, Chartering and
Field of Membership Manual, is amended.
In appendix B to part 701,
chapter 2 is amended by revising
section III to read as follows.
Chapter 2, Field of Membership
Requirements for Federal Credit Unions.
Section III, Associational Common Bond.
Section III, A, 1, c,
Additional Information.
A support group whose members are
continually changing or whose duration
is temporary may not meet the single
associational common bond criteria.
Each class of member will
be evaluated based on the
totality of the circumstances.
Individuals or honorary members who only
make donations to the association are
not eligible to join the credit union.
Student groups, for example, students
enrolled at a public, private, or
parochial school, may constitute either an
associational or occupational common bond.
For example, students enrolled at a
church sponsored school could share a
single associational common bond with the
members of that church and may qualify
for a federal credit union charter.
Similarly, students enrolled at a
university, as a group by itself, or in
conjunction with the faculty and employees
of the school, could share a single
occupational common bond and may qualify
for a federal credit union charter.
Tenant groups, consumer groups,
and other groups of persons having
an interest in a particular cause,
and certain consumer cooperatives,
may also qualify as an association.
Associations based primarily on a
client-customer relationship do not meet
associational common bond requirements.
Health clubs are an example of a group
not meeting associational common bond
requirements, including Y M C A s.
However, having an incidental
client-customer relationship does
not preclude an associational
charter as long as the associational
common bond requirements are met.
The particular details of a group's
structure, scope and degree of
its activities, and other factors
surrounding its operation will
determine if its relationship with its
members is primarily or incidentally
a client-customer relationship.
For example, an association that
offers insurance, even as a condition
of membership, may qualify as a
valid associational common bond,
provided that the client-customer
relationship is still incidental
in relation to the association's
activities and overall circumstances.
This concludes the document.
If your credit union could use assistance
with your exam, reach out to Mark Treichel
on LinkedIn or at Mark Treichel dot com.
This is Samantha Shares, and
we thank you for listening.