This amendment to the Board's rules of practice and procedure resulted from the successful implementation of a pilot program. In November 1999, the Merit Systems Protection Board (MSPB) established a pilot program to allow appellants and agencies up to 60 days additional time to pursue discovery and settlement efforts in pending initial appeals. The pilot program was initiated, in part, in response to concerns raised by Board practitioners that the 120-day time limit for adjudicating appeals prevented the parties from conducting the discovery they believed necessary to prevail on appeal. The pilot program simplified the process for obtaining a suspension of case processing to accommodate parties before the Board.

Under the pilot program, the presiding judge was authorized to grant a 30-day suspension of case processing to parties who jointly requested the additional time. A second 30-day suspension was granted if the parties agreed that additional time was necessary. Parties were not required to provide evidence and argument to support a joint request for additional time, so long as the request was made early in the proceedings.

The Board believes that the pilot program has been successful in addressing the concerns regarding adequate time to conduct discovery and in facilitating settlement of complex cases.

The Board announced this amendment as an interim rule at 67 FR 3811 (Jan. 28, 2002). The Board received comments from one practitioner and one agency representative. After careful consideration of the comments received, the Board is adopting the interim rule with minor amendments. The comments and the Board's responses are as follows:

1. One commenter suggested that administrative judges be given the discretion to grant belatedly filed requests for extensions.

The substance of this recommendation was already covered by the regulation, which provides, at paragraph (d), for the judge to “consider” any requests “that are filed after the time limit set forth in paragraph (c) of this section.” We believe that this paragraph provides a sufficiently clear grant of discretion to administrative judges to approve “belated” requests.

2. One commenter suggested that the regulations be amended to permit case suspensions for any reason.

This recommendation was not adopted. The reason for granting the request to suspend case processing should have some rational relationship to furthering the interests of the parties (fairness, due process, etc.) in the specific matter before the Board and the Board's effective adjudication of cases, while avoiding the encouragement of frivolous requests for case suspensions.

3. One commenter suggested that the regulations be amended to provide that a request that is not based on the need for additional discovery or the desire to pursue settlement be treated as a request for a continuance or for a dismissal without prejudice to refile the appeal. Under this provision, the request for a dismissal without prejudice would not require the appellant's approval.

This recommendation was not adopted as the Board believes that these procedures should remain separate. Continuances and dismissals without prejudice are already generally provided for by the Board's regulations and case law, and need not be addressed here. The section 1201.28 process is intentionally limited to the two purposes named. The suggestion that dismissals without prejudice not require the appellant's assent runs counter to the Board's policy of avoiding unnecessary impediments to an appellant's pursuit of an appeal.

4. One commenter suggested that the regulations be amended to provide that the 120-day clock begin anew from the termination of the suspension.

This recommendation was not adopted. The procedure established under section 1201.28 is called a “suspension,” which means that the adjudication clock is temporarily stopped, not that it is re-set.

5. One commenter stated that the proposed regulations are unnecessary and will cause pointless delays.

Contrary to the view expressed by this commenter, numerous agency representatives and Board practitioners have expressed the view that this procedure has been very helpful. The extent of the favorable reviews is the basis for the Board's decision to institute this procedure as a permanent component of its adjudicatory process.

6. One commenter suggested that the parties should be required to comply with a more formal system for filing a request, including a requirement that both parties file the request, describe settlement efforts, and explain the reasons for the request.

This recommendation was not adopted. The regulation contemplates that the parties will specify that the request is being made for one of the reasons described in the regulation. If the request is made jointly, the administrative judge should not have to second-guess the parties on their need for additional time. If it is made unilaterally, the administrative judge is given discretion to grant or deny the request. He or she can weigh the party's or parties' arguments and rule accordingly. Since there is no requirement that settlement efforts reach any particular point for a suspension to be granted, an outline of settlement efforts would not be helpful.

7. One commenter suggested that the Board establish evidentiary requirements to support requests for 30-day extensions.

This recommendation was not adopted. The aim of this regulation is to encourage the parties to complete discovery or work amicably to reach a speedy settlement or other resolution of the matter. To require the parties to provide evidence and argument to support a joint request would add another matter for review and undermine this objective.

8. One commenter suggested that the regulations should specify the limit on the amount of time the judge may grant for a unilateral request for extension of time to pursue discovery.

This recommendation was adopted. Changes were made to paragraph (b) to specify a 30-day limit on the amount of time the judge may grant for a unilateral request. For the sake of consistency, similar modifications were made to paragraph (d) regarding untimely requests.

9. One commenter suggested that paragraph (e), the provision governing early termination of the suspension period, is confusing and requires clarification.

The first part of the comment states that a settlement agreement would automatically terminate the suspension. This observation is accurate but not relevant to the provision, which provides for the termination of the suspension only when the administrative judge's extensive involvement in the appeal will be needed. As to the remaining concerns expressed, the point of the regulation is that the case should remain suspended only as long as settlement and/or discovery efforts without the administrative judge's intervention are likely to be helpful in the resolution of the appeal, which for the time being is not being adjudicated. Adjudication would resume if the process no longer serves those ends. If an administrative judge must be extensively involved in the process, then by definition, the matter is no longer suspended, but rather is under active consideration by the administrative judge and has re-entered the adjudication process.

A DCC is a loan term or a contractual arrangement modifying loan terms linked to a bank's extension of credit, under which the bank agrees to cancel all or part of a customer's obligation to repay an extension of credit from that bank upon the occurrence of a specified event. A DSA is a loan term or a contractual arrangement modifying loan terms linked to a bank's extension of credit, under which the bank agrees to suspend all or part of a customer's obligation to repay an extension of credit from that bank upon the occurrence of a specified event.

Under a DCC or a DSA, the customer typically agrees to pay an additional fee to the bank in exchange for the bank's promise to cancel or temporarily suspend the borrower's obligation to repay the loan. The fee may be a lump sum that is payable at the outset of a loan (that may be financed over the term of the loan), or the fee may take the form of a monthly or other periodic charge. The fee compensates the bank for releasing borrowers from loan obligations under the circumstances specified in the DCC or DSA. These arrangements also provide customers a convenient method of extinguishing debt in times of financial or personal hardship, and enable the bank to avoid the time and expense of collecting the balance of the loan from a borrower's estate in the event of the borrower's death or other specified circumstances. 1

The authority of national banks to offer DCCs and DSAs is well-established. 2 Nearly 40 years ago, in 1963, the OCC concluded that offering DCCs was a lawful exercise of the powers of a national bank in connection with the business of banking. 3 The following year various OCC issuances affirmed that position. 4 As explained by Comptroller James Saxon:

The only Federal circuit court of appeals that has considered DCCs or DSAs upheld the OCC's determination that the National Bank Act authorizes national banks to enter into DCCs with their borrowers and that DCCs were banking products, not part of the “business of insurance.”  6 In First Nat'l Bank of Eastern Arkansas v. Taylor, the Eighth Circuit Court of Appeals considered whether DCCs provided by a national bank to its loan customers were subject to Arkansas State insurance regulation. The court held that the National Bank Act authorized national banks to offer DCCs. Further, it held that Federal law precluded the State insurance commissioner from requiring the national bank to obtain a State insurance license and from taking enforcement action against the national bank for failing to do so. 7

The Eighth Circuit found that DCCs do not constitute the “business of insurance” under the McCarran-Ferguson Act because the product falls within the powers incidental to banking granted by the National Bank Act. 8 The court emphasized that DCCs offered by banks in connection with their loans differ significantly from traditional insurance contracts. DCCs do not require the bank to take an investment risk or make payment to the borrower's estate. The loan simply is extinguished when the borrower dies. Thus, the court reasoned, “the primary and traditional concern behind state insurance regulation—the prevention of [the insurer's] insolvency—is not of concern to a borrower who opts for a debt cancellation contract.” 9 The court concluded that further support for its holding that DCCs do not constitute the “business of insurance” derives from the fact that national banks fulfilling their obligations under DCCs do not implicate this central concern of insurance regulation. 10

In 1996, the OCC amended the interpretive ruling (renumbered as § 7.1013) to expressly include offering DCCs for the disability of the borrower, in addition to death. 11 The OCC also has issued various interpretive letters concerning DCCs and DSAs over the years. 12 In 1998, for example, the OCC confirmed that a national bank may offer DSAs as well as DCCs, as part of its express authority to make loans. 13

On January 26, 2000, the OCC published in the Federal Register an advance notice of proposed rulemaking (ANPR) requesting comment on whether regulations addressing DCCs and DSAs were necessary or appropriate (65 FR 4176). 14 In particular, in the ANPR, we noted the absence of a comprehensive Federal consumer protection scheme governing DCCs and DSAs.

We OCC received 41 comments in response to the ANPR. Commenters were evenly divided on whether additional regulations were necessary. On balance, we agreed with those who favored additional standards in this area.

On April 18, 2001, we published a notice of proposed rulemaking (NPRM) requesting comment on proposed regulations governing DCCs and DSAs (66 FR 19901). The preamble to the proposal said that the proposed rules were designed to facilitate consumers' informed choice about whether to purchase DCCs or DSAs, to discourage unfair or abusive sales practices, and to promote national banks' ability to offer DCCs and DSAs on a safe and sound basis.

The OCC received 51 comment letters in response to the NPRM. 15 The commenters included bank trade associations, national banks, credit card companies, and consumer groups. Comments were also filed by insurance trade associations, insurance companies, and State insurance regulators. Finally, we received comments from a number of individuals and companies. The vast majority of commenters favored the proposed regulation, but most of these commenters recommended changes.

The final rule makes a number of changes to the proposal, many in response to suggestions provided by commenters. The next section of this discussion sets out a general overview of the final rule.

The final rule includes the following significant features:

• It codifies the OCC's longstanding position that DCCs and DSAs are permissible banking products.

• It establishes important safeguards to protect against consumer confusion and areas of potential customer abuse. In particular, the final rule prohibits national banks from offering lump sum, single premium DCCs or DSAs in connection with residential mortgage loans.

• The rule provides for standardized disclosures of key information in connection with the offer and sale of DCCs and DSAs. The disclosure requirements are structured to accommodate widely used methods of marketing DCCs and DSAs, including telephone solicitations, mail inserts, and so-called “take one” applications.

• To the extent feasible, the rules apply consumer protections modelled on the framework of consumer protections that Congress directed the OCC (and the other Federal banking agencies) to apply to banks' insurance sales. National banks are familiar with these insurance sales requirements, which are contained in part 14 of the OCC's regulations, and the approach taken in the final rule enables banks to harmonize their policies, procedures, and employee training programs across the two product lines.

• The rule addresses safety and soundness considerations presented by DCCs and DSAs by requiring national banks to manage the risks associated with these products according to safe and sound banking principles, including appropriate recognition and financial reporting of income, expenses, assets, and liabilities associated with DCCs and DSAs, adequate internal controls, and risk mitigation measures.

Section III of this preamble discussion describes the most significant comments we received on the proposed rule and responds to the commenters' principal concerns. Section IV summarizes the final rule.

The proposed rule removed 12 CFR 7.1013 and replaced it with 12 CFR 37.1. Section 37.1(a) stated the authority of national banks under 12 U.S.C. 24 (Seventh) to enter into both DCCs and DSAs and to charge a fee for these products. Section 37.1(b) set forth the purposes of the new regulations. Section 37.1(c) stated that the regulations applied to the provision of DCCs and DSAs by national banks and Federal branches and agencies. In addition, it clarified that the sale of DCCs and DSAs are governed by new part 37 and not by 12 CFR 14 (Consumer Protections for Depository Institution Sales of Insurance).

Many commenters sought clarification about the regulatory framework that governs DCCs and DSAs. They urged the OCC to clarify that DCCs and DSAs offered by national banks are not subject to regulation under State insurance law. One commenter, however, asserted that DCCs and DSAs are “authorized” insurance products under the Gramm-Leach-Bliley Act (GLBA) 16 and that States have express authority to regulate them as insurance, subject only to the preemption standards set forth in section 104 of the GLBA.

As is described in the Background section of this preamble discussion, DCCs and DSAs are banking products authorized under 12 U.S.C. 24(Seventh). This final rule, together with any other applicable requirements of Federal law and regulations, are intended to constitute the entire framework for uniform national standards for DCCs and DSAs offered by national banks. Accordingly, the final rule states that DCCs and DSAs are regulated pursuant to Federal standards, including part 37, and not State law.

Many commenters urged that the OCC regulate the amount of fees banks can charge for DCCs and DSAs. The premise of a number of these comments was the assertion that DCCs and DSAs are substitute products for credit insurance. These commenters contended that the market for DCCs is analogous to the market for credit insurance, which is characterized by “reverse competition.” “Reverse competition” refers to market conditions that result in increased prices because insurers compete with each other for the business of the agents who control placement of the product. To obtain this business, insurance companies pay high commissions or provide other compensation or services, resulting in higher costs that are then passed on to the consumer. These commenters expressed concern that disclosure requirements are inadequate to address this market failure, and they recommended that the OCC impose the same type of regulation—including fee, form, and claims regulation—on the sale of DCCs or DSAs as is commonly required by State insurance regulators with respect to the sale of credit insurance.

For several reasons, we decline to depart from the basic regulatory approach we proposed, although the final rule does contain enhanced consumer protection features beyond those contained in the proposal. First, as the Taylor court explained, DCCs and DSAs are distinct from credit insurance as a matter of law. Moreover, we see no evidence that the market for DCCs and DSAs suffers from the same flaws as the commenters assert prevail in the credit insurance market. Issuers of DCCs and DSAs do not compete to enlist independent, third-party sellers to place their product. Instead, every national bank that issues DCCs or DSAs is its own seller because these products are provided in conjunction with loans that the bank itself makes. Commenters provided no evidence of impairment in the market for DCCs and DSAs, but instead relied on concerns regarding distortions and abuses in the credit insurance market. Thus, we cannot conclude that the strongest reason given by the commenters in support of fee regulation—dysfunction in the market that disclosures are inadequate to overcome—is present in the market for DCCs and DSAs. Moreover, as the rule's express prohibition on tying makes clear, the choice of purchasing the product is left exclusively to the customer. We have concluded, therefore, that a regulatory approach that includes price controls as a primary component is not warranted.

The OCC's regulations reflect the fact that national banks may set fees subject to standards of prudent banking practices. Section 7.4002 of our rules authorizes national banks to establish non-interest charges and fees “according to sound banking judgment and safe and sound banking principles.”  17 A bank satisfies this standard if it employs a decision making process to set fees that involves consideration of four factors identified in the regulation. The standards of § 7.4002 apply to the fees charged by a national bank for a DCC or DSA.

Several commenters stated that, in some cases, either banks do not charge customers a fee for a DCC or DSA or a third party pays the fee. These commenters urged the OCC to clarify that the regulation does not apply if the customer does not pay a fee for the DCC or DSA, or to create an exemption to some of the provisions of the rule. We have not modified the final rule in this way because, in our view, such a modification could create an incentive for banks to evade the requirements of the rule. This could occur if, for example, a bank structures its fees so that it does not explicitly charge the customer for a DCC or DSA but builds that fee into some other component of the transaction.

For these reasons, §§ 37.1(a), (b), and (c) are substantively the same in the final rule as in the proposal, with certain stylistic changes to improve clarity. For stylistic purposes, the regulation text uses both the terms “extension of credit” and “loan;” we do not intend this usage to create any substantive distinctions. In addition, we have added a phrase in subsections (a) and (c) to clarify that DCCs and DSAs are offered in connection only with extensions of credit made by the same bank.

The proposed rule defined a DCC as a contract entered into between a bank and its customer providing for cancellation of all or part of the amount a customer owes under an extension of credit from that bank upon the occurrence of a specified event. A DSA was similarly defined as a contract entered into between a bank and its customer providing for suspension of all or part of the customer's obligation to repay an extension of credit from that bank upon the occurrence of a specified event. The rule used the term “bank” to include a national bank as well as a Federal branch or agency. A customer was defined as an individual who obtains a loan or other extension of credit from a bank primarily for personal, family or household purposes.

A number of commenters sought clarification of the terms defined in the proposal, and we have, accordingly, made a number of clarifying changes to the text. For example, many commenters were concerned that the definitions of a DCC and a DSA implied that they are products separate from the underlying extension of credit. The text of the final rule adds language to clarify this point.

The final rule makes stylistic changes in all the definitions and adds five definitions: actuarial method, closed-end credit, contract, open-end credit, and residential mortgage loan. In response to suggestions from commenters, we have added a sentence to the definition of a DSA to clarify that the rule does not cover so-called “skip-a-payment” agreements in which the triggering event for a deferral arrangement is either the borrower's unilateral election to defer payment or the bank's unilateral decision to allow a deferral of repayment. The rule covers “hybrid” arrangements that contain both debt suspension and debt cancellation features. It also covers DSAs where interest continues to accrue during the suspension period, as well as DSAs where the accrual of interest is suspended.

Both the proposal and the final rule require that if a refund feature is part of the DCC or DSA, the bank must compute that refund using a method no less favorable to the consumer than the actuarial method. In response to requests from commenters, the final rule defines that term. The rule adopts the definition of “actuarial” found in the Truth in Lending Act (TILA), because banks are already familiar with the TILA definition and its implementation in the Federal Reserve Board's Regulation Z. 18 For the same reason, the terms “open-end credit” and “closed-end credit” are defined based on Regulation Z. 19

For purposes of the prohibition on single-payment fees for DCCs and DSAs issued in connection with residential mortgage loans, we have added the term “residential mortgage loan” and defined it to mean a loan secured by one-to-four family, residential property.

Finally, the rule adds the new term “contract” as a less cumbersome, short-form reference to a debt cancellation contract or a debt suspension agreement in the remainder of the regulation text.

The proposed rule contained several types of customer protections that would be standard when a bank provides products associated with a loan, including an anti-tying provision precluding a bank from extending credit or changing the terms or conditions of an extension of credit conditioned upon the purchase of a DCC or DSA from the bank.

Several commenters supported the anti-tying prohibition. These commenters thought that a bank's authority to deny a consumer's request for credit gives the bank a unique ability to seek to coerce consumers to purchase a DCC or DSA. They asserted that disclosures alone are not effective to dispel the potentially coercive effect that tying has in this context. 20

A number of commenters opposed this provision, however. These commenters offered different objections, depending on their view of the effect on these products of the anti-tying provision in section 106 of the Bank Holding Company Act Amendments of 1970. 21 Section 106 generally forbids a bank from extending credit, leasing or selling property, furnishing services, or fixing or varying prices of these transactions, on the condition or requirement that the customer obtain additional credit, property, or service from the bank, subject to certain exceptions. One of these exceptions, the statutory “traditional bank product” exemption, permits a bank to extend credit, lease or sell property, furnish services, or fix or vary prices on these transactions, on the condition that a customer obtain a loan, discount, deposit or trust service from the same bank. 22 Some commenters argued that section 106 does not apply because DCCs and DSAs are an integral term of the loan agreement and the tying prohibition only applies to separate products. Others thought that section 106 applies but would operate to permit tying either because the DCC or DSA is part of the loan and section 106 permits the tying of loan products, or because the DCC or DSA is a “traditional bank product” and may be tied to a loan on that basis. On the other hand, one commenter argued that the rule's anti-tying provision is unnecessary because section 106 already applies to prohibit tying a loan to a customer's purchase of a DCC or DSA from the bank.

DCCs and DSAs may be offered and purchased either contemporaneously with the other terms of the loan agreement or subsequent to the execution of that agreement. In either case, the effect of the DCC or DSA is to extinguish or suspend the borrower's obligation to repay under the otherwise operative provisions of the loan. Since a bank's ability to adjust the terms of loan repayment is an integral component of its authority to lend, in our view, a DCC or DSA could properly be treated as a component of the loan and, as such, would not be subject to the tying prohibitions in section 106 because a DCC or DSA is a term of the loan rather than a separate product. Thus, the final rule retains a tying prohibition specifically applicable to DCCs and DSAs.

The proposed rule prohibited a bank from engaging in any practice that could mislead a reasonable person with respect to the information that the proposal required to be disclosed.

Several commenters objected to the “reasonable person” standard on the grounds that it was vague, subjective, or so broad that it would be impossible to enforce. 23 Yet, the proposed standard was very similar to the standard governing misleading practices found in the regulations of the OCC (and the other Federal banking agencies) implementing consumer protections in the insurance sales context. 24 National banks' sale of DCCs and DSAs, which may be solicited and marketed using methods similar to insurance solicitation and marketing, can present similar consumer protection issues as the sale of insurance products. Moreover, national banks are already generally familiar with the standard contained in the insurance sales regulations. Thus, the final rule retains the substance of the prohibition as proposed but with changes in wording so that the language conforms more closely with the language of part 14. We have also added an express reference to misleading advertisements, as well as practices, to make clear that the scope of the prohibition is no less than that in part 14.

The proposed rule prohibited a bank from retaining a unilateral right to modify or cancel the contract.

A commenter representing several organizations supported this provision, but the majority of the commenters who addressed it either were opposed or recommended modifications. Many commenters stated that modifying the terms of credit is standard business practice in the credit card industry. They noted that modifications are subject to the protections of the TILA and Regulation Z, which permit changes in certain terms upon notice and agreement by the customer. Other commenters suggested that the OCC create an exemption in the case of customers who pay the fee on a monthly basis and have the right to cancel at any time. Several commenters urged the OCC to permit banks to make unilateral changes, provided the change benefits the customer.

The OCC remains of the view that retaining a unilateral right to modify or cancel the DCC or DSA, whether the product is associated with open-or closed-end credit, has the potential to be abusive because it could be exercised in such a way as to deny a customer debt relief for which the customer has paid. We agree, however, that some of the circumstances described by the commenters do not present this potential for abuse. Accordingly, the final rule excepts unilateral changes from the prohibition in two circumstances: first, if the modification is favorable to the customer and is made without additional charge to the customer; and, second, if the customer is notified of the proposed change and provided a reasonable opportunity to cancel the contract without penalty before the change goes into effect. For example, the OCC would generally regard a 30-day notice period as reasonable. This time period is consistent with the time requirements imposed by TILA in an analogous situation. 25 The final rule does not require that the contract language specify the circumstances under which the bank may make a unilateral modification, though inclusion of explicit provisions in the contract may be helpful to avoid misunderstandings. Rather, the rule operates to prohibit the bank from requiring its customer to abide by a unilateral modification unless it meets one of the exceptions described in the rule.

Several commenters urged the OCC to include in the final rule a provision prohibiting banks from requiring a customer to pay the fee for a DCC or DSA in a single payment. These commenters focused on abuses that have occurred in the sale of credit insurance in the subprime market for residential mortgage loans and argued that the sale of DCCs and DSAs present a similar potential for abuse. They noted that customers who pay the fee in a single payment routinely add the amount of the fee to the amount borrowed, which means that customers will pay interest on the fee for the life of the loan. They contended that lenders marketing credit insurance target borrowers who are unsophisticated about financial products and thus unlikely to realize that financing the fee has the effect of reducing the homeowner's equity in his or her home.

The issues identified with respect to single premium credit insurance in the home mortgage market are particularly problematic because they highlight practices targeting consumers whose economic choices may be circumscribed or who may be especially vulnerable to predatory sales practices. Moreover, we are aware, as commenters pointed out, that some large financial institutions have voluntarily abandoned the practice of financing single payment credit insurance premiums for home mortgage loans. In addition, both Fannie Mae and Freddie Mac have announced that they will no longer purchase mortgages that carry single premium credit insurance. 26 The reaction of these market participants supports the conclusion that the potential for abuse in the marketing and sale of these products outweighs any potential consumer benefits.

In the absence of evidence that the abuses identified by the commenters are occurring in the DCC or DSA market, we have declined to adopt an across-the-board prohibition on lump sum fees. We remain concerned, however, that abuses similar to those occurring in the credit insurance market not develop with respect to DCCs or DSAs provided in connection with home mortgage loans. To guard against that result, the final rule prohibits a national bank from requiring a customer to pay the fee for a DCC or DSA in a single payment, payable at the outset of the contract, if the debt that is the subject of the contract is a residential mortgage loan. The rule permits single payment contracts in the case of all other consumer loans, but requires banks that offer the option of paying the fee in a single payment to also offer the bona fide option of paying for that contract in periodic payments. In such cases, the bank must also make certain disclosures related to the fee.

The proposed rule prohibited a bank from including in a DCC or DSA any term that the bank routinely does not enforce.

Twelve commenters addressed this provision and they unanimously opposed it. They contended, among other things, that it sets a standard that is unclear and difficult to administer. In addition, they argued that the provision could harm customers because it would have a chilling effect on banks' flexibility to work with customers to resolve delinquent debt issues and rehabilitate credit relationships. Several commenters stated that legal means already exist to address instances in which the failure routinely to enforce a term would mislead consumers, such as the OCC's general authority to enforce unfair or deceptive business practices laws applicable to national banks.

We agree with these commenters that this prohibition would be counterproductive if it produced the unintended result of deterring banks from negotiating with their customers to work out or restructure delinquent debt. Accordingly, we have deleted this prohibition from the final rule.

