[Federal Register Volume 61, Number 250 (Friday, December 27, 1996)]
[Rules and Regulations]
[Pages 68127-68129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32748]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Parts 701 and 707
Organization and Operations of Federal Credit Unions; Truth in
Savings
AGENCY: National Credit Union Administration.
ACTION: Final rule.
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SUMMARY: The NCUA Board is implementing two provisions of the Economic
Growth and Regulatory Paperwork Reduction Act of 1996. First, the Board
is raising the threshold of credit union board of directors' approval
of loans to officials from $10,000 to $20,000. Second, the Board is
permanently exempting small, nonautomated credit unions from Truth in
Savings compliance.
DATES: This final rule is effective December 27, 1996.
ADDRESSES: National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428.
FOR FURTHER INFORMATION CONTACT: Sparky Conrey, Staff Attorney, Office
of General Counsel, telephone (703) 518-6540, and Jodee Wuerker,
Compliance Officer, Office of Examination and Insurance, telephone
(703) 518-6360.
SUPPLEMENTARY INFORMATION:
(1) Loans to Officials
On September 30, 1996, the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (the ``Act'') was enacted. Section 2306 of the
Act amended sections 107(5)(A) (iv) and (v) of the Federal Credit Union
Act, by raising the threshold of loans to officials that require credit
union board of director approval from $10,000 to $20,000. 12 U.S.C.
1757(5)(A) (iv) and (v). These statutory provisions are currently
implemented in section 701.21(d) (1) and (4) of NCUA's Rules and
Regulations. 12 CFR 701.21(d) (1) and (4). The $10,000 amount is
changed to $20,000 in these two sections. All other portions of the
rules regarding loans to officials remain the same.
(2) Truth in Savings
Background
NCUA has previously extended the compliance date three times of
part 707, which implements the Truth in Savings Act (TISA), for certain
small, nonautomated credit unions. Each time, the NCUA Board took into
consideration the limited resources of the exempted credit unions. The
last extension was due to expire on January 1, 1997. 60 FR 57173
(November 14, 1995).
Section 2604(c) of the Act exempts from TISA requirements ``any
nonautomated credit union that was not required to comply with the
[TISA] as of the date of enactment of the [Act], pursuant to the
determination of the [NCUA] Board.'' The NCUA Board has previously
exempted nonautomated and insufficiently automated credit unions with
an asset size of $2 million or less as reported to, or determined by,
NCUA. An exemption had been supported by NCUA, the Department of the
Treasury, and credit union trade associations in Congressional hearings
and other legislative action, citing the hardships that would befall
the small, nonautomated credit unions if TISA compliance became
mandatory. These hardships potentially include: increased mergers of
the affected credit unions into larger credit unions; increased
voluntary liquidations; loss of volunteer support; allocation of credit
union resources from member services to compliance; the expense,
complications, and logistics of automating in order to comply; and loss
of credit union services to members. Subsequently, Congress provided a
TISA exemption for small, nonautomated credit unions.
The NCUA Board is concerned with the continued viability of small
credit unions and the provision of continued financial services to
their members. Ten years ago, credit unions under $2 million in size
made up about two-thirds (10,564) of all federally insured credit
unions. Today, such credit unions number only 3,401, about thirty
percent of federally insured credit unions. In addition, the assets of
today's 3,401 smallest credit unions are .9 percent of total assets in
all credit unions, while credit unions of $2 million or less accounted
for 7.7 percent of total assets ten years ago. The average credit union
today has $28 million in assets, compared to $5 million ten years ago.
Because the Act recognizes the difficulty that small credit unions
face in complying with the many requirements of the TISA, especially
the calculation requirements, statutory relief is provided. It is
important to note that this relief is available to a very small segment
of credit unions. Almost four-fifths of credit unions with $2 million
or less in assets are automated or have in-house data processing. NCUA
has determined that there are about 704 credit unions under $2 million
in assets that report having manual recordkeeping systems. Analogously,
NCUA has also determined that there are about 607 credit unions under
$2 million in assets that have no compensated employees. (These numbers
do not include the approximately 645 non-federally insured credit
unions that do not submit 5300 reports.) The actual number of credit
unions exempt from TISA and part 707 is estimated by NCUA staff to be
fewer than 1,000. Although the statutory exemption is permanent in
nature, NCUA encourages exempted credit unions to continue to comply
with the spirit and intent of TISA by providing full and fair account
disclosures to members. Even with the extension, many small,
nonautomated credit union activities comply with the purposes of TISA:
to enable credit union members and potential members to make informed
decisions about credit union accounts and to make meaningful
comparisons with accounts at other financial institutions.
