[Federal Register Volume 70, Number 244 (Wednesday, December 21, 2005)]
[Rules and Regulations]
[Pages 75723-75725]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-24284]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 741

RIN 3133-AD14


Requirements for Insurance

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: NCUA is issuing its rule on the purchase of assets and 
assumption of liabilities by federally-insured credit unions to clarify 
which transfers of assets or accounts require approval by the NCUA 
Board.

DATES: This rule is effective January 20, 2006.

FOR FURTHER INFORMATION CONTACT: Moisette Green, Staff Attorney, Office 
of General Counsel, National Credit Union Administration, 1775 Duke 
Street, Alexandria, Virginia 22314-3428 or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION: 

A. Background

    In July 2005, the Board published its proposed amendment to clarify 
the scope of Sec.  741.8, along with a request for comments on 
projected amendments to Sec. Sec.  712.3, 712.4 and 741.3, with a 60-
day comment period. 70 FR 43794 (July 29, 2005). The proposal 
identified certain transactions that would require NCUA approval and 
some exceptions.
    The purpose of this rule is to clarify the scope of Sec.  741.8. 
This regulation identifies certain transactions that require NCUA 
approval and some exceptions. Confusion in the prior regulation 
resulted from the fact that the Federal Credit Union Act (Act) required 
NCUA approval for transactions that were not addressed specifically in 
the regulation. The Act requires prior approval for an insured credit 
union to ``acquire the assets of, or assume liability to pay any member 
accounts in, any other insured credit union.'' 12 U.S.C. 1785(b)(3).

B. Discussion

    The Act, in sections 205(b)(1) and (3), requires FICUs to obtain 
NCUA approval for various transactions. 12 U.S.C. 1785(b)(1), (3). 
Subsection (b)(1) concerns transactions with credit unions and other 
institutions not insured by the National Credit Union Share Insurance 
Fund (NCUSIF). Subsection (b)(3) concerns transactions between FICUs. 
In addition to Sec.  741.8, these sections in the Act provide the 
authority for other rules, including Part 708b, which addresses mergers 
generally. Section 741.8 also implements these sections to the extent 
that it identifies certain transactions that require NCUA approval.
    The regulatory history of Sec.  741.8 indicates the Board did not 
intend to require approval for certain transactions. In 1990, when 
Sec.  741.8 was first proposed and adopted, NCUA was particularly 
concerned about FICUs acquiring loans or assuming responsibility for 
member or customer accounts from privately insured credit unions or any 
financial institution that was not insured by the NCUSIF. NCUA was 
concerned because this was a period marked by the failure of many 
privately insured credit unions as well as the failure of other 
financial institutions.
    Prior to this final rule, Sec.  741.8 was silent on transfers 
between two FICUs. It required any FICU to receive Board approval 
before either purchasing or acquiring loans or assuming or receiving an 
assignment of deposits, shares, or liabilities from any credit union 
that is not federally insured or from any non-credit union financial 
institution. The rule only excluded the purchase of particular student 
loans and real estate secured loans and the assumption of assets 
associated with member retirement accounts or in which the FICU has a 
security interest from the approval requirement.
    The regulatory history of Sec.  741.8 addresses this apparent gap. 
In 1990, when first proposed, Sec.  741.8 would have covered transfers 
of assets, including fixed assets like a brick and mortar branch 
office, in addition to transfers of loans and share liabilities and 
between FICUs. 55 FR 49059 (November 26, 1990). The final version of 
the rule, however, eliminated the requirement for Board approval of 
transfers between FICUs. The NCUA Board determined transfers between 
FICUs did not materially increase risk to the NCUSIF. 56 FR 35808 (July 
29, 1991). Additionally, the Board believed transfers between FICUs 
should not unduly affect the safety and soundness of FICUs because of 
regulations applicable to these credit unions, the examination of FICUs 
for compliance with these regulations, and enforcement of the 
regulations by appropriate regulators. Id. Accordingly, NCUA did not 
require the approval of these individual transactions. These 
determinations hold true today, so the Board issues this final rule to 
clarify the scope of Sec.  741.8.
    This rule clarifies that transactions involving the sale or 
purchase of loans or other assets between FICUs do not require NCUA 
approval. NCUA notes that other regulations may limit or otherwise 
regulate those transactions, for example, the member business lending 
rule, the fixed asset rule, the eligible obligations rule, and so 
forth. 12 CFR part 723, Sec. Sec.  701.36, 701.23. For those 
transactions that do require approval, the amendment describes what a 
credit union seeking approval should submit and where a request for 
approval should be sent.
    NCUA recognizes that in one narrow circumstance, FISCUs will need 
approval under Sec.  741.8 when FCUs would not. Specifically, FISCUs 
must apply for NCUA approval to purchase loans from credit union 
service organizations (CUSOs). Section 741.8 does not exempt 
transactions between a FICU and a CUSO. An FCU's purchase of a member 
loan from any source is governed by Sec.  701.23, the eligible 
obligations rule. That rule does not apply to FISCUs. The differences 
between the statutory and regulatory authority of FCUs and state-
chartered credit unions present this unique problem. Section 741.8 is a 
safety and soundness regulation and, therefore, NCUA will review 
transactions involving FISCUs where, as in this limited circumstance, 
there is no exemption.
    NCUA is also aware that other Federal or State laws may apply to 
the transfer of loans between FICUs. This rule does not address the 
application of those laws. NCUA expects that FICUs that will exercise 
due diligence and ensure that they comply with all laws or contractual 
obligations to third parties before the transfer of loans to other 
FICUs are completed.
    This rule continues to except from coverage loan purchases 
involving the