The proposal required a bank that provides a no-refund DCC or DSA also to offer a product that provides for a refund of the unearned portion of the fee in the event of termination of the agreement or prepayment of the covered loan. In addition, the proposal required banks to calculate the amount of any refund due a customer based on a method at least as favorable to the customer as the actuarial method.

Several commenters opposed this provision. Some argued that fees charged in connection with DCCs and DSAs should be treated the same as any other fee a bank charges in connection with a loan. Others thought that no-refund DCCs and DSAs are inherently unfair to consumers and recommended that the OCC prohibit them. Many commenters stated that the refund provision should not apply to open-end credit where customers pay for DCCs or DSAs on a month-to-month basis.

As we noted in the proposal, some banks that offer DCCs and DSAs may structure those products so that the customer does not receive a refund of any unearned portion of the fee paid for the product if the DCC or DSA is terminated or the customer prepays the loan covered by the contract. Banks have suggested that customers benefit from a “no-refund” product because the total fee paid by the customer is substantially less than the fee that would be charged for the same product with a fee refund feature. On the other hand, a no-refund product could be structured in a way that is unfair to customers if, for example, the customer pays most of the fee early in the term of the contract but also prepays the loan well before the end of the term.

We continue to believe that the approach that best balances encouraging banks to provide a viable choice of products for consumers with discouraging unfair practices is to require banks to offer both options so that a customer can choose between a lower total fee or the availability of a refund. In our view, the potential for unfairness in a no-refund product lies principally in the fact that the customer may be induced to pay “up front” for coverage that he or she never receives because the loan is prepaid. This result is substantially mitigated if the consumer has the option of DCC or DSA coverage on a “pay as you go” basis.

Accordingly, the final rule retains this provision (as renumbered) with one substantive change. The text of the final rule requires that a bank that offers a no-refund DCC or DSA must also offer the customer a bona fide option to purchase a comparable contract that provides for a refund. The option to purchase is bona fide if the refund product is not deliberately structured in such a way, including pricing of the product, as to deter a customer from selecting that option.

In response to questions raised by commenters, we clarify that the refund provision does not apply in the case of open-end credit where customers pay for the contract on a month-to-month basis. In that case, there are no “unearned” fees to refund. Nor does it apply if the fee for the contract is paid by the bank or some other third party rather than the customer.

If a customer is entitled to a refund, the amount due the customer may vary greatly depending on the method used to calculate the refund. The two most commonly used formulas for computing refunds are “the Rule of 78's” and the actuarial method. Under the Rule of 78's, a customer will receive a substantially lower refund than if the actuarial method had been used to compute the refund. Because application of the Rule of 78's creates substantial inequities for the customer, the final rule retains the requirement that banks calculate the amount of any refund due a customer based on a method at least as favorable to the customer as the actuarial method. As described earlier in this discussion, we have added to the final rule a definition of the term “actuarial method.”

As we have described, section 37.3(c)(2) prohibits a bank from requiring a customer to pay the fee for a DCC or a DSA in a single lump sum where the associated credit is a residential mortgage loan. Several commenters urged the OCC to prohibit a bank from requiring a customer to pay the fee for any DCC or DSA in a single payment. While we do not believe the available evidence supports that result, we agree that single payment fees have potential to be problematic even outside the home mortgage loan context. Accordingly, for DCCs or DSAs associated with any other type of loan, § 37.5 of the final rule requires a bank that offers a customer the option to pay the fee for a contract in a single payment also to offer that customer a bona fide option to pay the fee for that contract in periodic payments. The option is “ bona fide ” if it is not deliberately priced in such a way as to deter a customer from selecting that option.

The proposed rule listed eight disclosures that a bank, where applicable, was required to give.

Many commenters objected to the number of required disclosures. They noted that banks already are required to provide disclosures under the TILA and argued that the new disclosures were too burdensome for banks and too confusing for customers. Several commenters who supported rate, form, and claims regulation similar to the regulation of the insurance industry challenged the usefulness of disclosures and criticized the OCC for relying too heavily on disclosures. For the reasons we have earlier described, in our view, regulation of DCCs and DSAs as if they were insurance products is not appropriate. We agree with the commenters who thought the proposed disclosure requirements could be improved, however.

Therefore, the final rule retains much of the content of the disclosures prescribed by the proposal, but revises the disclosure process so that it more readily accommodates the methods banks use to market and sell DCCs and DSAs. The final rule specifies which disclosures must be given at different stages of the marketing and sales process and provides forms of disclosure that serve as models for satisfying the requirements of the rule.

In the final rule the disclosures have been reorganized into two types: a short form of disclosure suitable for use in telemarketing and various abbreviated written solicitations, and a more detailed long form of disclosure that a customer generally will receive prior to purchasing the contract. A sample short form is provided as Appendix A to the regulation and a sample long form is provided as Appendix B. Use of these forms is not mandatory. A bank may adjust the form and wording of its disclosures so long as the requirements of the regulation are met. Because many of the disclosures will appear in both the short and long form, we discuss the short and long form disclosures together.

The proposed rule required a bank to inform the customer that neither its decision whether to approve a loan nor the terms and conditions of the loan are conditioned on the purchase of a DCC or DSA from the bank.

Commenters opposed to the anti-tying prohibition also opposed the anti-tying disclosure. Most of these commenters contended that the anti-tying disclosure is necessary only if the DCC or DSA is being sold while a customer's application for credit is pending. If the OCC retains this disclosure, they recommended creating an exemption for DCCs and DSAs sold subsequent to the extension of credit.

As described earlier in this discussion, the final rule retains the prohibition on tying either the availability or the terms of credit to a customer's purchase of a DCC or DSA. Because the effectiveness of the prohibition is greatly enhanced if the customer knows that the bank may not tie DCCs or DSAs to its loan products, the final rule also retains the requirement that the bank provide an anti-tying disclosure. The disclosure appears in both the short form and long form and, insofar as appropriate, 27 is similar in content to the anti-tying disclosure required by the insurance sales consumer protection rules. The appendices suggest a wording that is simpler than the text of the proposed rule, however, and contain a statement that purchase of the product is optional and will not affect either the bank's credit decision or the terms of credit already extended.

Certain commenters asserted that there is a potential for increased customer confusion regarding DSAs when compared with credit disability insurance products and DCCs where disability is the triggering event. They noted that these products are similar to DSAs in that they address the health status of customers in relation to their ability to continue employment. In response to these commenters' suggestions, the final rule requires a bank to explain in the long form the nature of a debt suspension agreement. The bank must disclose that if a customer activates the agreement, the customer's duty to pay the loan principal and interest is only suspended and the customer must fully repay the loan after the period of suspension has expired.

The proposed rule required a bank to inform customers of the total fee for the DCC or DSA.

Many commenters argued that it is not possible to compute the total fee for a DCC sold in connection with open-end credit because the fee is based on the customer's outstanding balance which fluctuates from month to month. The commenters urged the OCC to eliminate this disclosure in the case of open-end credit or to adopt a more flexible alternative. Most commenters recommended that an appropriate disclosure would be the unit-cost approach under Regulation Z or the formula used to compute the fee.

We agree that it may be impracticable to require disclosure of the amount of the fee at the time the bank first solicits the purchase of a DCC or DSA, particularly in the case of open-end credit. The final rule therefore requires a bank to make disclosures regarding the amount of the fee only in the long form. However, the disclosure must differ depending on whether the credit is open-end or closed-end. In the case of closed-end credit, the bank must disclose the total fee. In the case of open-end credit, the bank must either: (1) disclose that the periodic fee is based on the account balance multiplied by a unit-cost and provide the unit-cost, or (2) disclose the formula used to compute the fee.

The proposed rule required a bank to disclose the method of payment, including whether the payment would be collected in a single payment or periodic payments, and whether the fee was included in the loan amount.

Only two commenters directly addressed this disclosure. One commenter recommended that the OCC eliminate this disclosure, and the second commenter stated that this disclosure would be confusing in the context of open-end credit.

The final rule modifies this disclosure to reflect the requirements in § 37.5. As modified, this disclosure, which is included in both the short and long form, requires a bank to disclose, where appropriate, that a customer has the option to pay the fee in a single payment or in periodic payments. This disclosure is not appropriate in the case of a DCC or DSA provided in connection with a home mortgage loan, since, under the final rule, the option to pay the fee in a single payment is not available in that case. The rule also requires a bank to disclose that adding the fee to the amount borrowed will increase the cost of the contract.

The proposed rule required a bank to disclose, if applicable, that the customer is not entitled to a refund of the unearned portion of the fee in the event the customer terminates the contract or prepays the loan prior to the scheduled termination date, and that the customer has the option of purchasing a DCC or DSA that provides for a refund in those circumstances.

A few commenters urged the OCC to clarify that this disclosure does not apply to open-end credit accounts where the fee is billed monthly. One commenter recommended that the OCC replace this disclosure with a statement as to whether the customer will be entitled to a refund of the unearned portion of the fee in the event the customer terminates the contract or prepays the loan in full prior to the scheduled termination date.

In response to these comments, the final rule deletes part of this disclosure and adds a new sentence. The revised disclosure appears in both the short and long form. The final rule eliminates the requirement that a bank must state whether or not the customer will be entitled to a refund of the unearned portion of the fee in the event the customer terminates the contract or prepays the loan in full prior to the scheduled termination date. Instead, if a customer may elect to pay the fee in a single payment, the rule requires a bank to disclose that the customer has the option to choose a contract with or without a refund provision. An additional sentence in both the short and long form states that prices of refund and no-refund products are likely to differ.

A bank's cancellation policy may be a material factor in a customer's decision whether to purchase the product, particularly if the customer has elected to pay the fee for a DCC or DSA in a single payment and also has elected to finance the fee. The final rule accordingly requires, at § 37.5, that (for DCCs or DSAs associated with loans other than residential mortgage loans) if a bank permits a customer to pay the fee in a single payment and to add the fee to the amount borrowed, the bank must disclose the bank's cancellation policy. This disclosure is required in both the short and long form. It apprises the customer that the DCC or DSA may be canceled at any time for a refund, within a specified number of days for a full refund, or at any time with no refund. The method the bank uses to calculate any refund due is addressed in § 37.4(b).

The proposed rule required a bank to inform a customer if the customer's activation of the contract would prohibit the customer from incurring additional charges or using the credit line.

Only two commenters addressed this disclosure. One commenter contended that the phrase “activation of the debt cancellation contract” might be ambiguous and suggested that the OCC clarify that this phrase refers to the customer's assertion of the right to cancel or suspend payments on the debt. The second commenter recommended that the OCC amend this disclosure to state that it does not apply to closed-end loans.

The final rule retains this disclosure, but only in the long form because the information, while relevant to the customer's final decision to purchase a DCC or DSA, is not necessarily central to the customer's initial evaluation of the product.

The proposed rule required a bank to explain the circumstances under which a customer or the bank could terminate the contract if termination is permitted during the life of the loan.

Two commenters urged the OCC to eliminate this disclosure. One of these commenters argued that it was unnecessary and burdensome and recommended that the OCC require this information to be contained in the DCC, provided the customer has 30 days within which to cancel the DCC. The final rule retains this disclosure, but requires it only in the long form.

The final rule adds a disclosure in the short form requiring banks to inform consumers that the bank will provide additional information before the customer is required to pay for the product. The adjustments made in the rule to accommodate marketing practices that do not lend themselves to detailed disclosures mean that some important information will not be conveyed when the bank first solicits the purchase of a DCC or DSA. This disclosure apprises the customer that more information will be available for consideration before the customer is obligated to pay for the product.

The proposed rule required a bank to describe any material limitations relating to the DCC or DSA.

Many commenters objected to this disclosure, and the majority of them urged the OCC to eliminate it. They contended that the term “material limitations” is ambiguous and creates the potential for litigation over its meaning.

Several commenters noted that the “material limitations” are included in the contract that is mailed to the customer. They said that almost all of the provisions of a DCC impact in some way on the customer's ability to collect benefits and these limitations are therefore so lengthy that they are not suitable for disclosures apart from the contract. Commenters recommended a number of alternatives, including modifying the required timing of the disclosure and permitting a bank to refer the customer to the contract for a description of its limitations.

The final rule retains this disclosure. The DCC and DSA contracts we have reviewed often contain provisions imposing requirements on a customer's eligibility to claim benefits under the contract, or conditions or exclusions that could effectively preclude the customer from obtaining those benefits. Examples include: imposing a waiting period before a customer may activate benefits; limiting the number of payments a customer may defer; limiting the term of coverage to a specific number of months; limiting the maximum amount of indebtedness the bank will cancel; or terminating coverage when the customer reaches a particular age. Knowledge of these limitations may be dispositive to the customer's decision whether to purchase the product. Moreover, disclosing them may enable the bank to avoid sales practices that could subject it to substantial reputation or litigation risk.

We have modified the disclosure significantly, however, to address the concerns expressed by the commenters. In both the short and long form, the final rule replaces the phrase “material limitations” with the phrase “eligibility requirements, conditions and exclusions” and requires a bank to disclose that these features could prevent a customer from receiving benefits under the contract. The content of the short and long form may vary, depending on whether a bank elects to provide a summary of the conditions and exclusions in the long form disclosures or refer the customer to the pertinent paragraphs in the contract. The short form requires a bank to instruct the customer to read carefully both the long form disclosures and the contract for a full explanation of the terms of the contract. In response to commenters' suggestions, the long form gives a bank the option of either separately summarizing the limitations or advising the customer that a complete explanation of the eligibility requirements, conditions, and exclusions is available in the contract and identifying the paragraphs where a customer may find that information.

The proposed rule required a bank to describe the procedures a customer must follow to notify the bank that a triggering event has occurred.

Several commenters contended that disclosing this information would be lengthy and cumbersome, particularly if the DCC was offered in connection with a credit card or other marketing material where available space is limited. Some of these commenters urged the OCC to eliminate this disclosure while others proposed permitting a bank to deliver this information to a customer post-sale.

We agree that, while this information is relevant to a customer who has purchased the contract and wishes to activate the debt suspension or debt cancellation feature, it is unlikely to be a factor in the customer's decision whether to purchase the product. Therefore, the final rule eliminates the requirement for this disclosure.

The proposal required a bank to provide certain disclosures to a customer before the customer completes the purchase of a DCC or DSA. It also required that the disclosures be made in writing, or electronically, if done in a manner consistent with the requirements of the Electronic Signatures in Global and National Commerce Act (15 U.S.C. 7001 et seq. ) (E-Sign).

Most commenters objected to the requirement that the disclosures be made in writing as impracticable where a bank advertises or solicits the purchase of DCCs or DSAs through telemarketing, so-called “take one” applications, statement inserts, and direct mail solicitations. Commenters recommended a variety of alternatives to the proposal, including mailing written disclosures to the customer within a prescribed number of days or permitting the customer to cancel the product without charge. A number of commenters urged the OCC to adopt the approach of Regulation Z, which permits a bank to make limited initial disclosures in the case of open-end credit if the bank provides the full disclosures before the customer is obligated to pay, and permits oral disclosures in certain cases.

The final rule makes significant modifications in the timing and method requirements. It addresses the concerns raised by the commenters by establishing different timing and method requirements for short form and long form disclosures. Creating two separate forms also eliminates the need for banks to provide the most detailed and complicated information—information about eligibility requirements, conditions, and exclusions that limit the customer's ability to obtain benefits—in the short form.

Section 37.6(c)(1) requires a bank to disclose certain information in the short form orally at the time the bank first solicits the purchase of a contract. Section 37.6(c)(2) requires a bank to disclose the applicable information in the long form in writing before the customer completes the purchase of the contract. However, if the bank solicits a customer's purchase of a DCC or DSA in person—for example, at the time the customer applies for credit in person—then the bank must also provide the long form disclosures in writing at that time.

The final rule creates special exceptions for transactions by telephone, solicitations through written materials such as mail inserts or “take one” applications, and electronic transactions. The first exception, in § 37.6(c)(3), addresses the concern that lengthy disclosures are not practical for solicitations via telemarketing. Under the telemarketing exception, banks may give the short form disclosures orally, provided they mail the written disclosures within 3 days after the telephone solicitation. These telemarketing provisions are similar to those in the insurance sales consumer protection rules with which banks are already familiar. 28 The rule requires that the customer have an opportunity to review the more detailed information before being obligated to pay for the contract.

The second exception, in § 37.6(c)(4), is for written solicitations such as mail inserts and “take one” applications. Similar to the telemarketing exception, it permits a bank to give only the short form disclosures in mail inserts or “take one” applications where space is limited, provided the bank mails the written disclosures within 3 days after the customer contacts the bank to respond to the solicitation. The effect of this exception is the same as the effect of the provision in the insurance sales consumer protection rules that covers mail and “take one” solicitations. No oral disclosures are required and the short form disclosures may be made in this written material.

The third exception, in § 37.6(c)(5), permits disclosures to be made electronically in a manner consistent with the requirements of E-Sign.

Proposed § 37.6(c) required disclosures to be clear, conspicuous, readily understandable, and designed to call attention to the nature and significance of the information provided.

The only commenter that addressed the form of the disclosures thought that Regulation Z sets forth a standard for disclosures and that a new standard is unnecessary.

In our view, however, the better model for requirements as to form is part 14 of the OCC's rules, which governs products that are often marketed and sold using methods similar to the methods used to market and sell DCCs and DSAs. Accordingly, the final rule modifies this provision so that its text is more similar to part 14. 29 Section 37.7(d)(1) therefore requires that the disclosures must be simple, direct, readily understandable and designed to call attention to the nature and significance of the information provided. Section 37.7(d) requires that the disclosures must be meaningful. The examples of methods, such as spacing and type style, that a bank could use to satisfy the requirements for the form of disclosures have not been changed.

As described earlier, the final rule conforms more closely with part 14 30 because it covers advertising and promotional material. See § 37.3(b). Accordingly, the final rule adds a new subsection (e) requiring that short form disclosures must be made in advertisements and promotional material for DCCs unless the advertising and promotional material is of a general nature describing or listing the services or products offered by the bank.

Proposed § 37.4 required that the customer affirmatively elect to purchase a DCC or DSA in writing in a document that was separate from the documents pertaining to the credit transaction. The proposal permitted the acknowledgment to be made electronically if the bank complied with the requirements of E-Sign.

Most of the commenters who addressed this provision opposed it because, they said, the written election would have the effect of curtailing or prohibiting current marketing practices. They urged the OCC to eliminate these requirements or to modify them to permit oral elections with certain safeguards.

Several commenters stressed that requiring separate documents also would create significant compliance difficulties in the case of “take one” credit applications where space is limited to a single sheet of paper, and in the case of auto financing, where procedures are not as readily monitored by the bank. Many commenters contended that this provision was not consistent with the TILA, which permits a customer's affirmative election to be in the same document as the loan contract.

The final rule retains the requirement that the bank obtain the customer's affirmative election to purchase a DCC or DSA before obligating the customer to pay for the product. We have made substantial revisions, however, to address the commenters' concerns about the effects of the proposed requirements on methods widely used to market DCCs and DSAs and to conform the rule with the insurance sales regulations with which banks already are familiar. The final rule also adds a requirement, like that contained in the insurance sales regulations, that the bank obtain a customer's written acknowledgment of receipt of the disclosures required by § 37.6. 31

In the case of telephone solicitations, the final rule permits the customer's affirmative election to be made orally, provided the bank: (1) Maintains sufficient documentation to show that the customer received the short form disclosures and then affirmatively elected to purchase the contract; (2) mails the affirmative written election and written acknowledgment, together with the long form disclosures to the customer within 3 business days after the telephone solicitation, and maintains sufficient documentation to show that it made reasonable efforts to obtain the documents from the customer; and (3) permits the customer to cancel the purchase of the contract without penalty within 30 days after the bank has mailed the long form disclosures to the customer.

In the case of solicitations conducted through written materials such as mail inserts or “take one” applications, the final rule permits the bank to provide only the short form disclosures in the written materials, provided the bank mails the acknowledgment of receipt of disclosures and the long form disclosures to the customer within 3 business days, beginning on the first business day after the customer contacts the bank or otherwise responds to the solicitation. The bank may not obligate the customer to pay for the contract until after the bank receives the customer's written acknowledgment of receipt of disclosures, unless the bank: (1) Maintains sufficient documentation to show that the bank provided the acknowledgment of receipt of disclosures to the customer as required by this section; (2) maintains sufficient documentation to show that the bank made reasonable efforts to obtain from the customer a written acknowledgment of receipt of the long form disclosures; and (3) permits the customer to cancel the purchase of the contract without penalty within 30 days after the bank has mailed the long form disclosures to the customer.

The final rule also eliminates the requirement that the customer's election to purchase be in a separate document, and thus better harmonizes this provision with the requirements of the TILA. 32 Similarly, the rule imposes no requirement that the customer's written acknowledgment of receipt of disclosures be in a separate document. The final rule clarifies that the standard for the form of the election and acknowledgment information is the same as for the form of disclosures (which is also the same standard contained in part 14 of our rules). The information must be conspicuous, simple, direct, readily understandable, and designed to call attention to their significance. The rule also adds a statement that the election and acknowledgment will satisfy these standards if they conform with the requirements in § 37.6.

Finally, the provision in proposed § 37.4 permitting the customer's affirmative election to be made electronically has been moved to § 37.7(d) and modified to include the customer's acknowledgment of receipt of the disclosures.

The OCC's prior regulation on DCCs (12 CFR 7.1013) permitted, but did not require, banks to establish the reserves necessary to enable them to enter into DCCs. The proposed rule required national banks to establish a separate loss reserve and to maintain the reserve at a level adequate to conduct this business in a safe and sound manner. As an alternative, the proposed rule also permitted a national bank to obtain third-party insurance to cover “expected losses.”

The commenters were divided about whether the OCC should retain the proposed requirement for an “identifiable loss reserve.” Some commenters, however, pointed out that the reserve requirement, as drafted, may not accurately reflect current accounting practices and the standards established by generally accepted accounting principles for recording the income and liabilities associated with DCCs and DSAs. One commenter, for example, said that the OCC should distinguish between reserve requirements for DCCs, which are based on future losses in the credit accounts and already included in the loan loss reserves, and DSAs, which need only address foregone interest payments. This commenter also said that losses on the two types of products may vary widely and that banks should be permitted to reserve separately on each.

The OCC's recent supervisory experience indicates that methodologies for recognizing losses may appropriately vary depending on whether the product requires the bank to forgive the debt or only forego interest income for a period of time. These methodologies vary further and are more complex if the product has both debt cancellation and debt suspension features or if the bank securitizes the loans associated with the DCCs or DSAs.

For these reasons, we have concluded that the loss reserve requirement contained in the proposal is not sufficiently flexible to permit appropriate management and recording of anticipated losses in the variety of situations that occur in actual practice. Accordingly, the final rule replaces that requirement with a requirement that banks must establish and maintain effective risk management and control processes over its DCCs and DSAs. Such processes include appropriate recognition and financial reporting of income, expenses, assets, liabilities, and appropriate treatment of all expected and unexpected losses associated with the products. The final rule also requires a bank to assess the adequacy of its internal control and risk mitigation activities, which would include, if appropriate, the bank's purchase of third-party insurance, in view of the nature and scope of its DCC and DSA programs.

New part 37 defines the relevant terms, including “debt cancellation contract” and “debt suspension agreement.”

The rule prohibits certain practices for banks that provide DCCs or DSAs. These practices are: tying the approval or terms of an extension of credit to a customer's purchase of a DCC or DSA; engaging in misleading advertisements or practices; retaining a right to modify a DCC or DSA unilaterally, unless the modification benefits the customer or the customer has a reasonable opportunity to cancel without penalty; and charging a single, lump-sum fee for a DCC or DSA issued in connection with a residential mortgage loan.

The rule permits a bank to offer a DCC or DSA that makes no provision for a refund of fees but, if the bank does so, it also must offer the customer a bona fide option to buy the product that includes a refund feature.

For loans other than residential mortgage loans, the bank may offer the customer the option of paying the fee for the associated DCC or DSA in a single, lump sum; but if it does, it also must offer a bona fide option of paying the fee for that contract in monthly or other periodic payments. If the bank offers the option to finance the single payment fee, it must disclose to the customer whether the customer may cancel the product and receive a refund and any time limits that apply to the customer's right to cancel.

The rule also requires that national banks disclose certain information to their customers. The rule accommodates the methods that national banks use to market DCCs and DSAs by permitting the use of abbreviated disclosures in marketing circumstances—including telephone solicitations and “take one” applications—where full disclosure of the terms most relevant to the consumer's decision to purchase is not practicable.

The abbreviated or “short form” disclosures that the rule requires include:

• Disclosure that the decision to buy a DCC or DSA is optional and whether or not the customer purchases the product will not affect the customer's application for credit or terms of any existing loan;

• Disclosure that if a no-refund product is offered, a product with a refund feature also is available;

• Disclosure for DCCs or DSAs offered in connection with loans other than residential mortgage loans, that if the customer may elect to finance a single payment, lump sum fee, the customer also has the option to pay the fee in periodic payments, and a statement about the effect of the customer's cancellation of the DCC or DSA before expiration of the term of the loan;

• A statement that the customer will receive additional information before being obligated to pay for the DCC or DSA; and

• A statement that certain eligibility requirements, conditions, and exclusions apply that may affect the customer's ability to claim benefits under the DCC or DSA are described more fully in the “long-form” disclosures that the rule also requires.

