[Federal Register Volume 72, Number 211 (Thursday, November 1, 2007)]
[Notices]
[Pages 62036-62104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 07-5385]



[[Page 62035]]

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Part IV





Federal Financial Institutions Examination Council





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Joint Report to Congress, July 31, 2007; Economic Growth and Regulatory 
Paperwork Reduction Act; Notice

  Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / 
Notices  

[[Page 62036]]


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FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL


Joint Report to Congress, July 31, 2007; Economic Growth and 
Regulatory Paperwork Reduction Act

AGENCY: Federal Financial Institutions Examination Council.

ACTION: Notice.

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SUMMARY: Pursuant to section 2222 of the Economic Growth and Regulatory 
Paperwork Reduction Act of 1996 (EGRPRA), the Federal Financial 
Institutions Examination Council (FFIEC) is publishing a report 
entitled ``Joint Report to Congress, July 31, 2007, Economic Growth and 
Regulatory Paperwork Reduction Act'' prepared by its constituent 
agencies: The Board of Governors of the Federal Reserve System (Board), 
the Federal Deposit Insurance Corporation (FDIC), the National Credit 
Union Association (NCUA), the Office of the Comptroller of the Currency 
(OCC), and the Office of Thrift Supervision (OTS) (collectively, the 
Agencies).

FOR FURTHER INFORMATION CONTACT: OCC: Heidi Thomas, Special Counsel, 
Legislative and Regulatory Activities Division, (202) 874-5090; or Lee 
Walzer, Counsel, Legislative and Regulatory Activities Division, (202) 
874-5090, Office of the Comptroller of the Currency, 250 E Street, SW., 
Washington, DC 20219.
    Board: Patricia A. Robinson, Assistant General Counsel, (202) 452-
3005; or Michael J. O'Rourke, Counsel, (202) 452-3288; or Alexander 
Speidel, Attorney, (202) 872-7589, Legal Division; or John C. Wood, 
Counsel, Division of Consumer and Community Affairs, (202) 452-2412; or 
Kevin H. Wilson, Supervisory Financial Analyst, Division of Banking 
Supervision and Regulation, (202) 452-2362, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW., 
Washington, DC 20551. For users of Telecommunication Device for the 
Deaf (TDD) only, contact (202) 263-4869.
    FDIC: Steven D. Fritts, Associate Director, Division of Supervision 
and Consumer Protection, (202) 898-3723; or Ruth R. Amberg, Senior 
Counsel, Legal Division, (202) 898-3736; or Susan van den Toorn, 
Counsel, Legal Division, (202) 898-8707, Federal Deposit Insurance 
Corporation, 550 17th Street, NW., Washington, DC 20429.
    OTS: Karen Osterloh, Special Counsel, Regulations and Legislation 
Division, (202) 906-6639; or Josephine Battle, Program Analyst, 
Operation Risk, Supervision Policy, (202) 906-6870, Office of Thrift 
Supervision, 1700 G Street, NW., Washington, DC 20552.
    NCUA: Ross P. Kendall, Staff Attorney, Office of the General 
Counsel, (703) 518-6562, National Credit Union Administration, 1775 
Duke Street, Alexandria, VA 22314-3428.

SUPPLEMENTARY INFORMATION: EGRPRA requires the FFIEC and the Agencies 
to conduct a decennial review of regulations, using notice and comment 
procedures, to identify outdated or otherwise unnecessary regulatory 
requirements imposed on insured depository institutions. 12 U.S.C. 
3311(a)-(c). The FFIEC and the Agencies have completed this review and 
comment process.
    EGRPRA also requires the FFIEC or the appropriate agency to publish 
in the Federal Register a summary of comments that identifies the 
significant issues raised and comments on these issues; and to 
eliminate unnecessary regulations to the extent that such action is 
appropriate. 12 U.S.C. 3311(d). The FFIEC also must submit a report to 
Congress that includes a summary of the significant issues raised and 
the relative merits of these issues, and an analysis of whether the 
appropriate agency is able to address the regulatory burdens associated 
with these issues by regulation or whether the burdens must be 
addressed by legislative action. 12 U.S.C. 3311(e). The attached report 
fulfills these requirements for the recently completed review of 
regulations. The text of the Joint Report to Congress, July 31, 2007, 
Economic Growth and Regulatory Paperwork Reduction Act, follows:

Preface \1\
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    \1\ John M. Reich, Director of the Office of Thrift Supervision 
and the leader of the interagency EGRPRA program, wrote this 
Preface.
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    Prudent regulations are absolutely essential to maintain rigorous 
safety and soundness standards for the financial services industry, to 
protect important consumer rights, and to assure a level-playing field 
in the industry. As a regulator, I clearly understand the need for 
well-crafted regulation.
    However, outdated, unnecessary or unduly burdensome regulations 
divert precious resources that financial institutions might otherwise 
devote to making more loans and providing additional services for 
countless individuals, businesses, nonprofit organizations, and others 
in their communities. Over the years, Congress passed a variety of laws 
to deal with problems that have cropped up and the regulators adopted 
numerous regulations to implement those laws. In fact, over the past 17 
years, the federal bank, thrift, and credit union regulators have 
adopted more than 900 rules. Accumulated regulation has reached a 
tipping point for many community banks and has become an important 
causal factor in recent years in accelerating industry consolidation.
    In passing the Economic Growth and Regulatory Paperwork Reduction 
Act of 1996 (EGRPRA), Congress clearly recognized the need to eliminate 
any unnecessary regulatory burden. That is why Congress directed the 
Federal Financial Institutions Examination Council and its member 
agencies to review all existing regulations and eliminate (or recommend 
statutory changes that are needed to eliminate) any regulatory 
requirements that are outdated, unnecessary, or unduly burdensome.
    As this comprehensive report makes clear, the agencies have worked 
diligently to satisfy the requirements of EGRPRA. Over a three-year 
period ending December 31, 2006, the agencies sought public comment on 
more than 130 regulations, carefully analyzed those comments (as 
indicated in this report), and proposed changes to their regulations to 
eliminate burden wherever possible.
    In addition to obtaining formal, written comments on all of our 
regulations, the federal banking agencies hosted a total of 16 outreach 
sessions around the country involving more than 500 participants in an 
effort to obtain direct input from bankers, representatives of 
consumer/community groups, and many other interested parties on the 
most pressing regulatory burden issues.
    Besides reviewing all of our existing regulations in an effort to 
eliminate unnecessary burdens, the federal banking agencies worked 
together to minimize burdens resulting from new regulations and current 
policy statements as they were being adopted. We also reviewed many 
internal policies in an effort to streamline existing processes and 
procedures. Finally, we have sought to communicate our regulatory 
requirements, policies and procedures more clearly to our 
constituencies to make them easier to understand.
    On the legislative front, the federal banking agencies worked 
together, preparing and reviewing numerous legislative proposals to 
reduce regulatory burden, testifying before Congress on several 
occasions about the need for regulatory burden relief, and providing 
technical assistance to the staff of the Senate Banking Committee and 
the House Financial Services

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Committee on their regulatory relief bills. Congress ultimately passed, 
and the President signed into law, the Financial Services Regulatory 
Relief Act of 2006. As part of this process, the agencies, 
representatives of the industry, and consumer and community groups were 
asked to provide positions on the many legislative proposals that were 
submitted to Congress. The 2006 Act included a number of important 
regulatory relief provisions.
    Financial institutions of all sizes suffer under the weight of 
unnecessary regulatory burden, but smaller community banks 
unquestionably bear a disproportionate share of the burden due to their 
more limited resources. While it is difficult to accurately measure the 
impact regulatory burden has played in industry consolidation, numerous 
anecdotal comments from bankers across the country as well as from 
investment bankers who arrange merger and acquisition transactions 
indicate it has become a significant factor. Accordingly, I am deeply 
concerned about the future of our local communities and the 
approximately 8,000 community banks under $1 billion in assets that 
represent 93 percent of the industry in terms of total number of 
institutions but whose share of industry assets has declined to 
approximately 12.5 percent, and whose share of industry profits have 
declined to approximately 11.2 percent (as of December 31, 2006).
    Community banks play a vital role in the economic wellbeing of 
countless individuals, neighborhoods, businesses and organizations 
throughout our country, often serving as the economic lifeblood of 
their communities. Many of the CEOs of these institutions are concerned 
about their ability to profitably compete in the future, unless there 
is a slowdown in the growth of new banking regulations.
    Ultimately, a significant amount of the costs of regulation are 
borne by consumers, resulting in higher fees and interest rates. If 
financial services are going to continue to be affordable, and in fact 
if we are going to be successful in bringing more of the unbanked into 
the mainstream, constant vigilance will be required to avoid the 
increasing costs resulting from the burden of accumulated regulations.
    With every new regulation or policy imposed on the industry, I 
think it is important for Congress and the agencies to consider the 
regulatory burden aspects and to minimize those burdens to the extent 
possible. I want to take this opportunity to thank my colleagues at 
each of the agencies for their active support and participation on this 
interagency project. The staffs at each of the agencies devoted much 
time and energy to make sure we met not only the letter of the EGRPRA 
law, but the spirit as well. We look forward to continuing to work with 
Congress on these important issues and continuing to use the valuable 
information about regulatory burden issues that was shared with the 
agencies by the many participants in the EGRPRA process.

I. Joint Agency Report

A. Introduction

    This report describes the actions by the Federal Financial 
Institutions Examination Council (FFIEC) and each of its member 
agencies: The Board of Governors of the Federal Reserve System (the 
Board), Federal Deposit Insurance Corporation (FDIC), National Credit 
Union Administration (NCUA), Office of the Comptroller of the Currency 
(OCC), and Office of Thrift Supervision (OTS), hereinafter ``the 
Agencies,'' \2\ to fulfill the requirements of the Economic Growth and 
Regulatory Paperwork Reduction Act of 1996 (EGRPRA). Section 2222 of 
EGRPRA requires the Agencies to:
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    \2\ In 2006, the State Liaison Committee, which represents state 
bank and credit union regulators, was added to the FFIEC as a voting 
member.
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     Conduct a decennial review of their regulations, using 
notice and comment procedures, in order to identify those that impose 
unnecessary regulatory burden on insured depository institutions;
     Publish in the Federal Register a summary of comments 
received during the review, together with the Agencies' identification 
and response to significant issues raised by the commenters;
     Eliminate any unnecessary regulations, if appropriate; and
     Submit a report to Congress that discusses the issues 
raised by the commenters and makes recommendations for legislative 
action, as appropriate.
    The Agencies have completed the first decennial review of their 
regulations. This report to Congress includes both the Agencies' 
comment summary and their discussion and analysis of significant issues 
identified during the EGRPRA review process. The report also describes 
legislative initiatives that would further reduce unnecessary 
regulatory burden on insured depository institutions, including, in 
some cases, references to current initiatives being considered by 
Congress. Separately, the Agencies have published in the Federal 
Register a summary of comments received, together with the Agencies' 
identification and response to significant issues raised by the 
commenters. Finally, since the inception of the EGRPRA review process 
in 2003, the Agencies have individually and collectively started a 
number of burden-reducing initiatives. This report describes those 
accomplishments.
    Throughout the EGRPRA process, NCUA participated in the planning 
and comment solicitation process with the federal banking agencies. 
Because of the unique circumstances of federally insured credit unions 
and their members, however, NCUA established its own regulatory 
categories and publication schedule and published its notices 
separately. NCUA's notices were consistent and comparable with those 
published by the federal banking agencies, except on issues unique to 
credit unions. In keeping with this separate approach, the discussion 
of NCUA's regulatory burden reduction efforts and analysis of 
significant issues is set out separately in Part II of this report. The 
summary of comments received by NCUA is contained in Appendix II-B.
    The Agencies' EGRPRA-mandated review coincided with work in the 
109th Congress on regulatory relief legislation. Each Agency presented 
testimony to congressional oversight committees about priorities for 
regulatory burden relief and described the burden-reducing impact of 
legislative proposals that were under consideration by Congress. The 
Agencies' ongoing work on the EGRPRA review laid the foundation for 
them to achieve consensus on a variety of burden-reducing legislative 
proposals. A number of these proposals were enacted as part of the 
Financial Services Regulatory Relief Act of 2006 (FSRRA), which was 
signed into law on October 13, 2006.\3\ Appendix I-A of this report 
highlights key burden-reducing provisions included in that legislation.
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    \3\ Pub. L. 109-351.
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B. The Federal Banking Agencies' EGRPRA Review Process

1. Overview of the EGRPRA Review Process
    Consistent with the requirements of EGRPRA, the federal banking 
agencies first categorized their regulations, and then published them 
for comment at regular intervals, asking commenters to identify for 
each of the categories regulations that were outdated, unnecessary or 
unduly burdensome.\4\
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    \4\ As noted above, the NCUA developed its own categories of 
regulations and published its notices separately from the bank 
regulatory agencies. Details relating to its regulatory categories 
and its burden reduction efforts are set out Part II of this report. 
The summary of comments received by NCUA is attached as Appendix II-
B of this report.

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    The 131 regulations were divided into 12 categories, listed below 
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alphabetically:

     Applications and Reporting
     Banking Operations
     Capital
     Community Reinvestment Act
     Consumer Protection
     Directors, Officers and Employees
     International Operations
     Money Laundering
     Powers and Activities
     Rules of Procedure
     Safety and Soundness
     Securities

    Semiannually, the federal banking agencies published different 
categories of regulations. The first Federal Register notice was 
published on June 16, 2003. It sought comment on the agencies' overall 
regulatory review plan as well as the following initial three 
categories of regulations for comment: Applications and Reporting; 
Powers and Activities; and International Operations.\5\ The federal 
banking agencies requested public comment about the proposed categories 
of regulation, the placement of the rules within each category and the 
agencies' overall plan for reviewing all of their regulations.
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    \5\ 68 FR 35589.
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    The federal banking agencies adjusted the proposed publication 
schedule due to concerns raised that the consumer regulation category 
encompassed so many different regulations that it would prove too 
burdensome to respond adequately within the comment period timeframe. 
As a result, the agencies divided that category into two notices with 
smaller groups of regulations for review and comment.
    There were a total of six Federal Register notices, each issued at 
approximately six-month intervals with comment periods of 90 days. In 
response to these comment requests, the agencies received more than 850 
letters from bankers, consumer and community groups, trade associations 
and other interested parties.
    There were numerous recommendations to reduce regulatory burden or 
otherwise improve existing regulations. Each recommendation was 
carefully reviewed and analyzed by the staffs of the appropriate 
federal banking agency or agencies to determine whether proposals to 
change specific regulations were appropriate.
    To further promote public input, the federal banking agencies also 
co-sponsored 10 outreach sessions for bankers, as well as 3 outreach 
sessions for consumer and community groups, in cities around the 
country. The agencies then sponsored three joint banker and consumer/
community group focus meetings in an effort to develop greater 
consensus among the parties on legislative proposals to reduce 
regulatory burden. (Please refer to Appendix I-B for a more complete 
discussion of the federal banking agencies' EGRPRA review process as 
well as a table indicating the timing and categories of regulations 
that were published for comment as part of the EGRPRA process.)
2. Significant Issues Arising From the EGRPRA Review and the Federal 
Banking Agencies' Responses
    Section 2222 of EGRPRA requires a summary of the significant issues 
raised by the public comments and the Agencies' responses and comments 
on the merits of such issues and analysis of whether the Agencies are 
able to address the issues by regulation or whether legislation is 
required. Several significant issues received substantial federal 
banking agency support and were successfully included in the FSRRA 
during the 109th Congress. Below is a summary of the significant issues 
and relevant comments received by the federal banking agencies together 
with the banking agencies' recommendations.
a. Bank Secrecy Act/Currency Transaction Report
    Issues:
    (1) Should the $10,000 Currency Transaction Report (CTR) threshold 
be increased to some higher level?
    (2) Can the CTR forms be simplified to require less information on 
each form?
    (3) Should the existing CTR exemption process be revised to make it 
less burdensome on the industry, such as by adopting a ``seasoned 
customer'' exemption?
    Context: The $10,000 threshold for filing CTRs has not changed 
since the requirement was first established by the Department of the 
Treasury some 30 years ago. Financial institutions are required to 
report currency transactions in excess of $10,000. These reports are 
filed pursuant to requirements implemented in rules issued by the 
Department of the Treasury and are filed with the Internal Revenue 
Service. In addition to the appropriate federal supervisory agency for 
the financial institution (including the Board, FDIC, OCC, and OTS), 
the Financial Crimes Enforcement Network (FinCEN), Federal Bureau of 
Investigation (FBI), and other federal law enforcement agencies use CTR 
data. The FBI and other law enforcement bodies have stated that CTR 
requirements serve as an impediment to criminal attempts to legitimize 
the proceeds of a crime. Moreover, they serve as a key source of 
information about the physical transfer of currency, at the point of 
the transaction.
    Comments: Many of the written and oral comments received during the 
EGRPRA process reflected widespread concern that the reports' 
effectiveness had become degraded over time, because ever-larger 
numbers of transactions met or surpassed the threshold, resulting in 
growing numbers of CTR filings. Many commenters and participants in the 
outreach meetings expressed concern that, with the increased number of 
CTR filings, the federal banking and law enforcement agencies were not 
able to make effective use of the information being provided. 
Commenters noted that the low threshold for CTR filings created more 
regulatory burden for banks. One commenter noted that certain policies 
such as requiring banks to continue filing for exempt status for 
transactions between themselves were unnecessary.
    Several commenters raised concerns about the burdens associated 
generally with the CTR process and the utility of the information that 
depository institutions must provide. To ease some of this burden, 
commenters urged the adoption of a broader ``seasoned customer'' 
exemption, as well as other reforms in the CTR process. The federal 
banking agencies received several comments about the difficulties of 
obtaining a CTR exemption under current procedures. Some bankers 
contended that it was easier for a bank to file a Suspicious Activity 
Report (SAR) than to undertake the determination that a customer 
qualified for an exemption from the CTR filing requirement. One 
commenter suggested that the Agencies grant exemptions through a one-
time filing (and eliminate the yearly filing requirement).
    Although the federal banking agencies received extensive comments 
on the burdens associated with the CTR filing process, there were no 
concrete suggestions as to what types of information were unnecessary 
in the context of a CTR filing. One commenter suggested that lowering 
the threshold would reduce duplicative paperwork burden, while another 
noted that the process of requesting an exemption from CTR reporting 
was too complicated. Another commenter suggested replacing

