This proposed rule has been determined to be not significant for purposes of Executive Order 12866, therefore, it has not been reviewed by the Office of Management and Budget (OMB).

This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform. It is not intended to have retroactive effect. This rule would not preempt any state or local laws, regulations, or policies unless they present an irreconcilable conflict with this rule. There are no administrative procedures which must be exhausted prior to any judicial challenge to the provisions of this rule.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ) AMS has considered the economic impact of this action on small entities and has determined that its implementation will not have a significant economic impact on a substantial number of small businesses.

The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions in order that small businesses will not be disproportionately burdened. There are an estimated 35,150 cotton growers, merchants, and textile manufacturers in the U.S. who voluntarily use the AMS cotton classing services annually under the United States Cotton Standards Act, the Cotton Statistics and Estimates Act, and the Cotton Futures Act. The majority of these entities are small businesses under the criteria established by the Small Business Administration (13 CFR 121.601). The change in procedure will not significantly affect small businesses as defined in the RFA because:

(1) Classification will continue to be based upon the Official Standards for Upland Cotton Color Grade established and maintained by the Department;

(2) The High Volume Instrument color measurement has been a part of the official classification record since 1991. Implementation of the revision for all cotton classification will not affect competition in the marketplace or adversely impact on cotton classification fees; and

(3) The use of cotton classification services is voluntary. For the 1999 crop, 15,825,000 running bales were produced by growers, and virtually all of them were voluntarily submitted for USDA classification. Classification services provided for merchants and manufacturers during the same period totaled approximately 404,000 bales.

In compliance with OMB regulations (5 CFR part 1320) which implement the Paperwork Reduction Act (PRA) (44 U.S.C. 3501 et seq. ), the information collection requirements contained in the provisions to be amended by this proposed rule have been previously approved by OMB and were assigned OMB control number 0581-0009 under the Paperwork Reduction Act (44 U.S.C. 3501 et seq. ).

Pursuant to the authority contained in the United States Cotton Standards Act, the Secretary of Agriculture maintains official cotton standards of the United States and provides classification and testing services to cotton producers, textile manufacturers, merchants, and others in the domestic and international cotton industry. The standards are used for the classification of American upland cotton and provide a basis for the determination of value for commercial purposes. Classification services provide information on quality of cotton. The National Cotton Council represents the interests of all seven segments of the U.S. cotton industry: growers, ginners, warehousers, merchants, cooperatives, manufacturers, and cottonseed oil crushers.

High Volume Instrument classification was adopted for all USDA classification of American upland cotton in 1991. The color grade is a component of the official USDA classification. Although High Volume Instrument colormeter readings have been reported since 1991, at the request of the industry, USDA continued the procedure of determining the official color grade by human cotton classers because of the historical importance of color in determining the quality of cotton. With the passage of time, confidence in USDA High Volume Instrument measurements of fiber quality characteristics for classification of cotton grew to the extent that industry representatives requested that High Volume Instrument colormeter readings be used for the official determination of color grade.

AMS conducted a pilot project during the 1998 and 1999 cotton classing seasons to implement an adjustment to the existing High Volume Instrument color measurement so that it would more closely match the Official Cotton Standards used by classers for official color grade determination. Data from the project, which the AMS Cotton Program conducted in cooperation with the National Cotton Council's Quality Task Force, showed that the HVI color measurement closely matched the Official Cotton Grade Standards for color. Results from the 1998 and 1999 crops showed that the HVI colormeter determines Official color grades as accurately as cotton classers. In December of 1999, the National Cotton Council Quality Task Force recommended that AMS replace the cotton classer determination with the HVI colormeter determination for color grade. AMS proposes to use the HVI colormeter determination as the official component of classification of American Upland cotton for color grade.

For the reasons set forth above, this proposal would amend the sections in Parts 28—COTTON CLASSING, TESTING, AND STANDARDS, Subpart A—Regulations Under the United States Cotton Standards Act, which establish the procedures for determining official cotton classification based on the Official Cotton Grade Standards. Since cotton classification services under the United States Cotton Futures Act must conform to the requirements of the Cotton Standards Act, this proposal would also amend the sections in Part 27—COTTON CLASSIFICATION UNDER COTTON FUTURES LEGISLATION which establish the procedures for determining cotton classification for cotton submitted for futures certification.

Accordingly, under Part 27, in § 27.2 (n), the definition of the term classification would be changed to reflect the changes in procedures made under Part 28.

Also under Part 27, § 27.31 would be revised to reflect the deletion of the requirement for cotton classers to determine color grade. The revised heading and section would reflect the changes made in procedures for determination of cotton quality in accordance with the official standards.

In Part 28, § 28.8 would be revised to reflect the proposed change in cotton classification procedures to replace classer visual examinations to fix color with instrument color measurement by High Volume Instruments. Miscellaneous other changes are made to the sections to better reflect current procedures in view of color determination change. For example, those determinations made by cotton classers or by authorized Cotton Program employees would be specified.

AMS anticipates that the change in procedures for official cotton classification, if adopted, would become effective on July 1, 2000, when classification of newly harvested 2000 crop cotton will begin. Further, a 30 day comment period is provided and deemed appropriate in order to allow adequate time to complete this rulemaking for the 2000 cotton crop.

For the reasons set forth in the preamble, 7 CFR parts 27 and 28 are proposed to be amended as follows:

This proposed rule would implement an amendment to the AMAA which directs the Secretary of Agriculture to establish a temporary pilot program for forward contracting of milk under Federal milk marketing orders. The effect of this amendment is to permit a handler to pay producers or cooperative associations a negotiated price, rather than the minimum Federal order price, for milk that is under forward contract. The amendment appears in Section 3 of H.R. 3428 of the 106th Congress, as enacted by Section 1001(a)(8) of Public Law 106-113 (113 Stat. 1536). It was signed into law on November 29, 1999. The amendment specifies that the pilot program shall only apply to federally regulated milk that is not classified as Class I milk or otherwise intended for fluid use and that is in the current of interstate or foreign commerce or directly burdens, obstructs, or affects interstate or foreign commerce in federally regulated milk. The pilot program expires December 31, 2004.

This proposed rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is not intended to have a retroactive effect. If adopted, the proposed rule would not preempt any state or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule. There are no administrative procedures which must be exhausted prior to judicial challenge to the provisions of this rule.

The Department is issuing this proposed rule in conformance with Executive Order 12866. This proposed rule is not economically significant for the purposes of Executive Order 12866.

The forward pricing pilot program is a voluntary program that will permit a handler and a producer to negotiate prices that may be below the minimum order prices that would otherwise apply to such milk. Some producers, proprietary handlers, and cooperative associations now negotiate forward contracts on part or all of their milk. The pilot program will expand the opportunities to engage in forward contracting by exempting participating proprietary handlers from the minimum prices to producers and cooperative associations required under Federal milk marketing orders. These regulations would not affect the ability of cooperative associations to forward contract with their members.

Pursuant to the requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ), the Agricultural Marketing Service (AMS) has considered the economic impact of the proposed rule on small entities and has prepared this initial regulatory flexibility analysis.

The legal basis for the proposed rule is set forth in an amendment to the AMAA signed into law on November 29, 1999, that directs the Secretary of Agriculture to establish the dairy forward pricing pilot program. The Secretary was directed “to establish a temporary pilot program under which milk producers and cooperatives are authorized to voluntarily enter into forward price contracts with milk handlers.”

The pilot program would provide the dairy industry, which has experienced substantial price volatility in recent years, with another tool to deal with such volatility. With the phase-down of the dairy price support program to a safety-net program, the prices of dairy products have fluctuated to a much greater extent than they did during the prior 20 years. This price fluctuation has created problems for processors of manufactured dairy products ( e.g., butter, nonfat dry milk, and cheese), the dairy farmers who supply these processors, and the retailers, school systems, and other public institutions who provide these products to consumers.

Under the Small Business Administration's definition of a “small business,” a dairy farm is a small business if it has less than $500,000 in gross annual sales and a handler is a small business if it has fewer than 500 employees. As of February 2000 under the Federal milk order program, there are 142 cooperative associations representing approximately 63,000 dairy farmers. In addition, there are 11,600 dairy farmers who are not affiliated with any cooperative association. Of these nonmember producers, 10,900 meet the SBA's definition of a small business.

There are nearly 1,000 milk plants that are regulated under the Federal milk order program. Based on the best data available, approximately one-third of these plants would be classified as small businesses. These requirements are further discussed in the Paperwork Reduction Act section.

The recordkeeping and reporting requirements for this proposed rule are minimal. At the present time, any handler that enters into a forward contract with a producer presumably has written proof for such an arrangement. Under the proposed pilot program, a handler would be required to submit a copy of each forward contract with a producer to the market administrator of the order in which the handler's plant is regulated. In addition, the handler would be required to attach a disclosure statement to each forward contract. The disclosure statement, which would be attached to general guidelines concerning the contracting process, would have to be signed by each dairy farmer entering into a forward contract. The disclosure statement explains that a dairy farmer entering into a forward contract under the pilot program forfeits his or her right to receive the minimum order price(s) for that portion of their milk that is under contract for the duration of the contract period.

In drafting the proposed rule, the Department considered whether any limit should be established for the amount of milk that a dairy farmer could forward contract. We decided not to impose such a limit because we did not wish to interfere with a dairy farmer's desire to forward contract all of his or her milk. Also, in order to gain as much knowledge as possible about the types of forward contracts that might be offered by handlers, we believe it is beneficial to allow handlers and dairy farmers to decide between themselves how much milk to put under forward contract and how much milk to keep under minimum Federal order pricing.

Since the forward contracting of milk may be new to many dairy farmers, the Department decided to incorporate two provisions, in addition to the disclosure statement, to help dairy farmers adjust to the new program. First, the proposed rule requires that each forward contract under the pilot program must contain a clause that gives a dairy farmer 3 days to change his or her mind about forward contracting their milk. If a dairy farmer does change his or her mind after signing a forward contract, the farmer would be required to contact the handler with whom he or she had contracted by the 3rd business day following the date that the contract was signed.

The proposed rule would also limit the contract period for first-time contracts under the pilot program to 6 months. The reason for limiting the initial contract period is to give producers a chance to familiarize themselves with this new way of pricing their milk.

The Department does not believe that the forward pricing pilot program would unduly burden small entities or impair their ability to compete in the marketplace. In fact, by providing another tool to reduce price risk, the proposed pilot program may aid small businesses in competing with larger entities that have the ability to use existing futures and options markets, and other means, to reduce their price risks. The Department has not identified any relevant Federal rules that duplicate, overlap, or conflict with the proposed rule.

Comments are specifically requested on the impact of this proposed rule on small businesses in addition to other aspects of the rule discussed above and throughout this document.

The information collection requirements contained in this proposed rule have been submitted to the Office of Management and Budget (OMB) pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35) for emergency approval. Due to a 15-day comment period for the proposed rule, a separate 60-day notice seeking public comment on the information collection will be published with regard to permanent approval.

Under the proposed pilot program for the forward contracting of milk under Federal milk orders, a one-page disclosure statement was designed so that the Secretary's representatives administering the pilot program can be certain that dairy farmers have entered into the pilot program voluntarily. The disclosure statement would be attached to a fact sheet containing general guidelines to help the dairy farmer understand the forward contracting process. It also explains to the dairy farmer that the program is voluntary and that by entering into the program with a handler, the dairy farmer will be forfeiting his or her right to the minimum prices provided under the order. The form should take no more than 15 minutes to be read, understood, and signed by a dairy farmer. We estimate that the number of dairy farmers involved would be approximately 8,000, and the total annual time burden would not exceed 2,000 hours.

Handlers would be required to submit their forward contracts under the pilot program to their respective market administrator's office. There are two reasons for this. First, the market administrator must be able to review the contract to ensure it is signed and to verify that it complies with the regulations proposed here. Second, the Department is required to conduct a study of forward contracting under the pilot program to determine the impact on milk prices paid to producers in the United States. This study must be submitted to Congress no later than April 30, 2002. In order to do such a study, the Secretary will have to review, summarize, and evaluate the different types of contracts that were written under the pilot program. The time required for handlers to prepare and submit copies of contracts would approximate 30 minutes per contract. Of the less than 700 manufacturing plants associated with Federal orders, fewer than 300 would be anticipated to participate with a total annual burden of 500 hours.

Under the rules proposed here to administer the pilot program, a proprietary handler will not be subject to the order minimum prices with respect to payments to dairy farmers and cooperative associations for milk under forward contract that does not exceed the handler's Class II, III, and IV utilization for the month in the market where the handler's plant or plants are regulated. (In the rule proposed here, this amount of milk is defined as “eligible milk.” For convenience in the discussion that follows, a handler's combined Class II, III, and IV utilization will be referred to as the handler's eligible milk.) In the case of a multi-plant handler, the handler's Class II, III, and IV utilization would be combined together for all of the handler's plants regulated under one order. On a monthly basis if a handler's forward contracts exceed that amount, the handler would only be exempt from paying the order's minimum price(s) on its quantity of eligible milk.

The proposed rule leaves the determination of which producers' milk is over-contracted to the handler. If the handler fails to make this determination, the market administrator would prorate the over-contract milk to each producer and cooperative association having a contract with the handler.

Although handlers participating in the pilot program would not be required to pay producers and cooperative associations the order's minimum uniform or component prices for contract milk, they would still be required to account to the pool for all milk they receive at the respective order's minimum class prices. In the case of milk received by transfer from a cooperative association's pool plant, a handler may forward contract for all such transferred milk that is not used in Class I and would be exempt from paying the cooperative the minimum class prices for contract milk.

Any handler participating in the pilot program would still be required to file all of the reports that are now required under an order. This includes reports of receipts and utilization of milk and monthly payroll reports that show all information now required under the orders.

Handlers participating in the pilot program would have to submit to the market administrator a copy of each contract for which it is claiming exemption from the order's minimum pricing. This contract must be signed prior to the first day of the first month for which the contract applies and would have to be received by the market administrator by the 15th day of that month. It would be the responsibility of each handler to give to each contracting dairy farmer or cooperative association a disclosure statement informing them of the nature of the pilot program and providing them with certain information that they should consider before entering into a forward contract. The disclosure statement would have to be signed on the same date as the contract by the dairy farmer or cooperative association representative and would have to be returned to the market administrator together with the contract by the 15th day of the month. Any contract that is submitted to the market administrator without the disclosure statement would be considered to be invalid for the purpose of being exempt from the order's minimum pricing and would be returned to the handler.

Each forward contract submitted to the market administrator must contain a provision that gives the dairy farmer signing the contract 3 business days in which to change his or her mind about forward contracting their milk. At midnight on the 3rd business day following the contract date, the contract would become irrevocable.

If a producer wishes to cancel a forward contract within the 3-day period, he or she would have to notify the handler in writing. Such notification could be faxed, e-mailed, or mailed, but it would have to be in the possession of the handler by midnight of the 3rd business day following the contract date. A copy of the notification should be retained by the producer together with evidence verifying its date and time of receipt.

The first time that a producer or cooperative association forward contracts under this pilot program the contract would be limited to 6 months. Thereafter, the producer or cooperative association could enter into forward contracts with proprietary handlers for whatever period they wish so long as the contract does not extend beyond December 31, 2004. If a handler violates this rule by submitting to the market administrator a contract that is longer than 6 months, the market administrator would return the contract to the handler and the handler would not be exempt from minimum order pricing with respect to that contract. The reason for proposing to limit the initial contract period is to give producers a chance to familiarize themselves with this new way of pricing their milk.

Payments specified under a forward contract would have to be made on the same dates as order payments which they replace. In addition, the basis for pricing milk under a forward contract would be the same basis that is used to price milk under the respective order regulating the pooling of such milk. For example, under the 4 orders that provide for skim milk and butterfat pricing ( i.e ., Parts 1005, 1006, 1007, and 1131), forward contracts would have to be written in terms of skim milk and butterfat pricing. On the other hand, in the 7 markets providing for component pricing of milk ( i.e. , Parts 1001, 1030, 1032, 1033, 1124, 1126, and 1135), forward contracts under the pilot program would have to be written in terms of the component pricing provided under those orders.

Consideration was given to leaving the pricing and payment for milk under forward contracts open. However, this approach was considered to be undesirable for several reasons. First, with respect to the timing of payments, nearly every handler entering into forward contracts would have some milk that is subject to minimum order pricing. It is highly unlikely that these handlers would establish a dual accounting and payment system even if they thought that different payment dates would be preferable to those specified under the order. Second, if handlers paid producers under contract at different times than producers not under contract, this disparate treatment could cause problems which might influence the success of the pilot program for reasons entirely apart from more predictable pricing. Third, from an administrative standpoint, we believe that it would be much easier to administer the pilot program if payments are made on the same day as minimum order payments. Also, we believe that the program would be easier for producers to understand if payments continue to be made on the dates with which they have grown accustomed.

With respect to the form of pricing— i.e. , skim milk/butterfat versus component—we believe that it would be unduly confusing and administratively burdensome to allow contract milk to be priced on a different basis than milk subject to minimum order pricing. Market administrator offices are set up to test milk according to the way it is priced under the order. While they may be able to test milk on some other basis, such testing could result in additional labor, possibly the purchase of additional equipment, and perhaps additional training of market administrator personnel. Finally, disparate pricing of milk to a producer could be confusing, especially if over-contracted milk has to be repriced using minimum order pricing.

Since this pilot program is authorized through an amendment to the AMAA, it is reasonable to conclude that if the pilot program results in disorderly marketing conditions, the program would be in conflict with the objectives of the Act and would have to be modified to remedy such conflict.

Participation in the pilot program must be entirely voluntary on the part of dairy farmers and handlers. If the Department believes that the program is being used to coerce dairy farmers into signing contracts providing for prices that, on average, are consistently below minimum order prices, steps would be taken to halt such practices. One indication that such practices could be occurring would be complaints from dairy farmers that they were dropped because they refused to sign a forward contract with a handler. Another indication might be manifested by the replacement of one group of dairy farmers with another group of dairy farmers who have entered into forward contracts with the handler. It is conceivable that some farmers might intentionally enter into a forward contract that would consistently provide a price below the minimum order price simply to get their milk pooled on a particular market. This type of activity would undermine the concept of minimum prices to dairy farmers and lead to the type of conditions that the AMAA was enacted to remedy. Should these types of activities occur after the pilot program becomes effective, the Secretary would consider amending, suspending, or terminating the pilot program.

Additional information about the pilot program is included in the Department's program announcement. The information is also available on the Dairy Programs' web site (www:ams.usda.gov/dairy) and is available from local market administrator offices.

A 15-day comment period is provided in this proposed rule. This comment period is deemed appropriate because: (1) In enacting the legislation authorizing the pilot program, Congress intended that it be established early this year; (2) the dairy industry is anticipating, and has already been preparing to take part in, the pilot program; and (3) the program represents another means which the industry may need to deal with price volatility.

