The regulatory text in §§ 210.10(o)(2)(iii)(B) and 226.20(b)(4) indicates that servings of cottage cheese, cheese food, and cheese spread in the lunch pattern for infants are measured in ounces. In an interim rule published in the Federal Register on November 15, 1999 (64 FR 61770), the infant meal pattern tables that appear in §§ 210.10(o)(2) and 226.20(b)(4) incorrectly refer to tablespoons instead of ounces. This document corrects the tables to indicate that a serving of cottage cheese, cheese food, or cheese spread is to be measured in ounces.

In a final rule published in the Federal Register on March 9, 2000 (65 FR 12429), the meal pattern table in § 226.20(c)(3) contained incorrect information for the fluid milk requirement for adult participants receiving suppers under the Child and Adult Care Food Program. The meal pattern table in § 226.20(c)(4) contained incorrect amounts of meat and meat alternates that may be offered as part of a reimbursable snack. This document corrects these errors.

The regulations in subchapter C of chapter I, title 9, Code of Federal Regulations, govern the interstate movement of animals to prevent the dissemination of livestock and poultry diseases in the United States. Parts 71 and 85 (referred to below as the regulations) are included in subchapter C. Part 71 relates to the interstate movement of animals, poultry, and animal products, and includes animal identification requirements for swine moving interstate. Part 85 imposes requirements to control the spread of pseudorabies and includes certificate and other requirements for the interstate movement of swine.

On September 21, 2000, we published in the Federal Register (65 FR 57106-57113, Docket No. 98-023-1) a proposal to amend the regulations by establishing an alternative to the current requirements for moving swine interstate.

With some exceptions, parts 71 and 85 require swine moving interstate to be individually identified. As we explained in our September 2000 proposed rule, these regulations were written when swine (other than valued breeding stock) were generally moved interstate only when a change in ownership occurred, usually when they were shipped to slaughter. However, today swine move interstate while they are raised for slaughter or breeding under a swine production system, and while they remain under the control of a single owner or group of contractually related owners.

In order to better accommodate this new model of swine production, we proposed alternative requirements. As proposed, producers could move swine interstate under our alternative procedures if they meet the following requirements:

• The producers have a written swine production health plan (SPHP) signed by the producer(s), the accredited veterinarian(s) for the premises, the Animal and Plant Health Inspection Service (APHIS), and the States in which the producers in the swine production system have premises.

• One or more accredited veterinarians identified in the SPHP will regularly visit each premises in the swine production system to inspect and test swine and will continually monitor the health of the swine in the swine production system. Swine may only be moved interstate if they have been found free from signs of any communicable disease during the most recent inspection of the premises by the swine production system accredited veterinarian(s).

• The SPHP describes a records system maintained by the producers to document the health status of the swine.

• Prior to each interstate movement of swine between premises within a swine production system, an interstate swine movement report must be sent to APHIS, the accredited veterinarian for the premises, and the sending and receiving States. That report must document the number, type, and health status of the swine being moved. Each of these requirements was discussed in detail in our proposal.

We solicited comments concerning our proposal for 60 days ending November 20, 2000. We received nine comments by that date. They were from representatives of State governments, veterinarians, and pork producers and pork producer organizations. They are discussed below by topic.

One commenter addressed proposed § 71.19(h)(1), which states that “swine may be moved interstate only to another premises owned and operated by the same swine production system.” This commenter stated that this language should be broad enough to allow movements where one producer does not necessarily own and operate both sites, but there is a contractual relationship between two producers, which could include a change in ownership of the animals.

We agree, and have changed the language in § 71.19(h)(1) to read “swine may be moved interstate only to another premises identified in a valid swine production health plan for the swine production system.” This language is also more consistent with the definition of swine production system , which reads “A swine production enterprise that consists of multiple sites of production, e.g., sow herds, nursery herds, and growing or finishing herds, that are connected by ownership or contractual relationships, between which swine move while remaining under the control of a single owner or a group of contractually connected owners.”

One commenter noted that the preamble of the proposed rule referred to a “health certificate,” and stated that “a more accurate term is 'certificate of veterinary inspection' because the Federal or accredited veterinarian is not certifying the health status of the animals, but instead is certifying that animals were inspected and found to comply with the statements contained in the certificate.”

We are not making any change to the regulatory text of the rule in response to this comment, although we have changed the preamble of this final rule so that it no longer refers to “health certificates.” We agree that the preamble of the proposed rule incorrectly referred to certificates as “health certificates,” a term that is not used anywhere in the regulations we are amending. Part 85 defines the term “certificate,” and we believe this definition is consistent with the concerns of the commenter. We are not changing the defined term from “certificate” to “certificate of veterinary inspection” because that could cause even more confusion. Statements in certificates are not limited to facts that could be disclosed directly by veterinary inspection, but also include such items as the identities of the consignor and consignee, the purpose of the movement, and the points of origin and destination.

Several commenters stated that APHIS need not sign SPHP's or be notified if an SPHP is cancelled, and should not be empowered to cancel an SPHP. We are not making any changes based on these comments.

APHIS is ultimately responsible for ensuring that swine diseases are not spread interstate. We need to ensure that individual SPHP's meet our requirements. We also need to be aware of possible and actual interstate movements. With this information, we can monitor the effectiveness of the program and be prepared to take action if it appears there is a disease risk. Requiring that we sign each SPHP and be notified if an SPHP is cancelled is minimally burdensome and effectively and unobtrusively keeps us informed.

We also believe it is necessary that we have the authority to cancel an SPHP to respond to changing circumstances. For example, as explained in our proposal, we would cancel an SPHP if participants persistently violated the terms of the agreement or our regulations.

Some commenters stated that not all participants in a swine production system are involved in sending or receiving swine interstate, yet the proposed rule would require all participants to sign the SPHP. In addition, the proposed rule would require all participating premises and swine to be inspected by an accredited veterinarian. They suggested that only participants who are actually involved in moving swine interstate be required to sign the SPHP, and that only premises and swine that participate in interstate movement should be subject to veterinary inspection under the SPHP. We agree and have made those changes in this final rule. Specifically, the definition of swine production health plan in § 71.1 would now state that the SPHP must be signed by “an official of each swine production system identified in the plan,” and that the plan must provide for inspection of “all premises that are part of the swine production system and that receive or send swine in interstate commerce.” Note that while these changes narrow the coverage of the SPHP, they do not reduce our overall authority to inspect any swine moving in interstate commerce at any time, or to take enforcement action against any person who moves swine interstate in violation of our regulations, whether or not that person is a signatory to an SPHP.

Some commenters suggested that we change the proposed definition of swine production system to add a requirement that this term include only businesses that regularly and routinely move swine between their premises. We are not making any changes based on this comment for several reasons. First, the commenters did not indicate what they meant by “regularly and routinely.” Second, although we understand that producers might not want to take advantage of our proposed alternative identification system if they participate in few or infrequent interstate swine shipments, we believe that is a decision best made by producers. The number and regularity of shipments is irrelevant to the purpose of our proposed program, which is to offer producers an alternative identification system that is less burdensome.

Several commenters addressed our proposed recordkeeping requirements or requirements concerning access to records.

Some commenters objected to our proposed requirement in the definition of swine production health plan in § 71.1 that the SPHP “describe the recordkeeping system of the swine production system.” We are not making any changes based on this comment. We believe this is a reasonable requirement. If a description is included in the SPHP, we can tell at the time we review the SPHP whether the recordkeeping system is adequate to allow us to trace the movements of animals.

Commenters also objected to our proposed requirement in § 71.19(h)(6) that participants maintain records adequate to “trace any animal on the premises back to its earlier premises and its herd of origin.” We agree that such extensive records are unnecessary and are removing the phrase “and its herd of origin” from § 71.19(h)(6). Records that identify the earlier premises are adequate, because if we need to trace an animal farther back, we can use records maintained by previous owners.

Commenters also stated that APHIS and State representatives should have access to records only “for cause.” “For cause” implies that there has been a violation of the regulations.

However, in most cases, we need to examine records simply to ensure that the program is working properly. Under § 71.19(h)(7), participants must allow access to records “upon request.” In most cases this means participants will receive advance notice. We believe this is fair to participants, while giving APHIS and State officials adequate access.

In accordance with Executive Order 12988, we included a statement in our proposed rule giving notice that any State and local laws and regulations in conflict with the proposed provisions would be preempted if the proposal is adopted. A number of commenters stated that including such a statement in the rulemaking was harmful to State-Federal cooperative efforts. Other commenters expressed concern that the statement meant that a State could not require any conditions for movement of animals into the State over and above the Federal requirements. Two comments from States specifically questioned whether Federal preemption would preclude States from requiring that persons moving swine into their States must first obtain an “import permit” from the State, authorizing movement of the animals and documenting that Federal and State movement requirements are met prior to movement of the animals.

Under Executive Order 12988, a Federal agency that proposes a regulation is required, among other things, to specify in clear language the preemptive effect it believes will be given to its regulations. The presence or absence of the statement does not change the legal effect of the regulation, and, therefore, should not be harmful to State-Federal cooperation. The actual effect of the regulation on the specific questions presented would have to be determined in an appropriate legal proceeding.

In the case of State-issued “import permits,” commenters stated that they are needed for several reasons:

• To assign a permit number that is associated with each movement of animals and that can be tracked in State records systems;

• To document that movements comply with State as well as Federal requirements;

• To give States a means to respond quickly to new or reemerging animal health concerns by denying a permit to stop movement of problematic animals; and

• To ensure that receiving States have timely notice of animals moving into their State.

We believe that the procedures in this rule, especially use of the swine production health plan, allow States to retain all these capabilities without issuing separate permits for each movement of animals. It is already common State practice to issue long-term permits for swine movements within a State, and to allow multiple groups of animals to move at different times under the same permit. In this regard, the SPHP serves the same function for interstates movements as such a State permit.

States currently can respond to animal health concerns by denying or canceling a permit to stop intrastate movements of animals. Under this rule, States may achieve the same effect by withdrawing from a SPHP. However, animals already in transit are a special problem even under systems where States issue individual permits.

With regard to ensuring that States have timely notice of animal movements, we do not believe that the individual permit system accomplishes this any better than the interstate swine movement report employed by this rule.

Commenters raised two issues concerning the proposed ISMR. One was whether the form and transmissions could be electronic; the other was whether the forms could be transmitted less frequently than proposed. In § 71.19(h)(4), our proposal stated that both we and State authorities must be notified prior to each interstate movement of swine.

We have no objections to SPHP participants using electronic forms and transmitting them electronically. In fact, we encourage this. If SPHP participants want to communicate electronically, they should provide for that in their agreement. This will ensure that all participants are prepared to send and receive ISMR's electronically. We have amended the definition of interstate swine movement report in § 71.1 in this final rule to clarify that electronic forms and transmission are acceptable for notification prior to each interstate movement of swine.

As noted above, our proposal stated that APHIS must receive an ISMR prior to each interstate movement of swine. Commenters are correct that this could result in many notices on a daily basis for large production systems. We agree that this many notices is unnecessary, especially as many States routinely forward this information to us. Therefore, in this final rule we have removed the requirement for an ISMR prior to each interstate movement from § 71.19(h)(4). However, it is necessary for us to be generally informed of the number and locations of animals moving interstate. We need this information so we can monitor the success of the program and compliance with our regulations. Therefore, we have added to § 71.19(h)(8) of this final rule a requirement that swine production systems send us a written, monthly summary of interstate swine movements under the SPHP.

Commenters suggested that it is unnecessary that each ISMR specifically include the pseudorabies status of swine moving interstate under an SPHP because pseudorabies will be eradicated from the U.S. swine population in the next few months. Commenters suggested that the ISMR instead include the health status of the swine for diseases of regulatory importance. These diseases, which would include pseudorabies until that disease is eradicated, would have to be specified in the SPHP. We agree with this suggestion and have made this change in the definition of interstate swine movement report in § 71.1 of this final rule.

The definition of swine production health plan in § 71.1 of our proposal provided that swine premises be inspected by an accredited veterinarian at least once every 30 days. Some commenters requested that we reduce the frequency. We are not making any change based on these comments. Reducing the frequency would put accredited veterinarians in violation of our accreditation standards in 9 CFR 161.3(a). Under these standards, accredited veterinarians must complete certificates of inspection based on veterinary inspection. An accredited veterinarian may not issue any certificate or other document “which reflects the results of any inspection, test, [etc.]” unless he or she has personally inspected the animal not more than 10 days prior to issuing the certificate or other document. Following the initial and subsequent inspections of a herd or flock that is in a regular health maintenance program, an accredited veterinarian may issue any certificate or other document if not more than 30 days have passed since he or she personally inspected the animal.

Commenters objected to the proposed requirement in § 71.19 that “receiving premises must not commingle swine received from different premises in a manner that prevents identification of the premises that sent the swine or groups of swine.” The commenters interpreted this to mean that we proposed to prohibit all commingling. This is incorrect. We are only prohibiting commingling if it is done in a way that makes it impossible for us to identify the source of individual swine. We believe the proposed regulations are clear, and we are not making any changes based on this comment.

One commenter noted that while the proposal provided that swine producers of any size could use the proposed alternative procedures, the bulk of the proposal's discussion emphasized benefits for the largest producers. This commenter stated that it is important to point out that the usefulness of the proposed system for identification and movement is not related to the size of the operation, rather it is related to the producer's production scheme. We agree, and have revised the economic analysis in this proposed rule to point out that the new procedures can benefit any producer who uses a multi-State approach to swine production.

One commenter stated that the proposed system has grown too complex, and involves more persons in swine movement than is necessary.

We have made no change based on this comment. The changes are all based on the need to ensure that the system operates effectively and contains sufficient safeguards to prevent the spread of communicable diseases. We believe that the detailed requirements for agreements and recordkeeping will enhance enforcement and monitoring of the system.

Therefore, for the reasons given in the proposed rule and in this document, we are adopting the proposed rule as a final rule with the changes discussed in this document.

This rule has been reviewed under Executive Order 12866. The rule has been determined to be significant for the purposes of Executive Order 12866 and, therefore, has been reviewed by the Office of Management and Budget. The economic analysis prepared for this rule is set out below. It includes both a cost-benefit analysis as required by Executive Order 12866 and an analysis of the economic effects on small entities as required by the Regulatory Flexibility Act.

This rule will offer an alternative to the current requirements for moving certain swine interstate. 1 Under the rule, producers within a single production system (e.g., owners of sow farms, nurseries, and growing or finishing operations) could move swine interstate without meeting the current identification and certification requirements if an official of the swine production system signs a swine health production plan with APHIS and the sending and receiving States, and if each premises: (1) Has an accredited veterinarian visit the individual premises at least once every 30 days to assess and document the general health of the animals; (2) maintains a recordkeeping system adequate to enable APHIS or State inspectors to trace an animal back to its earlier premises; and (3) notifies the accredited veterinarian and State regulatory officials in the States of origin and destination when swine are ready to be moved interstate. The rule will not mandate a specific type of recordkeeping system; those in the production system will be free to choose their own system of records, as long as APHIS determines that the system meets the requirements of § 71.19(h)(6) and effectively documents animal health and allows for animal traceback. The formal written agreement will have to be approved and signed by the producers moving swine interstate under the system, APHIS, and the relevant States.

The primary economic benefits to producers will be that they avoid the costs of individually identifying animals and obtaining a certificate for each shipment. Recordkeeping costs under the current requirements and under this alternative should be comparable, although some different records (copies of SPHP's and ISMR's) would be maintained under this final rule.

The rule will benefit U.S. swine producers who move their animals interstate within a single production system. Currently, such systems are used by most of the largest producers, although many medium and small producers also employ multi-State production. Producers who already move their animals interstate during production will be able to realize the benefits of this rule with little or no additional cost, since many have most of the major elements of the new recordkeeping system (i.e., records indicating the source and disposition of swine and identifying which swine are grouped together) already in place.