The “long-form” disclosures may be given after the bank's initial marketing occurs but generally must be given prior to the completion of the sale of the product. If the solicitation occurs when the customer applies for credit in person, then the long form disclosures must be given at that time. The information required to be disclosed in the long form includes:

• Disclosure that the decision to buy a DCC or DSA is optional and whether or not the customer purchases the product will not affect the customer's application for credit or terms of any existing loan;

• Disclosure that in the case of a DSA, the DSA only suspends, and does not cancel, the customer's obligation to pay the associated debt;

• Disclosure, if applicable, that the customer may not incur additional charges under its loan agreement if the DCC or DSA is activated;

• An explanation of the circumstances in which the customer has the right to cancel the DCC or DSA; and

• A description of any applicable eligibility requirements, conditions, or exclusions, which may be provided either in the disclosure form itself or by reference to particular provisions of the DCC or DSA.

The disclosure requirements are complemented by a requirement that a national bank generally obtain the customer's written acknowledgment of his or her receipt of the required disclosures and an affirmative election to purchase the DCC or DSA before completing the sale. Like the disclosure requirements, these provisions of the rule are also tailored to accommodate the use of sales methods—such as by telephone—where immediate receipt of a written acknowledgment is not practicable.

The rule requires that disclosures and acknowledgments and affirmative elections be presented in a form that is simple, direct, readily understandable, and designed to call attention to the nature and significance of the information provided. Disclosures must also be meaningful, and the rule gives examples of methods—such as spacing and type styles—that may be used to satisfy that standard.

Appendices to the rule contain the two sample forms of disclosure: the “short form” for use in situations where the abbreviated disclosures may be used, and the “long form” for use thereafter to ensure that the customer is adequately informed about the key terms of the DCC or DSA prior to completing the purchase. Banks are required to make only the disclosures that are appropriate to the product offered. The forms of disclosure are illustrative of the wording and format a bank could use to comply with the rule's disclosure requirements. Banks that make disclosures in a form substantially similar to the forms provided in the rule will be deemed to satisfy the disclosure requirements. These particular forms are not mandatory, however, and a bank may elect to use different wording or a different format, as long as the approach chosen satisfies the substance of the applicable requirements.

Finally, the rule contains a safety and soundness requirement that a national bank that offers DCCs or DSAs must manage the risks associated with these products in accordance with safe and sound banking principles.

The rule also requires a bank to establish and maintain effective risk management and control processes, including appropriate recognition and financial reporting of income, expenses, assets, and liabilities associated with the products and adequate internal control and risk mitigation measures.

Two commenters requested that the OCC delay the effective date of the final rule until one year from the date of its publication. Another commenter requested a delayed effective date of six months to a year. Each of these commenters stressed that the rule will require banks that currently offer DCCs and DSAs to review their programs, create new forms, and train employees to comply with new procedures. One commenter thought that the adjustments to marketing and methods necessary to implement the regulations governing DCCs would be comparable to those required to implement the consumer protections for bank sales of insurance, which also required new disclosures. Part 14 originally had an effective date of 120 days, but that transition period was later extended to a total of nine months.

The final rule has a delayed effective date of nine months. We agree with the commenters that we should be guided by our experience in implementing part 14. The final rule requires two types of disclosures and prohibits a number of practices that currently are not barred. Furthermore, unlike the sale of insurance products, DCCs and DSAs are offered in connection with an extension of credit, which will require banks to coordinate the disclosures in the final rule with disclosures they are required to make under TILA.

In accordance with the requirements of the Paperwork Reduction Act of 1995, the OCC may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number.

The OCC submitted the collection of information requirements contained in the notice of proposed rulemaking to the Office of Management and Budget

(OMB) for review and received approval under OMB Control Number 1557-0224.

The revision of the collection of information requirements contained in this final rule have been submitted to the OMB for review.

The final rule retains much of the content of the disclosures prescribed by the proposed rule, but revises the disclosure process so that it more readily accommodates the methods banks use to market and sell DCCs and DSAs. The final rule specifies which disclosures must be given at different stages of the marketing and sales process.

The final rule provides two forms of disclosure that serve as models for satisfying the requirements of the rule. Those two disclosure forms are set forth in appendices to the final rule. Appendix A sets out a short form of disclosure suitable for use in telemarketing and various written solicitations, while Appendix B provides a more detailed long form of disclosure that a customer generally will receive prior to purchasing the contract. Use of the forms is not mandatory. A bank may adjust the form and wording of its disclosures so long as the requirements of the regulation are met.

The final rule generally requires a bank to disclose information about a DCC or DSA orally in the short form and in writing in the long form. In the case of solicitations through written materials such as mail inserts or “take one” applications, however, the bank may provide the short form disclosures in writing. The final rule also permits short and long form disclosures to be made electronically.

The OCC received two comments regarding the burden imposed by the proposed rule. Both commenters stated that the amount of time required to develop the required disclosures was greater than the OCC's estimate of 10 hours. The first commenter, a large national bank, stated that developing the required disclosures would involve approximately 25 hours to consider legal, operational, and marketing issues. However, if the disclosures were modified in accordance with the recommendations in its comment letter, the commenter estimated that the amount of time would be approximately 15 hours. We believe that modifications to the timing and manner of the required disclosures address most of the commenter's objections.

Notwithstanding these changes, upon further consideration of the paperwork burdens likely to be imposed as a result of the final rule, the OCC has estimated that the burden imposed on the average national bank offering DCCs and DSAs is likely to be 24 hours per bank.

The second commenter mentioned the increased burden associated with the requirements that the disclosures be in writing and separate from the loan application. The commenter contended that, particularly for credit cards banks, the total cost of creating, print, and distributing new forms could outweigh any benefit a national bank might gain from selling DCCs and DSAs. As described in the discussion above, modifications in the proposed rule eliminate the separate document requirement and permit oral disclosure in certain circumstances. In addition, we believe that the 9-month delayed effective date will enable banks to minimize costs. They should have sufficient lead time to deplete their current supply of forms, revise forms to be used once the rule becomes effective, and include the required disclosure in their next print run.

Section 37.6 requires a bank to provide the following disclosures, as appropriate:

• Anti-tying disclosure —The final rule requires a bank to inform the customer that neither its decision whether to approve a loan nor the terms and conditions of the loan are conditioned on the purchase of a DCC or DSA. This disclosure appears in both the short form and the long form (“This product is optional”).

• Explanation of debt suspension agreement —The final rule requires a bank to disclose that if a customer activates the agreement, the customer's duty to pay the loan principal and interest is only suspended and the customer must fully repay the loan after the period of suspension has expired. This disclosure appears in the long form (“Explanation of debt suspension agreement”).

• Disclosure of the amount of the fee —The final rule requires a bank to make disclosures regarding the amount of the fee. The disclosure must differ depending on whether the credit is open-end or closed-end. In the case of closed-end credit, the bank must disclose the total fee. In the case of open-end credit, the bank must either: (1) disclose that the periodic fee is based on the account balance multiplied by a unit cost and provide the unit cost, or (2) disclose the formula used to compute the fee. This disclosure appears in the long form (“Amount of fee”).

• Disclosure concerning lump sum payment of fee —The final rule requires a bank to disclose, where appropriate, that a customer has the option to pay the fee in a single payment or in periodic payments. This disclosure is not appropriate in the case of a DCC or DSA provided in connection with a home mortgage loan since, under the final rule, the option to pay the fee in a single payment is not available in that case.

The final rule also requires a bank to disclose that adding the fee to the amount borrowed will increase the cost of the contract. This disclosure appears in the both the short form and long form (“Lump sum payment of fee”).

• Disclosure concerning lump sum payment of fee with no refund —The final rule requires a bank to disclose that the customer has the option to choose a contract with or without a refund provision. This disclosure appears in both the short form and long form (“Lump sum payment of fee with no refund”). This disclosure also contains a sentence that states that prices of refund and no-refund products are likely to differ.

• Disclosure concerning refund of fee paid in lump sum —The final rule requires that if a bank permits a customer to pay the fee in a single payment and to add the fee to the amount borrowed, the bank must disclose the bank's cancellation policy. The disclosure informs the customer that the DCC or DSA may be canceled at any time for a refund, within a specified number of days for a full refund, or at any time with no refund. This disclosure appears in both the short form and long form (“Refund of fee paid in lump sum”).

• Disclosure concerning whether use of credit line is restricted —The final rule requires a bank to inform a customer if the customer's activation of the contract would prohibit the customer from incurring additional charges or using the credit line. This disclosure appears in the long form (“Use of card or credit line restricted”).

• Disclosure concerning termination of a DCC or DSA —The final rule requires a bank to explain the circumstances under which a customer or the bank could terminate the contract if termination is permitted during the life of the loan. This disclosure appears in the long form (“Termination of [PRODUCT NAME]”).

• Disclosure concerning additional disclosures —The final rule requires a bank to inform consumers that the bank will provide additional information before the customer is required to pay for the product. This disclosure appears in the short form (“Additional disclosures”).

• Disclosure pertaining to eligibility requirements, conditions, and exclusions —The final rule requires a bank to describe any material limitations relating to the DCC or DSA. This disclosure appears on both the short form and the long form (“Eligibility requirements, conditions, and exclusions”). The content of the short and long form may vary, depending on whether a bank elects to provide a summary of the conditions and exclusions in the long form disclosures or refer the customer to the pertinent paragraphs in the contract. The short form requires a bank to instruct the customer to read carefully both the long form disclosures and the contract for a full explanation of the terms of the contract. The long form gives a bank the option of either separately summarizing the limitations or advising the customer that a complete explanation of the eligibility requirements, conditions, and exclusions is available in the contract and identifying the paragraphs where a customer may find that information.

Section 37.7 requires a bank to obtain a customer's written affirmative election to purchase a contract and written acknowledgment of receipt of the disclosures required by § 37.6.

If the sale of the contract occurs by telephone, the customers affirmative election to purchase and acknowledgment of receipt of the required short form may be made orally, provided the bank maintains certain documentation.

If the contract is solicited through written materials such as mail inserts or “take one” applications and the bank provides only the short form disclosures in the written materials, then the bank shall mail the acknowledgment, together with the long form disclosures, to the customer. The bank may not obligate the customer to pay for the contract until after the bank has received the customer's written acknowledgment of receipt of disclosures unless the bank maintains certain documentation.

The affirmative election and acknowledgment may also be made electronically.

The estimated total annual burden with respect to extensions of credit will depend on the number of banks that offer DCCs and DSAs, the number of consumer loan transactions per bank per year where disclosures are provided, and the amount of time per transaction. The OCC cannot at this time accurately estimate the total number of participating banks or the total number of consumer loan transactions in which disclosures are provided to individual customers because the OCC does not currently collect this type of data. Solely for the purpose of complying with the Paperwork Reduction Act, the OCC has estimated the annual paperwork burden assuming that 2,200 national banks will provide DCCs and DSAs, and the average burden associated with developing the disclosures would be approximately 24 hours.

The likely respondents are national banks.

Estimated number of respondents: 2,200 respondents.

Estimated number of responses: 2,200 responses.

Estimated burden hours per response: 24 hours.

Estimated total annual burden hours: 52,800 hours.

The OCC requests comment on appropriate ways to estimate the total number of participating banks, the total number of consumer loan transactions in which these disclosures will be provided to individual customers, and the burden associated with developing the disclosures and providing the disclosures to individual customers.

The OCC will revisit the burden estimates when we have more information on the number of potential respondents and consumer loan transactions. The revised estimates will also reflect all comments received concerning the burden estimates.

The OCC also invites comment on:

Whether the collection of information contained in this final rule is necessary for the proper performance of the OCC's functions, including whether the information has practical utility;

The accuracy of the OCC's estimate of the burden of the information collection;

Ways to enhance the quality, utility, and clarity of the information to be collected;

Ways to minimize the burden of the information collection on the respondents, including the use of automated collection techniques or other forms of information technology; and

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

Comments on the collection of information should be sent by mail to Joseph F. Lackey, Jr., Desk Officer, Office of Information and Regulatory Affairs, Attention: 1557-0224, Office of Management and Budget, Washington, DC 20503, or by e-mail to jlackeyj@omb.eop.gov.

Comments should also be sent to Jessie Dunaway, OCC Clearance Officer, Legislative and Regulatory Activities Division, Attention: 1557-0224, Office of the Comptroller of the Currency, 250 E Street, SW, Mailstop 8-4, Washington, DC 20219. Due to disruptions in the OCC's mail service, commenters are encouraged to send comments by fax to (202) 874-4889, or by e-mail to jessie.dunaway@occ.treas.gov .

Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 U.S.C. 605(b) (RFA), the regulatory flexibility analysis otherwise required under section 604 of the RFA is not required if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities and publishes its certification and short, explanatory statement in the Federal Register along with its rule.

Pursuant to section 605(b) of the RFA, the OCC hereby certifies that this rulemaking will not have a significant economic impact on a substantial number of small entities.

The final rule will apply only to those national banks that choose to offer DCCs or DSAs. However, the OCC has very limited data as to the number of national banks that currently offer these products. For purposes of this analysis, we have conservatively assumed that all national banks will offer these products.

The final rule imposes the following conditions or requirements:

• A national bank that offers a DCC or DSA with no refund of unearned fees in the event the customer terminates the DCC or DSA must also offer that customer the bona fide option to purchase the product with a refund feature;

• A national bank is prohibited from requiring a customer to pay the fee for a DCC or DSA in a single payment, payable at the outset of the contract, if the debt that is the subject of the contract is a residential mortgage loan;

• A national bank must provide customers with the short form disclosures at the time of solicitation;

• A national bank must provide customers with the long form disclosures before the customer completes the purchase of a DCC or DSA;

• A national bank must obtain a customer's written affirmative election to purchase the DCC or DSA; and

• A national bank must obtain a customer's written acknowledgment of receipt of the disclosures.

The rule provides banks significant flexibility in meeting these requirements. For example, in the case of telephone solicitations the rule permits an oral affirmation, provided the bank makes reasonable efforts to obtain a written affirmative election, and waives the requirement obtain a written acknowledgment, provided the bank makes reasonable efforts to obtain the acknowledgment. A bank that takes advantage of the special exceptions must maintain sufficient documentation to demonstrate that it made reasonable efforts to obtain the written affirmative election and written acknowledgment.

Based on input from OCC examiners and other staff, we have determined that national banks typically offer refundable products and are moving away from offering customers a lump sum DCC or DSA in conjunction with a mortgage loan. We have therefore concluded that there will be only minimal costs associated with complying with the requirement that a bank offer offers a DCC or DSA with a no refund DCC or DSA must also offer that customer the bona fide option to purchase the product with a refund feature and the prohibition on paying the fee in a single, lump sum. Accordingly, our cost estimate focuses on costs associated with the short form disclosure, long form disclosure, affirmative election, and written acknowledgment.

We expect that national banks will incur four types of costs associated with these requirements: (1) Development of the short form disclosure, long form disclosure, affirmative election and acknowledgment forms; (2) distribution of the documents; (3) documentation requirements; and (4) employee training.

We estimate these costs per bank to be $4,992. To determine whether this will have a significant impact on small banks, we considered the average annual net income for a small bank, which was $796,000 as of March 31, 2002. In light of the fact that these costs are approximately 0.6 percent of net income, we do not find them to be significant.

The OCC has determined that the final rule does not constitute a “significant regulatory action” for the purposes of Executive Order 12866. Under the most conservative cost scenarios that the OCC can develop on the basis of available information, the impact of the proposal falls short of the thresholds established by the Executive Order.

Executive Order 13132 requires Federal agencies, including the OCC, to certify their compliance with that Order when they transmit to the Office of Management and Budget (OMB) any draft final regulation that has Federalism implications. Under the Order, a regulation has Federalism implications if it has “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.” In the case of a regulation that has Federalism implications and that preempts State law, the Order imposes certain consultation requirements with State and local officials; requires publication in the preamble of a Federalism summary impact statement; and requires the OCC to make available to the Director of the OMB any written communications submitted to us by State and local officials. By the terms of the Order, these requirements apply to the extent that they are practicable and permitted by law and, to that extent, must be satisfied before the OCC promulgates a final regulation.

Some commenters raised issues concerning whether DCCs and DSAs should be regulated as insurance that could be construed as falling within the scope of Executive Order 13132. In the opinion of the OCC, however, the final regulation on DCCs and DSAs does not have Federalism implications. The GLBA designates the States as the appropriate functional regulators of national bank insurance activities. 33 As we have described earlier in this preamble discussion, as a matter of law DCCs and DSAs are not insurance, but rather, bank products. This conclusion was confirmed, as to DCCs, by the Taylor case decided in 1990. The reasoning and conclusions of the Taylor court are equally applicable to DSAs. Because these products are bank products and not insurance the framework of State insurance regulation would not apply to them, even in the absence of Federal regulations. While this regulation establishes new standards that govern national banks providing DCCs and DSAs, the standards are therefore not in derogation of State insurance law or regulation. For this reason, the regulation does not directly affect the States, substantially or otherwise; it does not alter the relationship between the national government and the States; and it does not alter the distribution of power and responsibilities among the various levels of government.

Since the regulation does not satisfy any of the components of the definition of actions that have Federalism implications under Executive Order 13132, the provisions of the Executive Order do not apply. The OCC nonetheless believes that it has in material respects satisfied the requirements of the Order. First, the OCC has received and considered a number of comments from State insurance authorities, as described earlier in the preamble. In addition, at the end of the public comment period and very early in the development of the final rule, on June 18, 2001, senior representatives of the OCC met with members of the National Association of Insurance Commissioners (NAIC). The concerns of the NAIC were memorialized in its written comment which is a part of the record of this rulemaking. Principally, the NAIC urged the OCC to adopt DCC/DSA regulations that were similar to the rate, form, and claims regulation imposed on insurance products under many State insurance regulatory regimes. For the reasons described earlier in this preamble, including the reason that DCCs and DSAs are not insurance, the OCC declined to follow that recommendation. Finally, prior to the publication of this final rule, the OCC has transmitted to the Director of OMB the written communications—that is, the comment letters—we have received from State officials.

Section 202 of the Unfunded Mandates Act of 1995 (Unfunded Mandates Act) requires that an agency prepare a budgetary impact statement before promulgating a rule that includes a Federal mandate that may result in the annual expenditure of $100 million or more in any one year by State, local, and tribal governments, in the aggregate, or by the private sector. If a budgetary impact statement is required, section 205 of the Unfunded Mandates Act requires an agency to identify and consider a reasonable number of alternatives before promulgating a rule.

The OCC has determined that the final rule will not result in expenditures by State, local, and tribal governments, or by the private sector, of $100 million or more in any one year. Accordingly, the OCC has not prepared a budgetary impact statement or specifically addressed the regulatory alternatives considered.

Section 722 of the GLBA requires that the Federal banking agencies use “plain language” in all proposed and final rules published after January 1, 2000. We invite your comments on how to make the proposed rules easier to understand.

Section 10(j)(1) of the Federal Home Loan Bank Act (Bank Act) requires each Bank to establish a program to subsidize the interest rate on advances to members of the Bank System engaged in lending for long-term, low- and moderate-income, owner-occupied and affordable rental housing at subsidized interest rates. See 12 U.S.C. 1430(j)(1). The Finance Board is required to promulgate regulations governing the AHP. See id. The Finance Board's existing regulation governing the operation of the AHP is codified at 12 CFR part 951.

On June 20, 2002, the Finance Board published a proposed rule requesting comment on proposed amendments to the AHP regulation that would authorize a Bank, after consultation with its Advisory Council, to set aside annually an additional amount, up to the greater of $1.5 million or 10 percent of the Bank's annual required AHP contribution, to assist low- or moderate-income, first-time homebuyers (first-time homebuyer set-aside program), under the Bank's homeownership set-aside program. See 67 FR 41872 (June 20, 2002). The proposed rule provided for a 60-day comment period, which closed on August 19, 2002. The Finance Board received seven comment letters on the proposed rule. Commenters included: two Banks; one Bank member; three trade associations; and one nonprofit housing developer. Comments that raised issues beyond the scope of the proposed rule are not addressed in this final rule, but may be considered by the Finance Board in any future rulemaking under the AHP. The provisions of the proposed rule on which significant comments were received are discussed below.

It is widely recognized that homeownership contributes to community stability and upward mobility of homeowners. A key goal of national housing policy is to broaden homeownership, especially among minority and immigrant households and households living in rural areas and on Native American tribal lands. Based on 2000 Census data, the homeownership rate is approximately 66.3 percent nationwide. 1 The homeownership rate for all minority groups is 48.6 percent, compared to 72.4 percent for non-minorities. The homeownership rate for immigrant households is 47 percent. According to data of the Department of Housing and Urban Development (HUD), in fiscal year 2001, 45.1 percent of Federal Housing Administration (FHA) loans to first-time homebuyers with incomes at or below 80 percent of area median income were to members of minority groups.

To achieve this goal of broadening homeownership, a number of initiatives for assistance to first-time homebuyers have been proposed or implemented, including: the Self-Help Homeownership Opportunity Program (SHOP); the Section 8 Homeownership Program vouchers; the HOME American Dream Downpayment Fund; and a new FHA hybrid adjustable-rate mortgage for low- or moderate-income homebuyers. HUD and state and local housing authorities also are seeking to assist households in achieving homeownership through Family Self-Sufficiency (FSS) and Individual Development Account (IDA) savings programs. Two of the Banks currently use part or all of their homeownership set-aside funding authority to supplement the savings of households participating in FSS and IDA programs.

The Finance Board believes that, in addition to the Banks' current authority to set aside AHP funds for homeownership assistance, authorizing a Bank to set aside annually up to the greater of $1.5 million or 10 percent of its annual required AHP contribution to assist low- or moderate-income, first-time homebuyers would complement these initiatives to broaden homeownership, especially among minority and immigrant households and households living in rural areas and on tribal lands. An increase in AHP subsidy of 10 percentage points for all twelve Banks would increase the total amount of potential funds available from the twelve Banks for downpayment and closing cost assistance to low- or moderate-income, first-time homebuyers by $24.0 million in 2002. 2 With an increase in the maximum subsidy limit per household to $15,000, this could assist 1,600 to 4,800 additional low- or moderate-income, first-time homebuyers. According to a recent study in the 2001 Annual Report of the Federal Reserve Bank of Minneapolis, cash assistance has a greater effect than other options on the ability of renters to afford to purchase a home. According to the report, a $5,000 cash grant for downpayment assistance increases the number of minority renters who can afford to purchase a home by as much as 13 percent, while a $10,000 cash grant has nearly twice the effect.

The changes to the AHP regulation are discussed further below under the Analysis of Final Rule section.

The current AHP regulation requires each of the twelve Banks to operate a competitive application program in its district for the awarding of AHP grants or subsidized advances to members to assist in the purchase, construction or rehabilitation of housing for very low- and low- or moderate-income households. See 12 CFR 951.3(a)(2), 951.5(b), 951.6(b). In addition, the AHP regulation authorizes each Bank, in its discretion, after consultation with its Advisory Council, to adopt homeownership set-aside programs for the disbursement of AHP grants to members to assist low- or moderate-income households with the purchase or rehabilitation of owner-occupied housing units. See 12 CFR 951.3(a), 951.5(a), 951.6(a). “Low- or moderate-income households” are defined generally as households with incomes of 80 percent or less of the median income for the area. See 12 CFR 951.1. Specifically, each Bank, after consultation with its Advisory Council, may set aside annually, in the aggregate, up to the greater of $3.0 million or 25 percent of its annual required AHP contribution to provide funds to members participating in homeownership set-aside programs at the Bank. 12 CFR 951.3(a)(1). In addition, in cases where the amount of homeownership set-aside funds applied for by members in a given year exceeds the amount available for that year, a Bank may allocate up to the greater of $3.0 million or 25 percent of its annual required AHP contribution for the subsequent year to the current year's homeownership set-aside programs. 12 CFR 951.3(a)(1).

The AHP regulation provides that households must use the homeownership set-aside grants to pay for downpayment, closing cost, counseling, or rehabilitation assistance in connection with the household's purchase or rehabilitation of an owner-occupied housing unit. See 12 CFR 951.5(a)(4). The AHP regulation also provides that households must complete a homebuyer or homeowner counseling program, and must meet such other allocation and eligibility criteria as may be established by the Bank, such as a matching funds requirement or criteria that give priority for the purchase or rehabilitation of housing in particular areas or as part of a disaster relief effort. See 12 CFR 951.5(a)(1), (2)(ii) and (iii). The Banks have used this authority over the years to adopt a variety of different eligibility requirements and priorities under their homeownership set-aside programs. In addition, a housing unit purchased or rehabilitated using homeownership set-aside funds must be subject to a five-year retention agreement requiring that if the unit is sold to an income-ineligible household or refinanced prior to the end of the five-year retention period and is no longer subject to a deed restriction, a pro rata share of the subsidy shall be repaid to the Bank. See 12 CFR 951.5(a)(5), 951.13(d)(1).

