After considering the comments on a joint advance notice of proposed rulemaking (ANPR) published on July 19, 2001 (66 FR 37602), and a joint notice of proposed rulemaking (NPR) published on February 6, 2004 (69 FR 5729), OTS is revising its regulation implementing the CRA (12 U.S.C. 2901 et seq. ). This final rule revises the definition of “small savings association” to mean a savings association with total assets of less than $1 billion (without regard to any holding company assets). At the same time, OTS is withdrawing other changes to the CRA regulations that had been proposed in the NPR.

In 1977, Congress enacted the CRA to encourage insured banks and thrifts to help meet the credit needs of their entire communities, including low- and moderate-income areas, consistent with safe and sound lending practices. In the CRA, Congress found that regulated financial institutions are required to demonstrate that their deposit facilities serve the convenience and needs of the communities in which they are chartered to do business, and that the convenience and needs of communities include the need for credit as well as deposit services. The CRA plays an important role in improving access to credit among under-served rural and urban communities.

On May 4, 1995, OTS, along with the Office of Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Board of Governors of the Federal Reserve System (FRB) (collectively, the banking agencies) adopted major amendments to regulations implementing the CRA (60 FR 22156). In connection with that rulemaking, the banking agencies received a large number of comments from small institutions seeking regulatory relief. These commenters stated that they incurred significant regulatory burdens and costs from having to document CRA performance, and that these burdens and costs impeded their ability to improve their CRA performance. The 1995 regulations reflected the banking agencies' objectives that the CRA regulations provide for performance-based assessment standards that minimize compliance burdens while stimulating improved performance.

Under the 1995 rule, an institution is considered small if, at the end of either of the two previous years, it had less than $250 million in assets and was independent or affiliated with a holding company with total bank and thrift assets of less than $1 billion. Under the regulations, a small institution's CRA performance is evaluated under a streamlined test that focuses primarily on lending. The test considers the institution's loan-to-deposit ratio; the percentage of loans in its assessment areas; its record of lending to borrowers of different income levels and businesses and farms of different sizes; the geographic distribution of its loans; and its record of taking action, if warranted, in response to written complaints about its performance in helping to meet credit needs in its assessment areas.

In the 1995 rulemaking, the banking agencies stated that they intended to review the CRA regulations in 2002. The banking agencies indicated that the regulations would be reviewed for their effectiveness in placing performance over process, promoting consistency in evaluations, and eliminating unnecessary burden. 60 FR 22156, 22177 (1995). The banking agencies initiated this review in July 2001 with the publication in the Federal Register of a joint ANPR (66 FR 37602). The banking agencies solicited comment on the fundamental issue of whether any change to the regulations would be beneficial or warranted. They specifically requested comment on eight discrete aspects of the regulations. One of those aspects involved small institutions and the streamlined small institution evaluation.

The ANPR explained that some had suggested that the asset thresholds for being considered a small institution are too low. Others had asserted that holding company assets are irrelevant—if an institution has less than $250 million in assets, it should be considered small even if it is affiliated with a large holding company. Still others had suggested that holding company assets are relevant only if the holding company provides support for CRA activities or otherwise directs the CRA activities of an institution.

The ANPR asked several questions concerning the small institution performance standards, including:

• Do the provisions relating to asset size and holding company affiliation provide a reasonable and sufficient standard for defining “small institutions” that are eligible for the streamlined small institution evaluation test? If so, why? If not, how should the regulations be revised?

• Are the small institution performance standards effective in evaluating such institutions' CRA performance? If so, why? If not, how should the regulations be revised?

The banking agencies received about 400 comment letters on the ANPR. As summarized in the 2004 NPR, most of these comments were submitted by banks, thrifts, and their trade associations (“financial institutions”), and by local and national nonprofit community advocacy and community development organizations (“community organizations”).

Most small institutions commented that they were satisfied that qualifying under the “small institution” definition substantially reduced their CRA compliance burden. Many commenters, however, argued that the small institution performance standards should be available to a larger number of institutions. Generally, these commenters raised many of the same concerns raised in the 1995 rulemaking. Primarily, these commenters argued that the regulatory burden of the CRA rules impedes smaller banks from improving their CRA performance. Many financial institutions suggested that, to reduce undue burden, the agencies should raise significantly the small institution asset threshold and eliminate or significantly raise the holding company limitation. These commenters cited the burdens on retail institutions that are subject to the “large institution” CRA tests because they slightly exceed the asset threshold for small institutions. Commenters asserted that these institutions have difficulty achieving a “low satisfactory” or better rating on the investment test and, as a result, have difficulty achieving an “outstanding” rating overall. Commenters added that these institutions encounter serious challenges competing with larger institutions for suitable investments and, as a result, sometimes invest in activities inconsistent with their business strategy, their own best financial interests, or community needs. Commenters also asserted that data collection and reporting are proportionally more burdensome for institutions within a range moderately exceeding the threshold than for institutions far above the threshold.

Some commenters asserted that upon exceeding the $250 million threshold, institutions face a threefold increase in compliance costs for CRA due to the need for new personnel, data collection and reporting costs, and the particular burdens imposed by the investment test applicable to large retail institutions. They asserted that raising the existing asset threshold for small institutions would be consistent with the banking agencies' intent in 1995 to avoid regulatory burdens counterproductive to the objectives of the CRA. They also questioned the benefit of reporting small business and small farm loan data, especially by institutions that serve limited geographic areas. Some commenters suggested that institutions be relieved of reporting such data and that examiners instead sample files or review only the data gathered and maintained by institutions pursuant to other laws or procedures (for example, the Call Report or Thrift Financial Report).

Financial institutions also commented that changes in the industry had rendered the threshold out-of-date. They pointed to the consolidation in the banking and thrift industries through mergers and acquisitions, and the growing gap between “mega-institutions” and those under $1 billion in assets. They noted that the number of institutions considered small, and the percentage of overall bank and thrift assets held by those institutions, has decreased significantly since the 1995 revisions. The financial institutions suggested raising the small institution asset-size threshold from $250 million to amounts ranging from $500 million to $2 billion. They also generally suggested eliminating or raising the $1 billion holding company threshold. They contended that affiliation with a large holding company does not enable an otherwise small institution to perform any better under the large retail institution test than a small institution without such an affiliation.

Community organizations opposed changing the definition of “small institution.” These commenters were primarily concerned that reducing the number of institutions subject to the large retail institution test—and, therefore, the investment test—would reduce the level of investment in low- and moderate-income urban and rural communities. Community organizations were also concerned that the reduction in publicly available small business and small farm loan data would follow a reduction in the number of large retail institutions.

In the 2004 NPR, the banking agencies considered the institution asset-size and holding company asset-size thresholds in light of these comments. The NPR explained that the regulations distinguish between small and large institutions for several important reasons. The NPR noted that institutions' capacities to undertake certain activities, and the burdens of those activities, vary by asset size, sometimes disproportionately. Examples of such activities include identifying, underwriting, and funding qualified equity investments, and collecting and reporting loan data. The case for imposing certain burdens is sometimes more compelling with larger institutions than with smaller ones. For instance, the number and volume of loans and services generally tend to increase with asset size, as do the number of people and areas served, although the amount and quality of an institution's service to its community certainly is not always directly related to its size. Furthermore, evaluation methods appropriately differ depending on institution size.

The NPR further explained that the banking agencies originally included the holding company limitation to reflect the ability of a holding company of a certain size (over $1 billion) to support a bank or thrift subsidiary's compliance activities. The NPR noted, however, that anecdotal evidence suggested that a relatively small institution with a sizable holding company often finds addressing its CRA responsibilities no less burdensome than does a similarly-sized institution without a sizable holding company. Thus, the banking agencies proposed to eliminate the holding company limitation on small institution eligibility.

The preamble to the NPR indicated that several factors led the banking agencies to propose raising the asset threshold. First, with the increase in consolidation at the large end of the asset size spectrum, the gap in assets between the smallest and largest institutions has grown substantially since the line was drawn at $250 million in 1995. Because some compliance costs are fixed, the compliance burden on institutions in a range moderately exceeding any threshold, measured as the cost of compliance relative to asset size, generally will be proportionally higher than the burden on institutions far above the same threshold. Yet, the asset gap between the smallest institutions above the threshold and the largest institutions continues to grow. As a result, the compliance burden on the smallest institutions above the threshold has grown disproportionately. Second, the number of institutions defined as “small” has declined by over 2,000 since the threshold was set in 1995, and their percentage of industry assets has declined substantially. Third, some asset growth since 1995 has been due to inflation, not real growth. Fourth, the banking agencies are committed to reducing burden where feasible and appropriate.

The NPR proposed to raise the small institution asset threshold to $500 million, without reference to holding company assets. The banking agencies calculated that raising the asset threshold to $500 million and eliminating the holding company limitation would reduce the number of institutions subject to the large retail institution test but decrease the percentage of industry assets subject to the large retail institution test only slightly.

The banking agencies explained that the proposed changes would not diminish in any way the obligation of all insured depository institutions subject to CRA to help meet the credit needs of their communities. Instead, the proposed changes were meant only to address the regulatory burdens associated with evaluating institutions under CRA. The NPR sought comment on whether the proposal would improve the effectiveness of CRA evaluations, while reducing unwarranted burden.

The NPR also proposed several additional changes to the CRA regulations involving institutions or affiliates that engage in discriminatory, illegal, or abusive credit practices and amending the specifications for the CRA Disclosure Statements that each agency banking prepares annually for each institution that reports data. The preamble to the NPR further indicated that the banking agencies would begin using publicly available HMDA and CRA data to disclose additional information in the public CRA performance evaluations. This final rule withdraws these other proposed changes to the CRA regulations.

OTS received approximately 800 comments on the 2004 NPR. Most were from financial institutions and their trade associations (“Financial Institution Comments”) or from consumer and community members and organizations ( e.g. , civil rights organizations, Community Development Corporations, Community Development Financial Institutions, community developers, housing authorities, and individuals) (“Consumer Comments”). Other commenters included members of Congress, other Federal government agencies, and state and local governments, agencies, and organizations.

The Financial Institution Comments strongly supported raising the asset threshold and eliminating the holding company test. Most of these commenters expressly supported raising the asset threshold beyond the level in the proposed rule. Most suggested thresholds ranging from $1 billion to $2 billion. Many commenters argued that raising the asset threshold would reduce regulatory burden and allow community banks to focus their resources on economic development and meeting credit demands of the community, rather than compliance burdens. They also asserted that raising the asset threshold was necessary to reflect consolidation in the bank and thrift industries. Other commenters noted that raising the asset threshold to $1 billion would have only a small effect on the amount of total industry assets under the large institution test but would provide substantial additional relief by reducing the compliance burden on more than 500 additional institutions.

The Consumer Comments strongly opposed raising the asset threshold and urged the banking agencies to withdraw the proposed rule. Most of the comments focused on the proposed raising of the asset threshold to $500 million but did not specifically mention the proposed elimination of the holding company test. Many Consumer Comments argued that raising the asset threshold would eliminate the investment and service parts of the CRA examination for many institutions, would reduce the rigor of CRA examinations, and would lead to less access to banking services and capital for underserved communities. In particular, these commenters argued that Low Income Housing Tax Credits and Individual Development Accounts would suffer, diminishing the effectiveness of the Administration's housing and community development programs. The commenters observed that this would be contrary to the statutory obligation on financial institutions to affirmatively serve credit and deposit needs on a continuing basis. Commenters also noted that the change would disproportionately affect rural communities and small cities where smaller institutions have a significant market share. Other commenters emphasized the need for rural banks and other depository institutions to serve the investment and deposit needs of all the communities in which they are chartered and from which they take deposits.

Comments from members of Congress were mixed. One letter (including House Capital Markets Subcommittee Chairman Richard Baker and six other Republican members of the House Financial Services Committee) supported raising the asset threshold to $1 billion. It stated that such a move would not have a significant impact on the total amount of assets nor the total number of institutions covered by the large institution examination, but would provide relief to many additional institutions. Congressional Democrats, on the other hand, opposed raising the asset threshold. OTS received one letter from 31 Senators (including Senate Banking Committee Ranking Member Paul Sarbanes), one letter from Senators Herb Kohl and Russell D. Feingold, one letter from seven House Representatives (including House Financial Services Committee Ranking Member Barney Frank), one letter from House Financial Services Committee Member Nydia Velazquez, and one letter from House Representative Louise Slaughter. These letters echoed the Consumer Comments discussed above.

Having carefully reviewed all the comments submitted, OTS is amending the definition of “small savings association” to mean a savings association with total assets of less than $1 billion (without regard to any holding company assets). This change will be effective October 1, 2004. It will apply to OTS's CRA examinations beginning in the fourth quarter of 2004. Of course, any small savings association that prefers to be assessed under the lending, investment, and service tests may so elect in accordance with 12 CFR 563e.21(a)(3), if it collects and reports the data required for other savings associations under 12 CFR 563e.42.

This change should reduce the existing CRA examination and reporting burden on the affected savings associations in order for these institutions to be able to dedicate scarce resources to better meet the credit needs of their local communities and in areas requiring continuing vigilance, for example, offsetting the appreciable burden arising from implementation of anti-money laundering (AML) programs, Bank Secrecy Act (BSA) requirements, and other compliance initiatives. This change will permit the additional “small savings associations” to be subject to streamlined CRA examinations that focus on lending as well as benefiting from reduced data collection and reporting burdens under the CRA. The final rule will not in any manner relieve small savings associations of all other existing and ongoing compliance requirements and legal obligations under the CRA.

OTS is able to use its expertise to make a predictive assessment that this change will reduce unwarranted burden without negatively impacting upon the purpose of CRA to require each Federal banking agency to encourage institutions to help meet the credit needs of local communities in which they are chartered consistent with safe and sound operation. 12 U.S.C. 2901(b). This revision is consistent with the agency's ongoing efforts to identify and reduce regulatory burden, particularly for smaller institutions, where appropriate and feasible.