[[Page 75724]]

packaging of student loans and real estate secured loans by a federal 
credit union (FCU) under to Sec.  701.23(b) of the NCUA regulations for 
sale on the secondary market. Secondary market standards promote safety 
and soundness in these activities and, additionally, the timing of 
these transactions is often complex, and agency review could 
disadvantage FCUs' ability to compete in doing these transactions.

C. Comments on the Rulemaking

    NCUA received 27 comments regarding the proposed rule and request 
for comments. Two state supervisory authorities (SSAs), 13 credit 
unions, nine trade associations, two law firms, and one consultant 
commented on the proposed rule and request for comments. Fourteen 
commenters did not address the proposed amendments to Sec.  741.8, and 
focused only on the request for comments on possible changes to 
Sec. Sec.  712.3, 712.4, and 741.3. Comments on possible amendments of 
the rules governing non-conforming investments and investments in CUSOs 
by FISCU Sec. Sec.  712.3, 712.4, and 741.3 will be covered in a 
proposed rule if one is presented in the future.
    Thirteen commenters supported the proposed amendment to the 
purchase and assumptions rule. 12 CFR 741.8. Five commenters suggested 
NCUA modify Sec.  741.8(c) to require a credit union to submit its 
request for approval of a purchase or assumption transaction to the 
regional office with jurisdiction for the state where the credit union 
is headquartered instead of where it operates. The Board has adopted 
this suggestion and modified the regulatory language accordingly.
    An SSA requested NCUA permit FICUs to purchase loan participations 
from financial institutions insured by the Federal Deposit Insurance 
Corporation without specific Board approval to track the SSA's state 
law. The SSA stated the NCUA proposal adds administrative burden to 
credit unions and is unnecessary due to the SSA's examination and 
supervision of its state-chartered credit unions. The SSA further 
commented the current proposal places additional and duplicate burdens 
on FISCUs that do not apply to its state-chartered banks and thrifts.
    NCUA believes supervision of transactions between FICUs and other 
financial institutions is necessary because of the unique nature of 
credit unions, including different authorities and limits for their 
operations as compared to other financial institutions. Other financial 
institutions are regulated differently than FICUs and have powers that 
FICUs do not have. The purchase of assets or assumption of liabilities 
from a privately-insured credit union or federally-insured financial 
institution will affect the acquiring FICU financially and, also, may 
raise issues of legal permissibility. The Board will continue its 
oversight of these transactions.
    A trade association, while supporting the amendment, questioned 
whether the proposal would require a credit union to obtain approval 
for a merger under both Part 708 and Sec.  741.8. This rule covers 
purchase and assumption transactions by FICUS; a credit union should 
not ask approval for a merger under this section, which is covered in 
Part 708b. Mergers are excluded from coverage under Sec.  741.8 because 
they involve a credit union acquiring another credit union or financial 
institution, which will, after the acquisition, no longer exist. The 
rule covers transactions in which a credit union acquires a portion of 
another credit union or financial institution's assets or liabilities, 
with a continuation of the transferor.
    The same trade association also suggested other insured financial 
institutions, including privately-insured credit unions and federally-
insured banks, should be considered able to purchase from or sell to a 
FICU under the approval exception. This rule does not address 
transactions in which FICUs sell assets or liabilities and, as 
discussed, the Board has determined it will retain its oversight of 
FICU purchases from entities other than FICUs.

Regulatory Procedures

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a rule may have on a 
substantial number of small credit unions, or those with less than ten 
million dollars in assets. The rule is grounded in NCUA concerns about 
the safety and soundness of the transactions and their potential 
effects on FICUs and the NCUSIF. NCUA has knowledge of only four 
transactions that would be covered by the rule in two years. 
Accordingly, the Board determines and certifies that this rule does not 
have a significant economic impact on a substantial number of small 
credit unions and that a Regulatory Flexibility Analysis is not 
required.