For the reasons set forth in the preamble, it is proposed that Title 7 of Chapter X of the CFR be amended by adding a new Part 1140 as follows:

This notice refers to certain industry standards established by the ASHRAE and IES. These industry standards are referenced by the single comprehensive “ASHRAE/IES Standard 90.1-1999.”

Part B of Title III of the Energy Policy and Conservation Act (EPCA) of 1975, Pub. L. 94-163, as amended, by the National Energy Conservation Policy Act of 1978 (NECPA), Pub. L. 95-619, the National Appliance Energy Conservation Act of 1987 (NAECA), Pub. L. 100-12, the National Appliance Energy Conservation Amendments of 1988 (NAECA 1988), Pub. L. 100-357, and the Energy Policy Act of 1992 (EPACT), Pub. L. 102-486, established the Energy Conservation Program for Consumer Products other than Automobiles. Part 3 of Title IV of NECPA amended EPCA to add “Energy Efficiency of Industrial Equipment,” which included air conditioners, furnaces, and other types of equipment.

EPACT also amended EPCA with respect to industrial equipment, providing definitions, test procedures, labeling provisions, energy conservation standards, and authority to require information and reports from manufacturers. See 42 U.S.C. 6311-6316. For example, EPCA now specifies explicit minimum energy efficiency levels for certain commercial packaged air conditioning and heating equipment, packaged terminal air conditioners and heat pumps, warm air furnaces, packaged boilers, water heaters and hot water storage tanks. 42 U.S.C. 6313(a) (1)-(5). The efficiency requirements in the statute correspond with the levels in effect on October 24, 1992, in ASHRAE/IES Standard 90.1. The statute provides that if the ASHRAE/IES Standard 90.1 levels are amended after that date for any of the covered equipment, the Secretary of Energy must establish an amended uniform national standard at the new minimum level for each effective date specified in ASHRAE/IES Standard 90.1, unless (s)he determines, through a rulemaking supported by clear and convincing evidence, that a more stringent standard is technologically feasible and economically justified and would result in significant additional energy conservation. 42 U.S.C. 6313(a)(6)(A).

If the Secretary elects to publish such a rule, it must contain the amended standard, and the determination must consider, to the greatest extent practicable: the economic impact on the manufacturers and consumers of the affected products; savings in operating cost throughout the life of the product, compared to any increases in initial cost or maintenance expense; the total projected amount of energy savings likely to result directly from the imposition of the standard; any lessening of the utility or performance of the affected products; the impact of any lessening of competition; the need for national energy conservation; and other factors the Secretary considers relevant. The Secretary may not prescribe such an amended standard if (s)he finds (and publishes the finding) that interested persons have established by a preponderance of evidence that the amended standard is likely to result in unavailability in the United States of products with performance characteristics (including reliability), features, sizes, capacities and volumes that are substantially the same as those generally available in the United States at the time of the Secretary's finding. 42 U.S.C. 6313(a)(6)(B).

Finally, the Secretary may not prescribe any amended standard which increases maximum allowable energy use or decreases minimum required energy efficiency. 42 U.S.C. 6313(a)(6)(B)(ii).

The Department of Energy (DOE or the Department) has an energy conservation program for consumer products, conducted under Part B of Title III of EPCA, 42 U.S.C. 6291-6309. The consumer appliance standards program consists of four principal parts: Test procedures, Federal energy conservation standards, labeling, and certification and enforcement procedures. The Federal Trade Commission (FTC) is responsible for labeling, and the Department implements the remainder of the program as codified in Title 10 of the Code of Federal Regulations (CFR), Part 430—Energy Conservation Program for Consumer Products.

Pursuant to the EPACT amendments to EPCA in 1992, DOE extended its program to cover commercial and industrial equipment and created a new Part 431 in Title 10 of the Code of Federal Regulations, entitled Energy Conservation Program for Commercial and Industrial Equipment. This part includes commercial heating, air conditioning and water heating equipment. This new program consists of: test procedures, Federal energy conservation standards, labeling, certification and enforcement procedures. EPCA directs the Department, rather than the FTC, to administer the statute's efficiency labeling provisions for commercial equipment.

ASHRAE revised ASHRAE/IES Standard 90.1 on October 29, 1999. ASHRAE changed the standards for some products but not for others. Of those products for which standards have not changed, some levels were considered by ASHRAE in the course of revising ASHRAE/IES Standard 90.1 and left at their preexisting values, while consideration of other products was deferred. Among those products that were deferred were standards for commercial (3 phase) small air conditioners and heat pumps (under 65 thousand Btu per hour), which are closely related to consumer products for which the Department is independently developing standards under NAECA. The standard levels in EPACT and ASHRAE/IES Standard 90.1-1999 appear in Tables 1 and 2.

On November 12, 1999, President Clinton signed the GLB Act (Pub. L. 106-102, codified at 15 U.S.C. 6801 et seq. ) into law. Subtitle A of Title V of the GLB Act, captioned Disclosure of Nonpublic Personal Information, limits the instances when a financial institution may disclose nonpublic personal information of a consumer to nonaffiliated third parties. It requires a financial institution to disclose to all its customers the institution's privacy policies and practices with respect to information sharing with affiliates and nonaffiliated third parties.

As required by the GLB Act, the NCUA has consulted with the other Agencies to ensure that its proposed rule is consistent and comparable with the proposed rules of the other Agencies. However, the NCUA's proposed rule takes into account the unique nature of credit union structure and operations, particularly, the relationship between a credit union and its members, credit union investment in credit union service organizations (CUSOs), and, generally, the significant difference between credit union and CUSO activities as compared with other financial institutions and their subsidiaries or affiliates.

A credit union is a not-for-profit, cooperative financial institution, formed to permit those in the field of membership specified in the credit union's charter to save, borrow, and obtain related financial services. Member ownership and control make credit unions unique from other financial institutions. Federal credit union investment in affiliates is limited to CUSOs, which are organizations that primarily serve credit unions or their members and whose business is related to the daily and routine operations of credit unions. 12 U.S.C. 1757(5)(D), 1757(7)(I). This is also generally true for state-chartered credit unions.

A key focus of the GLB Act is protecting the privacy of consumers and the customers of financial institutions while permitting financial institutions to make disclosures to their affiliates. In the credit union context, this means that the provisions of the Act and the requirements of NCUA's proposed regulation will apply primarily to a credit union's members and ordinarily permit sharing of information with CUSOs. Nevertheless, the Act and the proposed regulations impose requirements on credit unions with respect to nonmembers who are deemed to be consumers or customers receiving a financial product or service from the credit union. Thus, credit unions must understand when individuals qualify as a consumer or customer and what responsibilities the credit union has to them. While the GLB Act uses the term customer to describe a category of individuals to whom certain obligations are owed, the term customer should not be equated with the term member. Members in a credit union, as noted above, are its owners with a relationship to their credit union that is inherently different than that of customers to a financial institution. In addition, whether a CUSO will qualify as an affiliate to which a credit union may make disclosures will depend on the extent to which a credit union exercises control over the CUSO.

NCUA's proposed rule mirrors the other Agencies' proposed rules except for modifications appropriate to address the different circumstances of credit unions such as references to credit unions, CUSOs, members, nonmember customers, and other nonmembers. NCUA has also incorporated much of the preamble discussion from the Agencies' joint notice of proposed rulemaking in this preamble. The section-by-section analysis of the rule that follows points out those provisions that differ from the other Agencies' proposed rules. Besides differences in terms or definitions, a significant modification is in the use of examples in the rule. All the Agencies' proposed rules contain examples to aid understanding. NCUA has attempted to use examples pertinent to credit union circumstances and, therefore, has changed or deleted some examples used in the other Agencies' proposals.

The NCUA requests comment on all aspects of the proposed rule as well as comment on the specific provisions and issues highlighted in the section-by-section summary below. The NCUA specifically requests comment on the examples in the proposed rule and on any additional examples that would be helpful.

NCUA and the other Agencies are developing examination standards and guidelines. A credit union's compliance with this rule will be reviewed as part of the regular examination process.

NCUA and the other Agencies have coordinated their comment periods to end on March 31, 2000. Although, NCUA's Interpretive Ruling and Policy Statement 87-2 states that the public should be given at least 60 days to comment on a proposed rule, this abbreviated comment period is necessary because of the statutory requirement that the final rule be issued by May 12, 2000.

Proposed paragraph (a) of this section identifies three purposes of the rule. First, the rule requires a credit union to provide notice to consumers, defined in § 716.3(e), about the credit union's privacy policies and practices. Second, the rule describes the conditions under which a credit union may disclose nonpublic personal information about a consumer to a nonaffiliated third party. Third, the rule provides a method for a consumer to “opt out” of the disclosure of that information to nonaffiliated third parties, subject to the exceptions in §§ 716.9, 716.10, and 716.11, discussed below.

Proposed paragraph (b) sets out the scope of the NCUA rule, stating that it applies to all federally-insured credit unions. Section 505(a)(2) of the GLB Act provides that the NCUA Board has enforcement authority for federally-insured credit unions and any subsidiaries. The NCUA notes that, while CUSOs may be considered “subsidiaries,” the Federal Credit Union Act does not give the NCUA direct regulatory or supervisory authority over CUSOs. Therefore, CUSOs, depending on the type of businesses in which they engage, may be subject to the GLB Act and the regulations of the agency having jurisdiction over that business activity. For example, a CUSO engaged in securities brokerage activities would be subject to the Securities and Exchange Commission privacy regulation.

The NCUA Board specifically requests comment on whether it would be appropriate to exempt federally-insured corporate credit unions from the regulation. The membership of corporate credit unions is natural person credit unions; they are operated primarily to serve other credit unions and limit natural person members to the minimum required by state or federal law to charter and operate the credit union. 12 CFR 704.2. Corporate credit unions function as a “credit union's credit union” and provide a source of liquidity and investment for natural person credit unions as well as acting as clearing houses for financial transactions. The Board is particularly interested in comments that illustrate whether and to what extent corporate credit unions actually collect nonpublic personal information about consumers or customers within the meaning of the GLB Act and this regulation.

This paragraph also notes that the rule applies only to information about individuals who obtain a financial product or service from a credit union for personal, family, or household purposes.

Proposed § 716.2 of the rule sets out a rule of construction intended to clarify the effect of the examples used in the rule. Given the wide variety of transactions that Title V of the GLB Act covers, the NCUA proposes to adopt a rule of general applicability and then provide examples of conduct that would comply with the rule as well as examples of conduct that would not. While the NCUA's general rule is consistent with the other Agencies' proposals, NCUA's examples differ on occasion from those used by the other Agencies in order to provide guidance that is more applicable to credit unions.

The examples are provided to fulfill NCUA's goal of understandable regulations. These examples are not intended to be exhaustive; rather, they are intended to provide guidance about how the rule would apply in specific situations.

(a) Affiliate. The proposed rule adopts the definition of “affiliate” used in section 509(6) of the GLB Act. An affiliation will be found when one company controls, is controlled by, or is under common control with another company. Control is defined in § 716.3(g). The definition of affiliate applies to financial institutions and entities that are not financial institutions.

NCUA's proposed rule includes examples of entities that will be affiliates for credit unions. For a federal credit union, the only entity that can be an affiliate is a CUSO, as addressed in 12 CFR part 712, that is controlled by the federal credit union. For a state-chartered credit union, an affiliate will be a company that the credit union controls.

(b) Clear and conspicuous. Title V of the GLB Act and the proposed rule require that various notices be “clear and conspicuous.” The proposed rule defines this term to mean that the notice is reasonably understandable and designed to call attention to the nature and significance of the information contained in the notice.

The proposed rule does not mandate the use of any particular technique for making the notices clear and conspicuous, but instead allows each credit union the flexibility to decide for itself how best to comply with this requirement. Ways in which a notice may satisfy the clear and conspicuous standard would include, for instance, using a plain-language caption, in a type set easily seen, that is designed to call attention to the information contained in the notice. Other plain language principles are provided in the examples that follow the general rule.

(c) Collect. The proposed rule defines “collect” to mean obtaining any information that is organized or retrievable on a personally identifiable basis, irrespective of the source of the underlying information. Several sections of the proposed rule, for example, §§ 716.6 and 716.7, impose obligations when a credit union collects information about a consumer. This proposed definition clarifies that these obligations arise when the information enables the user to identify a particular consumer. It also clarifies that the obligations arise regardless of whether a credit union obtains the information from a consumer or some other source.

(d) Company. The proposed rule defines “company,” which is used in the definition of “affiliate,” as any corporation, limited liability company, business trust, general or limited partnership, association, or similar organization.

(e) Consumer. The proposed rule defines “consumer” to mean an individual who obtains, from a credit union, financial products or services that are to be used primarily for personal, family, or household purposes. An individual also will be deemed to be a consumer for purposes of a credit union if that credit union purchases the individual's account from some other institution. The definition also includes the legal representative of an individual.

The GLB Act distinguishes “consumers” from “customers” for purposes of the notice requirements imposed by the Act. As explained more fully in the discussion of proposed § 716.4 which covers initial notices, a credit union must give a “consumer” an initial notice only if it intends to disclose nonpublic personal information about the consumer to a nonaffiliated third party for a purpose that is not authorized by one of several exceptions in the Act. By contrast, a credit union must give all “customers,” at the time of establishing a customer relationship and annually thereafter during the continuation of the customer relationship, a notice of the institution's privacy policy.

A person is a “consumer” under the proposed rule if he or she obtains a financial product or service from a credit union. A credit union that intends to share nonpublic personal information about a consumer with nonaffiliated third parties outside of the exceptions described in §§ 716.10 and 716.11 will have to give the requisite notices, even if the consumer does not enter into a customer relationship with the institution.

The examples that follow the definition of “consumer” clarify when someone is a consumer. The examples for credit unions deviate from the examples for the other Agencies and use the terms member and nonmember where applicable. The other Agencies' examples include situations where someone: Applies for a loan or provides information for the purpose of determining whether he or she prequalifies for a loan; provides information in connection with seeking to obtain financial advisory services; and negotiates a workout of a loan. These examples do not apply to credit unions, because someone in the above situations will necessarily be a member of a credit union, and therefore, also a customer. The examples also clarify the status of someone whose loan has been sold.

(f) Consumer reporting agency. The proposed rule adopts the definition of “consumer reporting agency” that is used in section 603(f) of the Fair Credit Reporting Act (15 U.S.C. 1681a(f)). This term is used in proposed §§ 716.11 and 716.13 which deal with exceptions to notice and opt out and limitations on sharing.

(g) Control. The proposed rule defines “control” using the tests applied in section 23A of the Federal Reserve Act (12 U.S.C. 371c). This definition is used to determine when companies are affiliated ( see discussion of proposed § 716.2(a), above), and would result in a financial institution and a company being considered as affiliates regardless of whether the control is by a company or individual.

The proposed definition mirrors the definition of the other Agencies. NCUA is interested in receiving comment on whether this definition should be amended to reflect the particular relationship between a credit union and a CUSO. Historically, a federal credit union that invested in or made a loan to a CUSO was defined as an affiliated credit union of the CUSO. 51 FR 10353, 10360 (March 26, 1986); former 12 CFR 701.27(c)(1). The Board is particularly interested in receiving comment on whether a CUSO that is 100% owned by credit unions should be considered an affiliate of all of the investing credit unions, regardless of whether any one credit union owns 25%.

(h) Credit union. NCUA has defined credit union as a federally-insured credit union.

(i) Customer. The proposed rule defines “customer” as any consumer who has a customer relationship with a particular credit union. This definition parallels the one used for the term “customer” in the other Agencies” proposed rules. A customer relationship, which is separately defined, basically means that there is an ongoing relationship between the credit union and a consumer. For credit unions, it is obvious that their members will fall under the meaning of customer but the term customer will also include certain nonmembers. A nonmember may also have a customer relationship with a credit union in certain circumstances.

As explained more fully in the discussion of proposed § 716.4, a consumer becomes a customer of a credit union at the time of entering into a continuing relationship with the credit union. Ordinarily, a consumer will enter into a continuing relationship with the credit union at the time the consumer becomes a member. In some cases, a nonmember may also enter into a continuing relationship with a credit union. This may occur, for example, when a nonmember acts as a guarantor on a loan for a member or is listed by a member as a joint account holder. Another example of nonmembers who would qualify as customers are individuals who establish a share account at a low-income designated credit union.

The distinction between consumers and customers determines what notices a credit union must provide. If a consumer never becomes a customer, then, unless the credit union intends to disclose nonpublic personal information outside of the exceptions about that consumer to nonaffiliated third parties, the credit union is not required to provide any privacy notices. By contrast, if a consumer becomes a customer, the credit union must provide a copy of its privacy policy prior to the time it establishes the customer relationship and at least annually thereafter during the continuation of the customer relationship.

(j) Customer relationship. The proposed rule defines “customer relationship” to mean a continuing relationship between a consumer and the credit union whereby the credit union provides a financial product or service to a consumer that is to be used primarily for personal, family, or household purposes. NCUA's definition parallels the other Agencies' definition of customer relationship, but highlights in the examples the circumstances as applicable to members and nonmembers.

Because the GLB Act requires annual notices of the credit union's privacy policies to customers, NCUA and the Agencies have interpreted the Act as requiring more than isolated transactions between a financial institution and a consumer to establish a customer relationship, unless it is reasonable to expect further contact between the institution and consumer afterwards. Thus, the proposed rule defines “customer relationship” as one that is of a continuing nature.

NCUA has changed the examples in this subsection to reflect that a member will necessarily have a continuing relationship with a credit union but that certain nonmembers may also have a continuing relationship and, therefore, be entitled to the same notices and disclosures that the credit union must provide to its members. These circumstances include where a nonmember has a joint account with a member, where a nonmember has an account with a low-income credit union, or where a credit union owns or services a nonmember's loan.

The examples that follow the definition of “customer relationship” clarify, for instance, that using an automated teller machine at a credit union at which a consumer transacts no other business or purchasing of traveler's checks would not constitute a continuing relationship. While a person engaging in one of these types of transactions would be a consumer under the regulation (thereby requiring the credit union to provide notices if the credit union intends to disclose nonpublic personal information about the consumer to nonaffiliated third parties outside of the exceptions), the consumer would not be a customer. Even if a consumer repeatedly engages in transactions of this sort, such as withdrawing funds at regular intervals from an ATM owned by a credit union with whom the consumer has no customer relationship, the consumer will not be considered a customer.

The examples also clarify that a nonmember will have a customer relationship if a credit union has purchased the nonmember's loan or services a nonmember's loan.

(k) Financial institution. The proposed rule defines “financial institution” as any institution the business of which is engaging activities that are financial in nature, or incidental to such financial activities, as described in section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)). The proposed rule also exempts from the definition of “financial institution” those entities specifically excluded by the GLB Act.