OTS is also making this change to take into account substantial institution asset growth and consolidation in the bank and thrift industries since the definition was originally adopted. Although the final rule will increase the number of thrift institutions eligible for evaluation under the small institution performance standards, it will not have a significant impact on the portion of combined thrift and bank assets subject to evaluation under the large retail institution performance standards. Around the time the CRA rule was developed and promulgated in 1994-1995, total thrift and bank assets covered by the lending, investment, and service tests for large institutions represented 86.2% of total thrift and bank industry assets, including 87.9% of thrift industry assets. Based on March 31, 2004 Thrift Financial Report data, raising the asset threshold to $1 billion (and eliminating consideration of holding company assets) will result in 86.4% of thrift industry assets being covered by the large institution test. Thus, the overwhelming majority of thrift assets will remain covered by the large institution test, there will be only a slight drop in the percentage of thrift industry assets covered by the large institution test as compared to the percentage when the 1995 rule was developed and promulgated, and the change will bring the percentage of thrift assets covered by the large institution test in line with the 1994 combined thrift and bank industry average. The dollar value of thrift assets covered by the large institution test will increase substantially compared to when the rule was promulgated, from approximately $678.3 billion in 1995 to $1 trillion.

Further, the total number of thrifts and the total dollar value of thrift assets, as a percentage of the combined bank and thrift industries, has dropped since 1995. Whereas in December 1995, OTS-regulated thrifts accounted for 12% of the number of thrifts and banks and 14.4% of total thrift and bank industry assets, by March 2004 OTS-regulated thrifts accounted for 10.1% of the number of thrifts and banks and 12.4% of total thrift and bank industry assets. Thus, the impact of the change on the combined bank and thrift industries will be minimal. Of course, the impact on the bank and thrift industries as a whole would increase to the extent the other banking agencies follow suit.

The regulatory burden reduction for small savings associations, however, will be significant. Thrifts remain home mortgage lenders, in part, because unlike banks, they must have at least 65% of their assets in the form of what are generally mortgages or mortgage-related loans in order to avoid the adverse consequences of failing to meet the qualified thrift lender test under the Home Owners' Loan Act (HOLA). 12 U.S.C. 1467a(m). Thrifts are also subject to HOLA lending and investment limits, including limits on commercial loans and community development investments. 12 U.S.C. 1464(c)(2)(A) and (c)(3)(A); 12 CFR 560.30. Small institutions often do not engage in significant amounts of small business or small farm lending.

According to the FRB's analysis of 2003 CRA data for the Federal Financial Institutions Examination Council (FFIEC), thrifts accounted for approximately 21.9% (by number of loans) and 7.9% (by amount of loans) of the small business loans originated or purchased reported by all banks and thrifts combined. A closer look reveals that thrifts under $1 billion in assets contributed only about 0.5% of the total (by number of loans) and 2.2% of the total (by amount of loans), while thrifts over $1 billion in assets contributed about 21.4% of the total (by number of loans) and 5.7% of the total (by amount of loans). Similarly, thrifts only accounted for approximately 11.3% (by number of loans) and 3.6% (by amount of loans) of the small farm loans originated or purchased reported by all banks and thrifts combined in 2003. Thrifts under $1 billion in assets contributed about 1.2% of the total (by number of loans) and 1.5% of the total (by amount of loans) while thrifts over $1 billion in assets contributed about 10.1% of the total (by number of loans) and 2.1% of the total (by amount of loans). See Table 4-2, “Savings Association Lending by Asset Size,” CRA National Aggregate Reports, available at http://www.ffiec.gov/webcraad/cranaag.htm.

This pattern of lending by savings associations under $1 billion in assets has remained fairly constant over the years. It demonstrates that thrifts, in the main, make mortgage-related loans that are reported under HMDA. By raising the asset threshold, the burden associated with reporting requirements for loans that constitute a minor part of the overall business of small thrifts will be relieved without significant impact to the CRA data collection as a whole and the benefits derived from such data.

Moreover, OTS's examination experience since implementing the current CRA regulations indicates that there is not a significant change in the way that smaller institutions meet their CRA obligations once they cross the $250 million threshold. Institutions between $250 million and $1 billion tend to continue to meet the credit needs of their communities by making loans in their assessment areas. We have no belief that institutions impacted by this regulatory change will alter their lending habits. Institutions under $1 billion in assets generally do not have the financial capacity to hire specialized staff, engage in significant investments, or open new branches. Indeed, an interagency Q&A on CRA has previously recognized that factors outside of an institution's control may prevent it from engaging in certain activities. It provides, “Examiners will take into account statutory and supervisory limitations on an institution's ability to engage in any lending, investment, and service activities. For example, a savings association that has made few or no qualified investments due to its limited investment authority may still receive a low satisfactory rating under the investment test if it has a strong lending record.” Q&A 21(b)(4), 66 FR 36620, 36631 (July 12, 2001). Accordingly, the lending focus under the small savings association performance standards is particularly well tailored to evaluating the performance of thrifts with under $1 billion in assets.

Far from being an exemption from CRA requirements, the small savings association performance standards provide for OTS to evaluate the record of a small savings association in meeting the credit needs of its assessment area under particular lending-focused criteria. Those criteria, enumerated in OTS's regulation at 12 CFR 563e.26 are:

(1) The savings association's loan-to-deposit ratio, adjusted for seasonal variations and, as appropriate, other lending-related activities, such as loan originations for sale to the secondary markets, community development loans, or qualified investments;

(2) The percentage of loans and, as appropriate, other lending-related activities located in the savings association's assessment area(s);

(3) The savings association's record of lending to and, as appropriate, engaging in other lending-related activities for borrowers of different income levels and businesses and farms of different sizes;

(4) The geographic distribution of the savings association's loans; and

(5) The savings association's record of taking action, if warranted, in response to written complaints about its performance in helping to meet credit needs in its assessment area(s).

As discussed in Appendix A to OTS's CRA rule (12 CFR Part 563e, App. A), savings associations evaluated under the small savings association performance standards will only receive a “satisfactory” performance evaluation if, in general, the savings association demonstrates:

(1) A reasonable loan-to-deposit ratio (considering seasonal variations) given the savings association's size, financial condition, the credit needs of its assessment area(s), and taking into account, as appropriate, lending-related activities such as loan originations for sale to the secondary markets and community development loans and qualified investments;

(2) A majority of its loans and, as appropriate, other lending-related activities are in its assessment area(s);

(3) A distribution of loans to and, as appropriate, other lending related-activities for individuals of different income levels (including low- and moderate-income individuals) and businesses and farms of different sizes that is reasonable given the demographics of the savings association's assessment area(s);

(4) A record of taking appropriate action, as warranted, in response to written complaints, if any, about the savings association's performance in helping to meet the credit needs of its assessment area(s); and

(5) A reasonable geographic distribution of loans given the savings association's assessment area(s).

As further discussed in Appendix A, a savings association that meets each of the standards for a “satisfactory” rating and exceeds some or all of those standards may be considered for an overall rating of “outstanding.” In assessing whether a savings association's performance is “outstanding,” OTS considers the extent to which the savings association exceeds each of the performance standards for a “satisfactory” rating and its performance in making qualified investments and providing branches and other services and delivery systems that enhance credit availability in its assessment area(s).

In contrast, a savings association may receive a rating of “needs to improve” or “substantial noncompliance” depending on the degree to which its performance has failed to meet the standards for a “satisfactory” rating.

The interagency CRA Qs&As elaborate further. One Q&A states, “Examiners can consider ‘lending-related activities,’ including community development loans and lending-related qualified investments, when evaluating the first four performance criteria of the small institution test.” Q&A 26(a)-1, 66 FR at 36637. Another Q&A states that examiners will consider these types of lending-related activities “when it is necessary to determine whether an institution meets or exceeds the standards for a satisfactory rating” or “at an institution's request.” Q&A 26(a)-2, 66 FR at 36637. Still another asks, “Under the small institution performance standards, how will qualified investments be considered for purposes of determining whether a small institution receives a satisfactory CRA rating?” The answer provided is that the “small institution performance standards focus on lending and other lending-related activities. Therefore, examiners will consider only lending-related qualified investment for the purposes of determining whether the small institution receives a satisfactory CRA rating.” Q&A 26(a)-5, 66 FR at 36637.

Thus, under OTS CRA regulations, as further interpreted in the interagency Qs&As, OTS already considers, and will continue to consider, a small savings association's performance in making community development loans and qualified investments and providing community development services, at the savings association's request, for purposes of raising a rating. While community development activities are not required for small savings associations, information a savings association provides about its community development activities may impact a rating. For example, a savings association that might otherwise be rated “satisfactory” may be rated “outstanding,” or a savings association that might otherwise be rated less than “satisfactory” may be rated “satisfactory” depending on its performance in a variety of community development activities.

Therefore, even though the asset threshold is being raised, all small savings associations would continue to have an incentive to perform community development activities to improve their CRA rating. In particular, savings associations with between $250 million and $1 billion in assets that may already have significant commitments to make qualified investments and perform community development services, though now recategorized as “small,” will continue to have incentives to perform a range of community development activities. Those activities can be fully considered during their examination.

This final rule only applies to OTS-regulated savings associations. The change to the small institution asset threshold would not affect entities regulated by the OCC, FDIC, or the FRB. OTS is aware that section 303 of the Riegle Community Development and Regulatory Improvement Act of 1994 (12 U.S.C. 4803) directs the banking agencies to work jointly to make uniform all regulations and guidelines implementing common statutory or supervisory policies. While uniformity is the ultimate goal of section 303, the statute recognizes that the results of these efforts must be “consistent with the principles of safety and soundness, statutory law and policy and the public interest.” The uniformity required by section 303, for example, is not intended to result in unreasonable or unwarranted requirements that add to burden. S. Rep. 103-169, at 48 (1993), reprinted in 1994 U.S.C.C.A.N. 1881.

Consequently, the four Federal banking agencies have occasionally imposed or retained non-uniform regulatory requirements based on different conclusions regarding safety and soundness, and other policy and public interest considerations. See, e.g. , Joint Report: Differences in Accounting and Capital Standards Among the Federal Banking Agencies; Report to Congress, 69 FR 8523 (February 24, 2004). Where there are different interpretations of common statutes, the banking agencies are encouraged to highlight and explain the differences, so that users will have clear notice of any areas of difference among regulations or guidelines relating to a common statutory scheme or supervisory concern. S. Rep. 103-169, at 48 (1993), reprinted in 1994 U.S.C.C.A.N. 1881.

OTS is withdrawing the remaining portions of its proposed rule.

The NPR proposed adding regulatory text providing that evidence that an institution or affiliate engages in discriminatory, illegal, or abusive credit practices would adversely affect the evaluation of the institution's CRA performance. Under the proposal, evidence pertaining to the institution's loans would be considered, regardless of their location, while evidence pertaining to an affiliate's loans would only be considered if the lending was by an affiliate with loans considered under the lending test and occurred in the institution's assessment area. Examples of discriminatory or illegal practices the proposal identified were: (1) Discriminating, such as Equal Credit Opportunity Act (ECOA) or Fair Housing Act violations; (2) violating the Home Ownership and Equity Protection Act (HOEPA); (3) violating section 5 of the Federal Trade Commission Act (FTC Act); (4) violating section 8 of the Real Estate Settlement Procedures Act (RESPA); and (5) violating the right of rescission under the Truth in Lending Act (TILA). Equity stripping was the only other practice listed, which the proposal defined as engaging in a pattern or practice of lending based predominantly on the foreclosure or liquidation value of the collateral in connection with home mortgage and secured consumer loans. The justification for the proposed change was to better address abusive lending practices in CRA evaluations.

Commenters were united in their opposition to this portion of the proposal. The main argument against it expressed by Financial Institution Commenters was that CRA should not consider compliance with other statutes that are already covered in compliance examinations, such as the ECOA, the Fair Housing Act, the FTC Act, HOEPA, RESPA, and TILA, since that approach would be repetitive and create unnecessary complexity. Others suggested that a predatory lending component should be focused on patterns of prohibited, predatory or abusive conduct. A further comment was to urge the banking agencies not to penalize institutions for practices just because the banking agencies may regard them as abusive or predatory if those practices are not illegal.

Consumer Commenters opposed the proposed predatory lending standard, expressing concern that it could protect predatory lenders by its omissions. Several commenters went out of their way to state very specifically and clearly that they would prefer no change to the rule with regard to predatory lending to finalizing the proposed standard. Many comments harshly criticized the proposed standard for not covering enough types of predatory conduct. Many commenters specifically listed fee packing, high prepayment penalties, flipping, and mandatory arbitration, as among the additional abuses that the standard should also address. Other commenters listed some additional practices such as targeting minorities, low-income people, and the elderly for subprime lending; originating sub-prime loans for borrowers who could qualify for prime loans; encouraging refinancing of unsecured debt to increase the loan size, points, fees, and commissions; selling single-premium credit insurance products; charging yield spread premiums and other compensation that rewards brokers for steering borrowers to higher cost products and large loans; and purchasing and investing in predatory loans as part of mortgage backed securities.

Even with regard to equity stripping, which the proposal was designed to address, the commenters emphasized that the proposal should not focus solely on lending based on the foreclosure value of the collateral. They pointed out that equity stripping also occurs from excessive fees and unnecessary products and that this type of equity stripping is also abusive, even if it does not lead to delinquency or foreclosure. One large consumer organization added that without conducting file reviews of individual loans, even the one predatory practice identified in the proposed rule would not be discovered. Many Consumer Commenters urged that the anti-predatory lending standard must apply to the financial institution and all of its affiliates, whether inside or outside the assessment area, not just real estate secured loans by the financial institution in its assessment area.

