Original Notice.

     Preproposal statement of inquiry was filed as WSR 01-02-057.

     Title of Rule: Credit unions' field of membership.

     Purpose: To update and streamline the division's rules on the addition of groups to a credit union's field of membership.

     Statutory Authority for Adoption: RCW 31.12.382, 31.12.516 (2), (4), 43.320.040.

     Statute Being Implemented: RCW 31.12.382, [31.12].384.

     Summary: The proposed rule updates and streamlines the division's rules on the addition of groups to a credit union's field of membership.

     Reasons Supporting Proposal: To alleviate some of the unnecessary regulatory burden on credit unions in adding groups to their field of membership, thereby reducing credit unions' costs and improving their overall efficiency.

     Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Parker Cann, 210 11th Street S.W., Room 300, Olympia, WA 98504, (360) 902-8778.

     Name of Proponent: Division of Credit Unions, governmental.

     Rule is not necessitated by federal law, federal or state court decision.

     Explanation of Rule, its Purpose, and Anticipated Effects: Background: A credit union may serve only those persons that are within its field of membership (FOM), as set forth in its FOM bylaws. A credit union may amend its FOM bylaws to add one or more occupational groups, associational groups and communities. RCW 31.12.382. A typical occupational group is the employees of a company. A typical associational group is the members of a nonprofit organization. A typical community is a school district. The FOM groups may be located inside or outside of Washington state.

     Currently, credit unions must apply to the Division of Credit Unions (division or DCU) for approval to add occupational and associational groups and communities (FOM groups) to their FOM bylaws. However, credit unions may apply to the division for approval of an enabling amendment that, once approved by the division, allows them to add individual small occupational groups - each with no more than five hundred people - without division approval.

     The division's FOM rules are set forth in chapter 208-472 WAC. The division also has internal guidelines on FOM applications.

     The division approves virtually all of the FOM applications submitted by credit unions rated a composite CAMEL 1 or 2 by the division, typically within thirty to forty days. In the division's experience, the approval of these applications has not led to excessive growth or fixed asset investment that has created safety and soundness problems. Moreover, credit unions' fixed asset investments are limited by RCW 31.12.438. In one instance, a credit union's FOM communities now cover virtually the entire state. The FOM expansion of this credit union has not adversely affected its financial condition.

     A credit union may not add an occupational or associational group to its FOM bylaws if the group is included in the FOM bylaws of another credit union, except if the overlapped credit union provides a letter of nonobjection, or if the specified number of persons in the group sign a petition that they desire service by the second credit union. However, a credit union with a community in its FOM may admit persons from occupational and association groups in the community that are included in the FOM of other credit unions. The community credit union cannot direct market to these persons, though, except in certain circumstances.

     The division believes that competition among credit unions, as well as competition among the different types of financial institution charters, enhances consumer choice in the marketplace and is healthy for credit unions.

     The NCUA now allows a federal credit union to have a community with a population of well over one million as its field of membership. In addition, the NCUA allows occupational-based federal credit unions to add occupational groups, each with no more than five hundred persons, without any overlap analysis. (In Washington, less that 1% of all employers, public and private, have more than five hundred employees.) The application may be filed through an on-line application process, with almost instantaneous approval. In these respects, the division's FOM policies have fallen behind the NCUA's.

     Considering these various factors, the division has prepared the proposed rule to alleviate some of the unnecessary regulatory burden on credit unions in adding groups to their FOM bylaws. This will reduce their costs and improve their overall efficiency.

