[Federal Register Volume 70, Number 75 (Wednesday, April 20, 2005)]
[Proposed Rules]
[Pages 20487-20489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-7835]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 70, No. 75 / Wednesday, April 20, 2005 / 
Proposed Rules  

[[Page 20487]]



NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 723


Member Business Loans

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule with request for comments.

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SUMMARY: NCUA proposes to revise its member business loans (MBL) rule 
to clarify the minimum capital requirements a federally insured 
corporate credit union (Corporate CU) must meet to make unsecured MBLs 
to its members other than member credit unions and corporate credit 
union service organizations (Corporate CUSOs). NCUA also proposes to 
revise the definition of ``construction or development loan'' to 
include loans for renovating or developing property owned by a borrower 
for income-producing purposes and the definition of ``net worth'' to be 
more consistent with how that phrase is defined in the Federal Credit 
Union Act (Act) and NCUA's prompt corrective action regulation (PCA). 
Additionally, NCUA is soliciting comments on how best to amend the MBL 
rule to enable credit unions to participate more fully in government 
guaranteed loan programs.

DATES: Comments must be received on or before June 20, 2005.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web site: http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs. html. Follow the 
instructions for submitting comments.
     E-mail: Address to [email protected]. Include ``[Your 
name] Comments on Part 723 Member Business Loans'' in the e-mail 
subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    Public inspection: All public comments are available on the 
agency's Web site at http://www.ncua.gov/RegulationsOpinionsLaws/comments as submitted, except as may not be possible for technical 
reasons. Public comments will not be edited to remove any identifying 
or contact information. Paper copies of comments may be inspected in 
NCUA's law library, at 1775 Duke Street, Alexandria, Virginia 22314, by 
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, 
call (703) 518-6546 or send an e-mail to [email protected].

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

SUPPLEMENTARY INFORMATION:

A. Background

    In addition to making regulatory changes as the need arises, NCUA 
also reviews all its existing regulations every three years. This 
review is conducted on a rolling basis so that a third of the 
regulations are reviewed each year. This helps NCUA update its 
regulations to address current regulatory concerns. NCUA provides 
notice to the public of those regulations under review so the public 
has an opportunity to comment. The following proposed revisions to the 
MBL rule are the result of this review and comments received on a 
previous MBL rulemaking.

B. Corporate Credit Union Capital Requirements

    MBLs made by Corporate CUs to member credit unions and Corporate 
CUSOs are exempt from the MBL rule. 12 CFR 704.7(e)(1), (2); 12 CFR 
part 723. MBLs made by Corporate CUs to other members, however, are 
subject to the MBL rule. Accordingly, in those instances where the MBL 
rule applies, a Corporate CU must comply with the rule's collateral and 
security requirements. 12 CFR 723.7.
    For example, one of the conditions a credit union must meet to make 
unsecured MBLs is to be ``well capitalized as defined by Sec.  
702.102(a)(1)'' of the PCA rule. 12 CFR 723.7(c)(1); 12 CFR part 702. 
The PCA rule, however, does not apply to Corporate CUs. 12 U.S.C. 
1790d(m); 12 CFR 702.1(c). Rather, Corporate CUs generally must 
maintain a minimum capital ratio of four percent or a different minimum 
capital ratio under special circumstances. 12 CFR 704.3(d), (e). 
Accordingly, NCUA proposes to amend the MBL rule's capital requirements 
for unsecured MBLs to accommodate the differences between the more 
general capital requirements for natural person credit unions and those 
for Corporate CUs.

C. Definitions

    The MBL rule defines the phrase ``net worth'' slightly differently 
than it is defined in the Act and PCA. 12 U.S.C. 1790d(o)(2); 12 CFR 
702.2(f). To avoid confusion, NCUA proposes to revise the definition of 
``net worth'' in the MBL rule to be the same as in PCA. The PCA rule's 
definition of ``net worth'' is an expanded version of the Act's. The 
PCA and Act definitions both state that secondary capital accounts are 
counted in the net worth of low income credit unions.
    The MBL rule's current definition of ``construction or development 
loans'' is limited to financing arrangements for acquiring property or 
rights to property to convert it to an income producing purpose. This 
definition excludes a loan to a borrower, who already owns or has 
rights to a property, to convert it to or improve it as income 
producing property. NCUA believes an appropriate test for determining 
if a loan is a construction or development loan is whether the loan 
will be used to renovate or otherwise develop a property for an income 
producing purpose. NCUA does not believe loans for these purposes, the 
essential nature of which is related to construction or development, 
should be excluded from the definition of ``construction or development 
loan'' just because the borrower has already acquired the property or 
rights to it. Accordingly, NCUA proposes to revise the definition of 
``construction or development loans'' as discussed.