In light of the comments received, OTS is withdrawing this portion of its proposal. OTS's CRA rule will continue to indicate that evidence of discriminatory or other illegal credit practices adversely affects the performance evaluation. 12 CFR 563.28(c). An interagency Q&A on CRA will continue to address what is meant by “discriminatory or other illegal credit practices.” Q&A 28(c)-1, 66 FR at 36640. No further action is required at this time.

The ANPR also solicited comment on CRA data collection requirements. Specifically, it asked whether the data collection and reporting and public file requirements are effective and efficient approaches for assessing an institution's CRA performance while minimizing burden. The NPR proposed to amend the specifications for the CRA Disclosure Statements that each banking agency prepares annually for each institution that is reporting data. The revised statements would include as additional data items the number and amount of small business and small farm loans by census tract. The justification was to enhance the data disclosed to the public. The preamble to the NPR further indicated that the banking agencies would begin using publicly available HMDA and CRA data to disclose additional information in the public CRA performance evaluations. The following additional data would be disclosed by assessment area: (1) The number, type, and amount of purchased loans; (2) the number, type, and amount of HOEPA loans and loans for which the rate spread information is reported under HMDA; and (3) the number, type, and amount of loans that were originated or purchased by an affiliate and included in the institution's evaluation, as well as the identity of the affiliate. The justification was to make it easier for the public to evaluate lending by individual institutions.

Relatively few Financial Institution Commenters addressed these data issues and those that did reflected no strong consensus. Several commented on distinguishing loan purchases from originations in the public evaluation. More opposed than favored such an approach. The main argument against drawing the distinction was that such a move could suggest that purchases are not as beneficial as originations—a suggestion disputed by these commenters—and that the distinction would be purely technical. Similarly, several commented on distinguishing HOEPA loans from other loans in the public evaluation. More opposed than favored that approach as well. The main argument against was that HOEPA loans are not necessarily predatory but that such an implication could be drawn from making this distinction in the public evaluation. One large trade organization opposed revising the CRA Disclosure Statements to include the number and amount of small business and small farm loans by census tract. It argued that the privacy of the financial information of borrowers at many small, mostly rural institutions would be breached because many of these institutions have only one or two business borrowers in some census tracts.

The Consumer Commenters, however, supported the enhanced data disclosure the banking agencies proposed for the public portion of the CRA report. They specifically voiced support for disclosure of the specific census tract location of small business loans, distinguishing purchases from loan originations, and disclosing high cost loans. However, they were unequivocal that the potential beneficial effects of this aspect of the proposal were outweighed by the harm from other aspects of the proposal. Many of these commenters further argued that the banking agencies should not merely report the new data on CRA examinations, but should use the new data to provide less favorable weight on CRA examinations to high cost loans and loan purchases than to prime loans and loan originations.

In light of the comments received, OTS is also withdrawing this portion of its proposal. OTS believes that the data disclosure changes would add to burden without providing corresponding benefits.

In accordance with the requirements of the Paperwork Reduction Act of 1995, the OTS 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. This collection of information is currently approved under OMB Control Number 1550-0012. OTS is giving notice that, with this final rule, the changed collection of information has been submitted to OMB for review and approval.

Title of Proposal: Community Reinvestment—12 CFR Part 563e.

Frequency of Response: Annual.

Affected Public: Savings associations.

Abstract: This final rule revises the definition of “small savings association” under OTS's CRA regulations. Under the final rule, “small savings association” is defined as a savings association with total assets of less than $1 billion, without regard to any holding company assets. This change permits additional small savings associations to be subject to streamlined examinations as well as reduced data collection and reporting burdens under the CRA.

Estimated Number of Respondents: 923.

Estimated Burden Hours per Response: Small business and small farm loan register, 219 hours; Other loan data, 25 hours; Assessment area delineation, 2 hours; Small business and small farm loan data, 8 hours; Community development loan data, 13 hours; HMDA out-of-MSA loan data, 253 hours; Data on lending by a consortium or third party, 17 hours; Affiliated lending data, 38 hours; Request for designation as a wholesale or limited purpose bank, 4 hours; and Public file, 10 hours.

Estimated Total Burden: 80,998 hours.

Pursuant to section 605(b) of the Regulatory Flexibility Act, OTS certifies that since this final rule will reduce burden and will not raise costs for small institutions, it will not have a significant economic impact on a substantial number of small entities. It does not impose any additional paperwork or regulatory reporting requirements. It will increase only slightly the overall number of small savings associations, as defined for Regulatory Flexibility Act purposes ($150 million in assets or less), that will qualify for the reduced data collection requirements in 12 CFR Part 563e applicable to small savings associations.

The Small Business Administration submitted comments on the NPR requesting further information to support the conclusion of no significant impact. In response, OTS has calculated that, based on March 31, 2004 data, there were 477 savings associations with $150 million in assets or less, representing 51.8% of all thrifts, $33.7 billion in assets, and 2.9% of thrift industry assets. Only 30 of these institutions—representing 3.3% of all thrifts, $1.5 billion in assets, and 0.1% of thrift industry assets—failed to qualify for the small savings association test because they were part of a holding company with over $1 billion in assets and will now qualify as “small” under the revised definition. Accordingly, a regulatory flexibility analysis is not required.

OTS has determined that this rulemaking is not a significant regulatory action under Executive Order 12866.

Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law 104-4 (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 expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. If a budgetary impact statement is required, section 205 of the Unfunded Mandates Act also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. OTS has determined that this rule will not result in expenditures by State, local, and tribal governments, or by the private sector, of $100 million or more. Accordingly, OTS has not prepared a budgetary impact statement nor specifically addressed the regulatory alternatives considered.

In FR Doc. 04-16577 appearing on page 44772 in the Federal Register of Tuesday, July 27, 2004, make the following correction:

Congress enacted the ADAA on October 9, 1996. Section 512(b)(3) of the act (21 U.S.C. 360b(b)(3)), as amended by the ADAA, provides that any person intending to file an NADA or supplemental NADA or to request an investigational exemption is entitled to one or more conferences with FDA prior to such submission to reach an agreement establishing a submission or investigational requirement. In the Federal Register of August 25, 2000 (65 FR 51782), we proposed amending the new animal drug applications regulations in part 514 (21 CFR part 514) to describe the procedures to be followed for requesting, conducting, and documenting presubmission conferences. Under the proposed rule and final rule, persons intending to file an abbreviated new animal drug application (ANADA) as well as persons intending to file an NADA or supplemental NADA are entitled to request presubmission conferences. FDA provided 75 days for public comment on the proposed rule.

We received four letters from government, industry, and trade associations commenting on the proposed presubmission conference rule. Our response to the comments, grouped by codified section, follows.

(Comment 1) Two comments assert that presubmission conferences under section 512(b)(3) of the act represent a fundamental change in the manner the agency is to operate and a new way for the agency to do business.

(Response) FDA disagrees with these comments. Presubmission conferences under 512(b)(3) of the act do not represent a fundamental change in the manner we operate. Although there was no statutory or regulatory entitlement to a presubmission conference prior to enactment of the ADAA, FDA's Center for Veterinary Medicine (CVM) had already been encouraging sponsors of NADAs to participate in conferences with us to discuss in detail what studies would be necessary to demonstrate the safety and effectiveness of particular new animal drugs being investigated. We found, as a result of this direct communication during the development and review of new animal drugs, that fewer unusable studies were conducted and there were fewer delays in the review process. Although such agreements were not legally binding, we attempted to be sensitive to industry's concern that we not change such requirements without justification. Our goal was to not change requirements unless we became aware of new information that suggested such requirements may no longer support approval.

In the proposed rule, the preamble discusses definitions in proposed § 514.3. However, the Definitions section in the codified text in the proposed rule was mistakenly numbered § 514.2. The definitions added by this final rule will be added to existing § 514.3 Definitions in alphabetical order.

In the proposed rule, potential applicant was defined to mean any person intending to: (1) Investigate a new animal drug under section 512(j) of the Federal Food, Drug, and Cosmetic Act (the act), (2) file a new animal drug application (NADA) or supplemental NADA under 512(b)(1) of the act, or (3) file an abbreviated new animal drug application (ANADA) under section 512(b)(2) of the act. Under § 514.5(c), a potential applicant may request one or more presubmission conferences prior to the filing of a NADA, supplemental NADA, or an ANADA. Thus, a person investigating a new animal drug under section 512(j) of the act is also a potential applicant. We are revising the definition of “ potential applicant ” to include “any person investigating a new animal drug under section 512(j).”

In the proposed rule, the last sentence in the definition of presubmission conference agreement stated that “The presubmission conference will be binding on the potential applicant and FDA unless it is modified as described in § 514.4(g).” We are deleting this sentence because it is unnecessary. As defined in the proposed and final rule, a presubmission conference is binding.

(Comment 2) One comment expresses concern that the discussion in the preamble to the proposed rule appeared to limit presubmission conferences to just safety or effectiveness data generation.

(Response) The specific statement that raised the concern appeared in the second section entitled “Description of the Proposed Rule,” “* * *. Meetings in which the focus is other than to establish the safety and effectiveness data requirement for new animal drugs (e.g.,* * *) are not specifically covered by this proposed rule” (65 FR 51782 at 51783).

We did not intend that statement to be read to limit which meetings will be considered presubmission conferences. Most, if not all, investigational and submission requirements relate to establishing safety or effectiveness data requirements.

The key factor in determining whether a meeting is a presubmission conference is, as implied in section 512(b) of the act and the definition of presubmission conference in § 514.3(b), whether such meeting is “* * * to reach a binding agreement establishing a submission or investigational requirement.” Generally, the goal of a presubmission conference is to reach agreement on some or all of the investigational or submission requirements for a particular new animal drug. But, so long as the intent of a meeting is to discuss investigational or submission requirements, it is a presubmission conference even if the parties are unable to reach agreement.

However, there may be some meetings that are not related to the establishment of investigational or submission requirements that will not be covered by this regulation because they are not presubmission conferences. For example, a meeting requested by a company to present information about all of its ongoing research and development projects would not be a presubmission conference. Furthermore, a meeting to discuss a pending submission would not be a presubmission conference. As the term “presubmission” implies, submission requirements should be discussed before we receive a submission. Meetings to discuss pending submissions could give potential applicants an unfair advantage because they could have the effect of requiring the review of the submission prior to the meeting, thus pushing the review up in the queue. Therefore, we neither anticipate meeting with potential applicants to discuss pending submissions, nor would any such meeting fall within 512(b)(3) of the act or this rule.

The proposed definition of presubmission conference limits presubmission conferences to conferences “requested by the potential applicant.” The act provides that any potential applicant is entitled to a presubmission conference. However, the act does not specify that requests for presubmission conferences may be initiated only by potential applicants. Thus, we are revising the definition of presubmission conference to remove this restriction. While, typically, potential applicants will initiate requests for meetings to discuss investigational or submission requirements, FDA may encourage potential applicants to request a presubmission conference if we believe such a meeting may facilitate the development of data to support approval.

(Comment 3) One comment expresses concern that the binding nature of presubmission conferences results in a process that appears to be somewhat inflexible. The comment notes that a new animal drug (i.e., the formulation) or its proposed uses (i.e., the intended uses or conditions of use) may change as the product is developed and was concerned that data requirements may change in the time it takes FDA to draft and clear the presubmission conference agreement.

(Response) The act requires that agreements reached in presubmission conferences be binding. However, the act also provides flexibility by allowing for changes to such agreements if FDA and the applicant or requester mutually agree to modify the requirement, or if FDA determines that a substantiated scientific requirement essential to the determination of safety or effectiveness of the animal drug involved appears after the conference. Thus, although the parties may agree to modify a presubmission conference agreement, FDA cannot unilaterally change the agreement unless there are valid scientific reasons for doing so.

To ensure that investigational and submission requirements do not become outdated before a presubmission conference agreement is sent to a potential applicant, we are revising § 514.5(f)(1) in the final regulation (as described in the following paragraphs) to add a timeframe in which we will send a copy of the memorandum of conference, which includes any presubmission conference agreement, to the potential applicant to review.

(Comment 4) One comment requests that the regulations make it absolutely clear that the sponsor should be able to determine, with certainty, through a presubmission conference all the studies necessary to establish the human safety, animal safety, and efficacy of a new animal drug. Another comment expresses concern that the regulation describes a process that appears to be somewhat inflexible because, among other things, it requires us to establish investigational or submission requirements for new animal drugs that may change (e.g., in formulation, intended uses, and conditions of use) based on information gathered throughout their development.

(Response) The act and this final regulation provide both certainty and flexibility in determining investigational or submission requirements. First, the act and the regulation specifically state that any person intending to file a NADA or a request for investigational exemption is entitled to one or more conferences in order to reach agreement on certain submission requirements (section 512(b)(3) of the act and § 514.5(b)). Second, the act and the regulation specify that an agreement may be changed if the following conditions are met: (1) FDA and the applicant or requester mutually agree to modify the requirement or (2) FDA by written order determines that a substantiated scientific requirement essential to the determination of safety or effectiveness of the animal drug involved has appeared after the conference (section 512(b)(3) of the act and § 514.5(g)). Thus, the presubmission conference process provides certainty absent unforeseen circumstances, but provides means to address contingencies that may arise during new animal drug development.

The provision entitling a potential applicant to one or more presubmission conferences is intended to recognize that it may not be possible to establish all of the investigational or submission requirements in one presubmission conference because the new animal drug or its proposed uses may change as it is being developed. The statute and regulation do not preclude the parties from reaching agreement regarding all the studies necessary to establish the human safety, animal safety, and effectiveness of a new animal drug in a single presubmission conference. However, we believe it is more likely that for most new animal drugs the parties will participate in a series of presubmission conferences.

Potential applicants may choose to and are encouraged to request more than one presubmission conference. For example, if the outcome of one study required to satisfy one of the approval requirements is likely to affect the number or types of additional studies that would be needed to satisfy the same or a different approval requirement, or if it may affect the formulation or proposed uses of the new animal drug. By sequencing presubmission conferences, a potential applicant may be able to avoid conducting studies that will not support or be necessary for approval.