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daily CTR filings with monthly cash transaction reporting.
    Current Initiatives: Congress recently enacted legislation that 
requires the Government Accountability Office (GAO) to conduct a study 
of the CTR process. Section 1001 of the FSRRA requires the Comptroller 
General of the United States to conduct a study and submit a report to 
Congress within 15 months of enactment of the legislation on the volume 
of CTRs filed. The FSRRA also requires the Comptroller General to 
evaluate, on the basis of actual filing data, patterns of CTRs filed by 
depository institutions of various sizes and locations. The study, 
which will cover a period of three calendar years before the 
legislation was enacted, will identify whether, and the extent to 
which, CTR filing rules are burdensome and can or should be modified to 
reduce burden without harming the usefulness of such filing rules to 
federal, state, and local anti-terrorism, law enforcement, and 
regulatory operations.
    The study will examine the:
    1. Extent to which financial institutions are taking advantage of 
the exemption system available;
    2. Types of depository institutions using the exemption system, and 
the extent to which the exemption system is used;
    3. Difficulties that limit the willingness or ability of depository 
institutions to reduce their CTR reporting burden by taking advantage 
of the exemption system;
    4. Extent to which bank examination problems have limited the use 
of the exemption system;
    5. Ways to improve the use of the exemption system, including 
making the exemption system mandatory so as to reduce the volume of 
CTRs unnecessarily filed;
    6. Usefulness of CTR for law enforcement, in light of advances in 
information technology;
    7. Impact that various changes in the exemption system would have 
on the usefulness of CTR; and
    8. Changes that could be made to the exemption system without 
affecting the usefulness of CTR.
    The study is to contain recommendations, if appropriate, for 
changes in the exemption system that would reflect a reduction in 
unnecessary costs to depository institutions, assuming a reasonably 
full implementation of the exemption system, without reducing the 
usefulness of the CTR filing system to anti-terrorism, law enforcement, 
and regulatory operations.
    The GAO produced a report in April 2006 that looked at Bank Secrecy 
Act (BSA) enforcement and made three recommendations to improve 
coordination among FinCEN and the federal banking agencies:
    1. As emerging risks in the money laundering and terrorist 
financing area are identified, the federal banking agencies and FinCEN 
should work together to ensure that these are effectively communicated 
to both examiners and the industry through updates of the interagency 
examination manual and other guidance, as appropriate;
    2. To supplement the analysis of shared data on BSA violations, 
FinCEN and the federal banking agencies should periodically meet to 
review the analyses and determine whether additional guidance to 
examiners is needed; and
    3. In light of the different terminology the federal banking 
agencies use to classify BSA noncompliance, FinCEN and the federal 
banking agencies should jointly assess the feasibility of developing a 
uniform classification system for BSA violations.\6\
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    \6\ See ``Bank Secrecy Act: Opportunities Exist for FinCEN and 
the Banking Regulators to Further Strengthen the Framework for 
Consistent BSA Oversight,'' Report to the Committee on Banking, 
Housing and Urban Affairs, U.S. Senate, U.S. Government 
Accountability Office, at pages 19-20 (April 2006).
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    The federal banking agencies have undertaken several initiatives 
that address the GAO's recommendations to improve coordination among 
the agencies and FinCEN regarding BSA enforcement, including the 
measures outlined below.
    Under the auspices of the FFIEC BSA/Anti-Money Laundering (AML) 
Working Group, the federal banking agencies, FinCEN, and the Conference 
of State Bank Supervisors (CSBS) continue to meet monthly to address 
all facets related to BSA/AML policy, examination consistency, 
training, and issues associated with BSA compliance. Under the auspices 
of their General Counsels, the federal banking agencies have developed 
and published an Interagency Statement on Enforcement of BSA/AML 
Requirements to help ensure consistency among the agencies in BSA 
enforcement activities.\7\ The federal banking agencies and FinCEN also 
work together to issue appropriate guidance to financial institutions 
on how to meet BSA/AML compliance requirements. One example of a joint 
product is the FFIEC BSA/AML Examination Manual that was issued to 
ensure consistency in BSA/AML examinations by providing a uniform set 
of examination procedures. The manual is a compilation of existing 
regulatory requirements, supervisory expectations, and sound practices 
in the BSA/AML area. The manual provides substantial guidance to 
institutions in establishing and administering their BSA/AML programs 
and is updated to incorporate emerging risks in the money laundering 
and terrorist financing area, as deemed appropriate by the federal 
banking agencies in consultation with FinCEN.\8\ In addition, the 
federal banking agencies have individually and jointly held frequent 
outreach sessions for the industry to discuss such guidance and 
emerging issues.
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    \7\ See Interagency Statement on Enforcement of Bank Secrecy 
Act/Anti-Money Laundering Requirements, July 19, 2007.
    \8\ The FFIEC BSA/AML Examination Manual was issued in 2005 and 
revised in 2006; further revisions are underway for issuance in 
August 2007.
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    Finally, as part of the legislative process leading up to the 
enactment of the FSRRA, Congress considered, but did not enact, other 
statutory proposals for CTR relief. The current Congress also is 
continuing to consider such initiatives and a bill to provide for a 
seasoned customer exemption from CTR filing (H.R. 323, the Seasoned 
Customer CTR Exemption Act of 2007) passed the House of Representatives 
on January 23, 2007. This is similar to a provision passed by the House 
in 2006.
    The federal banking agencies continue to work with FinCEN, as the 
administrator of the BSA, to effectively oversee anti-money laundering 
compliance and ensure the safety and soundness of the financial 
institutions they regulate and to find ways to achieve these goals 
while eliminating unnecessary regulation. Recently, Secretary of the 
Treasury Paulson announced a Treasury initiative to administer the BSA 
in a more efficient and effective manner. The federal banking agencies 
will continue their close coordination with FinCEN to improve its 
communications with the industry. Moreover, the agencies will continue 
to work with Congress to analyze proposed legislative changes and 
provide recommendations and comments as requested.
    Recommendation: The Board, FDIC, OCC, and OTS appreciate the 
comments received concerning the CTR exemption process. The federal 
banking agencies believe that any changes must be carefully balanced 
with the critical needs of law enforcement for necessary information to 
combat money laundering, terrorist financing, and other financial 
crimes. Any changes to the exemption process must not jeopardize or 
detract from law

[[Page 62040]]

enforcement's mission.\9\ The federal banking agencies further believe 
that, in light of the attention and study given to this issue by 
Congress and in other forums, it would be premature to adopt changes in 
this area before the reports and recommendations are complete. 
Therefore, the agencies are not recommending any changes at this time 
but may do so once the GAO finalizes its report.
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    \9\ The FBI has advised that to dramatically alter currency 
transaction reporting requirements--without careful, independent 
study--could be devastating and a significant setback to 
investigative and intelligence efforts relative to both the global 
war on terrorism and traditional criminal activities. Statement of 
Michael Morehart Section Chief, Terrorist Financing Operations, 
Counterterrorism Division, Federal Bureau of Investigation, before 
the Senate Committee on Banking, Housing and Urban Affairs, April 4, 
2006; see also, Statement of Kevin Delli-Colli, Deputy Assistant 
Director, Financial & Trade Investigations Division, Office of 
Investigations, U.S. Immigration and Customs Enforcement, Department 
of Homeland Security, before the Senate Committee on Banking, 
Housing and Urban Affairs, April 4, 2006.
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b. Anti-Money Laundering/Suspicious Activity Report
    Issue: Should the federal banking agencies, together with FinCEN, 
revise or adopt policies relating to SARs to help reduce the number of 
defensive SARs that are being filed?
    Context: Financial institutions must report known or suspected 
criminal activity, at specified dollar thresholds, or transactions over 
$5,000 that they suspect involve money laundering or attempts to evade 
the BSA. SARs play an important role in combating money laundering and 
other financial crimes.
    Comments: Many commenters stated that SAR filing requirements were 
burdensome and costly. Some commenters complained that they filed 
numerous SARs and rarely, if ever, heard back from law enforcement. 
They questioned whether they were simply filing these forms into a 
``black hole.'' One commenter noted that SAR filings make CTR filings 
redundant. Commenters complained both in writing and during the EGRPRA 
bankers' outreach meetings that the filing of SARs and the development 
of an effective SAR monitoring system add to compliance costs for banks 
and imposed a significant regulatory burden on them.
    Current Initiatives: The federal banking agencies, in cooperation 
with FinCEN, seek to pursue effective SAR policies that contribute to 
efforts to track money laundering transactions while minimizing burden 
on regulated institutions that must file such reports. The federal 
banking agencies believe it is important to provide clear guidance to 
financial institutions on all SAR filing issues and will continue to 
work with FinCEN to do so.\10\ In considering what further changes to 
make to SAR policies, it is important to closely coordinate with law 
enforcement so as not to undermine efforts to combat money laundering 
and curtail other illicit financial transactions.
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    \10\ For example, in 2007 FinCEN issued tips for SAR form 
preparation and filing that addressed a variety of issues, including 
what constitutes supporting documentation for a SAR. See ``SAR 
Activity Review, Trends, Tips & Issues,'' Issue 11, May 2007.
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    As noted in the GAO's 2006 report on BSA oversight by the federal 
banking agencies, all of the Agencies have implemented extensive BSA/
AML training for examiners, including joint training through the 
FFIEC.\11\ The federal banking agencies have also stepped up their 
hiring of examiners to meet the need for greater BSA/AML compliance. 
The extensive training federal banking agencies have implemented has 
resulted in greater examiner expertise on BSA/AML matters.
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    \11\ See footnote 6, pages 50-59.
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    In addition, the Department of the Treasury Inspector General 
directed FinCEN to undertake a SAR data quality review, which FinCEN 
subsequently shared with the federal banking agencies. The federal 
banking agencies indicated at the time that they found the analysis of 
the SAR filings to be useful in enabling financial institutions to 
address relevant problems or issues. FinCEN has publicly indicated that 
there is no evidence to suggest that the SAR filings include 
significant numbers of ``defensively filed'' SARs; rather, reviews show 
useful and properly filed reports.\12\
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    \12\ See the prepared remarks of Robert W. Werner, Director, 
FinCEN, before the American Bankers Association/American Bar 
Association Money Laundering Enforcement Conference, October 9, 
2006, available on FinCEN's Web site (http://www.fincen.gov/werner_statement_10092006.html.
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    Recommendation: The federal banking agencies, along with FinCEN, 
seek to pursue effective SAR policies that contribute to efforts to 
track suspicious transactions while minimizing burden on regulated 
institutions that are required to file such reports. It is important to 
provide clear guidance to financial institutions on all SAR filing 
issues and to continue to work with FinCEN to do so. In considering 
what further changes to make to SAR policies, the Agencies believe that 
it is important to coordinate closely with law enforcement so as not to 
undermine efforts to combat money laundering and curtail other illicit 
financial transactions.
c. Patriot Act
    Issues:
    (1) Can the federal banking agencies provide greater guidance as to 
the types of identification that are acceptable under a bank's Customer 
Identification Program (CIP)?
    (2) Can the recordkeeping requirements under the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism Act of 2001\13\ (PATRIOT Act) be 
revised to reduce burden?
---------------------------------------------------------------------------

    \13\ Pub. L. No. 107-56, October 26, 2001.
---------------------------------------------------------------------------

    Context: Department of the Treasury and federal banking agency 
regulations require depository institutions to obtain identification 
information from customers as a condition to opening/maintaining 
account relationships.\14\ The regulation requires every depository 
institution to have a written CIP. The CIP must include risk-based 
procedures to enable the depository institution to form a reasonable 
belief that it knows the true identity of each customer. With respect 
to individuals, the regulation requires institutions to obtain, at a 
minimum, the name, date of birth, and address of the prospective 
customer, as well as an identification number, such as a tax 
identification number (for a U.S. person) or, in the case of a non-U.S. 
person, a tax ID number, passport number and country of issuance, alien 
registration number, or the number and country of any other 
identification number evidencing nationality or residence and 
containing a photograph of the individual or similar safeguard. For 
entities such as a corporation, the institution must also obtain a 
principal place of business, local office, or other physical location 
from the business applicant. The CIP must also contain procedures for 
verifying that the customer does not appear on a designated government 
list of terrorists or terrorist organizations. However, to date, the 
government has not designated such a list for purposes of CIP 
compliance.
---------------------------------------------------------------------------

    \14\ See generally 31 CFR 103.121.
---------------------------------------------------------------------------

    The CIP regulations further require institutions to verify the 
identity of customers within a ``reasonable time'' after an account is 
opened. Institutions may conduct such verification through documents, 
non-documentary methods, or some combination of the two. An 
institution's CIP likewise must address situations where the 
institution is unable to verify a customer's identity.
    Comments: During the EGRPRA process, the federal banking agencies 
received extensive comments

[[Page 62041]]

concerning the CIP under the PATRIOT Act. Many commenters noted the 
burden that the requirements impose on institutions and asserted that 
these requirements can cause inconvenience, even for long-time 
customers of a financial institution. Commenters had a number of 
suggestions for improved guidance, including: (1) Amending the 
definition of ``established customer'' to clarify that it refers to a 
customer from whom the bank has already obtained the information 
required by 31 CFR 103.121(b)(2)(i); (2) providing greater clarity 
about the types of identification that are acceptable; and (3) amending 
the definition of ``non-U.S. persons'' to refer only to foreign 
citizens who are not U.S. resident aliens.
    The purpose of the CIP requirements is to aid in addressing both 
money laundering and terrorist financing. It can be crucial to have 
good records about the identity of customers in order to help prosecute 
cases involving money laundering or terrorist financing. Existing rules 
already contain detailed guidance about the types of identification 
that can be used to satisfy the requirements of the PATRIOT Act. In 
addition, the CIP does not apply to existing customers of the financial 
institution provided that the financial institution has a reasonable 
belief that it knows the true identity of the person.
    With respect to recordkeeping requirements, the regulations issued 
pursuant to section 326 of the PATRIOT Act require institutions to keep 
records of their efforts to verify the identity of customers for five 
years after the account is closed. Many institutions commented during 
the EGRPRA process that this recordkeeping requirement was burdensome.
    Current Initiatives: The federal banking agencies have worked in 
close collaboration with FinCEN in an effort to ensure that the 
requirements imposed by the PATRIOT Act are appropriate and necessary, 
and the agencies will continue to work with FinCEN to enhance the 
effectiveness of the Act's requirements while looking for ways to 
reduce the burden on financial institutions. For example, the federal 
banking agencies together with securities and futures industry 
regulators have worked to provide additional guidance on the 
application of the CIP rule. This guidance, in the form of frequently 
asked questions, has been updated as necessary to respond to industry 
questions and can be found on FinCEN's Web site (http://www.fincen.gov/faqsfinalciprule.pdf). The guidance that applies to depository 
institutions is also incorporated into the FFIEC BSA/AML Examination 
Manual.
    Recommendation: While the federal banking agencies jointly issued 
the regulations at 31 CFR 103.121 with the Department of the Treasury, 
the agencies cannot unilaterally revise the regulation. While the 
agencies regularly discuss PATRIOT Act issues with their counterparts 
in FinCEN and the Department of the Treasury, the authority to amend 
many of the recordkeeping rules required under the PATRIOT Act is 
solely within the jurisdiction of the Department of the Treasury. 
Nonetheless, the comments will be a helpful contribution to the 
discussion of the issues.
d. Interest on Demand Deposits (Regulation Q) and NOW Account 
Eligibility
    Issues:
    (1) Should the prohibition against payment of interest on demand 
deposits be eliminated?
    (2) Should the NOW account eligibility rules be liberalized?
    Context: The prohibition against payment of interest on demand 
deposits is a statutory prohibition and an amendment enacted by 
Congress would be necessary to repeal the prohibition. Section 19(i) of 
the Federal Reserve Act provides that no bank that is a member of the 
Federal Reserve System may, directly or indirectly, by any device 
whatsoever pay any interest on any demand deposit. Similar statutory 
provisions apply to non-member banks and to thrift institutions. The 
Board's Regulation Q implements section 19(i) and specifies what 
constitutes ``interest'' for purposes of section 19(i). As a practical 
matter, the effect of section 19(i) is to prevent corporations and for-
profit entities from holding interest-bearing checking accounts. This 
is because federal law separately permits individuals and non-profit 
organizations to have interest-bearing checking accounts, known as 
``negotiable order of withdrawal,'' or NOW, accounts. (See 12 U.S.C. 
1832.)
    Comments: Several commenters suggested that the prohibition against 
the payment of interest on demand deposits be eliminated. One commenter 
stated that, if the statutory prohibition against payment of interest 
on demand deposits were repealed, the Board should allow a two-year 
phase-in period, during which depository institutions could offer MMDAs 
(savings deposits) with the capacity to make up to 24 preauthorized or 
automatic transfers per month to another transaction account.
    Current Initiatives: For the past several years, Congress has 
considered, but not enacted, legislation that would repeal the 
prohibition in section 19(i) against the payment of interest on demand 
deposits. Some of this legislation also would have made certain changes 
with respect to NOW accounts.
    Recommendation: The federal banking agencies support legislation 
that would repeal the prohibition against payment of interest on demand 
deposits in section 19(i) and related statutes. Such legislation would 
allow corporate and for-profit entities, including small businesses, to 
have the extra earning potential of interest-bearing checking accounts 
and would eliminate a restriction that currently distorts the pricing 
of checking accounts and associated bank services. The federal banking 
agencies, however, do not have a joint position at this time on whether 
to expand NOW account eligibility and, as such, are making no joint 
recommendation with respect to this issue. We will continue to work 
with Congress on these important matters.
e. Home Mortgage Disclosure Act (Regulation C)
    Issues:
    (1) Should the tests for coverage of financial institutions be 
changed to exempt more institutions from the reporting requirements of 
the Home Mortgage Disclosure Act (HMDA)? If so, how?
    (2) Should revisions be made to the data that are required to be 
reported under HMDA, such as revising the reporting requirements for 
higher-priced loans?
    Context: The purpose of HMDA is to provide the public with mortgage 
lending data to help determine whether financial institutions are 
serving the housing needs of their communities, assist public officials 
in distributing public sector investment so as to attract private 
investment to areas where it is needed, and to assist in identifying 
possible discriminatory lending patterns and enforcing 
antidiscrimination statutes. HMDA requires banks, savings associations 
and credit unions that make ``federally related mortgage loans,'' as 
defined by the Board, to report data about their mortgage lending if 
they have total assets that exceed an asset threshold that is now set 
by statute (indexed for inflation in 2007 at $36 million) and a home or 
branch office in a metropolitan statistical area. Board Regulation C, 
which implements HMDA, clarifies that these institutions are subject to 
HMDA reporting for a given year if, in the preceding calendar year, 
they made at least one ``federally related mortgage loan,'' which is

[[Page 62042]]

defined to be a home purchase loan or refinancing of a home purchase 
loan (1) made by an institution that is federally insured or regulated 
or (2) insured, guaranteed, or supplemented by a federal agency or (3) 
intended for sale to Fannie Mae or Freddie Mac. Each federal banking 
agency enforces the requirements of HMDA with respect to the 
institutions for which such agency is the primary federal supervisor.
    Comments: Commenters have suggested revising the coverage tests for 
HMDA reporting requirements so that fewer institutions are subject to 
reporting, such as by raising the statutory asset test or exempting 
institutions that make only a de minimis number of mortgage loans in a 
year. Commenters asserted these changes could be made within the 
framework of HMDA, which provides the Board authority to make 
exceptions to the statute's requirements in certain circumstances. 
Moreover, the Board could also recommend that Congress consider making 
changes in the coverage tests that are not now authorized under HMDA.
    Current Initiatives: With respect to whether revisions should be 
made to the data reporting requirements under HMDA, such as revising 
the reporting requirements for higher-priced loans, the Board completed 
a multi-year review of Regulation C in 2002. As part of this process, 
the Board considered numerous comments from the public on additional 
data to be reported under HMDA relating to the pricing of loans and 
ways to improve and streamline the data collection and reporting 
requirements of Regulation C. As a result of the review, the Board made 
several changes to HMDA reporting requirements, including adding 
reporting requirements for higher-priced loans. In determining whether 
to add each new data requirement, the Board carefully weighed what data 
would be most beneficial in improving HMDA analysis against the 
operational/compliance costs to industry in collecting the data. The 
revisions to Regulation C became effective on January 1, 2004.
    Recommendation: Any expansion of the coverage tests that results in 
fewer institutions subject to HMDA reporting requirements would warrant 
a careful analysis that would include weighing the benefits of reduced 
reporting for institutions against the loss of HMDA data. The more 
financial institutions that are exempted from HMDA data reporting 
requirements, the more difficult it would be for the federal banking 
agencies, other government officials and interested parties to monitor 
and analyze aggregate trends in mortgage lending, and compare the 
mortgage lending of particular institutions to the mortgage lending of 
all other lenders in a given geographic area or product market. It 
would also be more difficult for supervisors to identify institutions, 
loan products, or geographic markets that show disparities in the 
disposition of loan applicants by race, ethnicity or other 
characteristics and that require further investigation under the fair 
lending laws.
    It has been two years since institutions began reporting and 
disclosing data relating to the new reporting items. With so few years 
of reporting data available, it is too early to assess the 
effectiveness of the new data items and consider how the reporting 
requirements could be changed. Any changes would have to take into 
account both the burden on financial institutions and the benefits of 
the new data to policymakers and the public. The Board and other 
federal banking agencies will, however, carefully consider these issues 
after more experience has been gained with the new reporting 
requirements. Several statutory changes to HMDA reporting were 
considered by Congress as part of its consideration of the FSRRA, 
including proposals to expand the HMDA exemptions. While the federal 
banking agencies took differing positions on these proposals, all of 
the agencies recognize that any statutory changes to HMDA reporting 
must be carefully balanced to ensure that consumer protection and 
access to HMDA data for appropriate consumer purposes are not 
diminished.
f. Truth in Lending Act (Regulation Z)
    Issues:
    (1) Should the consumer disclosures required under the Truth in 
Lending Act (TILA), as well as those required under the Real Estate 
Settlement Procedures Act of 1974 (RESPA), be simplified in an effort 
to make them more understandable?
    (2) Should the statutory right of rescission be eliminated for all 
home-secured lending or for certain transactions (such as refinancings 
with new creditors where no new money is provided or refinancings 
involving ``sophisticated borrowers'')? Alternatively, should consumers 
be able to more freely waive their three-day right of rescission for 
home-secured lending?
    Consumer Loan Disclosures
    Context: Ensuring that consumer disclosures, including those in 
mortgage transactions covered by TILA and RESPA, are effective and 
understandable is important in carrying out the purposes of the 
statutes. The volume of paperwork in such transactions has increased 
greatly due in part to reasons other than the required disclosures, 
such as liability-protection concerns of lenders. Nevertheless, it is 
essential to review the disclosure requirements periodically to 
consider whether disclosures are achieving their intended purposes. The 
Board's Regulation Z implements TILA, and each Agency enforces the 
requirements of TILA with respect to the institutions for which such 
agency is the primary federal supervisor.\15\
---------------------------------------------------------------------------

    \15\ See Part II of this report for a discussion of comments 
submitted by credit unions to NCUA on this topic.
---------------------------------------------------------------------------

    Comments: Regulation Z was one of the most heavily commented-upon 
regulations during the EGRPRA review process. A general comment from 
many industry commenters was that consumers are frustrated and confused 
by the volume and complexity of documents involved in obtaining a loan 
(especially a mortgage loan), including the TILA and RESPA disclosures. 
Some commenters acknowledged that the increased volume and complexity 
of loan documents also stemmed from lenders' attempts to address 
liability concerns. Many commenters requested that the required loan 
disclosures be provided in a manner that would facilitate consumer 
understanding of the loan terms. (For a more complete summary of the 
comments received, see the discussion of comments received for TILA/
Regulation Z in Appendix I-C of this report.)
    Current Initiatives: The Board is conducting a multi-stage review 
of Regulation Z, which implements TILA. In 2004, the Board issued an 
advance notice of proposed rulemaking (ANPR) requesting public comment 
on all aspects of the regulation's provisions affecting open-end 
(revolving) credit accounts, other than home-secured accounts, 
including ways to simplify, reduce or improve the disclosures provided 
under TILA.\16\ The next stage of the review is expected to be a review 
of the disclosures for mortgage loan transactions (both open-end and 
closed-end) as well as other closed-end credit, such as automobile 
loans. The multi-stage review will consider revisions to the 
disclosures required under TILA to ensure that disclosures are provided 
to consumers on a timely basis and in a form that is readily 
understandable.
---------------------------------------------------------------------------

