Reasonable Proximity Analysis

June 2020
Reasonable Proximity Analysis

June 10, 2020

Re: Reasonable Proximity Analysis

The NCUA has been asked whether the term “reasonable proximity,” as used in the Federal Credit Union Act (“Act”) and as interpreted by NCUA regulations, includes a geographic limitation that is a specific distance. No, there is no statutory constraint on the term “reasonable proximity” that would impose a limit such as a maximum distance between the location of the group and the location of the FCU. Consistent with the Act and legislative history, the NCUA has always viewed “reasonable proximity” as including a geographic component, but the NCUA will continue to assess this geographic component on a case-by-case basis free of a mileage limit.

Our analysis follows.

I. Statutory Language and Legislative History

The Act permits the NCUA to add a group to the field of membership of a multiple common bond FCU when it is neither “practicable” nor “consistent with reasonable standards for the safe and sound operation of the credit union” for a group to charter its own single common bond credit union. The credit union seeking to add the group must be “within reasonable proximity to the location of the group whenever practicable and consistent with” those standards of safety and soundness.1 The Credit Union Membership Access Act of 1998 (CUMAA) included this “reasonable proximity” requirement as part of its authorization of multiple common bond FCUs.

The 2015 Random House Dictionary defines “proximity” as “nearness in place, time order, occurrence, or relation.”2 In some contexts, it would arguably be permissible to interpret “proximity” in terms of the concepts other than “place,” i.e., geography, perhaps especially based on the “relation” concept that ties together the group members. However, the next phrase in the statute is inconsistent with this more expansive interpretation. The statutory phrase that modifies “reasonable proximity” is “to the location of the group.” The explicit use of “location” all but mandates the use of “place” or an equivalently geographic concept in interpreting “proximity” to the group. Thus, the surrounding language in the statute strongly indicates that the geographic interpretation of “proximity” applies.

The legislative history also suggests Congress intended “reasonable proximity” to have a geographic limitation. The Senate Report addressing the authority for MCB expansions states, “It is appropriate to amend existing law and specifically authorize [MCB] federal credit unions, subject to additional group size and geographical expansion limitations.”3

Similarly, the House Report notes:

If the NCUA determines that a group cannot form a viable credit union on its own, then the NCUA is required to place the group with a credit union within reasonable proximity of the group. This local preference is qualified by safety and soundness principles. The Committee strongly believes credit union members who live, work and interact in the same geographic area are more likely to have more of a meaningful affinity and common bond than those who do not. The NCUA’s regulations shall strongly favor placing groups with local credit unions and document in writing their compliance with the local preference requirement.4

II. Regulatory History

Consistent with the statute and legislative history, the NCUA has taken the position that “reasonable proximity” includes a geographic component ever since CUMAA added this phrase to the Act. The NCUA’s Chartering Manual requires added groups to “be within reasonable geographic proximity of the credit union. The Chartering Manual incorporates the geographic component of reasonable proximity with the terms “service facility” and “service area.” That is, the group must be within the service area of one of the credit union's service facilities.”5

In the first iteration of the Chartering Manual after CUMAA’s enactment, the Board also considered, and rejected, incorporating a specific distance or mileage limitation into its definition of reasonable proximity. The Board concluded:

Past experience with mileage limitations indicates that using distance factors to define reasonable proximity would create numerous inequities. Rural areas obviously differ from urban areas. Small towns differ from large cities. The vast geographic territory combined with the sparse population in the southwest and western mountain areas differ from the rural areas of the east. While mileage limitations often facilitate regulatory decisions, frequently, they are artificial and cause unfair results simply because of small geographic differences. Accordingly, mileage limitations were deemed inappropriate and not advisable. Essentially, the service area means that a member can reasonably access the service facility. In rural areas, this may include distances encompassing several counties. In a densely populated area, it may be a portion of a city.6

The Board reiterated this case-by-case approach in the subsequent version of the Chartering Manual,7 and it continues today.

Please contact me if you have any further questions.



Frank Kressman
Acting General Counsel


1 12 U.S.C. § 1759(f)(1)(B) (emphasis added).

2 by Random House (2020).

3 S. Comm. on Banking, Housing and Urban Affairs, 105th Cong., S. Rep. No. 105-193 at 7 (1998).

4 H. Comm. on Banking and Financial Services, 105th Cong. H.R. Rep. No. 105-472 at 20 (1998).

5 App. B, ch. 2 § IV.A.1. (emphasis added).

6 63 Fed. Reg. 71998, 72003 (Dec. 30, 1998).

7 67 Fed. Reg. 72444 (Dec. 5, 2002).

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