[[Page 20488]]

D. Government Guaranteed Loan Programs

    In October 2004, NCUA amended the MBL rule to permit credit unions 
to make SBA guaranteed loans under SBA's less restrictive lending 
requirements instead of under the more restrictive MBL rule. 69 FR 
62563 (October 27, 2004). Before issuing the amendment, NCUA reviewed 
the SBA's loan programs in which credit unions can participate and 
determined they provide reasonable criteria for credit union 
participation and compliance within the bounds of safety and soundness. 
Additionally, NCUA has determined that these SBA programs are ideally 
suited to the mission of many credit unions to satisfy their members' 
business loans needs.
    NCUA solicited public comment on the amendment before issuing it. A 
number of commenters suggested NCUA expand the scope of the amendment 
to include other government guaranteed loan programs. Some commenters 
specifically named the Farm Service Agency and United States Department 
of Agriculture loan programs. Others suggested all government 
guaranteed loan programs be included.
    NCUA has made clear it is willing to consider other government 
guaranteed loan programs as it becomes apparent there is demand for the 
program among credit unions. Since October 2004, NCUA has learned there 
may be such demand. Accordingly, NCUA is soliciting comment on how best 
to broaden the MBL rule to enable credit unions to participate more 
fully in other government guaranteed loan programs that the current MBL 
rule might otherwise restrict.
    NCUA is interested in comments on whether to broaden the MBL rule 
in this regard, and, if so, if it is better to expand it to permit only 
specifically identified programs or to permit all such programs. NCUA 
is particularly interested in comments that address the benefits of 
specific programs and any safety and soundness or operational concerns 
associated with them.

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 ten million 
dollars in assets). This rule clarifies capital requirements for making 
unsecured MBLs, revises definitions for consistency and practical 
application and solicits comments on expanding the MBL rule regarding 
government guaranteed loan programs, without imposing any additional 
regulatory burden. This 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.

List of Subjects in 12 CFR Part 723

    Credit, Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on April 14, 
2005.
Mary F. Rupp,
Secretary of the Board.

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

PART 723--MEMBER BUSINESS LOANS

    1. The authority citation for part 723 continues to read as 
follows:

    Authority: 12 U.S.C. 1756, 1757, 1757A, 1766, 1785, 1789.

    2. Revise Sec.  723.7(c)(1) to read as follows:


Sec.  723.7  What are the collateral and security requirements?

* * * * *
    (c) * * *
    (1) You are a natural person credit union that is well capitalized 
as defined by Sec.  702.102(a)(1) of this chapter or you are a 
corporate credit union that maintains a minimum capital ratio as 
required by Sec.  704.3(d) of this chapter or a different ratio as 
permitted under Sec.  704.3(e) of this chapter;
* * * * *
    3. Revise the definitions of ``Construction or development loan'' 
and ``Net worth'' in Sec.  723.21 to read as follows:


Sec.  723.21  Definitions.

* * * * *
    Construction or development loan is a financing arrangement for 
acquiring property or rights to property, including land or structures, 
with the intent to convert it to or improve it as income-producing 
property such as residential housing for rental or sale; commercial 
use; industrial use; or similar uses. Construction or development loan 
also is a financing arrangement for renovating or otherwise developing 
property, including land or structures, already owned by the borrower 
or that the borrower already has rights to, with the intent to convert 
it to or improve it as income-producing property such as residential 
housing for rental or sale; commercial use; industrial use; or similar 
uses.
* * * * *
    Net worth means the retained earnings balance of the credit union 
at quarter end as determined under generally accepted accounting 
principles. Retained earnings consists of undivided earnings, regular 
reserves, and any other appropriations designated by management or 
regulatory authorities. This means that only undivided earnings and 
appropriations of undivided earnings are included in net worth. For low 
income-designated credit unions, net worth also includes secondary 
capital accounts that are uninsured and subordinate to all other 
claims, including claims of creditors, shareholders and the NCUSIF. For 
any credit union, net worth does not include

[[Page 20489]]

the allowance for loan and lease losses account.

[FR Doc. 05-7835 Filed 4-19-05; 8:45 am]
BILLING CODE 7535-01-P