    \16\ See 69 FR 70925, December 8, 2004.
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    Recommendation: The federal banking agencies have all testified

[[Page 62043]]

before Congress on the need to simplify and streamline consumer loan 
disclosures. Among other things, the Board's review will consider ways 
to address concerns about information overload, which can adversely 
affect how meaningful disclosures are to consumers. The Board will use 
extensive consumer testing to determine what information is useful to 
consumers to address concerns about information overload. After the 
Board's review and regulatory changes are in place, the agencies will 
consider what, if any, legislative changes may be necessary.
    Revisions to the Right of Rescission
    Context: Under TILA, consumers generally have three days after 
closing to rescind a loan secured by a principal residence. Among other 
things, the right of rescission does not apply to a loan to purchase or 
build a principal residence or a consolidation or refinancing with the 
same lender that already holds the mortgage on the residence and in 
which no new advances are being made to the consumer. The statute 
authorizes the Board to permit consumers to waive this right, but only 
to meet bona fide personal financial emergencies (see 15 U.S.C. 
1635(d); 12 CFR 226.15(e) and 226.23(e)).
    The right of rescission is intended to provide consumers a 
meaningful opportunity to fully review the documents given to them at a 
loan closing and determine if they want to put their home at risk under 
the repayment terms described in the documents. Thus, substantial 
revision to the statutory three-day right of rescission, either through 
allowing waivers more freely or exempting the requirement for some or 
all home-secured loans, would require careful study. Currently, 
consumers are presented with a substantial amount of documents at 
closing, and the final cost disclosures provided at closing may differ 
materially from earlier cost disclosures provided to the consumer. 
Under these circumstances, consumers may benefit by having the 
opportunity to review the terms and conditions of the loan after the 
loan closing. The three-day right of rescission is particularly 
important, and the ability to freely waive that right may potentially 
be more problematic, for loan products and borrowers who are more 
susceptible to predatory lending practices.
    The three-day right of rescission plays an important role in 
protecting consumers, and this may be the case even in refinancings 
with new creditors where no additional funds are advanced. Refinancings 
occur for many reasons and may have terms that place the consumer's 
home more at risk. For example, to obtain a lower initial monthly 
payment, a consumer may refinance a 30-year fixed-rate, home-secured 
loan with a loan that has an adjustable rate, that provides for 
interest-only payments or a balloon payment, or that has a longer loan 
term. Depending on the consumer's circumstances, these changes may 
place the consumer's home more at risk or otherwise be less favorable 
to the consumer. If their refinancing is with a new creditor, consumers 
can use the three-day rescission period to review the terms of these 
loans. Therefore, even in a refinancing with no new funds advanced, the 
right to rescind a transaction with a new creditor can be important to 
consumers. Issues concerning the right of rescission will be considered 
in the course of the Regulation Z review discussed above.
    Comments: Many industry commenters contended that the right of 
rescission was an unnecessary and burdensome requirement, and they 
suggested either eliminating the right of rescission or allowing 
consumers to waive the right more freely than under the current rule 
(which requires a bona fide personal emergency). Representatives of 
consumer and community groups called the right of rescission one of the 
most important consumer protections and urged the regulators not to 
weaken or eliminate that right.
    Recommendation: The Board will consider issues concerning the right 
of rescission in the course of the Regulation Z review discussed above. 
In addition, in 2006 Congress considered regulatory burden relief 
proposals and ultimately enacted the FSRRA. At that time, suggestions 
were made to include amendments to TILA that would expand the 
circumstances under which a consumer could waive the three-day right of 
rescission. All of the federal banking agencies opposed or expressed 
concern about waiving this important consumer protection right without 
adequate safeguards to ensure that consumers are protected from the 
abuses that may occur from expanding the waiver authority.
g. Regulation O
    Issue: While the FSRRA eliminated certain Regulation O reporting 
requirements, several commenters also asked whether the insider lending 
limits should be increased to parallel those permitted under some state 
laws.
    Context: Sections 22(g) and 22(h) of the Federal Reserve Act impose 
various restrictions on extensions of credit by a member bank to its 
insiders. By statute, these restrictions also apply to nonmember state 
banks and savings associations. The Board's Regulation O implements 
sections 22(g) and 22(h) of the Federal Reserve Act for member banks. 
Regulation O governs any extension of credit by a member bank to an 
executive officer, director, or principal shareholder of (1) the member 
bank, (2) a holding company of which the member bank is a subsidiary, 
or (3) any other subsidiary of that holding company. Regulation O also 
applies to any extension of credit by a member bank to a company 
controlled by such a person and a political or campaign committee that 
benefits or is controlled by such a person. Each federal banking agency 
enforces the requirements of Regulation O with respect to the 
institutions for which such agency is the primary federal supervisor.
    Section 22(g) of the Federal Reserve Act specifically prohibits a 
member bank from making extensions of credit to an executive officer of 
the bank (other than certain mortgage loans and educational loans) that 
exceed ``an amount prescribed in a regulation of the member bank's 
appropriate federal banking agency.'' Regulation O currently limits the 
amount of such ``other purpose'' loans to $100,000.
    Comments: A number of industry commenters requested a review of 
Regulation O reporting and threshold requirements because they view 
them as overly burdensome and somewhat ambiguous, with outdated dollar 
amounts that need updating to reflect today's economy.
    Recommendation: The federal banking agencies currently have the 
statutory authority to raise the limit on ``other purpose'' loans for 
institutions under their supervision if the federal banking agencies 
were to determine that such action was consistent with safety and 
soundness. In this regard, the Board plans to consult with the other 
agencies on a proposal to increase the Regulation O limit on other 
purpose loans as part of its upcoming comprehensive review of 
Regulation O.
h. Corporate Governance/Sarbanes-Oxley Act of 2002
    Issues:
    (1) Should banks that are not publicly traded and that have less 
than $1 billion in assets be exempt from the Sarbanes-Oxley Act of 
2002\17\ (SOX)?
---------------------------------------------------------------------------

    \17\ Pub. L. 107-204, July 30, 2002.
---------------------------------------------------------------------------

    (2) Should banks that comply with part 363 of the FDIC's rules be 
exempt from section 404 of SOX?\18\
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 7262.
---------------------------------------------------------------------------

    (3) Should the exemption for compliance with the external

[[Page 62044]]

independent audit and internal control requirements of 12 CFR 363 be 
raised from $500 million to $1 billion?
    Context: SOX was enacted to improve corporate governance and 
financial management of public companies in order to better protect 
investors and restore investor confidence in such companies. Section 
404 of SOX applies directly to public companies only, including insured 
depository institutions and their parent holding companies that are 
public companies, and indirectly to institutions that are subsidiaries 
of holding companies that are public companies. Section 404 of SOX does 
not apply to institutions that are not ``publicly traded,'' such as 
nonpublic companies or subsidiaries of nonpublic companies. Section 404 
of SOX requires the management and external auditors of all public 
companies to assess the effectiveness of internal controls over the 
company's financial reporting.
    Part 363 of the FDIC's regulations establishes annual audit and 
reporting requirements for all insured depository institutions with 
$500 million or more in total assets. Part 363 requires all insured 
depository institutions with $500 million or more to have an annual 
audit of their financial statements conducted by an independent public 
accountant (external auditor). Part 363 also requires that the 
management and external auditors of institutions with $1 billion or 
more in total assets attest to internal controls over financial 
reporting. To be considered ``independent,'' Guideline 14 to part 363, 
which was adopted by the FDIC in 1993, states that the external auditor 
``should be in compliance with the [American Institute of Certified 
Public Accountants'] Code of Professional Conduct and meet the 
independence requirements and interpretations of the [Securities and 
Exchange Commission] and its staff.'' Title II of SOX imposed 
additional auditor independence requirements on external auditors of 
public companies, which the Securities and Exchange Commission (SEC) 
has implemented through rulemaking. Thus, the external auditors of 
nonpublic institutions that are subject to part 363 are expected to 
comply with SOX's auditor independence requirements and the SEC's 
implementing rules.
    Comments: Some commenters focused on the increased burden and costs 
imposed on public companies by SOX, particularly publicly traded 
community banks. Several commenters recommended requiring such banks to 
comply only with part 363 and not with SOX section 404. Other 
commenters were concerned about the burden placed on banks to comply 
with the auditor independence requirements in SOX under the FDIC's 
rules for those banks that are not publicly traded and have less than 
$1 billion in assets. These commenters believed that such requirements 
make it difficult for banks in small communities to find professionals 
to help comply with the requirements.
    Current Initiatives: On March 5, 2003, the FDIC issued Financial 
Institution Letter (FIL) 17-2003 to provide guidance to institutions 
about selected provisions of SOX, including the actions the FDIC 
encourages institutions to take to ensure sound corporate governance. 
On May 6, 2003, the Board, OCC, and OTS collectively issued similar 
guidance entitled ``Statement on Application of Recent Corporate 
Governance Initiatives to Non-Public Banking Organizations.'' None of 
the federal banking agencies established any new mandates for nonpublic 
institutions as a result of SOX.\19\ In the 2003 guidance, the federal 
banking agencies encouraged nonpublic institutions to follow the sound 
corporate governance practices that the Agencies have long endorsed. In 
addition, the federal banking agencies encouraged all nonpublic 
institutions to periodically review their policies and procedures 
relating to corporate governance and auditing matters. These reviews 
should ensure that policies and procedures are consistent with 
applicable law, regulations, and supervisory guidance and appropriate 
to the institution's size, operations, and resources.
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    \19\ The auditor independence provisions of part 363, which 
dated back to 1993 and envisioned auditor compliance with the SEC's 
independence requirements as they might change from time to time, 
did not constitute a new mandate for nonpublic institutions with 
$500 million or more in total assets.
---------------------------------------------------------------------------

    Recommendations:
    Banks That Are Not Publicly Traded and Have Less Than $1 Billion in 
Assets. As discussed above, SOX generally does not apply to banks of 
any size that are not publicly traded or owned by a publicly traded 
company. Because SOX did not impose any new mandates on nonpublic 
institutions that have less than $1 billion in assets, the federal 
banking agencies do not believe any action on this matter is necessary.
    Relationship between Part 363 of the FDIC's Rules and Section 404 
of SOX. The SEC rules implementing the section 404 requirements took 
effect at year-end 2004 for ``accelerated filers,'' i.e., generally, 
public companies whose common equity has an aggregate market value of 
at least $75 million, but these rules will not take effect until 2007 
for public companies that are ``non-accelerated filers.'' Section 404 
does not explicitly authorize the SEC to exempt any public companies 
from its internal control requirements.
    Section 36 of the FDI Act, which was enacted more than 10 years 
before SOX, imposes annual audit and reporting requirements on certain 
insured depository institutions. These requirements, as implemented by 
part 363 of the FDIC's regulations, include assessments of the 
effectiveness of internal control over financial reporting by 
management and external auditors. Section 36 of the FDI Act authorizes 
the FDIC to set the size threshold at which institutions become subject 
to the audit and reporting requirements of section 36, provided the 
threshold is not less than $150 million in assets. In November 2005, 
the FDIC, after consulting with the other federal banking agencies, 
amended part 363 to require internal control assessments by management 
and external auditors only of insured depository institutions, both 
public and nonpublic, with $1 billion or more in total assets.
    Part 363 applies to insured depository institutions, but section 
404 applies to public companies, which, in most cases, is the parent 
holding company of a depository institution rather than the depository 
institution itself. If certain conditions are met, part 363 permits an 
institution to satisfy the requirement for internal control assessments 
by management and external auditors at the holding company level. 
However, when satisfied at the holding company level, part 363 provides 
that the internal control assessments need only cover ``the relevant 
activities and operations of those subsidiary institutions within the 
scope'' of the regulation, such as those subsidiary depository 
institutions with $1 billion or more in total assets. In contrast, 
internal control assessments performed under section 404 must cover the 
entire consolidated organization, including any insured depository 
institution subsidiaries with less than $1 billion in total assets and 
subsidiaries that are not depository institutions.
    The FDIC and the other federal banking agencies have no authority 
to exempt institutions that comply with the internal control 
requirements of part 363 from the internal control requirements of 
section 404, which the SEC administers. Legislation that amends section 
404 would be needed to create such an exemption (unless the SEC were to 
determine that it had the authority to do so). Moreover, in considering 
whether or how to craft

[[Page 62045]]

such an exemption, one would need to recognize and take into account 
the fact that part 363 internal control assessments by management and 
external auditors are required to be performed only by insured 
depository institutions and not on a consolidated basis at the parent 
holding company level. In connection with consideration of proposals to 
be included in the FSRRA, one proposal would have exempted financial 
institutions with assets of less than $1 billion from section 404 if 
subject to section 36 of the FDI Act. The federal banking agencies had 
differing views on the advisability of such an amendment and will 
continue to work with Congress to look for ways to reduce burden while 
ensuring that adequate internal control requirements are in place.
    Furthermore, because insured institutions with less than $1 billion 
in total assets that are public companies, or subsidiaries of public 
companies, are not subject to the part 363 internal control 
requirements, such institutions would not benefit from an exemption 
from the section 404 internal control requirements that would apply to 
institutions that comply with the part 363 internal control 
requirements.
    Asset Threshold for the External Independent Audit and Internal 
Control Requirements of 12 CFR 363. Part 363 of the FDIC's regulations, 
which implements the annual audit and reporting requirements of section 
36 of the FDI Act, requires each insured depository institution with 
$500 million or more in total assets to have an annual audit of its 
financial statements by an independent public accountant (external 
auditor). Section 36 and part 363 also require assessments of the 
effectiveness of internal control over financial reporting by an 
institution's management and external auditor. In November 2005, the 
FDIC's Board of Directors amended part 363 to raise the asset size 
threshold for these internal control assessments from $500 million to 
$1 billion.
    In developing its proposal to amend the asset size threshold for 
internal control assessments to $1 billion in 2005, the FDIC, in 
consultation with the other federal banking agencies, considered 
whether the threshold should also be increased for the audited 
financial statement requirement in part 363. The longstanding policy of 
each of the federal banking agencies has been to encourage all insured 
depository institutions, regardless of size or charter, to have an 
annual audit of their financial statements performed by an independent 
public accountant. When auditing financial statements, the 
institution's external auditor must obtain an understanding of internal 
control, including assessing control risk, and must report certain 
matters regarding internal control to the institution's audit 
committee. The FDIC and other agencies concluded that raising the asset 
size threshold for audited financial statements under part 363 would 
not be consistent with the objective of section 36, such as early 
identification of needed improvements in financial management. In this 
regard, the FDIC decided that relieving institutions with between $500 
million and $1 billion in total assets from the internal control 
assessment requirement of part 363 while retaining the financial 
statement audit requirement for all insured institutions with $500 
million or more in assets would continue to accomplish the objective of 
section 36 in an appropriate manner.
    Therefore, the FDIC does not currently plan to raise the asset size 
threshold for the financial statement audit requirement in part 363 
from $500 million to $1 billion.
i. Flood Insurance
    Issues: Should the flood insurance requirements be reduced to cover 
fewer loans such as by increasing the small-loan exemption threshold 
(currently $5,000), or exempting loans on certain properties without 
residences such as properties with only barns, storage sheds, or 
dilapidated, non-residence structures?
    Context: Under the National Flood Insurance Act, as amended, 
federally regulated lenders may not make, increase, extend, or renew 
any loan secured by a building or mobile home located or to be located 
in a special flood hazard area in which flood insurance is available 
under the Act unless the building or mobile home and any personal 
property securing the loan is covered by adequate flood insurance for 
the term of the loan. These requirements do not apply to property 
securing any loan with an original principal balance of $5,000 or less 
and a repayment term of one year or less.
    Comments: During the EGRPRA process, a number of commenters 
suggested that the statutory exception for requiring flood insurance 
for small loans be raised from its current level of $5,000. Commenters 
also asserted that flood insurance should not be required for certain 
types of properties such as properties with barns, storage sheds or 
dilapidated structures.
    Current Initiatives: Congress has been working on legislation to 
reform the National Flood Insurance Program (NFIP) to address the 
weaknesses in the program that became more apparent from hurricane 
disasters that severely impacted the United States in the last few 
years. HR 4973 passed the House of Representatives during the 109th 
Congress and was under consideration by the Senate when the 109th 
Congress adjourned. This bill would have:
     Increased penalties for noncompliance with flood insurance 
requirements,
     Increased the maximum coverage limits,
     Allowed for greater premium increases,
     Increased the Federal Emergency Management Agency's (FEMA) 
borrowing authority, and
     Directed FEMA to establish an ongoing program to review, 
update, and maintain flood maps and elevation standards.
    This legislation has been re-introduced in the 110th Congress.
    Recommendation: The federal banking agencies believe that Congress 
should consider the suggested changes to the flood insurance 
requirements as part of the continuing efforts of Congress to 
comprehensively reform the NFIP to address several critical issues. The 
agencies will continue to work with Congress as appropriate to review 
and provide comments on legislative proposals to amend the NFIP.
j. Expedited Funds Availability (Regulation CC)
    Issues:
    (1) Should the general availability schedules for local and 
nonlocal checks be reviewed to determine if they are still appropriate?
    (2) Should the maximum hold period for some items that currently 
receive next-day availability, particularly official bank checks and 
government checks, be extended to prevent fraud?
    (3) Should the parameters of the large deposit, new account, and 
reasonable cause exceptions be adjusted?
    Context: Under the Expedited Funds Availability Act (EFA Act) as 
implemented by the Board's Regulation CC, a bank generally must make an 
amount deposited by check available for withdrawal on the first, 
second, or fifth business day after deposit, depending on the 
characteristics of the deposit. Under the next-day availability 
provision, deposits by cashier's checks, teller's checks, and certified 
checks (collectively, official bank checks) and by U.S. Postal Service 
(USPS) money orders, Treasury checks, and other types of checks drawn 
on units of federal or state government (collectively, government 
checks) typically are entitled to next-day availability if