     Current Rules: The main points of the division's current FOM rules and guidelines are:

•	A credit union must submit a detailed application to request approval for the addition of groups to its FOM bylaws. However, a credit union may apply for approval of an enabling amendment to its FOM bylaws to allow it to add individual small occupational groups (SOGs) without division approval. Each SOG may have no more than five hundred persons. The credit union must keep a list of its SOGs as part of its FOM bylaws.
•	The division will not approve an application for a community with more than 75,000 residents, with the exception of rural areas with less than seventy-five people per square mile, and with certain other limited exceptions. However, credit unions can add multiple communities.
•	A credit union may not add an occupational or associational group to its FOM bylaws if it is included in the FOM bylaws of another credit union, except if the overlapped credit union provides a letter of nonobjection, or if the specified number of persons in the group sign a petition that they desire service by the second credit union.
•	A credit union with a community in its FOM bylaws may not market directly to occupational or associational groups in the community that belong to the FOM of another credit union, except in certain circumstances.
•	A credit union applying for a community must provide notice to credit unions with an office within five miles of the boundaries of the community. Credit unions receiving notice have twenty days to submit comments to the division.
•	The division will consider nine specified factors in deciding whether to approve an FOM application.

     Significant Changes in Proposed Rule: The significant changes in the proposal are:

•	The definition of the common bonds of occupation and association are simplified and broadened. The definition of community is simplified and broadened.
•	A credit union rated composite CAMEL 1 and 2 by the division may add one or more qualified occupational and associational groups and communities to its FOM bylaws upon approval of its board of directors, without division approval.      An occupational or associational group is qualified for this purpose if it has less than 6,300 persons and is located wholly or partly in Washington. An occupational or associational group in excess of this limit may be considered qualified if it is already included in the FOM bylaws of another credit union. A community is qualified if it is a Washington school district, city, or county with no more than seventy-five people per square mile.
•	A CAMEL 1 or 2 credit union may not add nonqualified groups to its FOM bylaws without the prior written approval of the division.
•	A CAMEL 3, 4 or 5 credit union may not add groups to its FOM bylaws without the prior written approval of the division, except for SOGs added pursuant to a SOG enabling amendment approved by the division before the final rule takes effect. The division's decision on an FOM application will be based on the safety and soundness of the applicant and the applicant's compliance with the division's FOM rules.
•	The 75,000 population limit on communities is eliminated.
•	A credit union adding an FOM group, whether by application or otherwise, must provide notice of the addition to all state and federal credit unions headquartered in the county in which the group is primarily located. The twenty day comment period has been eliminated. However, credit unions are always free to provide comment to the division.      Overlap protection for occupational and associational groups is eliminated. A credit union may add these groups, whether by application or otherwise, whether or not they are included in the FOM bylaws of another credit union. However, a variation of the direct marketing restriction has been maintained and expanded to all occupational and associational groups, whether or not within a community.

     A credit union may not conduct direct marketing targeted primarily at persons in an occupational or associational group unless (a) the group was included in the FOM bylaws of the credit union before the final rule takes effect, or (b) the credit union has received a written statement from a management official of the underlying enterprise or association to the effect that the group wants service from the credit union. This provision applies to every state credit union, whether or not it has added an occupational or associational group, and whether or not the addition of a new group overlaps another credit union.

•	The division's requirements for the contents of applications are significantly reduced.
•	Credit unions may, upon board approval (and without division approval):
	(a) Delete exclusionary clauses, SOG enabling amendments, and nonexistent groups from their FOM bylaws.
	(b) Revise their SOG enabling amendments to delete the five SOG requirements except for the limit on the number of employees, which is now five hundred per group.
	(c) Aggregate communities into a larger community.
	(d) Make nonsubstantive changes to their FOM bylaws.
•	The proposal applies to Washington credit unions as well as out-of-state and foreign credit unions operating in Washington pursuant to RCW 31.12.471.
•	The proposal does not restrict FOM groups added to a credit union's FOM bylaws before the final rule takes effect.

     We expect that credit unions interested in expanding their FOM will continue to add communities rather than occupational or associational groups. We are not aware of any credit union, other than the one mentioned above, that desires to aggregate FOM communities that cover the entire state.

     We currently have an examiner who devotes about 75% of her time to processing FOM applications. In addition, the division's program manager and director spend time reviewing and approving applications. We expect that the proposal will substantially reduce the number of FOM applications, perhaps by up to 95%. We expect to redirect most of the freed-up staff time to examination-related matters, our core function.