For the reasons discussed above, the Finance Board believes that increasing the Banks' current maximum allowable annual homeownership set-aside amount, with the incremental increase targeted to low- or moderate-income, first-time homebuyers, would assist the national housing policy goal of broadening homeownership, including homeownership among minority and immigrant groups and households living in rural areas and on tribal lands. Commenters on the proposed rule generally supported this increased discretionary funding authority. A trade association commenter recommended that the proposed incremental set-aside increase of 10 percent of a Bank's annual required AHP contribution should be used only for eligible households buying newly constructed or substantially rehabilitated housing. The commenter stated that new construction technologies result in lower maintenance and energy costs than those associated with older homes. Although the Finance Board agrees that there can be potential benefits of new technologies in terms of long-term operating costs, the Finance Board's objective is to make the purchase of the unit more affordable, whether the housing is new or not. Moreover, the Finance Board does not believe that the AHP should contain requirements that restrict a household's ability to choose its housing under the homeownership set-aside program.

Accordingly, consistent with the proposed rule, § 951.3(a)(1)(ii) of the final rule authorizes a Bank, after consultation with its Advisory Council, to set aside annually an additional amount, up to the greater of $1.5 million or 10 percent of its annual required AHP contribution, to assist low- or moderate-income, first-time homebuyers. Section 951.3(a)(1)(ii) also authorizes a Bank, in cases where the amount of funds applied for by members in a given year under the first-time homebuyer set-aside program exceeds the amount available for that year, to set aside an additional amount, up to the greater of $1.5 million or 10 percent of its annual required AHP contribution for the subsequent year, to the current year's first-time homebuyer set-aside program. The increased discretionary funding authority will supplement the Banks' current discretionary authority to fund homeownership set-aside programs subject to the existing $3.0 million or 25 percent allocation cap. Consistent with the proposed rule, the final rule also makes a technical amendment to require that the Consumer Price Index (CPI) adjustments of the maximum dollar limits be made beginning in 2003 instead of 2002.

Under the existing AHP regulation, prior to disbursement of homeownership set-aside funds by a Bank to a member, the Bank must require the member to certify that, among other things, the funds received from the Bank will be provided to a household meeting the eligibility requirements of § 951.5(a)(2). See 12 CFR 951.8(b)(2). Consistent with the proposed rule, the final rule amends § 951.5(a)(2)(iii) to include the first-time homebuyer requirement as an eligibility requirement under the first-time homebuyer set-aside program. Therefore, a member is required to certify that funds to be disbursed to households under the first-time homebuyer set-aside program will be provided to eligible first-time homebuyers. Consistent with the current AHP regulation, the final rule does not define the term “first-time homebuyer,” leaving such determination to the discretion of each Bank, as set forth in its AHP Implementation Plan.

The increased funding authority entails use of the Banks' existing set-aside program operations, thereby minimizing additional administrative costs on the Banks, and does not affect the Banks' and Advisory Councils' current discretionary authority regarding funding and operation of existing or new set-aside programs under the $3.0 million or 25 percent allocation cap. Thus, the Banks, in consultation with their Advisory Councils, may continue their existing set-aside programs, and have the flexibility to adopt new set-aside programs based on local needs, subject to the current $3.0 million or 25 percent allocation cap. A determination on whether to use the increased funding authority is in the discretion of each Bank, after consultation with its Advisory Council. However, if a decision is made to use the increased funding authority, such increased funding must be targeted to low- or moderate-income, first-time homebuyers, subject to any additional eligibility criteria adopted by the Bank, in its discretion, for the program. See 12 CFR 951.5(a)(2)(iii). A Bank could, of course, choose, in its discretion, to also target some or all of its existing or new set-aside programs operating under the current $3.0 million or 25 percent allocation cap to low- or moderate-income, first-time homebuyers, as some Banks do now.

The Banks' homeownership set-aside programs have proven to be an efficient and effective means for the Banks and their members to provide homeownership opportunities for low- or moderate-income homebuyers, including first-time homebuyers. Homeownership set-aside funds help finance affordable housing in underserved areas and for underserved households, and often are the only way to effectively meet scattered-site, affordable housing needs in rural areas or tribal areas, which have difficulty scoring well under the competitive AHP application program and where rental projects are not feasible. Homeownership set-aside programs also allow a member to use AHP funds to finance housing for individual eligible households on an as-needed basis, even if it is only for one household in the member's market area. These are households that the competitive AHP application program might not otherwise reach.

In addition, homeownership set-aside funds often are the only way to meet the need for homeownership opportunities for low-income and very low-income households, which require larger per-unit subsidies and, therefore, may not score well under the competitive AHP application program. Set-aside funds could be made available, in conjunction with funds offered by other homeownership programs, to assist households purchasing homes under such programs. Many households that meet the eligibility requirements of HUD and FSS and IDA homeownership programs may still have difficulty meeting the financial demands of homeownership. Providing additional set-aside funds as downpayment assistance could help lower housing costs to a level that will improve the chances of successful homeownership for such households.

The current AHP regulation requires members to provide homeownership set-aside funds as a grant, in an amount up to a maximum of $10,000 per household, as established by the Bank, with such limit applying to all households. See 12 CFR 951.5(a)(3). In the SUPPLEMENTARY INFORMATION section of the proposed rule, the Finance Board raised the question whether this $10,000 limit per household may impede the ability of Banks and members to assist eligible households that have lower incomes or live in high cost areas and that may require larger per-unit subsidies in the purchase or rehabilitation of homes. The Finance Board requested comment on whether the regulation should be amended to increase the maximum subsidy limit per household and the amount of such limit, or whether the Banks should be provided the authority to determine, in their discretion, whether to adopt a maximum subsidy limit per household and the amount of any such limit.

Two trade association commenters supported providing the Banks the discretionary authority to adopt maximum subsidy limits per household and the amount of such limits, with one commenter noting that housing and rehabilitation costs can vary significantly by geographic area and the needs of homebuyers can differ significantly within the low- or moderate-income targeting range. While most of the Banks have adopted subsidy per-household limits below the maximum authorized by the current regulation, several Banks have suggested that the current maximum subsidy limit per household prevents the homeownership set-aside program from being an effective tool in helping to make homeownership affordable for the working poor and for households in areas where housing costs are exceptionally high. The Finance Board recognizes that there is a need for additional flexibility in the maximum subsidy limit. Accordingly, the Finance Board is amending § 951.5(a)(3) of the regulation to increase the maximum grant that a Bank is authorized to make under its homeownership set-aside programs in general, from $10,000 per household to $15,000 per household.

The member commenter also recommended that the Banks be permitted to pay fees, such as $500 per loan closing, to nonprofit organizations for the administration of the program. Use of homeownership set-aside funds by nonprofit organizations for administrative fees would not be an eligible use of AHP subsidies under the Bank Act and AHP regulation. See 12 U.S.C. 1430(j)(2), 12 CFR 951.5(a)(4). Therefore, this suggestion has not been adopted in the final rule.

The final rule does not contain any collections of information pursuant to the Paperwork Reduction Act of 1995. See 44 U.S.C. 3501 et seq. Therefore, the Finance Board has not submitted any information to the Office of Management and Budget for review.

The final rule applies only to the Banks, which do not come within the meaning of “small entities,” as defined in the Regulatory Flexibility Act (RFA). See 5 U.S.C. 601(6). Thus, in accordance with section 605(b) of the RFA, 5 U.S.C. 605(b), the Finance Board hereby certifies that the final rule will not have a significant economic impact on a substantial number of small entities.

History

On Thursday, June 13, 2002, the FAA proposed to amend 14 CFR part 71 to modify Class E airspace at Zanesville, OH (67 FR 40627). The proposal was to modify existing Class E airspace at Zanesville Municipal Airport, OH, in order to protect for a point in space approach used by helicopters involved in medical emergencies. Interested parties were invited to participate in this rulemaking proceeding by submitting written comments on the proposal to the FAA. No comments were received, however the NPRM contained responses to earlier concerns raised in a Direct Final Rule. A total of Eight (8) comments were received in response to that rule and were considered adverse, thereby requiring the rule to be withdrawn. The objections centered around issues at Parr Airport and contained the following concerns:

1. Safety concern over IFR helicopter operations. One (1) respondent stated he was concerned about inserting occasional helicopters into a busy G.A. environment.

2. Increased restrictions on the ability to fly during periods of low visibility. Four (4) respondents stated they would have less opportunity to fly or train during marginal weather conditions because of the higher visibility requirements associated with Class E airspace.

3. Impact to local flight school. Three (3) respondents stated business would be lost because of the inability to conduct VFR training during periods of low visibility. All of these comments were considered and evaluated. They were responded to as follows:

1. Class E airspace is designed to protect aircraft executing instrument approach procedures. The higher visibility requirements for VFR flight in Class E airspace allows for a safer operating environment for IFR aircraft.

2. While not as many aircraft may operate at the same time when visibility is restricted, a special VFR clearance may be obtained, thus allowing for continued flight or training during these periods. Additionally, creating a Class E airspace corridor, or an exclusion for Parr Airport, which was suggested, would not fit design criteria, or provide adequate protection for the approach.

3. Other than having to conduct training under higher visibility requirements (unless a special VFR clearance is requested), the economic impact to the flight school is undefined and beyond the scope of this airspace action.

Class E airspace areas extending upward from 700 feet or more above the surface of the earth are published in paragraph 6005 of FAA Order 7400.9J dated August 31, 2001, and effective September 16, 2001, which is incorporated by reference in 14 CFR 71.1. The Class E designations listed in this document would be published subsequently in the Order.

This amendment to 14 CFR part 71 modifies Class E airspace at Zanesville, OH, for Zanesville Municipal Airport. Controlled airspace extending upward from 700 feet or more above the surface of the earth is needed to contain aircraft executing instrument approach procedures. The area will be depicted on appropriate aeronautical charts.

The FAA has determined that this regulation only involves an establishment body of technical regulation for which frequent and routine amendments are necessary to keep them operationally current. Therefore this regulation—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

On Tuesday, May 28, 2002, the FAA proposed to amend 14 CFR part 71 to modify Class E airspace at Lapeer, MI (67 FR 36848). The proposal was to modify controlled airspace extending upward from 700 feet above the surface of the earth to contain Instrument Flight Rules (IFR) operations in controlled airspace during portions of the terminal operation and while transiting between the enroute and terminal environments.

Interested parties were invited to participate in this rulemaking proceeding by submitting written comments on the proposal to the FAA. No comments objecting to the proposal were received. Class E airspace areas extending upward from 700 feet or more above the surface of the earth are published in paragraph 6005, of FAA Order 7400.9J dated August 31, 2001, and effective September 16, 2001, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the order.

This amendment to 14 CFR part 71 modifies Class E airspace at Lapeer, MI, to accommodate aircraft executing instrument flight procedures into and out of Dupont-Lapeer Airport. The area will be depicted on appropriate aeronautical charts.

The FAA has determined that this regulations only involves an established body of technical regulation for which frequent and routine amendments are necessary to keep them operationally current. Therefore this, proposed regulation—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

The FAA published this direct final rule with a request for comments in the Federal Register on Tuesday, May 28, 2002, (67 FR 36807). The FAA uses the direct final rulemaking procedure for a noncontroversial rule where the FAA believes that there will be no adverse public comment. This direct final rule advised the public that no adverse comments were anticipated, and that unless a written adverse comment, or a written notice of intent to submit such an adverse comment, were received within the comment period, the regulation would become effective on October 3, 2002. No adverse comments were received, and, thus, this action confirms that this direct final rule will be effective on that date.

Federal Register Document 02-17369 published on Wednesday, July 10, 2002 (67 FR 45632), modified Class E Airspace at Tecumseh, MI. The Docket contained an incorrect latitude and longitude for Tecumseh Products Airport, MI. This action corrects that error, by replacing the incorrect latitude and longitude with the correct latitude and longitude.

Accordingly, pursuant to the authority delegated to me, the error for the Class E Airspace, Tecumseh, MI, as published in the Federal Register Wednesday, July 10, 2002 (67 FR 45632), (FR Doc. 02-17369), is corrected as follows:

This notice of rule making sets out the results of a review of the U.S. Munitions List (USML), Category II and III, by the Department of State in consultation with the Departments of Defense and Commerce, and of Category XVI by the Department of State in consultation with the Departments of Defense, Commerce, and Energy. In Categories II, III, and XVIII the titles are revised to more accurately reflect the full range of articles covered by each category ( e.g. the movement of self-propelled guns and howitzers and their engines from Category VII paragraph (c) and paragraph (g) respectively to Category II).

In amending Category II, the items currently in paragraph (c) are transferred to a new paragraph (j). Paragraph (c) now controls apparatus and devices for launching or delivering ordnance, other than those items controlled in Category IV of the USML. The items in (d) are transferred to a new paragraph (k) permitting an emerging class of new energy weapons determined to be inadequately defined on the USML to now be specifically identified. Paragraph (d) now controls kinetic energy weapon systems specifically designed or modified for destruction or rendering mission-abort of a target. During the review, it was also determined that the coverage of signature control materials currently found in Category XIII(j) was inadequate. While signature control features may be integral to a given system design, they can also be sold as add-on subassemblies or materials for application to existing systems. Therefore a new paragraph (e) now controls signature control materials for the articles in Category II. Category II (a) was expanded to control all guns over caliber .50 whether towed, airborne, self-propelled or fixed resulting in the transfer of self-propelled guns and howitzers from Category VII (c) to this category. Category II is further revised to add a new paragraph (f) to control the engines for self-propelled guns and howitzers moved from Category VII (g). Also added are, a new paragraph (g) to identify production tooling and equipment specifically designed or modified for the production of the articles controlled by this category, a new paragraph (h) to control specifically designed or modified test and evaluation equipment and test models, and a new paragraph (i) to control autoloading systems for electronic programming of projectile function.

In addition to revising the title of Category III, the category is further revised to move components, parts, accessories and attachments from paragraph (b) to paragraph (d). This is done for the sake of greater internal logic and consistency. Paragraph (d), in addition to controlling components, parts, accessories, attachments and associated equipment for the articles in the category, is also revised to specifically identify certain ammunition/ordnance components, parts, accessories and attachments and to designate them as Significant Military Equipment (SME). The ammunition belting and linking machines in paragraph (c) are moved to paragraph (b) followed by the logically related corresponding move of ammunition manufacturing and loading machines from paragraph (d) to paragraph (c). The interpretation and amplification language in § 121.6 is transferred to a new paragraph (f) and section 121.6 will be captioned “Reserved”.

Category XVI, is revised to transfer the items currently in Category XIV(d) of the USML to paragraph (c) and to add a new paragraph (d) to ensure coverage of specifically designed components, parts, accessories, attachments and associated equipment for the articles in the category. The technical data and services in paragraph (c) are moved to a new paragraph (e). Also, section 123.20 of the regulations is revised to more properly identify the alternative control and transfer authorities on nuclear materials, nuclear parts of nuclear weapons, or other non-nuclear parts of nuclear weapons systems implemented by other agencies.

Category XVIII currently “Reserved”, is revised to create a new category to the USML to ensure control of directed energy weapons. While Categories XII (b) and XIII (h) currently control aspects of directed energy weapons, this new category will provide a more complete coverage of the emerging technologies ( e.g. , items used to burn out radar receivers, disable electro-optic sensors or intercept missiles). Revisions to Categories XII (b) and XIII (h), as appropriate, will take place during review of each of these categories.

Finally, Category VII, Tanks and Military Vehicles, is revised to delete paragraph (c), to remove the engines for self propelled guns and howitzers from paragraph (g) and to renumber the remaining paragraphs. Consistent with the change in previous categories, to include interpretative notes where appropriate in the category itself, the text of § 121.4 is moved to the category, in paragraph (i), and section 121.4 will be captioned “Reserved”.

This amendment involves a foreign affairs function of the United States and, therefore, is not subject to the procedures required by 5 U.S.C. 553 and 554. It is exempt from review under Executive Order 12866; but has been reviewed internally by the Department of State to ensure consistency with the purposes thereof. This rule does not require analysis under the Regulatory Flexibility Act or the Unfunded Mandates Reform Act. It has been found not to be a major rule within the meaning of the Small Business Regulatory Enforcement Act of 1966. It will not have substantial direct effects on the States, the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. Therefore, in accordance with section 6 of Executive Order 13132, it is determined that this rule does not have sufficient federalism implications to warrant application of Executive Orders Nos. 12372 and 13123. However, affected U.S. persons are invited to submit written comments to the Department of State, Office of Defense Trade Controls, ATTN: Stephen Tomchik, Regulatory Change, USML Category II, III, and XVIII, 12th Floor, SA-1, Washington, D.C. 20522-0112.

This final rule implements a number of changes to Title 28, Code of Federal Regulations (CFR), Part 0, regarding agency management for the Drug Enforcement Administration (DEA) and Federal Bureau of Investigation (FBI). The updated regulations include a number of revisions to the Drug Enforcement Administration's and the Federal Bureau of Investigation's redelegations of authority, including the authority to issue administrative subpoenas, the authority to authorize disclosure of official information, the authority to execute certifications to authenticate documents and the authority to cross-designate Federal law enforcement officers. Also included is a minor change in wording regarding the authority to release information in order to add the words “or demands,” and a change in the cross-reference to a subsection (b) of Title 21, section 873, concerning cross-designation of Federal law enforcement officers, in order to correct a typographical error. A detailed explanation of the amendments follows.

The revision to these provisions concerns the Administrator's authority to authorize the testimony of DEA officials in criminal prosecutions. The current language refers only to authorization of testimony in response to “subpoenas.” This language is being changed to ‘subpoenas or demands,” because prosecutors rarely issue subpoenas when requesting DEA employees' testimony in criminal prosecutions.

The redelegations of authority to DEA supervisors include the following changes:

Among other things, this section redelegates authority to DEA Special

Agents-in-Charge and Laboratory Directors to permit the testimony of DEA officials in response to prosecution subpoenas. Similar to the delegation of authority in 28 CFR 0.103, these redelegations of authority refer only to testimony in response to “subpoenas.” This language is being changed to “subpoenas or demands” because, again, prosecutors rarely issue subpoenas when requesting DEA employees' testimony in criminal prosecutions.

Currently, DEA regulations include no redelegation of authority from the Administrator for the release of information obtained by DEA Headquarters or to authorize the testimony of Headquarters employees in response to subpoenas or demands from prosecutors. In order to avoid the necessity of having the Administrator approve routine requests for information and testimony made to Headquarters employees, authority is being redelegated to the Deputy Administrator, Assistant Administrators, and Office Heads. Similar redelegations of authority for the FBI have also been included, at the FBI's request.

The redelegations of authority for issuance of administrative subpoenas will be changed as follows. Currently, the regulations redelegate authority to issue administrative subpoenas to the Chief Inspector, Deputy Chief Inspector, and Associate Deputy Chief Inspector of DEA's Office of Professional Responsibility (OPR), DEA and FBI Special Agents-in-Charge, Inspectors assigned to the Inspection Division, DEA Associate Special Agents-in-Charge, DEA and FBI Assistant Special Agents-in-Charge, DEA Resident Agents-in-Charge, DEA Diversion Program Managers, and FBI Supervisory Senior Resident Agents. Due to a reorganization, there is now a DEA Deputy Chief Inspector and an Associate Chief Inspector for DEA's Office of Inspections. Those officials are being provided with the authority to issue administrative subpoenas, in order to provide them with the same authority already afforded the Deputy Chief Inspector and Associate Deputy Chief Inspector for OPR and all Inspectors in the Inspection Division. For purposes of increased efficiency, such authority is also being redelegated to DEA Special Agent Group Supervisors and those FBI Special Agent Squad Supervisors with management responsibility over Organized Crime/Drug Program Investigations. The FBI has requested the change.

At present, only the Chief Counsel has authority to authenticate DEA documents. The Director of DEA's Mid-Atlantic Laboratory also needs this authority because the Mid-Atlantic Laboratory is in the unique position of being required to analyze drug exhibits for both the Federal and D.C. courts, and all drug analyses for D.C. Superior Court must be certified. At present, the laboratory uses six notaries public to certify documents. Authorizing the lab director to authenticate documents will save much time and effort.

This section concerns the authority to deputize state and local law enforcement officers as DEA Task Force Officers. The only change to this section is to provide the new title of the official authorized to deputize state and local law enforcement officers.

This section concerns the authority to cross-designate Federal law enforcement officers. The only changes to this section are to provide the new title of the official authorized to cross-designate and to correct a typographical error in the reference to the statute that permits cross-designations.

This rule relates to a matter of agency management or personnel and, therefore, is exempt from the usual requirements of prior notice and comment and a 30-day delay in effective date. See 5 U.S.C. 553(a)(2).

The Attorney General, in accordance with the Regulatory Flexibility Act, 5 U.S.C. 605(b), has reviewed this rule and, by approving it, certifies that it will not have a significant economic impact on a substantial number of small entities because it pertains to personnel and administrative matters affecting the Department. Further, a Regulatory Flexibility Analysis was not required to be prepared for this final rule because the Department was not required to publish a general notice of proposed rulemaking for this matter.

This rule has been drafted and reviewed in accordance with Executive Order 12866, Regulatory Planning and Review, section 1(b), Principles of Regulation. This rule is limited to agency organization, management and personnel as described by Executive Order 12866, (3)(d)(3) and, therefore, is not a “regulation” or “rule” as defined by that Executive Order. Accordingly, this rule has not been reviewed by the Office of Management and Budget.

This regulation meets the applicable standards set forth in Sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform.

This rule 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. Therefore, in accordance with Executive Order 13132,Federalism, the Department has determined that this rule does not have sufficient federalism implications to warrant the preparation of a federalism summary impact statement.

This rule will not result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year, and it will not significantly or uniquely affect small governments. Therefore, no actions are necessary under the provisions of the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1501 et seq.

This rule is not a major rule as defined by section 251 of the Small Business Regulatory Enforcement Fairness Act of 1996, 5 U.S.C. 804. This rule will not result in an annual effect on the economy of $100 million or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of United States-based companies to compete with foreign-based companies in domestic and export markets.

This action pertains to agency management, personnel, and organization and does not substantially affect the rights or obligations of non-agency parties. Accordingly, it is not a rule for purposes of the reporting requirement of 5 U.S.C. 801.

The Department of Justice has determined that this action is a rule relating to agency organization, procedure or practice that does not substantially affect the rights or obligations of non-agency parties and, accordingly, is not a “rule” as that term is used by the Congressional Review Act (Subtitle E of the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), Pub. L. No. 104-121, sections 251-53). Therefore, the reporting requirement of 5 U.S.C. 801 does not apply.

Accordingly, by virtue of the authority vested in me as Attorney General, including 5 U.S.C. 301 and 28 U.S.C. 509 and 510, Part 0 of Title 28 of the Code of Federal Regulations is amended as follows:

This preamble describes the legal authority of this final rule, background information on the development of the rule, and the rationale for the chloroform certification provisions.

Entities potentially regulated by this action are those new and existing, direct and indirect discharging mills that chemically pulp wood fiber using kraft or soda methods to produce bleached papergrade pulp and/or bleached paper or paperboard. Regulated categories and entities include:

This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be regulated by today's action. This table lists the types of entities that EPA is now aware could potentially be regulated by today's action. Other types of entities not listed in the table could also be regulated. To determine whether your facility is regulated by today's action, you should carefully examine the applicability criteria in § 430.20 of Title 40 of the Code of Federal Regulations. If you have questions regarding the applicability of this action to a particular entity, consult the person listed in the preceding FOR FURTHER INFORMATION CONTACT section.

In accordance with 40 CFR 23.2, today's rule will be considered promulgated for the purposes of judicial review at 1 pm Eastern Time on October 3, 2002. Under section 509(b)(1) of the Clean Water Act (CWA), judicial review of today's amendment to 40 CFR part 430 is available in the United States Court of Appeals by filing a petition for review within 120 days from the date of promulgation of this rule. Under section 509(b)(2) of the CWA, the requirements in this rule may not be challenged later in civil or criminal proceedings brought by EPA to enforce these requirements.

This amendment offers new and existing, direct and indirect discharging Subpart B mills an alternative to the minimum monitoring requirements for chloroform codified at 40 CFR 430.02. Direct discharging mills choosing the certification alternative will be required to comply when the chloroform certification provisions are added to the discharger's National Pollutant Discharge Elimination System (NPDES) permit. Indirect discharging mills choosing the certification alternative will be required to comply when chloroform certification provisions are added to the discharger's pretreatment control agreement.

This rule establishes requirements for certifying in lieu of monitoring as a basis for demonstrating compliance with certain chloroform limitations and standards. This amendment to 40 CFR part 430 is promulgated under the authority of sections 301, 304, 306, 307, 308, 402, and 501 of the Clean Water Act, as amended, 33 U.S.C. 1311, 1314, 1316, 1317, 1318, 1342, and 1361.