As an example of the potential cost savings for producers from not having to individually identify animals, we estimate that the material cost for each identification eartag is about 5 cents and that it takes 1 person 1 hour to attach about 250 eartags. For a large producer who moves 1 million swine interstate each year with an eartag, the annual savings if the producer no longer uses eartags would be about $50,000 in materials and about $40,000 in labor (assuming a labor rate of $10/hr.). Certificates are typically issued on a per-shipment basis, with one certificate issued for all swine in a truckload. For a producer who moves 1 million swine interstate each year, the annual cost of obtaining certificates is about $140,000 (assuming 250 swine per shipment and a veterinarian fee of $35 per shipment). 2 Under the rule, individual identification and certificates will be replaced by the records kept in accordance with the regulations and the ISMR's issued for interstate movements attesting that the swine were found healthy by an accredited veterinarian within the 30 days preceding the interstate movement.

The requirement in the regulations that an accredited veterinarian must visit the premises at least once every 30 days to assess the general health of the animals should not constitute an additional burden for producers, since most are already visited by a veterinarian on that basis as part of a regular health maintenance program.

As indicated above, this rule will eliminate the need for producers to obtain certificates from accredited veterinarians on an individual shipment basis. This is not expected to have a negative impact on the accredited veterinarian's income because most accredited veterinarians generate little or no income from issuing certificates, charging either a nominal fee or no fee at all, especially when they are dealing with producers for whom they provide services on a regular, routine basis. This change should allow them to make more productive use of their time by allowing them to schedule regular health maintenance visits to a facility, rather than visiting when called, possibly at inconvenient times, to issue certificates just prior to movement. This change should also give producers more flexibility in scheduling movements of swine.

The rule will primarily benefit U.S. swine producers who move their animals interstate within a single production system. Currently, such systems are used primarily by the producers who do not appear to be small in size by U.S. Small Business Administration (SBA) criteria. The SBA considers a hog farm or feedlot small if its annual receipts are $0.5 million or less. We estimate that, of the 114,380 hog and pig operations in the United States, no more than about 4 percent (or 4,575) currently participate in multi-State production systems and, of those that do participate, most rank among the industry's largest producers. 3 Census data from the National Agricultural Statistics Service (NASS) indicate that, in 1997, the per-farm average value of pigs and hogs sold for the top 4 percent of U.S. farms was in excess of $0.5 million. 4 NASS’ data suggest, therefore, that many of the producers that currently participate in interstate production systems are not small by SBA standards.

The rule may encourage more small producer participation in the future, since it will provide them with an economic incentive to network together into one production system. For some small producers, especially those operating on thin profit margins, this opportunity to reduce costs via production networks could make the difference between economic viability and insolvency. At this time, however, there is no basis to conclude that the number of small producers who might form networks in the future will be substantial.

Under these circumstances, the Administrator of the Animal and Plant Health Inspection Service has determined that this action will not have a significant economic impact on a substantial number of small entities.

This program/activity is listed in the Catalog of Federal Domestic Assistance under No. 10.025 and is subject to Executive Order 12372, which requires intergovernmental consultation with State and local officials. (See 7 CFR part 3015, subpart V.)

This final rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule: (1) Preempts all State and local laws and regulations that are in conflict with this rule; (2) has no retroactive effect; and (3) does not require administrative proceedings before parties may file suit in court challenging this rule.

Executive Order 13132, “Federalism,” requires that Agencies assess the federalism implications of their policies that have federalism implications, i.e., agency statements and actions 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. This final rule does not have substantial direct effects in these areas, and therefore does not require assessment of federalism implications under Executive Order 13132.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ), the information collection or recordkeeping requirements included in this rule have been approved by the Office of Management and Budget (OMB) under OMB control number 0579-0161.

In this final rule we have reduced the information collection and recordkeeping requirements contained in the proposed rule. We have added provisions to allow participants to maintain and submit Interstate Swine Movement Reports electronically, rather than by paper copy. We have also removed the requirement that producers submit an ISMR prior to each interstate movement, and have substituted a less burdensome requirement that swine production systems send us a written, monthly summary of interstate swine movements under the SPHP.

Animal diseases, Livestock, Quarantine, Reporting and recordkeeping requirements, Transportation.

Since the mid-1990s, the subprime mortgage market has grown substantially, providing access to credit to borrowers with less-than-perfect credit histories and to other borrowers who are not served by prime lenders. With this increase in subprime lending there has also been an increase in reports of “predatory lending.” The term “predatory lending” encompasses a variety of practices. In general, the term is used to refer to abusive lending practices involving fraud, deception, or unfairness. Some abusive practices are clearly unlawful, but others involve loan terms that are legitimate in many instances and abusive in others, and thus are difficult to regulate. Loan terms that may benefit some borrowers, such as balloon payments, may harm other borrowers, particularly if they are not fully aware of the consequences. The reports of predatory lending have generally included one or more of the following: (1) Making unaffordable loans based on the borrower's home equity without regard to the borrower's ability to repay the obligation; (2) inducing a borrower to refinance a loan repeatedly, even though the refinancing may not be in the borrower's interest, and charging high points and fees each time the loan is refinanced, which decreases the consumer's equity in the home; and (3) engaging in fraud or deception to conceal the true nature of the loan obligation from an unsuspecting or unsophisticated borrower—for example, “packing” loans with credit insurance without a consumer's consent.

In response to anecdotal evidence about abusive practices involving home-secured loans with high rates or high fees, in 1994 the Congress enacted the Home Ownership and Equity Protection Act (HOEPA), Pub. L. 103-325, 108 Stat. 2160, as an amendment to the Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq. TILA is intended to promote the informed use of consumer credit by requiring disclosures about its terms and cost. TILA requires creditors to disclose the cost of credit as a dollar amount (the “finance charge”) and as an annual percentage rate (the “APR”). Uniformity in creditors' disclosures is intended to assist consumers in comparison shopping. TILA requires additional disclosures for loans secured by a consumer's home and permits consumers to rescind certain transactions that involve their principal dwelling. TILA is implemented by the Board's Regulation Z, 12 CFR part 226.

HOEPA identifies a class of high-cost mortgage loans through rate and fee triggers, and it provides consumers entering into these transactions with special protections. HOEPA applies to closed-end home-equity loans (excluding home-purchase loans) bearing rates or fees above a specified percentage or amount. A loan is covered by HOEPA if (1) the APR exceeds the rate for Treasury securities with a comparable maturity by more than 10 percentage points, or (2) the points and fees paid by the consumer exceed the greater of 8 percent of the loan amount or $400. The $400 figure set in 1994 is adjusted annually based on the Consumer Price Index. The dollar figure for 2001 is $465 and for 2002 is $480. 66 FR 57849, November 19, 2001.

HOEPA is implemented in § 226.32 of the Board's Regulation Z. HOEPA also amended TILA to require additional disclosures for reverse mortgages that are contained in § 226.33 of Regulation Z. For purposes of this notice of rulemaking, however, the term “HOEPA-covered loan” or “HOEPA loan” refers only to mortgages covered by § 226.32 that meet HOEPA's rate or fee-based triggers.

Creditors offering HOEPA-covered loans must give consumers an abbreviated disclosure statement at least three business days before the loan is closed, in addition to the disclosures generally required by TILA before or at closing. The HOEPA disclosure informs consumers that they are not obligated to complete the transaction and could lose their home if they take the loan and fail to make payments. It includes a few key items of cost information, including the APR. In loans where consumers have three business days after closing to rescind the loan, the HOEPA disclosure thus affords consumers a minimum of six business days to consider accepting key loan terms before receiving the loan proceeds.

HOEPA restricts certain loan terms for high-cost loans because they are associated with abusive lending practices. These terms include short-term balloon notes, prepayment penalties, non-amortizing payment schedules, and higher interest rates upon default. Creditors are prohibited from engaging in a pattern or practice of making HOEPA loans based on the homeowner's equity without regard to the borrower's ability to repay the loan. Under HOEPA, assignees are generally subject to all claims and defenses with respect to a HOEPA loan that a consumer could assert against the creditor. HOEPA also authorizes the Board to prohibit acts or practices in connection with mortgage lending under defined criteria.

Since the enactment of HOEPA in 1994, the volume of home-equity lending has increased significantly in the subprime mortgage market. Based on data reported under the Home Mortgage Disclosure Act (HMDA), 12 U.S.C. 2801 et seq. , the number of nonpurchase-money loans made by lenders that are identified as engaging in subprime lending increased about five-fold—from 138,000 in 1994 to roughly 658,000 in 2000. While such lending benefits consumers by making credit available, it also raises concerns that the increase in the number of subprime loans brings a corresponding increase in the number of predatory loans.

In the past two years, various initiatives to address predatory lending have been undertaken. The Senate Banking Committee held hearings in July 2001 at which consumers and representatives of industry and consumer groups testified; the House Banking Committee held hearings in May 2000 at which the banking regulators and others testified; and bills have been introduced to address predatory lending. Several states and municipalities have enacted or are considering legislation or regulations. The Department of Housing and Urban Development and the Department of Treasury held a number of public forums on predatory lending and issued a report in June 2000. The report makes recommendations to the Congress regarding legislative action and to the Board urging the use of its regulatory authority to address predatory lending practices. Fannie Mae and Freddie Mac published guidelines last year to avoid purchasing loans that are potentially predatory; they are also making efforts to develop consumers' awareness of their credit options.

The Board has conferred with its Consumer Advisory Council and Board staff have met with other industry representatives and consumer advocates on the issue of predatory lending. In 2000, the Board held hearings in Charlotte, Boston, Chicago, and San Francisco, to consider approaches the Board might take in exercising its regulatory authority under HOEPA. The Board's hearings focused on expanding the scope of mortgage loans covered by HOEPA, prohibiting specific acts or practices, improving consumer disclosures, and educating consumers. Transcripts of the hearings can be accessed on the Board's Internet web site at http://www.federalreserve.gov/community.htm. In the notices announcing the hearings, the Board also solicited written comment on possible revisions to Regulation Z's HOEPA rules. 65 FR 45547, July 24, 2000. The Board received approximately 450 comment letters in response to the notices, two-thirds of which were from consumers generally encouraging Board action to curb predatory lending.

The Board published a proposed rule to amend Regulation Z in December 2000. 65 FR 81438, December 26, 2000. The Board proposed to broaden the scope of mortgage loans subject to HOEPA by adjusting the price triggers used to determine coverage under the act; to prohibit certain acts and practices in connection with home-secured loans covered by HOEPA; to require increased scrutiny on creditors' practices to document and verify income; and to enhance disclosures received by consumers before closing for HOEPA-covered loans.

The Board received approximately 200 letters that specifically addressed the proposed revisions and represented the views of the mortgage lending industry, credit insurance industry, consumer and community development groups, and government agencies. In addition, the Board received approximately 1,100 identical e-mail comment letters from consumers generally encouraging the Board to curb predatory lending.

Most of the creditors and other commenters involved in mortgage lending opposed making more loans subject to HOEPA. They believe that the coverage of more loans would reduce competition and the availability of credit in the range of rates affected because some lenders, as a matter of policy, will not make HOEPA loans. With regard to the new rules that would apply to HOEPA loans, creditors wanted more flexibility and compliance guidance. Consumer representatives and community development organizations generally supported the proposal as a step forward in addressing the problem of predatory lending but believed additional steps are needed to ensure consumers are protected.

With some exceptions, the Board is adopting the revisions substantially as proposed to address predatory lending and unfair practices in the home-equity market. The revisions are adopted pursuant to the Board's authority to adjust the APR trigger and add additional charges to the points and fees trigger. See 15 U.S.C. 1602(aa). Revisions are also issued pursuant to the Board's authority under HOEPA to prohibit certain acts or practices (1) affecting mortgage loans if the Board finds the act or practice to be unfair, deceptive, or designed to evade HOEPA, or (2) affecting refinancings if the Board finds the act or practice to be associated with abusive lending or otherwise not in the interest of the borrower. 15 U.S.C. 1639(l)(2). Revisions are also adopted pursuant to section 105(a) of TILA to effectuate the purposes of TILA, to prevent circumvention or evasion, or to facilitate compliance. 15 U.S.C. 1604(a).

The amendments (1) extend the scope of mortgage loans subject to HOEPA's protections, (2) restrict certain acts or practices, (3) strengthen HOEPA's prohibition on loans based on homeowners' equity without regard to repayment ability, and (4) enhance HOEPA disclosures received by consumers before closing, as follows.

The final rule adjusts the APR trigger for first-lien mortgage loans, from 10 percentage points to 8 percentage points above the rate for Treasury securities having a comparable maturity, the maximum amount that the Board may lower the trigger. The APR trigger for subordinate-lien loans remains at 10 percentage points. The fee-based trigger is adjusted to include amounts paid at closing for optional credit life, accident, health, or loss-of-income insurance, and other debt-protection products written in connection with the credit transaction.

The final rule also addresses some “loan flipping” within the first year of a HOEPA loan. Except in limited circumstances, a creditor that has made a HOEPA loan to a borrower is generally prohibited for twelve months from refinancing any HOEPA loan made to that borrower into another HOEPA loan. Assignees holding or servicing a HOEPA loan are subject to similar restrictions.

To prevent the evasion of HOEPA, which only covers closed-end loans, the final rule prohibits a creditor from wrongfully documenting such loans as open-end credit. For example, a high-cost mortgage may not be structured as a home-secured line of credit if there is no reasonable expectation that repeat transactions will occur under a reusable line of credit. To ensure that lenders do not accelerate the payment of HOEPA loans without cause, the final rule prohibits a creditor from exercising “due-on-demand” or call provisions in a HOEPA loan, unless the clause is exercised in connection with a consumer's default. A similar rule applies to home-secured lines of credit under Regulation Z.

The final rule seeks to strengthen HOEPA's prohibition on making loans based on homeowners' equity without regard to repayment ability. It creates a presumption that a creditor has violated the statutory prohibition on engaging in a pattern or practice of making HOEPA loans without regard to repayment ability if the creditor generally does not verify and document consumers' repayment ability.

The final rule revises the HOEPA disclosures (given three days before loan closing) for refinancings, to alert consumers to the total amount borrowed, which may be substantially higher than the loan amount requested due to the financing of credit insurance, points, and fees. To enhance consumer awareness, and deter insurance packing, the HOEPA disclosure must specify whether the total amount borrowed includes the cost of optional insurance.

The staff commentary to Regulation Z has also been revised to provide guidance on the new rules and to clarify existing requirements. Revisions to the regulation and the staff commentary are discussed in detail below in the section-by-section analysis.

Section 226.1(b) on the purpose of the regulation is revised as proposed to reflect the addition of prohibited acts and practices in connection with credit secured by a consumer's dwelling. Section 226.1(d) on the organization of the regulation is revised to reflect the restructuring of Subpart E (rules for certain home mortgage transactions).

The proposed amendment to footnote 48 to § 226.23(a)(3) is unnecessary given the organization of the final rule, and thus has not been adopted.

Section 226.31(c)(1) requires a three-day waiting period between the time the consumer is furnished with disclosures required under § 226.32 and the time the consumer becomes obligated under the loan. If the creditor changes any terms that make the disclosures inaccurate, new disclosures must be given and another three-day waiting period is triggered.

Comment § 226.31(c)(1)(i)-2 is added, as proposed, to clarify redisclosure requirements when, after a consumer receives a HOEPA disclosure and before consummation, loan terms change that make the disclosure inaccurate. The Board's 2000 hearings revealed that some creditors offer credit insurance and other optional products at loan closing. If the consumer finances the purchase of such products and as a result the monthly payment differs from what was previously disclosed under § 226.32, the terms of the extension of credit have changed; redisclosure is required and a new three-day waiting period applies. See discussion below concerning § 226.32(c)(3) on when optional items may be included in the regular payment disclosure.

HOEPA disclosures and restrictions cover home-equity loans that meet one of the act s two high-cost triggers a rate trigger and a points and fees trigger. Under the final rule, both triggers are revised to cover more loans.

