July 9, 2021
Mr. Samuel Brownell
Chief Executive Officer
CU Collaborate LLC
1729 D St. SE
Washington, DC 20003
Dear Mr. Brownell:
This responds to your recent letter in which you request clarification about several aspects of the National Credit Union Administration’s Chartering and Field of Membership Manual (Manual)1 pertaining to underserved area additions. Thank you for the opportunity for us to clarify the rationale behind interpretations we have provided to you informally and also to share research we have conducted in direct response to the issues you have raised.
In your letter, you have questioned several of our interpretations of the Manual regarding underserved areas, which we base on, among other things, the Federal Credit Union Act (the Act) and on our understanding of how the Community Development Financial Institutions Fund (CDFI or Fund) defines investment areas. To assist us in responding to your questions, we conferred with CDFI’s staff for clarification. In addition to your questions regarding underserved areas, you also raised issues concerning how we determine contiguity.
The statutory provision applicable to multiple common bond federal credit unions (FCUs) seeking to serve “underserved areas” is set forth in 12 U.S.C 1759(c)(2) as follows:
[t]he Board may allow the membership of the credit union to include any person or organization within a local community, neighborhood, or rural district if—(A) the Board determines that the local community, neighborhood, or rural district—(i) is an “investment area”, as defined in section 4702(16) of this title, and meets such additional requirements as the Board may impose; and (ii) is underserved, based on data of the Board and the Federal banking agencies (as defined in section 1813 of this title), by other depository institutions (as defined in section 461(b)(1)(A) of this title).(emphasis added)
In the above excerpt from the Act, the cross reference to 12 U.S.C. 4702(16), which is administered by CDFI, is critical in establishing parameters for how NCUA may define the term “investment area” for the purpose of underserved area additions. Section 4702(16) states “investment area” “means a geographic area (or areas) including an Indian reservation that— (A) (i) meets objective criteria of economic distress developed by the Fund, which may include the percentage of low-income families or the extent of poverty, the rate of unemployment or underemployment, rural population outmigration, lag in population growth, and extent of blight and disinvestment; and (ii) has significant unmet needs for loans or equity investments; or (B) encompasses or is located in an empowerment zone or enterprise community designated under section 1391 of title 26.”
The Act’s cross reference to data of the Federal banking agencies is also relevant in how best to interpret the term “investment area” because these agencies also use data from the CDFI and the US Census Bureau. As noted, in analyzing your questions, staff in the NCUA’s Office of Credit Union Resources and Expansion (CURE) and Office of General Counsel (OGC) consulted with CDFI staff.
Under this framework, we offer the following responses to your specific questions:
1. Use of the US Census Bureau’s American Community Survey: Consistency with CDFI.
You have requested that we explain our decision to allow only the use of data generated from the US Census Bureau’s American Community Survey (ACS). As referenced above, in establishing whether an underserved area meets the CDFI’s “Economic Distress Criteria,” the Act directs the Board to incorporate practices established by CDFI.
You correctly state that the Manual uses the phrase “decennial census” when defining the term “investment area,” as does the current CDFI regulation.2 Nevertheless, there are both practical and legal reasons for solely using the ACS in the current environment. Most notably:
- Using ACS data allows for a more current assessment of economic distress for geographic units under consideration; and
- CDFI no longer uses decennial data for most of its programs.
The ACS functionally replaced the data the Census Bureau derived, up until the 2000 decennial census, from the “long form” distributed to a representative sample of citizens. Allowing use of “decennial long form data” from 2000 or before, or its functional equivalent ACS data designed to resemble the 2010 census as if derived from the “long form” would result in relying on data more than ten years old. Conversely, data from the ACS using more recent sampling would result in using the most recent census data, which according to CDFI has effectively replaced the decennial data.
Further, using the stale decennial data would raise practicality issues because the CDFI has decided to replace decennial data with the ACS. Most importantly, the CDFI staff has advised us that not only is the CDFI solely relying on the ACS (except in certain geographic areas in which it is not available), but it views the ACS as functionally equivalent to the previous decennial data. In particular, CDFI staff confirmed that the Fund changed its definition of decennial, explaining that in 2006 the Congress directed the Census Bureau to replace the decennial census long form data with the 5-year ACS data. The first 5-year ACS data was released in 2010 (the 2006-2010 ACS) thereby replacing the decennial long form data which was last collected in the 2000 decennial census. With the release of the 2010 decennial census tracts and the first full 5- year ACS data, the CDFI adopted the 5-year ACS as the successor to the decennial census long form data. Thus, the CDFI has determined that the statutory reference in the Riegle-Neal Interstate Banking and Branching Efficiency Act of 19943 to “decennial census data” has been functionally replaced by the Census Bureau with the five-year ACS that provides the socioeconomic data used for determining program eligibility such as investment areas.
