POC Application Instruction June 2022

Proof of Concept Application Instructions
Table of Contents
Introduction ............................................................................................................. 2
Overview ................................................................................................................. 3
Critical Elements
• Purpose and Core Values.............................................................................. 3
• Field of Membership .................................................................................... 4
• Capital........................................................................................................... 5
• Subscribers ................................................................................................... 6

Analysis of Proof of Concept Criteria ..................................................................... 6
Scoring Description and Framework....................................................................... 9
Resources ................................................................................................................ 9
Contact Information .............................................................................................. 10
Disclaimer ............................................................................................................. 10

Approved by Director Ninichuk 12/23/19

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019
OMB Control Number 3133-0202

Introduction
The NCUA’s Office of Credit Union Resource and Expansion is responsible for issuing
a credit union’s charter. By submitting your information through our automated system,
you demonstrate to the NCUA that your group has thoroughly evaluated requirements
for establishing the credit union’s operations. This format does not serve as your new
charter application, but serves as your ability to document the four most critical
elements to establishing a new credit union. These four areas are usually the greatest
challenge for organizing groups to overcome.
The NCUA calls this information collection process the Proof of Concept. Using the
Proof of Concept is not a requirement. However, the NCUA strongly recommends
organizing groups take advantage of the tool, which facilitates the approval of charter
applications by offering prompt and timely feedback on their initial plan. Once the
review of your Proof of Concept submission is complete, NCUA will advise you to:
•
•
•

Submit a formal charter application; or
Provide additional information to support your Proof of Concept; or
Consider alternative options in providing financial services to your proposed
group.

The NCUA strongly recommends that each organizing group perform its due diligence
in advance of applying for a charter to obtain a clear understanding of the duties and
responsibilities required for charter approval and credit union operations. Appendix B
to Part 701 of the NCUA’s Rules & Regulations - Chartering and Field of Membership
Manual (Chartering Manual), is the primary and authoritative chartering reference.
NCUA will evaluate charter application per the requirements of the regulations.
NCUA will review and score each Critical Element in the Proof of Concept using a
100-point scale, providing a score of up to 25 points for each element. We will strive
for a 60-day response time from the date of submission. For groups meeting the
minimum score of 80, the NCUA will send a formal invitation to submit a full charter
application. While we strongly encourage organizing groups to follow the Proof of
Concept process, it is not a requirement. An organizing group may submit a full charter
application regardless of its Proof of Concept score. NCUA does not score full charter
applications, but evaluates them on the overall merits of the application.

Approved by Director Ninichuk 12/23/19

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019
OMB Control Number 3133-0202

Table 1
Critical Elements

Maximum Points

Purpose and Core Values

25

Field of Membership

25

Capital

25

Subscribers

25

The NCUA will accept Proof of Concept applications throughout the year. You will
receive a confirmation message once you successfully upload your Proof of Concept
responses. If you do not receive acknowledgement, please contact the NCUA’s Office
of Credit Union Resources and Expansion at (703) 518-6610 or by email at
[email protected].

Overview
Organizing groups should review the Chartering Manual to obtain an understanding
about the chartering process. The Chartering Manual describes every aspect of the
credit union’s operations. In addition, the membership survey helps you determine if
you have sufficient support from the proposed field of membership to establish a viable
financial institution.

Critical Element #1: Purpose and Core Values
Background

The term “federal credit union” means a cooperative association organized for the
purpose of promoting thrift among its members and creating a source of credit for
provident or productive purposes, that is chartered by the federal government. 1 Before
approving an organization certificate, the NCUA will investigate to determine various
factors related to the fitness and viability of the proposed credit union. The first critical
element of the Proof of Concept helps define those factors.

1

The Federal Credit Union Act

Approved by Director Ninichuk 12/23/19

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019
OMB Control Number 3133-0202

Scoring for Purpose and Core Values

The evaluation for the Purpose and Core Values includes the following:
Step 1: Purpose and Core Value Review
The NCUA must be satisfied the institution will be viable and it will provide needed
services to its members. Economic advisability, which is the key factor in determining
whether a potential charter will have a reasonable opportunity to succeed, is essential in
order to qualify for a credit union charter. An important consideration is the degree of
support from the field of membership. The charter applicant must be able to
demonstrate that membership support is sufficient to ensure viability.
Provide compelling reasons why the formation of a new credit union is in the best
interest of the proposed group. The NCUA will use responses from the Proof of
Concept submission to determine if the proposed credit union’s goals and objectives
align with the credit union industry’s mission of “People Helping People.”
Step 2: Scoring
The NCUA will score the Purpose and Core Value section based on the responses
provided.