APR trigger —Currently, a loan is covered by HOEPA if the APR exceeds by more than 10 percentage points the rate for Treasury securities with a comparable maturity. Section 103(aa) of TILA authorizes the Board to adjust the APR trigger by 2 percentage points from the current standard of 10 percentage points upon a determination that the increase or decrease is consistent with the consumer protections against abusive lending contained in HOEPA and is warranted by the need for credit.

The Board had proposed to reduce the rate trigger from 10 to 8 percentage points above the rate for Treasury securities with a comparable term for all loans, the maximum adjustment that the Board can make. With this change, based on recent rates for Treasury securities, home-equity loans with a term of 10 years would be subject to HOEPA if they have an APR of approximately 13 percent or higher.

The Board solicited comment on an alternative approach that would differentiate between first- and subordinate-lien loans in the application of the APR trigger. Under the two-tiered alternative, the APR trigger for first-lien mortgages would be reduced to 8 percentage points; the APR trigger for subordinate-lien loans would remain at 10 percentage points. The final rule adopts the two-tiered alternative approach.

HOEPA provides that the Board may adjust the APR trigger after consulting with representatives of consumers and lenders and determining that the increase or decrease is consistent with the purpose of consumer protection in HOEPA and is warranted by the need for credit. (The Board may not adjust the trigger more frequently than once every two years.) Consistent with this mandate, the Board has held public hearings, considered the testimony at other hearings held by government agencies and the Congress, analyzed comment letters, held discussions with community groups and lenders, consulted its Consumer Advisory Council, and reviewed data from various studies and reports on the home-equity lending market.

Most of the information the Board received about predatory lending is anecdotal, as it was when Congress passed HOEPA in 1994. The reports of actual cases (including additional Congressional testimony by consumers) are, however, widespread enough to indicate that the problem warrants addressing. Homeowners in certain communities—frequently the elderly, minorities, and women—continue to be targeted with offers of high-cost, home-secured credit with onerous loan terms. The loans, which are typically offered by nondepository institutions, carry high up-front fees and may be based solely on the equity in the consumers' homes without regard to their ability to make the scheduled payments. When homeowners have trouble repaying the debt, they are often pressured into refinancing their loans into new unaffordable, high-fee loans that rarely provide economic benefit to the consumers. These refinancings may occur frequently. The loan balances increase primarily due to fees that are financed resulting in reductions in the consumers' equity in their homes and, in some cases, foreclosure may occur. The loan transactions also may involve fraud and other deceptive practices.

Creditors have expressed concern that lowering the HOEPA rate trigger would adversely affect credit availability for loans in the range of rates that would be covered by the lowered trigger. Many creditors, ranging from community banks to national lenders, have stated that they do not offer HOEPA loans due to their concerns about compliance burdens, potential liability, reputational risk, and difficulty in selling these loans to the secondary market. Some creditors believe there are insufficient data about the incidence of predatory lending occurring in loans immediately below the existing HOEPA triggers to support lowering the trigger.

Anecdotal evidence suggests that subprime borrowers with rates below the current HOEPA triggers also have been subject to abusive lending practices. There are no precise data, however, on the number of subprime loans in the market as a whole that would be affected by lowering the HOEPA rate trigger. The precise effect that lowering the APR trigger will have on creditors' business strategies is difficult to predict. It seems likely that lenders that already make HOEPA loans and have compliance systems in place would continue making them under a revised APR trigger. Some creditors that choose not to make HOEPA loans may refrain from making loans in the range of rates that would be covered by the lowered threshold. But other creditors may fill any void left by creditors that do not make HOEPA loans, either because they already make HOEPA loans or because they are willing to do so in the future. And others may have the flexibility to avoid HOEPA's coverage by lowering rates or fees for some loans at the margins, consistent with the risk involved. Data submitted by a trade association representing nondepository institution lenders suggest that there is an active market for HOEPA loans under the current APR trigger. There is no evidence that the impact on credit availability will be significant if the trigger is lowered. Accordingly, the Board believes that lowering the APR trigger to expand HOEPA's protections to more loans is consistent with consumers' need for credit, and therefore, warranted.

Moreover, lowering the rate trigger seeks to ensure that the need for credit by subprime borrowers will be fulfilled more often by loans that are subject to HOEPA's protections. Borrowers who have less-than-perfect credit histories and those who might not be served by prime lenders have benefited from the substantial growth in the subprime market. But a borrower does not benefit from expanded access to credit if the credit is offered on unfair terms, the repayment costs are unaffordable, or the loan involves predatory practices. Because consumers who obtain subprime mortgage loans have, or perceive they have, fewer options than other borrowers, they may be more vulnerable to unscrupulous lenders or brokers.

The Board has also determined that lowering the rate trigger is consistent with the consumer protections against abusive lending provided by HOEPA. The Act's purpose is to protect the most vulnerable consumers, based on the cost of the loans, from abusive lending practices. As noted above, anecdotal evidence suggests that subprime borrowers with loans priced below HOEPA's current APR trigger have been subject to predatory practices, such as unaffordable lending, loan flipping and insurance packing. These are the very types of abuses that HOEPA was intended to prevent. With a lowered trigger, more consumers with high-cost loans will receive cost disclosures three days before closing (instead of at closing) and will be protected by HOEPA's prohibitions against onerous loan terms, such as non-amortizing payment schedules, balloon payments on short-term loans, or interest rates that increase upon default. A wider range of high-cost loans will also be subject to HOEPA's rule against unaffordable lending, and to HOEPA's restrictions on prepayment penalties. The rules being adopted by the Board to address loan flipping will also apply to more loans. Lastly, more high-cost loans will be subject to the HOEPA rule that holds loan purchasers and other assignees liable for any violation of law by the original creditor with respect to the mortgage.

Two-tiered approach —Of the 200 commenters on the proposal, about 40 discussed the two-tiered trigger approach and were about evenly divided. Creditors and some consumer groups favored the two-tiered trigger approach. Those opposed included community groups, some creditors, and others that generally believe that there should be no distinction drawn between first-lien and subordinate-lien loans. Community groups believe that the maximum number of subprime mortgage loans should be subject to HOEPA's protections. Many suggested that the two-tiered approach could be helpful if both triggers were substantially lower than what the Board is authorized to adopt. Some creditors that opposed the tiered-approach believe that the Board should not issue a rule that might encourage the making of loans that would place creditors in a subordinate lien position. One institution noted that a subordinate-lien loan may not be more favorable to a consumer if it results in a combined monthly payment on the first and second mortgages that is higher than the monthly payment on a consolidated first-lien mortgage loan. Some commenters believe that borrowers with subordinate-lien loans face similar risks of abusive practices as with first-lien loans. A few stated that the tiered approach would add unnecessary complexity to both compliance and enforcement efforts.

Data are not available on the number of home-equity loans currently subject to HOEPA, or the number of loans that would be covered if the APR trigger were lowered. At the time of the proposal, data from the Mortgage Information Corporation (MIC) compiled by the Office of Thrift Supervision suggested that lowering the APR trigger by 2 percentage points could expand HOEPA's coverage from approximately 1 percent to 5 percent of subprime mortgage loans. Further analysis of additional MIC data suggests that these percentages of coverage may be typical of longer-term, first-lien mortgages, and that the coverage percentages are higher for shorter-term and subordinate-lien loans.

In response to the Board's request in the proposal, a few commenters provided data on the number of loans they offered in recent years that would have been affected by a rate trigger of 8 percentage points above a comparable Treasury security. The most extensive data were submitted by a trade association representing nondepository institution lenders. The association collected data from the subprime lending divisions of nine member institutions. The number of loans surveyed is about 36 percent of the number of loans of subprime lenders recorded under HMDA during the survey period (mid-year 1995 through mid-year 2000). The dollar volume for the loans surveyed is about 20 percent of the dollar volume of loans reported by subprime lenders under HMDA. Overall, the trade association data show that for these loans, HOEPA's existing APR trigger would have covered about 9 percent of the first-lien loans, and that lowering the APR trigger by 2 percentage points would have resulted in coverage of nearly 26 percent of the first-lien loans surveyed. For subordinate-lien loans, about 47 percent of the surveyed loans would have been covered by HOEPA's APR trigger, and the data suggest that lowering the APR trigger by 2 percentage points would have resulted in coverage of about 75 percent of the subordinate-lien loans.

Most of the evidence of predatory lending brought to the Board's attention to date has involved abuses in connection with first-lien mortgage loans. When a consumer seeks a loan to consolidate debts or finance home repairs, some creditors require consumers to borrow additional funds to pay off the existing first mortgage as a condition of providing the loan, even though the existing first mortgage may have been at a lower rate. This ensures that the creditor will be the senior lien-holder, but it also results in an increase, perhaps significant, in the points and fees paid for the new loan (since the latter are calculated on a much larger loan amount).

The Board's final rule lowers the APR trigger for first lien-mortgages only. Subordinate-lien loans are already covered more frequently by HOEPA because the rates on these loans are higher than first-lien loans. The data suggests that coverage under the current triggers could be significant for subordinate-lien loans. Moreover, the evidence of abusive practices has pertained primarily to first lien mortgages. Based on these factors, the Board is adjusting the APR trigger only for first-lien loans, but retains the ability to lower the trigger for subordinate-lien loans at a future date.

Points and fees trigger —Currently, home-equity loans are subject to HOEPA if the points and fees payable by the consumer at or before loan closing exceed the greater of 8 percent of the total loan amount or $465. (The dollar trigger is $480 for 2002; 66 FR 57849, November 19, 2001.) “Points and fees” include all finance charges except for interest. The trigger also includes some fees that are not finance charges, such as closing costs paid to the lender or an affiliated third party. HOEPA authorizes the Board to add “such other charges” to the points and fees trigger as the Board deems appropriate.

The comment letters and testimony at the hearings raised a number of concerns about single-premium credit insurance, such as excessive costs, high-pressure sales tactics, consumers' confusion as to the voluntariness of the product, and “insurance packing.” The term “packing” in this case refers to the practice of automatically including optional insurance in the loan amount without the consumer's request; as a result, some consumers may perceive that the insurance is a required part of the loan, and others may not be aware that insurance has been included.

In response to the reported abuses, the Board proposed to include in the fee trigger premiums paid at closing for optional credit life, accident, health, or loss-of-income insurance and other debt-protection products; such premiums are typically financed. Premiums paid for required credit insurance policies are considered finance charges and are already included in the points and fees trigger.

Many commenters expressed views on this issue. The views were sharply divided. In general, consumer representatives, some federal agencies, state law enforcement officials, and some others supported the inclusion of optional credit insurance premiums in HOEPA's points and fees trigger, although they would have preferred an outright ban on the purchase or financing of single-premium products. Consumer representatives were generally concerned about the cost of the insurance, its voluntariness, and its contribution to equity stripping. They believe that borrowers are often unaware that insurance has been included in their loan balance or that borrowers perceive that the insurance is required. They also note that these problems exist notwithstanding the fact that TILA currently requires creditors to disclose before consummation that the insurance is optional in order to exclude it from the HOEPA fee trigger. (If creditors fail to disclose that the insurance is optional, TILA requires that the cost be treated as a finance charge, and all finance charges other than interest are in the current HOEPA fee trigger.) They state that excessively high premiums contribute to the problem of equity stripping. They also note that consumers pay interest on the financed premium for the entire loan term even though insurance coverage typically expires much earlier.

Most creditors and commenters representing the credit insurance industry strongly opposed the inclusion of optional insurance premiums paid at closing in the points and fees trigger. Some creditors questioned the Board's use of its authority under HOEPA to mandate inclusion; they pointed to legislative history that discusses the potential inclusion of credit insurance premiums if there is evidence that credit insurance premiums are being used to evade HOEPA. These commenters believe that a finding of evasion is a prerequisite to inclusion; they do not believe the standard has been met because the proposal merely noted that the change might prevent such evasions in the future. They also cited an exchange in the Congressional Record between two Senators, when the Congress was considering HOEPA legislation, about credit insurance being treated consistently with other provisions of TILA. Because premiums for optional credit insurance are not automatically included in the calculation of TILA's finance charge and APR, these commenters believe such premiums should not be included in HOEPA's points and fees calculation.

The commenters' suggestion that credit insurance premiums can only be included in the HOEPA trigger if the Board finds that creditors are using the premiums to evade HOEPA is directly contradicted by the express language of the statute, which states that the Board need only make a finding that this action is “appropriate.” In construing a statute, the plain meaning of the statutory text generally governs. When the plain meaning of the statutory language is clear, there is no reason to resort to legislative history. In this case, if the Congress had intended to make “evasions” the sole standard of “appropriateness” for including additional charges in the fee trigger, it would have done so expressly. For example, such language was used in section 129(l)(2)(A), which authorizes the Board to prohibit acts and practices that the Board finds to be “unfair, deceptive, or designed to evade ” the provisions of HOEPA.

In light of the unambiguous statutory text, the Board believes that the legislative history cited by the commenters is not dispositive, and that evasion is merely one example of when the Board might find that inclusion of additional charges is “appropriate.” The Senate floor colloquy, which refers to HOEPA as being consistent with TILA's treatment of insurance premiums, should not be construed as guidance on how the Board might, in the future, adjust HOEPA's points and fees trigger. It merely clarified that optional credit insurance premiums were not automatically included in the statutory points and fees trigger, as would have been the case under an earlier version of the legislation.

Industry commenters opposed including optional credit insurance premiums in HOEPA's points and fees trigger when, for purposes of TILA disclosures generally, the premiums are not included in the cost of the credit. The Board believes that HOEPA's points and fees trigger is not intended to be the equivalent of the “cost of credit,” as measured by TILA's finance charge and APR. Indeed, HOEPA expressly includes certain charges in the points and fees trigger that are not included in the finance charge, and authorizes the Board to include others. The HOEPA points and fees trigger is intended to be used to identify transactions with high costs where consumers may be vulnerable and thus need the benefit of HOEPA's special protections.

Creditors also asserted that, based on typical premium rates, most mortgage loans that include single-premium credit insurance would be considered high-cost and thus would be covered under HOEPA's fee-based trigger. As a result, they caution that lenders choosing not to make HOEPA loans would be foreclosed from offering single-premium credit insurance products to their loan customers. They asserted that the financing of single-premium insurance provides protection to cash-poor consumers who are underinsured, and in some cases offers less costly coverage compared with other forms of insurance. In short, these commenters generally support the current rule that does not include insurance premiums for optional credit insurance in the points and fees trigger. Alternatively, they recommend a rule that allows the insurance premiums to be excluded based on the consumers' ability to cancel the coverage and obtain a full refund, where consumers are also provided with adequate information about their rights to do so after the loan closing.

The Board believes that it is appropriate and consistent with the purposes of HOEPA to include premiums paid by consumers at or before closing for credit insurance (and other debt-protection products) in HOEPA's points and fees trigger. The coverage is purchased by the consumer in connection with the mortgage transaction, and the creditor or the credit account is the beneficiary. In addition, creditors receive commissions which may be significant for selling credit insurance (and retain the fee assessed for debt-cancellation coverage). This oftentimes represents a significant addition to the cost of the transaction to the borrower and an increase in benefit to the creditor. Moreover, when financed in connection with a subprime mortgage loan, as is typically the case, these charges can represent a significant addition to the loan balance, and thus, to the cost of the transaction and the size of the lien on the borrower's home. For example, according to insurance industry commenters, the typical cost of single-premium credit life insurance for an individual borrower could amount to the equivalent of several points. The total cost of credit insurance in a particular mortgage transaction, however, also depends on the number of borrowers covered, and the types of coverage purchased. HOEPA is specifically designed to help borrowers in high-cost mortgage transactions to understand the costs of the transaction and the risk that they may lose their homes if they do not meet the full amount of their obligation under the loan.

Importantly, anecdotal evidence has revealed that there are sometimes abuses associated with the sale and financing of single-premium credit insurance, which typically occurs in subprime loans. Some consumers are not aware that they are purchasing the insurance, some may believe the insurance is required, and some may not understand that the term of insurance coverage may be shorter than the term of the loan. These abuses and misunderstandings can be addressed somewhat by applying HOEPA's protections and remedies, to the extent that including insurance in the points and fees test brings these loans under HOEPA. Moreover, including credit insurance premiums in HOEPA's fee-based trigger prevents unscrupulous creditors from evading HOEPA by packing a loan with such products in lieu of charging other fees that already are included under the current HOEPA trigger.

