[Federal Register Volume 68, Number 128 (Thursday, July 3, 2003)]
[Proposed Rules]
[Pages 39866-39868]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16793]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701


Organization and Operations of Federal Credit Unions

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule with request for comments.

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SUMMARY: NCUA proposes to update and clarify the definitions of certain 
terms used in NCUA's loan participation rule. Specifically, the 
definition of ``credit union organization'' is being amended to conform 
to the terms of the credit union service organizations (CUSOs) rule. 
Also, the definition of ``financial

[[Page 39867]]

organization'' is being broadened to provide federal credit unions 
(FCUs) greater flexibility in choosing appropriate loan participation 
partners.

DATES: Comments must be received on or before September 2, 2003.

ADDRESSES: Direct comments to Becky Baker, Secretary of the Board. Mail 
or hand-deliver comments to: National Credit Union Administration, 1775 
Duke Street, Alexandria, Virginia 22314-3428. You are encouraged to fax 
comments to (703) 518-6319 or email comments to [email protected] 
instead of mailing or hand-delivering them. Whatever method you choose, 
please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: Frank Kressman, Staff Attorney, Office 
of General Counsel, at the above address or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Background

    Engaging in loan participations is an effective tool for FCUs to 
manage liquidity and concentration risk. It is also a way for FCUs to 
comply with NCUA or self-imposed lending limits. Additionally, small 
FCUs are able to improve the diversification of their loan portfolios 
by participating in loans originated by larger FCUs that have the 
resources to underwrite a wider variety of loan types. For these and 
other benefits, it is not surprising that FCU interest in loan 
participations appears to be increasing.
    NCUA staff has identified Sec.  701.22, the loan participation 
rule, as a regulation in need of updating and clarification. 
Accordingly, NCUA is proposing the following amendments to improve the 
rule.
    Section 701.22 of NCUA's regulations provides that an FCU may 
engage in loan participations with ``eligible organizations'' and 
defines that term as a credit union, credit union organization, or 
financial organization. 12 CFR 701.22(b), 12 CFR 701.22(a)(2). The rule 
further defines ``credit union organization'' and ``financial 
organization.'' 12 CFR 701.22(a)(4) and (a)(5).
    The Federal Credit Union Act (Act) defines ``credit union 
organization'' as ``any organization as determined by the Board, which 
is established primarily to serve the needs of its member credit 
unions, and whose business relates to the daily operations of the 
credit unions they serve.'' 12 U.S.C. 1757(5)(D). Section 701.22(a)(4) 
echoes this definition, but specifically excludes, among others, some 
CUSOs, which it describes as ``corporations or other businesses which 
principally provide services to credit union members as opposed to 
corporations or businesses whose business relates to the daily in-house 
operation of credit unions.'' 12 CFR 701.22(a)(4). Formerly, NCUA's 
CUSO rule distinguished between CUSOs providing operational services to 
FCUs and those providing financial services to FCU members.
    In a 1998 final rule, NCUA eliminated that distinction in the CUSO 
rule. 63 FR 10743 (March 5, 1998). Under NCUA's regulations, CUSOs are 
entities that engage in providing products and services related to the 
routine daily operations of credit unions to credit unions and credit 
union members. 12 CFR 712.3, 12 CFR 712.5. NCUA proposes to amend the 
definition of ``credit union organization'' in the loan participation 
rule to conform to NCUA's interpretation of that term in the CUSO rule.
    The Act does not define the term ``financial organization.'' 
Section 701.22(a)(5) defines it as ``any federally chartered or 
federally insured financial institution.'' 12 CFR 701.22(a)(5). 
Although the Act is silent, the rule derives its definition from the 
legislative history of the 1977 public law that granted FCUs various 
additional authorities, including the authority to engage in loan 
participations. H.R. Rep. No. 95-23, at 12 (1977), reprinted in 1977 
U.S.C.C.A.N. 115. In granting this authority, Congress expressed its 
intent to enhance the ability of FCUs to serve their members' loan 
demands. Congress also expressed its concern that originating FCUs must 
maintain discipline in the origination process. To ensure that 
discipline and good underwriting standards prevail, Congress requires 
originating FCUs to retain at least a ten percent interest in the face 
amount of all loans they participate out.
    Consistent with congressional intent to enhance the ability of FCUs 
to serve their members' loan demands through participations, NCUA 
believes it is appropriate to expand the regulatory definition of 
``financial organization'' to include state and federal government 
agencies. NCUA is aware that there are various state and federal 
government supported loan programs that are particularly geared to 
underserved borrowers. These types of programs, which include 
agricultural and small business lending, are ideally suited to the 
mission of FCUs. Also, this will give FCUs greater flexibility in 
choosing appropriate participation partners. NCUA does not read 
anything in the legislative history to suggest that Congress would 
object to this limited and prudent amendment.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a proposed rule may have on 
a substantial number of small credit unions (those under one million 
dollars in assets). The proposed rule expands the pool of eligible 
organizations with whom an FCU may engage in loan participations, 
without imposing any additional regulatory burden. The proposed rule 
would 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 proposed rule would not increase 
paperwork requirements under the Paperwork Reduction Act of 1995 and 
regulations of the Office of Management and Budget.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. The proposed rule would not have substantial 
direct effects on the states, on the connection between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. NCUA has 
determined that this proposed rule does not constitute a policy that 
has federalism implications for purposes of the executive order.

The Treasury and General Government Appropriations Act, 1999---
Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this proposed rule would not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat. 
2681 (1998).

Agency Regulatory Goal

    NCUA's goal is to promulgate clear and understandable regulations 
that impose minimal regulatory burden. We request your comments on 
whether the proposed rule is understandable and minimally intrusive.

[[Page 39868]]

List of Subjects in 12 CFR Part 701

    Credit unions, Mortgages, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on June 26, 
2003.
Becky Baker,
Secretary of the Board.

    For the reasons stated above, NCUA proposes to amend 12 CFR part 
701 as follows:

PART 701--ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNIONS

    1. The authority citation for part 701 continues to read as 
follows:

    Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 
1761b, 1766, 1767, 1782, 1784, 1787, and 1789 and P.L. 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. 1861 and 42 
U.S.C. 3601-3610.

    2. Section 701.22 is amended by revising paragraphs (a)(4) and 
(a)(5) to read as follows:


Sec.  701.22  Loan participation.

    (a) * * *
    (4) Credit union organization means any credit union service 
organization meeting the requirements of part 712 of this chapter. This 
term does not include trade associations or membership organizations 
principally composed of credit unions.
    (5) Financial organization means: (i) Any federally chartered or 
federally insured financial institution; and
    (ii) Any state or federal government agency and their subdivisions.
* * * * *
[FR Doc. 03-16793 Filed 7-2-03; 8:45 am]
BILLING CODE 7535-01-P