     Comments Sought: We are interested in your comments on all aspects of the proposed rule. In particular, though, we are interested in your views on the direct/targeted marketing restriction:

•	Will the restriction make a difference to the viability of small credit unions?
•	Is the restriction understandable? Do we need a more detailed explanation or definition of the restriction?
•	Will the restriction be a significant burden for credit unions that are adding FOM groups? For smaller credit unions that are not adding groups?
•	If the restriction is adopted in the final rule, should it be phased out, say, in three to five years?

     Proposal Changes the Following Existing Rules: WAC 208-472-010, revised extensively, to provide a more detailed statement of credit unions' authority to add FOM groups.

     WAC 208-472-015, revised extensively, to revise existing definitions and add many new definitions.

     WAC 208-472-020, revised extensively, to describe the general process for the addition of FOM groups, and related matters.

     WAC 208-472-025, revised extensively, to streamline the application process to add FOM groups.

     WAC 208-472-041, 208-472-045, 208-472-050, 208-472-060, 208-472-065, 208-472-070, 208-472-075, and 208-472-080, repealed.

     No small business economic impact statement has been prepared under chapter 19.85 RCW. The proposed rule would not impose more than minor costs on credit unions, and therefore no small business economic impact statement is necessary pursuant to RCW 19.85.030(1).

     RCW 34.05.328 does not apply to this rule adoption. RCW 34.05.328 does not include the Department of Financial Institutions as a covered agency.

     Hearing Location: WestCoast Olympia Hotel (Pine Room), 2300 Evergreen Park Drive S.W., Olympia, WA 98501, on January 23, 2002, at 11:30 a.m.

     Assistance for Persons with Disabilities: Contact Tina Philippsen by January 14, 2002, TDD (360) 664-8126.

     Submit Written Comments to: Parker Cann, Director of Credit Unions, P.O. Box 41200, 210 11th Street S.W., Olympia, WA 98504-1200.

     Date of Intended Adoption: January 23, 2002.

December 17, 2001

John L. Bley

Director

OTS-5242.5

     (2) That constitutes a community.)) A credit union may admit to membership those persons qualified for membership who are within its field of membership as stated in its bylaws. RCW 31.12.382. A credit union may amend its field of membership bylaws to add one or more occupational groups, associational groups and communities to its field of membership, as approved by the director pursuant to this chapter. The FOM groups may be located inside or outside the state.

     Once a person becomes a member of a credit union, the person may continue to be a member even though the person is no longer within the field of membership of the credit union, subject to the credit union's right to terminate the person's membership in accordance with law.

     In addition to the field of membership powers or authorities reflected in this chapter, a credit union has the field of membership powers and authorities granted pursuant to RCW 31.12.404.

[96-06-011, recodified as § 208-472-010, filed 2/23/96, effective 6/1/96. Statutory Authority: RCW 31.12.045, [31.12].115 and [31.12].535. 95-09-049, § 419-72-010, filed 4/17/95, effective 5/18/95. Statutory Authority: RCW 31.12.045(2), 31.12.115, 31.12.516 and 31.12.535. 89-24-085 (Order 89-3), § 419-72-010, filed 12/6/89, effective 1/6/90.]

     (1) "Affiliate" of an enterprise or organization means a person that controls, is controlled by, or is under common control with, the enterprise or organization. "Control" means twenty-five percent or greater stock ownership.

     (2) (("Common bond of association" means a current, unifying factor among a group of natural persons, that is based on membership in a bona fide organization whose primary purpose is other than providing eligibility for credit union services. Such an organization must be primarily composed of natural persons who are eligible to participate in the organization's activities. Such an organization also must have clearly defined membership eligibility and must hold regular meetings at least once each year.

     Matriculating students of an accredited college or university, who are members of an identified organization, other than general members of the applicant's credit union, are deemed to have a common bond of association. The organization need not satisfy the requirements set forth in the prior paragraph.