Potential applicants should consider requesting presubmission conferences on specific, manageable issues and should include in the advance material to us all relevant information and data available to date. Potential applicants should also consider the sequencing of such conferences so that information and data on which future requirements may depend are available. For example, a potential applicant may request one presubmission conference to discuss the number and types of studies necessary to demonstrate safety and request another presubmission conference to discuss studies necessary to demonstrate effectiveness after they have conducted studies to demonstrate that a particular dose or dosage range is safe.

We are renaming this section “General Principle Underlying the Conduct of a Presubmission Conference.” We are deleting the first two sentences of proposed § 514.5(a). Although these sentences accurately reflect our view that a presubmission conference is the forum for a potential applicant and FDA to reach agreement regarding investigational or submission requirements and that the goal of such a conference is to enhance the animal drug development and evaluation process, these sentences do not set forth requirements or expectations and should not be included in the codified language.

We are keeping the last sentence, but changing it to read as follows: “The general principle underlying the conduct of any presubmission conference is that there should be candid, full, and open communication.” We believe it is important that all participants to a presubmission conference, potential applicants and FDA representatives alike, understand that candid, full, and open communication is essential to ensuring that such conferences will enhance the animal drug development and evaluation process.

We are revising the second sentence of proposed § 514.5(b) to read more clearly: “A potential applicant's request for a presubmission conference must be submitted to FDA in a signed letter.” If an investigational new animal drug file has not been established prior to receiving a request for a presubmission conference, our general practice is to establish an investigational new animal drug file for administrative reasons such as recordkeeping and protecting the confidentiality of information submitted by potential applicants.

We are revising proposed § 514.5(d), among other things, to clarify what information is required to be submitted to FDA in advance of a presubmission conference. Proposed § 514.5(d) specified that:

Under § 514.5(b), a potential applicant is required to provide a proposed agenda with their request for a presubmission conference. We are revising § 514.5(d) to clarify that a potential applicant is required to submit a detailed agenda as part of the advance materials submitted to FDA at least 30 calendar days before the scheduled meeting. We expect that many potential applicants will schedule presubmission conferences more than 30 days before the date they want to meet with FDA so that they can increase the likelihood that the appropriate staff representing the potential applicant and FDA will be available to meet on a particular date or within a particular timeframe. If the agenda is drafted at the time the meeting is requested, the potential applicants may not be able to provide the detail and focus for each of the agenda items at the level that is needed for reviewers to prepare for the presubmission conference. The proposed agenda submitted at the time of the request should identify the general areas of discussion and provide enough information to allow us to evaluate who from FDA should attend the meeting. But, we also need a detailed agenda at least 30 days before the presubmission conference is scheduled so that attendees can prepare for a productive discussion of the issues.

What constitutes a “detailed agenda” will depend on the purpose of the presubmission conference. The question the potential applicant should ask in preparing a detailed agenda is “what information is necessary for a full and productive discussion on the issues identified in the agenda?” Consistent with this revision, we are removing the word “proposed” that appears before agenda at the end of the first sentence in proposed § 514.5(d).

Proposed § 514.5(d) also required the potential applicant to provide to FDA “* * * a list of proposed indications or a copy of the proposed labeling for the product under consideration* * *.” We are revising § 514.5(d) to require submission of a list of proposed indications and also to require a copy of proposed labeling, if available.

We encourage potential applicants to develop proposed labeling early in the drug development process. By proposed labeling we mean that textual portion of the label that describes, among other things, the new animal drug, dosage form, route of administration, and the intended uses and conditions of use for the new animal drug at a level of specificity appropriate to the stage of development. Because this wording often drives the submission or investigational requirements, proposed label would assist us in establishing appropriate requirements.

Finally, we are adding the words “a copy of” and deleting the word “adequate” to clarify that a potential applicant is required to provide “a copy of any background material that provides scientific rationale to support the applicant's position on issues listed in the agenda for the conference.” We do not need originals of the background material. Readable copies may be provided in lieu of originals. The background material should provide a scientific rationale for the applicant's position on issues listed in the detailed agenda. We will determine after review and discussion at the presubmission conference whether the materials provide “adequate” scientific rationale to support such positions.

(Comment 5) One comment states that, based on their experience with FDA, if the amount of advance information requested in the proposed rule is provided, there may be little opportunity for dialog or need for the meeting because the agency will have made its decisions prior to the actual meeting. Two comments suggest rather than requiring all information to be submitted prior to the meeting, providing background materials to acquaint participants with information that will be discussed should be sufficient.

(Response) The goal of a presubmission conference is to reach agreement regarding some or all of the investigational or submission requirements. If we are to be prepared for a meeting, and prepared to make binding decisions at such a meeting, sufficient scientific background materials must be provided in advance for our review and consideration. That does not mean that we will not be open to discussion. In fact, having the material in advance will allow our participants to prepare for a productive discussion because they will be able to formulate appropriate questions, conduct further research on issues, and apply their review experience, as appropriate.

It should be easier for potential applicants to provide copies of all material they evaluated or referenced relating to an issue listed in the agenda, rather than selecting or summarizing relevant material. FDA participants should have the opportunity to review all documentation in order to exercise their scientific judgment and, in many cases, years of experience reviewing new animal drugs to determine what information is relevant. If potential applicants select what information is submitted or not submitted, FDA participants may not have all the materials needed to make the decision or to provide the best advice to the potential applicants regarding the least burdensome investigational or submission requirements that are likely to result in approval.

(Comment 6) One comment believes there should be a mechanism for FDA to ask the applicant questions or request additional information via telephone call or e-mail, rather than delay the meeting. The comment hopes delays in holding a presubmission conference will be the exception, not the norm.

(Response) Nothing in this rule prevents FDA staff from contacting a potential applicant to ask clarifying questions or to request minor (i.e., nonvoluminous, noncomplex) additional information. If questions can be answered and minor additional materials can be provided to us in a timely manner prior to the presubmission conference, there would be no need to postpone a meeting.

The advance materials must permit a productive discussion of the issues, and if we are to reach a binding agreement with a potential applicant, sufficient information on which to make an informed decision. Whether and how often presubmission conferences are delayed will depend in part upon the quality and completeness of the advance materials submitted by the potential applicant.

We are revising the last sentence in proposed § 514.5(d) to clarify that: “* * * FDA may elect to postpone part or all of the meeting until sufficient materials are provided to FDA.” If sufficient materials are available to proceed with a productive discussion on some issues but not others, we intend to meet with the potential applicant to discuss those issues for which sufficient advance materials have been provided, if the issues are severable. Our goal is to assist potential applicants in moving forward with the development and approval of new animal drugs.

We are revising the last sentence of proposed § 514.5(e) to clarify that: “The submission or investigational requirement may include, among other things, the number, types, and general design of studies that are necessary to demonstrate the safety and effectiveness of a new animal drug.” We are changing “will” to “may” because any particular submission or investigational requirement may include the number, types, general design, or some combination of these elements, of studies that are required to demonstrate safety and effectiveness, but not all of them. We are adding the phrase “among other things” because requirements may address issues other than number, type, or general design of studies, e.g., labeling requirements or methods validation. The first sentence of proposed § 514.5(a) stated that presubmission conferences provide a forum to discuss the objectives and general design of particular studies. Because we are deleting that sentence in the final rule, we are clarifying in final § 514.5(e) that submission or investigational requirements may include the general design of the studies.

We are revising the first sentence in proposed § 514.5(f)(1) to clarify the contents of the memorandum of conference. “FDA will prepare a memorandum for each presubmission conference that will include, among other things: any background information pertinent to the request for the meeting; a summary of the key points of discussion; agreements; and action items and assignments of responsibility.” Other changes to § 514.5(f)(1) are described in the responses to comments that follow. Further, we are dividing final § 514.5(f)(1) into paragraphs to improve clarity and readability.

(Comment 7) One comment seems concerned that the presubmission conference agreement is part of the memorandum of conference. Further, the comment suggests that it may be more expeditious and timely for the registrant to prepare the memorandum of understanding with subsequent approval by the agency.

(Response) We note that the comment uses the term “memorandum of understanding.” Neither FDA nor potential applicants draft memorandum of understanding to document presubmission conferences. As defined in FDA's Staff Manual Guide 2830.1, the term “Memoranda of Understanding” is primarily used by FDA to refer to formal agreements between FDA and other Government (Federal, State, or local) agencies. We assume that the comment meant “memorandum of conference.”

As discussed in the proposed rule, that portion of the memorandum of conference that documents any agreements reached regarding all or part of a submission or investigational requirement will be included under the heading “Presubmission Conference Agreement” (65 FR 51782 at 51783). We believe it is more efficient for us to prepare the memorandum of conference and that it is important to provide the agreement in the context of the information and discussions that took place during the presubmission conference.

We are revising the sentence in proposed § 514.5(f)(1) that read: “If a memorandum is silent on an issue, * * * such silence cannot be construed as agreement between FDA and the potential applicant on the issue” to clarify that it is specifically the presubmission conference agreement section of the memorandum in which silence does not constitute agreement. This sentence logically follows the sentence explaining that the presubmission conference agreement is a section of the memorandum and will read as follows: “If the presubmission conference agreement section of the memorandum is silent on an issue, including one that was discussed in the conference or addressed by materials provided for the conference, such silence does not constitute agreement between FDA and the potential applicant on the issue.”

(Comment 8) The preamble to the proposed rule states that presubmission conference agreements would generally include timeframes for completion. One comment acknowledges that scientific knowledge on which agreements are based may change over long periods of time, but expresses concern that no guidance on the duration of those timeframes was given.

(Response) Presubmission conference agreements will be based on scientific knowledge available at the time of the agreement. The inclusion of timeframes in a presubmission conference agreement is intended, as the comment notes, to recognize that the state of scientific knowledge may change over time. The inclusion of a timeframe signals to a potential applicant or us the need to revisit whether the submission or investigational requirements are still relevant after that time.

What constitutes a reasonable timeframe will vary significantly depending on, among other things, the nature of the product, the species for which the drug is intended, and the proposed uses. For example, time may affect the inferential value of data. Time-dependent factors include, e.g., genetics of the target animal and the target organism, husbandry practices, and diets (62 FR 59830 at 59833, November 5, 1997).

Timeframes and any other caveats should be discussed as part of the process of reaching agreement. Examples of other caveats that might be included in a presubmission conference agreement include specification of the formulation (e.g., final formulation) on which the studies should be conducted and timeframes for updating literature searches.

(Comment 9) All of the comments express concern that the proposed regulation does not include a timeframe in which FDA would issue the memorandum of conference, and thus, the presubmission conference agreement, if one is reached. Most comments suggest that FDA should be required to provide the memorandum of conference to the potential applicant within 25 days of the conference. They state that this timeframe is consistent with the timeframe in which FDA must provide written justification if it is requiring more than one field study to provide substantial evidence of effectiveness. One comment is specifically concerned that in the time it takes for the agreement to clear the agency, the submission or investigational requirements might change.

(Response) We agree that FDA should provide the memorandum of conference to the potential applicant in a timely manner and will provide the memorandum no later than 45 days after the date of the presubmission conference. Accordingly, we are revising the sentence in proposed § 514.5(f)(1) that read: “FDA will provide a copy of the memorandum to the potential applicant for review” to read: “FDA will send a copy of the memorandum to the potential applicant for review no later than 45 calendar days after the date of the conference.”

We cannot provide the memorandum in 25 days because it is not a practical timeframe for issuing most memoranda of conference considering all of our other review responsibilities. Further, we expect that many agreements will relate to investigational or submission requirements other than those that relate to effectiveness and will not include a requirement for more than one field study. If we require more than one field study to provide substantial evidence of effectiveness, we will provide our justification for that requirement no later than 25 calendar days after the date of the conference as required by section 512(b)(3) of the act and as described in § 514.5(f)(2).

We are also revising the fourth sentence of proposed § 514.5(f)(1) to clarify that as follows: “The potential applicant will have 30 calendar days from the date a copy of the memorandum of conference is sent to the applicant to request changes to, or clarification of, the substance of the memorandum.” For purposes of calculating the timeframe for the potential applicant to respond, the only date of record from which we can calculate the time is the date the memorandum is sent. This sentence will follow the sentence that discusses that silence of a presubmission conference agreement on an issue does not constitute agreement.

We are removing the sentence in proposed § 514.5(f)(1) regarding calculation of the timeframe because this is an administrative matter and need not be addressed by regulation.

(Comment 10) Two comments note that the potential applicant is given 30 days to request changes to or seek clarification of FDA's memorandum of conference, but no timeframe is given in which FDA must respond to the potential applicant's request. One comment proposed that FDA respond within 25 days, another proposed 15 days.

(Response) We will send a response to the potential applicant's request for changes to or clarification of a memorandum of conference no later than 45 calendar days after the date such request is received. If we agree that the memorandum of conference needs to be changed to correct or clarify content, we will prepare an amended memorandum of conference and include a copy of the amended memorandum as part of our response to the potential applicant.

In the final rule, § 514.5(f)(1)(iii) will include a timeframe for FDA to send a response to a potential applicant's request for changes or clarification, and clarify the administrative steps relating to requesting and documenting changes to the presubmission conference agreement. Accordingly, the last three sentences of final § 514.5(f)(1) will read: “If a potential applicant requests changes or clarification, the request must be sent to FDA. If the potential applicant requests changes or clarification, FDA will send the potential applicant a response to their request no later than 45 calendar days after the date of receipt of the request.” The last sentence of § 514.5(f)(1)(iv), under the paragraph “Administrative record,” will read: “A copy of FDA's original memorandum of conference and, as appropriate, a copy of an amended memorandum to correct or clarify the content of the original memorandum will be made part of the administrative file.”