One likely effect of this adjustment to the trigger is that significantly more of the loans that include single-premium insurance will be covered by HOEPA's protections. Data from a trade association of nondepository lenders indicate that lowering the APR trigger for first-lien loans by 2 percentage points and including optional credit insurance premiums in the points and fees tests would increase the percentage of first-lien mortgage loans covered by HOEPA, from 26 to 38 percent, for the firms surveyed. With a lowered APR trigger, coverage of subordinate-lien mortgage loans would increase from 47 to 61 percent for the firms surveyed.

When there are abuses such as coercive or deceptive sales practices, borrowers will benefit from HOEPA's rule requiring disclosures three days before closing. With the enhanced HOEPA disclosure of the amount borrowed, these consumers will receive advance notice about the additional amount they must borrow beyond their original loan request if they purchase the insurance. As part of that new disclosure, under the final rule, creditors must specify whether the amount borrowed includes the cost of optional insurance. Moreover, creditors and assignees will be subject to HOEPA's strict liability and remedies when there are violations of law concerning the mortgage. See § 226.32(c)(5).

As commenters noted, some creditors choose not to make loans covered by HOEPA, and if these creditors have been offering single-premium insurance, they may decide to cease doing so in order to remain outside of HOEPA's coverage. To the extent that some creditors choose not to offer single-premium policies, they can make credit insurance available through other vehicles such as policies that assess and bill monthly premiums on the outstanding loan balance.

Industry commenters assert that single-premium policies are less costly than monthly premium insurance and provide greater continuity of coverage because a borrower's missed payments on the monthly-pay product might result in cancellation of insurance. Single-premium and monthly-premium policies have relative advantages and disadvantages. For example, a five-year policy with a financed single-premium may result in smaller monthly payments because the cost is spread over the full loan term, which may be ten or twenty years. But the consumer will also pay “points” (and interest over the life of the loan) on the additional amount financed for the coverage. Premiums assessed monthly, based on the outstanding loan balance, may result in a higher monthly expense, but they are not financed and would only be payable during the five years that coverage was in force, so the overall cost to the consumer could be lower. Regardless of the relative merits, under the final rule creditors will continue to have the ability to decide what types of insurance products they will make available to borrowers.

The final rule also provides guidance in calculating the HOEPA fees trigger. A mortgage loan is covered by HOEPA if the “points and fees” exceed 8 percent of the “total loan amount.” The total loan amount is based on the “amount financed” as provided in § 226.18(b). Comment 32(a)(1)(ii)-1 of the staff commentary to Regulation Z discusses the calculation of the total loan amount. The comment is revised, as proposed, to illustrate that premiums or other charges for credit life, accident, health, loss-of-income, or debt-cancellation coverage that are financed by the creditor must be deducted from the amount financed in calculating the total loan amount.

Disclosure alternatives —The Board solicited comment on whether optional credit insurance premiums should be excluded from the trigger when consumers have a right to cancel the policy and when disclosures about that right are provided after closing. Consumer representatives were opposed to the approach, expressing doubt that disclosures would be effective. Industry commenters supported the exclusion as a reasonable approach to address concerns about insurance packing. Upon further analysis, the Board believes that post-closing disclosures would be less effective than the HOEPA disclosures and remedies in deterring abusive sales practices in connection with insurance. Moreover, reliance on the consumer's exercise of their right to cancel the insurance would not prevent abuses but would unfairly require borrowers to take the initiative in remedying them.

Section 129(a) of TILA requires creditors offering HOEPA loans to provide abbreviated disclosures to consumers at least three days before the loan is closed, in addition to the disclosures generally required by TILA at or before closing. The HOEPA disclosures inform consumers that they are not obligated to complete the transaction and could lose their home if they take the loan and fail to make payments. The HOEPA disclosures also include a few key cost disclosures, such as the APR and the monthly payment (including the maximum payment for variable-rate loans and any balloon payment). Under the final rule these disclosures have been enhanced somewhat to further benefit borrowers. Section 226.32(c) is revised to provide, in accordance with TILA section 129(a), that the disclosures must be in a conspicuous type size.

Section 226.32(c)(3) requires creditors to disclose to consumers the amount of the regular monthly (or other periodic) payment, including any balloon payment. The regulation is revised to move the disclosure requirement for the amount of the balloon payment from the commentary to the regulation, to aid in compliance. Model Sample H-16, which illustrates the disclosures required under § 226.32(c), is revised to include a model clause on balloon payments.

Under comment 32(c)(3)-1 of the staff commentary, creditors are allowed to include voluntary items in the regular payment disclosed under § 226.32 only if the consumer has previously agreed to such items. The comment is revised for clarity as proposed.

Testimony at the Board's 2000 public hearings and other comments received suggest that some HOEPA disclosures provided in advance of closing include insurance premiums in the monthly payment, even though consumers may not agree to purchase optional insurance until closing. Consequently, the Board solicited comment on whether consumers should be required to request or affirmatively agree to purchase optional items in writing, to aid in enforcing the rule.

Some commenters supported having a rule where consumers would separately agree to purchase optional products. These commenters thought the rule would be useful in preventing “packing.” Other commenters, representing both consumer and industry interests, opposed such an approach. The consumer representatives preferred creditors to have the duty to ensure “voluntariness.” Industry representatives expressed a variety of concerns. Some believed that such a rule would be burdensome to creditors and borrowers alike, necessitating additional visits to sign the document at least three days before closing. They believed a separate affirmation to be duplicative and unnecessary. Others believed the rule would have the unintended effect of making consumers feel obligated, and ultimately less likely to reverse an earlier decision prior to or at closing.

Having carefully considered commenters' concerns regarding burden, and the effectiveness of a separate written agreement to purchase optional products to reduce “packing,” the Board is not taking further action to require a separate written agreement at this time. To address insurance “packing,” pursuant to its authority under section 129(l)(2)(B) of TILA, the Board has instead enhanced the final rule to require that the disclosure of the amount borrowed in mortgage refinancings expressly state whether optional credit insurance or debt-cancellation coverage is included in the amount financed, as discussed below.

The final rule for disclosing the “amount borrowed” includes a $100 tolerance for minor errors. As discussed below, if the amount borrowed is inaccurate by any amount, the regular payment disclosure will be inaccurate also. To be meaningful to creditors, any tolerance for the amount borrowed must “pass through” to the regular payment. Such an approach is consistent with TILA's rule in closed-end transactions secured by real property or a dwelling, where the finance charge as well as other disclosures affected by the finance charge are considered accurate within prescribed limits. Pursuant to its authority under section 129(l)(2)(B) of TILA, the Board is providing a tolerance to the regular payment disclosure required under § 226.32(c)(3), if the payment disclosed is based on an amount borrowed that is deemed accurate and disclosed under § 226.32(c)(5).

Section 226.32(c)(5) is added to require disclosure of the total amount the consumer will borrow, as reflected by the face amount of the note, pursuant to the Board's authority under Section 129(l)(2)(B) of TILA. This disclosure responds to concerns by consumers and consumer representatives that consumers sometimes seek a modest loan amount such as for medical or home improvement costs, only to discover at closing (or after) that the note amount is substantially higher due to fees and insurance premiums that are financed along with the requested loan amount. The amount borrowed disclosure is enhanced in the final rule; when the loan amount includes premiums or other charges for optional credit insurance or debt-cancellation coverage, the disclosure must so specify, to address insurance “packing” where consumers may not be aware that insurance coverage has been added to the loan balance. Comment 32(c)(5)-1 to the staff commentary provides guidance regarding terminology for debt-cancellation coverage.

Consumer representatives and some industry representatives supported the proposal as aiding consumers' understanding that additional fees might be financed. Other industry representatives opposed the proposal. Some of these commenters believed consumers would be confused by an “amount borrowed” in addition to TILA's “amount financed,” which does not include amounts borrowed to cover loan fees.

Creditors must provide updated HOEPA disclosures if, after giving the disclosures required by § 226.32(c) to the consumer and before consummation, the creditor changes any terms that make the disclosure inaccurate. § 226.31(c)(1). The Board requested comment on whether it would be appropriate to provide for a tolerance for insignificant changes to the amount borrowed, and if so, what would be a suitable margin.

Commenters had mixed views on the desirability for a tolerance. Consumer groups supported either no tolerance or a very small tolerance such as $100, consistent with the existing tolerance for understated finance charges in closed-end transactions secured by real property or a dwelling. § 226.18(d)(1). Industry commenters wanted a much larger tolerance such as 1 percent of the loan amount or 10 percent of the regular payment.

Pursuant to its authority under section 129(l)(2)(B) of TILA, the Board is providing a tolerance for the disclosure of the amount borrowed. Under the final rule, the amount borrowed is accurate if it is not more than $100 above or below the amount required to be disclosed.

The Board requested comment on whether a generic disclosure advising consumers to seek independent advice might encourage borrowers to seek credit counseling. Consistent with views expressed in connection with the Board's 2000 hearings, both consumer and creditor commenters acknowledged the benefits of pre-loan counseling as a means to counteract predatory lending. There was uniform concern, however, about requiring a referral to counseling for HOEPA loans because the actual availability of local counselors may be uncertain. Based on the comments received and further analysis, the Board is not adopting a generic counseling disclosure at this time.

As proposed, § 226.32(d)(8) is added to restrict the use of “due-on-demand” clauses or “call” provisions for HOEPA loans, unless the clause is exercised in connection with a consumer's default. The limitation on the use of these provisions in HOEPA loans is added pursuant to the Board's authority under section 129(l)(2)(A) to prohibit acts that are unfair or are designed to evade HOEPA. The staff commentary to § 226.32(d)(8) provides guidance concerning the exercise of “due-on-demand” clauses when a consumer fails to meet repayment terms or impairs the creditor's security for the loan.

Commenters generally supported the proposal. A few commenters suggested that the rule was not needed because they believe that due-on-demand clauses were generally not being used by mortgage lenders. Some industry commenters asked the Board to limit the rule's applicability to the first five years of a HOEPA loan, to coincide with HOEPA's ban on balloon payments. One commenter sought clarification that the rule limiting “due-on demand” clauses would not affect “due-on-sale” clauses.

The final rule is adopted as proposed. To prevent creditors from forcing consumers to pay additional points and fees to refinance their loans or face possible foreclosure, section 129(e) of TILA prohibits the use of balloon payments for HOEPA loans with terms of less than five years. Although “due-on-demand” and “call” provisions currently do not appear to be widely used in HOEPA loans, a creditor could potentially force the consumer to refinance by exercising the right to call the loan and demanding payment of the entire outstanding balance. Restricting call provisions in HOEPA loans is intended to ensure that lenders do not accelerate the payment of these loans, without cause, at any time during the loan term, in order to force consumers to refinance. When a creditor can unilaterally terminate the loan without cause, the consumer may be subject to unnecessary refinancings, excessive loan fees, higher interest rates, or possible foreclosure. Consequently, this rule prevents creditors from using call provisions in a manner that would cause substantial harm to HOEPA borrowers.

Loans covered by HOEPA are more likely to involve borrowers who have less-than-perfect credit histories, or who might not be served by prime lenders. As noted earlier, because these consumers either have or perceive they have fewer options than other borrowers, they may be more vulnerable to unscrupulous lenders or brokers. Accordingly, HOEPA includes limitations on certain loan provisions to protect these borrowers from onerous loan terms. The Board finds that it is also appropriate to protect HOEPA borrowers from the potentially harsh effects of allowing a creditor to exercise a “due-on-demand” clause at any time, unless there is legitimate cause.

The hearing testimony and comments received by the Board failed to identify any benefits to using “due-on-demand” clauses in HOEPA loans, other than in the legitimate cases that are permitted under the Board's rule. The rule allows creditors to exercise such clauses when the creditor is faced with borrower misrepresentations or fraud, the borrower fails to meet repayment terms, or a borrower's action (or failure to act) affects the creditor's security for the loan. The rule does not affect creditors' use of “due-on-sale” clauses.

The limitations on “due-on-demand” clauses adopted by the Board for HOEPA loans are similar to TILA's existing limits on the use of such clauses for home-equity lines of credit (HELOCs). See TILA, Section 127A; 12 CFR § 226.5b(f)(2). The rule for HELOCs is contained in the Home Equity Loan Consumer Protection Act of 1988 (Pub. Law No. 100-709, 102 Stat. 4725). The 1988 act recognized that allowing creditors to unilaterally terminate a home-equity line (or significantly change loan terms) is fundamentally unfair when the consumer's home is at stake. Allowing creditors' unlimited discretion to call the loan and require immediate repayment is similarly unfair with HOEPA loans.

Section 129(l) of TILA authorizes the Board to prohibit acts or practices to curb abusive lending practices. The act provides that the Board shall prohibit practices: (1) In connection with all mortgage loans if the Board finds the practice to be unfair, deceptive, or designed to evade HOEPA; and (2) in connection with refinancings of mortgage loans if the Board finds that the practice is associated with abusive lending practices or otherwise not in the interest of the borrower. The Board is exercising this authority to prohibit certain acts or practices, as discussed below. The final rule is intended to curb unfair or abusive lending practices without unduly interfering with the flow of credit, creating unnecessary creditor burden, or narrowing consumers' options in legitimate transactions. The rule prohibiting “loan flipping” has been modified to expand its scope. The rule protecting low-rate loans has not been adopted due to concerns about the compliance burden on the home-equity lending market generally. Other provisions have been adopted as proposed.

The final rule creates a new § 226.34, which contains prohibitions against certain acts or practices in connection with credit secured by a consumer's dwelling. This section includes the rules currently contained in § 226.32(e).

Section 226.32(e)(2) regarding home-improvement contracts is renumbered as § 226.34(a)(1) without substantive change. Comment 32(e)(2)(i)-1 of the staff commentary is now comment 34(a)(1)(i)-1.

Section 226.32 (e)(3) regarding assignee liability for claims and defenses that consumers may have in connection with HOEPA loans is renumbered as § 226.34(a)(2) without substantive change. Comments 32(e)(3)-1 and -2 are now comments 34(a)(2)-1 and -2 respectively.

Comment 34(a)(2)-3 is added to clarify the statutory provision on the liability of purchasers or other assignees of HOEPA loans, as proposed. Section 131 of TILA provides that, with limited exceptions, purchasers or other assignees of HOEPA loans are subject to all claims and defenses with respect to a mortgage that the consumer could assert against the creditor. The comment clarifies that the phrase “all claims and defenses” is not limited to violations of TILA as amended by HOEPA. This interpretation is based on the statutory text and is supported by the legislative history. See Conference Report, Joint Statement of Conference Committee, H. Rep. No. 103-652, at 22 (Aug. 2, 1994).

“Loan flipping” generally refers to the practice by brokers and creditors of frequently refinancing home-secured loans to generate additional fee income even though the refinancing is not in the borrower's interest. Loan flipping is among the more flagrant of lending abuses. Victims tend to be borrowers who are having difficulty repaying a high-cost loan; they are targeted with promises to refinance the loan on more affordable terms. The refinancing typically provides little benefit to the borrower, as the loan amount increases mostly to cover fees. Often, there is minimal or no reduction in the interest rate. The monthly payment may increase, making the loan even more unaffordable. Sometimes the loan is amortized so that the monthly payment is reduced, but the loan may still be unaffordable. As long as there is sufficient equity to support the financing of additional fees, the consumer may be targeted repeatedly, resulting in equity stripping.

The proposed rule prohibited an originating creditor (or assignee) holding a HOEPA loan from refinancing that loan into another HOEPA loan within the first twelve months following origination, unless the new loan was “in the borrower's interest.” Pursuant to its authority under Section 129(l)(2)(A) of TILA, the Board is adopting a final rule to address “loan flipping,” as discussed below.