     (3) "Common bond of occupation" means a current, unifying factor among a group of natural persons that is based on employment by or a work-related relationship with an enterprise. The group may include only the following categories of persons:

     (a) Employees of the enterprise, and their family members;

     (b) Employees of any subsidiaries of the enterprise, and their family members;

     (c) Employees of the affiliates of the enterprise, and their family members;

     (d) Nonemployee officials of the enterprise, and their family members; and

     (e) Natural persons under contract to work regularly for the enterprise, and their family members.

     Each of these categories may be included if they are separately identified in the credit union's bylaws.

     (4) "Community" means a current unifying factor among a group of natural persons, that is based on residence or employment within a well-defined and relatively limited geographic area, with a relatively limited population, that is recognized by those who live or work there as a neighborhood, community, or rural district.

     For example, the city of Seattle and King County do not constitute a community for this purpose, because they do not have a relatively limited population. On the other hand, the city of Chelan and Chelan school district are within a well-defined and relatively limited geographic area, with a relatively limited population, and may constitute a community if they are recognized by those who live or work there as a neighborhood, community or rural district. (These examples are based on circumstances existing on December 1, 1994.)

     (5))) "Associational group" is a group with a common bond of association related to membership in an organization. The organization must satisfy each of the following criteria:

     (a) The organization's primary purpose must be other than providing eligibility for credit union services;

     (b) The organization's membership must be primarily composed of natural persons; and

     (c) The organization's organizational documents must clearly define membership eligibility.

     In regard to an associational group within a credit union's FOM, the credit union may admit to membership:

     (i) Members of the organization;

     (ii) Directors, employees, volunteers and retirees of the organization, and its subsidiaries and affiliates;

     (iii) Natural persons under contract to work for the organization and its subsidiaries and affiliates;

     (iv) Family members (as determined by the credit union) of any of the above-described natural persons;

     (v) The spouse of any of the above-described natural persons who qualified for membership at the time of his or her death;

     (vi) The organization and its subsidiaries and affiliates;

     (vii) Organizations or enterprises more than half of whose owners, members or employees are eligible to be members of the credit union; and

     (viii) Other persons approved by the director.

     Students of a school, college or university are deemed to be members of an organization that constitutes an associational group. In regard to such an associational group within a credit union's FOM, the credit union may admit to membership the students of the school, college or university as well as the family members (as determined by the credit union) of the students.

     (3) "CAMEL" means the CAMEL rating system used by the division, or a successor rating system used by the division.

     (4) "Community" is a well-defined geographic area that is recognized by those who live or work there as a neighborhood, community, or rural district.

     In regard to a community within a credit union's FOM, the credit union may admit to membership:

     (a) Natural persons who live, work, worship or go to school in the community;

     (b) Enterprises or organizations that have offices within the community;

     (c) Directors, employees, volunteers and retirees of the above-described enterprises or organizations;

     (d) Family members (as determined by the credit union) of any of the above-described natural persons;

     (e) The spouse of any of the above-described natural persons who qualified for membership at the time of his or her death;

     (f) Enterprises or organizations more than half of whose owners, members or employees are eligible to be members of the credit union; and

     (g) Other persons approved by the director.

     (5) "Credit union" means a credit union organized (or chartered) and operating under chapter 31.12 RCW, and an out-of-state or foreign credit union operating in this state in accordance with RCW 31.12.471.

     (6) "Director" means the director of ((the Washington state department of)) financial institutions.

     (7) (("Number of potential members" means the sum of:

     (a) The number of actual members of the applicant credit union; and

     (b) The number of employees or members (as appropriate) of the group applied for.

     (8) "Required number" means:

     (a) If the number of employees or members (as appropriate) of the specified group is two thousand one or more, the required number is at least five percent of the number of these individuals (rounded up to the nearest whole number).

     (b) If the number of employees or members (as appropriate) of the specified group is from three hundred thirty to two thousand, the required number is at least one hundred of these individuals.