We hope to minimize the need for changes to or clarification of the memorandum by summarizing at the close of each presubmission conference the key points of discussion, agreements, and action items, and the assignments of responsibilities for each of those items. That summary of key points will provide the potential applicant with the first and best opportunity to ensure that the discussions and any agreements reached will be accurately documented in the memorandum of conference. If the potential applicant disagrees with the summary presented at the end of the presubmission conference, the potential applicant should discuss the disagreement with us before the close of the presubmission conference. In the event the potential applicant finds, after reviewing FDA's memorandum of conference, that correction to or clarification of the memorandum is needed, the potential applicant should request changes to or clarification of the memorandum by submitting a letter. Following the presubmission conference, FDA will only review a request for changes to or clarification of the memorandum that is submitted within 30 calendar days from the date a copy of the memorandum is sent to the applicant. The potential applicant should not request changes to or clarification of the memorandum of conference by submitting the potential applicant's version of the memorandum.

(Comment 11) The act, as amended by the ADAA, requires that FDA justify a requirement for more than one field study to provide substantial evidence of effectiveness. Two comments assert that FDA is attempting to circumvent the intent of the ADAA by indicating that it may require a single study in multiple locations.

The comments assert that the issue of whether a field study conducted at multiple sites using a single protocol is a single study or represents more than one study has long been an area of disagreement between industry and FDA. But, one comment acknowledges it may be true that, for some small animal clinical studies, multiple locations may be necessary to obtain sufficient numbers of patients.

(Response) FDA is not attempting to circumvent the intent of the ADAA. Whether a study conducted at multiple sites following the same protocol is most appropriately considered a single study or multiple studies depends upon the degree of coordination between the sites, the intent of the analysis, whether the data would be pooled to assess statistical significance, and the generalizability of the findings (inferential space). Although ADAA does not require FDA to provide justification for a multilocation field study, FDA has agreed that in the spirit of ADAA it will provide justification of the need for a multilocation field study (substantial evidence final rule at 64 FR 40746 at 40750, July 28, 1999). To that end, proposed § 514.5(f)(2) provided: “If FDA requires one field study to be conducted at multiple locations, FDA will, at the request of the potential applicant, provide written or verbal justification for requiring multiple locations” (64 FR 51786).

If we require more than one field study, we will provide written justification within 25 days of a conference why more than one field study is essential to demonstrate by substantial evidence that the new animal drug is effective. After further consideration FDA has decided that if we require one field study with multiple locations, we will provide both verbal justification for why more than one location is required during the presubmission conference and written justification as part of the memorandum of conference, which must be provided in accordance with this final rule no later than 45 days after the date of the conference. We are revising the last sentence of proposed § 514.5(f)(2) to clarify when and how we will provide justification for requiring multiple locations: “If FDA requires one field study to be conducted at multiple locations, FDA will provide justification for requiring multiple locations verbally during the presubmission conference and in writing as part of the Memorandum of Conference.”

The principles governing the number and types of studies necessary to demonstrate by substantial evidence that a new animal drug is effective are addressed in § 514.4(b)(3) and, extensively, in the preambles to the proposed and final rules (62 FR 59830 and 64 FR 40746). The preambles to the proposed and final substantial evidence rule (62 FR 59830 at 59833 and 64 FR 40746 at 40749) further describe the considerations for designing a single adequate and well-controlled study that may demonstrate substantial evidence of effectiveness. A single multilocation study may be an accepted way of evaluating drugs efficiently if it is designed to provide independent substantiation and inferential value. In any instance, presubmission conferences give potential applicants a venue to discuss, among other things, the least burdensome requirements for demonstrating effectiveness.

(Comment 12) One comment states that the Federal Register document for the proposed rule left §§ 514.4 or 514.5 open for future language that would specify how the presubmission conference agreement could be modified.

(Response) In both the proposed and final rule, the bases for modifying a presubmission conference are found in § 514.5(g). The preamble to the proposed rule stated that proposed § 514.4 describes procedures for requesting, conducting, and documenting a presubmission conference. These procedures were proposed, however, to be codified at § 514.5, not in § 514.4 of the proposed rule. In the final rule, these procedures are codified at § 514.5. Existing § 514.4 further defines substantial evidence.

(Comment 13) Two comments believe the provisions in proposed § 514.5(h), when the terms of a presubmission conference are no longer binding, are outside the statutory authority of the agency. The act, as amended by the ADAA, provides that agreements regarding submission or investigation requirements reached at a presubmission conference shall bind the Secretary of Health and Human Services (the Secretary) and the applicant or requester except in two specific situations. The first is by agreement of both parties, and the second is where the Secretary, by written order, determines that a substantiated scientific requirement, essential to the determination of safety or effectiveness of the animal drug involved, has appeared after the conference. The comments assert that the agency does not have the authority to create other mechanisms by which FDA can unilaterally declare presubmission conference agreements not binding.

(Response) We are revising the heading in proposed § 514.5(h), “When the terms of a presubmission conference agreement are no longer binding” to “When the terms of a presubmission conference agreement are not valid.” The heading in the proposed regulation did not accurately reflect the content or intent of the provision.

The intent of proposed § 514.5(h) was not to describe additional conditions under which a presubmission conference agreement is no longer binding. The intent of the provision was to emphasize that if presubmission conference agreements are to be meaningful and valid, they must be based on the truthful submission of information and must bind both parties. There cannot be agreement between parties if statements or representations made by one party are materially false, fictitious, or fraudulent. Thus, FDA considers agreements based on untrue statements or mispresentations of material facts to never have been valid. Further, if a party fails to follow any material term of the agreement, such agreements may become invalid.

We disagree with the comments that assert that the provisions in proposed § 514.5(h) are outside the statutory authority of the agency. As stated by one comment, no one should be untruthful or mislead the agency. In fact it is a crime to knowingly and willfully make an untruthful statement to FDA on matter within its jurisdiction; specifically, 18 U.S.C. 1001(a) provides:

The ADAA does not limit or in any way affect the applicability of the criminal code to potential applicants who provide materially false, fictitious, or fraudulent information to FDA in the course of providing information to facilitate the conduct of a presubmission conference or to support new animal drug approval.

Further, section 701(a) of the act (21 U.S.C. 371(a)) vests in the Secretary the authority to issue regulations for the efficient enforcement of the act. No provision of the ADAA limits or supersedes the authority granted to the Secretary, and FDA by delegation, under section 701(a) of the act. FDA has the authority to make clear the conditions under which agreements were never valid or are no longer valid.

(Comment 14) Two comments are concerned by the provision in the proposed rule that stated: “[a] presubmission conference agreement will no longer be binding * * * if the potential applicant fails to follow any term of the agreement.” Both comments believe that it would be inequitable for an entire agreement to be voided if the applicant failed to comply with some nonmaterial portion of the agreement. One comment suggests that each component of the presubmission conference agreement should be judged upon its own merits and that failure to meet one provision of the agreement should not automatically invalidate the whole agreement. The other comment is particularly concerned that failure to meet timeframes provided for in presubmission conference agreements may frequently cause agreements to be invalidated.

(Response) We do not intend to invalidate an entire presubmission conference agreement if the potential applicant fails to follow immaterial term(s) of the agreement and the term(s) of the presubmission conference agreement are severable. Thus, we are adding “material” before the word term in § 514.5(h)(1)(ii). We intend to examine the severability of the terms of a presubmission conference agreement on a case-by-case basis.

For example, a determination of whether a timeframe is a material term of the agreement will be made by FDA on a case-by-case basis. We understand the comment's concern that timeframes included as terms of the presubmission conference agreement may result in invalidation of the presubmission conference agreement. However, we believe that steps have been built into the presubmission conference process to decrease the likelihood that timeframes will present a major obstacle to complying with the terms of the agreement. First, the potential applicant and FDA should discuss and agree to reasonable timeframes during the presubmission conference. Second, we have added timeframes for FDA to provide the memorandum, including the presubmission conference agreement, and our response to any requests for correction or clarification to ensure our timely response to potential applicants. Finally, we anticipate that the recent enactment of the Animal Drug User Fee Act of 2003 will minimize any significant delays that occur within FDA in reviewing submissions that may affect the potential applicant's ability to meet reasonable timeframes in the agreement.

This final rule clarifies the procedures for requesting, conducting, and documenting presubmission conferences. We have carefully considered the potential environmental impacts of this rule and determined that this action is of a type, as described in 21 CFR 25.30(h), that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

We have examined the impacts of this final rule under Executive Order 12866 and the Regulatory Flexibility Act (5 U.S.C. 601-612), and the Unfunded Mandates Reform Act of 1995 (Public Law 104-4). Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages, distributive impacts and equity). We believe that this final rule is consistent with the regulatory philosophy and principles identified in Executive Order 12866. We have also determined that the rule is not a significant regulatory action as defined by the Executive order and, therefore, is not subject to review under the Executive order. Under the Regulatory Flexibility Act, if a regulation has a significant economic impact on a substantial number of small entities, the agency must analyze regulatory options that would minimize the impact on small entities. FDA certifies in accordance with the Regulatory Flexibility Act (5 U.S.C. 601-612) that this rule will not have a significant economic impact on a substantial number of small entities, and therefore, a regulatory flexibility analysis is not required.

Under section 512(b)(3) of the act, as amended by the ADAA, any person intending to file an NADA or supplemental NADA or to investigate a new animal drug is entitled to one or more conferences prior to such submission to reach an agreement establishing a submission or investigational requirement. The purpose of presubmission conferences is to allow a potential applicant and FDA to reach agreement regarding a submission or investigational requirement, including the number and types of studies that are necessary to demonstrate that the new animal drug is safe and effective for its intended uses.

Prior to the enactment of the ADAA, CVM had already been encouraging sponsors of NADAs to participate in conferences with FDA to discuss in detail what studies are necessary to demonstrate the safety and effectiveness of the particular new animal drug being investigated. We found that, as a result of this direct communication during the development and review of new animal drugs, both the drug development and review processes became more efficient. This final rule implements the statutory entitlement to a presubmission conference, and thus, it will ensure that this benefit will continue where potential applicants request a presubmission requirement.

FDA is not able to make a precise estimate of the savings that industry has realized through presubmission conferences, or of any increase in the number of presubmission conferences that may be requested as a result of the statutory entitlement. This final rule describes the procedures for requesting, conducting, and documenting presubmission conferences and secures an avenue of communication between us and the potential applicants through which both can agree on the studies needed for a certain drug, thereby reducing unnecessary studies and review periods.

Merial Ltd., 3239 Satellite Blvd., Bldg. 500, Duluth, GA 30096-4640, filed NADA 141-230 for PREVICOX (firocoxib) Tablets. The application provides for the veterinary prescription use of firocoxib chewable tablets in dogs for the control of pain and inflammation associated with osteoarthritis. The NADA is approved as of July 21, 2004, and 21 CFR part 520 is amended by adding new § 520.928 to reflect the approval. The basis of approval is discussed in the freedom of information summary.

In accordance with the freedom of information provisions of 21 CFR part 20 and 21 CFR 514.11(e)(2)(ii), a summary of safety and effectiveness data and information submitted to support approval of this application may be seen in the Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852, between 9 a.m. and 4 p.m., Monday through Friday.

Under section 512(c)(2)(F)(i) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360b(c)(2)(F)(i)), this approval qualifies for 5 years of marketing exclusivity beginning July 21, 2004.

The agency has determined under 21 CFR 25.33(d)(1) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808.

Pennfield Oil Co., 14040 Industrial Rd., Omaha, NE 68144, filed ANADA 200-358 for use of PENNCHLOR (chlortetracycline) and BMD (bacitracin methylene disalicylate) Type A medicated articles to make two-way combination drug Type B and Type C medicated feeds for swine. Pennfield Oil Co.'s ANADA 200-358 is approved as a generic copy of Alpharma, Inc.'s new animal drug application 141-059. The ANADA is approved as of July 2, 2004, and the regulations are amended in § 558.76 (21 CFR 558.76) to reflect the approval. The basis of approval is discussed in the freedom of information summary.

In addition, FDA is amending § 558.76 by removing specifications for a bacitracin methylene disalicylate and chlortetracycline combination drug Type B medicated feed that was added to the regulations in 1998 (63 FR 44385, August 19, 1998). The specification contains an error, but also was codified unnecessarily. This amendment is being done to improve the accuracy and consistency of the animal drug regulations.

In accordance with the freedom of information provisions of 21 CFR part 20 and 21 CFR 514.11(e)(2)(ii), a summary of safety and effectiveness data and information submitted to support approval of this application may be seen in the Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852, between 9 a.m. and 4 p.m., Monday through Friday.

The agency has determined under 21 CFR 25.33(a)(2) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808.

Phibro Animal Health, 710 Rt. 46 East, suite 401, Fairfield, NJ 07004, filed NADA 141-211 that provides for the use of MECADOX (carbadox), approved under NADA 41-061, and TERRAMYCIN (oxytetracycline) Type A medicated articles, approved under NADA 95-143, to formulate two-way combination drug Type C medicated feeds for swine. The Type C medicated feeds are used for treatment of bacterial enteritis caused by Escherichia coli and Salmonella choleraesuis susceptible to oxytetracycline, for treatment of bacterial pneumonia caused by Pasteurella multocida susceptible to oxytetracycline; and for increased rate of weight gain and improved feed efficiency. The application is approved as of July 21, 2004, and the regulations are amended in 21 CFR 558.115 and 558.450 to reflect the approval. The basis of approval is discussed in the freedom of information summary.

In accordance with the freedom of information provisions of 21 CFR part 20 and 21 CFR 514.11(e)(2)(ii), a summary of safety and effectiveness data and information submitted to support approval of this application may be seen in the Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852, between 9 a.m. and 4 p.m., Monday through Friday.

The agency has determined under 21 CFR 25.33(a)(2) that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808.