(l) Financial product or service. The proposed rule defines “financial product or service” as a product or service that a financial institution could offer as an activity that is financial in nature, or incidental to such a financial activity, under section 4(k) of the Bank Holding Company Act of 1956, as amended. It includes the credit union's evaluation of information collected in connection with an application by a consumer for a financial product or service. It also includes the distribution of information about a consumer for the purpose of assisting the consumer to obtain a financial product or service. Thus the definition includes nonpublic personal information provided by a consumer in an application for a financial product or service that ultimately is rejected or withdrawn. An activity that is complementary to a financial activity, as described in section 4(k), is not included in the definition of “financial product or service” under this part.

(m) Government regulator. The proposed rule adopts the definition of “government regulator” that includes each of the Agencies with enforcement authority under the statute, including State insurance authorities under the circumstances identified in the definition. This term is used in the exception set out in proposed § 716.11(a)(4) for disclosures to law enforcement agencies, “including government regulators.”

(n) Nonaffiliated third party. The proposed rule defines “nonaffiliated third party” as any person (which includes natural persons as well as corporate entities such as corporations, partnerships, trusts, and so on) except (1) an affiliate of a credit union, and (2) a joint employee of a credit union and a third party. This definition is intended to be substantively the same as the definition used in section 509(5) of the GLB Act.

(o) Nonpublic personal information. Section 509(4) of the GLB Act defines “nonpublic personal information” to mean “personally identifiable financial information” (which term is not defined in the Act) that is: provided by a consumer to a financial institution; results from any transaction with the consumer or any service performed for the consumer; or is otherwise obtained by the financial institution. Any list, description, or other grouping of consumers—and “publicly available information” (which also is undefined in the GLB Act) pertaining to them—that is derived using any nonpublic personal information other than publicly available information also is included in the definition of “nonpublic personal information.”

The proposed rule implements this provision of the GLB Act by restating, in paragraph (1) of proposed § 716.2(o), the two categories of information described above. The example that follows the general definition clarifies that publicly available information and other identifying information about consumers, such as addresses and social security numbers, would be considered nonpublic personal information if the information is derived from information provided by a consumer or from customer accounts at, or other relationships with, a financial institution.

The proposed rule excludes publicly available information from the scope of “nonpublic personal information” only in two circumstances. The first is when the information is part of a list, description, or other grouping of consumers that is derived without using personally identifiable financial information. The second is when information, not provided by a consumer and not resulting from a transaction with the consumer, is otherwise obtained by a credit union in connection with providing a financial product or service to the consumer. However, in order for the information to be considered “publicly available”, the information must be obtained from government records, widely distributed media, or government-mandated disclosures. The fact that information is available from those sources is immaterial if the credit union does not actually obtain the information from one of them.

Some of the other Agencies are considering an alternative definition of “nonpublic personal information” that would permit a financial institution to release publicly available information regardless of the source but would still prohibit the release of this information as part of a list, description or other grouping of consumers that is derived using personally identifiable financial information. This will produce a different result in the situation where a credit union wants to disclose the name, address, or other information available to the general public about an individual. In that situation, the proposed rule requires compliance with the notice and opt out requirements if the credit union received the information from the individual. The alternative definition would not, because the information would not be part of a list, description, or other grouping of consumers. NCUA invites comment on both alternatives.

NCUA also specifically invites comment on whether the definition of “nonpublic personal information” would cover information about a consumer that contains no indicators of a consumer's identity. For instance, if a credit union provided aggregate information about its mortgage loans (such as loan-to-value ratios, interest rates, census tracts of mortgaged property, payment history, credit scores, and income) to a nonaffiliated third party for the purpose of preparing market studies, would the lender, without notice or opt out to the consumer, be permitted to do so if the information contains no personal identifiers?

(p) Personally identifiable financial information. The GLB Act defines “nonpublic personal information” to include “personally identifiable financial information” but does not define the latter term.

As a general matter, the rule treats any personally identifiable information as financial if it is obtained by a credit union in connection with providing a financial product or service to a consumer. NCUA believes that this approach creates a workable and clear standard for distinguishing information that is financial from information that is not, while at the same time giving meaning to the word “financial.” NCUA recognizes that this may result in certain information being covered by the rules that typically is not thought of as financial, such as health status. However, the broad scope of what is deemed a “financial product or service” under the GLB Act requires a comparably broad scope of what is deemed “financial information.” NCUA specifically invites comment on the proposed definition of “personally identifiable financial information.”

The proposed rule defines “personally identifiable financial information” to include three categories of information. The first category is any information that a consumer provides a credit union in order for the credit union to provide a financial product or service to that consumer. As noted in the examples that follow the definition, this would include information provided on an application to obtain a loan, credit card, or other financial product or service. If, for instance, medical information is provided on an application to obtain a financial product or service, that information would be considered “personally identifiable financial information” for purposes of the proposed rule.

The second category of information covered by the proposed definition of “personally identifiable financial information” includes any information resulting from any transaction between the consumer and the credit union involving a financial product or service. This would include, as noted in the examples following the definition, account balance information, payment or overdraft history, and credit or debit card purchase information.

The third category includes any financial information about a consumer otherwise obtained by the credit union in connection with providing a financial product or service. This would include, for example, information obtained from a consumer report or from an outside source to verify information a consumer provides on an application to obtain a financial product or service. It would not include, however, information that is publicly available.

The examples note that the definition of “personally identifiable information” does not include a list of names and addresses of people who are customers of an entity that is not a financial institution. Thus, the names and addresses of people who subscribe, for instance, to a particular magazine fall outside the definition. If, however, a credit union incorporates those names and addresses into a listing of one or more of the credit union's members or nonmember customers, then the entire list becomes nonpublic personal information.

NCUA notes that there are other laws that may impose limitations on disclosures of nonpublic personal information in addition to those imposed by the GLB Act and this proposed rule. For instance, the Fair Credit Reporting Act imposes conditions on the sharing of application information between affiliates and nonaffiliated third parties. The recently proposed Department of Health and Human Services regulations that implement the Health Insurance Portability and Accountability Act of 1996 would, if adopted in final form, limit the circumstances under which medical information may be disclosed. 64 FR 59918 (Nov. 3, 1999). State laws may also affect a credit union's ability to disclose information. Thus, credit unions will need to monitor and comply with relevant legislative and regulatory developments that affect the disclosure of consumer information.

(q) Publicly available information. The proposed rule defines “publicly available information” as information lawfully made available to members of the general public that is obtained from three broad types of source. First, it includes information from official public records, such as real estate recordations or security interest filings. Second, it includes information from widely distributed media, such as a telephone book, television or radio program, or newspaper. Third, it includes information from disclosures required to be made to the general public by federal, state, or local law, such as securities disclosure documents. The proposed rule states that information obtained over the Internet will be considered publicly available information if the information is obtainable from a site available to the general public without requiring a password or similar restriction. NCUA invites comment on what information is appropriately considered publicly available, particularly in the context of information available over the Internet.

(r) You. This term refers to all federally-insured credit unions.

The GLB Act requires a financial institution to provide an initial notice of its privacy policies and practices in two circumstances. For customers, the notice must be provided at the time of establishing a customer relationship. For credit unions, ordinarily this will be at the time an individual applies for membership. For consumers who do not become customers, the notice must be provided prior to disclosing nonpublic personal information about the consumer to a nonaffiliated third party. In addition, as discussed more fully in § 716.8, a revised notice must be provided to consumers prior to disclosing nonpublic personal information if a credit union's policies have changed.

Proposed § 716.4(a) states the general rule regarding these notices. It requires a credit union to provide a clear and conspicuous notice that accurately reflects the credit union's privacy policies and practices. A notice is clear and conspicuous if it is reasonably understandable and designed to call attention to the nature and significance of the information it provides. A credit union may not represent in the notice that it will provide certain protections and then fail to provide them; that would mean the notice is not accurate. NCUA expects that credit unions will take appropriate measures to ensure adherence to their stated privacy policies.

Affiliated institutions may use a common initial, annual, or opt out notice, so long as the notice is delivered in accordance with the rule and is accurate for all recipients. Similarly, the rule permits a credit union to establish different privacy policies and practices for different customers, so long as they receive notices that are accurate with respect to them. Credit unions could, for example, have different notices for members and for nonmember customers.

The proposed rule requires a credit union to provide an individual a privacy notice prior to the time that it establishes a customer relationship. Ordinarily, this will be at the time an individual applies for membership. For a nonmember, a credit union could provide the notice at the same time it provides other required notices, such as those required by the Truth-in-Lending Act. This approach is intended to strike a balance between (a) ensuring that consumers will receive privacy notices at a meaningful point along the continuum of “establishing a customer relationship” and (b) minimizing unnecessary burdens on credit unions that may result if a credit union is required to provide a consumer with a series of notices at different points in a transaction. Nothing in the proposed rule is intended to discourage a credit union from providing a privacy notice at an earlier point in the relationship to make it easier for an individual to compare several institutions' privacy policies and practices in advance of conducting transactions.

Proposed § 716.4(c) identifies the time the customer relationship is established as the point at which a credit union and a consumer enter into a continuing relationship. The examples NCUA provides differ from other Agencies to account for the member or nonmember relationship and the financial products or services that credit unions offer. The examples after the statement of the general rule inform the reader that, for a member, the relationship is established when the individual becomes a member. For nonmembers in relationships that are contractual in nature, such as share accounts, loans, or purchases of a nondeposit product, a customer relationship is established when the individual executes the contract necessary to conduct the transaction in question. In the case of a credit card, the nonmember customer relationship is established when the necessary step to open the credit card account is taken under a credit union's procedures.

For consumers that are not customers, the initial notice may be provided at any point before the credit union discloses nonpublic personal information to nonaffiliated third parties. An initial notice is not required if the credit union does not intend to disclose the information or intends to make only disclosures authorized by one of the exceptions in §§ 716.10 and 716.11.

NCUA recognizes that in some circumstances a nonmember customer does not have a choice as to the credit union with which he or she has a nonmember customer relationship, such as when a credit union purchases the nonmember customer's loan in the secondary market. In these situations, it may not be practicable for the credit union to provide a notice prior to establishing the nonmember customer relationship. NCUA invites comment on whether an exception is necessary for such circumstances and how an exception should be formulated.

Proposed § 716.4(d) sets out the rules governing how credit unions must provide the initial notices. The general rule requires initial notice be provided so that each recipient can reasonably be expected to receive actual notice. NCUA invites comment on who should receive a notice in situations where there is more than one party to an account.

The notice may be delivered in writing or, if the consumer agrees, electronically. Oral notices alone are insufficient. In the case of members or nonmember customers, the notice must be given in a way so that the member or nonmember customer may either retain it or access it at a later time. This would permit a credit union to provide access to an electronic version of the notice if the consumer agrees. This requirement that the notice be given in a manner permitting access at a later time does not preclude a credit union from changing its privacy policy. See proposed 12 CFR 716.8(c). Rather, the rules are intended only to require that a member or nonmember customer be able to access the most recently adopted privacy policy. NCUA requests comment on the regulatory burden of providing initial notices. Specifically, NCUA would appreciate learning the methods credit unions expect to use to provide initial notices.

Examples of acceptable ways the notice may be delivered include hand-delivering a copy of the notice, mailing a copy to the consumer's last known address, or sending it via electronic mail to a consumer who obtains a financial product or service from the credit union electronically. It would not be sufficient to provide only a posted copy of the notice in a lobby. Similarly, it would not be sufficient to provide the initial notice only on a Web page, unless the consumer is required to access that page to obtain the product or service in question. Electronic delivery generally should be in the form of electronic mail so as to ensure that a consumer actually receives the notice. In those circumstances where a consumer is in the process of conducting a transaction over the Internet, electronic delivery also may include posting the notice on a Web page as described above. If a credit union and consumer orally agree to enter into a contract for a financial product or service over the telephone, the credit union may provide the consumer with the option of receiving the initial notice after providing the product or service so as not to delay the transaction.

NCUA requests comment on whether there are situations where providing notice by mail is impracticable.

Section 503 of the GLB Act requires a financial institution to provide notices of its privacy policies and practices at least annually to its customers. The proposed rule implements this requirement by requiring a clear and conspicuous notice that accurately reflects the privacy policies and practices then in effect to be provided at least once during any period of twelve consecutive months. The rule governing how to provide an initial notice also applies to annual notices.

Section 503(a) of the GLB Act requires that the annual notices be provided “during the continuation” of a customer relationship. To implement this requirement, the proposed rules states that a credit union is not required to provide annual notices to a customer with whom it no longer has a continuing relationship. The examples that follow this general rule provide guidance on when there no longer is a continuing relationship for purposes of the rules. NCUA has changed these examples to reflect the concept of member and nonmember customer relationships. The examples include, for instance, when the member terminates the member relationship. For nonmembers, the examples include share accounts that are treated as dormant by a credit union, loans that are paid in full or charged off, or assets sold without retaining servicing rights. NCUA invites comment on whether the example of dormant accounts provides a sufficiently clear standard and whether the applicable standard should be the credit union's policies or applicable state law. In addition, NCUA invites comment on whether the standard should apply to members as well as nonmembers.

There may be certain nonmember customer relationships that do not present a clear event after which there is no longer a nonmember customer relationship. The proposed rule contains an example intended to cover these situations, stating that a relationship will no longer be deemed continuing for purposes of the proposed rule if the credit union has not communicated with a nonmember customer, other than providing an annual privacy policy notice, for a period of twelve consecutive months.

NCUA requests comment on the regulatory burden of providing annual notices. Specifically, NCUA would appreciate learning the methods credit unions expect to use to provide annual notices and whether credit unions will use different methods for providing initial notices than for providing annual notices.

Section 503 of the GLB Act identifies the items of information that must be included in a financial institution's initial and annual notices. Section 503(a) of the GLB Act sets out the general requirement that a financial institution must provide customers with a notice describing the institution's policies and practices with respect to, among other things, disclosing nonpublic personal information to affiliates and nonaffiliated third parties. Section 503(b) of the Act identifies certain elements that must be addressed in that notice.

The required content is the same for both the initial and annual notices of privacy policies and practices. While the information contained in the notices must be accurate as of the time the notices are provided, a credit union may prepare its notices based on current and anticipated policies and practices.

The information to be included is as follows:

(1) Categories of nonpublic personal information that a credit union may collect.

A credit union must inform its customers about the categories of nonpublic personal information it collects. The proposed rule provides an example of how to comply with this requirement that focuses the notice on the source of the information collected. As noted in the example, a credit union will satisfy this requirement if it categorizes the information according to the sources, such as application information, transaction information, and consumer report information. Credit unions may choose to provide more detail about the categories of information collected but are not required to do so by the proposed rule.

(2) Categories of nonpublic personal information that a credit union may disclose.

A credit union's initial and annual notice must provide information about the categories of nonpublic personal information that may be disclosed either to affiliates or nonaffiliated third parties. This requirement is in proposed § 716.6(a)(2). The examples of how to comply focus on the content of information to be disclosed. As stated in the examples, a credit union may satisfy this requirement by categorizing information according to source and providing illustrative examples of the content of the information. These categories might include application information (such as assets and income), identifying information (such as name, address, and social security number), transaction information (such as information about account activity, account balances, and purchases), and information from consumer reports (such as credit history).

Credit unions are free to provide more detailed information in the initial and annual notices if they choose. Conversely, if a credit union does not disclose, and does not intend to disclose, nonpublic personal information to affiliates or nonaffiliated third parties, its initial and annual notices may simply state this fact without further elaboration about categories of information disclosed.

(3) Categories of affiliates and nonaffiliated third parties to whom a credit union discloses nonpublic personal information.

Section 503(a) of the Act includes a general requirement that a financial institution provide a notice to its customers of the institution's policies and practices with respect to disclosing nonpublic personal information to affiliates and nonaffiliated third parties. Section 503(b) states that the notice required by section 503(a) shall include certain specified items. Among those is the requirement, in section 503(b)(1), that a financial institution inform its customers about its policies and practices with respect to disclosing nonpublic personal information to nonaffiliated third parties. NCUA and the other Agencies believe that, when read together, sections 503(a) and 503(b) of the GLB Act require a financial institution's notice to address disclosures of nonpublic personal information to both affiliates and nonaffiliated third parties.

The proposed rule states that a credit union will adequately categorize the affiliates and nonaffiliated third parties to whom it discloses nonpublic personal information about consumers if it identifies the types of businesses that they engage in. Types of businesses may be described by general terms, such as financial products or services, if the credit union provides illustrative examples of the significant lines of businesses of the recipient, such as mortgage lending, insurance brokerage, or securities brokerage.

The GLB Act does not require a financial institution to list the categories of persons to whom information may be disclosed under one of the exceptions set out in proposed §§ 716.10 and 716.11. The proposed rule states that a credit union is required only to inform consumers that it makes disclosures as permitted by law to nonaffiliated third parties in addition to those described in the notice. NCUA invites comment on whether such a disclosure would be adequate.

If a credit union does not disclose, and does not intend to disclose, nonpublic personal information to affiliates or nonaffiliated third parties, its initial and annual notices may simply state this fact without further elaboration about categories of third parties.

(4) Information about former members and nonmember customers. Section 503(a)(2) requires the financial institution's initial and annual privacy notices to include the institution's policies and practices with respect to disclosing nonpublic personal information of persons who have ceased to be customers of the institution. Section 503(b)(1)(B) requires that this information be provided with respect to information disclosed to nonaffiliated third parties.

NCUA and the other Agencies have concluded that, when read together, sections 503(a)(2) and 503(b)(1)(B) require a financial institution to include in the initial and annual notices the institution's policies and practices with respect to sharing information about former customers with all affiliates and nonaffiliated third parties. This requirement is set out in the proposed rules at § 716.6(a)(4).

(5) Information disclosed to service providers. Section 502(b)(2) of the GLB Act permits a financial institution to disclose nonpublic personal information about a consumer to a nonaffiliated third party for the purpose of the third party performing services for the institution, including marketing financial products or services under a joint agreement between the financial institution and at least one other financial institution. In this case, a consumer has no right to opt out. However, the financial institution must inform the consumer that it will be disclosing the information in question, unless the service falls within one of the exceptions listed in section 502(e) of the Act.

The proposed rule implements these provisions, in proposed § 716.6(a)(5), by requiring that, if a credit union discloses nonpublic personal information to a nonaffiliated third party under the exception for service providers, the credit union is to include in the initial and annual notices a separate description of the categories of information that are disclosed and the categories of third parties providing the services. A credit union may comply with these requirements by providing the same level of detail in the notice as is required to satisfy the requirements in proposed §§ 716.6(a)(2) and (3).

(6) Right to opt out. As previously noted, sections 503(a)(1) and 503(b)(1) of the GLB Act require a financial institution to provide customers with a notice of its privacy policies and practices concerning, among other things, disclosing nonpublic personal information consistent with section 502 of the Act.

The proposed rule implements this requirement, in proposed § 716.6(a)(6), by requiring the initial and annual notices to explain the right to opt out of disclosures of nonpublic personal information to nonaffiliated third parties, including the methods available to exercise that right.