On April 15, 1998 (63 FR 18504), EPA promulgated effluent limitations guidelines and standards to reduce the discharge of toxic, conventional, and nonconventional pollutants in wastewaters and emission standards to reduce emissions of hazardous air pollutants from the pulp, paper, and paperboard industry. These integrated regulations were known as the “Cluster Rules” and included new regulations for mills with operations in Subpart B (Bleached Papergrade Kraft and Soda) and Subpart E (Bleached Papergrade Sulfite). As part of the Cluster Rules, EPA required mills with operations in Subpart B to demonstrate compliance with promulgated effluent limitations guidelines and standards for dioxin, furan, chloroform, and 12 chlorinated phenolic pollutants inside the discharger's facility at the point where the wastewater containing those pollutants leaves the bleach plant. EPA required a minimum monitoring frequency of once per month for dioxin, furan, and 12 chlorinated phenolic pollutants. See 40 CFR 430.02(a). For chloroform, EPA required a minimum monitoring frequency of once per week. Id. These minimum monitoring frequencies were selected because the data available at that time indicated that there can be considerable temporal variability of these pollutants in bleach plant wastewaters. See 63 FR 18571 (April 15, 1998).

During the development of the 1998 Cluster Rules, EPA published a Notice of Data Availability on the effluent limitations guidelines and standards (61 FR 36835, July 15, 1996). Comments on that Notice urged EPA to allow for certification of process changes (specifically, elimination of elemental chlorine and hypochlorite) in lieu of monitoring to demonstrate compliance with the effluent limitations and standards for chloroform and other parameters controlled at the bleach plant.

EPA did not include a certification option in the final Cluster Rules because the information available at that time did not demonstrate that certification of elemental chlorine free (ECF) bleaching and elimination of hypochlorite alone were sufficient to ensure compliance. EPA based this conclusion on its finding that pulping and bleaching processes and related factors also have an effect on the rates of generation of chlorinated pollutants, as measured in mill wastewaters. Although EPA did not promulgate the certification option, EPA separately proposed to allow new and existing, direct and indirect discharging mills in Subpart B to demonstrate compliance with chloroform effluent limitations and standards for a fiber line through a certification process. See 63 FR 18796 (April 15, 1998). The proposed certification would function as an alternative to minimum monitoring requirements in 40 CFR 430.02 to demonstrate compliance with chloroform effluent limitations or standards at a fiber line to which the effluent limitations or standards apply. At the same time, EPA solicited additional data to document and confirm the process and operating conditions that would be necessary to provide the basis for establishing certification. In particular, EPA requested additional data to document more completely the specific relationships among processes and related variables and chloroform generation rates in air emissions and wastewaters.

The American Forest and Paper Association (AF&PA) responded to EPA's solicitation for additional data to document relationships between process variables and chloroform generation rates. EPA received comments to extend its proposed certification program to all bleach plant parameters. EPA also received two study plans developed by the National Council for Air and Stream Improvement (NCASI). One of these plans dealt with chloroform; the other plan dealt with dioxin, furan, and the 12 chlorinated phenolic compounds regulated under Subpart B.

AF&PA also provided EPA with a copy of the NCASI report “Chloroform Generation During Chlorine Dioxide Bleaching.” The purpose of the study was to determine if certain process variables affect total chloroform generated during ECF bleaching. Pulp bleaching variables considered in NCASI's chloroform study included final pH of the first chlorine dioxide (D 0 ) stage, kappa factor, pulp type, and chlorine content of the chlorine dioxide solution used for bleaching. NCASI concluded that among the variables considered, the final pH of the first bleaching stage had the greatest impact on chloroform generation, and that kappa factor also may be important. The chlorine content of the chlorine dioxide bleaching solution also had an impact on chloroform generation, though less than the D 0 stage final pH.

EPA also received a comment that the proposed two-year monitoring demonstration period should be reduced to 12 months, because 52 weekly samples will provide an ample period to evaluate the range of operating variables influencing chloroform generation. This issue will be addressed in the following section.

AF&PA also commented about the clarity of the language in the proposed amendment to the regulation concerning criteria by which a discharger would be deemed in compliance. As a result, EPA has slightly modified the language in the final amendment so that the criteria for compliance are clear.

One commenter suggested that after a direct discharging mill has been allowed to demonstrate compliance through certification, renewal of an NPDES permit should include a new certification without a demonstration of compliance, unless bleach plant operations have changed. EPA believes this is unnecessary, because the minimum monitoring requirements specified in 40 CFR 430.02 apply to direct dischargers only for five years from the time they are first included in the discharger's NPDES permit, and the minimum monitoring requirements apply to indirect dischargers only until April 15, 2006. Once the minimum monitoring requirements cease to apply, the certification provisions cease to apply as well.

Commenters also suggested that EPA extend the certification option to ammonium-based and specialty grade sulfite mills. EPA, however, has not yet established numerical effluent limitations guidelines or standards for the discharge of chloroform from ammonium-based and specialty grade sulfite mills. Thus, at present, these mills have no chloroform monitoring requirements specified under part 430.

After careful consideration of all comments and additional analysis, EPA concludes that the following factors influence chloroform air emissions and mass loadings in wastewater: The pH of the first chlorine dioxide bleaching stage, the chlorine content of chlorine dioxide used on the bleach line, the kappa factor of the first chlorine dioxide bleaching stage, the total bleach line chlorine dioxide application rate, and the chlorine-containing compounds used for bleaching. EPA also concludes that a certification that accounts for these process and operating conditions is appropriate to allow mills to demonstrate compliance with chloroform limitations and standards. Therefore, EPA is promulgating new regulatory language at 40 CFR 430.02(f) that provides a certification process to demonstrate compliance with chloroform limitations and standards for new and existing, direct and indirect discharging Subpart B mills in lieu of the minimum monitoring requirements for chloroform at a fiber line to which the limitations or standards apply.

With respect to other parameters, EPA did not receive any new data or information addressing the effects of process variables on the generation of dioxin, furan, and the 12 chlorinated phenolic compounds. Thus, EPA has no new data with which to evaluate the commenters' suggestion that the certification proposal should be extended to all bleach plant parameters. Accordingly, EPA has limited the certification to chloroform.

EPA did not receive any new information or data to support a shorter initial compliance demonstration period or fewer measurements. Therefore, EPA has not changed the duration of the initial compliance demonstration period, concluding that two years of sampling data (a minimum of 104 measurements) is necessary to adequately characterize the full range of process and operating conditions that may be used on the fiber line and influence variability of chloroform generation. One year may not be sufficient to establish an operating parameter range that reflects the full range of variability at the plant, especially considering the potential for a changing product mix over time. EPA also noted that it is in the facility's interest to base its certification on a broad enough range of operating parameters to fully capture any variability that is consistent with meeting the prescribed chloroform limitations. If the facility certifies based on too small a range, it risks detecting parameter values outside of the range and being subject to a resumption of routine monitoring and eventual recertification. This would entail additional burden on both the facility and the permitting authority. EPA has thus decided to retain the two-year basis for the certification.

In order to be eligible to demonstrate compliance with the chloroform limitations and standards through certification, the discharger must first demonstrate, based on 104 measurements taken over a period of not less than two years of monitoring conducted weekly, that it is achieving the applicable limitations or standards for chloroform. See 40 CFR 430.02(f)(2)(i). Retrospective data ( e.g. , data collected by a discharger prior to a BAT/NSPS/PSES/PSNS compliance demonstration required by a permit or pretreatment control agreement) may be used in this demonstration, if the data were collected in accordance with the requirements of 40 CFR 430.02(a). During this initial compliance demonstration period, the discharger must collect samples of its representative bleach plant effluent(s) on a weekly basis consistent with analytical method(s) approved under Part 136. If the discharger monitors for chloroform more frequently than weekly, then the discharger should use only one observation for any 24 hour period. The discharger is cautioned to carefully evaluate whether there is any possibility that the full range of chloroform variability as reflected in process operating parameters may not be captured if samples are collected more frequently than weekly. In order to justify certification authorized under 40 CFR 430.02(f), all of the monitoring results during the initial compliance demonstration period must demonstrate compliance with the chloroform effluent limitations or standards. For each sample used to make the compliance demonstration described above, the discharger is required under 40 CFR 430.02(f)(2)(ii) to maintain records of the maximum values of the following bleach plant operating parameters:

(a) The pH of the first chlorine dioxide bleaching stage;

(b) The chlorine (Cl 2 ) content of chlorine dioxide (ClO 2 ) used on the bleach line;

(c) The kappa factor of the first chlorine dioxide bleaching stage; and

(d) The total bleach line chlorine dioxide application rate.

In addition, the discharger is required under 40 CFR 430.02(f)(2)(iii) to identify the chlorine-containing compounds used for bleaching ( i.e. , the bleach sequence) during the collection of samples used to make the compliance demonstration.

When the discharger has completed its initial compliance demonstration, it may request that its permitting or pretreatment control authority modify its permit or pretreatment control agreement to discontinue weekly chloroform monitoring of bleach plant effluent. See 40 CFR 430.02(f)(1). At the time that it makes this request, today's regulation requires the discharger to:

(a) Certify that the fiber line does not use either elemental chlorine or hypochlorite as bleaching agents, see 40 CFR 430.02(f)(2)(iv);

(b) Provide records demonstrating that, based on 104 measurements collected weekly over a period not less than two years, the fiber line complies with applicable chloroform limitations or standards, see 40 CFR 430.02(f)(2)(i); and

(c) Certify that it will maintain records available for inspection which document the range of process and operating conditions that occurred during the collection of each sample used to demonstrate initial compliance. Specifically, the facility must document the maximum values, observed during sample collection, of:

(i) The pH of the first chlorine dioxide bleaching stage;

(ii) The chlorine (Cl 2 ) content of chlorine dioxide (ClO 2 ) used on the bleach line;

(iii) The kappa factor of the first chlorine dioxide bleaching stage; and

(iv) The total bleach line chlorine dioxide application rate.

Thereafter, at the same frequency that the discharger submits discharge monitoring reports (DMRs) to its permitting authority or periodic compliance reports (PCRs) to its pretreatment control authority, the discharger must certify that:

(a) The pH of the first chlorine dioxide bleaching stage has not exceeded the maximum value of the pH measured during initial compliance demonstration sample collection;

(b) The chlorine (Cl 2 ) content of chlorine dioxide (ClO 2 ) used on the bleach line has not exceeded the maximum Cl 2 content of ClO 2 used during initial compliance demonstration sample collection;

(c) The kappa factor of the first chlorine dioxide bleaching stage has not exceeded the maximum kappa factor employed during initial compliance demonstration sample collection;

(d) The total bleach line chlorine dioxide application rate has not exceeded the maximum chlorine dioxide application rate employed during initial compliance demonstration sample collection; and

(e) The chlorine-containing compounds used for bleaching are unchanged from those used during initial compliance demonstration sample collection.

The requirement to monitor process and operating conditions and to maintain records of these conditions places no new burden on the discharger. Mills continuously monitor bleach plant process and operating conditions in order to ensure the quality of their product and the efficiency of their operations. They also routinely maintain records of process and operating conditions. At many mills, constant monitoring of process and operating parameters is accomplished electronically by computerized distributed control systems.

If for any reason (intentionally or due to process upset) the discharger fails to maintain process and operating conditions on the fiber line at or below the maximum values recorded for these parameters during the initial compliance demonstration period, the discharger must notify the NPDES or pretreatment authority within 30 days and must again demonstrate compliance with the applicable chloroform limitation or standard by immediately initiating monitoring of its bleach plant effluent for chloroform at a frequency similar to that required in 40 CFR 430.02(a) and for a duration determined by the permit or pretreatment control authority. See 40 CFR 430.02(f)(6)(i). The discharger is in violation of its chloroform limitations or standards if, after failing to maintain the process and operating conditions, it does not comply with the notice and compliance demonstration requirements in section 430.02(f)(6)(i)(A) and (B) of the rule. Once the discharger certifies that the fiber line process and operating conditions do not exceed the maximum values documented during the initial compliance demonstration period, the discharger may discontinue chloroform compliance monitoring. See 40 CFR 430.02(f)(6)(ii). It should be noted that failure to maintain process and operating conditions on the fiber line at or below the maximum values recorded during the initial compliance demonstration period or any subsequent period of compliance monitoring for recertification is not a violation of the discharger's permit or pretreatment control agreement.

If the discharger wishes to make a long-term change in the process and operating conditions on the fiber line, such that one or more exceeds the maximum value documented during the initial compliance demonstration, the discharger must re-certify the fiber line in order to continue to demonstrate compliance through certification in lieu of monitoring. See 40 CFR 430.02(f)(3). The re-certification is similar to the initial compliance demonstration, except rather than a 104 measurement monitoring period, the re-certification compliance demonstration period will be determined by the permit writer or pretreatment control authority. The Agency anticipates that the likely circumstance for long-term changes in process and operating conditions will be to make the same or similar pulps with reduced chemical usage. In this circumstance, it would be reasonable to assume that generation and discharge of chloroform should decrease. Thus, only limited data should be necessary to confirm this assumption. If, however, process and operating conditions will change to make pulps with higher brightness or other more demanding pulp properties, it would be reasonable to assume that chloroform generation and discharge could increase. Thus, more extensive data would be appropriate to confirm that effluent quality and its variability will still comply with the bleach plant chloroform effluent limitations or standards.

EPA notes that the minimum monitoring requirements specified in 40 CFR 430.02 apply to direct dischargers for five years from the time they are first included in the discharger's NPDES permit and the minimum monitoring requirements apply to indirect dischargers only until April 15, 2006. In other words, the minimum monitoring requirements specified in 40 CFR 430.02 do not apply after the expiration of the applicable time periods. Thereafter, it is the responsibility of the permit writer or pretreatment control authority to determine the appropriate monitoring frequency in accordance with 40 CFR 122.44(i) or 40 CFR part 403, as applicable. The permit writer or pretreatment control authority is authorized to decide if bleach plant chloroform monitoring will re-commence at the same minimum monitoring frequency specified at 40 CFR 430.02 or an alternative frequency.

Under Executive Order 12866, 58 FR 51735 (October 4, 1993), the Agency must determine whether the regulatory action is “significant” and therefore subject to OMB review and the requirements of the Executive Order. The Order defines “significant regulatory action” as one that is likely to result in a rule that may:

(1) have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities;

(2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;

(3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or

(4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

It has been determined that this is not a “significant regulatory action” under the terms of Executive Order 12866 and is, therefore, not subject to OMB review.

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

For purposes of assessing the impacts of today's rule on small entities, small entity is defined as: (1) A small business that employs no more than 750 workers; (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.

After considering the economic impacts of today's final rule on small entities, I certify that today's action will not have a significant economic impact on a substantial number of small entities because there are no small entities subject to this rule. At the time EPA published the Cluster Rules, EPA had determined that there were only three mills in Subpart B that were owned by small businesses (where small businesses are defined as firms employing no more than 750 workers) (63 FR 18504, 18611-12 (April 15, 1998)). EPA has since determined that there are no longer any small businesses in Subpart B because these mills are no longer owned by firms with fewer than 750 employees. The mills that were owned by small firms have been bought by larger firms or are owned by companies that have increased in size.

The Office of Management and Budget (OMB) has approved the information collection requirements contained in this rule under the provisions of the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq. and has assigned OMB control number 2040-0242.

As mentioned previously, EPA established minimum monitoring frequencies for chloroform for existing and new direct and indirect discharging mills subject to Subpart B under authority of the Clean Water Act (CWA) Section 308 to demonstrate compliance with existing effluent limitations and standards for chloroform (and other pollutant parameters) promulgated under 40 CFR part 430. EPA is today allowing applicable facilities to voluntarily demonstrate compliance with chloroform limitations or standards by certifying their fiber lines in lieu of chloroform minimum monitoring required by 40 CFR 430.02. EPA has determined that this voluntary certification option significantly reduces the overall compliance burden and costs associated with meeting and demonstrating compliance with applicable chloroform limitations and standards. EPA has also determined that an initial compliance demonstration is necessary for each participating mill to establish the range of normal variability in process and operating parameters that are consistent with compliance with the chloroform effluent limitations. Once this range is established for each participating fiber line, periodic certification reports are submitted to the NPDES permit or pretreatment control authority to confirm and certify that the fiber line continues to comply with the chloroform effluent limitations and standards. The Agency's authority to provide for this voluntary certification option in lieu of minimum monitoring is Section 402(a)(2) of the CWA which directs EPA to prescribe permit conditions to assure compliance with requirements “including conditions on data and information collection, reporting and such other requirements as [the Administrator] deems appropriate.”

Certification in lieu of chloroform minimum monitoring eliminates all sampling burden associated with the minimum monitoring requirements for chloroform. A total of 19,492 hours annually would be saved by the 80 direct and indirect discharging Subpart B mills that EPA anticipates will choose to certify their 127 fiber lines. At an hourly operator rate of $28.91 per hour for sampling activities, reduction in sampling costs associated with certifying fiber lines in lieu of minimum monitoring required by 40 CFR 430.02 for the 80 mills would be $572,760 per year ($28.91 × 19,812). In addition, the elimination of chloroform sampling activities after certification results in an associated reduction in analytical costs for the outside lab analysis of chloroform samples. The total reduction in analytical costs associated with certifying fiber lines in lieu of minimum monitoring required by 40 CFR 430.02 for the 80 mills would be $3,856,740 per year (127 fiber lines × 2 samples per fiber line × 52 weeks × $292 per analysis). An increase in reporting burden for the 80 mills would be 320 (480-160) hours annually, based on the submission of periodic certification reports in lieu of reporting chloroform compliance data in DMRs and PCRs. At an hourly technician rate of $56.91 for reporting activities, an increase in reporting costs associated with certifying fiber lines in lieu of minimum monitoring required by 40 CFR 430.02 for the 80 mills would be $18,210 per year ($56.91 × 320). Therefore, the overall reduction in the total burden and cost to demonstrate compliance with minimum monitoring requirements by certifying fiber lines in lieu of minimum monitoring required by 40 CFR 430.02 for the 80 mills would be $4,411,290 per year ($572,760 + $3,856,740-$18,210). This reduction in cost translates to approximately $55,140 annually per mill.

The Agency does not estimate any change in burden for State authorized NPDES and pretreatment control authorities or EPA from the burden associated with minimum monitoring required by 40 CFR 430.02 for facilities ( i.e. , permitees) wishing to certify their fiber lines in lieu of chloroform minimum monitoring requirements.

Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, or disclose or provide information to or for a Federal agency. This includes the time needed to review instructions; develop, acquire, install, and utilize technology and systems for the purposes of collecting, validating, and verifying information, processing and maintaining information, and disclosing and providing information; adjust the existing ways to comply with any previously applicable instructions and requirements; train personnel to be able to respond to a collection of information; search data sources; complete and review the collection of information; and transmit or otherwise disclose the information.

An Agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA's regulations are listed in 40 CFR part 9 and 48 CFR Chapter 15. EPA is amending the table in 40 CFR part 9 of currently approved ICR control numbers issued by OMB for various regulations to list the information requirements contained in this final rule.

In addition to the information collection request (ICR) being approved as part of today's action, OMB previously approved an information collection request associated with the general minimum monitoring requirements in the Cluster Rules, codified at 40 CFR 430.02, under the provisions of the PRA and assigned OMB control number 2040-0243. Today's action includes a technical amendment to 40 CFR part 9 to list the OMB approval number for those previously promulgated and approved requirements. There is no burden associated with today's technical amendment.

The ICR for the general minimum monitoring requirements was subject to public notice and comment prior to OMB approval. Due to the technical nature of the table, EPA finds that further notice and comment is unnecessary. As a result, EPA finds that there is “good cause” under section 553(b)(B) of the Administrative Procedure Act, 5 U.S.C. 553(b)(B), to amend this table without prior notice and comment. For the same reason, there is also good cause to make this change effective upon publication.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. L. 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and tribal governments and the private sector. Under Section 202 of the UMRA, EPA generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to State, local, and tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. Before promulgating an EPA rule for which a written statement is needed, section 205 of the UMRA generally requires EPA to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows EPA to adopt an alternative other than the least costly, most cost-effective or least burdensome alternative if the Administrator publishes the final rule with an explanation why that alternative was not adopted. Before EPA establishes any regulatory requirements that may significantly or uniquely affect small governments, including tribal governments, it must have developed under section 203 of the UMRA a small government agency plan. The plan must provide for notifying potentially affected small governments, enabling officials of affected small governments to have meaningful and timely input in the development of EPA regulatory proposals with significant Federal intergovernmental mandates, and informing, educating, and advising small governments on compliance with the regulatory requirements.

Today's rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) for State, local, or tribal governments or the private sector. This is due to the following two reasons: (1) the UMRA generally excludes from the definition of “Federal intergovernmental mandate” duties that arise from participation in a voluntary federal program; and (2) the UMRA generally excludes from the definition of “Federal private sector mandate” duties that arise from participation in a voluntary federal program. These two reasons arise from the fact that participation in the certification program is entirely voluntary. Thus, today's rule is not subject to the requirements of sections 202 and 205 of the UMRA.

EPA has determined that today's action contains no regulatory requirements that might significantly or uniquely affect small governments. This is because participation in the certification program is strictly voluntary. Thus, today's rule is not subject to the requirements of Section 203 of the UMRA.

Executive Order 13045 (62 FR 19885, April 23, 1997) applies to any rule that: (1) is determined to be “economically significant” as defined under Executive Order 12866; and (2) concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency.

Today's amendments are not subject to Executive 13045 because they are not economically significant, as defined under Executive Order 12866.

Executive Order 13175, entitled “Consultation and Coordination with

This final rule does not have tribal implications. It will not have substantial direct effects on tribal governments, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified in Executive Order 13175. This is because the new certification provision is simply an alternative to minimum monitoring requirements codified in 1998 and does not effect any changes with tribal implications. In addition, Indian tribes will not incur any additional substantial direct costs as a result of this action. Thus, Executive Order 13175 does not apply to this rule.

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

This final rule does not have federalism implications. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. This is because the new certification provision is simply an alternative to minimum monitoring requirements codified in 1998 and does not effect any changes relevant to federalism. In addition, States will not incur any additional substantial direct costs as a result of this action. Thus, Executive Order 13132 does not apply to this rule.

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Pub. L. 104-113, § 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( e.g. , materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs EPA to provide Congress, through the Office of Management and Budget, explanations when the Agency decides not to use available and applicable voluntary consensus standards. This action does not involve technical standards. Therefore, EPA did not consider the use of any voluntary consensus standards.

This rule is not a “significant energy action” as defined in Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)) because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy. Further, we have concluded that this rule is not likely to have any adverse energy effects. This rule merely allows the use of a new certification provision as an alternative to the minimum monitoring requirements codified in 1998.

The Congressional Review Act, 5 U.S.C. Section 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a major rule as defined by 5 U.S.C. Section 804(2). This rule will be effective October 21, 2002.

For the reasons set out in the preamble, 40 CFR parts 9 and 430 are amended as follows:

Throughout this document, wherever “we” or “our” is used means EPA.

The January 8, 1999 and December 10, 1999 submittals revise UACR R-307-18 (since renumbered as R307-210) by updating the incorporation by reference for new source performance standards (NSPS) to reflect updated versions of the federal regulations. UACR R307-18 is the rule the State uses to implement our NSPS.

On June 10, 2002, we issued a letter delegating responsibility for all sources located, or to be located, in the State of Utah subject to the NSPS in 40 CFR part 60. The categories of new stationary sources covered by this delegation are as follows: NSPS in effect as of July 1, 1998; NSPS subparts Da and Db, promulgated September 16, 1998; NSPS subparts A, D, Da, Db, Dc, Ea, J, CC, NN, XX, AAA and SSS, promulgated February 12, 1999; NSPS subpart WWW, promulgated February 24, 1999; and NSPS subparts AA and AAa, promulgated March 2, 1999.

Since the State now has been delegated authority for NSPS in 40 CFR part 60, pursuant to 110(k)(6) of the Act, we are removing UACR R307-18 from the SIP. Also, we are updating the table in 40 CFR 60.4(c) to indicate that the 40 CFR part 60 NSPS are now delegated to the State and adding entries for newly delegated NSPS subparts.

The June 10, 2002 letter of delegation to the State follows:

We are announcing the delegation of authority to the State for NSPS implementation and enforcement. We are removing UCAR R307-18 from the SIP and are updating the table in 40 CFR 60.4(c) to indicate that the 40 CFR part 60 NSPS is now delegated to the State and adding entries for newly delegated NSPS subparts.

Section 110(l) of the Clean Air Act states that a SIP revision cannot be approved if the revision would interfere with any applicable requirement concerning attainment and reasonable further progress towards attainment of the NAAQS or any other applicable requirements of the Act. The Utah SIP revisions that are the subject of this document do not interfere with the maintenance of the NAAQS or any other applicable requirement of the Act because the State continues to have the authority for the implementation and enforcement of the NSPS in Utah.