Consumer representatives generally supported the proposal, but they believed the rule was too narrow and that all creditors and brokers should be covered. Federal agencies, community groups, and consumers and their representatives believe that the prohibition should be lengthened; suggestions ranged from 18 months to as long as four years.

Creditors' comments mainly focused on the “interest of the borrower” test. oth creditors and consumer representatives sought additional guidance in this area. Consumer representatives viewed the standard as too lenient, while creditors believed that the standard's lack of certainty would subject them to litigation risk. Creditors also expressed concerns about the proposal's coverage of affiliates and sought clarification about whether an assignee merely servicing HOEPA loans is covered by the rule.

The Board is adopting a final rule that broadens the proposal's coverage somewhat. Under the final rule, within the first twelve months of originating a HOEPA loan to a borrower, the creditor is prohibited from refinancing that loan (whether or not the creditor still holds the loan) or another HOEPA loan held by that borrower.

The proposal was narrowly tailored to curb the more egregious cases of loan flipping: repeated refinancing by creditors that hold HOEPA loans in portfolio. Once a creditor assigned the loan, the assignee would have been covered, but the originating creditor could then have refinanced the HOEPA loan. Thus, the proposed rule did not cover loan originators that close loans in their own name and immediately assign them to a funding party or sell them in the secondary market. The hearing testimony and comments suggest that some of these originators are the source of unaffordable loans because they do not have a vested interest in the borrower's ability to repay the loan. Once they are no longer holding a loan, they can target the same borrower with an offer to refinance the loan. The final rule has been expanded to cover creditors (including brokers) that originate HOEPA loans, whether or not they continue to hold the loan. The loan flipping rule may deter some unaffordable lending if the parties making, holding, or servicing the loan are not permitted to refinance the loan within the first year.

Assignees are covered by the rule because in some instances they are the “true creditor” funding the loan. Even when they are not acting as the true creditors, assignees of HOEPA loans are subject to the refinancing restrictions to ensure that loans are not transferred for the purpose of evading the prohibition and that borrowers are not pressured into frequent refinancings by the party holding or servicing their loans. Thus, the rule has been revised to clarify that it applies to assignees that are servicing a HOEPA loan, whether or not they own the obligation. Assignees will be under the same restrictions as the original creditor while holding or servicing the loan. Comment 34(a)(3)-2 of the staff commentary is added to provide examples of how the rule is applied in specific cases.

Under the proposal, the regulatory prohibition applicable to creditors would have applied to their affiliates in all cases. Industry commenters were concerned about the compliance burden—particularly for creditors with broad geographic and corporate structures. The final rule has been narrowed and would not apply in routine cases where consumers seek a refinancing from an affiliate. Under the final rule, loans made by an affiliate are prohibited only if the creditor engages in a pattern or practice of arranging loans with an affiliate to evade the flipping prohibition, or engages in other acts or practices designed to evade the rule. The final rule also prohibits creditors from arranging refinancings of their own loans with unaffiliated creditors to evade the flipping prohibition.

As noted above, some commenters believe that the prohibition should be lengthened. Although a longer period might further limit the opportunity for loan flipping, one year provides an appropriate balance between the need to address the clearest cases of abusive refinancings and the need not to restrict the free flow of credit in legitimate transactions. Thus, the final rule retains the one-year limitation, as proposed.

Borrower's interest —Under the proposal, creditors are permitted to refinance a HOEPA loan within the one-year period when “in the borrower's interest.” The determination of whether or not a benefit exists would be based on the totality of the circumstances. Consumer representatives viewed the standard as too lenient. They asserted that the lack of specificity or examples under the proposal would lead creditors to liberally construe the “borrower's interest” standard to permit any borrower predicament or any arguable “improvement” in term, payment, or rate, as sufficient justification for refinancing within the first year. Creditors, conversely, believed that the standard's lack of certainty would lead to litigation, inconsistent application, and borrower and judicial second-guessing of creditors. This, creditors argued, could ultimately result in a hesitancy by creditors to extend refinance credit at all in the first year of origination of a HOEPA loan.

Commenters offered many suggestions for more specific guidance, asking the Board to provide that lowering the interest rate or the monthly payment, or eliminating a balloon payment or variable rate feature, was per se, “in the borrower's interest.” Although a list of acceptable loan purposes would provide more certainty, it is difficult to identify circumstances that would be unequivocally in the borrower's interest in all or even most cases. A good reason in one context may be abusive in other circumstances. For example, a homeowner's equity could still be stripped through repeated refinancings that carry high up-front fees even if they result in incrementally lower APRs.

The Board believes that precisely defining circumstances that are “in the borrower's interest” is not necessary, given the nature of the loan flipping prohibition. The prohibition applies for a relatively short period, and is intended as a strong deterrent for the more egregious cases. The “borrower's interest” exception must be narrowly construed to preserve the effectiveness of the overall prohibition. Moreover, the probability that a legitimate creditor would refinance its own HOEPA loans within twelve months is typically low.

The Board recognizes that this approach places the primary burden on the creditor, in light of the totality of the circumstances, to weigh whether the loan is in the borrower's interest. The standard is intended to give legitimate creditors some flexibility for extenuating circumstances, while creditors that rely on the exception routinely to “flip” HOEPA loans bear the risk that a court will find that they violated HOEPA.

Comment 34(a)(3)-1 of the staff commentary has been expanded to provide additional guidance on lenders' ability to make loans that are in the borrower's interest notwithstanding the loan-flipping prohibition. A mere statement by the borrower that “this loan is in my interest” would not meet the standard. In connection with a refinancing that provides additional funds to the borrower, in determining whether a refinancing is in the borrower's interest, consideration should be given to whether the loan fees and charges are commensurate with the amount of new funds advanced, and whether the real estate-related charges are bona fide and reasonable in amount (see generally § 226.4(c)(7)). A refinancing would be in the borrower's interest if needed for a “bona fide personal financial emergency”; this is the current standard for certain consumer waivers under TILA. TILA authorizes the Board to permit consumers to waive the three-day rescission period for certain home equity loans or the three-day waiting period before closing a HOEPA loan, if necessary for homeowners to meet a bona fide personal financial emergency. See § 226.23(e) and § 226.31(c)(1)(iii). Comment 31(c)(1)(iii)-1 of the staff commentary provides that the imminent sale of the consumer's home at foreclosure during the three-day HOEPA waiting period is an example of a bona fide personal financial emergency.

Limitations on refinancing low-rate loans —The December proposal addressed abuses involving the refinancing of low-rate loans originated through mortgage assistance programs designed to give low-or moderate-income borrowers the opportunity for homeownership. Some of these homeowners who have unsecured debts have been targeted by unscrupulous lenders who consolidate the debts and replace the low-cost, first-lien mortgage with a substantially higher cost loan. The replacement loans are often unaffordable, many involve “loan flipping,” and as a result, homeowners have lost their homes. In some cases, the low-rate loan is replaced even though the first-lien holder may be willing to subordinate its security interest.

Under the proposal creditors would have been prohibited, in the first five years of a zero interest rate or other low-rate loan, from replacing that loan with any higher-rate loan unless the refinancing was in the interest of the borrower. Based on the comments received and after consultation with the Consumer Advisory Council and further analysis, the Board is withdrawing the proposed provision addressing low-rate loans.

Unlike the prohibition against loan flipping, which applies only to HOEPA creditors, the prohibition against refinancing low-rate loans, as proposed, would have applied to all mortgage refinancing transactions. While borrowers with low-rate mortgage loans could benefit from the rule, the benefits appear to be far outweighed by the potential compliance burden for all home-equity lenders. Therefore, the proposed rule is being withdrawn at this time for reconsideration. The Board will consider other approaches that appropriately protect borrowers with low-rate loans in order to deter harmful refinancings and provide adequate remedies where they occur without imposing unnecessary documentation requirements on the market as a whole.

Under section 129(h) of TILA, a creditor may not engage in a pattern or practice of making HOEPA loans based on the equity in the borrower's home without regard to the consumer's repayment ability, taking into account the consumer's current and expected income, current obligations, and employment status. As proposed, the final rule, formerly in § 226.32(e)(1), has been moved to § 226.34(a)(4) and revised to parallel the statutory language. The revision is a clarification of existing law and is not a new rule.

Currently, compliance with the prohibition against unaffordable lending is difficult to enforce because creditors are not required to document that they considered the consumer's ability to repay. In addition, there have been reports of creditors relying on inaccurate information provided by unscrupulous loan brokers. To aid in solving these problems, the Board proposed under § 226.34(a)(4)(ii) to require that creditors generally verify and document consumers' current or expected income, current obligations, and employment to the extent applicable. If a creditor engages in a pattern or practice of making loans without verifying and documenting consumers' repayment ability, there would be a presumption that the creditor has violated the rule. The Board adopts the rule as § 226.34(a)(4) with minor modifications.

Determining repayment ability —Comment 34(a)(4)-1 of the staff commentary, formerly comment 32(e)(1)-1, has been modified in light of the new verification and documentation requirements discussed below. The comment has also been modified to more closely track the statute.

The reference to § 226.32(d)(7) has been deleted as unnecessary; the sources of information listed in § 226.32(d)(7) with one exception are listed in comment 34(a)(4)-2 on verifying and documenting repayment ability.

Verification and documentation —The verification and documentation rule requires creditors to use independent sources to ascertain borrowers' ability to repay loans that are secured by their homes, and to memorialize and retain this information. Proposed comment 34(a)(4)(ii)-1 provided examples of ways to verify and document the income and obligations of consumers who are employed, including those who are self-employed. The final comment, renumbered 34(a)(4)-4, adopts the proposed comment with modifications to accommodate creditworthy borrowers not employed or without traditional financial documents.

Most of the commenters supported the rule and comment. Some commenters from industry pointed out that verification and documentation is basic to the underwriting process and already required for safety and soundness purposes. Government entities at both the federal and state levels noted that verification and documentation is necessary for enforcement of the prohibition against unaffordable mortgage lending. A few commenters were concerned that the rule was not sufficiently flexible in allowing creditors to make loans to creditworthy borrowers whose repayment ability may not be based on regular employment wages. The final comment clarifies that creditors can rely on any reliable source that provides a reasonable basis for believing there are sufficient funds to support repayment of the loan.

Pattern or practice —Section 129(h) of TILA does not define “pattern or practice,” nor does the legislative history provide guidance as to how the phrase should be applied. The Board proposed interpretive guidance on the “pattern or practice” requirement. The proposed comment provided that determining whether a pattern or practice exists depends on the totality of the circumstances. The proposal referenced statutes relevant to a pattern or practice determination, specifically, the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Housing Act, and Title VII of the Civil Rights Act of 1964 (equal employment opportunity).

Those that commented on this aspect of the proposal generally requested more guidance on what would constitute a “pattern or practice.” Several requested that the Board set a specific standard. Industry commenters generally preferred a narrow standard, while representatives of consumer and community groups sought a broader standard that would be less onerous for consumers. Comment 34(a)(1)-2 as adopted provides additional guidance on the “pattern or practice” requirement, but retains the totality of the circumstances test. The comment provides that while a “pattern or practice” of violations is not established by isolated, random, or accidental acts, it can be established without the use of a statistical process. The comment also notes that a creditor might act under a lending policy (whether written or unwritten) and that action alone could establish that there is a pattern or practice of violating the prohibition against unaffordable lending.

Discounted introductory rates —Concern was raised about creditors determining a consumer's repayment ability based on low introductory rates offered under some programs. Proposed comment 34(a)(4)(i)-3 provided that in considering consumers repayment ability in transactions where the creditor sets a temporary introductory interest rate and the rate is later adjusted (whether fixed or later determined by an index or formula) the creditor must consider increases in the consumer's payments assuming the maximum possible increases in rates in the shortest possible time frame. The comment was not intended to impose a standard for evaluating a borrower's repayment ability that is more stringent than current industry practice. While creditors typically do not evaluate a borrower's ability to repay a loan based on a temporary discounted rate, they also do not evaluate repayment ability based on the maximum interest rate that may be charged as a result of rate adjustments on the loan. Based on the comments and further analysis, the final comment treats all discounted and variable-rate loans the same. Comment 34(a)(4)-3, as adopted, requires creditors to consider the consumer's ability to repay the loan assuming the non-discounted rate for fixed-rate loans, or the fully-indexed rate for variable rate loans, is in effect at consummation.

HOEPA covers only closed-end mortgage loans. In the December notice, the Board proposed a prohibition against structuring a home-secured loan as a line of credit to evade HOEPA's requirements, if the credit does not meet the definition of open-end credit in § 226.2(a)(20).

Although consumer representatives supported the Board's proposal, they generally believe that HOEPA should cover open-end credit carrying rates or fees above HOEPA's price triggers. Industry commenters believe there is little evidence that creditors are using open-end credit to evade HOEPA. Moreover, they oppose the rule as unnecessary because it is already a violation of TILA to provide disclosures for an open-end credit plan if the legal obligation does not meet the criteria for open-end credit.

Pursuant to the Board's authority under section 129(l)(2)(A), as proposed, § 226.34(b) explicitly prohibits structuring a mortgage loan as an open-end credit line to evade HOEPA's requirements, if the loan does not meet the TILA definition of open-end credit. This prohibition responds to cases reported by consumer advocates at the Board's hearings and to enforcement actions brought by the Federal Trade Commission, where creditors have documented loans as open-end “revolving” credit, even if there was no real expectation of repeat transactions under a reusable line of credit. Although the practice would currently violate TILA, the new rule will subject creditors and assignees to HOEPA's stricter liability rule and remedies if the credit carries rates and fees that exceed HOEPA's price triggers for closed-end loans.

Where a loan is documented as open-end credit but the features and terms or other circumstances demonstrate that it does not meet the definition of open- end credit, the loan is subject to the rules for closed-end credit, including HOEPA if the rate or fee trigger is met. In response to comments, comment 34(b)-1 provides guidance on how to apply HOEPA s triggers to transactions structured as open-end credit in violation of § 226.34(b).

Model Form H-16—Mortgage Sample illustrates the disclosures required by § 226.32(c), which must be provided to consumers at least three days before becoming obligated on a mortgage transaction subject to § 226.32. Model Form H-16 is amended to illustrate the additional disclosures required for refinancings under § 226.32(c)(5). A new comment App. H-20 clarifies that although the additional disclosures are required for refinancings that are subject to § 226.32, creditors may, at their option, include these disclosures for any loan subject to that section. The Sample also includes an illustration for loans with balloon payments. Former comments H-20 through H-23 have been renumbered H-21 through H-24, respectively.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) requires federal agencies either to provide a Final Regulatory Flexibility Analysis with a final rule or to certify that the final rule will not have a significant economic impact on a substantial number of small entities. Based on available data, the Board is unable to determine at this time whether the final rule would have a significant impact on a substantial number of small entities. For this reason, the Board has prepared the following Final Regulatory Flexibility Analysis.

(1) Statement of the need for and objectives of the final rule —The final rule is adopted to address predatory lending and unfair practices in home-equity lending. As stated more fully above, the existing regulations are amended to broaden the scope of mortgage loans subject to HOEPA by adjusting the price triggers used to determine coverage under the act (both the interest rate trigger and points and fees trigger). Certain acts and practices in connection with home-secured loans are restricted. For example, creditors may not engage in repeated refinancings of HOEPA loans over a short time period when the transactions are not in the borrower's interest. HOEPA's prohibition against extending credit without regard to consumers' repayment ability is strengthened, and disclosures received by consumers before closing for HOEPA-covered loans are also enhanced.

(2) Summary of public comment and statement of changes —Significant issues raised by the public comments in response to the Board s proposal and Initial Regulatory Flexibility Analysis are described more fully in the supplementary material provided above.

Section 103(f) of TILA provides that a person becomes a creditor under TILA if, during any twelve-month period, the person originates more than one HOEPA-covered loan, or one or more HOEPA-covered loans through a mortgage broker. In providing protections to consumers whose principal dwellings secure high-cost mortgage loans, HOEPA did not create different rules for large and small creditors. Moreover, HOEPA sets forth specific limitations on the Board's authority to exempt mortgage products or categories of products from certain of HOEPA's requirements. See Section 129(l)(1) of TILA. Nevertheless, the Board has analyzed comments and has sought to minimize compliance burden for all creditors by making modifications to the proposal in the following ways.