Definition of Nonautomated
The NCUA Board has decided to implement the Act's exemption for
nonautomated credit unions by
[[Page 68128]]
amending the coverage provisions of paragraph 707.1(c) and by adding a
new Comment 707.1(c)-3 to Appendix C, Official Staff Interpretations.
No application is necessary in order to obtain the exemption. However,
as required by the Act, NCUA does determine a credit union's legibility
for the exemption. Credit unions may contact the appropriate Regional
Office to verify their use of the exemption.
By the term ``nonautomated status'' NCUA means those credit unions
without adequate and sufficient in-house or vendor-provided computer or
data processing capacity and capability to establish, operate and
maintain a share and loan software program able to timely and
accurately process all member transactions on all member accounts at
the credit union. Thus, some exempted credit unions do have some
computer capacity, such as a word processor or a computer with
insufficient memory and power capabilities to operate a complete, up-
to-date share and loan software program. Since these credit unions are
not sufficiently automated for Truth in Savings purposes, it is the
determination of the NCUA Board that such credit unions are entitled to
the Act's exemption. NCUA generally has used the year-end NCUA Form
5300 report to determine the requisite nonautomation status and asset
size for those credit unions filing Form 5300 reports that have been
eligible for the previous TISA compliance date extensions. Credit
unions which do not file Form 5300 reports are currently permitted to
prove nonautomation status and asset size by other means, such as
verified self-certifications, certifications by appropriate state
supervisory authorities, and other equivalent forms of proof. In the
future, NCUA will use a combination of these methods to determine
eligibility for the TISA exemption.
Operation of Exemption
The Act authorizes the NCUA Board to determine the extent and
operation of the TISA exemption. All credit unions that were exempt
from TISA regulation as a result of the prior NCUA compliance date
extensions as of September 30, 1996, are exempt. These are credit
unions with $2 million or less in assets, after subtracting any
nonmember deposits, that are nonautomated as determined by the NCUA
Board. If any of these credit unions grow to have more than $2 million
in assets as of December 31 of any year, the NCUA Board will require
such credit unions to comply with TISA and part 707 on January 1 one
year after the December 31st (in other words, the credit union will
have at least one year to prepare for compliance). Similarly, if a
credit union becomes sufficiently automated to operate a complete share
and loan system, such credit union will be entitled to the same
compliance phase-in period. For example, if a credit union grows to
over $2 million in assets on December 31, 1997 (or if it becomes
sufficiently automated on December 31, 1997), it must begin compliance
with TISA and part 707 on January 1, 1999. The NCUA Board believes that
a previously exempt small credit union will need time to draft account
disclosures, install TISA compliance software into its share and loan
system, test its share and loan system, and make other decisions
regarding its automation. By granting at least one full year before the
previously exempt credit union must comply with TISA, the Board
believes that it is allowing sufficient time for such a credit union to
ease into TISA compliance. Also, if a new credit union is chartered
with less than $2 million in assets, it will be eligible for the
exemption until it no longer meets exemption eligibility criteria.
(3) Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact a regulation may have on a
substantial number of small credit unions (primarily those under $1
million in assets). This rule will not have a significant economic
impact on a substantial number of small credit unions and therefore a
regulatory flexibility analysis is not required.
Paperwork Reduction Act
NCUA has determined that the amendments do not increase paperwork
requirements under the Paperwork Reduction Act of 1995 and regulations
of the Office of Management and Budget (OMB). 60 FR 44978 (August 29,
1995).
Executive Order 12612
Executive Order 12612 requires NCUA to consider the effect of its
actions on state interests. This regulation makes no significant
changes with respect to state credit unions since a temporary exemption
is being made permanent. Therefore the rule will not materially affect
state interests.
