[Federal Register Volume 68, Number 249 (Tuesday, December 30, 2003)]
[Rules and Regulations]
[Pages 75110-75111]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31843]


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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: Final rule.

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SUMMARY: NCUA is updating and clarifying the definitions of certain 
terms used in NCUA's loan participation rule. Specifically, the 
definition of ``credit union organization'' is amended to conform to 
the terms of the credit union service organizations (CUSOs) rule. Also, 
the definition of ``financial organization'' is broadened to provide 
federal credit unions (FCUs) greater flexibility in choosing 
appropriate loan participation partners.

DATES: This final rule is effective January 29, 2004.

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

SUPPLEMENTARY INFORMATION:

A. Background

    NCUA issued a proposed rule on June 26, 2003 to update and clarify 
Sec.  701.22, its loan participation rule. 68 FR 39866 (July 3, 2003). 
In the proposal, NCUA noted many of the benefits loan participation 
offers FCUs. Specifically, engaging in loan participations is an 
effective tool for FCUs to manage liquidity and concentration risk. 
Loan participation is also a way for FCUs to comply with NCUA or self-
imposed lending limits. 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.
    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, 712.5. In the June 2003 proposal, NCUA 
proposed 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.
    Consistent with congressional intent to enhance the ability of FCUs 
to serve their members' loan demands through participations, NCUA 
proposed 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, the proposal 
was intended to afford FCUs

[[Page 75111]]

greater flexibility in choosing appropriate participation partners.

B. Summary of Comments

    NCUA received twelve comment letters regarding the proposed rule: 
three from FCUs, two from state credit unions, one from a corporate 
credit union, five from credit union trade organizations, and one from 
a banking trade organization. Nine commenters completely supported the 
proposal as written. One commenter supported the proposed amendment to 
the definition of ``financial organization,'' but stated the current 
definition of ``credit union organization'' is sufficient to accomplish 
NCUA's goals. One commenter stated that there should be even fewer 
restrictions regarding the entities that may engage in loan 
participations than as proposed. The banking trade organization stated 
that NCUA's proposal exceeds congressional intent regarding who may 
engage in loan participations.
    NCUA believes the proposed amendments improve the loan 
participation rule and strike an appropriate balance between enhancing 
flexibility for FCUs and adhering to statutory limitations. 
Accordingly, NCUA adopts the proposed amendments into the final rule 
without change.

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, defined as those under ten 
million dollars in assets. This rule expands the pool of eligible 
organizations with whom an FCU may engage in loan participations, 
without imposing any additional regulatory burden. The final amendments 
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 final 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 final 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 final 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 final 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).

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub. L. 104-121) provides generally for congressional review of agency 
rules. A reporting requirement is triggered in instances where NCUA 
issues a final rule as defined by Section 551 of the Administrative 
Procedure Act. 5 U.S.C. 551. The Office of Management and Budget has 
determined that this rule is not a major rule for purposes of the Small 
Business Regulatory Enforcement Fairness Act of 1996.

List of Subjects in 12 CFR Part 701

    Credit unions, Mortgages, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on December 
18, 2003.
Becky Baker,
Secretary of the Board.


0
Accordingly, NCUA amends 12 CFR part 701 as follows:

PART 701--ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNIONS

0
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 Pub. 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.


0
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 any federally chartered or 
federally insured financial institution; and any state or federal 
government agency and their subdivisions.
* * * * *

[FR Doc. 03-31843 Filed 12-29-03; 8:45 am]
BILLING CODE 7535-01-U