Elanco Animal Health, A Division of Eli Lilly & Co., Lilly Corporate Center, Indianapolis, IN 46285, filed NADA 141-234 that provides for use of OPTAFLEXX (ractopamine hydrochloride), MGA (melengestrol acetate), and RUMENSIN (monensin sodium) Type A medicated articles to make three-way combination Type C medicated feeds used for increased rate of weight gain, improved feed efficiency, and increased carcass leanness; for prevention and control of coccidiosis due to Eimeria bovis and E. zuernii ; and for suppression of estrus (heat) in heifers fed in confinement for slaughter during the last 28 to 42 days on feed. Elanco Animal Health also filed NADA 141-233 that provides for use of OPTAFLEXX, MGA, RUMENSIN, and TYLAN (tylosin phosphate) Type A medicated articles to make four-way combination Type C medicated feeds used for increased rate of weight gain, improved feed efficiency, and increased carcass leanness; for prevention and control of coccidiosis due to E. bovis and E. zuernii ; for suppression of estrus (heat); and for reduction of incidence of liver abscesses caused by Fusobacterium necrophorum and Actinomyces ( Corynebacterium ) pyogenes in heifers fed in confinement for slaughter during the last 28 to 42 days on feed. The NADAs are approved as of July 2, 2004, and the regulations in 21 CFR 558.342, 558.355, 558.500, and 558.625 are amended to reflect the approvals. The basis of approval is discussed in the freedom of information summaries.

In accordance with the freedom of information provisions of 21 CFR part 20 and 21 CFR 514.11(e)(2)(ii), summaries of safety and effectiveness data and information submitted to support approval of these applications may be seen in the Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852, between 9 a.m. and 4 p.m., Monday through Friday.

The agency has determined under 21 CFR 25.33(a)(2) that these actions are of a type that do not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor environmental impact statement is required for either.

This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808.

Under § 1.1502-32(b)(4), if a subsidiary of a consolidated group has a loss carryover from a separate return limitation year when it becomes a member of the group, the group may make an irrevocable election to treat all or any portion of the loss carryover as expiring for all Federal income tax purposes immediately before the subsidiary becomes a member of the group. If the subsidiary was a member of another group immediately before it became a member of the group, the expiration is also treated as occurring immediately after it ceases to be a member of the prior group. Waiving losses of an acquired subsidiary is desirable in cases in which it is anticipated that the losses of the subsidiary may expire unused in that it prevents a negative basis adjustment in the stock of the subsidiary.

In March of 2002, in response to the decision of the United States Court of Appeals for the Federal Circuit in Rite Aid Corp. v. United States, 255 F.3d 1357 (Fed. Cir. 2001), the Treasury Department and the IRS issued guidance regarding the treatment of certain losses realized on dispositions and deconsolidations of stock of a member of a consolidated group. Those rules permitted groups to calculate allowable loss on the sale of subsidiary stock by applying § 1.1502-20 in its entirety, § 1.1502-20 without regard to the duplicated loss factor of the loss disallowance formula, or § 1.337(d)-2T. If a group that made an election described in § 1.1502-20(g) to reattribute to the common parent losses of the subsidiary elected to determine allowable loss by applying either § 1.1502-20 without regard to the duplicated loss factor of the loss disallowance formula, or § 1.337(d)-2T, the amount of loss treated as reattributed could be reduced. As a result, losses that were previously treated as reattributed would be treated as available for use by the subsidiary or any other group of which the subsidiary is a member, subject to any applicable limitations ( e.g. , section 382). To prevent a purchasing consolidated group from being unfairly disadvantaged in the event that the amount of losses treated as reattributed to the common parent of the selling group were decreased and the amount of losses treated as available to the subsidiary were increased (excess losses), § 1.1502-32T(b)(4)(v) was added to provide that, to the extent that the subsidiary's loss carryovers are increased by reason of an election to apply one of the alternative regimes and such loss carryovers expire, or would have been properly used to offset income, in a closed year, the purchasing group will be deemed to have made an election to treat all of such expired loss carryovers as expiring for all Federal income tax purposes immediately before the subsidiary became a member of the purchasing group (the deemed waiver rule). Accordingly, no basis reduction under § 1.1502-32 would result from the expiration of, or failure to use, such losses.

The Treasury Department and the IRS have become aware that the deemed waiver rule may deny the use of excess losses in cases in which such denial was not intended, particularly in cases in which the excess losses would have been properly used to offset income in a closed year and the use of such losses in the closed year would make losses that were used in the closed year available to offset income in an open year. Accordingly, one commentator has asked that relief from the deemed waiver rule be afforded in these cases. These temporary regulations provide that relief by making the application of the deemed waiver rule optional. This relief is applicable on and after August 18, 2004. In addition, groups may apply this relief before August 18, 2004, and on and after March 7, 2002.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. These temporary regulations are necessary to provide taxpayers with immediate guidance regarding the treatment of certain subsidiary losses. Accordingly, good cause is found for dispensing with notice and public procedure pursuant to 5 U.S.C. 553(b) and with a delayed effective date pursuant to 5 U.S.C. 553(d)(3). For applicability of the Regulatory Flexibility Act, please refer to the cross-reference notice of proposed rulemaking published elsewhere in this issue of the Federal Register . Pursuant to section 7805(f) of the Code, these temporary regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

The principal author of these regulations is Sean McKeever, Office of Associate Chief Counsel (Corporate). However, other personnel from the IRS and Treasury Department participated in their development.

Although we did not publish a notice of proposed rulemaking, we encourage you to participate in this rulemaking by submitting comments and related materials. All comments received will be posted, without change, to the public docket for this rulemaking.

Submitting comments: If you submit a comment, please include your name and address, identify the docket number for this rulemaking (USCG-2003-16688), indicate the specific section of this document to which each comment applies, and give the reason for each comment. You may submit your comments and material by electronic means, mail, fax, or delivery to the Docket Management Facility at the address under ADDRESSES ; but please submit your comments and material by only one means. If you submit them by mail or delivery, submit them in an unbound format, no larger than 8 1/2 by 11 inches, suitable for copying and electronic filing. If you submit them by mail and would like to know that they reached the Facility, please enclose a stamped, self-addressed postcard or envelope. We will consider all comments and material received during the comment period. We may change this rule in view of them.

Viewing comments and documents: To view comments, as well as documents mentioned in this preamble as being available in the docket, go to http://dms.dot.gov at any time and select “simple search” using the last five digits of the docket number (16688). You may also visit the Docket Management Facility in room PL-401 on the Plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays.

Privacy Act: Anyone can search all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc .). You may review the Department of Transportation's Privacy Act Statement in the Federal Register published on April 11, 2000 (65 FR 19477), or you may visit http://dms.dot.gov.

We did not publish a notice of proposed rulemaking (NPRM) for this rulemaking. Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing an NPRM. Publishing an NPRM would delay the implementation of this regulation, risking public safety and security.

The Coast Guard has participated in briefings with the Bureau of Alcohol, Tobacco, Firearms and Explosives, the Office of Naval Intelligence, and the Department of Transportation that provided new information about the explosive properties of ammonium nitrate and ammonium nitrate based fertilizers, in bulk, that are listed as Division 5.1 materials in 49 CFR 172.101. The Coast Guard has also collected more information regarding the quantities of propylene oxide shipped on the nation's inland waterways. This new, more accurate information raises additional concerns about the dangers associated with handling and transportation of these chemicals.

The U.S. Coast Guard published the final rule for notification of arrival (NOA) in U.S. ports on February 28, 2003 (68 FR 9537). That final rule made permanent the requirement to submit NOAs 96 hours in advance of arrival to a centralized location, the National Vessel Movement Center (NVMC). In addition, it required specific crew and passenger information and incorporated changes to the CDC definition in 33 CFR 160.204. Since publication of the February 2003 final rule, we have developed additional concerns about potential security hazards of bulk ammonium nitrate and propylene oxide cargoes transported on U.S. waters.

The Coast Guard formally requested input from the Towing Safety Advisory Committee (TSAC) on September 10, 2003, and from the Chemical Transportation Advisory Committee (CTAC) on October 23, 2003. CTAC and TSAC were asked to advise the Coast Guard on the anticipated impact to their respective industries if bulk, solid ammonium nitrate and ammonium nitrate fertilizers that are classified as 5.1 oxidizers were added to our CDC definition. CTAC and TSAC formed a joint working group on this issue. Although both committees accepted the working group minutes, the advisory committees submitted separate written reports to the Coast Guard on January 28, 2004. Both committees acknowledged the security hazards associated with forms of ammonium nitrate and agreed that additional security measures were warranted. The Coast Guard will continue to work closely with both of these committees on cargo security issues.

In response to these concerns, we are adding ammonium nitrate and ammonium nitrate based fertilizers, in bulk, that are listed as Division 5.1 materials in 49 CFR 172.101, as well as propylene oxide, alone or mixed with ethylene oxide, in bulk, to the list of CDCs for which a notice of arrival is required.

Also, since the February 2003 final rule was published, the Coast Guard has developed two new means for electronic submittal of NOAs to the Coast Guard's NVMC. We are making these options available to vessel owners and operators in this rule.

Notification of Arrival for CDC: The Coast Guard is imposing NOA requirements in 33 CFR part 160 for shipments of two additional types of cargo added to the definition of CDC. The first is ammonium nitrate and ammonium nitrate based fertilizers, in bulk, listed as Division 5.1 materials in 49 CFR 172.101. The second is propylene oxide, alone or mixed with ethylene oxide, in bulk.

These cargoes have been added to the definition of CDC in § 160.204. This change will require vessels carrying these cargoes to provide all required NOA information to the U.S. Coast Guard. This change will increase maritime security and safety and enable the Coast Guard to reduce the risk of a transportation security incident.

Because 33 CFR parts 104 and 105 rely on the definition of CDC in part 160, the change to the definition of CDC will cause some vessels and facilities to become subject to the security planning requirements of 33 CFR parts 104 and 105 for the first time. This rule conforms the vessel applicability section in part 104 to include these cargoes and provides these vessels and facilities with a delay in complying with the requirements of parts 104 and 105. After the effective date of this rule, these vessels and facilities will have 3 months to submit security plans to the U.S. Coast Guard and 6 months for full compliance.

Electronic Submittal of NOA: We have added to 33 CFR 160.210 two new methods to electronically submit an NOA to the U.S. Coast Guard's NVMC. All required information can be entered via Electronic Notice of Arrival (e-NOA) available on the NVMC Web site: http://www.nvmc.uscg.gov.

Alternatively, the NVMC can also accept raw XML (eXtensible Markup Language) formatted documents that conform to the e-NOA schema. If you are interested in creating your own application or modifying your existing business systems to submit XML formatted data to the NVMC, please contact Lieutenant Thomas Philbrick of the NVMC, at Tom.Philbrick@uscg.dhs.gov for more information.

The Department of Homeland Security considers this rule to be a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review. The Department, however, concludes that this regulatory action is not economically significant under section 3(f)(1). It is also, therefore, “significant” under the regulatory policies and procedures of the Department of Homeland Security. Accordingly, this regulation has been reviewed by the Office of Management and Budget (OMB). A final assessment is available in the docket as indicated under the “Public Participation and Request for Comments” section of this preamble. A summary of the assessment follows: The purpose of this regulatory assessment (RA) is to estimate the costs of this temporary rule, which will change the definition of CDC to include ammonium nitrate and ammonium nitrate based fertilizers, in bulk, that are listed as Division 5.1 materials in 49 CFR 172.101, as well as propylene oxide, alone or mixed with ethylene oxide, in bulk. This change will promote maritime safety and security and facilitate the uninterrupted flow of commerce by increasing the Coast Guard's ability to maintain awareness of these cargoes. Moreover, this rule provides vessel owners and operators optional methods (online or via e-mail) to submit NOAs. For the purposes of this analysis, we will use a period of January 2004 to June 2005 to show the cost.

In our review of the affected population, we have determined that there are approximately 9,213 barges that can potentially transport ammonium nitrate and ammonium nitrate based fertilizers, in bulk, as well as propylene oxide, alone or mixed with ethylene oxide, in bulk, and approximately 40-50 fleeting facilities that can potentially receive these cargoes and, therefore, could be impacted by this rule. However, based on our available data, we note that there are only approximately 600 movements of these cargoes a year. Therefore, the actual number of barges used to transport these cargoes would be only a fraction of the barge population that may potentially transport ammonium nitrate or propylene oxide. Since the industry may want to retain the flexibility to use any of these 9,213 barges to carry these cargoes, we have based our cost estimate on this larger population. For fleeting facilities, we used 50 fleeting areas to estimate our cost.

There are two elements of cost associated with this rulemaking. The first cost stems from the NOA requirements, and the second cost is from the Maritime Transportation Security Act of 2002 (MTSA) regulations. Currently, vessels that transport CDC cargoes are required to prepare and submit NOAs to the Coast Guard. In addition, vessels and facilities that handle CDC cargoes are required to implement security measures, to be in compliance with the MTSA requirements in 33 CFR parts 104 and 105.

The Coast Guard is temporarily changing the NOA and the MTSA regulations in 33 CFR parts 104 and 105 by adding ammonium nitrate and ammonium nitrate based fertilizers, in bulk, that are listed as Division 5.1 materials in 49 CFR 172.101, as well as propylene oxide, alone or mixed with ethylene oxide, in bulk, to the list of CDCs. Vessels that transport such cargoes will now be required to prepare and submit NOAs. Furthermore, vessels and facilities that handle ammonium nitrate and ammonium nitrate based fertilizers, in bulk, that are listed as Division 5.1 materials in 49 CFR 172.101, as well as propylene oxide, alone or mixed with ethylene oxide, in bulk, will now have to implement security measures. Security measures can include preparing security plans and assessments; hiring and training security personnel; and installing security equipment.