• Tiered APR trigger —The final rule retains the current APR trigger for subordinate-lien loans at 10 percentage points above the rate for Treasury securities having a comparable maturity. The proposed across-the-board reduction of the APR trigger to 8 percentage points for all loans encompassed subordinate-lien loans that fall between the 8 and 10 percentage point triggers. The final revision to the APR trigger reduces the impact of the rule on creditors that choose not to extend HOEPA-covered credit generally, and on those that make small, short-term home-equity loans in particular, where fixed origination costs may significantly impact the APR.

• Safe-harbor for refinancings in the “borrower's interest” —The final rule provides additional guidance on creditors ability to refinance a HOEPA loan into another HOEPA loan that is in the borrower's interest notwithstanding the one-year general prohibition on such refinancings. Creditors expressed concern that the proposed determination for meeting the standard—the totality of the circumstances—was too subjective, and that as a result creditors would refrain from making refinancings during the one-year period to avoid litigation risk. In addition to providing additional guidance on refinancings that would be in the borrower s interest, the final rule permits creditors to make an additional subordinate-lien HOEPA loan that is not a refinancing to the same borrower.

• Low-cost loan refinancing —The proposed prohibition against refinancing certain low-cost loans is withdrawn. The relatively low number of borrowers with low-cost mortgage loans that would benefit from the rule appeared to be far outweighed by the compliance burden for all home-equity lenders.

• Tolerance for amount borrowed —The final rule, as proposed, requires creditors making HOEPA-covered refinancings to include the face amount of the note (“amount borrowed”) in the HOEPA disclosures provided at least three days before closing. If any term is changed between the time the early HOEPA disclosure is provided to the consumer and consummation, and the change makes the disclosure inaccurate, new disclosures must be provided and another three-day waiting period begins. The final rule contains a small tolerance for changes in the amount actually borrowed of $100 above or below the amount disclosed, and to the disclosed regular payment as it is affected by the disclosed amount borrowed. This reduces redisclosure duties for creditors making insignificant errors and mitigates the economic impact of the rule's overall compliance burdens and costs.

(3) Description of the small entities to which the final rule would apply —The number of lenders, large or small, likely to be affected by the proposal is unknown. In the June 2001 Call Report, 4,547 small banks (assets less than $100 million) had first-lien mortgage credit outstanding, and 3,477 small banks had junior-lien mortgage loans outstanding. At the same time there were 228 small thrifts that report to the Office of Thrift Supervision which had closed-end first mortgage credit and/or junior-lien loans outstanding. The number of banks or thrifts active in subprime lending or HOEPA loans cannot be determined from information in the Call Report.

There is no comprehensive listing of consumer finance companies, but informal industry contacts indicate that there may be about 2,000 such institutions nationwide. Most of these companies are small entities, but apparently many, perhaps most, of the small institutions do not engage in mortgage lending, preferring to concentrate on unsecured lending and sales finance. An unknown number of small institutions do engage in mortgage lending, but there is no comprehensive listing of these institutions or estimate of their number.

There also is no comprehensive listing of mortgage banks or mortgage brokers, but informal discussions with industry sources indicate that there are more than 1,200 mortgage banking firms with annual mortgage originations of less than $100 million that are members of a national trade association. Some of these companies are primarily mortgage servicing companies and generate few or no new mortgages, but there is also an unknown number of other mortgage banks that do not belong to the association.

The effect of expanding HOEPA coverage on small entities is unknown. The precise effect that adjusting the triggers will have on creditors' business strategies is difficult to predict. As discussed in the supplementary information provided above, there is an active market for HOEPA loans under the current triggers. Some creditors that choose not to make HOEPA loans may withdraw from making loans in the range of rates that would be covered by the lowered threshold. Others creditors may fill any void left by creditors that choose not to make HOEPA loans. And others may have the flexibility to avoid HOEPA s coverage by lowering rates or fees for some loans at the margins, consistent with the risk involved.

(4) Reporting, recordkeeping, and compliance requirements —The final amendments: (1) Extend the protections of HOEPA to more loans; (2) strengthen HOEPA's prohibition on loans based on homeowners' equity without regard to repayment ability; (3) improve disclosures received by consumers before closing; and (4) prohibit certain acts or practices, to address some “loan flipping” within the first twelve months of a HOEPA loan by prohibiting a refinancing into another HOEPA loan to the same borrower unless the refinancing is in the borrower's interest. HOEPA applies to creditors that make more than one HOEPA loan in a twelve-month period. For firms engaged in subprime lending, HOEPA's existing scope of coverage, its prohibition on loans made without regard to consumers' repayment ability, and its mandatory pre-closing disclosures already require the professional skills needed to comply with HOEPA. For some creditors (or holders or servicers of HOEPA loans) that seek to refinance a HOEPA loan with the same borrower into another HOEPA loan during a one-year period after origination, some recordkeeping adjustments may be necessary. However, the Board believes the burden will not be significant, since each of these parties has records that associate the borrower and the loan date for purposes of the one-year prohibition. Also, while the final rule imposes a new requirement to document and verify consumers' repayment ability for HOEPA loans, the Board believes that creditors' existing consideration of safety and soundness issues and risk assessment will result in little additional burden to comply with the new requirements.

Institutions that originate subprime mortgages, including small entities, will have to become aware of new definitions that expand HOEPA coverage, and as needed, will have to comply with the additional disclosures and other consumer protection provisions that apply to HOEPA loans. To comply with the final rule, then, creditors will need, among other things, to prepare disclosure forms, make various operational changes, and train staff. Professional skills needed to comply with the final rule may include clerical, computer systems, personnel training, as well as legal advice, which will require internal review and other actions by programmers and systems specialists, employee trainers, attorneys, and senior managers. Significantly, however, these skills are currently required to comply with HOEPA's existing rules and are not new to creditors both large and small. Creditors can reasonably be expected to be able to rely on current personnel for these specialized skills and thus not experience undue compliance burden.

(5) Significant alternatives to the final rule —As explained above, the final rule is adopted substantially as proposed to address predatory lending and unfair practices in the home-equity market, and contains several revisions to reflect suggestions or alternatives recommended by commenters. Specifically, the adoption of a “tiered” APR trigger, the inclusion of a tolerance for insignificant errors in disclosing the amount borrowed, the additional guidance for meeting the “borrower's interest” standard under the refinancing restriction, and the withdrawal of the “low-cost loan” refinancing prohibition, all reflect an effort to incorporate practical measures to reduce compliance burdens for creditors. The supplementary information provided above discusses other alternatives suggested by commenters. The rule's amendments are issued pursuant to the Board's authority under TILA to adjust the scope of mortgage loans covered by HOEPA, to prohibit certain acts or practices affecting mortgage loans or refinancings, to effectuate the purposes of TILA, to prevent circumvention or evasion, or to facilitate compliance. The amendments are intended to target unfair or abusive lending practices without unduly interfering with the flow of credit, creating unnecessary credit burden, or narrowing consumers' options in legitimate credit transactions. The final rule contains specific modifications to the proposed rule that reduce regulatory burden.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the rule under the authority delegated to the Board by the Office of Management and Budget. The Federal Reserve may not conduct or sponsor, and an organization is not required to respond to, this information collection unless it displays a currently valid OMB control number. The OMB control number is 7100-0199.

The collection of information that is revised by this rulemaking is found in 12 CFR part 226 and in Appendices F, G, H, J, K, and L. This information is mandatory (15 U.S.C. 1601 et seq. ) to evidence compliance with the requirements of Regulation Z and the Truth in Lending Act (TILA). The respondents/recordkeepers are all types of creditors, among which are small businesses. Under the Paperwork Reduction Act, the Federal Reserve accounts for the paperwork burden associated with Regulation Z only for state member banks, their subsidiaries, and subsidiaries of bank holding companies (not otherwise regulated). Other agencies account for the paperwork burden on their respective constituencies under this regulation. Institutions are required to retain records for twenty-four months.

The final rule broadens HOEPA's coverage (by lowering the APR trigger for first-lien loans by 2 percentage points and adding certain costs to the fee-based trigger) and revises a disclosure currently required by § 226.32 of Regulation Z. The revised disclosure covers refinancings subject to HOEPA and states the total amount of the borrower's obligation and whether optional credit insurance or debt-cancellation coverage is included in the amount borrowed (§ 226.32(c)(5)). Model Form H-16 illustrates this revised disclosure. The burden of revising the disclosure should be minimal because most institutions use software that automatically generates model forms such as Model Form H-16. The changes to the triggers also should impose minimal burden because the changes generally will require only a one-time reprogramming of systems.

With respect to state member banks, it is estimated that there are 976 respondent/recordkeepers and an average frequency of 136,294 responses per respondent each year for Regulation Z. Therefore, the total annual burden under the regulation for all state member banks is estimated to be 1,841,118 hours. In the Federal Reserve's April 2001 Paperwork Reduction Act submission to OMB addressing the electronic disclosures interim rule, the Federal Reserve stated its belief that state member banks do not typically offer the type of loans that would require HOEPA disclosures and that these disclosures had a negligible effect on the paperwork burden for state member banks. Lowering the APR trigger by 2 percentage points could, however, result in higher burden for the few state member banks that choose to make these loans. Because little information is available about the actual number of loans that will be affected by the coverage change the Federal Reserve is not changing its current burden estimates cited above. The Federal Reserve will, however, solicit more burden comments and re-estimate the burden associated with the HOEPA requirements in Regulation Z in the next triennial PRA review (during the fourth quarter 2002). The Federal Reserve also estimates the one-time cost burden for programming systems with the revised disclosures and updating systems with the new triggers to be $135,000 per bank, on average.

Because the records are maintained at state member banks and the notices are not provided to the Federal Reserve, no issue of confidentiality under the Freedom of Information Act arises; however, any information obtained by the Federal Reserve may be protected from disclosure under exemptions (b)(4), (6), and (8) of the Freedom of Information Act (5 U.S.C. 522 (b)(4), (6) and (8)). The disclosures and information about error allegations are confidential between creditors and the customer.

The Federal Reserve has a continuing interest in the public's opinions of our collections of information. At any time, comments regarding the burden estimate, or any other aspect of this collection of information, including suggestions for reducing the burden, may be sent to: Secretary, Board of Governors of the Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551; and to the Office of Management and Budget, Paperwork Reduction.

On June 21, 2001, NCUA issued a proposed rule on definitions and technical corrections. 66 FR 33211, June 21, 2001. The proposed rule resulted from NCUA's policy of continually reviewing its regulations to “update, clarify and simplify existing regulations and eliminate redundant and unnecessary provisions.” Interpretive Rulings and Policy Statement (IRPS) 87-2, Developing and Reviewing Government Regulations. The NCUA Board is issuing the final rule unchanged from the proposed rule.

The proposed rule replaced obsolete references in two parts of NCUA's regulations related with new references to prompt corrective action, section 216 of the Federal Credit Union Act. 12 CFR 700.1, 701.14. In the definitions part of the regulations, the proposed rule added a scope section and definitions for “paid-in and unimpaired capital and surplus” and “unimpaired capital and surplus.” 12 CFR part 700. The proposed rule conformed definitions of paid-in and unimpaired capital and surplus in the CUSO and CLF rules to the proposed definitions in the definitions part. 12 CFR 712.2(d); 12 CFR 725.2(o). The proposed rule also corrected a citation in the supervisory committee audit rule and clarified the member business loan rule by changing a reference from “federally insured credit unions” to “federally insured state-chartered credit unions.” 12 CFR 715.2(l), 723.4. The proposed rule also updated NCUA's regulations by changing a reference in Part 790 from the “Office of Community Development Credit Unions” to the office's new name, the “Office of Credit Union Development.” The NCUA Board is adopting all the proposed changes in the final rule.

The NCUA Board requested comment on all aspects of the proposed rule and received three comment letters: One from a national trade association, one from a state trade association, and one from a federal credit union (FCU). The two trade associations supported the proposal without qualification. The FCU offered a substantive comment regarding the definition of “paid-in and unimpaired capital and surplus,” discussed below. NCUA received no comment on the other provisions in the proposed rule. This preamble does not repeat discussions from the proposal for those provisions and the NCUA Board has adopted them as proposed.

To improve the clarity of NCUA's regulations, the Board proposed to include definitions for “paid-in and unimpaired capital and surplus” and “unimpaired capital and surplus” in the general definitions part of the regulations. The proposed rule defined “unimpaired capital and surplus” as meaning the same as “paid-in and unimpaired capital and surplus” and cross-referenced its definition. The proposed definition for “paid-in and unimpaired capital and surplus” was a refined statement of the definitions currently in the FCU Bylaws, but did not change the meaning of those definitions or the agency's long-standing interpretation.

The proposed definition for paid-in and unimpaired capital and surplus was shares plus post-closing, undivided earnings. The preamble to the proposed rule stated that the term “post-closing” was simpler terminology that a credit union person, an examiner, and an accounting professional would understand to encompass the closing of the books and posting of all relevant and required period losses to undivided earnings. Post-closing undivided earnings incorporates and means the same as the language in the Bylaw provisions that define surplus (“after all losses have been provided for and net earnings or net losses have been added thereto or deducted therefrom”) and define unimpaired capital (“less any losses that may have been incurred for which there is no reserve or which have not been charged against undivided earnings”). The proposed definition further clarified the meaning of paid-in and unimpaired capital and surplus by including the statement that: “This does not include regular reserves or special reserves required by law, regulation or special agreement between the credit union and its regulator or share insurer.”

As stated in the proposed rule, the CLF is a mixed-ownership government corporation created to improve the general financial stability of credit unions by meeting their liquidity needs. 12 CFR 725.1. Both state-chartered and federally-chartered credit unions may become members. 12 CFR 725.3. The Board proposed to revise the current definition in the CLF rule for paid-in and unimpaired capital and surplus. The current CLF rule combines the definition for paid-in and unimpaired capital in the FCU Bylaws with the definition of surplus in the FCU Bylaws and is substantively identical to those provisions. 12 CFR 725.2(o). The current definition includes deposits because some state-chartered credit unions are authorized to accept deposits.

The proposed rule defined paid-in and unimpaired capital and surplus in the CLF rule as shares and deposits plus post-closing, undivided earnings. The proposed definition further stated that the term does not include regular reserves or special reserves required by law, regulation or special agreement between the credit union and its regulator or share insurer.

One commenter expressed the view that the NCUA should simplify the general definition of “paid-in and unimpaired capital and surplus” to “shares and deposits plus unappropriated earnings,” in order to include the concept of “unrealized gains or losses on investments” as part of “unappropriated earnings.” The Board disagrees. The Board's view is that “unappropriated earnings” are equivalent to “undivided earnings,” and neither term includes unrealized gains or losses on investments, since these amounts are not yet earned or realized. Thus, the final rule uses the term “undivided earnings.”

Regarding the commenter's suggestion that the general definition include deposits, for the reasons stated in the proposed rule, only the CLF definition of “paid-in and unimpaired capital and surplus” includes deposits. The general definition does not include them in the final rule.

The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact a rule may have on a substantial number of small entities (primarily those under one million dollars in assets). The final rule will not have a significant economic impact on a substantial number of small credit unions, and therefore, a regulatory flexibility analysis is not required.

NCUA has determined that the final rule would not increase paperwork requirements under the Paperwork Reduction Act of 1995 and regulations of the Office of Management and Budget.

Executive Order 13132 encourages independent regulatory agencies to consider the impact of their 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 final rule would 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. NCUA has determined that this final rule does not constitute a policy that has federalism implications for purposes of the executive order.

The NCUA has determined that this final 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).

The Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121) provides generally for congressional review of agency rules. A reporting requirement is triggered in instances where NCUA issues a final rule as defined by Section 551 of the Administrative Procedures Act. 5 U.S.C. 551. The Office of Management and Budget concurred with NCUA's opinion that the final rule does not constitute a major rule, for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996.