(7) Disclosures made under the FCRA. Section 503(b)(4) of the GLB Act requires a financial institution's initial and annual notice to include the disclosures required, if any, under section 603(d)(2)(A)(iii) of the FCRA. Section 603(d)(2)(A)(iii) excludes from the definition of “consumer report” the communication of certain consumer information among affiliated entities if the consumer is notified about the disclosure of such information and given an opportunity to opt out of that information sharing. The information that can be shared among affiliates under this provision includes information from consumer reports and applications for financial products or services. In general, this information represents personal information provided directly by the consumer to the institution, such as income and social security number, in addition to information contained within credit bureau reports.

The proposed rule implements section 503(b)(4) of the GLB Act by including the requirement that a credit union's initial and annual notice include any disclosures a credit union makes under section 603(d)(2)(A)(iii) of the FCRA.

(8) Confidentiality, security, and integrity. Section 503(a)(3) of the GLB Act requires the initial and annual notices to provide information about a financial institution's policies and practices with respect to protecting the nonpublic personal information of consumers. Section 503(b)(3) of the Act requires the notices to include the policies that the institution maintains to protect the confidentiality and security of nonpublic personal information, in accordance with section 501. Section 501 requires the Agencies to establish standards governing the administrative, technical, and physical safeguards of customer information.

The proposed rule implements these provisions by requiring a credit union to include in the initial and annual notices the credit union's policies and practices for protecting the confidentiality, security, and integrity of nonpublic personal information. The example in the proposed rules states that a credit union may comply with the requirement as it concerns confidentiality and security if it explains matters such as who has access to the information and the circumstances under which the information may be accessed. The information about integrity should focus on the measures the credit union takes to protect against reasonably anticipated threats or hazards. The proposed rule does not require a credit union to provide technical or proprietary information about how it safeguards consumer information.

The Agencies are in the process of preparing the section 501 standards relating to administrative, technical, and physical safeguards, and intend to have those standards in place at the time the final privacy rules are issued. This will enable credit unions to reflect those standards in the initial and annual notices.

Section 502(a) of the GLB Act generally prohibits a financial institution from sharing nonpublic personal information about a consumer with a nonaffiliated third party unless the institution provides the consumer with a copy of the institution's privacy policy. Section 502(b) of the Act adds the requirements that the financial institution provide the consumer with a clear and conspicuous notice that the consumer's nonpublic personal information may be disclosed to nonaffiliated third parties, that the consumer be given an opportunity to opt out of that disclosure, and that the consumer be informed of how to opt out.

Section 716.7 of the proposed rule implements these provisions. Paragraph (a)(1) of § 716.7 sets out the criteria that a credit union must satisfy before disclosing nonpublic personal information to nonaffiliated third parties. These criteria apply to direct and indirect disclosures through an affiliate. NCUA invites comment on how the right to opt out should apply in the case of joint accounts. Should, for instance, a credit union require all parties to an account to opt out before the opt out becomes effective? If not, and only one of the parties opts out, should the opt out apply only to information about the party opting out or should it apply to information about all parties to the account? NCUA also requests comment on how the opt out rights should be handled with respect to commingled trust accounts, where a trustee manages a single account on behalf of multiple beneficiaries.

Paragraph (a)(2) defines “opt out” in a way that incorporates the exceptions to the right to opt out stated in proposed §§ 716.9, 716.10, and 716.11. These exceptions permit disclosures of nonpublic personal information to nonaffiliated third parties without first providing the initial privacy notice and giving the consumer the right to opt out.

The proposed rule requires that a consumer be given an opportunity to opt out before information is disclosed by requiring that the opportunity be reasonable. The examples that follow the general rule provide guidance in situations involving notices that are mailed and notices that are provided in connection with isolated transactions. In the former case, a consumer will have a reasonable opportunity to opt out if the credit union provides 30 days in which to opt out. In the latter case, opportunity will be reasonable if the consumer must decide as part of the transaction whether to opt out before completing the transaction. NCUA invites comment on whether 30 days is a reasonable opportunity to opt out in the case of notices sent by mail, and on whether an example in the context of transactions conducted using an electronic medium would be helpful.

The requirement that a consumer have a reasonable opportunity to opt out does not mean that a consumer forfeits that right once the opportunity lapses. The consumer always has the right to opt out (this point is discussed further in proposed § 716.8, below). But, a decision to opt out at a time after the opportunity first is presented may result in nonpublic personal information being disclosed to nonaffiliated third parties for the period of time necessary to implement the consumer's opt out direction.

Paragraph (b) of proposed § 716.7 clarifies that the right to opt out applies regardless of whether a consumer has established a member or nonmember customer relationship with a credit union. As noted above, all members or nonmember customers are consumers under the proposed rules. Thus, the fact that a consumer establishes a member or nonmember customer relationship with a credit union does not change the credit union's obligations to comply with the requirements of proposed § 716.7(a) before sharing nonpublic personal information about that consumer with nonaffiliated third parties. This also applies in the context of a consumer who had a member or nonmember customer relationship with a credit union but then terminated that relationship. Paragraph (b) also clarifies that the consumer protections afforded by paragraph (a) of proposed § 716.7 apply to all nonpublic personal information collected by a credit union, regardless of when collected. Thus, if a consumer elects to opt out of information sharing with nonaffiliated third parties, that election applies to all nonpublic personal information about that consumer in the credit union's possession, regardless of when the information is obtained.

Paragraph (c) of proposed § 716.7 states that a credit union may, but is not required to, provide consumers with the option of a partial opt out in addition to the opt out required by this section. This could enable a consumer to limit, for instance, the types of information disclosed to nonaffiliated third parties or the types of recipients of the nonpublic personal information about that consumer. If the partial opt out option is provided, a credit union must state this option in a way that clearly informs the consumer about the choices available and consequences thereof.

Paragraph (a) of proposed § 716.8 requires that any opt out notice provided by a credit union under § 716.7 must be clear and conspicuous and accurately explain the right to opt out. The notice must inform the consumer that the credit union may disclose nonpublic personal information to nonaffiliated third parties, state that the consumer has a right to opt out, and provide the consumer with a reasonable means by which to opt out.

The examples that follow the general rule state that a credit union will adequately provide notice of the right to opt out if it: identifies the categories of information that may be disclosed; the categories of nonaffiliated third parties to whom the information may be disclosed; and that the consumer may opt out of those disclosures. A credit union that plans to disclose only limited types of information or to only a specific type of nonaffiliated third party may provide a correspondingly narrow notice to consumers. However, to minimize the number of opt out notices a credit union must provide, the credit union may wish to base its notices on current and anticipated information sharing plans. A new opt out notice is not required for disclosures to different types of nonaffiliated third parties or of different types of information, provided that the most recent opt out notice is sufficiently broad to cover the entities or information in question. Nor is a credit union required to provide subsequent opt out notices when a consumer establishes a new type of relationship with that credit union, such as becoming a member or nonmember customer, unless the credit union's opt out policies differ depending on the type of member or nonmember customer relationship.

The examples also suggest several ways in which a credit union may provide reasonable means to opt out, including check-off boxes, self-addressed stamped reply forms, and electronic mail addresses. A credit union does not provide a reasonable means of opting out in the opt out notice by requiring consumers to send their own letter informing the credit union of an opt out election. A credit union may honor letters, particularly with respect to delayed opt outs as described in paragraph (d).

Paragraph (b) applies the same rules to delivery of the opt out notice that apply to delivery of the initial and annual notices. In addition, paragraph (b) clarifies that the opt out notice may be provided together with, or on the same form as, the initial and annual notices. However, if the opt out notice is provided after the initial notice, a credit union must provide a copy of the initial notice along with the opt out notice. If a credit union and consumer orally agree to enter into a customer relationship, the credit union may provide the opt out notice within a reasonable time thereafter if the consumer agrees. NCUA invites comment on whether a more specific time by which the notice must be given would be appropriate.

Paragraph (c) sets out the rules governing a credit union's obligations in the event the credit union changes its disclosure policies. As stated in that paragraph, a credit union may not disclose nonpublic personal information to a nonaffiliated third party unless the credit union first provides a revised notice and new opportunity to opt out. The credit union must wait a period of time that is reasonable under the circumstances before disclosing information according to the terms of the revised notice in order to afford the consumer a reasonable opportunity to opt out. A credit union must provide the revised notice of its policies and practices and opt out notice to a consumer using the means permitted for providing the initial notice and opt out notice to that consumer under § 716.4(c) or § 716.8(b), respectively, which require that the notices be given in a manner so that each consumer can reasonably be expected to receive actual notice in writing or, if the consumer agrees, in electronic form.

Paragraph (d) states that a consumer has the right to opt out at any time. NCUA considered whether to include a time limit by which credit unions must effectuate a consumer's opt out election, but decided that the wide variety of practices of credit unions made one limit inappropriate. Instead, NCUA's rule requires that the sharing of nonpublic personal information stop promptly.

Paragraph (e) states that an opt out will continue until a consumer revokes it. The rules require that such revocation be in writing, or, if the consumer has agreed, electronically.

NCUA requests comment on the regulatory burden of complying with opt out notices. How do credit unions expect to give opt out opportunities? How many opt outs do credit unions expect to receive and need to process?

Section 502(b) of the GLB Act creates an exception to the opt out rules for the disclosure of information to service providers and for marketing. A consumer will not have the right to opt out of disclosing nonpublic personal information about the consumer to nonaffiliated third parties under these circumstances, if the credit union satisfies certain requirements.

First, the credit union must, as stated in section 502(b), “fully disclose” to the consumer that it will provide this information to the nonaffiliated third party before the information is shared. This disclosure should be provided as part of the initial notice that is required by § 716.4. NCUA invites comment on whether the proposed rules appropriately implement the requirement of “full” disclosure in section 502(b).

Second, the credit union must enter into a contract with the third party that requires the third party to maintain the confidentiality of the information. This contract should be designed to ensure that the third party (a) will maintain the confidentiality of the information at least to the same extent as is required for the credit union that discloses it, and (b) will use the information solely for the purposes for which the information is disclosed or as otherwise permitted by §§ 716.10 and 716.11 of the proposed rules. NCUA invites comment on the application of proposed § 716.9(a)(2)(ii) in the context of credit unions that contract with credit scoring vendors to evaluate borrower creditworthiness. Specifically, would that section prohibit the vendor from using the consumer's information without the indicators of personal identity to re-validate the underlying model? Would using the information in this manner be beyond the lender's immediate purpose of determining the consumer's propensity to perform acceptably?

The GLB Act allows the Agencies to impose requirements on the disclosure of information pursuant to the exception for service providers beyond those imposed in the statute. NCUA, like the other Agencies, has not done so in the proposed rules, but NCUA invites comment on whether additional requirements should be imposed, and, if so, what those requirements should address. NCUA notes, for instance, that joint agreements have the potential to create reputation risk and legal risk for a credit union entering into such an agreement. NCUA seeks comment on whether the rule should require a credit union to take steps to assure itself that the product being jointly marketed and the other participants in the joint marketing agreement do not present undue risks for the credit union. These might include, for instance, ensuring that the credit union's sponsorship of the product or service in question is evident from the marketing of that product or service. NCUA also invites comments on any other requirements that would be appropriate to protect a consumer's financial privacy, and on whether the rules should provide examples of the types of joint agreements that are covered.

Section 502(e) of the GLB Act creates exceptions to the requirements that apply to the disclosure of nonpublic personal information to nonaffiliated third parties. Paragraph (1) of that section sets out certain exceptions for disclosures made, generally speaking, in connection with the administration, processing, servicing, and sale of a consumer's account.

Paragraph (a) of proposed § 716.10 sets out those exceptions, making only stylistic changes to the statutory text that are intended to make the exceptions easier to read. Paragraph (b) sets out the definition of “necessary to effect, administer, or enforce” that is contained in section 509(7) of the GLB Act.

The exceptions set out in proposed § 716.10, and the exceptions discussed in proposed § 716.11, below, do not affect a credit union's obligation to provide initial notices of its privacy policies and practices prior to the time it establishes a member or nonmember customer relationship and annual notices thereafter. Those notices must be provided to all members and nonmember customers, even if the credit union intends to disclose the nonpublic personal information only pursuant to the exceptions in § 10.

As noted above, section 502(e) contains several exceptions to the requirements that otherwise would apply to the disclosures of nonpublic personal information to nonaffiliated third parties. Proposed § 716.11 sets out those exceptions that are not made in connection with the administration, processing, servicing, and sale of a consumer's account.

One of the exceptions stated in proposed § 716.11 is for disclosures made with the consent or at the direction of the consumer, provided the consumer has not revoked the consent. Following the list of exceptions is an example of consent in which a credit union that has received an application from a consumer for a mortgage loan informs a nonaffiliated insurance company that the consumer has applied for a loan and may need to purchase homeowner's insurance. Consent in such a situation would enable the credit union to make the disclosure to the third party without first providing the initial notice required by § 716.4 or the opt out notice required by § 716.7, but the disclosure must not exceed the purposes for which consent was given. The example also states that consent may be revoked by a consumer at any time by the consumer exercising the right to opt out of future disclosures. NCUA invites comment on whether safeguards should be added to the exception for consent in order to minimize the potential for consumer confusion. Such safeguards might include, for instance, that consent be written or that it be indicated on a separate signature line in a relevant document or on a distinct Web page.

Section 716.12 of the proposed rule implements the GLB Act's limitations on redisclosure and reuse of nonpublic personal information about consumers. Section 502(c) provides that a nonaffiliated third party that receives nonpublic personal information from a financial institution shall not, directly or through an affiliate of the third party, disclose the information to any person that is not affiliated with either the financial institution or the third party, unless the disclosure would be lawful if made directly by the financial institution. Paragraph (a)(1) sets out the GLB Acts redisclosure limitation as it applies to a credit union that receives information from another financial institution. Paragraph (b)(1) mirrors the provisions of paragraph (a)(1), but applies the redisclosure limits to any nonaffiliated third party that receives nonpublic personal information from a credit union.

The GLB Act appears to place the institution that receives the information into the shoes of the institution that disclosed the information for purposes of determining whether redisclosures by the receiving institution are “lawful.” Thus, the GLB Act appears to permit the receiving institution to redisclose the information to (1) an entity to whom the original transferring institution could disclose the information pursuant to one of the exceptions in §§ 716.9, 716.10, or 716.11, or (2) an entity to whom the original transferring institution could have disclosed the information as described under its privacy policies and practices, unless the consumer has exercised the right to opt out of that disclosure. Because a consumer can exercise the right to opt out of a disclosure at any time, the GLB Act may effectively preclude third parties that receive information to which the opt out right applies from redisclosing the information, except pursuant to one of the exceptions in §§ 716.9, 716.10, or 716.11. NCUA invites comment on whether the rule should require a credit union that discloses nonpublic personal information to a nonaffiliated third party to develop policies and procedures to ensure that the third party complies with the limits on redisclosure of that information.

Sections 502(b)(2) and 502(e)(as implemented by §§ 716.9, 716.10, and 716.11 of the proposed rule) describe when a financial institution may disclose nonpublic personal information without providing the consumer with the initial privacy notice and an opportunity to opt out, but those exceptions apply only when the information is used for the specific purposes set out in those sections. Paragraph (a)(2) of proposed § 716.12 clarifies this limitation on reuse as it applies to credit unions. Paragraph (a)(2) provides that a credit union may use nonpublic personal information about a consumer that it receives from a nonaffiliated financial institution in accordance with an exception under §§ 716.9, 716.10, or 716.11, only for the purpose of that exception. Paragraph (b)(2) applies the same limits on reuse to any nonaffiliated third party that receives nonpublic personal information from a credit union.

NCUA invites comment on the meaning of the word “lawful” as that term is used in section 502(c). NCUA specifically solicits comment on whether it would be lawful for a nonaffiliated third party to disclose information pursuant to the exception provided in proposed § 716.9. Under that exception, a credit union must comply with certain requirements before disclosing information to a nonaffiliated third party. Given that the statute and proposed rules impose those requirements on credit unions making the initial disclosure, NCUA invites comment on whether subsequent disclosures by the third party could satisfy the requirement that those disclosures be lawful when the credit union is not party to the subsequent disclosure.

Section 502(d) of the GLB Act prohibits a financial institution from disclosing, other than to a consumer reporting agency, an account number or similar form of access number or access code for a credit card account, deposit account, or transaction account of a consumer to any nonaffiliated third party for use in telemarketing, direct mail marketing, or other marketing through electronic mail to the consumer. Proposed § 716.13 restates this statutory prohibition with minor stylistic changes intended to make the rule easier to read.

NCUA notes that there is no exception in Title V to the flat prohibition established by section 502(d). The Statement of Managers contained in the Conference Report to S. 900 encourages the Agencies to adopt an exception to section 502(d) to permit disclosures of account numbers in limited instances. It states—

NCUA, like the other Agencies, has not included an exception to the prohibition of section 502(d) in the proposed rules, however, because of concerns about the potential for abuse that exists when someone other than a credit union is able to access a consumer's account.

NCUA seeks comment on whether section 502(d) prohibits the disclosure by a credit union to a marketing firm of encrypted account numbers if the credit union does not provide the marketer the key to decrypt the number, and on whether an exception to the section 502(d) prohibition could avoid creating the risks that may arise when a third party is provided access to a consumer's account. NCUA also seeks comment on whether a flat prohibition as set out in section 502(d) might unintentionally disrupt routine, unobjectionable practices, such as the disclosure of account numbers to a service provider who handles the preparation and distribution of monthly checking account statements for a credit union coupled with a request by the institution that the service provider include literature with the statement about a product. In addition, NCUA invites comment on whether a consumer ought to be able to consent to the disclosure of his or her account number notwithstanding the general prohibition in section 502(d) and, if so, what standards should apply.

Section 506 makes several amendments to the FCRA to vest rulemaking authority in various agencies and to restore the Agencies' regular examination authority. Paragraph (c) of section 506 states that, except for the amendments noted regarding rulemaking authority, nothing in Title V is to be construed to modify, limit, or supersede the operation of the FCRA, and no inference is to be drawn on the basis of the provisions of Title V whether information is transaction or experience information under section 603 of the FCRA.

Proposed § 716.14 implements section 506(c) of the GLB Act by restating the statute, making only minor stylistic changes intended to make the rule clearer.

Section 507 of the GLB Act states, in essence, that Title V does not preempt any state law that provides greater protections than are provided by Title V. Determinations of whether a state law or Title V provides greater protections are to be made by the Federal Trade Commission (FTC) after consultation with the agency that regulates either the party filing a complaint or the credit union about whom the complaint was filed. Determinations of whether state or federal law afford greater protections may be initiated by any interested party or on the FTC's own motion.

Proposed § 716.15 is substantively identical to section 507, noting that the proposed rules (as opposed to the statute) do not preempt state laws that provide greater protection for consumers than does the regulation.