Not only is using the ACS Census data superior to using the stale decennial census data, but as explained above, in interpreting its statute, CDFI has determined that the ACS data should be used exclusively. Accordingly, it would be inappropriate from a regulatory perspective for us to allow a credit union to choose between the two sets of data.
We understand that this issue is confusing because the Manual does reference “decennial census.” Given the potential confusion this may cause, agency staff is considering if references to “decennial” should be deleted from the Manual or if the definition of “investment area” should be modified to make it more readily adaptable to changes that the CDFI adopts in the future and to add clarity to our regulations. If that determination is made, then staff will follow agency procedures regarding rulemaking.
2. Use of Block Groups Versus Census Tracts in Identifying Underserved Areas.
You have requested that the Board allow the use of block groups in identifying underserved areas. As support for your position, you state that the NCUA approved an underserved area based on block groups in 2013. The 2013 approval was consistent with CDFI’s regulations in place at that time. You also indicate that you understand that NCUA will not consider underserved area applications based on block groups because CDFI does not provide the necessary tools or data.
We note that CDFI deleted reference to “block groups” in its regulatory definition of “geographic units” that may constitute an “investment area” in an interim final rule it issued in 2015.4 Specifically, in defining “geographic units,” the CDFI ceased including the term “census block groups.” For regulatory consistency, as discussed in detail above, the Board has determined that it is not appropriate to include “block groups” at the current time. We are monitoring CDFI activities for any changes to this position in the future.
3. Underserved Rural Districts in Noncontiguous States.
You have asked us to clarify a perceived inconsistency in the field of membership rules related to proximity to a headquarters for a rural district. You have noted that the rule on adding underserved areas to a multiple common bond FCU provides that an underserved area (which could include one based on a rural district) may be added regardless of location.5 However, for purposes of chartering a community FCU based on a rural district, the rules provide that an area of any geographic size qualifies as long as the boundaries of the district do not exceed the boundaries of the states contiguous to the FCU’s headquarters state.6
Since underserved area additions first became an option for multiple common bond FCUs in 1999, NCUA policy has indicated the field of membership may include, “without regard to location, an ‘underserved area’ as defined by the Federal Credit Union Act. 12 U.S.C. 1759(c)(2).” The intent behind this language was to emphasize how multiple common bond credit unions could leverage their abilities regarding service delivery to offer membership to as many people as possible. The preamble to Interpretative Ruling and Policy Statement 99-1 further elaborates by indicating (emphasis added):
While all federal credit unions are encouraged to expand their service to underserved areas, the Board especially encourages multiple common bond credit unions that add new groups to consider service to underserved areas. The Board believes that multiple common bond credit unions are uniquely positioned, because of their service delivery systems, to provide credit union service to such areas.
The regulatory intent behind the “without regard to location” wording was to encourage multiple common bond FCUs to expand their strategic outlook beyond a traditional assessment of operational area when adding occupational and associational groups. The intent was never to provide an avenue for having different standards for establishing that an area is a well-defined local community, neighborhood, or rural district.
It is also relevant to note that the “without regard to location” wording predates NCUA’s ability to base a community charter on a rural district by approximately eleven years. The Board could not have anticipated the applicability of the “without regard to location” wording in 1999 because it had not yet defined the term “rural district” by regulation.