[[Page 62046]]

deposited in the payee's account by the payee in person to a bank 
employee. If a check is not subject to the next-day availability 
provision, its general availability is determined under the 
availability schedule for local and nonlocal checks. Local checks 
typically are entitled to availability no later than the second 
business day after deposit and nonlocal checks typically are entitled 
to availability no later than the fifth business day after deposit. The 
next-day availability schedule and the local/nonlocal schedule 
(collectively, the generally applicable availability schedule) thus 
establish the maximum time that banks generally may wait before making 
a deposit available for withdrawal (the generally applicable hold 
period).
    Banks may choose to give faster availability than the generally 
applicable availability schedule requires. They may also withhold 
availability for checks for an additional reasonable period beyond the 
generally applicable hold period by invoking what commonly is called an 
exception hold. The six reasons for invoking an exception hold, which 
are specified in detail in the EFA Act and Regulation CC, are that the 
account is new, the aggregate amount of a deposit by one or more checks 
on any one banking day exceeds $5,000, the bank has reasonable cause to 
doubt that it can collect the check, the account to which the deposit 
is made has been repeatedly overdrawn, the check in question previously 
was returned unpaid, or emergency conditions exist. Each federal 
banking agency enforces the requirements of EFA Act and Regulation CC 
with respect to the institutions for which such agency is the primary 
federal supervisor.
    Comments: Many commenters addressed issues concerned with the EFA 
Act and Regulation CC. The most frequent comment related to increases 
in fraud associated with items for which banks must give next-day or 
second-day funds availability, particularly official bank checks, 
postal money orders, and other items drawn on governmental units. Many 
of these commenters suggested increasing the maximum hold time for 
these items to provide more time for notice to be given to a bank of 
the fraud. Other commenters discussed increasing the hold time for 
other deposits, the need to streamline the disclosures given to 
customers, and other miscellaneous comments.
    Current Initiatives: As check clearing times improve, the EFA Act 
requires the Board, by regulation, to reduce the maximum hold periods 
that apply to local checks, nonlocal checks, and checks deposited at 
nonproprietary ATMs to the period of time that it reasonably takes a 
depository bank to learn of the nonpayment of most items in each of 
those categories. The Check Clearing for the 21st Century Act (Check 21 
Act) specifically requires the Board to conduct a study to assess the 
impact of the Check 21 Act on the use of electronics in the check 
clearing process, check clearing and funds availability times, check-
related losses, and the appropriateness of the existing availability 
schedules. The results of the Board's study are discussed in the 
Board's April 2007 report to Congress. The Board found that check 
collection and return times have not improved enough to warrant the 
Board changing the existing availability schedules by rule at this 
time. The Board also provided Congress with information relating to 
banks' actual funds availability practices, check-related losses, and 
the amount limits set forth in the EFA Act. The information in the 
Board's report should assist Congress in determining the 
appropriateness of any statutory changes to the EFA Act at this time.
    With respect to extending the maximum hold period for some items 
that currently receive next-day availability, the EFA Act specifically 
requires next-day availability for the items listed in the next-day 
availability schedule, including official bank checks and government 
checks, when the specified statutory criteria for next-day availability 
are met. Although the EFA Act authorizes the Board to shorten the 
availability times for local and nonlocal checks and checks deposited 
at nonproprietary ATMs, the EFA Act does not specifically give the 
Board the authority to lengthen (or shorten) the maximum generally 
applicable hold periods for items subject to the next-day availability 
schedule. In addition, by the terms of the EFA Act, the reasonable 
cause to doubt collectibility exception for placing an exception hold 
on a check may not be invoked simply because the check is of a 
particular class.
    Recommendation: Although the Board may suspend the application of 
any provision of the EFA Act for a class of checks to prevent fraud 
losses, such a suspension is limited to 45 business days and requires 
both a finding by the Board that suspension of the EFA Act's 
requirements is necessary to diminish the fraud and a report to 
Congress concerning the reasons and evidence supporting the Board's 
action. In light of these considerations and limitations, the ongoing 
relief sought by commenters would require a statutory change. The 
federal banking agencies, however, are taking actions to respond to the 
increase in the number of fraudulent official checks.
    Information in the Board's report indicates that, although check-
related losses sustained by banks have risen somewhat in the last 
decade, checks that receive next-day availability are associated with 
only around 10 percent of those losses and thus are not the source of 
most bank check-related losses. The other information in the Board's 
report should assist policy makers in determining whether statutory 
adjustments to the next-day availability provisions would be 
appropriate.
    With respect to adjusting the parameters of the large deposit, new 
account, and reasonable cause exceptions, it should be noted that these 
parameters are specified by the EFA Act, and adjusting them therefore 
would require a statutory change. Streamlining and simplifying the 
requirements under the EFA Act was an issue that was raised when 
Congress considered regulatory burden proposals during its work last 
year on the FSRRA. The Board's report of its most recent check 
collection study includes, among other things, an assessment of both 
the time periods and dollar thresholds that apply to the safeguard 
exceptions, including but not limited to the large deposit and new 
account exceptions. The results of that study should assist policy 
makers in determining the appropriateness of adjusting the current 
parameters of the exception holds and provide guidance to the federal 
banking agencies to determine whether to recommend legislative changes 
to eliminate unnecessary burden that may be imposed by statutory 
requirements.
k. Powers and Activities
    Issues:
    (1) Should existing consumer and commercial lending limits for 
savings associations be increased?
    (2) Should bank holding companies that are not financial holding 
companies be able to conduct a broad scope of insurance agency 
activities directly or through a nonbanking subsidiary?
    (3) Should the Federal banking agencies issue a joint rule to 
clarify interest rate exportation guidelines?
    Consumer and Commercial Lending Limits for Savings Associations
    Context: The Home Owner's Loan Act (HOLA) currently subjects a 
Federal savings association to a 35 percent of assets limitation for 
secured consumer loans while imposing no statutory limit on the amount 
of unsecured credit card lending. This limit exists even though the 
proceeds of the loan may be used for

[[Page 62047]]

the exact same purpose. With respect to commercial loans, HOLA 
currently caps aggregate commercial loans other than small business 
loans at 10 percent of a savings association's assets, and permits 
commercial lending, including small business lending, up to 20 percent 
of assets.
    Comments: During the EGRPRA review process, several commenters 
urged OTS to increase consumer and commercial lending limits. One 
asserted that savings associations are developing business strategies 
that require more flexible consumer loan limits. Another commenter 
suggested that small business lending limits be increased to 20 percent 
of assets to help increase small business access to credit and expand 
the amount of loans made to small and medium-sized businesses.
    Current Initiatives: When Congress was working on the FSRRA last 
year, there were some amendments that OTS strongly supported that would 
have amended HOLA to ease the consumer and commercial limits for 
savings associations. OTS will suggest these amendments again when 
Congress considers new regulatory burden relief initiatives.
    Recommendation: OTS is committed to continuing to work with 
Congress next year on easing consumer and commercial lending limits for 
savings associations.
    Insurance Agency Activities
    Context: Sections 4(c)(8) and (k) of the Bank Holding Company Act 
(BHC Act), as amended by the Gramm-Leach-Bliley Act of 1999 (GLBA), do 
not permit the Board to expand the list of nonbanking activities that 
are permissible for bank holding companies that have not qualified to 
be a ``financial holding company'' beyond those activities that the 
Board determined, by regulation or order, were ``closely related to 
banking'' as of November 11, 1999. As a result, a bank holding company 
that does not elect to become a financial holding company is permitted 
to engage only in those nonbanking activities that the Board had 
determined were permissible under section 4(c)(8) as of that date.
    Prior to the enactment of the GLBA, bank holding companies were 
permitted under section 4(c)(8)to engage in general insurance brokerage 
activities only in a ``place of 5,000.'' A similar place of 5,000 limit 
applies to the general insurance brokerage activities of national banks 
and their subsidiaries. The GLBA amended the law to allow subsidiaries 
of bank holding companies that qualify as financial holding companies 
and financial subsidiaries of national banks that qualify to have 
financial subsidiaries to engage in general insurance agency activities 
without the place of 5,000 requirement.
    Comments: Several commenters, including industry trade 
associations, supported allowing a bank holding company to conduct an 
expanded scope of insurance agency activities directly or through a 
nonbanking subsidiary.
    Current Initiatives: When Congress was considering proposals to be 
included in the FSRRA, legislation was suggested, but was not enacted, 
that would have allowed all bank holding companies to provide insurance 
as agent without the place of 5,000 requirement or would have amended 
the BHC Act to permit the Board to expand permissible activities for 
bank holding companies. The Board reiterated its support of these 
proposals in testimony on regulatory relief in March 2006.\20\ In 
addition, legislation was suggested that would have permitted national 
banks to engage in a full range of insurance agency activities without 
the place of 5,000 restriction. The OCC expressed its support for 
making this change for national banks.
---------------------------------------------------------------------------

    \20\ See Testimony of Governor Donald L. Kohn before the 
Committee on Banking, Housing, and Urban Affairs, dated March 1, 
2006.
---------------------------------------------------------------------------

    Recommendation: The Board is statutorily prevented from authorizing 
bank holding companies that are not financial holding companies to 
engage in a full range of insurance agency activities without the place 
of 5,000 requirement. Currently, bank holding companies that do not 
become a financial holding company may engage only in very limited 
insurance sales activities (primarily involving credit-related 
insurance) outside such small places. Similar restrictions apply to 
national banks, and national banks cannot engage in a full range of 
insurance agency activities without the place of 5,000 restriction 
except through a financial subsidiary. As noted above, the Board and 
the OCC support certain changes to the current restrictions on the 
insurance agency activities of bank holding companies and national 
banks, respectively. The federal banking agencies will work with 
Congress on these issues to support appropriate burden relief for the 
industry from the current restrictions on these agency activities.
    ``Exportation'' of Interest Rates
    Context: Federal statutes permit the ``exportation'' of interest 
rates and fees for federally insured depository institutions and their 
operating subsidiaries from any state in which the institution is 
located, except federal credit unions, which are subject to a federal 
usury ceiling.\21\ While the applicable federal laws are substantially 
similar, the federal banking agencies have implemented or interpreted 
these provisions, or are considering doing so, through different 
avenues.
---------------------------------------------------------------------------

    \21\ See 12 CFR 701.21(c)(7)). See 12 U.S.C. 85 (national 
banks); 1463(g) (federal and state thrifts); 1831d (state banks); 
1785(g) (federal and state credit unions but see discussion above 
concerning federal credit union usury limits).
---------------------------------------------------------------------------

    Comments: One commenter recommended that the federal banking 
agencies clarify that financial institutions could use their home state 
interest rates regardless of the contacts (or lack thereof) between the 
home state and the loan. The commenter indicated that the federal 
banking agencies should further clarify the factors that need to be 
considered when the rate of a state other than the home state is used. 
The commenter said that the federal banking agencies should issue a new 
joint rule to clarify these issues. According to the commenter, the 
federal banking agencies also should review their interpretations 
concerning what constitutes ``interest'' under the export doctrine, to 
ensure consistency.
    Initiatives: The OCC has issued regulations and interpretations 
that apply to national banks and their operating subsidiaries.\22\ In 
addition, there are Supreme Court decisions dealing with national 
banks' exportations of rates and fees.\23\ OTS similarly has issued 
regulations in this area for federal and state thrifts.\24\ In March 
2005, the FDIC held a hearing on a proposal that includes a request to 
codify the FDIC's interpretations of the interest rates charged by 
state banks in interstate lending transactions. In October 2005, the 
FDIC issued a proposed rule that includes a proposed codification.\25\ 
Federal court decisions have also addressed the ability of state banks 
to ``export'' interest rates under 12 U.S.C. 1831d.\26\
---------------------------------------------------------------------------

    \22\ See 12 CFR 7.4001, 7.4006, Interpretive Letter 954, 
February 2003.
    \23\ See, e.g., Marquette National Bank of Minneapolis v. First 
of Omaha Service Corp., 439 U.S. 299 (1978); Smiley v. Citibank 
(South Dakota), N.A., 517 U.S. 735 (1996).
    \24\ See 12 CFR 560.110.
    \25\ See 70 FR 60019.
    \26\ See Greenwood Trust Co. v. Commonwealth of Mass., 971 F. 2d 
818 (1st Cir. 1992).
---------------------------------------------------------------------------

    Recommendation: In light of the actions taken or already under 
consideration by the federal banking agencies in this area, they do not 
believe joint rulemaking on this subject is needed.
l. Capital
    Issue: Should the federal banking agencies permit an opt-out for 
highly

[[Page 62048]]

capitalized community banks from the proposed revisions to Basel I to 
allow them to continue to use existing capital rules?
    Context: On September 25, 2006, the Board, FDIC, OTS, and OCC 
issued a notice of proposed rulemaking (NPR) for the advanced 
approaches of the Basel II capital framework. The Basel II capital 
framework is designed to ensure that capital regulations appropriately 
address existing and emerging risks; the agencies recognize that the 
current Basel I framework no longer does so with respect to the 
largest, most sophisticated banks. Although the advanced approaches of 
the Basel II capital framework are quite complex, only a relatively 
small number of the largest and most internationally active banks, 
savings associations, and bank holding companies (banking 
organizations) will be required to apply the framework.
    The federal banking agencies also issued a proposed revision to 
Basel I in December 2006, which is commonly known as Basel IA. The 
primary goal of this initiative was to increase the risk sensitivity of 
the existing capital rules without unduly increasing regulatory burden. 
The Basel IA proposal provided that, except for those banking 
organizations that may be required to apply the Basel II capital 
framework, banking organizations would have the option of adopting the 
proposed Basel IA revisions or continuing to determine capital under 
the existing risk-based capital rule. The regulators reserved the 
authority under the proposed rules to mandate a particular framework 
for a particular institution, depending on the risk profile and 
activities of a particular institution.
    Comments: During the EGRPRA process, the federal banking agencies 
received relatively few comments concerning capital issues, as the 
Federal Register notice advised that comments concerning capital would 
be gathered and considered in connection with the capital rulemaking 
process. Nevertheless, among those who did comment, there was some 
concern that banking regulators' efforts to revise capital rules could 
prove to be overly burdensome for smaller banks and difficult to 
implement. Some of those commenters proposed that highly capitalized 
community banks be allowed to opt out from the proposed revisions to 
Basel I and continue to use the existing Basel I risk-based capital 
framework. Commenters to the Basel IA and Basel II proposals urged the 
agencies to adopt the Basel II so-called ``standardized'' approach. The 
standardized approach is, in part, a set of modifications to the Basel 
I framework that modestly enhances overall risk sensitivity. On July 
20, 2007, the agencies issued a press release stating their intention 
to issue a proposed rule that would provide those banking organizations 
not required to adopt the Basel II framework an option to adopt a Basel 
II-based standardized approach. The press release noted that this new 
proposal would replace the Basel IA option.
    Recommendation: The agencies have stated their intention to make 
the standardized proposal optional. Banking organizations in most cases 
would have the option of selecting the regulatory capital framework--
the existing Basel I rules or the standardized approach or the Basel II 
advanced approaches. Thus, the federal banking agencies believe that 
potential revisions to the Basel I capital rules do not create undue 
regulatory burden for most banking organizations, including highly 
capitalized community banks.
m. Community Reinvestment Act ``Sunshine Rules''
    Issue: Should the Community Reinvestment Act (CRA) Sunshine rules 
be repealed?
    Context: Section 711 of the GLBA added a new section 48 to the 
Federal Deposit Insurance Act (12 U.S.C. 1831y), entitled ``CRA 
Sunshine Requirements,'' which has been implemented by regulations 
adopted by each federal banking agency.\27\ This section requires 
nongovernmental entities or persons, depository institutions, and 
affiliates of depository institutions that are parties to certain 
agreements that are in fulfillment of the CRA to make the agreements 
available to the public and the appropriate agency and to file annual 
reports concerning the agreements with the appropriate agency. The 
types of agreements that could be covered by the statute include:
---------------------------------------------------------------------------

    \27\ 12 CFR 35; 12 CFR 207 (Regulation G); 12 CFR 346; 12 CFR 
533.
---------------------------------------------------------------------------

     Written agreements providing for cash payments, grants, or 
other consideration (except loans) with an aggregate value in excess of 
$10,000 in a calendar year; or
     Loans to one or more individuals or entities (whether or 
not parties to the agreement) that have an aggregate principal amount 
of more than $50,000 in any calendar year.
    Comments: During the EGRPRA review process, both bankers and 
community advocates supported repeal of these requirements. Bankers 
generally commented that the burden of compliance outweighs any benefit 
of the reporting requirements. Community advocates expressed concern 
about the government's monitoring the amount of funding they receive as 
a result of bank efforts to fulfill CRA obligations.
    Recommendation: All of the federal banking agencies supported 
repeal of these statutory requirements last year when Congress was 
considering regulatory burden relief proposals to include in the FSRRA. 
This change would reduce regulatory burden on depository institutions, 
nongovernmental entities (such as consumer groups) and other parties to 
covered agreements as well as the agencies.
n. Equal Credit Opportunity Act (Regulation B)
    Issues:
    (1) Should the federal banking agencies provide additional guidance 
on fair lending issues, such as when two individuals demonstrate 
sufficient evidence that they are applying jointly for credit so the 
creditor may require the signature of both individuals?
    (2) Should the requirements for ``adverse action'' notices under 
the Equal Credit Opportunity Act (ECOA) be changed to make it easier to 
determine the circumstances in which an adverse action notice is 
required?
    (3) Should the Board's Regulation B be amended to eliminate 
requirements that institutions collect data on applicants' race, 
ethnicity, and gender, leaving HMDA as the only requirement for 
collection of similar data? Alternatively, should Regulation B be 
amended so that, if a consumer opts not to provide information on race, 
ethnicity, and gender, the lender is not required to collect the 
information on the basis of visual observation or surname?
    Context: The primary federal fair lending statute, ECOA, is 
implemented through the Board's Regulation B. The Board's Official 
Staff Commentary to Regulation B provides additional guidance. Each 
federal banking agency enforces the requirements of ECOA with respect 
to the creditors for which such agency is the primary federal 
supervisor. The Board completed a comprehensive review of Regulation B 
and the Commentary in 2003. The federal banking agencies also have 
worked together to provide guidance on fair lending issues, 
particularly examiner guidance on conducting compliance and fair 
lending examinations at the institutions the agencies supervise. The 
federal banking agencies address matters involving more fact specific 
fair lending issues on a case-by-case basis.

[[Page 62049]]

    Guidance on Fair Lending Issues. Regulation B provides that a 
creditor may not require a signature of a loan applicant's spouse or 
other individual if that applicant qualifies independently for the 
credit. This restriction, however, does not apply to applications that 
are filed jointly by two or more individuals. The regulation states 
that a creditor may not deem the submission of a joint financial 
statement as evidence of intent to apply jointly. Thus, the issue 
arises as to what constitutes evidence of intent to apply for joint 
credit. The Board addressed the issue involving the ambiguity of when 
there is evidence of intent to apply for credit as joint applicants in 
its 2003 review of Regulation B. The Board adopted an amendment to the 
Commentary to provide additional guidance on how a consumer can 
establish intent to apply jointly for credit. Since that time, Board 
staff has responded on a case-by-case basis to requests for 
clarification of ways consumers can establish intent to apply jointly 
for credit, which appears to have adequately clarified the matter.
    ``Adverse Action'' Notice Requirements. Financial institutions must 
provide an adverse action notice to an applicant if a credit 
application is denied. The determination of when a credit application 
exists--as opposed to a general credit inquiry or evaluation--and under 
what circumstances it is considered to have been denied, has been the 
subject of questions. In the comprehensive review of Regulation B, 
discussed in the response to the preceding issue, the Board amended the 
Official Staff Commentary to Regulation B to provide additional 
guidance on the circumstances under which a general credit inquiry or a 
prequalification request can be considered an application for purposes 
of Regulation B. The additional guidance included new examples of when 
communications with consumers are considered applications. In the 
review of Regulation B, the Board also considered adopting a bright-
line test for deciding whether an application exists. After carefully 
considering the benefits and drawbacks of a bright-line test, the Board 
decided at the time not to adopt such a test. While a bright-line test 
might provide clarity in some situations, it also would risk including 
as applications some situations that should not be included (for 
example, credit counseling in which a consumer's credit report is 
obtained). A bright-line test might also exclude some situations that 
should be covered because lenders might inform consumers that they do 
not qualify for credit even when consumers have not submitted a formal 
application.
    Information on Applicants' Race, Ethnicity, and Gender for 
Regulation B and HMDA. Regulation B requires some collection of data 
that is not required under HMDA, including data on age and marital 
status. Thus, if all Regulation B monitoring requirements were 
eliminated, the age and marital status data would no longer be 
available to monitor lenders' compliance with fair lending law 
provisions that prohibit discrimination based on age or marital status. 
In addition, some lenders that are covered by Regulation B are not 
covered by HMDA; therefore, if the suggested change were adopted, no 
applicant data would be available for such lenders for the purpose of 
monitoring fair lending compliance.
    In addition, if lenders were not required to note applicant 
information in cases where the applicant does not provide such 
information, the data available for monitoring fair lending compliance 
might be significantly incomplete, causing problems for fair lending 
enforcement.
    Recommendation: For the reasons summarized above, generally the 
federal banking agencies have not supported changing ECOA in the manner 
discussed above.
o. Electronic Fund Transfer Act (Regulation E)
    Issues:
    (1) Should the Regulation E limits on consumer liability for 
unauthorized electronic fund transfers be increased?
    (2) Can the requirement for periodic statements be eliminated in 
some cases (e.g., where the consumer has online access to account 
information), or can the required frequency of periodic statements be 
reduced in some cases (such as where there is no electronic fund 
transfer activity)?
    Context: The Electronic Fund Transfer Act (EFTA) is implemented 
through the Board's Regulation E. Each Agency enforces the requirements 
of the EFTA with respect to the institutions for which such agency is 
the primary federal supervisor.
    Increasing Regulation E Limits on Consumer Liability for 
Unauthorized Electronic Fund Transfers. The limits on consumer 
liability specified in the Board's Regulation E are required by and set 
forth in the EFTA. When the EFTA was enacted, Congress made a 
determination that placing strict limits on consumer liability for 
unauthorized transfers would serve as an incentive for financial 
institutions to develop more secure electronic fund transfer systems, 
as well as protect consumers from serious losses. Nevertheless, the 
EFTA gives consumers an incentive to guard their debit cards and 
personal identification numbers (PINs), because the consumer may be 
liable for a share of an unauthorized transaction.
    Comments: Some commenters suggested tightening the rules on 
consumer liability to include a negligence standard under which a 
consumer who violated the standard may have greater liability for the 
loss or theft. Another commenter recommended generally increasing the 
consumer's liability from $50 to $250. Consumer group commenters 
suggested that institutions should not be permitted to place the burden 
of proof on a consumer regarding a claim of an unauthorized transfer 
and should be required to reimburse the consumer unless the institution 
can prove that the transfer was authorized.
    Recommendation: Given Congress's goal of providing adequate 
incentives to both consumers and financial institutions to reduce 
risks, before increasing the limits on consumer liability serious 
consideration should be given to whether a higher limit would be 
appropriate or achieve the goal of relieving unnecessary burden. When 
the FSRRA was being considered in 2006, some proposed increasing the 
consumer liability under Regulation E from $50 to $500 for unauthorized 
transfers resulting from writing a PIN on a card or keeping the PIN in 
the same location as the card. The federal banking agencies generally 
did not support this amendment.
    Periodic Statement Requirements. The Board has issued a number of 
proposals and interim rules under Regulation E over the past several 
years for the purpose of facilitating, and providing standards for, the 
use of electronic disclosures (including electronic periodic 
statements). In 2000, the Electronic Signatures in Global and National 
Commerce Act (E-Sign Act) was enacted to authorize the use of 
electronic records (including electronic consumer disclosures) with 
consumers' consent. Both the E-Sign Act and the Board's rules already 
provide for online periodic statements; therefore, paper statements are 
no longer required. Thus, it may not be necessary to completely 
eliminate the periodic statement requirement to reduce regulatory 
burden and the use of paper. In addition, in August 2006, the Board 
issued a final rule clarifying the application of Regulation E to 
payroll card accounts. The final rule grants flexibility to financial 
institutions in providing account information to payroll card users. 
Under the rule, institutions are

[[Page 62050]]

not required to provide periodic paper statements for payroll card 
accounts if the institution makes account information available by 
telephone and electronically, and upon the consumer's request, in 
writing.
    On the frequency of periodic statements, Regulation E permits 
quarterly statements (in place of monthly) where there is no electronic 
fund transfer activity (or no electronic fund transfer activity except 
for direct deposits). However, some consumers may need periodic 
statements even where there is no electronic fund transfer activity. 
For example, the consumer may have expected an electronic deposit to an 
account and may not know until receiving the statement that it failed 
to occur.
    Comments: Commenters suggested that, in the case of consumers who 
have online or telephone access to monitor their accounts and 
transactions daily, the requirement for a monthly or quarterly periodic 
account statement is unnecessary. A commenter contended that the 
requirement to provide periodic statements quarterly for accounts with 
electronic access but no activity is unduly burdensome and suggested 
that the agencies amend the rule to allow for semiannual or annual 
statements in such cases.
    Recommendation: The federal banking agencies believe that 
additional study would be necessary before making any recommendations 
for legislative changes or pursuing additional regulatory changes with 
respect to the frequency of periodic statements.
p. Truth in Savings Act (Regulation DD)
    Issue: Should Truth in Savings Act (TISA) disclosures be revised to 
streamline, simplify, and improve the effectiveness of the disclosures, 
and to make them more understandable for consumers?
    Context: The Board's Regulation DD implements TISA. However, each 
federal banking agency enforces the requirements of TISA with respect 
to the institutions for which such agency is the primary federal 
supervisor. The current Board policy provides that the Board must 
conduct a periodic review of its regulations, including Regulation DD, 
to update and, where appropriate, streamline them.
    Comments: Many industry commenters asserted that their customers 
pay little attention to the TISA disclosures and, thus, the disclosure 
requirements impose unnecessary and burdensome costs on the industry. A 
consumer group suggested that the TISA disclosures should be required 
to be made available on financial institutions' Web sites.
    Recommendation: The Board will consider suggestions for improving 
TISA disclosures during the next periodic review of Regulation DD. As a 
result, the federal banking agencies will wait until such review is 
completed before making any recommendations on this issue.