     (c) If the number of employees or members (as appropriate) of the specified group is three hundred twenty-nine or less, the required number is at least thirty percent of the number of these individuals (rounded up to the nearest whole number).)) "Division" means the division of credit unions of the Washington state department of financial institutions.

     (8) "FOM" means field of membership.

     (9) "FOM groups" includes occupational groups, associational groups and communities.

     (10) A group is "included in the FOM bylaws" of a credit union if the underlying enterprise or organization is named expressly in the credit union's FOM bylaws.

     (11) "Occupational group" is a group with a common bond of occupation related to employment by, or work for, an enterprise. The group must be primarily composed of natural persons.

     In regard to an occupational group within a credit union's FOM, the credit union may admit to membership:

     (a) Employees of the enterprise;

     (b) Directors, employees, volunteers and retirees of the enterprise, and its subsidiaries and affiliates;

     (c) Natural persons under contract to work for the enterprise and its subsidiaries and affiliates;

     (d) Family members (as determined by the credit union) of any of the above-described natural persons;

     (e) The spouse of any of the above-described natural persons who qualified for membership at the time of his or her death;

     (f) The enterprise and its subsidiaries and affiliates;

     (g) Enterprises and organizations more than half of whose owners, members or employees are eligible to be members of the credit union; and

     (h) Other persons approved by the director.

     (12) "Primarily" or "primary" means more than one-half.

     (13) "Qualified associational group" means an associational group located wholly or partly within Washington state. However, if the members of the organization exceed 6,299, the group will not be considered qualified unless the group is included in the FOM bylaws of another credit union or federal credit union.

     An associational group that does not satisfy this definition is considered to be a nonqualified associational group.

     (14) "Qualified community" means a geographic area within Washington state that constitutes a:

     (a) School district;

     (b) City; or

     (c) County with a population of no more than 75 people per square mile.

     A community that does not satisfy this definition is considered to be a nonqualified community.

     (15) "Qualified occupational group" means an occupational group located wholly or partly within Washington state. However, if the members of the enterprise exceed 6,299, the group will not be considered qualified unless it is included in the FOM bylaws of another credit union or federal credit union.

     An occupational group that does not satisfy this definition is considered to be a nonqualified occupational group.

     (16) "SOG" means a small occupational group added pursuant to a SOG enabling amendment.

     (17) "SOG enabling amendment" means a SOG enabling amendment approved by the director pursuant to former WAC 208-472-041.

[Statutory Authority: RCW 31.12.045(1) and [31.12].535. 96-17-070, § 208-472-015, filed 8/20/96, effective 9/20/96. 96-06-011, recodified as § 208-472-015, filed 2/23/96, effective 6/1/96. Statutory Authority: RCW 31.12.045, [31.12].115 and [31.12].535. 95-09-049, § 419-72-015, filed 4/17/95, effective 5/18/95. Statutory Authority: RCW 31.12.045(2), 31.12.115, 31.12.516 and 31.12.535. 89-24-085 (Order 89-3), § 419-72-015, filed 12/6/89, effective 1/6/90.]

     In amending its FOM bylaws under this subsection (4), other than deletions, the credit union must indicate in its bylaws the date that the board approved the amendment.

[Statutory Authority: RCW 42.320.040 [43.320.040] and 31.12.535. 96-17-071, § 208-472-020, filed 8/20/96, effective 9/20/96. 96-06-011, recodified as § 208-472-020, filed 2/23/96, effective 6/1/96. Statutory Authority: RCW 31.12.045, [31.12].115 and [31.12].535. 95-09-049, § 419-72-020, filed 4/17/95, effective 5/18/95. Statutory Authority: RCW 31.12.045(2), 31.12.115, 31.12.516 and 31.12.535. 89-24-085 (Order 89-3), § 419-72-020, filed 12/6/89, effective 1/6/90.]