Critical Element #2: Field of Membership
Background

The common bond of the group or groups of people the credit union intends to serve is
the credit union’s field of membership. The field of membership defines those persons
and entities eligible for membership, and only persons or groups within the field of
membership and a few others by virtue of their close relationship to the common bond
group may join the credit union. 2
Table 2. Three Types of Common Bond 3
Occupation
Association

2
3

Employment in a single corporation or other legal entity
makes that person part of a single occupational common
bond.
A single associational federal credit union may include in
its field of membership, regardless of location, all
members and employees of a recognized association.

Appendix B to Part 701 – Chartering and Field of Membership Manual
Appendix B to Part 701 – Chartering and Field of Membership Manual

Approved by Director Ninichuk 12/23/19

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019
OMB Control Number 3133-0202

Table 2. Three Types of Common Bond 3
Persons who live in, worship in attend school in, or work
in the community or rural district. Businesses and other
legal entities within the community boundaries or rural
district may qualify for membership. The geographic
boundaries must be clearly defined and the area must be a
well-defined local community or rural district.

Community

Table 3. Three Types of Memberships 4
Single Common Bond
Multiple Common Bond
Community

One group that has a common bond, occupation, or
association.
More than one group, each of which has within the group
a common bond of occupation or association.
Persons or organizations within a well-defined local
community, neighborhood, or rural district.

Scoring for the Field of Membership

The evaluation process for the field of membership includes the following:
Step 1: Field of Membership Review
The NCUA will review each submission to determine if the proposed credit union
meets the field of membership regulatory requirements. Organizing groups that are
unable to identify an acceptable field of membership will receive zero points in this
area.
Step 2: Scoring
The scoring criteria for the field of membership section is based on the responses
provided, but they must be supported by need, lack of available services, and
demographics of the proposed field of membership.

Critical Element #3: Capital
Background

The actual costs for chartering a federal credit union vary depending on the unique
circumstances in which the credit union plans to operate. Planned product and service
offerings, the delivery mechanisms for products, and services, staffing needs, and the
proposed field of membership all factor into these costs. Start-up funding in the form of
4

The Federal Credit Union Act

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019
OMB Control Number 3133-0202

donations and grants is critical to cover initial and ongoing costs until the credit union
can achieve and sustain positive earnings and maintain an adequate capital position.
Historical data suggests that newly chartered credit unions require approximately $1
million in startup capital to demonstrate economic advisability and viability.

Scoring for Capital

Step 1: Capital
The NCUA will review each submission to determine if the organizing group has
identified its operations as basic, intermediate, or complex and understands the capital
required. Understanding the estimated costs for the operations will help organizing
groups project how much startup capital is required to absorb operating losses and
maintain capital until the credit union is profitable from operations.
Step 2: Scoring
The NCUA will score the Capital section of the Proof of Concept based on the
responses provided. If an organizing group is unable to identify a credible funding
source, charter approval is unlikely.

Critical Element #4: Subscribers
Background

As defined by the Federal Credit Union Act, subscribers must undergo an appropriate
investigation to determine general character and fitness. Officials and employees are
also required to undergo such an investigation. For purposes of the Proof of Concept, at
least seven subscribers must be listed in this section including their email address and
telephone numbers. 5
When the formal charter application is submitted, A Report of Official and Agreement
to Serve, (NCUA 4012) Form, is completed by each official and employee in order to
perform the investigation. Be prepared to discuss each individual’s anticipated
contribution to chartering and the number of hours per month he or she will volunteer.

Scoring for Subscribers

Step 1: Subscribers
The NCUA will review each submission to determine if the organizing group identified
at least seven individuals to serve as the proposed credit union’s subscribers. Ideally,
the subscribers will have sound understanding or backgrounds in accounting, finance,
business, and banking or related fields.

5

Appendix B to Part 701 – Chartering and Field of Membership Manual

Approved by Director Ninichuk 12/23/19

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019
OMB Control Number 3133-0202

Step 2: Scoring
The NCUA will score the Subscriber section of the Proof of Concept based on the
response provided.

Analysis of Proof of Concept Submission
The NCUA’s reviewers will evaluate each submission using a point scale based on the
four Critical Elements 1) Purpose and Core Values 2) Field of Membership 3) Capital
and 4) Subscribers. The maximum number of points an application can earn is 100. A
minimum of 80 points is the benchmark for an organizing group to receive an invitation
to submit a formal charter application.
Table 4 provides a description of each Critical Element and relative guidance.
Organizing groups must thoroughly support each Critical Element in the Proof of
Concept application.
Table 4. Criteria
Critical
Element

#1 - Purpose and
Core Values

Description
The organizing group must identify, understand, and describe
why the proposed field of membership needs, and can support, a
newly chartered credit union.
Narrative Guidance Purpose and Core Values
• Describe the economic challenges and the reasons why the
proposed field of membership needs a new credit union.
Provide data to support the case, including the type of
products and services needed and the credit union plans to
offer.
• Economic advisability, which is the key factor in determining
whether a potential charter will have a reasonable
opportunity to succeed, is essential in order to qualify for a
credit union charter. An important consideration is the
degree of support from the field of membership.
• Discuss how the proposed credit union will benefit the
membership and the greater community at large. How are
economic and market conditions conducive to the success of
a new credit union, and conversely, what challenges exist in
this area.