C. Other Joint Agency Initiatives

    For many years, the Agencies have had programs in place to 
periodically review their regulations in an effort to eliminate any 
outdated or unnecessary regulations and to otherwise amend their 
regulations to better meet the Agencies' objectives, while minimizing 
regulatory burden. From previous reviews and as part of the EGRPRA 
review, certain issues were deemed ``significant'' in terms of being 
viewed by the industry as being particularly burdensome.
    Pursuant to the Riegle Community Development and Regulatory 
Improvement Act of 1994 (CDRI), the federal banking agencies conducted 
a systematic review of their regulations and written policies to 
improve efficiency, reduce unnecessary costs and eliminate 
inconsistencies and outmoded and duplicative requirements. CDRI also 
directed the federal banking agencies to work jointly to make uniform 
all regulations and guidelines implementing common statutory or 
supervisory policies. As a result of the CDRI review that was completed 
in 1996, the federal banking agencies either jointly or individually 
rescinded or revised many rules and regulations. The federal banking 
agencies also have continued to incorporate the principles of CDRI into 
their regulatory policy development and periodically report these 
accomplishments to Congress.
    Subsequently, the EGRPRA statute modified numerous regulatory 
requirements and procedures affecting the Agencies, financial 
institutions and consumers. The law:
     Streamlined application and notice requirements in a 
number of areas, such as nonbanking acquisitions by well-managed and 
well-capitalized bank holding companies;
     Allowed a 60-day period (with a 30-day extension) for FDIC 
consideration of completed applications from a state bank or its 
subsidiary to engage in an activity that is not permissible for a 
national bank;
     Directed each federal banking agency to coordinate 
examinations and consult with each other to resolve inconsistencies in 
recommendations to be given to an institution, and to consider 
appointing an examiner-in-charge to ensure the consultation takes 
place;
     Provided in cases of coordinated examinations of 
institutions with state-chartered subsidiaries, that the lead agency 
could be the state chartering agency;
     Required reports from all banking regulators on actions 
taken to eliminate duplicative or inconsistent accounting or reporting 
requirements in statements or reports from regulated institutions.
    Certain significant burden reduction initiatives were already 
underway outside of the EGRPRA review process and are detailed below.
1. Community Reinvestment Act Interagency Rulemaking
    When revised CRA rules were published in 1995, the federal banking 
agencies committed to undertake a comprehensive review of the 
regulations to ascertain whether the performance-based evaluation 
standards established by the revised rules had, among other things, 
minimized compliance burden. In July 2001, the federal banking agencies 
published a joint ANPR seeking comment to determine whether, and to 
what extent, the regulations should be amended to eliminate unnecessary 
burden as well as other issues.\28\ In February 2004, after a review of 
the comments received on the ANPR, the federal banking agencies issued 
a joint NPR proposing changes to the regulations to reduce undue 
regulatory burden by changing the definitions of a ``small bank'' and a 
``small savings association'' (which may qualify for a streamlined CRA 
evaluation) and to address abusive lending practices.\29\
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    \28\ 66 FR 37602, July 19, 2001.
    \29\ 69 FR 5729, February 6, 2004.
---------------------------------------------------------------------------

    On August 18, 2004, OTS published a final rule raising the small 
savings association asset threshold from $250 million to $1 billion 
(without consideration of holding company affiliation).\30\ Also in 
August 2004, the FDIC published a proposed rule to raise the CRA small 
bank threshold to $1 billion without consideration of holding company 
affiliation and add a community development test for institutions 
between $250 million and $1 billion in assets.\31\ In March 2005, the 
FDIC, the OCC, and the Board published a joint NPR (the March 2005 
proposal) to (1) raise the small bank asset threshold to $1 billion, 
(2) eliminate data collection and reporting of small business, small 
farm, and community

[[Page 62051]]

development loans, (3) rationalize the performance tests to allow for 
more flexibility in meeting CRA goals, and (4) add a community 
development test for institutions between $250 million and $1 billion 
in assets.\32\ The proposal also provided an annual inflation 
adjustment for these thresholds. In response to the NPR, a combined 
total of 10,000 comments were received on the March 2005 proposal.
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    \30\ 69 FR 51155, August 18, 2004.
    \31\ 69 FR 51611, August 20, 2004.
    \32\ 70 FR 12148, March 11, 2005.
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    After considering comments, the Board, FDIC, and OCC adopted a 
joint final rule on August 2, 2005.\33\ The changes took effect 
September 1, 2005. The final rule sought to balance the need to provide 
meaningful regulatory relief to small banks and the need to preserve 
and encourage meaningful community development activities by those 
banks. The final rule raised the small bank threshold to $1 billion 
without consideration of holding company affiliation. These banks are 
no longer required to collect and report CRA loan data, responding to 
community bank concerns about unnecessary burden. The new rule also 
added an intermediate small bank examination process for banks with 
$250 million to $1 billion in assets. Under the new rule, these dollar 
thresholds are adjusted annually for inflation. The staff of the three 
agencies issued questions and answers for comment in November 2005 to 
address revisions to the regulations.\34\ After review of the comments, 
in March 2006, the staff of the Board, FDIC, and OCC issued final 
questions and answers.\35\
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    \33\ 70 FR 44256, August 2, 2005.
    \34\ 70 FR 68450, November 19, 2005.
    \35\ 71 FR 12424, March 10, 2006.
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    OTS issued a final rule effective April 1, 2005, providing 
additional flexibility to each savings association evaluated under the 
large retail institution test to determine the combination of lending, 
service and investment it will use to meet the credit needs of its 
local community(ies), consistent with safe and sound operations.\36\ 
The final rule allows savings associations to select any combination of 
weights assigned to lending, service and investment, as long as the 
weights total 100 percent and lending receives no less than a 50 
percent weight.
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    \36\ 70 FR 10023, March 2, 2005.
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    In an April 12, 2006, final rule, OTS revised the definition of 
``community development,'' making its definition consistent with that 
of the other agencies.\37\ On that same date, OTS also issued a notice 
soliciting comments on proposed questions and answers guidance related 
to the final rule.\38\ OTS finalized the proposed questions and answers 
on September 5, 2006.\39\
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    \37\ 71 FR 18614, April 12, 2006.
    \38\ 71 FR 18807, April 12, 2006.
    \39\ 71 FR 52375, September 5, 2006.
---------------------------------------------------------------------------

    On November 24, 2006, OTS issued an NPR to revise its rule 
implementing CRA for interagency uniformity. The NPR was issued to 
solicit comment on whether OTS should revise its CRA rule to align with 
the CRA rules of other federal banking agencies. The proposal would 
eliminate alternative weights, add an intermediate small savings 
association examination for savings associates with assets between $250 
million and $1 billion, adjust the asset thresholds annually for 
inflation, and incorporate a provision on discriminatory or other 
illegal practices. The comment period closed on January 23, 2007. OTS 
adopted a final rule on March 22, 2007, with an effective date for the 
rule of July 1, 2007.
2. Call Report Modernization
    The FFIEC Central Data Repository (CDR) was successfully 
implemented on October 1, 2005. The CDR is designed to consolidate the 
collection, validation and publication of quarterly bank financial 
reports. All national, state member, and state non-member banks, 
including FDIC-insured state savings banks, were enrolled in the CDR 
and started using the CDR to file their financial reports via the 
Internet beginning with the third quarter of 2005. The CDR employs new 
technology that uses the eXtensible Business Reporting Language (XBRL) 
data standard to streamline the collection, validation, and publication 
of Call Report data. Over 7,900 financial institutions used the CDR to 
file their financial reports for the fourth quarter of 2006 via the 
Internet. The initial quality of the data was much higher than in 
previous quarters, which speeded the availability of the data to 
regulatory financial analysts and ultimately the public, thereby 
fulfilling one of the overarching goals of the CDR project. Higher data 
integrity, accuracy, and consistency will help to increase the 
efficiency with which the data can be collected, analyzed, and released 
to the public.
3. BSA/AML Compliance Outreach to the Banking Industry
    The Agencies have conducted significant outreach to the banking 
industry in the area of BSA/AML compliance, with the goal of enhancing 
the clarity and consistency of regulatory requirements and supervisory 
expectations. In addition to engaging in dialogue with supervised 
banking organizations through the examination process, the Agencies 
have conducted outreach through various channels, such as conferences 
and training events sponsored by the Agencies or by trade associations. 
For example, in September 2006, the Agencies (in coordination with 
FinCEN and OFAC) hosted a series of conference calls to discuss the 
changes to the FFIEC BSA/AML Examination Manual and to provide 
financial institutions with the opportunity to raise questions. 
Approximately 10,500 financial institution personnel participated in 
these calls.
4. Regulatory Relief for Banks and Customers in the Hurricane Disaster 
Areas
    The FFIEC established a special FFIEC Interagency Katrina Working 
Group to facilitate the coordination, communication, and response to 
financial institution supervisory issues arising in the aftermath of 
Hurricanes Katrina and Rita. State supervisors on the FFIEC State 
Liaison Committee also were invited to participate. Interagency efforts 
to help New Orleans and the Gulf region recover from the hurricane 
devastation included guidance on the establishment of temporary 
branches and branch- and employee-sharing arrangements. Efforts also 
included guidance on published responses to interagency frequently 
asked questions on additional topics including the CRA, BSA, and 
various operational issues, including regulatory reporting 
requirements. Agencies created Web sites with Hurricane Katrina and 
Rita disaster-related links, including FFIEC issuances for financial 
institutions, their customers, and employees who were impacted by the 
disasters. Other links provided were to disaster recovery and 
assistance agencies and trade associations with information for 
victims. In addition, telephone ``hotlines'' were set up and 
information provided regarding financial institution locations, contact 
information, and general disaster assistance information.
    By relaxing certain documentation, notification and reporting 
requirements, the Agencies helped the affected institutions to continue 
operating during the days, weeks, and months following the disaster. 
For example, the Agencies immediately issued joint guidance asking 
insured depository institutions to consider all reasonable and prudent 
steps to assist customers' cash and financial needs in areas affected 
by the hurricane. Among the actions the Agencies encouraged 
institutions to consider were:

[[Page 62052]]

     Waiving ATM fees for customers and non-customers;
     Increasing ATM daily cash withdrawal limits;
     Easing restrictions on cashing out-of-state and non-
customer checks;
     Waiving overdraft fees as a result of paycheck 
interruption;
     Waiving early withdrawal penalties on time deposits;
     Waiving availability restrictions on insurance checks;
     Allowing customers to defer or skip some loan payments;
     Waiving late fees for credit cards and other loans due to 
interruption of mail and/or billing statements, or the customer's 
inability to access funds;
     Easing credit card limits and credit terms on new loans;
     Delaying delinquency notices to credit bureaus; and
     Encouraging institutions to use non-documentary customer 
verification methods for customers that are not able to provide 
standard identification documents.
    Finally, the federal banking agencies issued examiner guidance and 
a subsequent reminder making it clear that an institution retains 
flexibility in its workout or restructuring arrangements with customers 
in the disaster areas.
5. Reducing Examination Frequency
    On April 10, 2007, the federal banking agencies jointly issued and 
requested comment on their respective interim rules to implement 
section 605 of the FSRRA (see Appendix I-A) enacted on October 13, 
2006, and a subsequent conforming amendment enacted on January 11, 
2007. (See 72 FR 17798, April 10, 2007.) The changes to the law made by 
this legislation give the agencies the discretion to conduct on-site 
examinations, on 18-month cycles rather than annual cycles, of highly 
rated insured depository institutions that have less than $500 million 
in total assets. Prior law allowed 18-month examination cycles only for 
such qualifying insured depository institutions with less than $250 
million in total assets. In addition to reducing the burden on small, 
well-capitalized, and well-managed insured depository institutions, the 
changes to the law allow the federal banking agencies to better focus 
their supervisory resources on those institutions that may present 
issues of supervisory concern. The agencies' interim rules became 
effective on April 10, 2007, and the comment period closed on May 10, 
2007.
6. Examination Programs
    The Agencies have worked together to implement programs that 
improved regulatory risk-assessment capabilities and streamlined 
examinations and other supervisory functions. For example, as early as 
1998, the FDIC, the Board, and CSBS worked together to develop and 
implement examination software applications that integrated information 
from various automated systems to assist in the preparation of an 
automated examination report. This cooperation promoted consistency 
among the Agencies and reduced regulatory burden on state-chartered 
banks. The same Agencies also formed a steering committee to better 
coordinate risk-focused examination procedures. The Agencies continue 
to work together to improve upon these examination tools. Since 1994, 
the Agencies have used a common core report of examination to promote 
interagency consistency and reduce regulatory burden.
7. Privacy Notices
    Section 728 of the FSRRA requires that the Board, OCC, FDIC, OTS, 
NCUA, FTC, SEC, and Commodity Futures Trading Commission (CFTC) publish 
a proposed model privacy notice that is clear and comprehensive for 
public comment within 180 days of enactment. Section 728 of the FSRRA 
provides that the model notice will provide a safe harbor for the 
financial institutions that use it. Further, financial institutions 
may, at their option, use the model notice to satisfy the privacy 
notice requirements of the GLBA. The Board, OCC, FDIC, OTS, NCUA, FTC, 
SEC, and CFTC have developed a proposed model notice, which was 
published for public comment in March 2007 (earlier than required by 
the 180-day deadline) (72 FR 14940).
    Efforts to simplify privacy notices have been underway for some 
time. In 2003, the Board, OCC, FDIC, OTS, NCUA, FTC, SEC, and CFTC 
published an ANPR in which they sought comment on simplifying privacy 
notices. After reviewing the comments received from the ANPR, the 
Board, OCC, FDIC, NCUA, FTC, and SEC engaged experts in plain language 
disclosures and consumer testing to assist them in developing a simple 
and comprehensible notice. That notice is now the one being proposed by 
the Board, OCC, FDIC, OTS, NCUA, FTC, SEC, and CFTC to fulfill the 
requirements of section 728 of the FSRRA.
    In addition, during the consideration of amendments to be included 
in the FSRRA, Congress considered a proposal that would, subject to 
certain conditions, allow a financial institution to avoid having to 
provide an annual privacy notice to consumers, if the financial 
institution (1) did not disclose nonpublic personal information in a 
manner that would be subject to a consumer's right to opt out under 
applicable laws and (2) had not changed its privacy policies and 
procedures from the policies and procedures stated in the last notice 
that was provided to consumers. The annual notice, when required, must 
provide information about the institution's policies and procedures 
with respect to disclosing nonpublic personal information about 
consumers consistent with the customer's right to opt out of such 
disclosures under applicable statutes and regulations. The federal 
banking agencies generally supported this amendment. While this 
amendment was not included in the FSRRA as enacted, it was included in 
the House-passed version of this bill \40\ and may be again considered 
by Congress in the future.
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    \40\ H.R. 3505, 109th Congress, section 617 (2006).
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D. Individual Agency Efforts To Reduce Regulatory Burden

    During the EGRPRA process, the federal banking agencies 
individually undertook efforts to reduce regulatory burden on 
institutions that they supervise and regulate. These initiatives took 
many forms, ranging from regulatory changes, streamlining of 
supervisory processes, and revisions of agency handbooks. Together, 
these efforts contributed significantly to the central goal of EGRPRA: 
Elimination of unnecessary regulatory burden on financial institutions.
1. The Board of Governors of the Federal Reserve System
    During the EGRPRA review period, the Board has undertaken a number 
of initiatives to reduce unnecessary regulatory burden on the financial 
organizations it regulates and supervises. Such initiatives included 
revisions of various aspects of the Board's supervisory, regulatory, 
monetary policy, payments, and consumer protection rules, procedures, 
and guidance. In connection with its regulations and supervisory 
processes, the Board will continue to identify appropriate regulatory 
and supervisory revisions to reduce unnecessary burden while ensuring 
the safety and soundness of institutions, protecting the integrity of 
the financial payment systems, and safeguarding consumer protections.
    a. Supervisory Initiatives. In 2006, the Board approved a final 
rule that expands the definition of a small bank holding company (small 
BHC) under the Board's Small Bank Holding Company

[[Page 62053]]

Policy Statement (Policy Statement) and the Board's risk-based and 
leverage capital guidelines for BHCs (Capital Guidelines). The Board 
revised its Policy Statement to raise the small BHC asset size 
threshold from $150 million to $500 million and to amend the 
qualitative criteria for determining eligibility as a small BHC for the 
purposes of the Policy Statement and the Capital Guidelines. 
Additionally, the Board revised its regulatory financial reporting 
requirements so that qualifying small BHCs will only be required to 
file parent-only financial data on a semiannual basis (FR Y-9SP). These 
changes significantly increased the number of bank holding companies 
that are exempt from the Board's consolidated capital rules and that 
may benefit from more streamlined reporting requirements. The 
amendments to the threshold and the qualitative criteria reflect 
changes in the industry since the initial issuance of the policy 
statement in 1980.
    In addition, the Board revised its guidance to examiners on the 
format of examination reports for community banking organizations in 
order to better focus examination findings on matters of risk and 
importance to the bank's overall financial condition. The Board 
designed the revisions to improve communications with bank management 
and boards of directors and to minimize burden on banking 
organizations. The revisions require the incorporation of findings of 
specialty examinations into the safety and soundness conclusions to 
provide a more comprehensive assessment.
    To further enhance its risk-focused supervision program, the Board 
implemented revised procedures for the supervision of bank holding 
companies with total consolidated assets of $5 billion or less. The 
revisions to the bank holding company supervision procedures promote 
more effective use of targeted on-site reviews to fulfill the 
requirements, when necessary, for the full scope inspections of holding 
companies with total consolidated assets between $1 billion and $5 
billion. Additionally, the revisions to the supervisory procedures 
promote a flexible approach to supervising bank holding companies and 
are designed to enhance the overall effectiveness and efficiency of the 
System's supervisory efforts for these institutions.
    The Board also worked to revise the principles and goals initially 
adopted by the Nationwide State Federal Supervisory Agreement 
(Agreement) governing how state and federal banking agencies coordinate 
the supervision of interstate banks. This revised Agreement reinforces 
the longstanding commitment of federal and state agencies to provide 
efficient, effective, and seamless oversight of state banks of all 
sizes, including those institutions that operate in more than one 
state. Additional objectives of the Agreement are to ensure that 
supervision is flexible and risk-focused and minimizes regulatory 
burden and cost for covered institutions. Recommended supervisory 
practices also address aspects of the ongoing and rapid transition of 
the banking industry that have presented challenges (such as continued 
consolidation and engagement in more complex or specialized activities 
in order to remain competitive).
    In an effort to better align the supervisory rating system for bank 
holding companies, including financial holding companies, with the 
Board's current supervisory practices, the Board implemented a revised 
BHC rating system that:
     Emphasizes risk management,
     Introduces a more comprehensive and adaptable framework 
for analyzing and rating financial factors, and
     Provides a framework for assessing and rating the 
potential impact of the parent holding company and its non-depository 
subsidiaries on the subsidiary depository institution(s).
    Given that the revised rating system is consistent with current 
supervisory practices, the revisions are generally not expected to have 
an effect on the conduct of inspections, nor add to the supervisory 
burden of supervised institutions. Rather, the revised rating system 
will better communicate the supervisory findings of examination staff 
to both supervised institutions and the Board's staff.
    b. Transactions with Affiliates. In 2002, the Board adopted in 
final form Regulation W \41\ to implement, in a comprehensive fashion, 
the restrictions imposed by sections 23A and 23B of the Federal Reserve 
Act.\42\ These sections, which impose limits and conditions on lending 
and certain other transactions between a bank and its affiliates, are a 
key component of the supervisory framework for all banks. The Board's 
purpose in adopting a regulation that, for the first time, 
comprehensively implemented these restrictions was, among other things, 
to simplify the interpretation and application of sections 23A and 23B 
by banking organizations, allow banking organizations to publicly 
comment on Board and staff interpretations of sections 23A and 23B, and 
minimize burden on banking organizations.
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    \41\ 12 CFR 223.
    \42\ 12 U.S.C. 371c, 371c-1.
---------------------------------------------------------------------------

    c. Regulation Y: Bank Holding Companies and Financial Holding 
Companies. The Board has made significant revisions to Regulation Y 
since the passage of EGRPRA that have substantially reduced regulatory 
burden on bank holding companies and significantly reduced processing 
times for applications/notices filed under Regulation Y. For example, 
in 1997, the Board adopted comprehensive amendments to its Regulation Y 
that significantly reduced regulatory burden by streamlining the 
application/notice process and operating restrictions on bank holding 
companies. The revisions included a streamlined and expedited review 
process for bank acquisition proposals by well-run bank holding 
companies and implemented changes enacted by EGRPRA that eliminated 
certain notice and approval requirements and reduced other requirements 
for nonbanking proposals by such companies. In addition, the Board 
expanded the list of permissible nonbanking activities and removed a 
number of restrictions on such activities. The revisions also amended 
the tying restrictions and included many other changes to Regulation Y 
to eliminate unnecessary regulatory burden.
    In 2001, the Board also revised Regulation Y to implement changes 
enacted by the GLBA, which further significantly reduced regulatory 
burden on the nonbanking activity proposals of bank holding companies 
who elect financial holding company status. These revisions:
     Provided an expeditious approach to the election process 
to become a financial holding company,
     Identified the expanded types of nonbanking activities 
that are permissible for financial holding companies, and
     Provided a post-notice procedure for engaging in such 
activities.
    During that year, the Board also adopted revisions to Regulation Y 
implementing the new authority for financial holding companies to 
engage in merchant banking activities and permitting financial holding 
companies to act as a ``finder'' in bringing together buyers and 
sellers for transactions that the parties themselves negotiate and 
consummate.
    In 2003, the Board again amended Regulation Y to expand the types 
of commodity derivative activities permissible for all bank holding 
companies. In particular, these amendments permitted bank holding 
companies to (1) take and make delivery

