[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