     This subsection (3) does not apply to overlaps arising out of merger-type transactions between enterprises.)) In order to request the approval of the director to add an FOM group to its bylaws under WAC 208-472-020 (2)(b) or (3), a credit union must submit a written application in duplicate to the director. The application must include the following items, and other information and materials requested by the director:

     (a) The name of the FOM group that the applicant desires to add to its bylaws;

     (b) A copy of the resolution of its board of directors approving the bylaws amendment, certified by the board chairperson or secretary;

     (c) A detailed description of the FOM group, including location and number of employees, members or residents, as appropriate, with supporting documentation;

     (d) An explanation how the FOM group satisfies the definition of such a group in WAC 208-472-015;

     (e) If the applicant is applying to add an associational group, an explanation of the qualifications for membership in the organization, and a copy of the organization's organizational documents;

     (f) An explanation how the addition of the FOM group will affect the financial condition of the applicant. In addition, if the applicant is applying for a community, three year pro forma income statements and balance sheets and key ratios (including ROAA, net worth, asset growth and share growth);

     (g) If the applicant is applying to add a nonqualified occupational or associational group in excess of 6,299 employees or members, as applicable, a reasoned justification why the group does not have sufficient size or resources, including individual and sponsor support, and financial, physical and human resources, to support a viable credit union of its own; and

     (h) A statement that the applicant has provided notice of the application by mail or otherwise to each credit union and federal credit union headquartered in the county in which the FOM group is primarily located.

     The director may waive any of the items in this subsection as the director deems appropriate, such as in the case of the addition of FOM groups located wholly out-of-state.

     (2) An application filed pursuant to subsection (1) of this section is deemed complete when the director has received all of the information required by subsection (1) of this section. If an incomplete application is received, the director will give written notice to the applicant no more than thirty days from the date the original application was received that additional information is necessary. The applicant will be allowed thirty days after receipt of the notice to provide the requested information, or the director will return the application and it will be deemed withdrawn.

     (3) The director shall give the applicant written notice of approval or denial within thirty days after the application is deemed complete. The director's determination whether to approve an application will be based on consideration of the safety and soundness of the applicant and the applicant's compliance with this chapter.

     (4) To add a separate FOM group located wholly out-of-state to its field of membership bylaws, a credit union should first contact the director to determine how to proceed with the application to the director and whether the credit union is required to file an application or notice with the credit union supervisory authority in the other state.

[Statutory Authority: RCW 42.320.040 [43.320.040] and 31.12.535. 96-17-071, § 208-472-025, filed 8/20/96, effective 9/20/96. 96-06-011, recodified as § 208-472-025, filed 2/23/96, effective 6/1/96. Statutory Authority: RCW 31.12.045, [31.12].115 and [31.12].535. 95-09-049, § 419-72-025, filed 4/17/95, effective 5/18/95. Statutory Authority: RCW 31.12.045(2), 31.12.115, 31.12.516 and 31.12.535. 89-24-085 (Order 89-3), § 419-72-025, filed 12/6/89, effective 1/6/90.]

     (1) The group was included in the FOM bylaws of the credit union prior to . . . . . . . . (the effective date of the 2002 revisions to this chapter); or

     (2) A management official of the underlying enterprise or organization has provided the credit union with a written statement, signed by the official, that the group desires service by the credit union.

[]

     (2) This chapter does not apply to mergers where the continuing credit union is organized (or chartered) and operating under chapter 31.12 RCW. The continuing credit union may amend its FOM bylaws to add the FOM groups of the merging credit union.

     (3) This chapter does not restrict FOM groups added to a credit union's bylaws prior to . . . . . . . . (the effective date of the 2002 revisions to this chapter).

[]

     The following sections of the Washington Administrative Code are repealed:

WAC 208-472-012	General requirement.
WAC 208-472-041	Streamlined procedure for small occupational groups.
WAC 208-472-045	Inclusion of a group with a common bond of association.
WAC 208-472-050	Application to include a separate associational group.
WAC 208-472-060	Inclusion of a community group.
WAC 208-472-065	Application to include a separate community group.
WAC 208-472-070	Application deemed complete.
WAC 208-472-075	Approval of application.
WAC 208-472-080	Special circumstances.

© Washington State Code Reviser's Office