The total 18-month cost discounted to its present value (PV) at 7 percent is presented below.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. This rule does not require a general notice of proposed rulemaking and, therefore, is exempt from the requirements of the Regulatory Flexibility Act. Although this rule is exempt, we have reviewed it for potential economic impact on small entities.

We expect that this rule may have an economic impact on some small entities, as defined by the Small Business Administration (SBA). Small entities affected by this rule fall into two groups: (1) Those small entities that currently carry or handle CDCs in addition to ammonium nitrate and ammonium nitrate based fertilizers in bulk listed as Division 5.1 materials in 49 CFR 171.101 and propylene oxide, alone or mixed with ethylene oxide, in bulk; and (2) those small entities that currently carry or handle only ammonium nitrate and ammonium nitrate based fertilizers in bulk listed as Division 5.1 materials in 49 CFR 171.101 and propylene oxide, alone or mixed with ethylene oxide, in bulk.

Small entities in the first category currently submit NOA reports and comply with the security measures and planning requirements of the MTSA regulations. These entities will have to submit a greater number of NOA reports for the newly-covered cargoes. They may have to revise existing security plans and change security measures to cover these cargoes.

Small entities in the second category will, for the first time, have to comply with NOA requirements in 33 CFR part 160 for shipments of these cargoes and comply with the security measures and planning requirements of the MTSA regulations in 33 CFR parts 104 and 105.

The Coast Guard is particularly interested in the impact of this rule on small entities. If you are a small entity, we specifically request comments regarding the economic impact of this rule on you.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104-121), we want to assist small entities in understanding this rule so that they can better evaluate its effects on them and participate in the rulemaking. If the rule will affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please consult Lieutenant Junior Grade Kimberly Andersen, G-MPP, Coast Guard, telephone 202-267-2562.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small businesses. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247).

This temporary final rule calls for a collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

As defined in 5 CFR 1320.3(c), “collection of information” comprises reporting, recordkeeping, monitoring, posting, labeling, and other, similar actions. The title and description of the information collections, a description of those who must collect the information, and an estimate of the total annual burden follow. The estimate covers the time for reviewing instructions, searching existing sources of data, gathering and maintaining the data needed, and completing and reviewing the collection.

This temporary final rule modifies two existing OMB-approved collections 1625-0077 (formerly 2115-0622) and 1625-0100 (formerly 2115-0557). The request for approval of this Collection of Information is available in the docket where indicated under the “Public Participation and Request for Comments” section of this preamble. Summaries of the revised collections follow.

Title: Security Plans for Ports, Vessels, Facilities, and Outer Continental Shelf Facilities and Other Security-Related Requirements.

OMB Control Number: 1625-0077.

Summary of the Collection of Information: The Coast Guard requires security assessments and plans for vessels and facilities. This temporary final rule provides a framework to ensure adequate security planning, drilling, and communication procedures by requiring vessels to develop and submit for approval Vessel Security Assessments (VSA) and Vessel Security Plans (VSP), and by requiring facilities to develop and submit Facility Security Assessments (FSA) and Facility Security Plans (FSP).

Need for Information: The primary need for information is to identify the adequate security mitigating measures that will be implemented when needed.

Proposed Use of Information: The information will be used to identify and communicate the security mitigating measures to the Coast Guard and necessary personnel.

Description of the Respondents: The Company Security Officer, or another designated person, for owners and operators of the affected vessels and facilities is responsible for developing the VSA and VSP for vessels, or the FSA and FSP for facilities.

Number of Respondents: The existing OMB-approved number of respondents is 16,855. This rule would increase that number by 52. The total number of respondents is 16,907.

Frequency of Response: The existing OMB-approved number of responses (as adjusted on February 18, 2004) is 81,118. This rule will increase that number by 9,263. The total number of responses is 90,381.

Burden of Response: The development burden for the VSAs and VSPs for vessels, and the FSAs and FSPs for facilities, is estimated to be approximately 80 hours depending on the size of the company and the number and types of vessels or facilities the company owns. Updating the assessments and plans is estimated to be approximately one to four hours depending on the size of the company and the number and types of vessels or facilities the company owns.

Estimate of Total Annual Burden: The existing OMB-approved total annual burden is 1,873,458 hours. This rule will increase that number by 9,999 hours. The estimated total annual burden is 1,883,457 hours.

Title: Advance Notice of Vessel Arrival.

OMB Control Number: 1625-0100.

Summary of the Collection of Information: The Coast Guard requires pre-arrival notices from certain vessels entering a port or place in the United States. This temporary final rule adds the requirement to vessels carrying ammonium nitrate and ammonium nitrate based fertilizers that are listed as Division 5.1 materials in 49 CFR 172.101, in bulk, as well as propylene oxide, alone or mixed with ethylene oxide, in bulk.

Need for Information: The primary need for information is to identify the adequate security mitigating measures that will be implemented when needed.

Proposed Use of Information: The information will be used to identify and communicate the security mitigating measures to the Coast Guard and necessary personnel.

Description of the Respondents: Respondents are the owner, agent, master, operator, or person in charge of a vessel that arrives at or departs from a port or place in the United States.

Number of Respondents: The existing OMB-approved number of respondents is 10,367. This rule would increase that number by 111. The total number of respondents is 10,478.

Frequency of Response: The existing OMB-approved number of responses is 68,289. This rule will increase that number by 2,288. The total number of responses is 70,577.

Burden of Response: The existing OMB-approved burden of response is approximately 2.5 hours. This rule will increase that number by 0.25 hours. The estimated burden of response is 2.75 hours.

Estimate of Total Annual Burden: The existing OMB-approved total annual burden is 173,904 hours. This rule will increase that number by 1,621 hours. The estimated total annual burden is 175,525 hours.

As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), we have submitted a copy of this temporary final rule to the Office of Management and Budget (OMB) for its review of the collection of information. Due to the circumstances surrounding this temporary rule, we asked for “emergency processing” of our request. We received OMB approval for these collections of information on July 29, 2004.

We ask for public comment on the collection of information to help us determine how useful the information is; whether it can help us perform our functions better; whether it is readily available elsewhere; how accurate our estimate of the burden of collection is; how valid our methods for determining burden are; how we can improve the quality, usefulness, and clarity of the information; and how we can minimize the burden of collection.

If you submit comments on the collection of information, submit them both to OMB and to the Docket Management Facility where indicated under ADDRESSES , by the date under DATES .

You need not respond to a collection of information unless it displays a currently valid control number from OMB. We received OMB approval for these collections of information on 29 July 2004.

A rule has implications for federalism under Executive Order 13132, Federalism, if the rule has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does 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.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

We have analyzed this rule under Commandant Instruction M16475.lD, which guides the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have concluded that there are no factors in this case that would limit the use of a categorical exclusion under section 2.B.2 of the Instruction. This rule changes the requirements in the notification of arrival regulations. They are procedural in nature and therefore, are categorically excluded, under figure 2-1, paragraphs (34)(a) and (d), of the Instruction from further environmental documentation. A “Categorical Exclusion Determination” is available in the docket where indicated under ADDRESSES.

This SUPPLEMENTARY INFORMATION section is organized as follows:

This action is rulemaking on a Sulfur Dioxide plan for the United Defense, LP facility located in Anoka County.

1. The Regional Office has established an electronic public rulemaking file available for inspection on EDOCKET and a hard copy file which is available for inspection at the Regional Office. EPA has established an official public rulemaking file for this action under Docket ID No. R05-OAR-2004-MN-0001. The official public file consists of the documents specifically referenced in this action, any public comments received, and other information related to this action. Although a part of the official docket, the public rulemaking file does not include Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. The official public rulemaking file is the collection of materials that is available for public viewing at the Air Programs Branch, Air and Radiation Division, EPA Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604. EPA requests that if at all possible, you contact the person listed in the FOR FURTHER INFORMATION CONTACT section to schedule your inspection. The Regional Office's official hours of business are Monday through Friday, 8:30 a.m. to 4:30 p.m. excluding Federal holidays.

2. Electronic Access. You may access this Federal Register document electronically through the regulations.gov Web site located at http://www.regulations.gov where you can find, review, and submit comments on Federal rules that have been published in the Federal Register , the Government's legal newspaper, and are open for comment.

For public commenters, it is important to note that EPA's policy is that public comments, whether submitted electronically or in paper, will be made available for public viewing at the EPA Regional Office, as EPA receives them and without change, unless the comment contains copyrighted material, CBI, or other information whose disclosure is restricted by statute. When EPA identifies a comment containing copyrighted material, EPA will provide a reference to that material in the version of the comment that is placed in the official public rulemaking file. The entire printed comment, including the copyrighted material, will be available at the Regional Office for public inspection.

You may submit comments electronically, by mail, or through hand delivery/courier. To ensure proper receipt by EPA, identify the appropriate rulemaking identification number by including the text “Public comment on proposed rulemaking Region 5 Air Docket “R05-OAR-2004-MN-0001” in the subject line on the first page of your comment. Please ensure that your comments are submitted within the specified comment period. Comments received after the close of the comment period will be marked “late.” EPA is not required to consider these late comments.

For detailed instructions on submitting public comments and on what to consider as you prepare your comments see the ADDRESSES section and the section I General Information of the SUPPLEMENTARY INFORMATION section of the related proposed rule which is published in the proposed rules section of this Federal Register .

On December 19, 2002, the MPCA submitted a revision to Minnesota's SIP for SO 2 for the United Defense, LP facility located in Anoka County at 4800 East River Road, Fridley, Minnesota. This revision replaces the Administrative Order, originally issued to the facility on May 27, 1992, with a Title V permit containing non-expiring Title I SIP conditions, issued on November 25, 2002.

In addition to changing the form of the SIP for United Defense, the revision reflects several operational changes which result in reduced modeled ambient SO 2 impacts. The revised SIP reflects the fact that several older boilers were replaced by three newer units according to the schedule in the original Administrative Order. In addition, non-expiring permit conditions limit the sulfur content in the fuel used, whereas the Administrative order set emission limits for SO 2 . The new boilers are restricted to using either natural gas or No. 2 fuel oil with a maximum of 0.05 percent sulfur by weight; the Administrative Order allowed up to 0.40 percent sulfur. Standby generators are restricted to using diesel fuel with a maximum sulfur content of 0.05 percent; the Administrative Order allowed up to 0.50 percent sulfur. The permit no longer allows the use of waste oil, with up to 1.9 percent sulfur, which had been allowed by the Administrative Order. To demonstrate compliance with these provisions, the facility is required to obtain and maintain written documentation of each shipment of No. 2 fuel oil and diesel fuel oil received for the boilers. The documentation must include the sulfur content of the fuel and the method used to determine the sulfur content.

The facility has also established federally enforceable emission limits for volatile organic compounds, nitrogen oxides, hazardous air pollutants, particulate matter, and total particulate matter to avoid classification as a major source under new source review or national emission standards for hazardous air pollutants.

Minnesota has submitted updated dispersion modeling to support the proposed changes at the facility.

Under Minnesota administrative procedures, the MPCA may publish a public notice and offer the opportunity for a public hearing in lieu of automatically holding a hearing. The MPCA published notice of its intended action on this permit and SIP revision; instituted a public comment period which ran from October 17, 2002, to November 15, 2002; and offered the opportunity for interested persons to request that MPCA hold a public information meeting, request that MPCA hold a contested case hearing, and/or submit a petition to the Commissioner requesting that the MPCA Board consider the permit matter. The MPCA received no comments pertaining to the SIP conditions and there were no requests for a public hearing.

EPA is approving the December 19, 2002, revision to SIP for SO 2 for the United Defense, LP facility located in Anoka County at 4800 East River Road, Fridley, Minnesota. The recordkeeping requirements are appropriate to demonstrate compliance with sulfur content limits and the state has demonstrated through appropriate use of dispersion modeling that the area remains in attainment of the National Ambient Air Quality Standards for SO 2 .

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 (Pub. L. 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 October 18, 2004. 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).)

Regulated Entities. Categories and entities potentially regulated by this action include:

Table of Contents I. Background II. Petitions for Reconsideration III. Today's Final Rule; Delay of Compliance Date IV. Regulatory Analyses and Notices I. Background

Federal Motor Vehicle Safety Standard (FMVSS) No. 205 Glazing Materials specifies performance requirements for glazing installed in motor vehicles. It also specifies the vehicle locations in which the various types of glazing may be installed. On July 25, 2003 (68 FR 43964)(DMS Docket No. NHTSA-2003-15712), NHTSA published a final rule (July 25 final rule) updating FMVSS No. 205 by incorporating by reference the 1996 version of the American National Standards Institute (ANSI) standard on motor vehicle glazing. Prior to the July 25 final rule, FMVSS No. 205 referenced the 1977 version of ANSI Standard Z26.1, “Safety Code for Safety Glazing Materials for Glazing Motor Vehicles Operating on Land Highways,” and the 1980 supplement to that standard.

The July 25 final rule has simplified and amended the glazing performance requirements. By incorporating by reference the 1996 version of the ANSI standard, the agency was able to remove most of the existing text in FMVSS No. 205.

In addition to incorporating the 1996 ANSI standard, the final rule addressed several issues not covered by that standard. For example, the final rule limited the size of the shade band located at the top of the windshield and clarified the meaning of the term “the most difficult part or pattern” for the fracture test in the 1996 ANSI standard. The final rule also made minor conforming amendments to the standard on low speed vehicles.

In a final rule of January 5, 2004 (69 FR 279)(DMS Docket No. NHTSA-2003-15712), NHTSA established September 1, 2004 as the effective date of the July 25, 2003 final rule. For further details on the subject final rule, please see 68 FR 43964 (July 25, 2003).

In response to the July 25 final rule, the agency received six petitions for reconsideration. Petitions were submitted by DaimlerChrysler, General Motors (GM), Alliance for Automobile Manufacturers (Alliance), PPG Industries (PPG), Pilkington North America (PNA), and Visteon. Petitioners have asked the agency to reconsider the following issues.