A rural district first became an option in 2010. Subsequently in 2013, the Board made a revision to the rural district rule by modestly increasing the population limit of a rural district. The Board then made a major revision to that rule in 2016 by significantly expanding the population limit for rural districts to one million people. Because rural districts have by definition low population densities, the potential existed, under a one million person population limit, for a qualifying geographic area to become unmanageably vast. As noted in the excerpt below, the Board’s intent behind limiting the geographic scope of a rural district was to balance that with the need for credit unions to have options for larger populations to achieve economies of scale when investing in marketing and service delivery. Because of this focus, a consequence of the rule was to add an additional limiting factor with regard to underserved area expansions:
In contrast to these comments, the Board’s purpose is to have dual limitations that each serve a unique purpose—one on population, the other on geographic area size. Therefore, having considered the comments addressing the proposed multi-state limit on Rural District expansions, the Board has decided to adopt it without alteration in the final rule. Accordingly, the final rule provides that, to qualify as a Rural District, an area’s boundaries must “not exceed the outer boundaries of the states that are immediately contiguous to the state in which the credit union maintains its headquarters (i.e., not to exceed the outer perimeter of the layer of states immediately surrounding the headquarters state).”7
You believe a more expansive reading of the phrase “without regard to location” in the underserved area provision is warranted to allow for additional expansion opportunities. Although we appreciate your interest in offering more services to persons of modest means, we do not have the flexibility to offer a more expansive reading because the plain language of our rule continues to require underserved areas to first and foremost be well-defined local communities, neighborhoods, or rural districts.
Further, we note that the same section of the Manual that contains the “without regard to location” language also states that an underserved area that qualifies as a rural district is subject to the requirements of the section of the Manual that includes the headquarters proximity requirement. Therefore, the plain language of the Manual directs a credit union to comply with that requirement.
In addition, several canons of construction support our interpretation. First, specific language in a provision controls over the general. In this case, the “rural district” definition would control as the more specific. The phrase “without regard to location” would, in effect, mean “any location that meets the rural district requirements.” Second, all words in a provision should be given effect. The more expansive reading of the Manual that you support would ignore the language stating that to be underserved a proposed area must meet the rural district requirements. Third, the timing of the amendments (the headquarters requirement was added years after the “without regard to location” phrase) indicates that the headquarters requirement modifies and limits the pre-existing “without regard to location” phrase. Various additional canons of construction may bear on that issue, including the presumption that potentially conflicting provisions should be read together to avoid an implied repeal of earlier enactments. In this case, that principle would be reflected by reading the more recent headquarters provision as modifying but not completely repealing “without regard to location.” Reading either requirement as an absolute would be inconsistent with this principle.
We also note that under the Chevron8 doctrine and other case law, agencies and courts are expected to read statues and regulations reasonably and to avoid absurd results. Reading the headquarters provision as not applying at all could increase the possibility of absurdly drawn areas that would run counter to the purposes set forth in the December 2016 field of membership rulemaking on applying limits to potentially expansive rural districts.
4. Reliance on Water Tracts to Establish Contiguity.
You have requested clarification about the NCUA’s policy for approving underserved areas where contiguity depends on a water-based census tract. In support of your request, you stated that the Manual says nothing about excluding water-based tracts. You also reference a 2017 OGC opinion letter9 concluding that there is contiguity among Hawaiian Islands even though they are separated by the Pacific Ocean.
The Manual does not expressly preclude the NCUA from determining an area is contiguous if part of the area includes water-based census tracts. The purpose of the Manual is to establish general rules. The Manual cannot be expected to address every conceivable contingency. As a result, the agency must analyze each area on a case-by-case basis. With respect to rural districts, for the NCUA to administer chartering policy responsibly, the chosen area must be reasonable. Drawing a conclusion about reasonableness and permissibility requires a fact-specific inquiry, particularly when an applicant presents an area that appears to be unusual or has irregular geographic boundaries or would result in an area with limited interaction. We acknowledge that the Manual does not define the term “contiguous” and that this is a source of confusion. In common practice, the term contiguous means a discrete area defined by a map or street boundaries in order to support how an area is “well-defined.” The contiguity requirement provides clarity regarding the area a federal credit union may serve by limiting eligibility to those with affinities within a contiguous area.
As a point of reference, the term contiguous typically establishes an area as being distinct from other areas. The World Atlas website indicates:
The word contiguous in Geography might also mean undivided political or geographical land. For example, the “48 contiguous states” of the United States are called so because, though each state has defined local borders, they are part of one single political entity.
What Does Non-Contiguous Mean?
Non-Contiguous, just as it sounds; is the opposite of contiguous. It is political or geographical land divisions that are defined by either varying ownership or natural physical barriers. For example, Alaska is non-contiguous to the continental United States because Canada separates Alaska from the 48 contiguous states.10
In a more general sense, the term contiguous means being in contact, as noted on Webster’s website under the definition of contiguous.