Section 510 of the GLB Act states that, as a general rule, the relevant provisions of Title V take effect 6 months after the date on which rules are required to be prescribed. However, section 510(1) authorizes the Agencies to prescribe a later date in the rules enacted pursuant to section 504. The provisions in sections 504 and 506 that vest various agencies with rulemaking authority have been effective as of the date on which the GLB Act was enacted, namely, November 12, 1999.

Proposed § 716.16 states, in paragraph (a), an effective date of November 13, 2000. This assumes that a final rule will be enacted within the time frame prescribed by section 504(a)(3). NCUA intends to provide at least six months following the enactment of a final rule for credit unions to bring their policies and procedures into compliance with the requirements of the final rule. NCUA invites comment on whether six months following adoption of final rules is sufficient to enable credit unions to comply with the rules.

Paragraph (b) of proposed § 716.16 provides a transition rule for consumers who were members or nonmember customers as of the effective date of the rules. Those member or nonmember customer relationships already will have been established as of the effective date so, the rules require that the initial notice be provided within 30 days of the effective date. NCUA invites comment on whether 30 days is enough time to permit a credit union to deliver the required notices, bearing in mind that the GLB Act contemplates at least a six-month delayed effective date from the date the rules are adopted.

If a credit union intends to disclose nonpublic personal information about someone who was a consumer before the effective date but who has not obtained any financial product or service from the credit union since then, it must first provide the notices required by §§ 716.4 and 716.7 and provide a reasonable opportunity to opt out.

If, in this instance, the credit union already is disclosing information about such a consumer, it may continue to do so without interruption until the consumer opts out, in which case the credit union must stop disclosing nonpublic personal information about that consumer to nonaffiliated third parties as soon as reasonably practicable.

This provision requires all federally-insured credit unions to adhere to the provisions in part 716.

NCUA invites comment on:

(1) Whether the collections of information in the proposed 12 CFR part 716 are necessary for the proper performance of NCUA's functions, including whether the information has practical utility;

(2) The accuracy of NCUA's estimate of the burden of the information collections;

(3) Ways to enhance the quality, utility, and clarity of the information NCUA must collect under this regulation;

(4) Ways to minimize the burden of the information collections on credit unions, including the use of automated collection techniques or other forms of information technology; and

(5) Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

Recordkeepers are not required to respond to this collection of information unless it displays a currently valid Office of Management and Budget (OMB) control number. NCUA is currently requesting a control number for this information collection from OMB.

This proposed regulation contains several disclosure requirements. Credit unions must prepare and provide the initial notice to all current members and nonmember customers and all new members and nonmember customers upon the commencement of a member or nonmember customer relationship. 12 CFR 716.4(a). Subsequently, credit unions must provide an annual notice to all members and nonmember customers at least once during a twelve-month period during the continuation of the member or nonmember customer relationship. 12 CFR 716.5(a). The credit union must provide the consumer with the opt out notice (and partial opt out notice, if applicable ( see 12 CFR 716.7(a)(1)(iii)) prior to disclosing nonpublic personal information to certain nonaffiliated third parties. If a credit union wishes to disclose information in a way that is inconsistent with the notices previously given to a consumer, the credit union must provide consumers with revised notices. 12 CFR 716.8(c)).

This proposed regulation contains consumer reporting requirements. In order for consumers to invoke their right to opt out, they must respond to the credit union's opt out notice. 12 CFR 716.7(a)(2), (3)(i), and (c). The consumer has the right to change or update their opt out status with the credit union at any time. 12 CFR 716.8(d) and (e).

NCUA requests public comment on all aspects of the collections of information contained in this proposed rule, including consumer responses to the opt out notice and consumer changes to their opt out status with a credit union. In light of the uncertainty regarding what credit unions will do to comply with the opt out requirements and how consumers will react, NCUA estimates a nominal burden stemming from consumer responses of one hour per credit union, and will revisit this estimate in light of the comments NCUA receives.

NCUA will submit the collection of information requirements contained in the regulation to the OMB in accordance with the Paperwork Reduction Act of 1995. 44 U.S.C. 3507. The NCUA will use any comments received to develop its new burden estimates. Comments on the collections of information should be sent to Office of Management and Budget, Reports Management Branch, New Executive Office Building, Room 10202, Washington, DC 20503; Attention: Alex T. Hunt, Desk Officer for NCUA. Please send NCUA a copy of any comments you submit to OMB.

The likely respondents are federally-insured credit unions.

Estimated number of respondents: 10,627.

Estimated average annual burden hours per respondent: 45 hours.

Estimated total annual disclosure and recordkeeping burden: 478,215.

The Regulatory Flexibility Act requires NCUA either to prepare an initial regulatory flexibility analysis (IRFA) with this proposed rule or certify that the proposed rule would not have a significant economic impact on a substantial number of small credit unions. For purposes of the Regulatory Flexibility Act and in accordance with NCUA's authority under 5 U.S.C. 601(4), NCUA has determined that small credit unions are those with less than one million dollars in assets. See 12 CFR 791.8(a). NCUA cannot at this time determine whether the proposed rule would have a significant economic impact on a substantial number of small credit unions. Therefore, NCUA includes the following IRFA.

The supplementary material above contains a description of the reasons why NCUA is considering action and a statement of the objectives of, and legal basis for, the proposed rule. NCUA's proposed rule will apply to approximately 1,626 small credit unions, out of a total of approximately 10,627 federally-insured credit unions.

Overlap with other federal rules . While the scope of the proposed regulation (pursuant to the GLB Act) is unique, it may, in certain circumstances, overlap with the following statutes and regulations:

1. The Fair Credit Reporting Act (15 U.S.C. 1681a(d)(2)) requires a credit union that (i) does not want to be treated as a consumer reporting agency and (ii) desires to share certain consumer information (that is, application or credit report information) with its affiliates, to provide the consumer with a clear and conspicuous notice and an opportunity to opt out of such information sharing.

2. At the time a consumer contracts for an electronic fund transfer service, the Electronic Funds Transfer Act (15 U.S.C. 1693c(a)(9)) requires the credit union to disclose the terms and conditions of the transfer, including under what circumstances the credit union will in the ordinary course of business disclose information concerning the consumer's account to third persons.

3. The recently proposed Department of Health and Human Services regulations that implement the Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. 3120d-1 et seq. ) would, if adopted in final form, limit the circumstances under which medical information may be disclosed. 64 FR 59918 (Nov. 3, 1999).

4. The Children's Online Privacy Protection Act of 1998 (15 U.S.C. 6502) (under which the NCUA must enforce the Federal Trade Commission's implementing regulations) generally requires online service operators collecting personal information from a child to obtain parental consent and post a privacy notice on the web site.

New compliance requirements . The proposed rule contains new compliance requirements for credit unions, most of which are required by the GLB Act. The credit unions will be required to prepare notices of their privacy policies and practices and provide those notices to consumers as the rule specifies. Credit unions that disclose nonpublic personal information about consumers to nonaffiliated third parties will be required to provide opt out notices to consumers as well as a reasonable opportunity to opt out of certain disclosures. Credit unions will have to develop systems for keeping track of consumers' opt out directions. Some credit unions, particularly those that decide to disclose nonpublic information about consumers to nonaffiliated third parties, will likely need the advice of legal counsel to ensure that they comply with the rule, and may also require computer programming changes and additional staff training. NCUA does not have a practicable or reliable basis for quantifying the costs of the proposed rule or any alternatives, but seeks comment on the potential costs.

Exemptions for small credit unions . NCUA seeks comment on whether the requirements of the Act and this rule will create additional burden for small credit unions, particularly those that disclose nonpublic personal information about consumers to nonaffiliated third parties. The rule applies to all federally-insured credit unions, regardless of size. The Act does not provide NCUA with the authority to exempt a small credit union from the requirement to provide a notice of its privacy policies and practices to a consumer with whom it establishes a member or nonmember customer relationship. Although NCUA could exempt small credit unions from providing a notice and opportunity for consumers to opt out of certain information disclosures, NCUA does not believe that such an exemption would be appropriate, given the purpose of the Act to protect the confidentiality and security of nonpublic personal information about consumers. NCUA believes that the burden is relatively small for credit unions that do not disclose nonpublic personal information about consumers to nonaffiliated third parties. These credit unions may provide relatively simple initial and annual notices to consumers with whom they establish member or nonmember customer relationships.

NCUA recognizes that the Congressional Conferees on the Act wished to ensure that smaller financial institutions are not placed at a competitive disadvantage by a statutory regime that permits certain information to be shared freely within an affiliate structure while limiting the ability to share that same information with nonaffiliated third parties. The Conferees stated that, in prescribing regulations, the federal regulatory agencies should take into consideration any adverse competitive effects upon small commercial banks, thrifts, and credit unions. See H.R. Conf. Rep. No. 106-434, at 173 (1999). At this time, it is not clear if information-sharing among affiliates in large institutional entities will place small credit unions at a disadvantage. NCUA believes that further experience under the regulation would be appropriate before considering any exemptions in this area for small credit unions.

NCUA requests comment on the burdens associated with the proposed rule and whether any exemptions for small credit unions would be appropriate.

Executive Order 13132 encourages independent regulatory agencies to consider the impact of their regulatory actions on state and local interests. In adherence to fundamental federalism principles, NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order. This proposed rule, if adopted, will apply to all federally-insured credit unions, but it will not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. Section 507 of the GLB Act states that state law may provide greater consumer protections than this proposed rule. In that event, federal law would not preempt state law. NCUA has determined the proposed rule does not constitute a policy that has federalism implications for purposes of the Executive order.

NCUA has determined that the proposed rule will not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat. 2681 (1998).

NCUA's goal is clear, understandable regulations that impose minimal regulatory burden. We request your comments on whether the proposed amendment is understandable and minimally intrusive if implemented as proposed.

Interested persons are invited to participate in the making of the proposed rule by submitting such written data, views, or arguments as they may desire. Communications should identify the Rules Docket number and be submitted in triplicate to the address specified above. All communications received on or before the closing date for comments, specified above, will be considered before taking action on the proposed rule. The proposals contained in this notice may be changed in light of the comments received.

Comments are specifically invited on the overall regulatory, economic, environmental, and energy aspects of the proposed rule. All comments submitted will be available, both before and after the closing date for comments, in the Rules Docket for examination by interested persons. A report summarizing each FAA-public contact concerned with the substance of this proposal will be filed in the Rules Docket.

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this notice must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. 99-SW-43-AD.” The postcard will be date stamped and returned to the commenter.

Any person may obtain a copy of this NPRM by submitting a request to the FAA, Office of the Regional Counsel, Southwest Region, Attention: Rules Docket No. 99-SW-43-AD, 2601 Meacham Blvd., Room 663, Fort Worth, Texas 76137.

Transport Canada, the airworthiness authority for Canada, notified the FAA that an unsafe condition may exist on BHTC Model 222, 222B, 222U, and 230 helicopters. Transport Canada advises that an inspection revealed a fractured bolt due to stress corrosion. Stress-corrosion from a combination of mechanical wear, fatigue, and environmental exposure caused the bolt to fail.

BHTC has issued Alert Service Bulletins (ASB's) 230-98-15, 222-98-83, and 222U-98-54, all dated October 12, 1998, which specify inspecting the bolts and replacing each bolt that shows thread damage, shank wear, or corrosion pitting with an airworthy bolt. Transport Canada classified these ASB's as mandatory and issued AD's CF-99-12 and CF-99-13, both dated April 21, 1999, to ensure the continued airworthiness of these helicopters in Canada.

These helicopter models are manufactured in Canada and are type certificated for operation in the United States under the provisions of section 21.29 of the Federal Aviation Regulations (14 CFR 21.29) and the applicable bilateral airworthiness agreement. Pursuant to this bilateral airworthiness agreement, Transport Canada has kept the FAA informed of the situation described above. The FAA has examined the findings of Transport Canada, reviewed all available information, and determined that AD action is necessary for products of these type designs that are certificated for operation in the United States.

Since an unsafe condition has been identified that is likely to exist or develop on other BHTC Model 222, 222B, 222U, and 230 helicopters of the same type designs registered in the United States, the proposed AD would require inspecting the bolts and replacing each bolt that shows thread damage, shank wear, or corrosion with an airworthy bolt.

The FAA estimates that 101 helicopters of U.S. registry would be affected by this proposed AD, that it would take approximately 3 work hours per helicopter to accomplish the proposed actions, and that the average labor rate is $60 per work hour. Required parts would cost approximately $20 per bolt. Based on these figures, the total cost impact of the proposed AD on U.S. operators is estimated to be $20,200.

The regulations proposed herein would not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, it is determined that this proposal would not have federalism implications under Executive Order 13132.

For the reasons discussed above, I certify that this proposed regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and (3) if promulgated, will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. A copy of the draft regulatory evaluation prepared for this action is contained in the Rules Docket. A copy of it may be obtained by contacting the Rules Docket at the location provided under the caption ADDRESSES.

Accordingly, pursuant to the authority delegated to me by the Administrator, the Federal Aviation Administration proposes to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows:

In 1992 the Department adopted its rules governing CRS operations, 14 CFR Part 255, because almost all airlines operating in the United States relied on the CRSs in marketing their airline services. 57 FR 43780 (September 22, 1992). We found that the rules were necessary to ensure that the owners of the systems—all of which were then airlines or airline affiliates—did not use them to unreasonably prejudice the competitive position of other airlines or to provide misleading or inaccurate information to travel agents and their customers. Travel agents relied on CRSs to provide airline information and make bookings for their customers, and almost all airlines received most of their bookings from travel agencies. These factors made CRS rules necessary. As revised, our rules will expire on March 31, 2000, unless we readopt them or extend the expiration date. 64 FR 15127 (March 30, 1999). We began a proceeding to determine whether the rules are necessary and should be readopted and, if so, whether they should be modified, by issuing an advance notice of proposed rulemaking. 62 FR 47606 (September 10, 1997). We are proposing here to extend the expiration date for the current rules to March 31, 2001, so that they will remain in force while we conduct our overall reexamination of the rules.

We have set a short comment period of ten days so that we can publish a final decision on this proposal before the rules' current expiration date. Our advance notice of proposed rulemaking has given interested persons an opportunity to comment on whether the rules should be maintained. Almost all of the commenters support a continuation of the rules, albeit with changes, and virtually none urges us to end the rules.

Four firms provide CRS services in the United States. Each of them is affiliated with one or more U.S. or foreign airlines, although public shareholders now hold a significant amount of stock in three of them. A CRS provides information on airline services and other travel services sold through the system to its users, who are typically travel agents but include consumers using Internet reservations services and corporate travel departments. A person using a CRS can find out what airline seats and fares are available and book a seat on each airline that “participates” in the system, that is, that makes its services saleable through the CRS. Travel agents access a CRS through computer terminals.

Most of the revenues received by the systems consist of the fees paid by airlines and other travel suppliers participating in a system. An airline participant pays a fee whenever a booking on that airline is made through the system (most systems also charge fees for related transactions, such as booking changes and cancellations). Other travel suppliers pay similar fees. Many, but not all, travel agencies subscribing to a system also pay fees, but such subscriber fees, unlike airline fees, are generally disciplined by competition. The systems' competition for subscribers enables some travel agencies to obtain CRS equipment and services at little or no charge.

The Civil Aeronautics Board (“the Board”), the agency formerly responsible for the economic regulation of the airline industry, initially adopted the CRS rules. The Board did so because the systems had become essential for airline distribution in the early 1980s due to the travel agents' reliance on the systems for investigating and booking airline services. 49 FR 32540 (August 15, 1984). At that time each system operating in the United States, with one minor exception, was owned by a single airline, and each owner airline was using its system to prejudice competing airlines and to give consumers biased or incomplete information in order to obtain more bookings. The Board found that regulations were essential to keep the systems from substantially injuring airline competition and from misleading consumers. The Board adopted its regulations primarily under its authority under section 411 of the Federal Aviation Act, later recodified as 49 U.S.C. 41712, to prevent unfair methods of competition and unfair and deceptive practices in air transportation and the sale of airline transportation. The Board's rules were affirmed on review. United Air Lines v. CAB, 766 F.2d 1107 (7th Cir. 1985).

The Board's major rules required each system to make participation available to all airlines on non-discriminatory terms, to offer at least one unbiased display, and to make available to each airline participant any marketing and booking data from bookings for domestic travel that it chose to generate from its system. The rules also prohibited certain CRS contract terms that limited the travel agencies' ability to switch systems or use more than one system.

The Board's rules contained a sunset date to ensure that they would be reexamined, December 31, 1990. Since we became responsible for airline economic regulation after the Board's sunset on December 31, 1984, we conducted that reexamination. During our reexamination we maintained the rules by extending their expiration date. 55 FR 53149 (December 27, 1990); 56 FR 60915 (November 29, 1991); 57 FR 22643 (May 29, 1992).

Our reexamination caused us to readopt the rules with several revisions designed to strengthen them. 57 FR 43780 (September 22, 1992). We determined that the rules were still necessary. Market forces did not discipline the price or level of service offered participating airlines by the systems. In addition, without rules CRS owners could use their control of the systems to prejudice airline competition, and the systems could bias their displays of airline services. 57 FR at 43783-43787.

Like the Board, we included a sunset date—December 31, 1997—in our rules. 14 CFR 255.12; 57 FR at 43829-43830 (September 22, 1992). We began our current reexamination of the rules by publishing an advance notice of proposed rulemaking requesting comments on whether we should readopt the rules and, if so, with what changes. 62 FR 47606 (September 10, 1997). We then amended the rules twice to further promote competition. 62 FR 59784 (November 5, 1997); 62 FR 66272 (December 18, 1997). We adopted those amendments largely because market forces did not appear to discipline the CRS firms' terms for airline participation.

Almost all of the parties responding to our advance notice of proposed rulemaking urged us to maintain CRS rules, although they also argued that the rules required changes, mostly changes that would strengthen them. No party urged us to eliminate the rules, and few disputed the need for the continued regulation of the CRS business. Thus we believe that an extension of the current rules pending completion of the current reexamination of those rules would be consistent with the positions already taken by the commenters.

Because we could not complete our reexamination of the rules by the original sunset date, December 31, 1997, we have amended the rules twice to extend them, first to March 31, 1999, and then to March 31, 2000. 62 FR 66272 (December 18, 1997); 64 FR 15127 (March 30, 1999). We found the extensions necessary to prevent the harm that would arise if the CRS business were not regulated, and we concluded that extending the rules would not impose substantial costs on the industry. The only party that commented on the first proposed extension—America West Airlines—supported it, as did three parties that commented on the second proposed extension—Amadeus Global Distribution System, America West, and the Association of Asia-Pacific Airlines. Worldspan's comment on the second proposed extension did not oppose the extension.

We are again proposing to change the expiration date for our CRS rules to March 31, 2001, so that the rules will remain in effect while we conduct our reexamination of the need for the rules and the rules' effectiveness. The completion of our overall reexamination of our rules, including the need to give parties an adequate opportunity to file comments and reply comments in response to our future notice of proposed rulemaking, will require substantial time and cannot be finished by the current expiration date, March 31, 2000. In addition, the rulemaking has increasingly come to involve issues related to the distribution of airline services over the Internet, which will require additional time for analysis.