NCUA's goal is to promulgate clear and understandable regulations that impose minimal regulatory burden. NCUA requested comments on whether its proposed rule was understandable and minimally intrusive, but received no comments in response to this request.

NCUA's chartering and field of membership policy is set out in Interpretive Ruling and Policy Statement 99-1, Chartering and Field of Membership Policy (IRPS 99-1), as amended by IRPS 00-01 and IRPS 01-01. The policy is incorporated by reference in NCUA's regulations at 12 CFR 701.1. It is also published as NCUA's Chartering and Field of Membership Manual (Chartering Manual), which is the document most interested parties use and to which references in the following discussion are made.

Last year, the NCUA Board required an existing community charter to address, in either its marketing or business plan or other appropriate separate documentation, how it plans on serving the entire community, including how the credit union will market to the community and what products and services the credit union will offer to assist underserved members in the community. Some in the credit union community refer to this as the community action plan requirement or as CAP, though the final rule does not use that term. The NCUA Board stated in the preamble to the final rule that “existing credit unions will have until December 31, 2001 to have a plan in place addressing how the credit union will serve the entire community.” 65 FR 64512, 64518 (October 27, 2000). The Board implemented this rule even while recognizing that there was no tangible evidence that credit unions were not planning on serving their entire community. In fact, the NCUA Board stated that, based “on the comments of community credit unions and the submissions some of them provided, many community credit unions already have adopted plans and offer products and services designed to serve the entire community.” 65 FR 64512, 64517 (October 27, 2000).

The NCUA Board notes that, while it certainly has the legal authority to impose this regulatory requirement, it has continued to review the necessity of imposing it on a specific type of federal credit union charter. The NCUA Board, after discussing this issue further with agency staff and the credit union community, has decided to repeal this regulatory requirement. This Board has determined that requiring only certain credit unions to adopt specific written policies addressing service to the entire community, where there is no evidence credit unions are not attempting to serve their entire communities, is not a reasonable regulatory practice, particularly when this regulatory requirement raises little, if any, safety and soundness concerns.

This Board believes that a regulation that does not address a substantiated concern or a potential problem is unnecessary. In this case, absent evidence that community charters are not marketing their services to their entire communities, removing the regulatory requirement is prudent.

The addition of underserved areas, as defined in Chapter 3 of the Chartering Manual, to the field of membership of operating credit unions is a continuing priority of the NCUA Board. Three criteria must be met before an underserved area can be added to any federal credit union's field of membership. First, the area must be a local community. Second, the area must also be classified as an investment area as defined in section 103(16) of the Community Development Banking and Financial Institutions Act of 1994, 12 U.S.C. 4703(16). Third, the credit union adding the underserved area must establish and maintain an office or facility in the local community.

Last year, the NCUA Board made it less burdensome for federal credit unions to add underserved areas. 65 FR 64512 (October 27, 2000). The NCUA Board modified its policy by stating that a credit union would not have to demonstrate common interests or interaction for a local community if the underserved area to be served is (1) in a recognized political jurisdiction, i.e., a county or its political equivalent or any contiguous political subdivisions contained therein, and if the population of the requested well-defined area does not exceed 300,000, or (2) in multiple contiguous political jurisdictions, i.e., a county or its political equivalent or any political subdivisions contained therein and if the population of the requested well-defined area does not exceed 200,000. The NCUA Board also stated that it presumed that an underserved area for purposes of the investment area criteria would have significant unmet needs for loans or equity investment if the area met the poverty, median family income, unemployment, distressed housing, or population loss criteria set forth in the Community Development Banking and Financial Institutions Act of 1994. Because of these changes and greater interest by the credit union community, the number of underserved areas added to federal credit union's field of membership increased from 50 in 2000 to 231 as of November 30, 2001.

The NCUA Board is continuing to update this section of the Chartering Manual to encourage further development of credit unions in underserved areas and thereby improve financial services to those most in need. The primary reason for this update is the release of the 2000 census.

The Chartering Manual provides examples of what an investment area is for the purpose of adding an underserved area. The Federal Credit Union Act defines an underserved area as a local community, neighborhood, or rural district that is an “investment area” as defined in section 103(16) of the Community Development Banking and Financial Institutions Act of 1994. The 1994 law permits the Community Development Financial Institutions Fund of the United States Department of the Treasury (CDFI Fund) to further define investment areas. With the release of the 2000 census as well as further expansion of an investment area by CDFI, the Board is updating the definition of an investment area in Chapter 3 of the Chartering Manual. These changes will make the Chartering Manual consistent with the data in the 2000 census as well as the modifications promulgated by the CDFI Fund. These amendments will ultimately make it easier for credit unions to add underserved areas and thus serve more members of modest means.

Since issuance of the community service plan requirement, the credit union community has continued to debate its necessity and benefits. The Board notes that previous comment was overwhelmingly against this type of provision and wishes to consider further comment. The NCUA Board is issuing this amendment to its chartering regulation as an interim final rule because it removes a burdensome regulation and merely updates the agencies definition of an investment area for the purpose of adding underserved areas. The Board believes that both these actions are necessary and in the public interest because of the recent and sudden increase in credit union asset growth and the current uncertainty in the national economy. Furthermore, the Board believes the amendments further the public interest in removing a potentially costly and unnecessary regulatory burden and promotes the efficient use of agency resources and staff. Accordingly, for good cause, the Board finds that, pursuant to 5 U.S.C. 553(b)(3)(B), notice and public procedures are impracticable, unnecessary, and contrary to the public interest; and, pursuant to 5 U.S.C. 553(d)(3), the rule shall be effective immediately and without 30 days advance notice of publication. Although the rule is being issued as an interim final rule and is effective immediately, the NCUA Board encourages interested parties to submit comment on whether the community service plan requirement should be deleted from the Chartering Manual and the definition of investment area for the purpose of adding underserved areas should be finalized in the Chartering Manual.

The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact a regulation may have on a substantial number of small credit unions (primarily those under $1 million in assets). The amendments will not have a significant economic impact on a substantial number of small credit unions and, therefore, a regulatory flexibility analysis is not required.

The NCUA Board has determined that this interim final rule does not increase, and will in fact reduce, paperwork requirements under the Paperwork Reduction Act and regulations of the Office of Management and Budget.

The Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121) provides generally for congressional review of agency rules. A reporting requirement is triggered in instances where NCUA issues a final rule as defined by section 551 of the Administrative Procedures Act. 5 U.S.C. 551. The rule has been submitted to the Office of Management and Budget for its determination of whether this is a major rule.

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 final rule only applies to federal credit unions. It will not have 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. NCUA has determined that this rule does not constitute a policy that has federalism implications for purposes of the executive order.

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

NCUA published a proposal to amend its regulation covering travel reimbursements for guests accompanying Federal Credit Union (FCU) officials on business. 66 FR 40641, August 3, 2001. During the sixty-day comment period, NCUA received thirty-seven comment letters. After carefully considering the comments, NCUA is publishing this final rule, which is identical to the proposal.

The Federal Credit Union Act (the FCU Act) and NCUA regulations provide that only one board officer of an FCU may be compensated as such and that no other official may receive compensation for serving as a board or committee member. 12 U.S.C. 1761(c), 1761a; 12 CFR 701.33. NCUA has defined compensation to exclude reasonable and proper expense reimbursement for costs incurred by FCU officials in carrying out the responsibilities of the positions to which they were appointed or elected.

Section 701.33 currently permits reimbursement of a board official and one immediate family member for travel expenses incurred in performing board duties if the payment is necessary and appropriate as determined by the FCU board and is made in accordance with written board policies and procedures. 12 CFR 701.33(b)(2)(i).

To give FCUs additional flexibility regarding the reimbursement of reasonable and proper expenses, NCUA has determined to amend § 701.33(b)(2)(i) to use the term “guest” rather than “immediate family member.” All other provisions of the regulation remain unchanged. Travel and reimbursement policies must still provide for payment of only those costs that are reasonable in relation to the FCUs resources and financial condition. NCUA cautions FCUs that this proposal has no effect on Internal Revenue Service (IRS) regulations regarding the reporting and taxing of any payments or reimbursements. FCUs should consult their tax advisors or attorneys concerning IRS requirements related to their travel reimbursement policies.

NCUA received thirty-seven comment letters. Seventeen letters were from natural person credit unions and two were from corporate credit unions. Two were from credit union trade associations. Eight were from state credit union leagues and eight were from credit union officials or other individuals.

Twenty-seven of the commenters strongly support the proposal and applaud the agency efforts to minimize government intrusion and maximize flexibility.

Four commenters opposed it, pointing to possible increases in costs to members and concerns of its effect on family unity. The NCUA Board expects that any increase in costs to members will be minor and will support the business of the credit union. Furthermore, any FCU that adopts a new policy must still limit its travel expenditures to amounts that are reasonable in relation to its resources and financial condition. Of course, the amended rule does not require FCUs to change their current travel expense reimbursement or payment policies. The NCUA Board determined to amend the regulation to allow FCUs greater flexibility to accommodate the needs of officials whose duties include business-related travel. Under the current regulation, FCUs may not pay or reimburse the cost of travel for an official's grandson to accompany her to an FCU-sponsored program, or for an official whose mobility is impaired to be accompanied by an aide, even if the FCU thought it necessary or appropriate. With this amendment, the FCU will have the discretion to adopt policies that provide for the reimbursement or payment of such travel costs. Again, the amendment does not require FCUs to do so.

Five commenters, while generally supportive, suggested that the proposal did not go far enough in expanding credit union authority. These commenters believe that it is unnecessary for NCUA to have a regulation concerning such reimbursements or payments. They suggest that NCUA rescind the regulation so that FCUs can establish reimbursement policies that fit their individual needs. They argue that such policies would be subject to scrutiny in the examination process and would therefore pose no risk to safety and soundness. Two commenters also stated that NCUA should not have a regulation on travel reimbursement, but should rely on the examination process to ensure that FCUs have reasonable and appropriate policies. The NCUA Board believes that it is appropriate for the agency to maintain a regulation in this area. There is a tension between the need of FCUs to attract competent and dedicated officials and the prohibition in the FCU Act against compensating all but one of them. FCUs regularly question NCUA about the permissibility of new types of reimbursements. These new ideas for reimbursements to officials frequently fall beyond the limits of the FCU Act. This regulation provides FCUs with NCUA's interpretation of the FCU Act by clearly stating what types of travel reimbursements NCUA has found to be consistent with the law.

The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact a proposed rule may have on a substantial number of small entities (primarily those under one million dollars in assets). This rule will not have a significant economic impact on a substantial number of small credit unions, and therefore, a regulatory flexibility analysis is not required.

NCUA has determined that this regulation does not increase paperwork requirements under the Paperwork Reduction Act of 1995 and regulations of the Office of Management and Budget.

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 rule will apply only to all federal credit unions. 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. NCUA has determined that the rule does not constitute a policy that has federalism implications for purposes of the executive order.

The Office of Management and Budget (OMB) has determined that this is not a major rule for purposes of the Small Business Regulatory Enforcement Fairness Act of 1996.

This amendment adopts a new AD for Sikorsky Model S-76B and S-76C helicopters. This action requires modifying the electrical power distribution system by changing the source of the 28 volts electrical power supplied to Nos. 1 and 2 AHRS WARN circuits. This amendment is prompted by ground testing of a Sikorsky Model S-76B helicopter which simulated loss of the essential bus by pulling both bus tie circuit breakers and switching off both batteries. As a result of this action, both autopilots went off-line. This condition, if not corrected, could result in an unintended AHRS fail signal to both autopilots due to failure of the essential bus, loss of autopilot functions, and subsequent loss of control of the helicopter.

The FAA has reviewed Sikorsky Alert Service Bulletin No. 76-34-7A (320A), Revision A, dated September 17, 2001 (ASB). The ASB describes procedures for modifying the electrical power distribution system to prevent an AHRS fail signal to the autopilots by changing the source of the 28 volts supplied to Nos. 1 and 2 AHRS WARN circuits. The essential bus currently supplies both Nos. 1 and 2 AHRS WARN circuits. If this essential bus failed, the AHRS WARN circuits would generate an AHRS fail signal which would cause both autopilots to go off-line. The modification specified in the ASB changes the 28 volt electrical power source to the AHRS WARN circuits so that one of the two autopilots will remain on-line after an essential bus failure.

We have identified an unsafe condition that is likely to exist or develop on other Sikorsky Model S76-B and S-76C helicopters of this same type design. Therefore, this AD is being issued to prevent an AHRS fail signal to both autopilots, loss of autopilot functions, and subsequent loss of control of the helicopter. This AD requires modifying the AHRS WARN circuits so that one of the two autopilots will remain on-line should the essential bus fail. The actions must be accomplished in accordance with the ASB described previously. The short compliance time involved is required because the previously described critical unsafe condition can adversely affect the controllability of the helicopter. Therefore, modifying the AHRS is required within 30 days and this AD must be issued immediately.

Since a situation exists that requires the immediate adoption of this regulation, it is found that notice and opportunity for prior public comment hereon are impracticable, and that good cause exists for making this amendment effective in less than 30 days.

The FAA estimates that 20 of the helicopters affected by this AD are on the U.S. register, that it will take approximately 5 work hours to install the modification kit, and that the average labor rate is $60 per work hour. The manufacturer states in the ASB that the required modification kit will be provided at no cost. Based on these figures, the total cost impact of the AD on U.S. operators is estimated to be $6000.

Although this action is in the form of a final rule that involves requirements affecting flight safety and, thus, was not preceded by notice and an opportunity for public comment, comments are invited on this rule. Interested persons are invited to comment on this 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 under the caption ADDRESSES . All communications received on or before the closing date for comments will be considered, and this rule may be amended in light of the comments received. Factual information that supports the commenter's ideas and suggestions is extremely helpful in evaluating the effectiveness of the AD action and determining whether additional rulemaking action would be needed.

Comments are specifically invited on the overall regulatory, economic, environmental, and energy aspects of the rule that might suggest a need to modify the rule. All comments submitted will be available in the Rules Docket for examination by interested persons. A report that summarizes each FAA-public contact concerned with the substance of this AD will be filed in the Rules Docket.

Commenters wishing the FAA to acknowledge receipt of their comments submitted in response to this rule must submit a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. 2001-SW-51-AD.” The postcard will be date stamped and returned to the commenter.

The regulations adopted herein will 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 final rule does not have federalism implications under Executive Order 13132.

The FAA has determined that this regulation is an emergency regulation that must be issued immediately to correct an unsafe condition in aircraft, and that it is not a “significant regulatory action” under Executive Order 12866. It has been determined further that this action involves an emergency regulation under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979). If it is determined that this emergency regulation otherwise would be significant under DOT Regulatory Policies and Procedures, a final regulatory evaluation will be prepared and placed in the Rules Docket. A copy of it, if filed, may be obtained from the Rules Docket at the location provided under the caption ADDRESSES .

On May 31, 2000, the Department published a proposed rule (65 FR 34606) to revise its existing FOIA and PA regulations, and to add new provisions to implement the Electronic Freedom of Information Act (EFOIA) Amendments of 1996 (Pub. L. 104-231). Interested persons were invited to submit written comments on the proposed rule. The Department received one set of comments. After due consideration of the comments, the Department has adopted several of the modifications the commenter recommended, and has made numerous other minor revisions to its proposed rule for clarity. The Department is also increasing the duplication charge from the $.15 announced in the proposed rule (the current charge is $.07) to $.16 per page, to reflect an increase in copying costs since the issuance of the proposed rule.

The comments received were submitted by Public Citizen and the Freedom of Information Clearinghouse, and are addressed below.

(1) The commenter recommended deleting from § 4.2(b)  2 the highlighted phrase in the statement: “Components shall also make public inspection facility records created by the Department on or after November 1, 1996 available electronically through the Department's ‘FOIA Home Page’ link found at the Department's World Wide Web site.” The recommended change is more consistent with the FOIA than is the proposed language above, and thus the Department has deleted the highlighted phrase.