EPA is publishing this rule without prior proposal because the Agency views this as a noncontroversial amendment and anticipates no adverse comments. However, in the “Proposed Rules” section of today's Federal Register publication, EPA is publishing a separate document that will serve as the proposal to approve the SIP revision if adverse comments be filed. This rule will be effective November 18, 2002, without further notice unless the Agency receives adverse comments by October 21, 2002. If the EPA receives adverse comments, EPA will publish a timely withdrawal in the Federal Register informing the public that the rule will not take effect. EPA will address all public comments in a subsequent final rule based on the proposed rule. The EPA will not institute a second comment period on this action. Any parties interested in commenting must do so at this time. Please note that if EPA receives adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, EPA may adopt as final those provisions of the rule that are not the subject of an adverse comment.

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and therefore is not subject to review by the Office of Management and Budget. For this reason, this action is also not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001). This action merely approves state law as meeting Federal requirements and imposes no additional requirements beyond those imposed by state law. Accordingly, the Administrator certifies that this rule will not have a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ). Because this rule approves pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law 104-4).

This rule also does not have tribal implications because it will not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified by Executive Order 13175 (65 FR 67249, November 9, 2000). This action also does not have Federalism implications because it does not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999). This action merely approves a state rule implementing a Federal standard, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. This rule also is not subject to Executive Order 13045 “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997), because it is not economically significant.

In reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. In this context, in the absence of a prior existing requirement for the State to use voluntary consensus standards (VCS), EPA has no authority to disapprove a SIP submission for failure to use VCS. It would thus be inconsistent with applicable law for EPA, when it reviews a SIP submission, to use VCS in place of a SIP submission that otherwise satisfies the provisions of the Clean Air Act. Thus, the requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) do not apply. This rule does not impose an information collection burden under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by November 18, 2002. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. ( See section 307(b)(2).)

Under section 112(l) of the CAA, EPA may delegate Federal section 112 rules without changes to states or approve state programs in lieu of the Federal section 112 rules. The Federal regulations governing EPA's approval of state and local rules or programs under section 112(l) are located at 40 CFR part 63, subpart E ( See 65 FR 55810, dated September 14, 2000). Under these rules, EPA may approve state programs to implement and enforce the Federal section 112 rules without changes. This is referred to as straight delegation. In addition, EPA may approve state requests for one-time approval of their mechanism for taking delegation of future unchanged Federal section 112 rules, emission standards and requirements. To receive EPA approval for straight delegation, the requirements of 40 CFR 63.91 must be met.

NH DES has been delegated the authority by EPA to implement and enforce certain NSPS codified at 40 CFR part 60, certain NESHAPs codified at 40 CFR part 61, and certain NESHAP referred to as Maximum Achievable Control Technology (MACT) standards codified at 40 part CFR 63. This delegation of authority was approved by EPA in the Federal Register on August 14, 1996 ( See 61 FR 42222). This delegation extended only to facilities subject to New Hampshire's title V permit program and applied to existing standards. Under this delegation mechanism, delegation occurred upon incorporation of the MACT standard into the source's title V operating permit. In the August 14, 1996 Federal Register , EPA also proposed to approve this delegation mechanism for delegation of future standards. On October 2, 1996 ( See 61 FR 51370), EPA approved this delegation mechanism.

On May 9, 2002, the NH DES submitted a request to EPA to receive straight delegation of authority to implement and enforce the NESHAP and NSPS  1 regulations for both major and area sources under a new delegation mechanism. NH DES is now requesting to take delegation of these standards by incorporating these standards into NH DES's regulations. On April 5, 2002, DES adopted a rule, Env-500, that incorporates by reference NSPS and NESHAP regulations as set forth in the Code of Federal Regulations as of July 1, 2001. In addition, NH DES incorporated 40 CFR part 63 subpart D, Regulations Governing Compliance Extensions for Early Reductions of Hazardous Air Pollutants. NH DES has incorporated all NSPS and NESHAP regulations as indicated in Table 1 and requested delegation of these standards. NH DES did not incorporate 40 CFR part 63, subpart M—national perchloroethylene air emission standards for dry cleaning facilities. NH DES intends to continue implementing and enforcing this standard only for facilities subject to the title V permit program, consistent with EPA's previous delegation of that standard to DES on August 14, 1996. NH DES also did not incorporate certain standards where the state has no applicable sources. For example, New Hampshire does not have any coke ovens or magnetic tape manufacturers. Therefore, NH DES did not incorporate subpart L, the national emission standard for hazardous air pollutants for coke oven batteries nor subpart EE, the national emission standard for hazardous air pollutants for magnetic tape manufacturing operations. In addition, NH DES has incorporated by reference 40 CFR 61, subpart M—national emission standards for asbestos, with the exception of 40 CFR 61.151, standard for inactive waste disposal sites for asbestos mills and manufacturing and fabricating operations. On June 28, 2002, NH DES submitted a partial rule substitution request to EPA pursuant to 40 CFR 63.93 for a portion of that rule and is therefore not requesting straight delegation of section 61.151. Please refer to Table 1 for a complete list of the standards that NH DES is requesting delegation for as set forth in the Code of Federal Regulations as of July 1, 2001.

In addition, NH DES requested that EPA approve NH DES's delegation mechanism for delegation of all future standards. NH DES's delegation mechanism is to incorporate all new or revised standards by reference and to receive future delegation upon adoption by NH DES of the new or revised standards. The details of this delegation mechanism are set forth in Attachment 2 to the NH DES delegation request letter dated May 9, 2002.

Section 112(l)(5) of the Act requires that a state's NESHAP program contain adequate authorities, adequate resources for implementation, and an expeditious compliance schedule. These are also requirements for an adequate operating permits program under 40 CFR part 70. On September 24, 2001, EPA promulgated full approval of the State's operating permits program as administered by NH DES. ( See 66 FR 48806) In addition, on May 16, 2001, EPA has already provided “up-front” approval of the NH DES NESHAP program in accordance with 40 CFR section 63.91(d). (See 66 FR 27032) Under section 63.91(d)(2), once a state has satisfied up-front approval criteria, it needs only to reference the previous demonstration and reaffirm that it still meets the criteria for any subsequent submittals. NH DES has affirmed that it still meets the up-front approval criteria.

Under section 63.91(g), EPA has identified which part 63 general provisions may be delegated to state/local/tribal (S/L/T) agencies and which general provisions must be retained by EPA. NH DES has incorporated part 63 subpart A in its entirety but has requested that EPA delegate only the delegable authorities of the part 63 general provisions as identified in section 63.91(g)(i). The delegable authorities include the following:

EPA has determined that NH DES has satisfied the approval criteria of 40 CFR 63.91(d). EPA is approving NH DES's delegation of the NSPS, NESHAP and MACT standards indicated in Table 1. EPA is also approving delegation of all delegable authorities of the part 63 general provisions identified in section 63.91(g)(1) and section V above. In addition, EPA is approving NH DES's delegation mechanism for delegation of all future standards according to the delegation procedures identified in Attachment 2 of the delegation request letter dated May 9, 2002 from NH DES to EPA. The NH DES has the primary authority and responsibility to carry out all elements of these programs for all sources covered in New Hampshire, including on-site inspections, record keeping reviews, and enforcement.

The Office of Management and Budget has exempted this regulatory action from Executive Order 12866, entitled “Regulatory Planning and Review.” This rule is not subject to Executive Order 13045, entitled, “Protection of Children from Environmental Health Risks and Safety Risks,” because it is not an “economically significant” action under Executive Order 12866.

Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 6, 2000), requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” “Policies that have tribal implications” is defined in the Executive Order to include regulations that have “substantial direct effects on one or more Indian tribes, on the relationship between the Federal government and the Indian tribes, or on the distribution of power and responsibilities between the Federal government and Indian tribes.”

This final rule does not have tribal implications. It will not have substantial direct effects on tribal governments, on the relationship between the Federal government and Indian tribes, or on the distribution of power and responsibilities between the Federal government and Indian tribes, as specified in Executive Order 13175. This Federal action allows the State of New Hampshire to implement and enforce existing and future requirements under Federal law and does not have tribal implications. Thus, Executive Order 13175 does not apply to this rule.

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

This final rule does not have federalism implications. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. This action simply allows New Hampshire to implement and enforce existing and future Federal standards, and does not alter the relationship or the distribution of power and responsibilities established in the Clean Air Act. Thus, Executive Order 13132 does not apply to this rule.

This rule is not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)) because it is not a significant regulatory action under Executive Order 12866.

The Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), 5 U.S.C. 601 et seq. generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small not-for-profit enterprises, and small governmental entities with jurisdiction over populations of less than 50,000. This final rule will not have a significant impact on a substantial number of small entities because approvals under 40 CFR 63.91 do not create any new requirements but simply allows the state to implement and enforce Federal requirements that the EPA is already imposing. Therefore, because this approval does not create any new requirements, I certify that this action will not have a significant economic impact on a substantial number of small entities.

Under section 202 of the Unfunded Mandates Reform Act of 1995 (“Unfunded Mandates Act”), signed into law on March 22, 1995, EPA must prepare a budgetary impact statement to accompany any proposed or final rule that includes a Federal mandate that may result in estimated annual costs to state, local, or tribal governments in the aggregate, or to the private sector, of $100 million or more. Under section 205, EPA must select the most cost-effective and least burdensome alternative that achieves the objectives of the rule and is consistent with statutory requirements. Section 203 requires EPA to establish a plan for informing and advising any small governments that may be significantly or uniquely impacted by the rule.

EPA has determined that the approval action promulgated does not include a Federal mandate that may result in estimated annual costs of $100 million or more to either state, local, or tribal governments in the aggregate, or to the private sector. This Federal action allows New Hampshire to implement existing and future requirements under Federal law, and imposes no new requirements. Accordingly, no additional costs to state, local, or tribal governments, or to the private sector, result from this action.

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . This rule is not a “major” rule as defined by 5 U.S.C. 804(2).

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law No. 104-113, Section 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( e.g. , materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards. This action does not involve technical standards. Therefore, EPA did not consider the use of any voluntary consensus standards.

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by November 18, 2002. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this rule for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements ( see section 307(b)(2)).

On August 6, 2002 (67 FR 50805), EPA published a final rulemaking action changing the boundaries of the Searles Valley, California moderate PM-10 nonattainment area (NA) by dividing that area into three new, separate moderate NAs: Coso Junction, Indian Wells Valley, and Trona. EPA also made a finding that the Trona NA has attained the 24-hour and annual PM-10 national ambient air quality standards by the Clean Air Act mandated attainment date for moderate nonattainment areas.

The title of the aforementioned action contains an error and is being corrected in this action. The error is a reference to determination of attainment of the PM-10 standards for the Coso Junction Area, rather than the Trona Area.

In rule FR Doc. 02-19798 published on August 6, 2002, make the following correction. On page 50805, in the first column, the title is being corrected to now state: “Clean Air Act Redesignation and Reclassification, Searles Valley Nonattainment Area; Designation of Coso Junction, Indian Wells Valley, and Trona Nonattainment Areas; California; Determination of Attainment of the PM-10 Standards for the Trona Area; Particulate Matter of 10 microns or less (PM-10).”

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is not a “significant regulatory action” and is therefore not subject to review by the Office of Management and Budget. In addition, this action does not impose any enforceable duty or contain any unfunded mandate as described in the Unfunded Mandates Reform Act of 1995 (Public Law 104-4), or require prior consultation with State officials as specified by Executive Order 12875 (58 FR 58093, October 28, 1993), or involve special consideration of environmental justice related issues as required by Executive Order 12898 (59 FR 7629, February 16, 1994).

Because this action is not subject to notice-and-comment requirements under the Administrative Procedure Act or any other statute, it is not subject to the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ).

Under 5 U.S.C. 801(a)(1)(A) as added by the Small Business Regulatory Enforcement Fairness Act of 1996, EPA submitted a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives and the Comptroller General of the General Accounting Office prior to publication of this rule in today's Federal Register . This rule is not a “major rule” as defined by 5 U.S.C. 804(2).

You may be affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. Potentially affected categories and entities may include, but are not limited to:

This listing is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in the table could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether or not this action might apply to certain entities. If you have questions regarding the applicability of this action to a particular entity, consult the person listed under FOR FURTHER INFORMATION CONTACT .

1. Electronically .You may obtain electronic copies of this document, and certain other related documents that might be available electronically, from the EPA Internet Home Page at http://www.epa.gov/. To access this document, on the Home Page select “Laws and Regulations”, “Regulations and Proposed Rules,” and then look up the entry for this document under the “ Federal Register —Environmental Documents.” You can also go directly to the Federal Register listings at http://www.epa.gov/fedrgstr/. A frequently updated electronic version of 40 CFR part 180 is available at http://www.access.gpo.gov/nara/cfr/cfrhtml_00/Title_40/40cfr180_00.html, a beta site currently under development. To access the OPPTS Harmonized Guidelines referenced in this document, go directly to the guidelines at http://www.epa.gov/opptsfrs/home/guidelin.htm.

2. In person . The Agency has established an official record for this action under docket control number OPP-2002-0224. The official record consists of the documents specifically referenced in this action, and other information related to this action, including any information claimed as Confidential Business Information (CBI). This official record includes the documents that are physically located in the docket, as well as the documents that are referenced in those documents. The public version of the official record does not include any information claimed as CBI. The public version of the official record, which includes printed, paper versions of any electronic comments submitted during an applicable comment period is available for inspection in the Public Information and Records Integrity Branch (PIRIB), Rm. 119, Crystal Mall #2, 1921 Jefferson Davis Hwy., Arlington, VA, from 8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The PIRIB telephone number is (703) 305-5805.

In the Federal Register of December 14, 2001 (66 FR 64823) (6813-2), EPA issued a notice pursuant to section 408 of the Federal Food, Drug, and Cosmetic Act (FFDCA), 21 U.S.C. 346a, as amended by the Food Quality Protection Act of 1996 (FQPA) (Public Law 104-170), announcing the filing of pesticide petitions (PP 1E6347 and 1F6235) by Interregional Research Project Number 4 (IR-4), and Uniroyal Chemical Company Inc., 681 US Highway 1 South, North Brunswick, NJ 08902, and Middlebury, CT 06749. This notice included a summary of the petitions prepared by IR-4 and Uniroyal Chemical Company, the registrants. There were no comments received in response to the notice of filing.

The petitions requested that 40 CFR 180.377 be amended by establishing a tolerance for the combined residues of the insecticide diflubenzuron (N-[[4-chlorophenyl)amino]-carbonyl]-2,6-difluorobenzamide) and its metabolites, 4-chlorophenylurea (CPU) and 4-chloroaniline (PCA), in or on grass, forage, fodder, and hay, group 17 at 6.0 part per million (ppm); pepper at 1.0 ppm; stone fruit group (except cherries) at 0.05 ppm; tree nut group at 0.05 ppm; almond, hulls at 5.0 ppm; pistachio at 0.05 ppm; and meat byproducts at 0.15 ppm.

Section 408(b)(2)(A)(i) of the FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings, but does not include occupational exposure. Section 408(b)(2)(C) requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue.”

EPA performs a number of analyses to determine the risks from aggregate exposure to pesticide residues. For further discussion of the regulatory requirements of section 408 and a complete description of the risk assessment process, see the final rule on Bifenthrin Pesticide Tolerances (62 FR 62961, November 26, 1997) (FRL-5754-7).

Consistent with section 408(b)(2)(D), EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of and to make a determination on aggregate exposure, consistent with section 408(b)(2), for a tolerance for residues of the insecticide diflubenzuron (N-[[4-chlorophenyl)amino]-carbonyl]-2,6-difluorobenzamide) and its metabolites, 4-chlorophenylurea (CPU) and 4-chloroaniline (PCA) on grass, forage, fodder, and hay group at 6.0 ppm; pepper at 1.0 ppm; stone fruit group (except cherries) at 0.07 ppm; tree nut group at 0.06 ppm; almond hulls at 6.0 ppm; pistachio at 0.06 ppm; cattle, meat byproducts at 0.15 ppm; goat, meat byproducts at 0.15 ppm; hog, meat byproducts at 0.15 ppm; horse, meat byproducts at 0.15 ppm; sheep, meat byproducts at 0.15 ppm.

EPA's assessment of exposures and risks associated with establishing the tolerances follows.

EPA has evaluated the available toxicity data and considered its validity, completeness, and reliability as well as the relationship of the results of the studies to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children. The nature of the toxic effects caused by diflubenzuron are discussed in the following Table 1 as well as the no observed adverse effect level (NOAEL) and the lowest observed adverse effect level (LOAEL) from the toxicity studies reviewed.

The dose at which the NOAEL from the toxicology study identified as appropriate for use in risk assessment is used to estimate the toxicological level of concern (LOC). However, the lowest dose at which the LOAEL is sometimes used for risk assessment if no NOAEL was achieved in the toxicology study selected. An uncertainty factor (UF) is applied to reflect uncertainties inherent in the extrapolation from laboratory animal data to humans and in the variations in sensitivity among members of the human population as well as other unknowns. An UF of 100 is routinely used, 10X to account for interspecies differences and 10X for intra species differences.

The FQPA Safety Factor Committee (SFC) recommended that the FQPA safety factor used in human health risk assessments (as required by FQPA of August 3, 1996) be removed (reduced to 1x) in assessing the risk posed by this chemical. Consequently, the current cRfD and cPAD values are equivalent (0.02 mg/kg/day). This decision was based on the following:

1. There is no indication of quantitative or qualitative increased susceptibility of rats or rabbits to in utero or postnatal exposure;

2. A developmental neurotoxicity study (DNT) with diflubenzuron is not required;

3. Food and drinking water exposure assessments will not underestimate the potential exposure for infants and children; and

4. There are currently no registered or proposed residential (non-occupational) uses of diflubenzuron. Although there are no registered homeowner uses, there is potential for professional applications to outdoor residential and recreational areas to control mosquitos, moths, and other insects. However, the potential for post-application residential exposures are expected to be limited. Due to the low dermal absorption rate (0.5%) of diflubenzuron, and since it is only applied to the tree canopy, minimal bystander contact is expected.

For dietary risk assessment (other than cancer) the Agency uses the UF to calculate an acute or chronic reference dose (acute RfD or chronic RfD) where the RfD is equal to the NOAEL divided by the appropriate UF (RfD = NOAEL/UF). Where an additional safety factor is retained due to concerns unique to the FQPA, this additional factor is applied to the RfD by dividing the RfD by such additional factor. The acute or chronic Population Adjusted Dose (aPAD or cPAD) is a modification of the RfD to accommodate this type of FQPA Safety Factor.

For non-dietary risk assessments (other than cancer) the UF is used to determine the LOC. For example, when 100 is the appropriate UF (10X to account for interspecies differences and 10X for intraspecies differences) the LOC is 100. To estimate risk, a ratio of the NOAEL to exposures (margin of exposure (MOE) = NOAEL/exposure) is calculated and compared to the LOC.

The linear default risk methodology (Q*) is the primary method currently used by the Agency to quantify carcinogenic risk. The Q* approach assumes that any amount of exposure will lead to some degree of cancer risk. A Q* is calculated and used to estimate risk which represents a probability of occurrence of additional cancer cases (e.g., risk is expressed as 1 x 10 - 6 or one in a million). Under certain specific circumstances, MOE calculations will be used for the carcinogenic risk assessment. In this non-linear approach, a “point of departure” is identified below which carcinogenic effects are not expected. The point of departure is typically a NOAEL based on an endpoint related to cancer effects though it may be a different value derived from the dose response curve. To estimate risk, a ratio of the point of departure to exposure (MOE cancer = point of departure/exposures) is calculated. A summary of the toxicological endpoints for diflubenzuron and its metabolites used for human risk assessment is shown in the following Table 2:

1. Dietary exposure from food and feed uses . Tolerances have been established (40 CFR 180.377) for the combined residues of the insecticide diflubenzuron (N-[[4-chlorophenyl)amino]-carbonyl]-2,6-difluorobenzamide and its metabolites, in or on a variety of raw agricultural commodities. Risk assessments were conducted by EPA to assess dietary exposures from diflubenzuron and its metabolites in food as follows:

i. Acute exposure . Acute dietary risk assessments are performed for a food-use pesticide if a toxicological study has indicated the possibility of an effect of concern occurring as a result of a one day or single exposure. Acute doses and endpoints were not selected for the general U.S. population (including infants and children) or the females 13-50 years old population subgroup for diflubenzuron; therefore, an acute dietary exposure analysis was not performed.

ii. Chronic exposure . In conducting this chronic dietary risk assessment the Dietary Exposure Evaluation Model (DEEM TM ) analysis evaluated the individual food consumption as reported by respondents in the USDA 1989-1992 nationwide Continuing Surveys of Food Intake by Individuals (CSFII) and accumulated exposure to the chemical for each commodity. The following assumptions were made for the chronic exposure assessments:

For the chronic analysis, anticipated residue (AR) information based on field trial data and percent crop treated (%CT) information for some commodities were used. Dietary exposure estimates for representative population subgroups are presented in Table 3. Chronic exposure estimates are expressed in mg/kg bw/day and as a percent of the cPAD. The chronic dietary risk assessment also indicates that for all included commodities, the chronic dietary risk estimates are below Agency's level of concern ( < 100% cPAD) for the general U.S. population ( < 1.0% of the cPAD) and all population subgroups. The chronic dietary exposure estimate for the highest exposed population subgroup (all infants ( < 1 year old)) is 5.5% of the cPAD.

iii. Cancer . In 1995, based on the available evidence, which included carcinogenicity studies in rats and mice, and battery of negative mutagenicity studies, diflubenzuron was classified as Group E, evidence of non-carcinogenicity for humans. Rat metabolism data generated at this time also indicated that diflubenzuron was metabolized to PCA and CPU and estimated to be about 2% of in vivo conversion.

At that time, EPA also considered the carcinogenicity of PCA, a known diflubenzuron metabolite, that was tested by the NTP in 1989 for carcinogenicity in rats and mice as a hydrochloride form. In rats treated with PCA, a treatment-related increased incidence of uncommon sarcomas of the spleen was observed in males and included fibrosarcomas, hemangiosarcomas, and osteosarcomas, many of which metastasized to other sites. In addition, in treated females, one fibrosarcoma and one osteosarcoma were also observed. Furthermore, there was a marginally-increased incidence of pheochromocytomas in the adrenal glands in both males and females at the HDT. In mice treated with PCA, a treatment-related increased incidence of combined hepatocellular adenomas/carcinomas was observed in males. The increase in combined tumors was primarily due to a dose-related increase in hepatocellular carcinomas. Many of these tumors metastasized to the lungs. An increased incidence of hemangiosarcomas in the spleen and/or liver of the male mice was also observed at the HDT. The incidence was higher than the historical control mean for male mice. There was no evidence of a carcinogenic response in female mice. On this basis PCA was classified as a Group B2, probable human carcinogen.

Recently submitted tier 2 rat metabolism data indicate that diflubenzuron does not metabolize to PCA or CPU nor is CPU converted to PCA. The Agency concluded that a 2% in vivo conversion factor for diflubenzuron to PCA or CPU should be dropped. It was recommended that non-carcinogenic risk assessment should include parent, CPU and PCA; and cancer risk for CPU and PCA should be assessed individually.

The Q 1 * (estimated unit risk) for PCA, based on male mouse liver adenoma and/or carcinoma combined tumor rates was calculated to be 1.12 x 10 - 1 (mg/kg/day) - 1 in human equivalents.

CPU is structurally related to monuron (N,N-dimethyl-CPU), a compound producing tumors of the kidney and liver in male rats. Given that there is no accepted mechanism of carcinogenicity for monuron and that CPU is major metabolite of monuron in rats, a Q 1 * was calculated for monuron and applied to CPU. The most potent Q 1 * for monuron, based on male rat liver neoplastic nodule and/or carcinoma combined tumor rats, was calculated to be 1.52 x 10 - 2 (mg/kg/day) - 1 in human equivalents. Although CPU is structurally related to monuron, there is no need to assess aggregate or cumulative risk scenarios using monuron because monuron is no longer a registered pesticide active ingredient.

a. Cancer risk from consumption of PCA and CPU . Based on the submitted metabolism studies, there are two possible sources for dietary exposure to PCA and CPU: Residues in plants/fungi (mushrooms) and residues in animal commodities (milk and liver).

b. Mushrooms/Milk/Liver . EPA used results from metabolism studies to determine the percent of the total radioactive residue (TRR) present as PCA+CPU in mushrooms, milk and liver. For milk and liver, ARs were calculated from the results of the ruminant feeding study using tolerance level residues in livestock feed items and adjusting for percent crop treated. The total levels of PCA+CPU were estimated by multiplying the ratio of (PCA+CPU)/Diflubenzuron by the diflubenzuron consumption (from DEEM). The U.S. population exposure to PCA and CPU is given in Table 4 as follows.

The Agency does not consider the cancer dietary risk from either PCA or CPU to exceed the Agency's level of concern (generally, in the range of 10 - 6 ).

iv. Anticipated residue and percent crop treated information . Section 408(b)(2)(E) authorizes EPA to use available data and information on the anticipated residue levels of pesticide residues in food and the actual levels of pesticide chemicals that have been measured in food. If EPA relies on such information, EPA must require that data be provided 5 years after the tolerance is established, modified, or left in effect, demonstrating that the levels in food are not above the levels anticipated. Following the initial data submission, EPA is authorized to require similar data on a time frame it deems appropriate. As required by section 408(b)(2)(E), EPA will issue a data call-in for information relating to anticipated residues to be submitted no later than 5 years from the date of issuance of this tolerance.