[[Page 62054]]

of title to the commodities underlying commodity derivative contracts 
on an instantaneous, pass-through basis and (2) enter into certain 
commodity derivative contracts that do not require cash settlement or 
specifically provide for assignment, termination or offset prior to 
delivery. Also in 2003, the Board adopted a final rule that expanded 
the ability of all bank holding companies to process, store and 
transmit non-financial data in connection with their financial data 
processing, storage and transmission activities.
    Since 2003, the Board also has issued orders permitting various 
financial holding companies to engage in physical commodity trading 
activities on a limited basis as an activity that is complementary to 
the company's financial commodity derivative activities.
    Since the Board's revisions to Regulation Y in 1997 to streamline 
processing of nonbanking notices and since 2001 to implement the GLBA, 
there has been a dramatic decline in the number of nonbanking proposals 
that require Federal Reserve System approval. Therefore, there has been 
a substantial reduction of regulatory burden on bank holding companies 
engaged in nonbanking activities.
    The Board is in the process of identifying additional revisions to 
Regulation Y that would clarify regulatory requirements and reduce 
regulatory burden for bank holding companies and financial holding 
companies where appropriate. In 2007, the Board expects to issue an NPR 
to solicit comments on those proposed revisions.
    d. International Banking Initiatives. Since 1997, the Board has 
made a number of enhancements to Regulation K \43\ governing foreign 
operations of U.S. banking organizations and the U.S. operations of 
foreign banking organizations (FBOs) to reduce regulatory burden, 
streamline the authorization process, and improve agency transparency.
---------------------------------------------------------------------------

    \43\ 12 CFR part 211.
---------------------------------------------------------------------------

    (1) Comprehensive Amendments to Regulation K. In October 2001, 
following a rulemaking initiated in 1997, the Board approved 
comprehensive revisions to Regulation K, expanding the range of 
activities that U.S. banking organizations may conduct overseas and 
reducing associated processing times and filing requirements. For 
example, with respect to establishing foreign branches, an application 
requirement was replaced with a prior notice obligation, and the prior 
notice period was reduced from 45 days to 30 days or, in some 
instances, 12 days. General consent limits for investments in foreign 
subsidiaries or joint ventures were changed from an absolute dollar 
figure to a percentage of the investor's capital, with higher 
percentages authorized for well-capitalized and well-managed investors. 
The prior notice period applicable to foreign investments also was 
reduced from 45 days to 30 days. The scope of permissible nonbanking 
activities abroad was expanded, including in the areas of securities 
underwriting, dealing, and trading. In addition, the Board implemented 
statutory provisions authorizing member banks, with Board approval, to 
invest up to 20 percent of their capital and surplus in Edge and 
agreement corporations and the factors to be considered when making 
determinations on those requests.
    The revisions to Regulation K also streamlined the application 
procedures applicable to FBOs seeking to expand operations in the 
United States. With respect to the establishment of some U.S. offices 
by FBOs, the Board replaced an application requirement with a 45-day 
prior notice obligation; other office proposals became subject to 
general consent procedures. The Board also liberalized the provisions 
governing the qualification of FBOs for exemptions from the nonbanking 
provisions of the Bank Holding Company Act and implemented provisions 
of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 
1994 addressing changes in home state of FBOs.\44\
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    \44\ In 2002, the Board issued (and has since revised) 
application forms (collectively known as the FR K-2) to be used by 
FBOs when seeking regulatory authorizations under Regulation K. 
These replaced and significantly enhanced an informal set of staff 
questions to which FBOs routinely responded when seeking such 
authorizations. The Board also modified (and has since revised) the 
FR K-1, consisting of forms to be used by U.S. banking organizations 
seeking authorization to conduct or expand foreign operations, to 
reflect the enhancements to Regulation K.
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    (2) International Lending Supervision. In January 2003, the Board 
amended Regulation K to eliminate the requirements as to the particular 
accounting method to be followed in accounting for fees on 
international loans and require instead that institutions follow GAAP 
in accounting for such fees.
    e. Communication with Industry. The Federal Reserve strives to be 
as transparent as possible in communicating regulatory requirements and 
supervisory expectations to the institutions it supervises. In addition 
to making regulatory changes and policy-related or supervisory 
issuances available on the Board's public Web site, there is active and 
ongoing communication regarding regulatory requirements and supervisory 
expectations between supervisory staff at all Federal Reserve banks and 
the institutions in their Districts. Board members and senior 
management also participate regularly in meetings with bankers to 
provide insight regarding Federal Reserve regulatory and supervisory 
initiatives.
    The Federal Reserve also hosts and participates in various outreach 
efforts. Its wide-ranging efforts include sessions directed to 
supervision staff, formal seminars and dialogues with industry 
representatives, and informal meetings on focused issues designed to 
foster two-way dialogue with the industry to help ensure that open 
channels of communication remain efficient and effective.
f. Payments, Reserves, and Discount Window Initiatives
(1) Discount Window Lending (Regulation A)
    (a) Y2K Special Liquidity Facility. To address the possibility that 
depository institutions and their customers would experience unexpected 
credit and liquidity needs over the century date change period, the 
Board revised its Regulation A to implement a special limited-time 
discount window lending program. Under this Y2K special liquidity 
facility, Federal Reserve Banks offered credit at a rate 150 basis 
points above the Federal Open Market Committee's targeted federal funds 
rate to eligible institutions to accommodate liquidity needs during the 
century date change period. The facility was available from October 1, 
1999, to April 7, 2000, and was intended to reduce potential market 
strains during that period and any attendant difficulties for 
depository institutions.
    (b) Redesign of Discount Window Lending Program. Effective January 
9, 2003, the Board also revised Regulation A to improve the operation 
of the discount window. Among other changes, the revisions replaced the 
existing adjustment credit program, which provided short-term credit at 
a below-market rate but only if the borrower had exhausted other 
funding sources and used the funds within prescribed limitations. The 
new primary credit program makes short-term credit available to 
generally sound institutions at an above-market rate, but with little 
or no administrative burden or use restrictions on the borrower. In 
addition to providing improved transparency and

[[Page 62055]]

reduced administrative burden to the discount window process, the 
revisions also reorganized and streamlined the regulatory language to 
make it easier to understand.
(2) Check Collection (Regulation CC)
    (a) Y2K Extension of Time for Merger-Related Reprogramming. The 
Board's Regulation CC allows merging depository institutions one year 
to combine their automation systems for check collection and funds 
availability purposes under Regulation CC. In the late 1990s, the Board 
recognized that depository institutions were dedicating significant 
automation resources to addressing Y2K computer problems and may have 
been challenged to make and test other programming changes, including 
those that needed to comply with Regulation CC's merger transition 
provisions, without jeopardizing their Y2K programming efforts. 
Therefore, the Board amended Regulation CC to allow depository 
institutions that consummated a merger on or after July 1, 1998, and 
before March 1, 2000, greater time to implement software changes 
related to the merger.
    (b) Implementation of the Check 21 Act. Effective October 28, 2004, 
the Board adopted amendments to Regulation CC to implement the Check 21 
Act, a law that was based on a Board proposal to Congress and that the 
Board strongly supported. Electronic collection of checks often is 
faster and more efficient than collecting checks in paper form. 
However, prior to the Check 21 Act, banks' use of electronic check 
collection was impeded by the fact that paying banks, by law, could 
require presentment of original checks. The Check 21 Act and the 
Board's implementing amendments authorized a new negotiable instrument, 
known as a substitute check, which is a special copy of the original 
check that, when properly prepared, is the legal equivalent of the 
original check. The Check 21 Act facilitated the ability of banks to 
send check-related information electronically for most of the check 
collection process because a bank that has the electronic check file 
now is able to provide a legally equivalent substitute check when and 
where an original check is needed. When it implemented the Check 21 
Act, the Board made other clarifying changes to Regulation CC to make 
it easier for depository institutions to understand and comply with the 
regulation.
    (c) Remotely Created Checks. ``Remotely created checks'' typically 
are created when the holder of a checking account authorizes a payee, 
such as a telemarketer, to draw a check on that account but does not 
actually sign the check. In place of the signature of the account-
holder, the remotely created check generally bears a statement that the 
customer authorized the check or bears the customer's printed or typed 
name. State laws vary with respect to whether or not the bank that 
holds the account from which a check is paid (the paying bank) has a 
warranty claim back against the bank of first deposit (the depositary 
bank) if the paying bank's customer reports that a remotely created 
check is unauthorized. Effective July 1, 2006, the Board amended 
Regulation CC to provide such a warranty claim for the paying bank. 
This amendment reduces the likelihood that paying banks ultimately will 
bear financial losses due to fraudulent remotely created checks and 
places responsibility for those checks on the bank whose customer 
deposited the check and who, therefore, is in the best position to 
detect and present the fraud.
    (3) Location of Federal Reserve Accounts (Regulations D and I). 
Statutory changes in the mid-1990s, such as the Riegle-Neal Interstate 
Banking and Branching Efficiency Act, eliminated many barriers to 
interstate banking. Consequently, the number of depository institutions 
that operated branches in more than one Federal Reserve District 
increased. On January 2, 1998, the Federal Reserve Banks implemented a 
new account structure to provide a single Federal Reserve account for 
each domestic depository institution.
    Specifically, to provide increased flexibility to depository 
institutions in managing their operations in diverse geographic 
locations, the Board revised Regulations D and I to allow depository 
institutions with offices in multiple Federal Reserve districts to be 
able to request a determination from the Board that the institution is 
deemed to be located in a district other than the district of its 
charter location for purposes of reserve account location (Regulation 
D) and Federal Reserve membership (Regulation I). The amendments set 
out criteria that the Board would use in making such a determination, 
including the business needs of the bank; the location of the bank's 
head office; the location of the bulk of the bank's business; and the 
location that would allow the bank, the Board, and the Reserve Banks to 
perform their functions most efficiently and effectively.
g. Consumer Regulatory Initiatives
(1) Electronic Fund Transfers (Regulation E)
    (a) Error Resolution. Regulation E requires financial institutions 
to investigate and resolve consumer claims of error within prescribed 
time periods. In general, an institution must either resolve the claim 
within 10 business days or provisionally recredit the consumer's 
account within that time and finally resolve the claim within 45 
calendar days. In 1998, the Board amended Regulation E to extend these 
deadlines from 10 business days to 20 business days and from 45 
calendar days to 90 calendar days in the case of new accounts, 
recognizing the higher fraud risk for new accounts and consequently 
institutions' need for more time to investigate error claims.
    (b) Electronic Check Conversion. In 2001, the Board issued 
amendments to the Official Staff Commentary to Regulation E relating to 
electronic check conversion. In electronic check conversion 
transactions, a payee uses a consumer's check to initiate a one-time 
automated clearing house (ACH) debit to the consumer's account, by 
capturing the routing, account, and check numbers from the magnetic ink 
character recognition (MICR) line on the check. The payee may be a 
merchant at point-of-sale (POS) or a bill payee receiving the check via 
a lockbox. The amendments provide that electronic check conversion 
transactions are covered by Regulation E and afford guidance on how 
particular regulatory requirements apply to such transactions. By 
providing clarification and guidance, the Board sought to facilitate 
greater use of electronic check conversion, which can provide benefits 
to consumers, creditors and other payees, and depository institutions.
    In 2006, the Board issued further amendments dealing with 
electronic check conversion, both to the Commentary and to Regulation E 
itself, to provide further clarification and guidance. One of these 
amendments permits payees to obtain a consumer's authorization to use 
information from the check to initiate an electronic fund transfer or 
to process the transaction as a check, easing compliance for payees.
    (c) Stop-Payment Procedures. In the 2006 amendments, the Board also 
revised the Commentary to facilitate compliance with the Regulation E's 
requirements regarding stopping payment of recurring debits to a 
consumer's account. The revision permits an institution to use a third 
party (such as a debit card network) to stop payment, if the 
institution does not

[[Page 62056]]

itself have the capability to block the debit from being posted to the 
account.
    (d) Notice of Variable-Amount Transfers. Regulation E provides that 
if a recurring debit from a consumer's account will vary in amount from 
the previous transfer, or from the preauthorized amount, the designated 
payee or the consumer's financial institution must give the consumer 
the option to receive written notice of the amount and scheduled date 
of the debit 10 days in advance. In the 2006 amendments, the Board 
revised the Commentary to exempt recurring transfers to an account of 
the consumer at another institution from this requirement, provided the 
amount of the transfer falls within a specified range that reasonably 
could be anticipated by the consumer. This revision should help 
eliminate unnecessary notices and provide cost savings in the case of 
transfers of interest on a certificate of deposit held at one 
institution to the consumer's account at another institution.
    (e) Fee Disclosures at Automated Teller Machines. If a consumer 
uses an automated teller machine (ATM) operated by an institution other 
than the one holding the consumer's account, Regulation E requires the 
ATM operator to disclose any transaction fee imposed by the operator. 
In the 2006 amendments, the Board revised the regulation and the 
Commentary to clarify that the fee notice may state either that a fee 
``will'' be imposed, or that a fee ``may'' be imposed (unless the fee 
will be imposed in all cases). This clarification addresses issues 
raised by a number of institutions that had been charged with 
noncompliance by claimants asserting that the regulation required use 
of the term ``will,'' even on ATMs where a fee is not imposed in all 
cases.
    (f) Payroll Cards. In 2006, the Board adopted an amendment to 
Regulation E relating to payroll card accounts. The amendment provides 
that payroll card accounts (established to provide salary, wages, or 
other employee compensation on a recurring basis) are covered by 
Regulation E, and also provides that periodic statements need not be 
sent to payroll card holders if account information is available 
through certain other means (including electronically). By clarifying 
coverage of payroll card accounts and also granting relief from the 
periodic statement requirement, the amendment may facilitate the use of 
such accounts and thereby reduce costs for employers, as well as 
providing unbanked employees a convenient way to receive their pay.
    (g) Receipts. In 2007, the Board adopted an amendment to Regulation 
E to create an exception for transactions of $15 or less from 
Regulation E's requirement that receipts be made available to consumers 
for transactions initiated at an electronic terminal. The amendment was 
intended to allow debit card transactions by a consumer in retail 
environments where making receipts available may not be practical or 
cost effective.
    (2) Truth in Lending (Regulation Z). As noted above, the Board is 
undertaking a comprehensive review of Regulation Z. As part of that 
review, the Board intends to consider ways to reduce unnecessary 
regulatory burden consistent with the purposes and requirements of 
TILA. In 2007, the Board issued a proposed amendment to Regulation Z to 
improve the effectiveness of the disclosures that consumers receive in 
connection with credit card accounts and other revolving credit plans 
by ensuring that information is provided in a timely manner and in an 
understandable form. The Board sought comment on the elimination of the 
requirement to disclose the ``effective'' or ``historical'' annual 
percentage rate, among other proposals that could reduce regulatory 
burden on institutions. (The effective annual percentage rate reflects 
the cost of interest and certain other finance charges imposed during 
the statement period.)
    (a) Credit Card Fees. Regulation Z requires credit card issuers to 
disclose ``finance charges'' (fees that are imposed as an incident to 
or a condition of the extension of credit), as well as ``other 
charges'' (fees that are not finance charges but that are significant 
charges that may be imposed as part of the credit card plan). In 2003, 
the Board revised the Official Staff Commentary to Regulation Z to 
address the status of two types of fees charged on credit card accounts 
as to which the credit card industry had sought guidance--a fee imposed 
when a consumer requests that a payment be expedited, and a fee imposed 
when a consumer requests expedited delivery of a credit card. The 
Commentary revisions provided that both types of fees constitute 
neither finance charges nor other charges (and therefore are not 
subject to the disclosure requirements of Regulation Z). The revisions 
reduce regulatory burden by relieving card issuers of disclosure 
requirements (for example, in disclosures provided at account opening 
and on periodic statements) that might otherwise have applied.
    (b) Issuance of Credit Cards. Regulation Z provides that, in 
general, credit cards may be issued only in response to a request or 
application, except that a card issued as a renewal or substitute for 
an existing card may be issued automatically. Further, generally only 
one renewal or substitute card may be issued to replace one existing 
card (the ``one-for-one'' rule). The 2003 Commentary revisions provided 
an exception to the one-for-one rule, whereby a card issuer may replace 
an existing credit card with more than one renewal or substitute card, 
if (1) the replacement cards access only the same account of the 
existing card, (2) all cards issued on the account are governed by the 
same terms and conditions, and (3) the consumer's total potential 
liability for unauthorized credit card use with respect to the account 
does not increase. These changes accommodated developments in the 
credit card industry in which some card issuers are able to issue a 
supplemental card, sometimes in different sizes and formats from the 
existing card, along with the regular card replacing the existing card, 
which may enhance consumer convenience. The changes could reduce costs 
by not requiring card issuers to first obtain a request from a consumer 
before issuing the supplemental card, while also including terms to 
protect customers.
    (3) Consumer Compliance Examination. The Board has adopted a 
consumer compliance risk-focused supervision program designed to ensure 
that all its supervised organizations comply with consumer protection 
laws and regulations. The program is founded on the expectation that 
each state member bank and bank holding company will appropriately 
manage its own consumer compliance risk as an integral part of the 
organization's corporate-wide risk management function. The adequacy of 
an organization's consumer compliance risk management program is 
evaluated in the context of the inherent risk to the organization and 
its customers. Accordingly, smaller and less complex organizations with 
a lower risk profile, deemed to have an adequate compliance risk 
management program, require less supervisory scrutiny.
    The risk-focused supervisory program directs resources to 
organizations, and to activities within those organizations, 
commensurate with the level of risk to both the organization and the 
consumer. It provides for the efficient and effective deployment of 
resources including examiner time, by allowing Reserve Banks to tailor 
supervisory activities to the size, structure, complexity, and risk of 
the organization. This supervisory approach reduces regulatory burden 
on