Approved by Director Ninichuk 12/23/19

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019
OMB Control Number 3133-0202

Table 4. Criteria
Critical
Element

#2 - Field of
Membership

Description
The organizing group’s ability to identify a field of membership
that meets regulatory guidelines.
Narrative Guidance for Field of Membership
• Every proposed credit union must establish a legally
recognized field of membership.
• Only persons or groups within the field of membership by
virtue of their close relationship to the common bond group
may join the proposed credit union.
• Discuss the number of potential members you expect will
initially participate in the proposed credit union and the
potential for membership growth in the first few years of
operation. How did you determine this number? Describe the
method used to determine initial and ongoing potential
members’ participation.
The organizing group’s ability to identify and explain funding
sources to cover start-up costs to absorb net operating losses until
it achieves positive earnings and maintains adequate capital.
Please note that start-up capital is not a loan, investment, or nonmember deposit. Start-up capital is a donation pledged as capital
for the formation of the credit union.

#3 - Capital

Narrative Guidance for Capital
• The amount of funding needed varies and is contingent on
the desired services and operating structure.
• Explain what organizations, entities, companies, etc. will
provide startup capital for the formation of the proposed
credit union.
• Explain what intervals pledged funds will be allocated to the
proposed credit union.
• The NCUA requires commitment letters from all donors
pledging money.

Approved by Director Ninichuk 12/23/19

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019
OMB Control Number 3133-0202

Table 4. Criteria
Critical
Element

#4 - Subscribers

Description
The organizer group’s ability to identify seven individuals
needed for the formation of the credit union. These individuals
must agree to a credit check and criminal investigation. Ideally,
these individuals will have backgrounds in finance, accounting,
business, or banking, among others, to carry out the duties and
responsibilities of the proposed credit union.
Guidance for Subscribers
Subscribers must carry out the duties in good faith, in the best
interests of the membership, and with the care a prudent person
in a like position would use under similar circumstances. In
identifying subscribers consideration should be given to:
• An ability to manage their own personal finances effectively.
• Their educational or work experience related to finance,
accounting, business, or banking.
• A willingness and ability to actively engage and commit the
time necessary, particularly in the organization and start-up
phases of the proposed credit union.

Scoring Description and Framework
The NCUA’s reviewers will use the scoring descriptions and framework listed in Table
5 to score the Proof of Concept applications.
Table 5. Scoring Description and Framework
Score

Score Range Score Description
The responses are highly relevant and leads to a deeper
understanding of how the group will accomplish the
Exceptional
22–25
requirements for the element.
The responses are clear, articulate, relevant, and lead to
Strong
19–21
a better understanding of the element.
The responses are average and not consistently well
Good
16–18
expressed.
Fair

13–15

Approved by Director Ninichuk 12/23/19

The responses are fair with limited detail.

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019
OMB Control Number 3133-0202

Table 5. Scoring Description and Framework
Score
Weak

Score Range Score Description
The responses lack detail, are difficult to understand,
1–12
insufficient, and of poor quality.

Resources
1. Federal Credit Union Charter Application Guide
2. Federal Credit Union Bylaws
3. The Chartering and Field of Membership Manual
4. NCUA Form 4012
5. NCUA Letter to Federal Credit Unions, 11-FCU-02, “Duties of Federal Credit
Union Boards of Directors”

Contact Information
If you need to contact the NCUA regarding the Proof of Concept application, send your
request by e-mail to [email protected]. Please allow 48 hours for a response. Below
is the contact information for other services provided the NCUA’s Office of Credit
Union Resources and Expansion.
•
•
•
•

Field-of-Membership Expansion: [email protected]
Training: [email protected]
For All Other Inquiries: [email protected]
Contact Us By Phone: (703) 518-6610

Approved by Director Ninichuk 12/23/19

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019
OMB Control Number 3133-0202

Disclaimer
The NCUA takes reasonable measures to ensure the quality of the data and other
information produced by the NCUA that are available on this web site. The NCUA,
however, makes no warranty, express or implied, nor assumes any legal liability or
responsibility for the accuracy, correctness, or completeness of any information that is
available through this web site nor represents that its use would not infringe on privately
owned rights. Reference to any specific commercial product, process, or service by
trade name, trademark, manufacture, or otherwise does not constitute an endorsement,
recommendation, or favoring by the U.S. government or the NCUA.

Approved by Director Ninichuk 12/23/19

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Office of Credit Union Resources and Expansion
Proof of Concept Application Instructions • 2019
OMB Control Number 3133-0202