Section 408(b)(2)(F) states that the Agency may use data on the actual percent of food treated for assessing chronic dietary risk only if the Agency can make the following findings: Condition 1, that the data used are reliable and provide a valid basis to show what percentage of the food derived from such crop is likely to contain such pesticide residue; Condition 2, that the exposure estimate does not underestimate exposure for any significant subpopulation group; and Condition 3, if data are available on pesticide use and food consumption in a particular area, the exposure estimate does not understate exposure for the population in such area. In addition, the Agency must provide for periodic evaluation of any estimates used. To provide for the periodic evaluation of the estimate of percent crop treated (PCT) as required by section 408(b)(2)(F), EPA may require registrants to submit data on PCT.

The Agency used percent crop treated (PCT) information as follows.

Dietary exposure estimates were based on the following percent crop treated (PCT) estimates: Grass, 1%; grapefruit, 8%; mushrooms, 31%; oranges, 2%; tangerines, 4%; cottonseed oil and meal, 2%; soybean, 1%; cattle bolus, 5%, walnuts 50%. Other commodities were assumed to be 100 percent treated. Anticipated residue levels for diflubenzuron were calculated in livestock, citrus and mushroom commodities. Anticipated residue estimates for diflubenzuron were not calculated for other raw agricultural commodities. Percent crop treated data were utilized where available.

The Agency believes that the three conditions listed above regarding percent crop treated information have been met. With respect to Condition 1, PCT estimates are derived from Federal and private market survey data, which are reliable and have a valid basis. EPA uses a weighted average PCT for chronic dietary exposure estimates. This weighted average PCT figure is derived by averaging State-level data for a period of up to 10 years, and weighting for the more robust and recent data. A weighted average of the PCT reasonably represents a person's dietary exposure over a lifetime, and is unlikely to underestimate exposure to an individual because of the fact that pesticide use patterns (both regionally and nationally) tend to change continuously over time, such that an individual is unlikely to be exposed to more than the average PCT over a lifetime. For acute dietary exposure estimates, EPA uses an estimated maximum PCT. The exposure estimates resulting from this approach reasonably represent the highest levels to which an individual could be exposed, and are unlikely to underestimate an individual's acute dietary exposure. The Agency is reasonably certain that the percentage of the food treated is not likely to be an underestimation. As to Conditions 2 and 3, regional consumption information and consumption information for significant subpopulations is taken into account through EPA's computer-based model for evaluating the exposure of significant subpopulations including several regional groups. Use of this consumption information in EPA's risk assessment process ensures that EPA's exposure estimate does not understate exposure for any significant subpopulation group and allows the Agency to be reasonably certain that no regional population is exposed to residue levels higher than those estimated by the Agency. Other than the data available through national food consumption surveys, EPA does not have available information on the regional consumption of food to which diflubenzuron may be applied in a particular area.

2. Dietary exposure from drinking water . The Agency lacks sufficient monitoring exposure data to complete a comprehensive dietary exposure analysis and risk assessment for diflubenzuron (N-[[4-chlorophenyl)amino]-carbonyl]-2,6-difluorobenzamide) and its metabolites, 4-chlorophenylurea (CPU) and 4-chloroaniline (PCA) in drinking water. Because the Agency does not have comprehensive monitoring data, drinking water concentration estimates are made by reliance on simulation or modeling taking into account data on the physical characteristics of diflubenzuron (N-[[4-chlorophenyl)amino]-carbonyl]-2,6-difluorobenzamide) and its metabolites, 4-chlorophenylurea (CPU) and 4-chloroaniline (PCA).

The Agency uses the FQPA Index Reservoir Screening Tool (FIRST) or the Pesticide Root Zone Model/Exposure Analysis Modeling System (PRZM/EXAMS), to produce estimates of pesticide concentrations in an index reservoir. The SCI-GROW model is used to predict pesticide concentrations in shallow groundwater. For a screening-level assessment for surface water EPA will use FIRST (a tier 1 model) before using PRZM/EXAMS (a tier 2 model). The FIRST model is a subset of the PRZM/EXAMS model that uses a specific high-end runoff scenario for pesticides. While both FIRST and PRZM/EXAMS incorporate an index reservoir environment, the PRZM/EXAMS model includes a percent crop area factor as an adjustment to account for the maximum percent crop coverage within a watershed or drainage basin.

None of these models include consideration of the impact processing (mixing, dilution, or treatment) of raw water for distribution as drinking water would likely have on the removal of pesticides from the source water. The primary use of these models by the Agency at this stage is to provide a screen for sorting out pesticides for which it is highly unlikely that drinking water concentrations would exceed human health levels of concern.

Since the models used are considered to be screening tools in the risk assessment process, the Agency does not use estimated environmental concentrations (EECs) from these models to quantify drinking water exposure and risk as a %RfD or %PAD. Instead drinking water levels of comparison (DWLOCs) are calculated and used as a point of comparison against the model estimates of a pesticide's concentration in water. DWLOCs are theoretical upper limits on a pesticide's concentration in drinking water in light of total aggregate exposure to a pesticide in food, and from residential uses. Since DWLOCs address total aggregate exposure to diflubenzuron they are further discussed in the aggregate risk sections.

Based on the PRZM/EXAMS and SCI-GROW models the estimated environmental concentrations (EECs) of diflubenzuron and CPU are estimated to be 0.99 ppb (diflubenzuron) and 8.81 ppb (CPU) for surface water and 0.0023 ppb (diflubenzuron) and 0.065 ppb (CPU) for ground water. PCA is not a significant metabolite in the environment.

3. From non-dietary exposure . The term “residential exposure” is used in this document to refer to non-occupational, non-dietary exposure (e.g., for lawn and garden pest control, indoor pest control, termiticides, and flea and tick control on pets). Although there are no registered homeowner uses for diflubenzuron, there is potential for professional applications to outdoor residential and recreational areas to control mosquitos, moths, and other insects. However, due to the low dermal absorption rate (0.05%) and extremely low dermal and inhalation toxicity, exposure through these uses is expected to be insignificant, and residential post-application exposure was not quantitatively evaluated.

4. Cumulative exposure to substances with a common mechanism of toxicity . Section 408(b)(2)(D)(v) requires that, when considering whether to establish, modify, or revoke a tolerance, the Agency consider “available information” concerning the cumulative effects of a particular pesticide's residues and “other substances that have a common mechanism of toxicity.”

EPA does not have, at this time, available data to determine whether diflubenzuron has a common mechanism of toxicity with other substances or how to include this pesticide in a cumulative risk assessment. Unlike other pesticides for which EPA has followed a cumulative risk approach based on a common mechanism of toxicity, diflubenzuron does not appear to produce a toxic metabolite produced by other substances. For the purposes of this tolerance action, therefore, EPA has not assumed that diflubenzuron has a common mechanism of toxicity with other substances. For information regarding EPA's efforts to determine which chemicals have a common mechanism of toxicity and to evaluate the cumulative effects of such chemicals, see the final rule for Bifenthrin Pesticide Tolerances (62 FR 62961, November 26, 1997).

1. In general . FFDCA section 408 provides that EPA shall apply an additional tenfold margin of safety for infants and children in the case of threshold effects to account for prenatal and postnatal toxicity and the completeness of the data base on toxicity and exposure unless EPA determines that a different margin of safety will be safe for infants and children. Margins of safety are incorporated into EPA risk assessments either directly through use of a MOE analysis or through using uncertainty (safety) factors in calculating a dose level that poses no appreciable risk to humans.

2. Prenatal and postnatal sensitivity . Based on the developmental and reproductive toxicity studies summarized in Table 1, there is no indication of quantitative or qualitative increased susceptibility of rats or rabbits to in utero or postnatal exposure.

3. Conclusion . There is a complete toxicity data base for diflubenzuron and exposure data are complete or are estimated based on data that reasonably accounts for potential exposures. Based on the developmental and reproductive data available, EPA determined that the 10X safety factor to protect infants and children (as required by FQPA) should be removed. This decision was based on the following:

i. There is no indication of quantitative or qualitative increased susceptibility of rats or rabbits to in utero or postnatal exposure;

ii. A developmental neurotoxicity study (DNT) with diflubenzuron is not required;

iii. Food and drinking water exposure assessments will not underestimate the potential exposure for infants and children; and

iv. There are currently no registered or proposed residential (non-occupational) uses of diflubenzuron for homeowners. Although there are no registered homeowner uses, there is potential for professional applications to outdoor residential and recreational areas to control mosquitos, moths, and other insects. However, the potential for post-application residential exposures are expected to be limited. Due to the low dermal absorption rate (0.5%) of diflubenzuron, and since it is only applied to the tree canopy to control gypsy moths and mosquitoes, minimal bystander contact is expected.

Recently, EPA has received objections to a tolerance it established for residues of diflubenzuron in or on pears. The objections were filed by the Natural Resources Defense Council (NRDC) and raised several issues regarding aggregate exposure estimates and the additional safety factor for the protection of infants and children.

NRDC's objections raise complex legal, scientific, policy, and factual matters and EPA has initiated a public comment period on them in the Federal Register of June 19, 2002 (67 FR 41628) (FRL-7167-7), which ends on September 17, 2002. Although that proceeding remains ongoing, prior to acting on this current tolerance action, EPA reviewed the diflubenzuron-specific objections raised by NRDC and has addressed them below.

NRDC claims datagaps include missing residue chemistry and toxicology data for two diflubenzuron metabolites, deemed necessary by EPA to justify an unconditional registration.

EPA determined that the toxicology database for diflubenzuron is complete for assessment of increased susceptibility to infants and children as required by the Food Quality Protection Act (FQPA) . There are no data gaps for the assessment of the effects of diflubenzuron following in utero and/or postnatal exposure. There was no evidence that diflubenzuron targets the nervous system; neither clinical signs indicative of neurotoxicity nor neuropathology were seen in any of the acute, subchronic or chronic studies. There are reliable data that indicate there are (residual) concerns for pre-and/or post-natal toxicity. There was no evidence (quantitative or qualitative) of increased susceptibility following in utero exposure to rats or rabbits or to postnatal exposure to rats. In the prenatal developmental toxicity studies in rats and rabbits, no developmental toxicity was seen at the Limit Dose (1,000 mg/kg/day) and in the two-generation reproduction study in rats toxicity in the offspring was manifested as decreased body weight at approximately 4,000 mg/kg/day (4 times the Limit Dose). Based on the lack of evidence of neurotoxic potential and increased susceptibility, EPA determined that a developmental neurotoxicity study in rats was not required.

The Agency believes that it has sufficient data for the metabolites, PCA and CPU because the rate of metabolism of diflubenzuron to PCA or CPU in plants, ruminants, and the environment is low and, thus, exposure to these metabolites will be minimal. Adequate data are available to assess the cancer risks for both PCA and CPU. Even using the most conservative cancer risk assessment model, which is the low dose linear model, risk is negligible. EPA's experience is that a risk assessment using a low dose linear cancer assessment will be the most sensitive risk endpoint indicating that additional hazard testing for these metabolites will not lead to a more protective regulatory decision.

NRDC also claims that by relying on anticipated residue estimates for diflubenzuron on certain crops EPA vastly underestimates dietary exposure. This underestimation occurs, according to NRDC because EPA does not take into account that a significant number of consumers buy produce at farm stands. Even assuming that exposure as a result of purchases at farm stands constitute more than a negligible exposure, NRDC's claims here are inaccurate. Anticipated residues are based on data from crop field trials using application rates and procedures that will produce maximum residues under the currently-approved pesticide label at the time of harvest. As such, they are likely to overstate not understate residue levels of crops at farm stands.

Finally, NRDC asserts that EPA has underestimated aggregate exposure to diflubenzuron because EPA concluded that application of diflubenzuron to tree canopies would result in negligible residential exposure to diflubenzuron. After review, however, EPA reaffirms that these potential exposures are expected to be limited. The label states that “applications should be made during periods of minimal use.” and requires users to “Notify persons using recreational facilities or living in the area to be sprayed before application.” Diflubenzuron is only applied by commercial applicators to the tree canopy for control of gypsy moths and mosquitoes. Generally applied by helicopter, these sprays are not aerosols or ultra low volume sprays designed as space sprays, but are rather directed to the tree canopy and designed to impinge on the tree tops where they would be effective in pest control. The sprays designed for application to tree canopies utilize much larger droplet sizes which are essentially nonrespirable; therefore, minimal inhalation exposure to bystanders is expected. Additionally, due to a low dermal absorption rate (0.5%), the potential for dermal exposure to bystanders is expected to be minimal.

In any event, EPA would note that the results of the chronic dietary analysis indicated that the estimated chronic dietary risk associated with the proposed use of diflubenzuron was well below the Agency's level of concern for the general U.S. population. In fact, the highest exposed population subgroup (all infants < 1 years of age) is 5.5% of the PAD. The PAD is the Population Adjusted Dose, which is the Reference Dose (RfD) divided by the FQPA Safety Factor. The Agency's level of concern is for exposures in excess of 100% of the PAD. An acute dietary exposure risk assessment was not conducted since no hazard was identified for any population, including infants and children, following a single exposure to diflubenzuron (i.e., no hazard was identified, therefore, quantification of risk is not required).

To estimate total aggregate exposure to a pesticide from food, drinking water, and residential uses, the Agency calculates DWLOCs which are used as a point of comparison against the model estimates of a pesticide's concentration in water (EECs). DWLOC values are not regulatory standards for drinking water. DWLOCs are theoretical upper limits on a pesticide's concentration in drinking water in light of total aggregate exposure to a pesticide in food and residential uses. In calculating a DWLOC, the Agency determines how much of the acceptable exposure (i.e., the PAD) is available for exposure through drinking water [e.g., allowable chronic water exposure (mg/kg/day) = cPAD - (average food + residential exposure)]. This allowable exposure through drinking water is used to calculate a DWLOC.

A DWLOC will vary depending on the toxic endpoint, drinking water consumption, and body weights. Default body weights and consumption values as used by the USEPA Office of Water are used to calculate DWLOCs: 2L/70 kg (adult male), 2L/60 kg (adult female), and 1L/10 kg (child). Default body weights and drinking water consumption values vary on an individual basis. This variation will be taken into account in more refined screening-level and quantitative drinking water exposure assessments. Different populations will have different DWLOCs. Generally, a DWLOC is calculated for each type of risk assessment used: Acute, short-term, intermediate-term, chronic, and cancer.

When EECs for surface water and groundwater are less than the calculated DWLOCs, OPP concludes with reasonable certainty that exposures to the pesticide in drinking water (when considered along with other sources of exposure for which OPP has reliable data) would not result in unacceptable levels of aggregate human health risk at this time. Because OPP considers the aggregate risk resulting from multiple exposure pathways associated with a pesticide's uses, levels of comparison in drinking water may vary as those uses change. If new uses are added in the future, OPP will reassess the potential impacts of residues of the pesticide in drinking water as a part of the aggregate risk assessment process.

1. Acute risk . There is no risk from acute dietary exposure (1 day) to diflubenzuron as there is no toxic endpoint identified.

2. Chronic risk . Using the exposure assumptions described in this unit for chronic exposure, EPA has concluded that exposure to diflubenzuron and its metabolite CPU from food will utilize 1% of the cPAD for the U.S. population, 5.5% of the cPAD for infants and 1.2% of the cPAD for children 1-6 years old. Based on the use pattern, chronic residential exposure to residues of diflubenzuron is not expected. In addition, there is potential for chronic dietary exposure to diflubenzuron and its metabolite CPU in drinking water. After calculating DWLOCs and comparing them to the EECs for surface and ground water, EPA does not expect the aggregate exposure to exceed 100% of the cPAD, as shown in Table 5 below.

For the chronic analysis, ARs and %CT information for some commodities were used (Tier 3). The results of the chronic analysis for diflubenzuron indicate that the estimated chronic dietary risk associated with the proposed use of diflubenzuron is below HED's level of concern. The EECs generated by EFED are less than HED's DWLOCs. Thus, chronic non-cancer aggregate risk estimates are below HED's level of concern. Table 5 summarizes the chronic non-cancer aggregate exposure to diflubenzuron residues.

3. Short-term risk . Short-term aggregate exposure takes into account residential exposure plus chronic exposure to food and water (considered to be a background exposure level). Diflubenzuron is not registered for use on any sites that would result in substantial residential exposure. Therefore, a short-term aggregate risk assessment was not performed.

4. Intermediate-term risk . Intermediate-term aggregate exposure takes into account residential exposure plus chronic exposure to food and water (considered to be a background exposure level). Based on the use pattern, intermediate-term exposure to diflubenzuron would not be expected. Therefore, an intermediate-term aggregate risk assessment was not performed.

5. Aggregate cancer risk for U.S. population . As discussed in the Exposure Assessment in Unit. III.C. of this document, CPU is the only metabolite of concern for aggregate cancer risk that is likely to be found in drinking water. For the chronic analysis, ARs and %CT information for some commodities were used (Tier 3). The results of the cancer analysis indicate that the estimated cancer dietary risk from CPU associated with the proposed use of diflubenzuron is below the Agency's level of concern. Based on a negligible risk in the range of 1-3 x 10 - 6 , the DWLOCs were calculated to be in the range of 2.2-6.8 μg/L. The EECs for surface water (8.81 μg/L) slightly exceed the DWLOCs.

Since PCA is not found in drinking water, the aggregate cancer risk for PCA is the risk calculated for food only (4.7 x 10 - 7 ).

The Agency used a screening level model designed to estimate pesticide concentrations in surface water. Although the cancer DWLOC is exceeded by the EEC for CPU on peppers, a number of factors lead the Agency to believe that the actual lifetime exposure through drinking water from the metabolite CPU will be less than the cancer DWLOC. An explanation is provided below:

i. The dietary risk for CPU is minimal from mushrooms, milk, and liver. Therefore, the dietary risk from CPU occurs mostly from exposure that results from its formation in the environment and leaching into the surface water as a result of field application.

ii. The PRZM/EXAMS model does not consider the impact of processing (mixing, dilution, or treatment) of raw water for distribution of drinking water and removal of pesticides from source water.

iii. In the absence of reliable monitoring data, a default percent crop area (PCA) factor is applied to the PRZM/EXAMS modeling. Although the DWLOC is exceeded for peppers, the PCA factor of 87% that was used in the assessment is likely to be higher than the actual factor that would be appropriate for peppers in an agricultural watershed.

iv. To address the uncertainties caused by the absence of reliable monitoring data, the applicant has agreed to conduct edge-of-field runoff studies for peppers to monitor the actual concentrations of CPU in surface water. These data, albeit still relevant solely for estimation of residues in raw water and thus still likely to overestimate residues in actual drinking water, are likely to lower the upper bound risk estimate considerably.

6. Determination of safety . Based on these risk assessments, EPA concludes that there is a reasonable certainty that no harm will result to the general population, and to infants and children from aggregate exposure to diflubenzuron residues.

Adequate methods are available for the analysis of diflubenzuron, PCA, and CPU in crops. Three enforcement methods for diflubenzuron are published in the Pesticide Analytical Method Volume II (PAM II) as Methods I, II, and III. Method II is a GC/ECD method that can separately determine residues of diflubenzuron, CPU, and PCA in eggs, milk, and livestock tissues. All three methods have undergone a successful petition method validation (PMV) and are acceptable for enforcement purposes. Individual analyte methods for CPU (limit of quantitation (LOQ) of 0.001 ppm) and PCA (LOQ of 0.005 ppm) have been successfully validated by the Analytical Chemistry Branch (ACB).

Multiresidue Method (MRM). The FDA PESTDATA database dated 1/94 (PAM Vol. I, Appendix II) contains no information on diflubenzuron recovery using MRM PAM, Vol. I Sections 302, 303, and 304. However, the registrant has submitted Multiresidue testing data that the Agency has forwarded to the FDA. Also, the results of MRM testing of PCA and CPU have been submitted and forwarded to FDA. Neither PCA nor CPU were adequately recovered by any protocols.

There are no Codex proposals, Canadian, or Mexican limits for residues of diflubenzuron on rice. A compatibility issue is not relevant to the proposed tolerances.

Environmental fate. Edge of field monitoring study for peppers.

Therefore, the tolerance is established for combined residues of the insecticide diflubenzuron (N-[[4-chlorophenyl)amino]-carbonyl]-2,6-difluorobenzamide) and its metabolites, 4-chlorophenylurea (CPU) and 4-chloroaniline (PCA), in or on the following raw agricultural commodities: Grass, forage, fodder, and hay group at 6.0 ppm; pepper at 1.0 ppm; stone fruit group (except cherries) at 0.07 ppm; tree nut group at 0.06 ppm; almond hulls at 6.0 ppm; pistachio at 0.06 ppm; cattle, meat byproducts at 0.15 ppm; goat, meat byproducts at 0.15 ppm; hog, meat byproducts at 0.15 ppm; horse, meat byproducts at 0.15 ppm; sheep, meat byproducts at 0.15 ppm. The tolerances for pasture grass and walnut will be deleted, concomitant with the establishment of the tree nut group and grass, forage, fodder, and hay group tolerances.

Under section 408(g) of the FFDCA, as amended by the FQPA, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. The EPA procedural regulations which govern the submission of objections and requests for hearings appear in 40 CFR part 178. Although the procedures in those regulations require some modification to reflect the amendments made to the FFDCA by the FQPA of 1996, EPA will continue to use those procedures, with appropriate adjustments, until the necessary modifications can be made. The new section 408(g) provides essentially the same process for persons to “object” to a regulation for an exemption from the requirement of a tolerance issued by EPA under new section 408(d), as was provided in the old FFDCA sections 408 and 409. However, the period for filing objections is now 60 days, rather than 30 days.

You must file your objection or request a hearing on this regulation in accordance with the instructions provided in this unit and in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket control number OPP-2002-0224 in the subject line on the first page of your submission. All requests must be in writing, and must be mailed or delivered to the Hearing Clerk on or before November 18, 2002.

1. Filing the request . Your objection must specify the specific provisions in the regulation that you object to, and the grounds for the objections (40 CFR 178.25). If a hearing is requested, the objections must include a statement of the factual issues(s) on which a hearing is requested, the requestor's contentions on such issues, and a summary of any evidence relied upon by the objector (40 CFR 178.27). Information submitted in connection with an objection or hearing request may be claimed confidential by marking any part or all of that information as CBI. Information so marked will not be disclosed except in accordance with procedures set forth in 40 CFR part 2. A copy of the information that does not contain CBI must be submitted for inclusion in the public record. Information not marked confidential may be disclosed publicly by EPA without prior notice.

Mail your written request to: Office of the Hearing Clerk (1900C), Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460. You may also deliver your request to the Office of the Hearing Clerk in Rm. 104, Crystal Mall #2, 1921 Jefferson Davis Hwy., Arlington, VA. The Office of the Hearing Clerk is open from 8 a.m. to 4 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Office of the Hearing Clerk is (703) 603-0061.

2. Tolerance fee payment . If you file an objection or request a hearing, you must also pay the fee prescribed by 40 CFR 180.33(i) or request a waiver of that fee pursuant to 40 CFR 180.33(m). You must mail the fee to: EPA Headquarters Accounting Operations Branch, Office of Pesticide Programs, P.O. Box 360277M, Pittsburgh, PA 15251. Please identify the fee submission by labeling it “Tolerance Petition Fees.”

EPA is authorized to waive any fee requirement “when in the judgement of the Administrator such a waiver or refund is equitable and not contrary to the purpose of this subsection.” For additional information regarding the waiver of these fees, you may contact James Tompkins by phone at (703) 305-5697, by e-mail at tompkins.jim@epa.gov, or by mailing a request for information to Mr. Tompkins at Registration Division (7505C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460.

If you would like to request a waiver of the tolerance objection fees, you must mail your request for such a waiver to: James Hollins, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460.

3. Copies for the Docket . In addition to filing an objection or hearing request with the Hearing Clerk as described in Unit VI.A., you should also send a copy of your request to the PIRIB for its inclusion in the official record that is described in Unit I.B.2. Mail your copies, identified by docket control number OPP-2002-0224, to: Public Information and Records Integrity Branch, Information Resources and Services Division (7502C), Office of Pesticide Programs, Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460. In person or by courier, bring a copy to the location of the PIRIB described in Unit I.B.2. You may also send an electronic copy of your request via e-mail to: opp-docket@epa.gov. Please use an ASCII file format and avoid the use of special characters and any form of encryption. Copies of electronic objections and hearing requests will also be accepted on disks in WordPerfect 6.1/8.0 or ASCII file format. Do not include any CBI in your electronic copy. You may also submit an electronic copy of your request at many Federal Depository Libraries.

A request for a hearing will be granted if the Administrator determines that the material submitted shows the following: There is a genuine and substantial issue of fact; there is a reasonable possibility that available evidence identified by the requestor would, if established resolve one or more of such issues in favor of the requestor, taking into account uncontested claims or facts to the contrary; and resolution of the factual issues(s) in the manner sought by the requestor would be adequate to justify the action requested (40 CFR 178.32).