Administrative Procedure Act
The amendments and interpretation made to this part are not subject
to the notice and comment provisions of the Administrative Procedure
Act (APA), 5 U.S.C. 551 et seq. The amendments and interpretation
implement new effective statutory requirements. In addition, no major
changes are contemplated, or made, by this action since a temporary
exemption is merely being made permanent. Therefore, the NCUA Board has
determined that, in this case, the APA notice and comment procedures
for these amendments and interpretation are impracticable, unnecessary,
and contrary to the public interest. 5 U.S.C. 553(b)(3)(B).
List of Subjects
12 CFR Part 701
Credit, Credit unions, Reporting and recordkeeping requirements.
12 CFR Part 707
Advertising, Credit unions, Consumer protection, Interest, Interest
rates, Truth in savings.
By the National Credit Union Administration Board on December
19, 1996.
Becky Baker,
Secretary of the Board.
Accordingly, NCUA amends 12 CFR parts 701 and 707 as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
1. The authority citation for part 701 continues to read:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a,
1761b, 1766, 1767, 1782, 1784, 1787, 1789 and Public Law 101-73.
Section 701.6 is also authorized by 31 U.S.C. 3717. Section 701.31
is also authorized by 15 U.S.C. 1601, et seq., 42 U.S.C. 1981 and 42
U.S.C. 3601-3610. Section 701.35 is also authorized by 12 U.S.C.
4311-4312.
2. Section 701.21 is amended by revising the first sentence in
paragraph (d)(1) and paragraph (d)(4) is amended by revising the
introductory text to read as follows:
Sec. 701.21 Loans to members and lines of credit to members.
* * * * *
(d) Loans and lines of credit to officials
(1) Purpose. Sections 107(5)(A) (iv) and (v) of the Act require the
approval of the board of directors of the Federal credit union in any
case where the aggregate of loans to an official and loans on which the
official serves as endorser or guarantor exceeds $20,000 plus pledged
shares. * * *
* * * * *
(4) Board of Directors' review. The board of directors shall, in
any case, review and approve or deny an application on which an
official is a
[[Page 68129]]
direct obligor, or endorser, cosigner or guarantor if the following
computation produces a total in excess of $20,000:
* * * * *
PART 707--TRUTH IN SAVINGS
3. The authority citation for part 707 continues to read as
follows:
Authority: 12 U.S.C. 4311.
4. Section 707.1 is amended by revising the first sentence of
paragraph (c) to read as follows:
Sec. 707.1 Authority, purpose, coverage, and effect on state laws.
* * * * *
(c) Coverage. This part applies to all credit unions whose accounts
are either insured by, or eligible to be insured by, the National
Credit Union Share Insurance Fund, except for any credit union that has
been designated as a corporate credit union by the National Credit
Union Administration and any credit union that has $2 million or less
in assets, after subtracting any nonmember deposits, and is determined
to be nonautomated by the National Credit Union Administration. * * *
* * * * *
5. Appendix C to part 707 is amended under paragraph 707.1(c), by
adding a new paragraph 3 to read as follows:
Appendix C to Part 707--Official Staff Interpretations
* * * * *
Sec. 707.1 Authority, Purpose, Coverage and Effect on State Laws.
* * * * *
(c) Coverage
* * * * *
3. Nonautomated credit unions. Nonautomated credit unions with an
asset size of $2 million or less, after subtracting any nonmember
deposits, are exempt from TISA and part 707. NCUA defines a
``nonautomated credit union'' as a credit union without sufficient data
processing capability and capacity to establish, operate and maintain a
share and loan software system to timely and accurately process all
account transactions of all members. The nonautomated credit union
exemption is available to all credit unions meeting the asset size and
automation standards of this comment, including newly chartered credit
unions. If any of the credit unions eligible for this exemption grow to
have more than $2 million in assets as of December 31 of any year, the
NCUA Board will require such credit unions to comply with TISA and part
707 on January 1 of one year after such credit union loses its
exemption eligibility. Similarly, if a credit union becomes
sufficiently automated to operate a complete share and loan system,
such credit union will be entitled to the same compliance phase-in
period.
* * * * *
[FR Doc. 96-32748 Filed 12-26-96; 8:45 am]
BILLING CODE 7535-01-P