We are aware that the delay in completing the reexamination of the rules is unfortunate due to the importance of adapting our rules on CRS operations to current industry conditions. We have had to address other airline competition issues that required expedited action, however. In addition, such industry developments as the continuing and rapid growth of Internet services and the major airlines' cuts in travel agency commissions on bookings made both by traditional travel agencies and Internet services require additional study by the staff. At the same time, notwithstanding the desirability of updating the current rules, those rules appear to address the most serious potential competitive and consumer protection issues created by the use of computer reservations systems in airline distribution.

A number of parties have requested prompt action on certain additional CRS regulations, such as rules limiting airline booking fees and giving travel agency subscribers additional rights to cancel CRS contracts. See, e.g., the petition filed by America West on airline booking fees; the Emergency Petition for Rulemaking filed by the Association of Retail Travel Agents in Docket OST-98-4775 on travel agency contracts; and the petition filed by Amadeus in Docket OST-99-5888 on the tying of an airline's corporate discount fares with the agency's use of that airline's CRS. We recognize that some issues may be of such overriding importance that they should be addressed before the completion of the overall reexamination of the rules.

We tentatively conclude that we should amend the rules to change the sunset date from March 31, 2000, to March 31, 2001. This proposed temporary extension of the current rules will preserve the status quo until we determine which rules, if any, should be adopted. Allowing the current rules to expire would be disruptive, since the systems, airlines, and travel agencies have been conducting their operations in the expectation that each system will comply with the rules. Systems, airlines, and travel agencies, moreover, would be unreasonably burdened if the rules were allowed to expire and we later determined that those rules (or similar rules) should be adopted, since they could have changed their business methods in the meantime.

The principal basis for extending the rules is the need to protect airline competition and consumers against unreasonable practices. Our past examinations of the CRS business and airline marketing convinced us that CRSs were still essential for the marketing of the services of almost all airlines. 57 FR 43780, 43783-43784 (September 22, 1992). We found that rules were needed because the airlines depended on travel agencies as their principal distribution arm, because travel agencies relied on CRSs, because most travel agency offices used only one CRS, because creating alternatives for CRSs and getting travel agencies to use them had been difficult, and because non-owner airlines were unable to cause agencies to use a CRS that provided airlines better or less expensive service instead of another that provided poorer or more expensive service. 57 FR at 43783-43784, 43831. If an airline did not participate in a system used by a travel agency, that agency was less likely to book its customers on that airline. Since marginal revenues are important in the airline industry, an airline could not afford to lose access to a significant source of revenue. An airline (or other firm) could not practicably create a system that could compete with the existing systems. Almost all airlines therefore had to participate in each CRS, and CRSs did not need to compete for airline participants. 57 FR at 43783-43784.

We believe that these findings are still valid. Travel agencies still make most airline bookings in the United States, travel agencies still rely heavily on CRSs to determine what airline services are available and to make bookings, and few travel agency offices make extensive use of more than one CRS. That CRS participation is essential for almost all airlines is demonstrated by the decision of the low-fare airlines to participate in each system, even though several initially believed that they could reduce their costs while not forfeiting much traffic by declining to participate in the systems. 62 FR at 47608. The rapid growth in the use of the Internet by consumers may not reduce the importance of the systems, for Internet sites (except many airline sites) typically use a system as their booking engine. We doubt that the systems' growing proportion of public shareholders has invalidated our earlier findings, although that may change in the future.

As noted above, almost all of the parties that responded to the advance notice of proposed rulemaking stated that the rules remained necessary, and most urged us to strengthen them further to protect airlines and travel agencies against potential abuses by system owners.

Thus, while our staff has not completed its current study of the CRS business and we have not issued a notice of proposed rulemaking finding that the rules should be readopted, we tentatively find that our past findings on the need for CRS rules are still valid, at least for the purpose of a short-term extension of the rules' expiration date. Maintaining the current rules will protect airline competition and consumers against the injuries that would otherwise occur, given our earlier findings on the market power of the systems and each airline owner's potential interest in using its affiliated CRS to prejudice the competitive position of other airlines. Continuing the rules in effect should not impose significant costs on the systems and their owners, since they have already adjusted their operations to comply with the rules and since the rules do not impose costly burdens of a continuing nature on the systems.

Finally, our obligation under section 1102(b) of the Federal Aviation Act, recodified as 49 U.S.C. 40105(b), to act consistently with the United States' obligations under treaties and bilateral air services agreements further supports our continuation of the rules. Many of those bilateral agreements assure the airlines of each party a fair and equal opportunity to compete. We have held that the fair and equal opportunity to compete includes, among other things, a right to have an airline's services fairly displayed in CRSs. Our rules against display bias and discriminatory treatment help to provide foreign airlines with a fair and equal opportunity to compete in the United States. 57 FR at 43791-43792. The European Union, Canada, and Australia, for example, have adopted rules regulating CRS operations that help give U.S. airlines a fair opportunity to sell their services in the countries covered by the rules.

This rulemaking is a nonsignificant regulatory action under section 3(f) of Executive Order 12866 and has not been reviewed by the Office of Management and Budget under that order. The proposal is also not significant under the regulatory policies and procedures of the Department of Transportation, 44 FR 11034.

Keeping the current rules in force should not impose significant costs on the systems. They have already taken all the steps necessary to comply with the rules' requirements on displays and functionality, and complying with those rules on a continuing basis does not impose a substantial burden on the systems. Maintaining the rules will benefit participating airlines, since otherwise they could be subjected to unreasonable terms for participation, and will benefit consumers, who might otherwise obtain incomplete or inaccurate information on airline services. The rules also contain provisions that are designed to prevent abuses in the systems' competition with each other for travel agency subscribers.

When we conducted our last major CRS rulemaking, we included a tentative regulatory impact statement in our notice of proposed rulemaking and made that analysis final when we issued our final rule. We believe that analysis remains applicable to our proposal to extend the rules' expiration date. As a result, no new regulatory impact statement appears to be necessary. However, we will consider comments from any party on that analysis before we make our proposal final.

This rule does not impose unfunded mandates or requirements that will have any impact on the quality of the human environment.

The Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et seq. , was enacted by Congress to ensure that small entities are not unnecessarily and disproportionately burdened by government regulations. The act requires agencies to review proposed regulations that may have a significant economic impact on a substantial number of small entities. For purposes of this rule, small entities include smaller U.S. and foreign airlines and smaller travel agencies. Our notice of proposed rulemaking sets forth the reasons for our proposed extension of the rules' expiration date and the objectives and legal basis for that proposed rule.

Furthermore, maintaining the current rules will not modify the existing regulation of small businesses. Our final rule in our last major CRS rulemaking contained a regulatory flexibility analysis on the impact of the rules. As a result of that analysis, we determined that this regulation did not have a significant economic impact on a substantial number of small entities. Our analysis appears to be valid for our proposed extension of the rules' termination date. Accordingly, we adopt that analysis as our tentative regulatory flexibility statement and will consider any comments filed on that analysis in connection with this proposal.

The continuation of our existing CRS rules will primarily affect two types of small entities, smaller airlines and travel agencies. To the extent that airlines can operate more efficiently and reduce their costs, the rules will also affect all small entities that purchase airline tickets, since airline fares may be somewhat lower than they would otherwise be, although the difference may be small.

Continuing the rules will protect smaller non-owner airlines from several potential system practices that could injure their ability to operate profitably and compete successfully. No smaller airline has a CRS ownership interest. Market forces do not significantly influence the systems' treatment of airline participants. As a result, if there were no rules, the systems' airline owners could use them to prejudice the competitive position of other airlines. The rules provide important protection to smaller airlines. For example, by prohibiting systems from ranking and editing displays of airline services on the basis of carrier identity, they limit the ability of each system to bias its displays in favor of its owner airlines and against other airlines. The rules also prohibit charging participating airlines discriminatory fees. The rules, on the other hand, impose no significant costs on smaller airlines.

The CRS rules affect the operations of smaller travel agencies, primarily by prohibiting certain CRS practices that could unreasonably restrict the travel agencies' ability to use more than one system or to switch systems. The rules prohibit CRS contracts that have a term longer than five years, give travel agencies the right to use third-party hardware and software, and prohibit certain types of contract clauses, such as minimum use and parity clauses, that restrict an agency's ability to use multiple systems. By prohibiting display bias based on carrier identity, the rules also enable travel agencies to obtain more useful displays of airline services.

Our proposed rule contains no direct reporting, record-keeping, or other compliance requirements that would affect small entities. There are no other federal rules that duplicate, overlap, or conflict with our proposed rules.

Interested persons may address our tentative conclusions under the Regulatory Flexibility Act in their comments submitted in response to this notice of proposed rulemaking.

I certify under section 605(b) of the Regulatory Flexibility Act (5 U.S.C. et seq. ) that this regulation will not have a significant economic impact on a substantial number of small entities.

This proposal contains no collection-of-information requirements subject to the Paperwork Reduction Act, Public Law. No. 96-511, 44 U.S.C. Chapter 35.

This proposed rule has been reviewed in accordance with the principles and criteria contained in Executive Order 13132, dated August 4, 1999, and it has been determined that this action does not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. This proposed rule will not limit the policymaking discretion of the States. Nothing in this proposal would directly preempt any State law or regulation. We are proposing this amendment primarily under the authority granted us by 49 U.S.C. 41712 to prevent unfair methods of competition and unfair and deceptive practices in the sale of air transportation. We believe that the policy set forth in this proposed rule is consistent with the principles, criteria, and requirements of the Federalism Executive Order and the Department's governing statute. Comments on these conclusions are welcomed and should be submitted to the docket.

Air carriers, Antitrust, Consumer protection, Reporting and recordkeeping requirements, Travel agents.

Accordingly, the Department of Transportation proposes to amend 14 CFR Part 255, Carrier-owned Computer Reservations Systems, as follows:

Exempt organizations generally must pay tax on unrelated business taxable income, as defined in section 512. Section 512(a)(1) defines unrelated business taxable income (UBTI) as the gross income derived by an organization from any unrelated trade or business (as defined in section 513) regularly carried on by it, less the deductions that are directly connected with the carrying on of the trade or business, both computed with the modifications provided in section 512(b).

Section 513(a) defines unrelated trade or business as any trade or business the conduct of which is not substantially related (aside from the need of an organization for income or funds or the use it makes of the profits derived) to the exercise or performance by the organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under section 501. Section 513(c), captioned “Advertising, Etc., Activities,” provides that the term trade or business includes any activity carried on for the production of income from the sale of goods or the performance of services, and that an activity does not lose identity as a trade or business merely because it is carried on within a larger aggregate of similar activities or within a larger complex of other endeavors which may, or may not, be related to the exempt purposes of the organization. See § 1.513-1(b).

The IRS first published a Notice of Proposed Rulemaking (1993 proposed regulations) on January 22, 1993 (58 FR 5687), proposing that the regulations under section 513 be amended to provide guidance on the proper tax treatment of sponsorship payments received by an exempt organization. The 1993 proposed regulations focused on the nature of the services provided by the exempt organization rather than the benefit received by the sponsor. The 1993 proposed regulations distinguished advertising, which is an unrelated trade or business activity, from acknowledgments, which are the mere recognition of a sponsor's payment, and therefore do not result in UBTI. Advertising was defined as any message or other programming material, broadcast or otherwise transmitted, published, displayed or distributed in exchange for any remuneration, that promotes or markets any company, service, facility or product. Acknowledgments were defined as mere recognition of sponsorship payments or identification of the sponsor rather than promotion of its products, services or facilities. Under the 1993 proposed regulations, the term acknowledgment included: sponsor logos and slogans that do not contain comparative or qualitative descriptions; locations and telephone numbers; value-neutral descriptions including displays or visual depictions; and sponsor brand or trade names and product or service listings.

In a so-called “tainting rule,” the 1993 proposed regulations provided that if any activities, messages or programming material constituted advertising with respect to a sponsorship payment, then all related activities, messages or programming material that might otherwise be acknowledgments would be considered advertising.

The 1993 proposed regulations clarified that the rules regarding corporate sponsorship apply uniformly to all sponsorship activities, both broadcast and nonbroadcast activities, unless otherwise expressly stated, without regard to the local nature of the organization or activities or to the amount of the sponsorship payment. The 1993 proposed regulations expressly did not apply to qualified convention and trade show activities or to the sale of advertising in exempt organization periodicals.

The 1993 proposed regulations also proposed to amend the regulations under section 512(a) by adding examples of the allocation rule governing exploitation of exempt activities in cases involving sponsorship income.

A public hearing on the 1993 proposed regulations was held on July 8, 1993.

Public comments received by the IRS generally welcomed the guidance as an important step in clarifying this area of the law, but suggested modifications. Several comments concerned the effective date of the amendments, but there was no consensus as to an appropriate effective date. In addition, numerous comments requested elimination of the tainting rule. One comment expressed concern that the approach taken in the 1993 proposed regulations to the exploitation rules of § 1.512(a)-1(d) was likely to create confusion and could lead to application of the exploitation exception in a manner far broader than was intended.

The Taxpayer Relief Act of 1997, Public Law 105-34, section 965 (111 Stat. 788, 893-94), amended the Internal Revenue Code by adding section 513(i). Section 513(i) governs the treatment of certain sponsorship payments by providing that qualified sponsorship payments are not subject to the unrelated business income tax (UBIT). Section 513(i) defines qualified sponsorship payments as payments made by a person engaged in a trade or business with respect to which there is no arrangement or expectation that such person will receive any substantial return benefit other than the use or acknowledgment of the name or logo (or product lines) of the person's trade or business in connection with the exempt organization's activities. Section 513(i) further provides that use or acknowledgment does not include advertising (including messages containing qualitative or comparative language, price information or other indications of savings or value, or an endorsement or other inducement to purchase, sell, or use a sponsor's products or services). The legislative history to section 513(i) indicates that the use of promotional logos or slogans that are an established part of the sponsor's identity does not, by itself, constitute advertising. H.R. Conf. Rep. No. 220, 105th Cong., 1st Sess. 476 (1997). Section 513(i)(2)(B)(i) provides that qualified sponsorship payments do not include payments where the amount is contingent upon the level of attendance at an event, broadcast ratings, or other factors indicating the degree of public exposure to an activity. However, the fact that a payment is contingent upon a sponsored activity actually being conducted or broadcast does not, by itself, cause the payment to fail to be a qualified sponsorship payment. The legislative history to section 513(i) further indicates that mere display or distribution, whether for free or remuneration, of a sponsor's products by the sponsor or the organization to the general public at a sponsored event is not considered advertising. H.R. Conf. Rep. No. 220, 105th Cong., 1st Sess. 474 (1997).

Section 513(i) differs from the 1993 proposed regulations in that section 513(i) has no tainting rule. Instead, section 513(i) specifically provides that, to the extent a portion of a payment would (if made as a separate payment) be a qualified sponsorship payment, that portion of such payment and the other portion of such payment are treated as separate payments. For example, if a sponsorship arrangement entitles the sponsor to both product advertising and use or acknowledgment of the sponsor's name or logo by the organization, the section 513(i) safe harbor applies only to the amount, if any, of the payment that exceeds the fair market value of the product advertising provided to the sponsor. Similarly, providing facilities, services or other privileges to a sponsor or the sponsor's designees (e.g., complimentary tickets, pro-am playing spots in golf tournaments, or receptions for major donors) in connection with a sponsorship arrangement is evaluated as a separate transaction in determining whether the organization has UBTI. A license granted to a sponsor as part of a sponsorship arrangement that allows a sponsor to use an intangible asset of the organization (e.g., the organization's trademark, patent, logo, or designation) is likewise treated as a separate transaction. H.R. Conf. Rep. No. 220, 105th Cong., 1st Sess. 475 (1997). Whether a separate transaction that falls outside of the section 513(i) safe harbor is subject to the UBIT depends on the application of existing rules under sections 512, 513, and 514.

Section 513(i) applies to payments solicited or received after December 31, 1997. Section 513(i) does not apply to qualified convention and trade show activities (described in section 513(d)(3)(B)) or to the sale of an acknowledgment or advertising in exempt organization periodicals. For this purpose, the term periodicals means regularly scheduled and printed material published by or on behalf of an exempt organization that is not related to and primarily distributed in connection with a specific event conducted by the exempt organization.

Although section 513(i) codifies the 1993 proposed regulations in many respects, there are significant differences, including the elimination of the tainting rule. To reflect these differences, and in response to comments submitted on the 1993 proposed regulations, a number of changes are made in these proposed regulations, and some additional areas are addressed, such as exclusivity arrangements. In light of these changes, the IRS and the Treasury Department decided to issue regulations in proposed form, rather than final form, to provide an opportunity for further comment.

These proposed regulations amend the regulations under section 513 to provide guidance in the area of corporate sponsorship. Following section 513(i), these proposed regulations provide that qualified sponsorship payments are not UBTI. These proposed regulations define the term qualified sponsorship payments to mean payments made by any person engaged in a trade or business with respect to which there is no arrangement or expectation that such person will receive any substantial return benefit in exchange for making the payment.

These proposed regulations define the phrase substantial return benefit to mean any benefit other than (1) a use or acknowledgment of the payor's name or logo in connection with the exempt organization's activities, or (2) certain goods or services that have an insubstantial value under existing IRS guidelines. Generally, benefits such as complimentary tickets, pro-am playing spots, and receptions for donors have an insubstantial value only if they have a fair market value of not more than 2% of the payment, or $74 (for tax years beginning in calendar year 2000), whichever is less. See § 1.170A-13(f)(8)(i)(A); Rev. Proc. 90-12 (1990-1 C.B. 471), as adjusted for inflation (see Rev. Proc. 99-42, 1999-46 I.R.B. 568 (November 15, 1999)). If a payor receives a substantial return benefit (such as complimentary tickets having a fair market value in excess of $74) in exchange for a payment, the section 513(i) safe harbor does not apply to the payment (or portion thereof) attributable to the substantial return benefit. In that case, whether the payment (or portion thereof) is subject to UBIT must be determined under existing principles and rules. Thus, the payment may not be subject to UBIT because the exempt organization's activity is not an unrelated trade or business within the meaning of section 513(a) (for example, because substantially all of the work in carrying on the trade or business is performed by volunteers) or is not “regularly carried on” within the meaning of section 512(a)(1), or because one of the section 512(b) modifications applies.

These proposed regulations clarify that sponsored activities within the scope of the section 513(i) safe harbor may include a single event (such as a bowl game, a walkathon or a television program); a series of related events (such as a concert series or a sports tournament); an activity of extended or indefinite duration (such as an art exhibit); or continuing support of an exempt organization's operation. A payment (or portion thereof) may be a qualified sponsorship payment regardless of whether the sponsored activity conducted by the organization is substantially related to its tax exempt purpose. H.R. Conf. Rep. No. 220, 105th Cong., 1st Sess. 474 n.44 (1997).