This final rule establishes a tolerance under FFDCA section 408(d) in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled Regulatory Planning and Review (58 FR 51735, October 4, 1993). Because this rule has been exempted from review under Executive Order 12866 due to its lack of significance, this rule is not subject to Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use (66 FR 28355, May 22, 2001). This final rule does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq. , or impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4). Nor does it require any special considerations under Executive Order 12898, entitled Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations (59 FR 7629, February 16, 1994); or OMB review or any Agency action under Executive Order 13045, entitled Protection of Children from Environmental Health Risks and Safety Risks (62 FR 19885, April 23, 1997). This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272 note). Since tolerances and exemptions that are established on the basis of a petition under FFDCA section 408(d), such as the tolerance in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ) do not apply. In addition, the Agency has determined that this action will not have a substantial direct effect on States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132, entitled Federalism (64 FR 43255, August 10, 1999). Executive Order 13132 requires EPA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” This final rule directly regulates growers, food processors, food handlers and food retailers, not States. This action does not alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of FFDCA section 408(n)(4). For these same reasons, the Agency has determined that this rule does not have any “tribal implications” as described in Executive Order 13175, entitled Consultation and Coordination with Indian Tribal Governments (65 FR 67249, November 6, 2000). Executive Order 13175, requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” “Policies that have tribal implications” is defined in the Executive order to include regulations that have “substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and the Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.” This rule will not have substantial direct effects on tribal governments, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes, as specified in Executive Order 13175. Thus, Executive Order 13175 does not apply to this rule.

The Congressional Review Act, 5 U.S.C. 801 et seq. , as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of this final rule in the Federal Register . This final rule is not a “major rule” as defined by 5 U.S.C. 804(2).

EPA Region 4 is publishing this direct final notice of deletion of the BMI-Textron Superfund Site (Site) from the NPL. The EPA identifies sites that appear to present a significant risk to public health or the environment and maintains the NPL as the list of those sites. As described in the § 300.425(e)(3) of the NCP, sites deleted from the NPL remain eligible for remedial actions if conditions at a deleted site warrant such action.

Because EPA considers this action to be noncontroversial and routine, EPA is taking it without prior publication of a notice of intent to delete. This action will be effective November 18, 2002, unless EPA receives adverse comments by October 21, 2002, on this document. If adverse comments are received within the 30-day public comment period on this document, EPA will publish a timely withdrawal of this direct final deletion before the effective date of the deletion and the deletion will not take effect. EPA will, as appropriate, prepare a response to comments and continue with the deletion process on the basis of the notice of intent to delete and the comments already received. There will be no additional opportunity to comment.

Section II of this document explains the criteria for deleting sites from the NPL. Section III discusses procedures EPA is using for this action. Section IV discusses the BMI-Textron, Superfund Site and demonstrates how it meets the deletion criteria. Section V discusses EPA's action to delete the Site from the NPL unless adverse comments are received during the public comment period.

Section 300.425(e) of the NCP provides that releases may be deleted from the NPL where no further response is appropriate. In making a determination to delete a Site from the NPL, EPA shall consider, in consultation with the State, whether any of the following criteria have been met:

i. Responsible parties or other persons have implemented all appropriate response actions required;

ii. All appropriate Fund-financed (Hazardous Substance Superfund Response Trust Fund) response under CERCLA has been implemented, and no further response action by responsible parties is appropriate; or

iii. The remedial investigation has shown the release poses no significant threat to public health or the environment and, therefore, the taking of remedial measures is not appropriate.

Even if a site is deleted from the NPL, where hazardous substances, pollutants, or contaminants remain at the deleted site above levels that allow for unlimited use and unrestricted exposure, CERCLA section 121(c), 42 U.S.C. 9621(c) requires a subsequent review of the site be conducted at least every five years after the initiation of the remedial action at the deleted site to ensure the action remains protective of public health and the environment. If new information becomes available which indicates a need for further action, EPA may initiate remedial actions. Whenever there is a significant release from a site deleted from the NPL, the deleted site may be restored to the NPL without application of the hazard ranking system.

The following procedures apply to deletion of the Site:

1. The EPA consulted with the State of Florida on the deletion of the Site from the NPL prior to developing this direct final notice of deletion.

2. Florida concurred with deletion of the Site from the NPL.

3. Concurrently with the publication of this direct final notice of deletion, a notice of the availability of the parallel notice of intent to delete published today in the “Proposed Rules” section of the Federal Register is being published in a major local newspaper of general circulation at or near the Site and is being distributed to appropriate federal, state, and local government officials and other interested parties; the newspaper notice announces the 30-day public comment period concerning the notice of intent to delete the Site from the NPL.

4. The EPA placed copies of documents supporting the deletion in the Site information repositories identified above.

5. If adverse comments are received within the 30-day public comment period on this document, EPA will publish a timely notice of withdrawal of this direct final notice of deletion before its effective date and will prepare a response to comments and continue with the deletion process on the basis of the notice of intent to delete and the comments already received.

Deletion of a site from the NPL does not itself create, alter, or revoke any individual's rights or obligations. Deletion of a site from the NPL does not in any way alter EPA's right to take enforcement actions, as appropriate. The NPL is designed primarily for informational purposes and to assist EPA management. Section 300.425(e)(3) of the NCP states the deletion of a site from the NPL does not preclude eligibility for future response actions, should future conditions warrant such actions.

The Basic Microelectronics, Incorporated (BMI)-Textron Site (Site) is an inactive 3.5 acre industrial site located within the Tri-City Industrial Park on Silver Beach Road in Lake Park, Palm Beach County, Florida. The Site consists of parcels 1 through 14 in Section C of the Tri-City Industrial Park. The boundaries include: Newman Road to the north, Silver Beach Road to the south, Reed Road to the east and Miller Way to the west. Adjacent properties on the north, east and west are businesses and industrial sites. Residential areas are to the south.

Basic Microelectronics, Inc. began operations at the site in 1969. Textron, Inc. acquired Basic Microelectronics in 1981 and began operating as BMI-Textron. The company's main product was chrome backed glass plates which were used in the production of electronic components. During company operations, the Site included 6 domestic waste drain fields, 3 percolation ponds, 2 septic tanks, and settling basins. The present Site includes storage warehouses and small workshops. Most of the land is either paved or covered by buildings.

During site operations liquid waste from the process was disposed of on-site through a combination of percolation ponds and drain fields. The wastewater system was operated under a Florida Department of Environmental Regulation (FDER) permit. Prior to 1984, cyanide wastes were disposed of in Percolation Pond 1. This pond was abandoned in 1984. Hazardous wastes from facility operations were disposed of off-site at approved facilities.

In 1981, BMI-Textron obtained a FDER construction permit for a drain field for wastewater disposal. Four monitoring wells were installed as a permit requirement. The wastewater included chromium stripping operations wastewater, process wastewater from glass cleaning, coating, polishing and rinse waters, wastewater from a reverse osmosis water purification plant and domestic sanitary wastewater.

EPA and the Florida Department of Environmental Regulation (FDER) conducted several investigations and took enforcement actions between 1984 and 1990. These investigations/actions included:

1. A 1984 soil and groundwater assessment of percolation pond 1 revealed cyanide contamination and resulted in a consent order to remove contaminated soils from percolation pond 1.

2. A 1985-86 soil and groundwater assessment of percolation pond 2 revealed cyanide, nitrate and fluoride contamination.

3. A 1986 soil assessment of percolation pond 3 and the Reverse Osmosis drain field revealed cyanide, nitrate and fluoride contamination.

4. In 1987, a groundwater and soil investigation revealed barium, chromium and cyanide contamination. EPA investigated the site for placement on the NPL. The Groundwater Route score was the major factor in the hazard ranking score of 37.93.

5. In 1988, FDER issued a consent order. Under this consent order, a soil investigation revealed cyanide, fluoride, nitrate and chromium contamination in the area of percolation pond 2.

In 1990, an Interim Remedial Action Soil Disposal Plan was approved by FDER. Soils from percolation pond 2 were removed and disposed of under this plan. The area of percolation pond 3 was backfilled with 4 feet of material and capped with asphalt.

In August 1990, the Site was listed on the NPL. In June 1992, BMI-Textron entered into an Administrative Order (AO) by consent with EPA to conduct a RI/FS. The RI/FS was conducted in 2 phases between February 1993 and August 1994. The results of the Remedial Investigation (RI) can be summarized as follows:

1. Groundwater was identified as the principal media of concern at the Site.

2. Groundwater at the Site was contaminated with elevated levels of arsenic, sodium, cyanide and fluoride, i.e. the Contaminants of Concern (COC).

3. Groundwater contamination was present only in the shallow aquifer in the northeast portion of the site.

4. Contaminated groundwater had not migrated off-site.

5. There were no private water wells near the site.

6. Surface water bodies were not impacted.

7. Air contamination was not a concern because most of the site was paved and the COCs were not present in surface soils.

8. No impacts to local plants and animals were expected or evaluated because of the industrial nature of the site.

The Feasability Study (FS) resulted in several important points:

1. Previous soil excavations at percolation ponds 1 and 3 effectively remediated contaminated soils at these areas.

2. Soils remaining at the site did not pose a threat to groundwater quality.

3. The restriction of groundwater contamination to the upper surficial aquifer zone of percolation ponds 1 and 2 indicated a lack of vertical migration of the COCs and a lack of connectivity between the upper and intermediate aquifers.

4. Arsenic, sodium, cyanide and fluoride were detected at concentrations above Florida drinking water standards and required remedial action.

5. Potential cleanup criteria for these COCs were established.

The FS compared 4 remedial alternatives with available technologies and appropriate regulations.

On August 11, 1994, EPA signed a Record of Decision (ROD) for the Site. The ROD describes the contamination and the remedy selected to address the Site.

In regard to use of the Site in 1994, the ROD determined there was no risk to human health based on the “then current use” of the site. The RI had determined the potable wells in the vicinity of the Site and down gradient were not contaminated from Site operations. The ROD determined groundwater was the only possible medium available for human contact with COCs on-site and off-site.

A future, hypothetical worst-case exposure scenario for groundwater was also considered. In the scenario, use of contaminated groundwater as a potable water source by future residents was considered. The cumulative, carcinogenic and non-carcinogenic risks associated with such use was determined to be unacceptable.

The primary remedial objective stated in the ROD was to remediate COCs to drinking water standards, i.e. Maximum Contaminant Levels (MCLs). Prior site data indicated natural attenuation of COCs in groundwater was already occurring at the Site. As the remedy, EPA chose natural attenuation of the COC (arsenic, cyanide, fluoride, and sodium) concentrations with groundwater monitoring to ensure drinking water MCLs were achieved through natural attenuation. The selected remedy involved:

1. Quarterly groundwater monitoring for one year including submission of quarterly monitoring reports,

2. Annual groundwater data review and monitoring frequency by the EPA for the remaining two years,

3. Use of existing institutional controls to protect against possible exposure to COCs ( i.e. requirements for obtaining well permits from FDEP),

4. Use of existing wells for groundwater monitoring to ensure natural attenuation was occurring (a total of 30 wells existed on and off site), and

5. Site security (fenced area and locked gate).

The institutional controls described in the ROD included established regional well controls and use of existing well permitting regulations administered through the South Florida Water Management Department (SFWMD), the Palm Beach County Health Department (PBCHD) and FDEP.

In March 1995, a Groundwater Monitoring Work Plan (Groundwater Monitoring Plan) was approved which required three years of groundwater monitoring, with provisions for more monitoring if needed. The Groundwater Monitoring Plan selected 8 of the existing wells, 4 on-site and 4 off-site, for use as monitoring wells. The on-site wells were located in areas where RI sample data indicated contaminant levels had exceeded drinking water standards. The off-site wells were used to monitor for off-site migration of groundwater contamination. Under the terms of the Groundwater Monitoring Plan, all 8 wells were to be sampled for the COCs, i.e. fluoride, total cyanide, sodium and arsenic until the sample concentration met MCLs for 2 consecutive sampling events. After those 2 consecutive events, sampling could cease at the wells meeting the drinking water standards. Sampling at the Site continued until MCLs were met for all COCs at all 8 wells. The last sampling event occurred in July 2000.

Monitoring reports were submitted for sampling in April 1995, July 1995, October 1995, January 1996, July 1996, January 1997, July 1997 and January 1998, January 2000, April 2000 and July 2000. According to the data in these reports the MCLs have been achieved and the Remedial Action Objectives (RAOs) met.

A five-year review of the remedy was performed in June 2000 in accordance with EPA policy. The review findings are contained in the Final Superfund Five-Year Review Report which concluded the selected remedy remained protective of human health and the environment. Sampling data from groundwater monitoring reports demonstrated natural attenuation of COCs had occurred.

Attainment of the remedial goal for arsenic of 0.05 mg/L in the groundwater at the Site was first reported in the results from the April 1995 monitoring event. Additional monitoring events were performed after the initial attainment to ensure the arsenic in site groundwater met the remedial goal. The last sampling for arsenic was in January 1996.

Attainment of the remedial goal for sodium of 160 mg/L in the groundwater at the Site was first reported in the results from the January 1997 monitoring event. Two additional monitoring events were performed after the initial attainment to ensure the sodium in site groundwater met the remedial goal. The last sampling for sodium was in January 1998.

Attainment of the remedial goal for fluoride of 4 mg/L in the groundwater at the Site was first reported in the results from the October 1998 monitoring event. Two additional monitoring events were performed after the initial attainment to ensure the fluoride in site groundwater met the remedial goal. The last sampling for fluoride was in July 2000.

Attainment of the remedial for cyanide of 0.2 mg/L in the groundwater at the Site was reported in the results from January 2000 monitoring event. Two additional monitoring events were performed after the initial attainment to ensure the cyanide in site groundwater met the remedial goal. The drinking water standard for cyanide is based on the amenable cyanide concentration. The last sampling for cyanide was in July 2000.

EPA, with concurrence of FDEP, has determined all appropriate actions at the BMI-Textron Site, have been completed, and no further remedial action is necessary. Water well permitting regulations continue to be administered through the South Florida Water Management Department, the Palm Beach County Health Department and FDEP.

Between January 31, 2001 and February 15, 2001, Arcadis, Geragthy & Miller completed a final site inspection and closeout activities to ensure all associated equipment and items used to complete the site remedy were removed from the property and properly disposed of or properly abandoned.

On January 31, 2001 Arcadis, Geragthy & Miller observed and documented the proper abandonment (grouting of wells with neat cement, using a tremie pipe, from the bottom of the well to land surface) of 7 of the 8 remaining on and off-site monitoring wells (3, 35R, 36A, 37, 38, MW-93-4 and MW-93-6) by a state-licensed drilling contractor. Monitoring well 10A was not abandoned because it is part of a three-well cluster initially installed / owned by the FDEP which may be useful for monitoring groundwater in the area of the nearby Transcircuit Superfund site. The steel protective casings extending above grade on two of the wells were cut off a few inches below grade and the ground surface re-paved.

On February 15, 2001, Arcadis, Geragthy & Miller observed and documented the removal of the two above-ground steel storage tanks (ASTs) from the property. These ASTs were used over the past several years for the storage of water purged from the monitoring wells.

Public participation activities have been satisfied as required in CERCLA section 113(k), 42 U.S.C. 9613(k), and CERCLA section 117, 42 U.S.C. 9617. Documents in the deletion docket which EPA relied on for recommendation of the deletion from the NPL are available to the public in the information repositories.

The EPA, with concurrence of the State of Florida, has determined all appropriate responses under CERCLA have been completed, and no further response actions under CERCLA are necessary. Therefore, EPA is deleting the Site from the NPL.

Because EPA considers this action to be noncontroversial and routine, EPA is taking it without prior publication. This action will be effective November 18, 2002, unless EPA receives adverse comments by October 21, 2002. If adverse comments are received within the 30-day public comment period, EPA will publish a timely withdrawal of this direct final notice of deletion before the effective date of the deletion and it will not take effect and, EPA will prepare a response to comments and continue with the deletion process on the basis of the notice of intent to delete and the comments already received. There will be no additional opportunity to comment.

NHTSA published a final rule on July 18, 2002 (67 FR 47321, Docket No. NHTSA-02-12541) that responded to various petitions for reconsideration of its previous rule incorporating a new, Hybrid III 6-year-old child anthropomorphic test dummy (HIII-6C) into 49 CFR part 572. That final rule was published January 13, 2000 (65 FR 2059, Docket No. NHTSA-99-6714). The petitions were granted in part and denied in part.

Most of the issues raised in the petitions were minor and involved technical changes to either the dummy specifications or to the drawing package. In some cases, the petitioners had requested the specifications be tightened to ensure more accurate measurements in the tests in which the dummy is used to measure injury criteria. More significant issues were raised regarding the thoracic peak force criteria, the need for a specified mass moment of inertia (MMI) and resonant frequency of the impactors, and the need for a post-test calibration. Our review of the petitions also uncovered several minor errors in the drawings package that were resolved. All these issues were addressed in the July 18, 2002 final rule.

We are issuing a correcting amendment because that document contained a few technical errors. Namely, we inadvertently failed to submit the amended Figure N5 when the final rule was forwarded to the Federal Register for publication, and Table 1 of the preamble contained two typographical errors and two omissions. While Table 1 is not part of the regulatory text, and the changes to that table in this notice will have no effect on what is ultimately published in the Code of Federal Regulations, we have decided to amend the table since it provides a quick reference of those changes to the drawing package incorporated by reference into 49 CFR part 572, subpart N.

As noted in the preamble to the July 2002 final rule, the following changes were made to the figures included as part of 49 CFR 572, subpart N to correct inaccuracies or ambiguities in those figures.

• Figure N2: (1) Relocate the 26.1 mm reference to the centerline of the posterior attachment bolt to reflect dimensional proportionality; (2) change reference from “Neck Flexion Pendulum 46 CFR§ 572.33 FIG 22” to “Neck Flexion Pendulum 49 CFR 572.33 FIG 22”; and (3) add part number for bolt “#9001265 Screw, SHCS #10-24 x 7/16”.

• Figure N3: (1) Relocate the 26.1 mm reference to the centerline of the posterior attachment bolt to reflect dimensional proportionality; and (2) add part number for bolt “#9001265 Screw, SHCS #10-24 x 7/16”.

• Figure N5: Change bracket dimensions from “89.9 mm (3.54 in) x 161.3 mm (6.35 in) x 31.8 mm (1.251 in)” to “90.4 mm (3.56 in) x 175.5 mm (6.91 in) x 31.8 mm (1.25 in)”.

• Figure N6: (1) Remove note SA572-S4; and (2) change the weight tolerance on the knee probe from “0.82 ± 0.01 kg (1.80 ± .02 lb)” to “0.82 ± 0.02 kg (1.80 ± .05 lb)”.

No changes were made to Figure N1. Figure N1, rather than Figure N5 was inadvertently sent to the Federal Register as part of the final rule. Accordingly, the changes that were made to figure N5 do not appear in the revised regulatory text. Today's amendment corrects that error.

In responding to the petitions for reconsideration, several minor inconsistencies and call-out errors were noted either by petitioners or by agency staff in the review process. Accordingly, the changes that were made to the drawing package were noted in Table 1 of the final rule. That table contained two typographical errors, one under item 127-8210 and the other under item SA 572-S50, which are corrected here. Additionally, just before publication of the final rule, we discovered two errors in the drawings package that were not identified in Table 1: to wit, the head skin weight specification in drawing 127-1008 was changed from 1.78 ± .05 lbs to 1.55 ± .05 lbs, and the molded length specification for the upper arm molded assembly in drawing 127-5001 was revised from 5.24 in to 4.6 in. While these errors were not discussed in the final rule, they were corrected prior to publication of the final rule. Accordingly, both the drawings package sent to Reprographic Technologies and the one placed on public display at NHTSA technical reference library were correct. There is no need for purchasers of the drawing package to repurchase the package. Table 1 is recreated in whole so that readers may refer to a single, correct table.

Executive Order 12866, “Regulatory Planning and Review” (58 FR 51735, October 4, 1993), provides for making determinations whether a regulatory action is “significant” and therefore subject to Office of Management and Budget (OMB) review and to the requirements of the Executive Order. The Order defines a “significant regulatory action” as one that is likely to result in a rule that may:

(1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or Tribal governments or communities;

(2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;

(3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or

(4) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

We considered the impact of the July 18, 2002 rulemaking action under Executive Order 12866 and the Department of Transportation's regulatory policies and procedures. This rule is not considered a significant regulatory action under section 3(f) of the Executive Order 12866. Consequently, it was not reviewed by the Office of Management and Budget under E.O. 12866, “Regulatory Planning and Review.” The rulemaking action is also not considered to be significant under the Department's Regulatory Policies and Procedures (44 FR 11034, February 26, 1979). Today's notice does not impose any new requirements on manufacturers. It simply corrects typographical errors and adds information to a table that is not part of the regulatory text and adds the correct amended figure to the regulatory text.

Executive Order 13132 requires NHTSA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.” Under Executive Order 13132, the agency may not issue a regulation with Federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, the agency consults with State and local governments, or the agency consults with State and local officials early in the process of developing the proposed regulation. NHTSA also may not issue a regulation with Federalism implications and that preempts State law unless the agency consults with State and local officials early in the process of developing the proposed regulation. As explained above, today's notice will not have any additional economic impact on any entities.

Executive Order 13045 (62 FR 19885, April 23, 1997) applies to any rule that: (1) is determined to be “economically significant” as defined under E.O. 12866, and (2) concerns an environmental, health or safety risk that NHTSA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, we must evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by us.

This rule is not subject to the Executive Order because it is not economically significant as defined in E.O. 12866. It does indirectly involve decisions based on health risks that disproportionately affect children, namely, the risk of deploying air bags to children. However, this rulemaking serves to help vehicle and air bag manufacturers to take steps to reduce that risk.

Pursuant to Executive Order 12778, “Civil Justice Reform,” we have considered whether this rule will have any retroactive effect. This rule does not have any retroactive effect. A petition for reconsideration or other administrative proceeding will not be a prerequisite to an action seeking judicial review of this rule. This rule does not preempt the states from adopting laws or regulations on the same subject, except that it does preempt a state regulation that is in actual conflict with the federal regulation or makes compliance with the Federal regulation impossible or interferes with the implementation of the federal statute.

Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601 et seq. , as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996) whenever an agency is required to publish a notice of rulemaking for any proposed or final rule, it must prepare and make available for public comment a regulatory flexibility analysis that describes the effect of the rule on small entities ( i.e. , small businesses, small organizations, and small governmental jurisdictions). However, no regulatory flexibility analysis is required if the head of an agency certifies the rule will not have a significant economic impact on a substantial number of small entities. SBREFA amended the Regulatory Flexibility Act to require Federal agencies to provide a statement of the factual basis for certifying that a rule will not have a significant economic impact on a substantial number of small entities.

I have considered the effects of this rulemaking action under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) and certify that this proposal will not have a significant economic impact on a substantial number of small entities. The amendments made in this document will not affect the cost of the dummy. The rule does not impose or rescind any requirements for anyone. The Regulatory Flexibility Act does not, therefore, require a regulatory flexibility analysis.

We have analyzed this amendment for the purposes of the National Environmental Policy Act and determined that it will not have any significant impact on the quality of the human environment.

Under the Paperwork Reduction Act of 1995, a person is not required to respond to a collection of information by a Federal agency unless the collection displays a valid OMB control number. This rule does not propose any new information collection requirements.

Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272) directs us to use voluntary consensus standards in its regulatory activities unless doing so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( e.g. , materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies, such as the Society of Automotive Engineers (SAE). The NTTAA directs us to provide Congress, through OMB, explanations when we decide not to use available and applicable voluntary consensus standards.

The H-III6C dummy that is the subject of this document was developed under the auspices of the SAE. All relevant SAE standards were reviewed as part of the development process. The following voluntary consensus standards have been used in developing the dummy:

• SAE Recommended Practice J211-1995, “Instrumentation for Impact Tests—Parts 1 and 2”, dated March, 1995; and

• SAE J1733 Information Report, titled “Sign Convention for Vehicle Crash Testing”, dated December 1994.

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires Federal agencies to prepare a written assessment of the costs, benefits and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local or tribal governments, in the aggregate, or by the private sector, of more than $100 million in any one year (adjusted for inflation with base year of 1995). Before promulgating a NHTSA rule for which a written statement is needed, section 205 of the UMRA generally requires us to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows us to adopt an alternative other than the least costly, most cost-effective or least burdensome alternative if we publish with the final rule an explanation why that alternative was not adopted.

This rule does not impose any unfunded mandates under the Unfunded Mandates Reform Act of 1995. This rule does not meet the definition of a Federal mandate because it does not impose requirements on anyone. Further, it will not result in costs of $100 million or more to either State, local, or tribal governments, in the aggregate, or to the private sector. The amendments made in this document will not affect the cost of the dummy. Thus, this rule is not subject to the requirements of sections 202 and 205 of the UMRA.

The Department of Transportation assigns a regulation identifier number (RIN) to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. You may use the RIN contained in the heading at the beginning of this document to find this action in the Unified Agenda.