[[Page 62057]]

institutions and results in more efficient use of examiner time and 
resources.
    (4) Proposed Amendments to Consumer Financial Services and Fair 
Lending Regulations (Regulations B, E, M, Z, and DD). In 2007, the 
Board issued proposed amendments to five consumer financial services 
and fair lending regulations (Regulations B, E, M, Z, and DD) to 
clarify the requirements for providing consumer disclosures in 
electronic form. The proposed amendment would withdraw provisions that 
could impose undue regulatory burden on electronic banking and 
commerce.
2. Federal Deposit Insurance Corporation
    On an ongoing basis, the FDIC is aware of regulatory burden and 
addresses such issues where appropriate. When areas of the country 
experience natural disasters and other misfortunes, the FDIC issues 
financial institution letters to provide regulatory relief to those 
institutions affected by such events and to thereby facilitate recovery 
in the communities. For example, a FIL may be issued asking financial 
institutions in those areas to extend repayment terms, restructure 
existing loans where appropriate, and provide that the FDIC would 
consider regulatory relief from certain filing and publishing 
requirements for financial institutions in the affected areas.
    a. FDIC's Deposit Insurance Rules. Bankers and consumers have 
suggested that the FDIC should simplify the insurance rules to make 
them easier for bankers to understand and for depositors to qualify for 
increased coverage by placing funds in different rights and capacities. 
In recent years, the FDIC has adopted several regulatory changes in a 
concerted effort to simplify the rules for deposit insurance coverage.
    The Federal Deposit Insurance Reform Act of 2005 (Reform Act), 
which the President signed into law on February 8, 2006, provides for 
numerous enhancements of the federal deposit insurance system, 
including an increase in the maximum amount of deposit insurance 
coverage for certain retirement accounts from $100,000 to $250,000. In 
addition, the new law establishes a method for considering an increase 
in the insurance limits on all deposit accounts (including retirement 
accounts) every five years starting in 2011 and based, in part, on 
inflation.
    Although the Reform Act increased the maximum insurance limit for 
certain retirement accounts to $250,000, Congress decided against 
increasing the insurance limit for all other deposit accounts. Thus, 
the basic insurance limit for all deposit accounts remains at $100,000. 
However, as noted above, the insurance limit for all deposit accounts 
may be increased every five years based on inflation beginning in 2011.
(1) Specific Deposit Insurance Rule Changes
    (a) Deposit Insurance Regulations; Inflation Index; Certain 
Retirement Accounts and Employee Benefit Plan Accounts. The FDIC 
amended its deposit insurance regulations to implement applicable 
revisions to the Federal Deposit Insurance Act (FDI Act) made by the 
Reform Act and the Federal Deposit Insurance Reform Conforming 
Amendments Act of 2005. The interim rule, which became effective on 
April 1, 2006, provides for the following:
     Consideration of inflation adjustments to increase the 
current standard maximum deposit insurance amount of $100,000 on a 
five-year cycle beginning in 2010;
     Increase in the deposit insurance limit for certain 
retirement accounts from $100,000 to $250,000, also subject to 
inflation adjustments; and
     Per-participant insurance coverage to employee benefit 
plan accounts, even if the depository institution at which the deposits 
are placed is not authorized to accept employee benefit plan deposits.
    The changes to the deposit insurance rules implemented by this 
rulemaking will benefit depositors by increasing coverage for 
retirement accounts and removing a limitation on the availability of 
pass-through insurance coverage for employee benefit plan accounts. 
Section 330.14 is amended to reflect that pass-through coverage for 
employee benefit plan accounts no longer hinges on the capital level of 
the depository institution where such deposits are placed. Under the 
former law, pass-through coverage for employee benefit plan deposits 
was not available if the deposits were placed with an institution not 
permitted to accept brokered deposits. Under section 29 of the FDI Act 
(12 U.S.C. 1831f), only institutions that meet prescribed capital 
requirements may accept brokered deposits. The Reform Act takes a 
different approach. It prohibits insured institutions that are not 
``well capitalized'' or ``adequately capitalized'' from accepting 
employee benefit plan deposits. But, under the Reform Act, employee 
benefit plan deposits accepted by any insured depository institution, 
even those prohibited from accepting such deposits, are nonetheless 
eligible for pass-through deposit insurance coverage. This change in 
the deposit insurance rules will apply to all employee benefit plan 
deposits, including employee benefit plan deposits placed before the 
effective date of the interim rule, irrespective of whether such 
deposits would have been eligible for pass-through coverage under the 
former statute and rules. The other requirements in section 330.14 of 
the FDIC's rules on the eligibility of employee benefit plan deposits 
for pass-through insurance coverage continue to apply.
    (b) Deposit Insurance Coverage Regulations: Living Trust Accounts. 
Effective April 1, 2004, the FDIC amended its regulations to clarify 
and simplify the deposit insurance coverage rules for living trust 
accounts. The amended rules provide coverage up to $100,000 per 
qualifying beneficiary who, as of the date of an insured depository 
institution failure, would become the owner of the living trust assets 
upon the account owner's death. The FDIC undertook this rulemaking 
because of the confusion among bankers and the public about the 
insurance coverage of these accounts. Prior to the amended rulemaking, 
the amount of insurance coverage for a living trust account could only 
be determined after the trust document has been reviewed to determine 
whether there are any defeating contingencies. Consequently, in 
response to questions about coverage of living trust accounts, the FDIC 
could only advise depositors that the owners of living trust accounts 
seek advice from the attorney who prepared the trust document. This 
process was burdensome to both consumers, bankers, and other financial 
service providers. Also, when a depository institution fails the FDIC 
must review each living trust to determine whether the beneficiaries' 
interests are subject to defeating contingencies. This often is a time-
consuming process, sometimes resulting in a significant delay in making 
deposit insurance payments to living trust account owners.
    (c) Deposit Insurance Certified Statements. The FDIC modernized and 
simplified its deposit insurance assessment regulations governing 
certified statements, to provide regulatory burden relief to insured 
depository institutions. Under the final rule, insured institutions 
will obtain their certified statements on the Internet via the FDIC's 
transaction-based e-business Web site, FDICconnect. The FDIC provides 
e-mail notification each quarter to let depository institutions know 
when their quarterly certified statement invoices are available on 
FDICconnect. An institution that lacks Internet access may request from 
the FDIC a one-year renewable exemption from the use of FDICconnect, 
during

[[Page 62058]]

which it will continue to receive quarterly certified statement 
invoices by mail. Correct certified statements will no longer be signed 
by insured institutions or returned to the FDIC, and the semiannual 
certified statement process will be synchronized with the quarterly 
invoice process. If an insured institution agrees with its quarterly 
certified statement invoice, it will simply pay the assessed amount and 
retain the invoice in its own files. If it disagrees with the quarterly 
certified statement invoice, it will either amend its report of 
condition or similar report (to correct data errors) or amend its 
quarterly certified statement invoice (to correct calculation errors). 
The FDIC will automatically treat either as the insured institution's 
request for revision of its assessment computation, eliminating the 
requirement of a separate filing. With these amendments, the time and 
effort required to comply with the certified statement process will be 
reduced.
    (d) Certification of Assumption of Deposits and Notification of 
Changes of Insured Status. The FDIC adopted a final rule that became 
effective on March 23, 2006, clarifying and simplifying the procedures 
to be used when all of the deposit liabilities of an insured depository 
institution have been assumed by another insured depository institution 
or institutions. The final rule clarifies the deposit insurance 
certification filing responsibilities for assumed and assuming 
institutions and eliminates the need for orders terminating deposit 
insurance in certain instances. Finally, the rule would provide more 
specificity concerning how notice is given to depositors when an 
insured depository institution voluntarily terminates its insured 
status without the assumption of all of its deposits by an insured 
institution. The revisions make the insurance termination process 
easier for insured depository institutions and more efficient for the 
FDIC.
    (e) Funds Merger. The FDIC merged the Bank Insurance Fund (BIF) and 
the Savings Association Insurance Fund (SAIF) to form the Deposit 
Insurance Fund, effective March 31, 2006. This action was pursuant to 
the provisions in the Reform Act. The FDIC amended its regulations to 
reflect the funds merger.
    (f) One-Time Assessment Credit. The FDIC amended its regulations to 
implement a one-time assessment credit pursuant to the provisions in 
the Reform Act. The final rule was published on October 18, 2006. The 
rule implements the one-time assessment credit; establishes the 
aggregate one-time assessment credit at approximately $4.7 billion to 
be divided among eligible depository institutions; and defines eligible 
insured depository institution as an insured depository institution 
that was in existence on December 31, 1996, and paid a deposit 
insurance assessment prior to that date or is a successor to such an 
institution. The rule allows institutions to use their assessment 
credits to offset deposit insurance assessments to the maximum extent 
allowed by law.
    (g) Educational and Outreach Efforts for Deposit Insurance Rules. 
In addition to simplifying and clarifying the deposit insurance rules, 
the FDIC engages in a wide range of educational and outreach 
initiatives intended to inform bankers and depositors on the rules for 
deposit insurance coverage. Examples of these efforts include:
     FDIC Web site (http://www.fdic.gov), which offers 
extensive information for bankers and consumers on FDIC deposit 
insurance coverage, including publications and newsletters, videos on 
deposit insurance coverage, and an interactive electronic calculator 
that bankers and consumers can use to determine the maximum insurance 
coverage for their deposit accounts at an insured institution
     FDIC Call Center, which is staffed by deposit insurance 
specialists who answer banker and consumer questions about deposit 
insurance coverage and other banking issues
     Customer Assistance Online Form, where bankers and 
consumers can obtain written responses to questions about FDIC deposit 
insurance coverage
     Deposit Insurance Seminars for bankers, which include 
telephone seminars and traditional training seminars on the deposit 
insurance rules
    (h) Advertisement of Membership/Logo. The final rule on the FDIC's 
advertising logo was published on November 13, 2006, and becomes 
effective November 13, 2007. The rule replaces the separate signs used 
by BIF and SAIF members with a new sign, or insurance logo, to be used 
by all insured depository institutions. The new rule consolidates the 
exceptions to the official advertising statement requirements from 20 
to 10 by requiring the statement only in advertisements that either 
promote deposit products and services or promote non-specific banking 
products and services.
    (2) Applications, Reporting, and Corporate Powers; Filing 
Procedures, Corporate Powers, International Banking, Management 
Official Interlocks, Golden Parachute, and Indemnification Payments. 
The FDIC adopted a final rule amending its procedures relating to 
filings, mutual to stock conversions, international banking, management 
official interlocks and golden parachute payments. The changes are 
mostly technical in nature or clarify previous FDIC positions; 
nevertheless, the revisions make the applications process more 
transparent to the public. The FDIC's regulations at 12 CFR 303 
generally describe the procedures to be followed by both the FDIC and 
applicants with respect to applications and notices required to be 
filed by statute or regulation. On December 27, 2002, the FDIC issued 
in final form a revised part 303 to reflect a recent internal 
reorganization at the FDIC and to remove internal delegations of 
authority from the regulation. The regulation was revised to clarify 
terms and to establish 30 days as a reasonable time in which to review 
any response submitted by an institution or institution-affiliated 
party. The FDIC also added a provision setting forth its authority to 
waive any non-statutorily required provision for good cause and to the 
extent permitted by statute. The revised rule clarifies when a change 
in control notice is required and may be consummated. Finally, the FDIC 
adopted a technical correction to section 303.244, creating a cross-
reference to section 359.4(a)(4) of this chapter regarding golden 
parachutes and severance plan payments to make clear the 
responsibilities of an applicant seeking approval of filings.
    (3) Annual Independent Audits and Reporting Requirements. The 
Corporation amended 12 CFR 363 of its regulations by raising the asset 
size threshold from $500 million to $1 billion from requirements 
relating to internal control assessments and reports by management and 
external auditors. The amendment also relieves covered institutions 
with total assets of less than $1 billion from having outside directors 
on the audit committee from being independent of management. The 
amendment does not relieve public covered institutions from their 
obligation to comply with applicable provisions of the SOX Act and the 
SEC's implementing rules. The revisions became effective on December 
31, 2005.
    (4) International Banking. The FDIC conducted a comprehensive 
review of its International Banking Rules. The revised rules, which 
became effective July 1, 2005, amend 12 CFR 303, 325, and 327 relating 
to international banking; and revise part 347, subparts A and B. The 
rules were reorganized and clarified to reduce regulatory burden. The 
revised rule expanded the availability of general consent for foreign 
branching and investments by insured state nonmember banks abroad

[[Page 62059]]

and addressed intrastate and interstate relocations for ``grandfathered 
branches.'' In addition, the ``fixed'' percentage asset pledge 
requirement for existing insured U.S. branches of foreign banks 
(``grandfathered branches'') was replaced by a risk-focused asset 
pledge requirement.
    (5) Extension of Corporate Powers. Effective October 18, 2005, the 
FDIC amended its interpretive rule, 12 CFR 333.101(b), which states 
that insured state nonmember banks not exercising trust powers may 
offer self-directed traditional Individual Retirement Accounts (IRA) 
and Keogh Plan accounts without the prior written consent. Since 1985, 
Congress has introduced new accounts with tax-incentive features 
comparable to these plans. Accordingly, the interpretive ruling was 
expanded to expressly include Coverdell Education Savings Accounts, 
Roth IRAs, Health Savings Accounts, and other similar accounts.
    (6) Other Accomplishments and Initiatives. FDICconnect is a secure 
Internet site developed by the FDIC to facilitate business and exchange 
information between the FDIC and FDIC-insured institutions. FDICconnect 
provides a secure e-business transaction channel that supports 
implementation of the Government Paperwork Elimination Act, which 
requires agencies to provide online consumer and business alternatives 
for paper-based processes. The national rollout of FDICconnect began on 
December 8, 2003. FDICconnect supports examination file exchange, 
electronic distribution of ``Special Alerts,'' electronic submission of 
deposit insurance invoices, and electronic filing of certain 
applications and notices. FDICconnect reduces regulatory burden by 
providing a more efficient means for insured institutions to interact 
with the FDIC and various states. Twenty business transactions are 
available through FDICconnect, and as of March 2006, there were 8,263 
FDIC-insured institutions registered with FDICconnect.
    Beginning July 2007, enhancements to the system enable financial 
institutions to securely exchange electronic pre-examination and 
examination files with the FDIC and/or their state banking regulator. 
The use of the system should relieve examination burden on institutions 
by allowing FDIC staff to complete a significant portion of the 
examination process off-site.
    (7) Risk-Focused Examinations. The FDIC has improved examination 
efficiency and reduced burden on the banks it supervises by raising the 
threshold for well-rated, well-capitalized banks qualifying for 
streamlined Maximum Efficiency, Risk-Focused, Institution Targeted 
(MERIT) examinations from $250 million to $1 billion, implementing more 
risk-focused compliance and trust examinations, and streamlining 
information technology (IT) examinations for institutions that pose the 
least technology risk. The MERIT program, originally implemented in 
April 2002, was applicable to banks with assets under $250 million. 
During a MERIT examination, the examiners use procedures that focus on 
determining the adequacy of the institution's internal controls system 
and the effectiveness of its risk management program and processes. The 
program provides an opportunity for the FDIC to redirect examination 
resources to institutions that pose higher risk.
    (a) Relationship Manager Program. On October 1, 2005, the 
Corporation implemented the Relationship Manager Program for all FDIC-
supervised institutions. The program, which was piloted in 390 
institutions during 2004, is designed to strengthen communication 
between bankers and the FDIC, as well as improve the coordination, 
continuity, and effectiveness of regulatory supervision. Each FDIC-
supervised institution was assigned a relationship manager, who serves 
as a local point of contact over an extended period, and will often 
participate in or lead examinations for his or her assigned 
institution. The program will allow for flexibility in conducting 
examination activities at various times during the 12- or 18-month 
examination cycle based on risk or staffing considerations.
    (b) IT Examinations. The FDIC has updated its risk-focused IT 
examination procedures for FDIC-supervised financial institutions under 
its new Information Technology Risk Management Program (IT-RMP). IT-RMP 
procedures were issued to examiners on August 15, 2005. The new 
procedures focus on the financial institution's information security 
program and risk-management practices for securing information assets. 
The program integrates with the Relationship Manager Program by 
embedding the IT examination within the Risk Management Report of 
Examination for all FDIC-supervised financial institutions, regardless 
of size, technical complexity, or prior examination rating.
    (c) Compliance Examinations. Compliance examination procedures were 
first revised in July, 2003, and have been updated periodically since 
then to make the compliance examination process more efficient and 
allow examiners to focus their examination efforts on compliance areas 
with the highest risk to both consumers and financial institutions.
    (8) Community Reinvestment Act. During EGRPRA Outreach meetings, 
bankers suggested that the FDIC expand what qualifies for CRA credit 
under the service test, such as community service activities and 
provide additional guidance to banks about ways to meet both the 
service and investment tests. In response, the FDIC made it easier for 
banks to assist low and moderate income individuals, and obtain CRA 
credit for doing so, by developing MoneySmart, a financial literacy 
curriculum. The FDIC provides the MoneySmart program, which is 
available in six languages and a version for the visually impaired, 
free to all insured institutions. The FDIC also published its Community 
Development Investment Guide, which is designed to assist banks 
considering community development investments to navigate the complex 
laws and regulations that may apply.
    (9) Redesign of Financial Institution Letters. The industry 
suggested that regulators should try to make their publications, such 
as FILs, more concise and descriptive, so that readers can immediately 
determine if the guidance or recommendations applies to their bank. In 
response, the FDIC redesigned the format for its FILs. The new format 
is designed to promote the quick identification of key issues and to 
expedite the delivery of the information to the appropriate party. 
Additionally, the FDIC is moving toward an all-electronic distribution 
of FILs to eliminate unwanted paper and to better facilitate the 
distribution of FILs within each bank.
    (10) Bank Secrecy Act/Anti-Money Laundering Outreach. In an effort 
to enhance bank personnel's understanding of the regulatory 
requirements associated with the BSA, the FDIC conducts or participates 
in numerous BSA outreach events during the year. During these events 
the FDIC discusses outstanding BSA/AML guidance and current regulations 
as well as BSA examination requirements outlined in the FFIEC BSA/AML 
Examination Manual. In September 2006, the FDIC hosted, along with the 
other federal banking agencies, FinCEN and the Office of Foreign Assets 
Control, a series of conference calls to discuss the changes to the 
FFIEC BSA/AML Examination Manual. Approximately 10,500 bank personnel 
participated in this three-day event.

[[Page 62060]]

3. The Office of the Comptroller of the Currency
    The OCC regularly reviews its regulations to identify opportunities 
to streamline regulations or regulatory processes, while ensuring that 
the goals of protecting safety and soundness, maintaining the integrity 
of bank operations, and safeguarding the interests of consumers are 
met. In the mid-1990s, pursuant to its comprehensive ``Regulation 
Review'' project, the OCC looked carefully at every regulation in its 
rulebook with that goal in mind. As a result of that project, the OCC 
made significant, substantive revisions to virtually every one of its 
regulations.
    More recently in connection with the OCC's review of its 
regulations required by EGRPRA, the OCC identified further revisions 
that could be made to its rules. Based on this review, the OCC has 
developed a proposal that would update and streamline a number of the 
OCC's rules to reduce regulatory burden, as well as to make technical, 
clarifying, and conforming changes to certain rules. Summarized below 
is the OCC's recent regulatory burden relief proposal, as well as other 
actions that the OCC has taken in recent years to ease unnecessary 
regulatory burden on national banks.
a. Recent Significant Regulatory Burden Relief Initiative.
    On July 3, 2007, the OCC published an NPR \45\ soliciting public 
comment on proposed amendments to the OCC's regulations developed in 
connection with its EGRPRA review. The comment period expires on 
September 4, 2007. Some of these proposed changes would relieve burden 
by eliminating or streamlining existing requirements or procedures. 
Others would enhance national banks' flexibility in conducting 
authorized activities, either by revising provisions currently 
contained in regulations or by codifying, and, thus, making generally 
applicable, determinations made on a case-by-case basis. A third 
category of proposed changes would eliminate uncertainty by harmonizing 
a particular rule with other OCC regulations or with the rules of 
another agency. A fourth category would cover technical revisions that 
update the OCC's rules to reflect changes in the law, including the 
recently enacted FSRRA, or in other regulations.
---------------------------------------------------------------------------

    \45\ See 72 FR 36550, July 3, 2007.
---------------------------------------------------------------------------

b. Enhancing National Banks' Flexibility Consistent With Safety and 
Soundness
    (1) Lending Limits Pilot Program. On June 7, 2007, the OCC 
published an interim final rule with request for comment to amend the 
OCC's regulation at 12 CFR 32.7.\46\ This regulation governs the pilot 
program providing eligible national banks \47\ with the authority to 
apply special lending limits with respect to loans to one borrower in 
the case of 1-4 family residential real estate loans, small business 
loans, and small farm loans or extensions of credit. This special 
lending authority is subject to certain conditions that ensure that 
lending under higher limits is consistent with safety and soundness. 
The comment period closed on July 9, 2007.
---------------------------------------------------------------------------

    \46\ See 72 FR 31441, June 7, 2007.
    \47\ An eligible national bank is one that is well capitalized 
under the OCC's rules and has a composite rating of ``1'' or ``2'' 
under the Uniform Financial Institutions Rating System with at least 
a rating of ``2'' for asset quality and for management. See 12 CFR 
32.2(i).
---------------------------------------------------------------------------

