[Federal Register Volume 72, Number 123 (Wednesday, June 27, 2007)]
[Proposed Rules]
[Pages 35207-35209]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-12378]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

RIN 3133-AD37


Purchase, Sale, and Pledge of Eligible Obligations

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

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SUMMARY: NCUA proposes to amend its rule governing the purchase, sale, 
and pledge of eligible obligations, as a result of recommendations from 
its annual regulatory review process, by adding a conflict of interest 
provision substantially similar to the conflict of interest provision 
in NCUA's general lending rule. This addition is intended to help 
ensure that a federal credit union's (FCU) decisions regarding the 
purchase, sale, and pledge of eligible obligations are made with the 
FCU's best interests in mind.

DATES: Comments must be received on or before August 27, 2007.

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

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name] Comments on Proposed Rule 701, Eligible Obligations'' 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 website 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: Annette Tapia or Frank Kressman, Staff 
Attorneys, Office of General Counsel, at the above address or telephone 
(703) 518-6540.

SUPPLEMENTARY INFORMATION:

A. Background

    The NCUA continually reviews its regulations to ``update, clarify 
and simplify existing regulations and eliminate redundant and 
unnecessary provisions.'' NCUA Interpretive Rulings and Policy 
Statement (IRPS) 87-2, Developing and Reviewing Government Regulations. 
Under IRPS 87-2, NCUA conducts a rolling review of one-third of its 
regulations each year, involving both internal review and public 
comment. NCUA's 2006 review produced a recommendation to include a 
conflict of interest provision in the eligible obligations rule similar 
to the one in NCUA's general lending rule. 12 CFR 701.21(c)(8), 12 CFR 
701.23.

B. Discussion

    Generally, the eligible obligations rule implements the statutory 
provisions limiting the purchase, sale, and pledging of an eligible 
obligation, which is defined by the Board as a loan or group of loans. 
12 U.S.C. 1757(13); 12 CFR 701.23. Subject to certain exceptions, the 
rule provides that an FCU may purchase its members' eligible 
obligations (i.e., loans made to a member by another lender) from any 
source as long as the loans are ones the FCU is empowered to grant, up 
to an amount equal to 5% of its unimpaired capital and surplus. 12 CFR 
701.23(b)(1). Exceptions in the rule include purchasing nonmember 
student and real estate secured loans for purposes of completing a loan 
pool for sale on the secondary market. In addition, loans purchased to 
complete a pool and loans purchased as part of an indirect lending or 
indirect leasing program are exempt from the 5% limit on eligible 
obligations.
    The Board believes eligible obligation transactions, which involve 
the buying and selling of member loans, potentially present the same 
kinds of conflicts of interest as where an FCU is the original lender 
to its member. For that reason, the Board proposes to add a conflict of 
interest provision to the eligible obligations rule that is similar to 
the conflict provision in NCUA's general lending regulation. 12 CFR 
701.21(c)(8)(i). The proposal would generally provide that an official, 
employee, or their immediate family members may not receive, directly 
or indirectly, any commission, fee or other compensation in connection 
with an eligible obligations transaction. The proposal would help 
ensure FCUs make decisions concerning the purchase and sale of eligible 
obligations based on appropriate business considerations rather than 
any personal benefit to insiders.

C. 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 entities (primarily those under ten 
million dollars in assets). This rule only includes a conflict of 
interest provision that entails no greater regulatory burden. 
Accordingly, this proposed rule will not have a significant economic 
impact on a substantial number of small credit unions, and therefore, 
no regulatory flexibility analysis is required.

Paperwork Reduction Act

    NCUA has determined that this rule will 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. This proposed rule would not have a 
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. 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

    NCUA has determined that this proposed rule will 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).

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 if 
implemented as proposed.

List of Subjects in 12 CFR Part 701

    Conflict of interests, Credit unions, Eligible obligations, Loans.

    By the National Credit Union Administration Board on June 21, 
2007.
Mary Rupp,
Secretary of the Board.
    For the reasons discussed 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. 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. 
Section 701.35 is also authorized by 42 U.S.C. 4311-4312.

    2. Section 701.23 is amended by adding new paragraph (g) to read as 
follows:


Sec.  701.23  Purchase, sale, and pledge of eligible obligations.

* * * * *
    (g) (1) Conflicts of interest. No federal credit union official, 
employee, or their

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immediate family member may receive, directly or indirectly, any 
compensation in connection with that credit union's purchase, sale, or 
pledge of an eligible obligation under the provisions of Sec.  701.23.
    (2) Permissible payments. This section does not prohibit:
    (i) A federal credit union's payment of salary to employees;
    (ii) A federal credit union's payment of an incentive or bonus to 
an employee based on the credit union's overall financial performance;
    (iii) A federal credit union's payment of an incentive or bonus to 
an employee, other than a senior management employee, in connection 
with that credit union's purchase, sale or pledge of an eligible 
obligation. This payment is permissible if the board of directors 
establishes a written policy and internal controls for the incentive or 
bonus program and monitors compliance with the policy and controls at 
least annually; and
    (iv) Payment by a person other than the federal credit union of 
compensation to a volunteer official, non-senior management employee, 
or their immediate family member, for a service or activity performed 
outside the credit union provided that the federal credit union, the 
official, employee, or their immediate family member has not made a 
referral.
    (3) Business associates and family members. All transactions under 
this section with business associates or family members not 
specifically prohibited by paragraph (g)(1) of this section must be 
conducted at arm's length and in the interest of the federal credit 
union.
    (4) Definitions. The definitions in Sec.  701.21(c)(8)(ii) of this 
part apply to this section.

[FR Doc. E7-12378 Filed 6-26-07; 8:45 am]
BILLING CODE 7535-01-P