1: being in actual contact: touching along a boundary or at a point // the 48 contiguous states
4: touching or connected throughout in an unbroken sequence // contiguous row houses, contiguous vineyards11
Your inquiry appears to be a follow-up to an issue we have discussed involving a vast geographic area which you assert is contiguous. We believe the area instead comprises several discrete and seemingly unconnected areas across Louisiana and Mississippi, each of which is separated from the others by many miles without any apparent connection other than the fact that, at various points, some or all border the Gulf of Mexico. For example, the area excludes an approximately 75-mile stretch of land adjacent to the coastal path between Harrison County, Mississippi and the eastern census tracts in Louisiana.
If we considered this logic that the water-based census tracks on which the separate geographic areas border creates contiguity as acceptable, then the area could potentially be taken to the extreme to include parts of Alabama and Florida that are equally or more unconnected to the other land masses other than by bordering at some point on the Gulf of Mexico. As such, we were unable to find this area contiguous under any reasonable definition of that term. Further, this is contrary to the regulatory intent of rural districts being cohesive areas.
In previous discussions we have had, we emphasized that an application to serve an underserved area including water-based census tracts is highly fact specific. This is consistent with our interpretation in the Hawaiian Islands opinion referenced above allowing the use of water tracts in which we stated several times that the interpretation was based on the unique facts presented in that letter.
Among other things, the Hawaiian Islands applicant established a significant amount of evidence of other government entities recognizing the areas under consideration as contiguous. Specific circumstances applicable to the area in Hawaii include:
- The Office of Management and Budget, in making designations of core-based statistical areas based on counties, considers certain islands to be next to one another. For example, the Kahului-Wailuku-Lahaina, HI MSA (metropolitan statistical area) includes two counties, Kalawao and Maui. Maui is on its own island, and Kalawao is on a separate island known as Molokai.
- CDFI considers the islands as contiguous in its mapping software.
- Maps issued in the past by the Census Bureau include portions of oceans in the boundaries of many counties in coastal areas such as Hawaii.
Because of these factors, we were able to support how recognizing the Hawaiian Islands area under consideration was contiguous in a manner consistent with other areas we have approved in the past where bodies of water, such as a lake or river, separate land areas in relatively compact geographic areas.
In 1999, the Board adopted Interpretive Ruling and Policy Statement 99-1 and clearly indicated that an area must be contiguous to be a local community. In subsequent revisions to what eventually became Appendix B to Part 701 of the NCUA Rules and Regulations, the Board has not changed that position of limiting community charters in all forms to single areas. The 1999 final rule noted that commenters asked if separate well-defined areas could constitute a community charter. The Board responded that the entire area “must be a single well-defined location. Two, noncontiguous, well-defined areas cannot be the basis for a community charter.” The basis for this position was statutory: that is, the Board found that the Act requires community charters to be single geographic areas. The Act defines a community credit union membership field as: “Persons or organizations within a well-defined local community, neighborhood, or rural district.”12
In addition to ensuring that a community charter consists of a single, contiguous area, CURE will carefully review whether an applicant has established that it has the ability to serve a proposed area.13 In conducting this analysis, CURE may consider whether the proposed area appears to be reasonable in view of the overall business and marketing plan and does not contain confusing or unusual boundaries. CURE reviews such applications on a case-by-case basis under the standards set forth in the Manual. This practice helps to avoid approving a community charter that includes unusual boundaries that may hinder the legislative and regulatory purposes of serving the “productive and provident credit needs of individuals of modest means.”14
Please feel free to contact us with any further questions.
1 12 CFR part 701, Appendix B.
2 12 C.F.R. 1805.201.
3 Pub. L 103-328.
4 80 FR 52379 (Aug. 31, 2015).
5 Chapter 3.III.A of Appendix B.
6 Chapter 2.V.A.2 of Appendix B.
7 81 FR 88418 (Dec. 7, 2016).
8 Chevron U.S.A. v. Nat’l Res. Def. Council, 467 U.S. 837 (1984).
9 OGC Legal Op. Letter. 17-0406, Contiguous Geographic Boundaries, available at .
10 World Atlas, available at
geography.html#:~:text=Contiguous%20areas%20have%20easier%20access%20to%20land%20trade,are%20geogra phically%20contiguous%20with%20all%20their%20neighboring%20countries (opens new window).
12 12 U.S.C. 1759(b)(3) (emphasis added).
13 See 12 CFR 701, app. B., Ch. 2, §§ V.A.2, V.A.4.
14 12 U.S.C. 1751 note.