DaimlerChrysler, GM, PPG, PNA, and Visteon have asked that the agency reconsider its decision to change the visibility up-angle from 5 degrees to 7 degrees. Specifically, petitioners note that NHTSA has not demonstrated a safety need for this technical modification, and that the up-angle change was not discussed in the NPRM. DaimlerChrysler estimates that 25% of vehicles currently in production would not comply with the 7-degree up-angle requirement. Accordingly, petitioners contend that the change in the up-angle would place a significant burden on the manufacturers. Additionally, Visteon commented that the change in up-angle would necessitate a costly redesign of aftermarket replacement glazing.

GM, DaimlerChrysler, PPG and PNA have asked the agency to clarify or reconsider the meaning of the phrase “most difficult part or pattern” in the context of the fracture test provisions of ANSI Z26. Specifically, petitioners contend that the preamble to the final rule, S5.2 of the regulatory text, and NHTSA's previous interpretations on the issue, are inconsistent as to the use of the phrase.

DaimlerChrysler and PPG have also asked the agency to formally define the term “Day Light Opening” and rescind a previously issued interpretation letter on the subject.

DaimlerChrysler, GM, PPG, PNA and Alliance have asked the agency to reconsider its position with respect to soldered terminals. Specifically, petitioners ask that compliance fracture testing be conducted without soldered terminals being attached to glazing. According to petitioners, a prior interpretation letter on the issue, coupled with the language in the final rule created confusion as to whether fracture testing would be conducted with the terminals attached. Petitioners ask that NHTSA clarify both the new testing procedure and also a distinction between conductors and terminals.

Petitioners, including PNA, GM, DaimlerChrysler, PPG and Visteon, have asked the agency to delay the effective date of the updated FMVSS No. 205 by up to 3 years. In support of their request, DaimlerChrysler argued that glazing manufacturers would need to perform extensive testing to demonstrate compliance with the updated requirements of FMVSS No. 205. Further, some glazing manufacturers might need to add additional equipment in order to perform the necessary testing.

DaimlerChrysler, PNA, GM and PPG have asked that the agency also consider permitting compliance with the old requirements of FMVSS No. 205 for the manufacture of aftermarket replacement glazing. According to the petitioners, it would not be feasible to redesign replacement glazing such that it would meet the updated requirements of FMVSS No. 205. Similarly, Visteon commented that the final rule necessitates a redesign of aftermarket glazing that may be time-consuming because the necessary vehicle data is not readily available to glazing manufacturers.

Previously, NHTSA has established September 1, 2004 as the compliance date for the July 25, 2003 final rule. In six petitions for reconsideration, NHTSA has been asked to reconsider several aspects of the July 25, 2003 final rule. NHTSA is in the process of considering all six petitions. Given the imminence of the September 1, 2004 compliance date, the agency has decided to delay the compliance date of the July 25, 2003 final rule until September 1, 2006. The issues raised in the petitions for reconsideration will be addressed by the agency in a separate document.

The agency believes that a delay is necessary to ensure that glazing and automobile manufacturers do not face substantial economic hardship associated with certain new requirements of the amended FMVSS No. 205. As discussed in the petitions, the updated requirements of FMVSS No. 205 may necessitate extensive testing and compliance costs by glazing manufacturers.

NHTSA expects that all the issues raised in the petitions will be fully addressed prior to the new, September 1, 2006 compliance date. If these issues have not been resolved by the new compliance date, all affected manufacturers will be required to meet the new requirements. Compliance dates of agency final rules are not stayed due to outstanding petitions for reconsideration of those rules.

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.

This rulemaking document was not reviewed under Executive Order 12866. It is not significant within the meaning of the DOT Regulatory Policies and Procedures. It does not impose any burden on manufacturers, and extends the compliance date of a final rule amending FMVSS No. 205 for two years. The agency believes that this impact is so minimal as to not warrant the preparation of a full regulatory evaluation.

We have not conducted an evaluation of the impacts of this final rule under the National Environmental Policy Act. This rulemaking action extends the date by which the manufacturers must comply with the newly upgraded requirements of FMVSS No. 205. This rulemaking does not impose any change that would have any environmental impacts. Accordingly, no environmental assessment is required.

Pursuant to the Regulatory Flexibility Act, we have considered the impacts of this rulemaking action will have on small entities (5 U.S.C. 601 et seq. ). I certify that this rulemaking action will not have a significant economic impact upon a substantial number of small entities within the context of the Regulatory Flexibility Act.

The following is our statement providing the factual basis for the certification (5 U.S.C. 605(b)). The final rule affects manufacturers of motor vehicles and motor vehicle glazing. According to the size standards of the Small Business Association (at 13 CFR 121.601), manufacturers of glazing are considered manufacturers of “Motor Vehicle Parts and Accessories” (SIC Code 3714). The size standard for SIC Code 3714 is 750 employees or fewer. The size standard for manufacturers of “Motor Vehicles and Passenger Car Bodies” (SIC Code 3711) is 1,000 employees or fewer. This Final Rule will not have any significant economic impact on a substantial number of small businesses in these industries because the rule only delays by two years, the compliance date of the previously published final rule. Small organizations and governmental jurisdictions that purchase glazing will not be significantly affected because this rulemaking will not cause price increases. Accordingly, we have not prepared a Final Regulatory Flexibility Analysis.

E.O. 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.” E.O. 13132 defines the term “Policies that have federalism implications” 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 E.O. 13132, NHTSA may not issue a regulation that has federalism implications, that imposes substantial direct compliance costs, and that is not required by statute, unless the Federal government provides the funds necessary to pay the direct compliance costs incurred by State and local governments, or NHTSA consults with State and local officials early in the process of developing the proposed regulation.

This final 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 as specified in E.O. 13132. Thus, the requirements of section 6 of the Executive Order do not apply to this rule.

The Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires 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 annually. This action, which extends the compliance date of a final rule amending FMVSS No. 205, will not result in additional expenditures by state, local or tribal governments or by any members of the private sector. Therefore, the agency has not prepared an economic assessment pursuant to the Unfunded Mandates Reform Act.

Under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. )(PRA), 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. Since it only delays the compliance date of a final rule, this final rule does not impose any new collection of information requirements for which a 5 CFR part 1320 clearance must be obtained.

This final rule does not have any retroactive effect. Under 49 U.S.C. 30103(b), whenever a Federal motor vehicle safety standard is in effect, a state or political subdivision may prescribe or continue in effect a standard applicable to the same aspect of performance of a Federal motor vehicle safety standard only if the standard is identical to the Federal standard. However, the United States Government, a state, or political subdivision of a state, may prescribe a standard for a motor vehicle or motor vehicle equipment obtained for its own use that imposes a higher performance requirement than that required by the Federal standard. 49 U.S.C. 30161 sets forth a procedure for judicial review of final rules establishing, amending, or revoking Federal motor vehicle safety standards. A petition for reconsideration or other administrative proceedings are not required before parties file suit in court.

Executive Order 12866 requires each agency to write all rules in plain language. Application of the principles of plain language includes consideration of the following questions:

Under the National Technology and Transfer and Advancement Act of 1995 (NTTAA) (Pub. L. 104-113), “all Federal agencies and departments shall use technical standards that are developed or adopted by voluntary consensus standards bodies, using such technical standards as a means to carry out policy objectives or activities determined by the agencies and departments.”

Certain technical standards developed by the American National Standards Institute (ANSI) and Society of Automotive Engineers (SAE) have been considered and incorporated by reference in the final rule published on July 25, 2003, which upgraded the requirements of FMVSS No. 205. This final rule extends the compliance date of that final rule to September 1, 2006.

Anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit http://dms.dot.gov .

This rule is not subject to E.O. 13045 because it is not “economically significant” as defined under E.O. 12866, and does not concern an environmental, health or safety risk that NHTSA has reason to believe may have a disproportionate effect on children.

Regulations governing the yellowtail flounder landing limit within the Western and Eastern U.S./Canada Areas are found at 50 CFR 648.85(a)(3)(iv)(C). The regulations authorize vessels issued a valid limited access NE multispecies permit and fishing under a NE multispecies day-at-sea (DAS) to fish in the U.S./Canada Management Area, under specific conditions. The TAC allocation for GB yellowtail flounder for the 2004 fishing year was specified at 6,000 mt in the final rule implementing Amendment 13 to the NE Multispecies Fishery Management Plan (FMP) (April 27, 2004, 69 FR 22906). Section 648.85(a)(3)(iv)(C)(2) authorizes the Regional Administrator to implement and/or adjust the yellowtail flounder landing limit for NE multispecies vessels fishing in both the Western and Eastern U.S./Canada Areas to 1,500 lb (680.4 kg) per day, and 15,000 lb (6,804.1 kg) per trip when 70 percent of the GB yellowtail flounder TAC is projected to be harvested.

Based upon Vessel Monitoring System reports and other available information, the Regional Administrator has determined that 70 percent (4,200 mt) of the GB yellowtail flounder TAC of 6,000 mt will be harvested by August 18, 2004. Based on this information, the trip limit of 1,500 lb (680.4 kg) per day, and 15,000 lb (6,804.1 kg) per trip, is implemented effective August 18, 2004, for NE multispecies vessels fishing in both the Western and Eastern U.S./Canada Areas.

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

The groundfish fisheries in the Exclusive Economic Zone of the Bering Sea and Aleutian Islands management area are managed under the FMP. The North Pacific Fishery Management Council prepared the FMP under the authority of the Magnuson-Stevens Act, 16 U.S.C. 1801, et seq. Regulations implementing the FMP appear at 50 CFR part 679. General regulations governing U.S. fisheries also appear at 50 CFR part 600.

The western distinct population segment (DPS) of Steller sea lions has been listed as endangered under the Endangered Species Act, and critical habitat has been designated for this DPS (50 CFR 226.202). In order to protect Steller sea lions from jeopardy of extinction and their critical habitat from adverse modification from the effects of the groundfish fisheries, temporal and spatial harvest restrictions were established in regulations for the groundfish fisheries of Alaska (68 FR 204, January 2, 2003). Atka mackerel is an important prey species for Steller sea lions. Under the harvest restrictions, the harvest of Atka mackerel in the Aleutian Islands subarea is managed to control the amount of harvest over time and area. The details for managing the Atka mackerel fishery in 2004 are in the annual harvest specifications (69 FR 9242, February 27, 2004).

The regulations at 50 CFR 679.20(a)(8) establish a HLA fishery to control the removal of Atka mackerel in the HLA. The details of the HLA fishery are explained in the proposed rule for Steller sea lion protection measures (67 FR 56692, September 4, 2002). The HLA is the waters of statistical areas 542 and 543 west of 178° W longitude within 20 nautical miles seaward of sites listed in Table 6 of 50 CFR part 679 and located west of 177°57.00′ W longitude. This area includes critical habitat for Steller sea lions and additional waters around haulouts that are considered important for Steller sea lion foraging.

To reduce the amount of daily catch in the HLA by about half and to disperse the fishery over two areas, the Atka mackerel trawl fleet is divided into two groups assigned to fish in the HLA in either statistical area 542 or statistical area 543. HLA fisheries are conducted twice in each of two seasons. The current regulations at § 679.7(a)(19) and § 679.20 (a)(8)(iii) prohibit fishing for all groundfish outside the HLA, including Atka mackerel, during the first assigned HLA fishery in a season. The intent of this prohibition is to ensure participants in the HLA fishery do not switch to another groundfish fishery during these time periods and increase competition with participants in those fisheries.

This final rule allows participants in the HLA fishery to fish for Atka mackerel outside of the HLA during the first assigned HLA fishery in a season. The prohibition on fishing for groundfish species other than Atka mackerel during the first assigned HLA fishery is not affected by this final rule. This action provides the potential for additional reduction in the rate of Atka mackerel harvest in the HLA consistent with the objectives of the Steller sea lion protection measures. The final rule also provides the fishing industry with additional locations during the first HLA fisheries to Atka mackerel fishing grounds outside of critical habitat without competing with other groundfish fisheries.

The proposed rule for this action was published in the Federal Register on June 2, 2004 (69 FR 31085), with a comment period ending June 17, 2004. No changes were made from the proposed rule in the final rule.

One email comment was received regarding the proposed rule. The email contained three separate comments which are summarized and responded to below.

Comment 1: The email address for submitting comments on the proposed rule is ridiculous. It can be easily mistyped which may result in lost comments.

Response: NMFS email addresses for providing public comment on proposed actions contain text that identifies the action on which comments are being accepted. The email address for the proposed rule for this action was AM-HLA-0648-AS10. “AM” stands for Atka mackerel, “HLA” stands for harvest limit area, and “0684-AS10” is the regulatory identification number that was assigned to this action. By using these identifiers in the email address, NMFS can easily sort emails received on a number of actions that are concurrently open for public comment, ensuring public comments are attributed to the correct action. The email commenter will need to carefully type the email address, but the extra effort to type the address will ensure the comment is received and is considered for the correct action.

Comment 2: The commercial fisheries participants seem to not want fish to be available to Steller sea lions. This is abusive to Steller sea lions, and the fishery quotas should be cut.

Response: The action provides additional protection to Steller sea lions by allowing Atka mackerel fishers to harvest Atka mackerel outside of the HLA, an area important for Steller sea lion foraging. The initial request for this action came from commercial fishing industry representatives based on their concern for efficient harvest of Atka mackerel and the additional benefit that potentially could result for Steller sea lions by reducing competition for Atka mackerel in the HLA.

The Atka mackerel total allowable catch (TAC) amounts are set at conservative levels each year during the harvest specifications process, and annual harvest is dispersed over time and space as required by the specifications and fishery regulations. The process of setting the TAC amounts and controlling the spatial and temporal harvest of Atka mackerel meets the requirements of the Steller sea lion protection measures. A reduction of TAC is not needed at this time based on the abundance and condition of the Atka mackerel stock and the fishery's compliance with Steller sea lion protection measures.