(2) The commenter recommended changing the cut-off date in § 4.5(a) for determining records responsive to a request from the date the request is received to the date that processing of the request begins. Many of the requests the Department receives require a search to be conducted in more than one of its components. Implementing the commenter's recommendation could create confusion about such requests involving multiple components, because each component could begin processing the request on a different date, and thus have a different cut-off date. Further, the Department's cut-off date is consistent with the Supreme Court's requirement that for records to be “agency records” subject to the FOIA, the agency must be in control of them at the time the FOIA request is made. Department of Justice v. Tax Analysts , 492 U.S. 136, 145 (1989). Implementing the commenter's recommendation could also create uncertainty with regard to determining what records are responsive to the request, and preventing their inadvertent disposition between the time the request is received and processing begins. That is, components could be placed in a situation in which they would not be authorized to determine what records are responsive to a request until processing, including search, begins, even though records in the component's control when the request is received would still be potentially subject to the request.

(3) The commenter recommended that in § 4.5(b) the Department clarify the meaning of “primary interest,” and state that records will be referred only when referral is necessary because the originating agency has a substantial interest in the record, and the referral is not likely to substantially delay the release or otherwise place unreasonable burdens on the requester.

The Department has decided not to modify the definition of “primary interest,” but will clarify its meaning by moving the sentence “Ordinarily, the agency that originated a record will be presumed to have the primary interest in it.” from the end of § 4.5(b) to immediately after the first sentence in § 4.5(b), where the phrase “primary interest” first appears. Defining “primary interest” more specifically to cover possible future rare instances when the agency that originated a document would not have the primary interest in it would require lengthy explanations of limited usefulness.

The Department also will not amend its regulations to state that records will be referred only when referral is necessary because the originating agency has a substantial interest in the record, and when the referral is not likely to substantially delay the release or otherwise place unreasonable burdens on the requester. In the vast majority of cases, the agency that originated a record has the primary, or principal, interest in it, and is in the best position to determine whether to release it. In those rare instances when the originating agency does not have the primary interest in it, the Department's regulations would not require referral to that agency. Revising the Department's regulations, as the commenter suggests, to require Department officials to make case-by-case determinations on whether a referral would be likely to substantially delay a release or otherwise place unreasonable burdens on the requester, would require those officials to make difficult and inherently subjective decisions, and thus is administratively unworkable.

(4) The commenter objected to a sentence in § 4.6(c)(3) that refusal to reasonably modify the scope of a request or arrange an alternate time frame may affect a requester's ability to obtain judicial review. The sentence is misleading and the Department has deleted it.

(5) The commenter objected to the scope of the grounds upon which § 4.9(b) would require business submitters to assert any objections to disclosure by the Department of records submitted by them. The Department had proposed that “the statement [from the business submitter] must specify all grounds for withholding any portion of the information under any exemption of the FOIA.” The commenter recommended that the regulation require submitters to specify only the grounds for withholding their records under exemptions (b)(4) and (b)(6), which protect the individual interests of the submitter, but not to require them to assert exemptions intended to protect Government interests. The Department agrees in part with the comment, and has deleted the requirement that the statement specify all grounds for withholding information under any FOIA exemption. The Department has, however, decided to require submitters to specify only grounds for withholding under exemption (b)(4), and not also under exemption (b)(6), because the Department does not routinely notify persons about whom the Department possesses information potentially subject to exemption (b)(6). Thus, requiring business submitters to object to disclosure of potential (b)(6) information without requiring other persons about whom the Department possesses similar (b)(6) information to do so would be unfair.

It has been determined that this rule is significant under Executive Order 12866.

This rule does not contain a “collection of information” as defined by the Paperwork Reduction Act.

In accordance with the Regulatory Flexibility Act (5 U.S.C. 605(b)), the Chief Counsel for Regulation has certified to the Chief Counsel for Advocacy of the Small Business Administration that this rule will not have a significant economic impact on a substantial number of small entities. Under the FOIA, agencies may recover only the direct costs of searching for, reviewing, and duplicating the records processed for requesters. Thus, the fees the Department assesses are ordinarily nominal. Further, the number of “small entities” that make FOIA requests is relatively small compared to the number of individuals who make such requests.

The Commander, MTMC, is the proponent of this rule and, acting with the advice of his acquisition, operations and legal staffs, had concluded that it is obsolete. Due to changes in the laws governing interstate commerce, including a transition of much of our procurement from nonFAR to FAR contract procedures, there is no longer any necessity for this rule. Under FAR contracting the contracting Officer has the responsibility for making determinations as to whether a carrier bidder is a responsible bidder who is qualified to do business with the DoD under the contract in issue.

This rule has been replaced with a simpler program, which meets the requirements of the current Interstate Commerce Act and the requirements of our current transportation needs. The current procedures for carriers to follow in order to qualify for doing business with MTMC are published on the MTMC Home Page. The carrier industry has been properly notified of this change and is currently following the new procedures to the satisfaction of all parties. The new program for qualifying carriers is not a “Rule”, as that term is used in rulemaking proceedings under the Administrative Procedures Act and thus does not require publication in the Code of Federal Regulations or in the Federal Register . We understand that the volume of the CFR that contains 49 CFR Part 619 is due to be reprinted soon. Therefore, it would be helpful in avoiding confusion with the public if 32 CFR Part 619 is removed.

NARA published a notice of proposed rulemaking in the June 5, 2001 Federal Register (66 FR 30134) for a 60-day comment period. No comments were received. However, we have determined that one of the Privacy Act systems cited in §§ 1202.92 and 1202.94, General Law Files, should not be exempt under 5 U.S.C. 552a(k)(2) and (k)(5) of the Privacy Act. We have therefore removed references to this system of records. In addition, minor editorial corrections to legal citations have been made.

This final rule is not a significant regulatory action for the purposes of Executive Order 12866 and has not been reviewed by the Office of Management and Budget. As required by the Regulatory Flexibility Act, I certify that this rule will not have a significant impact on a substantial number of small entities because it only affects individuals and entities seeking access or disclosure of information contained in NARA Privacy Act systems of records. This rule does not have any federalism implications. This rule is not a major rule.

All sea turtles that occur in U.S. waters are listed as either endangered or threatened under the Endangered Species Act of 1973 (ESA). The Kemp's ridley ( Lepidochelys kempii ), leatherback ( Dermochelys coriacea ), and hawksbill ( Eretmochelys imbricata ) are listed as endangered. Loggerhead ( Caretta caretta ) and green ( Chelonia mydas ) turtles are listed as threatened, except for populations of green turtles in Florida and on the Pacific coast of Mexico, which are listed as endangered.

The incidental take of sea turtles as a result of shrimp trawling activities has been documented in the Gulf of Mexico and in the Atlantic Ocean. Under the ESA and its implementing regulations, taking sea turtles is prohibited, subject to exceptions identified in 50 CFR 223.206. Existing sea turtle conservation regulations (50 CFR part 223, subpart B) require most shrimp trawlers operating in the Gulf and Atlantic areas to have a NMFS-approved TED installed in each net rigged for fishing, year-round.

The regulations provide a mechanism to implement further restrictions of fishing activities, if necessary, to avoid takings of sea turtles that would (1) likely jeopardize the continued existence of listed species or (2) that would violate the terms and conditions of an incidental take statement or incidental take permit. Upon a determination that incidental takings of sea turtles during fishing activities are likely to trigger either scenario, additional restrictions may be imposed to conserve listed species and to avoid such takings. Restrictions may be effective for a period of up to 30 days and may be renewed for additional periods of up to 30 days each (50 CFR 223.206(d)(4)).

Leatherback sea turtles are the largest species of sea turtle. They weigh between 600 and 1,300 pounds (272 and 590 kg) and have carapaces 5 to 6 ft (1.5 to 1.8 m) in length. Leatherbacks are widely distributed and can range from the tropics to extreme northern and southern latitudes during their feeding and reproductive migrations. They nest in small but significant numbers on U.S. beaches and are primarily seen in coastal waters of the southeast U.S. during their northern springtime migration, especially when high abundances of jellyfish occur nearshore. However, they can be found in U.S. waters throughout the year.

Because of their size, leatherbacks are not likely to escape from trawls, even when the trawls are equipped with approved TEDs, unless the size of the opening is sufficient to allow escape. The sea turtle conservation regulations specify a minimum TED opening size in the Atlantic of 35 inches (89 cm) horizontally and 12 inches (30.5 cm) vertically. When the regulations requiring TEDs in shrimp trawls year-round were adopted (57 FR 57348, December 4, 1992), NMFS recognized that the then-existing TEDs would not protect leatherbacks, and the biological opinion (BO) on the regulations concluded that leatherback mortality would remain a problem that must be addressed to avoid jeopardizing the recovery of this species. Consequently, the August 19, 1992, BO's incidental take statement required that the episodic take of leatherback turtles by shrimp trawlers during periods of high jellyfish abundance must be eliminated. This could be accomplished by temporary area closures, by requiring an increase in the size of TED openings to allow leatherbacks to escape at times when their abundance is high, by limiting tow times, or by implementing some other protective measure. To address this problem, the 1992 sea turtle conservation regulations included the provisions of 50 CFR 223.206(d)(4), to provide “a mechanism to prevent sea turtle mortalities...when existing restrictions on the shrimp fishery are found to be ineffective (57 FR 18453).”

NMFS has been notified by the Florida Fish and Wildlife Conservation Commission (FWCC) that extraordinarily high numbers of endangered leatherback sea turtles stranded along northeast Florida beaches in November and early December 2001. From November 4 to December 10, 2001, a total of 15 leatherback turtles and 2 turtles reported as leatherbacks, but not yet verified by FWCC, washed ashore between St. Johns and Brevard counties in shrimp zones 28 and 29. During aerial surveys conducted for right whales, up to 10 leatherback turtles per flight were seen during two flights; one of these turtles was dead. By comparison, the total annual number of leatherback strandings statewide has averaged 24 over the past 10 years, and has averaged only 14 per year in zones 28-30. Considering the rarity of leatherbacks—an average of only 45-50 females nest in Florida each year—and the fact that strandings are only a minimum estimate of actual mortality, these strandings represent a serious impact to the recovery and survival of the local population.

The late fall and early winter is traditionally a major shrimping season along northeast Florida. During this period, shrimp leave the estuaries to the north and migrate southward along the coast as waters cool. Shrimp fishing along the coast is currently active. Trawlers have been reported in the same areas as the leatherback strandings. The minimum size for TED openings specified in the sea turtle conservation regulations is not large enough to release leatherback turtles. Shrimp trawling with TEDs with openings that are not large enough to release leatherbacks is likely to lead to additional takes that would violate the terms and conditions of the incidental take permit. NMFS and state personnel will continue to investigate factors other than shrimping that may contribute to leatherback sea turtle mortality in Florida, including other fisheries and environmental factors.

Pursuant to 50 CFR 223.206(d)(4), the exemption for incidental taking of sea turtles in 50 CFR 223.206(d) does not authorize incidental takings during fishing activities if the takings would violate the restrictions, terms or conditions of an incidental take statement (ITS) or incidental take permit, or if the taking would jeopardize the continued existence of a species listed under the ESA. The August 19, 1992, biological opinion includes a condition under the ITS that specifies that NMFS must eliminate the episodic take of leatherback turtles by shrimp trawlers through area closures, requirements for large TED opening sizes, limitations on tow times, or some other protective measure. Failure by NMFS to take action to address the mortality seen in northeast Florida over the past month would likely violate the ITS. As a result, NMFS is requiring that fishing by shrimp trawlers in all Atlantic offshore waters within 10 nm (18.5 km) seaward of the COLREGS demarcation line, bounded on the south by 28°N. lat. and on the north by 30°42′45.6″N. lat. (the Georgia-Florida border), must be done with a net that is rigged for fishing with a TED installed that has an escape opening large enough to exclude leatherback turtles, meeting the specifications at 50 CFR 223.207(a)(7)(ii)(B)( 1 ) and ( 2 ) or 223.207(c)(1)(iv)(B). These regulations specify modifications that can be made to either single-grid hard TEDs or Parker soft TEDs to allow leatherbacks to escape. This restriction is effective from December 14, 2001 through 11:59 p.m. (local time) January 14, 2002.

This restriction has been announced on the NOAA weather channel, in newspapers, and other media.

The AA may withdraw or modify a determination concerning unauthorized takings or any restriction on shrimping activities if the AA determines that such action is warranted. Notification of any additional sea turtle conservation measures, including any extension of this 30-day action, will be published in the Federal Register pursuant to 50 CFR 223.206(d)(4).

NMFS will continue to monitor sea turtle strandings to gauge the effectiveness of these conservation measures.

This action has been determined to be not significant for purposes of Executive Order 12866.

The AA has determined that this action is necessary to respond to an emergency situation to provide adequate protection for endangered leatherback sea turtles pursuant to the ESA and other applicable law.

Pursuant to 5 U.S.C. 553(b)(B), the AA finds that there is good cause to waive prior notice and opportunity to comment on this action. It would be impracticable and contrary to the public interest to provide prior notice and opportunity for comment because providing notice and comment would prevent the agency from implementing this action in a timely manner to protect identified large congregations of endangered leatherback sea turtles that are currently present in areas where substantial fishing effort is occurring. Furthermore, the AA finds good cause also under 5 U.S.C. 553(d)(3) not to delay the effective date of this temporary rule for 30 days. Such delay would also prevent the agency from implementing this action in a timely manner to protect endangered leatherback sea turtles for the same reason. Accordingly, the AA is making the rule effective December 14, 2001 through January 14, 2002. Also as stated, this restriction has been announced on the NOAA weather channel, in newspapers, and other media.

As prior notice and an opportunity for public comment are not required to be provided for this notification by 5 U.S.C. 553, or by any other law, the analytical requirements of 5 U.S.C. 601 et seq. , are inapplicable.

The AA prepared an Environmental Assessment (EA) for the final rule (57 FR 57348, December 4, 1992) requiring TED use in shrimp trawls and creating the regulatory framework for the issuance of notifications such as this. Copies of the EA are available (see ADDRESSES ).

Regulations governing the summer flounder fishery are found at 50 CFR part 648. The regulations require annual specification of a commercial quota that is apportioned on a percentage basis among the coastal states from North Carolina through Maine. The process to set the annual commercial quota and the percent allocated to each state is described in § 648.100.

The initial total commercial quota for summer flounder for the 2001 calendar year was set equal to 10,747,535 lb (4,875,000 kg)(66 FR 16151, March 23, 2001). The percent allocated to vessels landing summer flounder in Rhode Island is 15.68298 percent, or 1,685,534 lb (764,545 kg). This allocation was adjusted due to an underage in 2000, as provided in § 648.100 (e)(4), for a final allocation of 1,733,817 lb (786,446 kg).

Section 648.101 (b) requires the Administrator, Northeast Region, NMFS (Regional Administrator) to monitor state commercial quotas and to determine when a state’s commercial quota is harvested. NMFS then publishes notification in the Federal Register advising a state and notifying Federal vessel and dealer permit holders that, effective upon a specific date, the state’s commercial quota has been harvested and no commercial quota is available for landing summer flounder in that state. The Regional Administrator has determined, based upon dealer reports and other available information, that the State of Rhode Island has attained its quota for 2001.

The regulations at § 648.4 (b) provide that Federal permit holders agree as a condition of the permit not to land summer flounder in any state that the Regional Administrator has determined no longer has commercial quota available. Therefore, effective 0001 hours, December 20, 2001, further landings of summer flounder in Rhode Island by vessels holding summer flounder commercial Federal fisheries permits are prohibited for the remainder of the 2001 calendar year, unless additional quota becomes available through a transfer and is announced in the Federal Register. Effective 0001 hours, December 20, 2001, federally permitted dealers are also notified that they may not purchase summer flounder from federally permitted vessels that land in Rhode Island for the remainder of the calendar year, or until additional quota becomes available through a transfer.

This action is required by 50 CFR part 648 and is exempt from review under Executive Order 12866.