Consistent with section 513(i)(3), the tainting rule of the 1993 proposed regulations has been removed. However, these proposed regulations clarify that for an exempt organization to avail itself of the section 513(i) safe harbor, it must establish that some portion of the payment exceeds the fair market value of any substantial return benefit received by a payor in return for making the payment. In a sponsorship arrangement, the fair market value of the substantial return benefit may equal the entire amount of the sponsorship payment. The burden of establishing the fair market value of any substantial return benefit falls on the exempt organization because the exempt organization has superior access to relevant information regarding its sponsorship arrangements. These proposed regulations state that the exempt organization's determination of the fair market value of a substantial return benefit provided to the payor will not be set aside for purposes of applying the section 513(i) safe harbor so long as the organization makes a reasonable and good faith valuation of the substantial return benefit received by the payor.

These proposed regulations provide that the right to be the only sponsor of an activity, or the only sponsor representing a particular trade, business or industry is generally not a substantial return benefit. Any portion of the payment attributable to the exclusive sponsorship arrangement, therefore, may be a qualified sponsorship payment. However, if in return for a payment, the exempt organization agrees that products or services that compete with the payor's products or services will not be sold or provided in connection with one or more activities of the exempt organization, the payor has received a substantial return benefit and the portion of the payment attributable to the exclusive provider arrangement is not a qualified sponsorship payment. Consistent with the allocation rule described above, when a payor receives both exclusive sponsorship and exclusive provider rights in exchange for making a payment, the fair market value of the exclusive provider arrangement and any other substantial return benefit is determined first (i.e., without regard to the existence of the exclusive sponsorship arrangement).

The IRS and the Treasury Department have concluded that the examples included in the 1993 proposed regulations interpreted § 1.512(a)-1(d) too broadly by allowing exempt organizations to apply excess expenses directly connected with the conduct of an exempt activity (such as the conduct of a bowl game) to offset income from a separate, unrelated business activity (such as the sale of clothing featuring the name and logo of the bowl game) which does not have a proximate and primary relationship to the exempt activity. An example in these proposed regulations clarifies that § 1.512(a)-1(d) applies only in circumstances where the unrelated business activity and the exempt activity are closely connected, such that a taxable entity pursuing the same business activity would normally also conduct the exempt activity. The example involves the sale of advertising in a museum's exhibition catalog. In this example, the sale of advertising exploits an activity—the publication of editorial material—normally conducted by taxable entities that sell advertising. Therefore, the example concludes that any net loss related to the museum's publication of its exhibition catalog (after taking into account any income derived from or attributable to publication of the catalog) may be applied to offset any net unrelated business income from the museum's sale of advertising in the catalog. In contrast, expenses related to the costs of the exhibition itself are not directly connected with the unrelated advertising activity and cannot be applied to offset income from the advertising activity.

As discussed above, existing principles and rules will determine the UBIT consequences of any portion of a payment that falls outside the section 513(i) safe harbor. Existing principles and rules will also determine the non-UBIT consequences of sponsorship arrangements, including benefits to the payor. For example, see Rev. Rul. 77-367 (1977-2 C.B. 193), and Rev. Rul. 66-358 (1966-2 C.B. 218), regarding inurement and private benefit.

These proposed regulations do not specifically address the Internet activities of exempt organizations. However, the IRS and the Treasury Department are reviewing the application of existing tax laws governing exempt organizations, including the UBIT rules, to Internet activities. Comments are specifically requested on the application of the rules governing periodicals and trade shows in section 513(i)(2)(B)(ii) to an exempt organization's Internet sites, and on whether providing a link to a sponsor's Internet site is advertising within the meaning of section 513(i)(2)(A) and § 1.513-4(c)(2)(iv).

These proposed regulations clarify that qualified sponsorship payments in the form of money or property (but not services) are treated as contributions received by the exempt organization for purposes of determining public support to the organization under section 170(b)(1)(A)(vi) or section 509(a)(2). The exclusion of contributed services for purposes of determining public support is consistent with the general rule regarding donated services. See §§ 1.509(a)-3(f), 1.170A-9(e)(7)(i), 1.170A-1(g). Thus, qualified sponsorship payments in the form of money or property are treated as contributions for purposes of Part I (Revenue, Expenses, and Changes in Net Assets or Fund Balances) of Form 990, “Return of Organization Exempt from Income Tax.” The fact that a payment is a qualified sponsorship payment that is treated as a “contribution” to the payee organization does not determine whether the payment is deductible by the payor under section 162 or section 170.

These regulations are proposed to apply on the date they are published as final in the Federal Register , although organizations may rely on these proposed regulations for payments received between January 1, 1998, and the date the regulations are published as final in the Federal Register .

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because these regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) and electronic comments that are submitted timely to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed regulations and how they may be made easier to understand. In particular, the IRS and the Treasury Department request comments on whether further clarification is needed regarding the application of § 1.512(a)-1(d) in the context of corporate sponsorship payments or other unrelated business activities. All comments will be available for public inspection and copying.

A public hearing has been scheduled for June 21, 2000, at 10 a.m. in room G-043, Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, DC. Due to building security procedures, visitors must enter at the 10th Street entrance, located between Constitution and Pennsylvania Avenues, NW. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 15 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit timely written comments and an outline of the topics to be discussed and the time to be devoted to each topic (a signed original and eight (8) copies) by May 31, 2000.

A period of 10 minutes will be allotted to each person for making comments.

An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing.

Drafting information: The principal author of these regulations is Stephanie Lucas Caden, Office of Associate Chief Counsel (Employee Benefits and Exempt Organizations), Internal Revenue Service. However, personnel from other offices of the Service and the Treasury Department participated in their development.

Accordingly, under the authority of 26 U.S.C. 7805, the proposed amendments to 26 CFR part 1, relating to § 1.512(a)-1 and § 1.513-4, published in the Federal Register for January 22, 1993 (58 FR 5687), are withdrawn.

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

With the Rehabilitation Act Amendments of 1992, Public Law 102-569, 106 Stat. 4344 (1992 Amendments or Rehabilitation Act Amendments), Congress added a new subsection (g) to section 501 of the Rehabilitation Act of 1973, 29 U.S.C. 791 (section 501). Subsection (g) provides that the standards used to determine whether section 501 has been violated in a complaint alleging “nonaffirmative action employment discrimination”  1 are the standards of Title I of the Americans with Disabilities Act of 1990 (ADA), as well as sections 501 through 504, and 510 of the ADA, as such sections relate to employment. 2 This notice of proposed rulemaking (NPRM) sets forth proposed regulatory revisions to implement the Rehabilitation Act Amendments.

The Commission promulgated its latest regulation under section 501 of the Rehabilitation Act in April, 1992, several months before Congress enacted the Rehabilitation Act Amendments in October, 1992. The Commission now proposes to update this section 501 regulation, found at 29 CFR 1614.203, by deleting all of the current provisions and adding a new paragraph (b)(1) that cross-references the ADA regulation at 29 CFR Part 1630.  3

As a general matter, the ADA regulation is more extensive than the requirements in place under § 1614.203.  4 In other respects, however, the ADA regulation closely corresponds to provisions in § 1614.203. The following discussion compares each paragraph in § 1614.203 to the corresponding section(s) of the ADA regulation, and identifies major consequences of applying the ADA regulation to the federal sector.

The Commission proposes to delete 29 CFR 1614.203(a)(1)—(a)(5) because these sections are repetitive of ADA definitions at 29 C.F.R. 1630.2. For example, the definition of “disability” in the two regulations is virtually identical, referring in both instances to an impairment that substantially limits one or more major life activities, a record of such a substantially limiting impairment, or being regarded as having such a substantially limiting impairment. 5 The ADA regulation also defines several important terms that are not defined in § 1614.203, such as “essential functions,” “qualification standards,” and “direct threat.”

The Commission proposes to delete 29 CFR 1614.203(a)(6) because it is inconsistent with the ADA's standard on safety issues. Under the ADA, an employer can disqualify an individual from employment if the employer shows that the individual poses a “direct threat” to health and safety, even after considering reasonable accommodation. The ADA regulation defines “direct threat” as a “significant risk of substantial harm,” and states that an employer must consider individualized medical or other objective evidence to decide if a particular individual poses a “direct threat.” 29 CFR 1630.2(r). By contrast, the old subparagraph 1614.203(a)(6) did not even use “direct threat” as a defined term, and instead, addressed safety concerns by requiring the employee to show that s/he could work without endangering health or safety as part of the larger showing that s/he was a “qualified individual with a disability.”

The Commission has applied this ADA “direct threat” standard in federal sector decisions subsequent to the 1992 Amendments. See Kahout v. USPS , EEOC Appeal No. 01954900 (June 19, 1997); Hobbs v. USPS , EEOC Appeal No. 01944181 (January 26, 1996); Robinson v. USPS , EEOC Request No. 05940034 (September 16, 1994).

The Commission proposes to redesignate current paragraph (b) as new paragraph (a), and to replace the term “handicaps” with “disabilities” in its text. 6 Thus, new paragraph (a) sets forth the basic principle that federal agencies have an obligation not to discriminate in employment on the basis of disability. Moreover, paragraph (a) states that “[t]he [f]ederal [g]overnment shall be a model employer of individuals with disabilities.” Finally, this paragraph requires agencies to give full consideration to the hiring, placement, and advancement of qualified individuals with mental and physical disabilities.

The Commission proposes to delete 29 CFR 1614.203(c) and instead apply the pertinent ADA standards, thereby providing federal employers with more guidance about reasonable accommodation and undue hardship than the pre-ADA standards. 7 For example, the ADA regulation defines the phrase “reasonable accommodation” as “a means by which barriers to the equal employment opportunity of an individual with a disability are removed or alleviated,” and thereby articulates a basic principle that may help federal employers and employees to evaluate potential accommodations. 8 The ADA regulation also states that, if an employee requests reasonable accommodation but the most appropriate accommodation is not obvious, the employer needs “to initiate an informal, interactive process with the qualified individual with a disability” to identify an effective accommodation. See 29 C.F.R. 1630.2(o)(3). In terms of specific accommodations, the ADA regulation adds reassignment and “modification of examinations, training materials, or policies” to the familiar list included in the pre-ADA regulation. See 29 CFR 1630.2(o)(2). 9 Finally, the ADA regulation provides an extensive discussion of the employer defense of “undue hardship,” directing the employer to consider a range of financial and operational factors to evaluate whether a particular reasonable accommodation would impose an undue hardship on its operations. 10

For the federal employer, the most notable change resulting from the 1992 Amendments is that reassignment is now treated as a reasonable accommodation pursuant to express language in the ADA. 42 U.S.C. 12111(9)(B). An employer's duty to provide reassignment is limited only by “undue hardship.” The change will be discussed in detail in the section titled “Reassignment.”

The Commission proposes to eliminate paragraph (d), which governed the use of tests and selection criteria, and instead apply the ADA standards at 29 CFR 1630.10 and 1630.11. Under the ADA, it is unlawful to use qualification standards, tests, or other selection criteria that screen out or tend to screen out individuals with disabilities, based on disability, unless the standards or criteria are shown to be job-related and consistent with business necessity. 29 CFR 1630.10. Consideration must be given to whether an individual with a disability can satisfy a qualification standard or other selection criteria with reasonable accommodation. See 29 CFR 1630.15.

Moreover, an individual with a disability must not be excluded from employment simply because his/her disability prevents him/her from taking a test, or negatively influences the results of a test. The Interpretive Guidance appended to the ADA regulation states that employment tests must be administered using accessible test sites and formats, and in a way that measures ability rather than disability. 29 CFR part. 1630 app. 1630.11.

The Commission proposes to delete paragraph (e) and apply the pertinent ADA standards at 29 CFR 1630.13 and 1630.14. Under the ADA standards, a federal agency employer remains prohibited from making inquiries as to whether an applicant is an individual with a disability, or as to the nature or severity of such disability, and may not conduct a pre-offer medical examination. See 29 CFR 1630.13(a). To the extent that an employer wants to determine if an applicant's medical condition will prevent him/her from performing a job, the ADA only permits a few specified preemployment inquiries. 11  By contrast, the preemployment inquiry provision in old paragraph 1614.203(e) gave agencies broader discretion to ask applicants about their medical conditions, expressly permitting agencies to inquire “into an applicant's ability to meet the essential functions of the job, or the medical qualification requirements if applicable, with or without reasonable accommodation, * * * i.e. the minimum abilities necessary for safe and efficient performance of the duties of a position.”

The ADA allows medical inquiries or examinations after a conditional offer of employment but before work begins, assuming all individuals in the same job category are subjected to the same inquiries or examinations regardless of disability. See 29 CFR 1630.14(b). An employer may ask specific individuals for more follow-up information if the request is medically related to the previously obtained information. 12 Under the ADA, however, an employer who withdraws a conditional offer of employment based on disability-related information obtained during a post-offer inquiry or examination can defend against a charge of discrimination only by showing: (1) that it used exclusionary criteria that were job-related and consistent with business necessity; and (2) that it considered reasonable accommodation but the person could not have performed the essential job functions even with reasonable accommodation. See 29 C.F.R. 1630.14(b)(3).

The ADA also prohibits employers from making disability-related inquiries or requiring medical examinations of employees unless those inquiries or examinations are job-related and consistent with business necessity. 42 USC 12112(d)(4); 29 CFR part. 1630, app. 1630.14(c). 13 Finally, the federal employer should note that part 1630 imposes confidentiality restrictions on all medical information obtained from employees and applicants. See 29 CFR 1630.14 (b)(1) and (c)(1).

The Commission proposes to delete paragraph 1614.203(f), concerning physical access to buildings. If an applicant or employee is denied equal employment opportunity because she cannot obtain physical access to a building, then the nondiscrimination standards of part 1630 control.

As a practical matter, federal agencies' obligations in this area are not expected to change significantly. Under the old paragraph 1614.203(f), an agency may not have an inaccessible facility. Additionally, federal agencies already must comply with the Architectural Barriers Act of 1968 and the ADA's accessibility requirements. By adopting the ADA's employment nondiscrimination standards, the NPRM would require agencies to provide reasonable accommodation if an applicant or employee would be denied equal employment opportunity because she could not obtain physical access to a building.

The Commission proposes to delete paragraph 1614.203(g) and to add a new paragraph 1614.203(b)(2) stating the ADA's requirement of reasonable accommodation as it pertains to reassignment. In the ADA, Congress listed “reassignment to a vacant position” as a form of reasonable accommodation. 42 U.S.C. 12111(9)(B). The ADA treats reasonable accommodation as a nondiscrimination obligation. 14 An employer's duty to provide reassignment, like any reasonable accommodation, is limited by “undue hardship.” By applying the ADA standard to reassignment, federal employees will now benefit from the same protections provided employees in the private sector.

Reassignment to a vacant position is the reasonable accommodation of last resort and is required only if: (1) There are no effective accommodations that will enable the employee to perform the essential functions of his/her position, or (2) all other reasonable accommodations would impose an undue hardship. See S. Rep. No. 101-116, at 31 (1989); H.R. Rep. No. 101-485, pt. 2 at 63 (1990); Smith v. Midland Brake, Inc. , 180 F.3d 1154, 9 AD Cas. (BNA) 738 (10th Cir. 1999) ( en banc ); Aka v. Washington Hosp. Ctr. , 156 F.3d 1284, 8 AD Cas. (BNA) 1093 (D.C. Cir. 1998) ( en banc ); Stone v. City of Mount Vernon , 118 F.3d 92, 100-01, 6 AD Cas. (BNA) 1685, 1693 (2d Cir. 1997), cert. denied, 118 S. Ct. 1044 (1998); Kitaura v. USPS , EEOC Petition No. 03980089 (March 11, 1999); but see, e.g., Foreman v. Babcock & Wilcox Co. , 117 F.3d 800, 7 AD Cas. (BNA) 331 (5th Cir. 1997), cert denied, 118 S. Ct. 1050 (1998). Reassignment means that the employee receives the vacant  15 position if s/he is qualified for it. Cf. Smith, supra (stating that “the reassignment obligation must mean something more than merely allowing a disabled person to compete equally with the rest of the world for a vacant position”).

A probationary employee with a disability is eligible for reassignment to a new position as long as s/he adequately performed the essential functions of her/his original position, with or without reasonable accommodation, before the need for reassignment arose. The longer a newly hired probationary employee has adequately performed the essential functions of the original job, with or without reasonable accommodation, the more likely it is that reassignment is appropriate when the employee becomes unable to continue performing such functions due to a disability. 16

An employee is “qualified” for the new position if s/he: (1) Satisfies the requisite skill, experience, education, and other job-related requirements of that position; and (2) can perform the essential functions of the position, with or without reasonable accommodation. See Stone v. Mount Vernon , 118 F.3d 92, 100-01, 6 AD Cas. (BNA) 1685, 1693 (2d Cir. 1997), cert. denied, 118 S. Ct. 1044 (1998). The employer is not obliged to provide training so that an employee can acquire new skills for a particular reassignment. However, the employer must provide any training routinely given to other individuals hired for, or transferred into, the same job. See Quintana v. Sound Distribution Corp. , 6 AD Cas. (BNA) 842, 846 (S.D.N.Y. 1997). See also Schuetter v. DOD , EEOC Petition No. 03970140 (January 15, 1999).

As with reasonable accommodation generally, the federal employer and the individual with a disability who has requested reassignment may need to engage in an interactive process to identify an appropriate position. The employer may not know about all of the individual's skills, and the individual may not be aware of the range of available positions. See Mengine v. Runyon , 114 F.3d 415 (3d Cir. 1997). The interactive process need not be onerous. The aim is to identify the employee's qualifications, potential new jobs, and the employee's willingness to accept a particular transfer, through a flexible process involving a two-way dialogue between the employer and the qualified individual with a disability.

The federal employer must search for available vacancies. The employee does not have the burden of identifying open positions without the employer's assistance. Taylor v. Phoenixville School District , 1999 WL 649376 (3d Cir. August 18, 1999). Of course, the employee should assist the employer in identifying appropriate positions, to the extent s/he can gather such information. 17

The employer first should search for vacant positions that are equivalent to the current position in terms of pay, status, and other relevant factors ( e.g. , geographical location or benefits), and for which the individual is qualified. When it is not possible to identify a vacant position that is substantially equivalent to the original job, the federal employer needs to broaden its search. During interagency coordination, a question was raised about when a job technically becomes “vacant” and therefore available for reassignment in the federal government. The Commission solicits comment on this point.