B. Paperwork Reduction Act

    Section 741.8 contains information collection requirements. As 
required by the Paperwork Reduction Act of 1995, 44 U.S.C. 3507(d), 
NCUA submitted a copy of the rule to the Office of Management and 
Budget (OMB) for its review and approval. OMB approved the Collection 
of Information on October 14, 2005 under Control Number 3133-0169.

C. 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. This rule may have an occasional direct 
affect on the States, the relationship between the National Government 
and the States, or on the distribution of power and responsibilities 
among the various levels of government. The rule may supersede 
provisions of State law, regulation or approvals.
    Since the rule might lead to conflicts between the NCUA and state 
financial institution regulators on occasion, NCUA requested comments 
on means and methods to eliminate, or at least minimize, potential 
conflicts in this area. NCUA received comments from SSAs concerned 
about possible inequitable treatment of and the additional 
administrative burden on FISCUs under this rule. FISCUs may be required 
to obtain NCUA approval for some purchase or assumptions transactions 
and not state regulator approval. Additionally, FISCUs may need 
approval for transactions that FCUs may complete under Part 701 of the 
NCUA regulations. SSAs suggested exempting transfers between FICUs and 
other federally-insured financial institutions or setting insurance 
regulations for FISCUs apart from insurance rules applicable to FCUs.
    NCUA's authority to regulate FICUs and administer the NCUSIF 
derives from the FCU Act. The protection of the NCUSIF and FICUs are 
concerns of national scope. In light of this, and the small number of 
applications expected, the Board determines that the final rule will 
not have substantial direct effect on the States, on the relationship 
between the National Government and the States, or on the distribution 
of power and responsibilities among the various levels of government. 
However, in considering applications from FISCUs, NCUA will lend 
substantial weight to recommendations from State regulators.

[[Page 75725]]

D. Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act (SBREFA) 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 Procedures Act. 5 U.S.C. 551. The Office of Information 
and Regulatory Affairs, an office within OMB, has determined that, for 
purposes of SBREFA, this is not a major rule.

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

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

List of Subjects in 12 CFR Part 741

    Insurance requirements.

    By the National Credit Union Administration Board on December 
15, 2005.
Mary Rupp,
Secretary of the Board.


0
For the reasons stated above, NCUA amends 12 CFR part 741 as follows:

PART 741--REQUIREMENTS FOR INSURANCE

0
1. The authority citation for part 741 is amended to read as follows:

    Authority: 12 U.S.C. 1757, 1766(a), 1781-1790, and 1790d; 31 
U.S.C. 3717.


0
2. Amend Sec.  741.8 to read as follows:


Sec.  741.8  Purchase of assets and assumption of liabilities.

    (a) Any credit union insured by the National Credit Union Share 
Insurance Fund (NCUSIF) must receive approval from the NCUA before 
purchasing loans or assuming an assignment of deposits, shares, or 
liabilities from:
    (1) Any credit union that is not insured by the NCUSIF;
    (2) Any other financial-type institution (including depository 
institutions, mortgage banks, consumer finance companies, insurance 
companies, loan brokers, and other loan sellers or liability traders); 
or
    (3) Any successor in interest to any institution identified in 
paragraph (a)(1) or (a)(2) of this section.
    (b) Approval is not required for:
    (1) Purchases of student loans or real estate secured loans to 
facilitate the packaging of a pool of loans to be sold or pledged on 
the secondary market under Sec.  701.23(b)(1)(iii) or (iv) of this 
chapter or comparable state law for state-chartered credit unions, or 
purchases of member loans under Sec.  701.23(b)(1)(i) of this chapter 
or comparable state law for state-chartered credit unions;
    (2) Assumption of deposits, shares or liabilities as rollovers or 
transfers of member retirement accounts or in which a federally-insured 
credit union perfects a security interest in connection with an 
extension of credit to any member; or
    (3) Purchases of assets, including loans, or assumptions of 
deposits, shares, or liabilities by any credit union insured by the 
NCUSIF from another credit union insured by the NCUSIF, except a 
purchase or assumption as a part of a merger under Part 708b.
    (c) A credit union seeking approval under paragraph (a) of this 
section must submit a letter to the regional office with jurisdiction 
for the state where the credit union is headquartered. A corporate 
credit union seeking approval under paragraph (a) of this section must 
submit a letter to the Office of Corporate Credit Unions. The letter 
must request approval and state the nature of the transaction and 
include copies of relevant transaction documents. The regional director 
will make a decision to approve or disapprove the request as soon as 
possible depending on the complexity of the proposed transaction. 
Credit unions should submit a request for approval in sufficient time 
to close the transaction.

[FR Doc. 05-24284 Filed 12-20-05; 8:45 am]
BILLING CODE 7535-01-P