The ADA does not limit the obligation to reassign to positions within the same appointing authority or commuting area as the original job. 18 Indeed, reassignment to a different component of the same department may now be required, barring undue hardship. See Kitaura supra. If an employee is being reassigned to a different geographical area, s/he must pay for any relocation expenses unless the employer routinely pays such expenses when granting other employees' requests for transfers. 19

Because Congress deemed reassignment to be a reasonable accommodation, a federal employer can deny a request for reassignment if it poses an undue hardship. See 42 U.S.C. 12111(10)(B); 29 CFR 1630.2(p). See supra note 10. The Commission evaluates undue hardship on a case-by-case basis. For example, if a federal employer claims that it would be an undue hardship to search for vacancies at different facilities in the same department, the Commission would examine the administrative and financial links between the department and its separate facilities to determine whether such a search would, in fact, impose “significant difficulty or expense” on the federal employer. Reassignment outside of the department—to a different department in the federal government—will be presumed to be an undue hardship at this time. Under current procedures, one federal department cannot compel another to accept a transferred employee, even as a reasonable accommodation.

This paragraph is deleted because it is duplicative of equivalent provisions in part 1630. Deletion of this paragraph does not change the nondiscrimination standards applicable to federal employers.

This regulation would be effective 30 days after publication of a final rule in the Federal Register . Like the recently-finalized procedural changes to part 1614, the current NPRM would apply to all pending Section 501 discrimination complaints.

The Commission proposes to delete the provision in § 1614.102(a)(9) which refers to reassignment pursuant to § 1614.203(g).

The Commission invites comment on these proposed changes. The Commission will consider all comments received in conjunction with this NPRM.

Pursuant to Executive Order 12866, EEOC has coordinated this final rule with the Office of Management and Budget. Under section 3(f)(1) of Executive Order 12866, EEOC has determined that the regulation will not have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State or local tribal governments or communities. Therefore, a detailed cost-benefit assessment of the regulation is not required.

This regulation contains no information collection requirements subject to review by the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. chapter 35).

In addition, the Commission certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities, because it applies exclusively to employees and agencies and departments of the federal government. For this reason, a regulatory flexibility analysis is not required.

For the reasons set forth in the preamble, EEOC proposes to amend Chapter XIV of Title 29 of the Code of Federal Regulations as follows:

The proposed international rates, shown in the tables below, are needed by the Postal Service to accommodate changes in the cost of providing international mail service.

The Postal Service is proposing to change only the rates contained in the charts below. These rates include the surface rates for regular printed matter and small packets to Mexico; the publishers' periodicals surface rates for Mexico and all other countries except Canada; and the books and sheet music surface rates for Mexico and all other countries except Canada. No other rates are changed at this time. Although the Postal Service is exempted by 39 U.S.C. 410(a) from the advance notice requirements of the Administrative Procedure Act regarding proposed rulemaking (5 U.S.C. 553), the Postal Service invites public comment at the above address.

The Postal Service proposes to adopt the following rates and to amend the International Mail Manual, which is incorporated by reference in the Code of Federal Regulations. See 39 CFR 20.1.

If you contact EPA requesting a public hearing, it will be held at Research Triangle Park, NC. If you wish to attend the hearing or wish to present oral testimony, you should notify Ms. Joann Allman, Office of Air Quality Planning and Standards, Air Quality Strategies and Standards Division, MD-15, Research Triangle Park, NC 27711, telephone (919) 541-1815, e-mail allman.joann@epa.gov. The EPA will publish a notice of a hearing if a hearing is requested, in the Federal Register . Any hearing will be strictly limited to the subject matter of the proposal, the scope of which is discussed below. Any member of the public may file a written statement by the close of the comment period. Written statements (duplicate copies preferred) should be submitted to Docket No. A-96-56 at the above address. A verbatim transcript of the hearing, if held, and written statements will be made available for copying during normal working hours at the Air and Radiation Docket and Information Center at the above address.

The official record for the NO X SIP Call rulemaking as well as the public version of the record, has been established under docket number A-96-56 (including comments and data submitted electronically as described below). The EPA has added new sections to that docket for purposes of today's proposed rulemaking. The public version of this record, including printed, paper versions of electronic comments, which does not include any information claimed as CBI, is available for inspection from 8 a.m. to 5:30 p.m., Monday through Friday, excluding legal holidays. The rulemaking record is located at the address in ADDRESSES at the beginning of this document. In addition, the Federal Register rulemakings and associated documents are located at http://www.epa.gov/ttn/rto/.

On September 24, 1998 (63 FR 57356, October 27, 1998), EPA took final action to prohibit specified amounts of emissions of one of the main precursors of ground-level ozone, NO X , from transporting across State boundaries in the eastern half of the United States. The EPA found that sources and emitting activities in 23 States emit NO X in amounts that significantly contribute to nonattainment of the 1-hour and 8-hour ozone NAAQS downwind. The EPA set forth requirements for each of the affected upwind States to submit SIP revisions prohibiting those amounts of NO X emissions which significantly contribute to downwind air quality problems. The reduction of those NO X emissions will bring NO X emissions in each of those States to within the resulting statewide NO X emissions budget levels established in the rule.

On May 14, 1999, the D.C. Circuit issued an opinion questioning the constitutionality of the CAA authority to review and revise the NAAQS, as applied in EPA's revision to the ozone and particulate matter NAAQS. See American Trucking Ass'ns v. EPA No. 97-1441 and consolidated cases (D.C. Cir. May 14, 1999). The Court stopped short of finding the statutory grant of authority unconstitutional, instead providing EPA with another opportunity to develop a determinate principle for promulgating NAAQS under the statute. The Court continued by addressing other issues, including EPA's authority to classify and set attainment dates for a revised ozone standard. Based on the statutory provisions regarding classifications and attainment dates under sections 172(a) and 181(a), the Court's ruling curtailed EPA's ability to require States to comply with a more stringent ozone NAAQS. In response to EPA's petition for rehearing, the D.C. Circuit on October 29, 1999 granted in part and denied in part EPA's rehearing request. The panel granted rehearing as to certain parts of its original opinion, which address EPA's authority to implement the 8-hour ozone NAAQS. The rehearing decision continues to create uncertainty with respect to EPA's ability to rely upon the 8-hour standards as an alternative basis for the NO X SIP Call at this time. On January 27, 2000, the Administration filed a petition of certiorari with the Supreme Court seeking review of this opinion.

On May 25, 1999, the D.C. Circuit stayed the deadline for submission of the SIP revisions required under the NO X SIP Call. The NO X SIP Call had required submission of the SIP revisions by September 30, 1999. State Petitioners challenging the NO X SIP Call moved to stay the submission schedule until April 27, 2000. The D.C. Circuit issued a stay of the SIP submission deadline pending further order of the Court. Michigan v. EPA, No. 98-1497 (D.C. Cir. May 25, 1999) (order granting stay in part).

The EPA is proposing in this action to amend the final NO X SIP Call to address the issues raised by the Court's rulings on the 8-hour NAAQS. The EPA is only soliciting comment on the specific changes proposed here in response to the Court's rulings. The EPA is not reopening the remainder of the final NO X SIP Call for public comment and reconsideration.

The EPA's belief is that EPA should not continue implementation efforts under section 110 with respect to the 8-hour standard that could be construed as inconsistent with the Court's ruling. In light of the uncertainty, EPA believes the most prudent course—and one respectful of the Court's conclusions in American Trucking —is to stay the findings in the SIP Call that emissions in certain States contribute significantly to nonattainment of the 8-hour ozone standards in certain downwind States. 1 The effect of such a stay would be to remove the 8-hour findings as an independent basis for the SIP Call. Given this position, EPA believes that the Agency should not continue to move forward with findings under section 110 based on the 8-hour standard. Thus, EPA is proposing to stay indefinitely the findings of significant contribution based on the 8-hour standard, pending further developments in the NAAQS litigation. The requirements of the SIP Call, including the findings of significant contribution by the 23 States, the emissions reductions that must be achieved, and the requirement for States to submit SIPs meeting statewide NO X emissions budgets, are fully and independently supported by EPA's findings under the 1-hour NAAQS alone. Since the rule was based independently on the 1-hour standards, a stay of the findings based on the 8-hour standards would have no effect on the required remedy. Therefore, this stay does not affect EPA's findings based on the 1-hour standards and the requirements of the SIP Call remain in effect.

Under Executive Order 12866, (58 FR 51735, October 4, 1993), this proposed action is not a “significant regulatory action” and is therefore not subject to review by the Office of Management and Budget (OMB) because this action is simply proposing to stay its finding in the NO X SIP Call related to the 8-hour ozone standards. The final NO X SIP Call was submitted to OMB for review. The EPA prepared a regulatory impact analysis (RIA) for the final NO X SIP Call titled “Regulatory Impact Analysis for the NO X SIP Call, FIP, and Section 126 Petitions.” The RIA and any written comments from OMB to EPA and any written EPA responses to those comments are included in the docket. The docket is available for public inspection at the EPA's Air Docket Section, which is listed in the ADDRESSES section of this preamble. This proposed action does not create any additional impacts beyond what was promulgated in the final NO X SIP Call; therefore, no additional RIA is needed.

This proposed action also does not impose any additional enforceable duty, contain any unfunded mandate, or impose any significant or unique impact on small governments as described in the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4). The EPA did not reach a final conclusion as to the applicability of the requirements of the UMRA to the final NO X SIP Call. The EPA prepared a statement that would be required by UMRA if its statutory provisions applied and has consulted with governmental entities as would be required by UMRA. Because today's action does not create any additional mandates, no further UMRA analysis is needed.

Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.”

Under Section 6 of Executive Order 13132, EPA may not issue a regulation that has federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, or EPA consults with State and local officials early in the process of developing the proposed regulation. The EPA also may not issue a regulation that has federalism implications and that preempts State law, unless the Agency consults with State and local officials early in the process of developing the proposed regulation.

This proposed action does not have federalism implications. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. Today's action does not impose an enforceable duty on these entities. This action proposes to stay its finding in the NOx SIP Call related to the 8-hour ozone standards and imposes no additional burdens beyond those imposed by the final NOx SIP Call. Thus, the requirements of section 6 of the Executive Order do not apply to this rule.

Under Executive Order 13084, EPA may not issue a regulation that is not required by statute, that significantly or uniquely affects the communities of Indian tribal governments, and that imposes substantial direct compliance costs on those communities, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by the tribal governments, or EPA consults with those governments. If EPA complies by consulting, Executive Order 13084 requires EPA to provide to the OMB, in a separately identified section of the preamble to the rule, a description of the extent of EPA's prior consultation with representatives of affected tribal governments, a summary of the nature of their concerns, and a statement supporting the need to issue the regulation. In addition, Executive Order 13084 requires EPA to develop an effective process permitting elected officials and other representatives of Indian tribal governments “to provide meaningful and timely input in the development of regulatory policies on matters that significantly or uniquely affect their communities.”

Today's action does not significantly or uniquely affect the communities of Indian tribal governments. The EPA stated in the final NOx SIP Call that Executive Order 13084 did not apply because the final rule does not significantly or uniquely affect the communities of Indian tribal governments or call on States to regulate NOx sources located on tribal lands. Accordingly, the requirements of section 3(b) of Executive Order 13084 do not apply to this rule.

In addition, this action does not involve special consideration of environmental justice related issues as required by Executive Order 12898 (59 FR 7629, February 16, 1994). For the final NOx SIP Call, the Agency conducted a general analysis of the potential changes in ozone and particulate matter levels that may be experienced by minority and low-income populations as a result of the requirements of the rule. These findings are presented in the RIA. Today's action does not affect that analysis.

The RFA generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions.

For purposes of assessing the impacts of today's rule on small entities, small entity is defined as: (1) A small business as defined in the Small Business Administration's (SBA) regulations at 13 CFR 12.201; (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.

After considering the economic impacts of today's technical amendment on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities.

This proposed action will not impose any requirements on small entities. This action proposes to stay its finding in the NO X SIP Call related to the 8-hour ozone standards and does not itself establish requirements applicable to small entities.

This proposed action also is not subject to Executive Order 13045 (Protection of Children from Environmental Health Risks and Safety Risks) (62 FR 19885, April 23, 1997) because EPA interprets Executive Order 13045 as applying only to those regulatory actions that are based on health or safety risks, such that the analysis required under section 5-501 of the Order has the potential to influence the regulation. This action is not subject to Executive Order 13045 because it does not establish an environmental standard intended to mitigate health or safety risks and is not economically significant under Executive Order 12866.

In addition, the National Technology Transfer and Advancement Act of 1997 does not apply because today's proposed action does not require the public to perform activities conducive to the use of voluntary consensus standards under that Act. The EPA's compliance with these statutes and Executive Orders for the underlying rule, the final NO X SIP Call, is discussed in more detail in 63 FR 57477-81 (October 27, 1998).

The EPA stated in the final NO X SIP Call that an information collection request was pending. Today's action imposes no additional burdens beyond those imposed by the final NO X SIP Call. Any issues relevant to satisfaction of the requirements of the Paperwork Reduction Act will be resolved during review and approval of the pending information collection request for the NO X SIP Call.

For the reasons set forth in the preamble, part 51 of chapter I of title 40 of the Code of Federal Regulations is proposed to be amended as follows:

This document concerns South Coast Air Quality Management District Rule 465, Refinery Vacuum-Producing Devices and Systems, submitted to EPA on October 29, 1999 by the California Air Resources Board. For further information, please see the information provided in the direct final action that is located in the rules section of this Federal Register .

On December 28, 1999, RSPA published an ANPRM in the Federal Register under Docket HM-230 (64 FR 72633) that solicits comments on the development of regulations to harmonize the radioactive materials requirements in the Hazardous Materials Regulations (HMR) with the recent changes contained in the IAEA publication, ST-1, on the transportation of radioactive materials. In the ANPRM, specific comments are requested from interested persons in defining the scope of the notice of proposed rulemaking, i.e., extent to which differences between the HMR and the IAEA publication ST-1 should be considered in proposing changes to the HMR.

RSPA received a petition from DOE requesting an extension of the comment period to the ANPRM for an additional 90 days. DOE stated that it is still in the process of obtaining and distributing the information in ST-1 to its sizeable transportation community. RSPA agrees additional time should be allowed and is extending the comment period from March 29, 2000 to June 29, 2000.

The Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act) requires each Regional Fishery Management Council to submit an FMP or amendment to NMFS for review and approval, disapproval, or partial approval. The Magnuson-Stevens Act also requires that NMFS, upon receiving an FMP or amendment, immediately publish a document in the Federal Register stating that the amendment is available for public review and comment.

Amendment 8 to the FMP for the Coastal Migratory Pelagic Resources of the Gulf of Mexico and South Atlantic established the commercial king mackerel vessel permit moratorium in March 1998. Amendment 12 would extend the moratorium from its current expiration date of October 15, 2000, to October 15, 2005, or until the moratorium can be replaced with a license limitation, limited access, and/or individual fishing quota or individual transferrable quota system, whichever occurs earlier. The intended effects of extending the permit moratorium through the proposed action are to prevent increases in fishing effort, to possibly reduce the number of permittees in the king mackerel fishery, and to stabilize the economic performance of current participants while protecting king mackerel from overfishing.

Currently, various hook-and-line and run-around gillnet fisheries for king mackerel in the Gulf of Mexico and the South Atlantic region are subject to closures when the quotas are filled before the end of their respective fishing years. Such closures in recent years indicate that fleet size and fishery effort still exceed that needed to harvest the allowable quotas. The Councils are concerned that allowing the current moratorium to expire would increase the number of participants in the king mackerel fishery, thereby negating any reductions in effort that have been achieved as a result of the current moratorium. An increase in participants would exacerbate the current derby fisheries that occur in the western Gulf zone and in the Florida west coast gillnet fishery, would lead to even earlier closures, and would have an adverse impact on the economic returns to the current participants. Increased participation would also compound the complexity of the Councils' future task in developing a controlled access system for this fishery. For example, if the future assignment of fishing privileges under a new limited access system is weighted more toward historical rather than current participation, new fishery entrants may lose a good part of their new investments.

In accordance with the Magnuson-Stevens Act, NMFS is evaluating the proposed rule to implement Amendment 12 to determine if it is consistent with the FMP, the Magnuson-Stevens Act, and other applicable law. If that determination is affirmative, NMFS will publish the proposed rule in the Federal Register for public review and comment.

NMFS will consider comments received by May 1, 2000, whether specifically directed to Amendment 12 or its proposed rule, in its decision to approve, disapprove, or partially disapprove the amendment. NMFS will address all the comments received during the respective comment periods for Amendment 12 and its proposed rule in the preamble of the final rule.

The deep-sea red crab (red crab, Chaceon quinquedens ) is a deep-water benthic species that supports a small commercial fishery on the Atlantic coast in southern New England and on the southern slope of Georges Bank. Although not regulated, the commercial fishery appears to be limited to approximately six vessels, with some seasonal participation by offshore lobster vessels likely.

Information is limited for this resource, but annual landings in 1998 by directed vessels of 3.5 million lbs (1,600 mt) appear to be close to the lower range of the estimate of maximum sustainable yield (MSY) (4.0-5.5 million lb (1,800-2,500 mt)). This MSY estimate was developed by NMFS Northeast Fisheries Science Center based on studies conducted in the late 1970's. No formal assessment was ever conducted. Current capacity in this fishery is sufficient to harvest or exceed this MSY. Seasonal participation by the offshore lobster fleet may have already pushed landings of red crab over the lower estimate of MSY. Also, there is concern that vessels that are not traditional participants in the red crab fishery may enter the fishery soon due to the decline of other resources, thereby increasing the likelihood of excess harvest capacity.

While there currently is no fishery management plan (FMP) for red crab, the Council has announced its intention to prepare one. As part of that FMP, the Council is considering development of a controlled access system in the red crab fishery to address the principle of matching harvest capacity to sustainable harvest level. The limitation of entry into the fishery may be based on levels of participation (e.g., permit categories based on harvest levels of a vessel) or other criteria such as domestic harvest capacity.

The control date is intended to discourage speculative entry into the red crab fishery while controlled access schemes are developed by the Council. The control date will help to distinguish established participants from speculative entrants to the fishery. Although participants are notified that entering the fishery after the control date will not ensure them of future access to the red crab resource on the grounds of previous participation, additional and/or other qualifying criteria may also be applied. The Council may choose different and variably weighted methods to qualify participants based on the type and length of participation in the fishery.

This notification establishes March 1, 2000, as the control date for potential use in determining historical or traditional participation in the deep-sea red crab fishery. Consideration of a control date does not commit the Council or NMFS to develop any particular management regime or criteria for participation in this fishery. The Council or NMFS may choose a different control date, or may choose a management program that does not make use of such a date.

Fishermen are not guaranteed future participation in the fishery, regardless of their entry dates or intensity of participation in this fishery before or after the control date. The Council and NMFS may choose to give variably weighted consideration to fishermen active in the fishery before and after the control date. The Council and NMFS may also choose to take no further action to control entry or access to the fishery, in which case the control date may be rescinded. Any action by the Council or NMFS will be taken pursuant to the requirements for FMP development established under the Magnuson-Stevens Act.

This notification also gives the public notice that interested participants should locate and preserve records that substantiate and verify their participation in the red crab fishery in Federal waters.