    The interim final rule makes two changes to the current program. 
First, the program as initially adopted in September 2001 provided for 
an expiration date. The expiration date has been extended over the 
years to September 11, 2007. The interim final rule deletes the 
expiration date thereby making the program permanent. Second, the 
interim final rule eliminates one of the restrictions that applied to 
such lending. Other restrictions and caps based on the bank's capital 
and surplus, however, continue to apply. Eligible national banks will 
continue to be subject to caps on the special lending authority that 
apply both to an individual borrower and to the aggregate amount that a 
bank may lend under the program. The OCC's supervisory experience with 
the program has been positive from a safety and soundness perspective. 
Moreover, national banks participating in the program indicate that the 
special lending limits allows them to better serve their customers and 
communities.
    (2) Electronic Banking Rule. Regulatory burden results when 
regulations do not keep up with the changing ways in which banks do 
business. The OCC also has updated its rules and processes to reflect 
the effects of technological advances on the business of banking. In 
2002, the OCC published a final rule entitled ``Electronic 
Activities.'' \48\ This rule clarified and expanded the types of 
electronic activities that national banks are permitted to conduct and 
placed all of its related rules together in one section of the Code of 
Federal Regulations (CFR) for ease of reference.
---------------------------------------------------------------------------

    \48\ See 67 FR 34992, May 17, 2002.
---------------------------------------------------------------------------

    The regulation incorporated specific precedent addressing the 
ability of national banks to act as ``finders'' via electronic means, 
such as the Internet. It also codified the standards that the OCC 
applies to determine whether electronic banking activities are part of, 
or incidental to, the business of banking and thus permissible under 
federal law. The final rule also clarified that a proposed activity 
comprising separate permissible interrelated activities also would be 
permissible.
    The rule permitted national banks to acquire or develop excess 
capacity in good faith for banking purposes, and allowed banks to sell 
such capacity so long as it was legitimately acquired or developed for 
its banking business. It codified national bank authority to act as a 
digital certification authority and extended that authority to certify 
attributes going beyond identity, for which verification is part of, or 
incidental to, the business of banking. And it codified previous OCC 
interpretations confirming that a national bank may collect, process, 
transcribe, analyze, and store banking, financial and economic data for 
itself and its customers as part of the business of banking. Finally, 
the regulation clarified where an electronic bank is deemed to be 
``located'' for purposes of national banking law.
c. Streamlining the OCC's Regulatory Processes
    (1) Electronic Filings: e-Corp. The OCC has made effective use of 
technology to reduce the burden on national banks from the 
administrative processes necessary to obtain OCC approvals or file 
required notices. The OCC designed a new Web-based filing system, e-
Corp, to facilitate such filings. The system, launched in 2003, enables 
national banks to complete, sign, and submit applications 
electronically to the OCC. Originally limited to four classes of 
filings, the OCC recently adopted a final rule that allows national 
banks, at their option, to make any class of licensing filings 
electronically.\49\ E-Corp has reduced costs and regulatory burden for 
national banks by simplifying the filing of applications and notices 
and by providing easy, online access to much of the information that 
national banks need to complete such documents.
---------------------------------------------------------------------------

    \49\ See 69 FR 1, January 2, 2004.
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    (2) Streamlined Assessments Computation. In 2006, the OCC issued a 
final rule streamlining the process national banks use to compute their

[[Page 62061]]

semiannual assessments.\50\ The rule took effect on August 24, 2006. 
The revised regulation provides that the OCC, rather than the bank, 
calculates the assessment amount. The new procedures eliminated a 
cumbersome process for reviewing and correcting miscalculations.
---------------------------------------------------------------------------

    \50\ See 71 FR 42017, July 25, 2006.
---------------------------------------------------------------------------

    (3) Streamlined Procedures for Community Development Investments. 
In 2003, the OCC amended its community development investment 
regulation at 12 CFR 24. (See 68 FR 48771, August 15, 2003.) The final 
rule provided for a streamlined, after-the-fact notice process for 
eligible banks making investments permissible under the authority of 12 
U.S.C. 24 (Eleventh). The OCC undertook this step to make the filing 
process less burdensome on national banks, while ensuring that the OCC 
continued to receive information it needs for supervisory purposes.
    (4) Streamlined Procedures for Federal Branches and Agencies. On 
December 19, 2003, the OCC published a final rule revising its 
international banking regulations. (See 68 FR 70691, December 19, 
2003.) Consistent with the procedures available for domestic national 
banks, the final rule permitted federal branches and agencies of 
foreign banks in the United States to make additional regulatory 
filings through an after-the-fact notice, rather than a more detailed 
application, and streamlined review times for filings and applications. 
In addition, the final rule provided that foreign banks would operate 
under a single license, as is the case for domestic national banks, 
rather than having to obtain separate licenses for each federal branch 
or agency that a foreign bank operates in the United States; this 
latter change greatly simplifies the regulatory filing process for such 
offices of foreign banks.
    d. Explaining Regulatory Requirements. The OCC's primary vehicle 
for explaining regulatory requirements to national banks is through our 
ongoing supervisory activities. All supervisory offices have frequent 
contact with the management and boards of the banks in their 
portfolios, allowing the OCC to inform banks of regulatory changes and 
requirements on an individual basis.
    Timely and detailed OCC issuances explaining regulatory changes are 
distributed to all national banks, and are available for reference on 
our public Web site. Additionally, on a quarterly basis, the OCC 
provides all national banks with a comprehensive list and brief summary 
of issuances from the prior quarter. Bankers find this quarterly 
summary a valuable tool for ensuring that they are aware of new and 
changing regulatory requirements.
    The OCC also sponsors extensive outreach forums for providing 
guidance to bankers on regulations, examination practices, and 
initiatives. These events range from small group meetings to larger 
regional sessions; the Comptroller himself is the primary speaker at 
many such sessions. The OCC supplements its outreach efforts by 
offering a variety of banker education seminars on topics including our 
risk assessment process, credit risk management, compliance risk 
management, and issues of particular interest to new national bank 
directors.
    e. Risk-Based Supervision. The OCC employs a risk-based approach to 
supervision that distinguishes between large/mid-size banks and 
community banks to reflect the generally less complex activities of 
smaller institutions. Regardless of size and complexity, the primary 
focus is an evaluation of the bank's risk management system to 
determine its ability to identify, measure, monitor, and control risks. 
This evaluation is accomplished through an assessment of the bank's 
policies, processes, personnel, and control systems that tailors 
examination activities to the key characteristics of each bank, 
including products and services offered, volume of activities, markets 
in which it competes, and the board's and management's tolerance for 
risk.
4. The Office of Thrift Supervision
    a. Application and Reporting Requirements. Based on comments 
received through the EGRPRA interagency review process, OTS issued an 
interim final rule in August 2005 to reduce the regulatory burden on 
savings associations by updating and revising various application and 
reporting requirements. These revisions included exempting certain 
highly rated savings associations from branch and home office 
application requirements and eliminating some application and notice 
requirements for branch relocations and agency offices. OTS also 
conformed the various application publication requirements and public 
comment periods to the extent permissible under statutory requirements. 
This final rule revised the agency's procedures for formal and informal 
meetings as well as eliminated a number of OTS rules that no longer 
served a useful regulatory purpose.
    Specifically, the final rule:
     Modified the branch office and agency office application 
and notice requirements,
     Harmonized publication and public comment procedures for 
various applications and notices, and
     Revised the meeting procedures.
    OTS also amended 12 CFR 528.4 to require displays of the equal 
housing logotype and legend only in advertisements for housing related 
loans. The equal housing lender logotype did not provide relevant 
information to individuals shopping for loans unrelated to housing. As 
a result, the former rule imposed an unnecessary burden on savings 
institutions who must provide the information, and on consumers who 
must process this information in addition to the volume of other data 
that they receive in connection with consumer and commercial loan 
applications. OTS also noted this rule change promotes consistency with 
related rules issued by the other banking agencies, which require the 
display of the equal housing lender logotype and legend only with 
respect to advertisements for housing-related loans.
    In addition to the burden-reducing changes discussed above, the 
final rule eliminated the following regulations:
     12 CFR 545.74. This rule imposed various requirements on 
securities brokerage activities of service corporations. The 
requirements were obsolete, conflicted with the current law and 
guidance, and were confusing to the industry.
     12 CFR 563.181. This rule required mutual savings 
associations to report changes in control. It implemented section 407 
of the National Housing Act, which was repealed in 1989.
     12 CFR 563.183. This rule required savings associations 
and savings and loan holding companies to report changes of chief 
executive officers and directors that occur with stated time periods 
before or after a change of control. This rule implemented 12 U.S.C. 
1817(j)(12), which requires notices under more limited circumstances. 
OTS will rely on the more limited statutory requirements.
     12 CFR 567.13. This rule addressed capital maintenance 
agreements and was obsolete in light of other statutory and regulatory 
protections.
    b. Transactions With Affiliates. In December 2002 and October 2003, 
OTS issued final rules revising its existing rules implementing section 
11 of the HOLA which applies sections 23A and 23B of the Reserve Act to 
savings associations. These final rules revised OTS's existing rules to 
incorporate applicable provisions of the Board's Regulation W to 
savings associations. Among other things, OTS's transactions with 
affiliates (TWA) rules conform the

[[Page 62062]]

definition of ``affiliate'' to more closely correspond to the 
Regulation W definition thus making application more uniform among the 
federal regulators. This change generally reduced the scope of entities 
that would be deemed thrift affiliates. Historically, OTS also had 
incorporated certain presumptions of control from part 574 into the 
definition. By amending its TWA rules, OTS eased regulatory burden by 
issuing a set of rules that tend to be less restrictive than the 
agency's historical standards.
    c. Examination Efficiencies and Electronic Initiatives. Recognizing 
that on-site examinations represent the single biggest area of 
regulatory burden on the industry, OTS continues to undertake 
initiatives to reduce the burden of the supervisory and examination 
process.
    (1) Comprehensive Exams. OTS has reduced regulatory burden through 
the comprehensive examination process. This comprehensive approach has 
improved the examination process by combining the safety and soundness 
and compliance functions. Instead of having two separate examination 
teams, now OTS has one exam team on site at one time during the year to 
perform safety and soundness and compliance review. The comprehensive 
exam process produces one exam report and a more comprehensive 
assessment of an institution's risk profile.
    (2) Risk-Focused Exams. OTS also has a risk-focused examination 
approach that contemplates that the management review should generally 
be the focus of the examination on noncomplex thrifts that have a 
modest risk profile and sustained performance within industry norms. 
OTS examiners have the flexibility to tailor the depth of review 
depending on the level of risk and complexity of each of the CAMELS and 
compliance components.
    (3) Electronic Communication. OTS is continuing to improve its 
electronic communication channels to make electronic transmission of 
examination data even more effective. These improvements include 
installation of virtual private network software on the examiners' 
notebook computers to enable them to securely access OTS systems and 
data over high-speed, broadband connections from a savings association 
or other locations.
    (4) Electronic Preliminary Examination Response Kit. OTS also 
converted the Preliminary Examination Response Kit documents to 
electronic forms that may be completed by the association and returned 
electronically for examiners to use in performing examinations. The 
files may be provided to OTS through a Secure Messaging Center or on a 
compact disc. To facilitate the timely transmission of sensitive data 
and information, OTS designed the Secure Messaging Center to meet 
industry standards for secure electronic data exchange.
    (5) Off-Site Exam Work. Through expanded use of electronic 
information, OTS envisions even greater opportunities to use high-speed 
access from savings associations or remote locations to reduce the 
burden on staff and facilities and ultimately reduce the amount of on-
site time during examinations.
    d. Directors' Responsibility Guide and the Directors' Guide to 
Management Reports. In 2006, OTS issued updated versions of the 
Directors' Responsibility Guide and the Directors' Guide to Management 
Reports to highlight OTS's supervisory expectations for a strong, 
consistent approach towards sound corporate governance practices, as 
well as the importance of strong, independent boards of directors.
    The updated Directors' Guide adds a new section on statutory and 
regulatory responsibility and clarifies the issue of blurred lines of 
responsibility between the board and management. This is an area where 
the industry had raised questions and OTS determined that additional 
clarity would reduce uncertainty and regulatory burden. There is also a 
chart on the applicability of selected SOX requirements. The 
streamlined, restructured Guide to Management Reports consolidates some 
existing reports and adds additional red flags to monitor internal 
controls and financial performance.
    e. Thrift Financial Report. OTS is a member of the interagency 
FFIEC Reports Task Force that works to help ensure reporting uniformity 
among the agencies. Nevertheless, differences between the Thrift 
Financial Report (TFR) and the Call Report remain. These differences 
relate to the housing and mortgage focus of the thrift industry and the 
fact that OTS uses TFR data as input for its interest rate risk model 
used to measure and monitor interest rate risk. OTS continues to study 
the feasibility of adopting the Call Report, perhaps with certain 
additional reports that would allow OTS to monitor interest rate risk 
and mortgage loan changes and trends.
    f. Ongoing Efforts to Communicate. Ongoing outreach efforts outside 
of the exam process are also essential to improving communications. OTS 
regularly sponsors ``town meetings'' at which our regional directors 
discuss pressing issues and solicit input from thrift managers.
    (1) Agency Web Site. In an effort to further relieve compliance 
burdens, OTS makes information available to all through the agency Web 
site. Savings associations can find comprehensive contact information 
for all program areas in addition to the following:

 Relevant statutes and CFRs
 Guidance
 Proposed and final rules
 Public comments
 Handbooks
 TFR/Call Report data and instructions
 Expanded List of Permissible Activities
 Industry trends and analysis
g. Savings and Loan Holding Companies.
    OTS has a well-established program for discharging its statutory 
responsibilities with respect to savings and loan holding companies. 
The holding companies that OTS regulates range from non-complex shell 
companies to very large, internationally active conglomerates. OTS's 
seamless supervision at all levels of an organization--at the bank 
level as well as at savings and loan holding companies--ensures a 
comprehensive supervisory regime with minimal regulatory overlap. Any 
company that owns or controls a savings association (other than a bank 
holding company) is subject to OTS supervision up to and including the 
top-tier parent company. OTS has top-tier holding company supervisory 
responsibility over groups that contain both financial and industrial 
lines of business. Household names like General Electric, AIG, American 
Express, and GMAC are all thrift holding companies and subject to 
consolidated supervision by OTS. Many of these groups are also subject 
to the European Union Financial Conglomerates Directive. OTS has worked 
hard over the past several years to improve and enhance its 
coordination and communication with the global supervisory community--
and this remains a priority for the organization.

E. Conclusion

    EGRPRA served as an impetus for all of the Agencies to review their 
regulations in-depth and to work collaboratively on a number of 
regulatory burden reduction matters, to develop a consensus on 
desirable legislative reforms, and to work together with Congress to 
pass legislation that will help reduce the level of burden on financial 
institutions.
    The Agencies benefited from the synergy created by Congress's 
consideration of regulatory burden relief legislation for the banking 
industry.

[[Page 62063]]

Therefore, the EGRPRA process allowed the federal banking agencies to 
identify other specific proposals for which there was broad support 
among the Agencies and to refine those proposals that were already 
being considered by the Agencies (such as development of model privacy 
notices). This process also provided the opportunity to review 
proposals with the industry, consumer groups, and other interested 
parties.
    While the FSRRA was an important step in addressing regulatory 
burden, the Agencies believe it is important for Congress to continue 
to look for ways to reduce any unnecessary regulatory burdens on 
banking organizations. As noted in this report, each agency developed 
or supported a number of legislative burden reducing proposals that 
ultimately were not included in the FSRRA. Congress may find these 
proposals a useful starting point in considering additional regulatory 
relief measures in the future.

Appendix I-A: The Financial Services Regulatory Relief Act of 2006

    The Senate Banking, Housing, and Urban Affairs Committee (Senate 
Banking Committee) and the House Financial Services Committee have 
worked for several years to craft appropriate regulatory burden 
reduction legislation. Agency principals and other senior level 
officials of the Agencies testified before these committees on seven 
different occasions over the last four years. At those hearings, agency 
representatives testified regarding a wide variety of regulatory burden 
reduction legislative proposals, many of which were incorporated into 
the FSRRA. In addition, upon request, agency representatives offered 
technical assistance to congressional staff in connection with the 
development of that Act, which was enacted on October 13, 2006.
    Among the items included in the FSRRA that will reduce the 
regulatory burden on financial institutions are the following: \51\
---------------------------------------------------------------------------

    \51\ For those provisions affecting mainly credit unions, please 
refer to the NCUA report in Part II.
---------------------------------------------------------------------------

    1. Provides for joint rules to be issued to implement the bank 
``broker'' exceptions adopted as part of the GLBA. Section 101 of the 
FSRRA requires that the SEC and the Board, in consultation with the 
OCC, FDIC and OTS, adopt a single set of rules to implement the 
``broker'' exceptions for banks in section 3(a)(4)(B) of the Securities 
Exchange Act of 1934. In December 2006, the Board and the SEC jointly 
requested comment on a proposed single set of rules to implement these 
exceptions. See 71 FR 77522, December 26, 2006.
    2. Reduces reporting requirements currently imposed on banks and 
their executive officers and principal shareholders related to lending 
by banks to insiders. Section 601 of the FSRRA amended section 22(g) of 
the Federal Reserve Act \52\ and section 106(b)(2) of the Bank Holding 
Company Act Amendments of 1970 \53\ to eliminate several reporting 
requirements currently imposed on federally insured banks and savings 
associations, their executive officers, and principal shareholders.
---------------------------------------------------------------------------

    \52\ 12 U.S.C. 375a.
    \53\ 12 U.S.C. 1972(2).
---------------------------------------------------------------------------

    The Agencies determined that these particular reports did not 
contribute significantly to the monitoring of insider lending or the 
prevention of insider abuse. Identifying and reviewing insider lending 
will continue to be conducted as part of the normal examination and 
supervision process, and the amendments will not alter the restrictions 
on insider loans or limit the authority of the Agencies to take 
enforcement action against a bank or its insiders for violations of 
those restrictions.
    3. Streamlines Consolidated Reports of Condition by requiring that 
the federal banking agencies periodically review the information and 
schedules required to be filed by insured depository institutions. 
Section 604 of the FSRRA amended section 7(a) of the FDI Act \54\ to 
require that, within one year after enactment of the FSRRA and at least 
once every five years thereafter, each federal banking agency, in 
consultation with the other agencies, shall routinely review both the 
burdens and benefits associated with Call Report information 
requirements so as to reduce any unnecessary burden.
---------------------------------------------------------------------------

    \54\ 12 U.S.C. 1817(a).
---------------------------------------------------------------------------

    4. Streamlines merger application requirements and exempts certain 
merger transactions from competitive factors review and post-approval 
waiting periods. Section 606 of the FSRRA amended section 18(c) of the 
FDI Act \55\ (the Bank Merger Act) to eliminate the requirement that 
each federal banking agency request a competitive factors report from 
the other three federal banking agencies as well as from the Attorney 
General in connection with the bank mergers. Instead, the amendment 
allows the agency reviewing the Bank Merger Act application to request 
a report only from the Attorney General and to provide a copy of this 
request to the FDIC as insurer.
---------------------------------------------------------------------------

    \55\ 12 U.S.C. 1828(c).
---------------------------------------------------------------------------

    This section also modifies the Bank Merger Act to exempt certain 
merger transactions between an insured depository institution and one 
or more of its affiliates from both the competitive factor review 
process and the post-approval waiting period. This type of merger 
generally is considered to have no material effect on competition.
    5. Provides an inflation adjustment for the small depository 
institution exception under the Depository Institution Management 
Interlocks Act. Section 610 of the FSRRA amended section 203(1) of the 
Depository Institution Management Interlocks Act which prohibits 
depository organizations from having interlocking management officials, 
if the organizations are located or have an affiliate located in the 
same Metropolitan Statistical Area, Primary Metropolitan Statistical 
Area, or Consolidated Metropolitan Statistical Area. Prior to the 
FSRRA, this prohibition did not apply to depository organizations with 
total assets of less than $20 million. The Agencies proposed that this 
total asset threshold for the MSA exception be raised to $100 million. 
The FSRRA raised the threshold to $50 million.
    6. Authorizes the Board to pay interest on reserves. Section 201 of 
the FSRRA gives the Board express authority, effective October 1, 2011, 
to pay interest on all types of balances (including required reserves, 
supplemental reserves and contractual clearing balances) held by or for 
depository institutions at the Federal Reserve Banks.
    7. Increases flexibility for the Board to establish reserve 
requirements. Effective October 1, 2011, section 202 of the FSRRA gives 
the Board the discretion to set reserve requirements for transaction 
accounts below the ranges established in the Monetary Control Act of 
1980.
    8. Enhances examination flexibility. Section 605 of the FSRRA and 
related legislation amended section 10(d) of the FDI Act \56\ to permit 
insured depository institutions that have up to $500 million in total 
assets, and that meet certain other criteria, to qualify for an 18-
month (rather than 12-month) on-site examination cycle.\57\ These 
legislative

[[Page 62064]]

changes will potentially permit more well-capitalized and well-run 
small institutions to qualify for less-frequent examinations.
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    \56\ 12 U.S.C. 1820(d).
    \57\ In addition to the size criteria, an institution is 
eligible for the extended examination cycle if it is well 
capitalized, has not undergone a recent change in control, is not 
subject to a formal enforcement proceeding, and has been assigned a 
management and a composite rating of ``1'' or ``2'' under the 
Uniform Financial Institutions Rating System at its most recent 
examination.
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    9. Provides for the simplification of dividend calculations for 
national banks. Section 302 amended section 5199 of the Revised 
Statutes of the United States \58\ to simplify dividend calculations 
for national banks and provide more flexibility to a national bank to 
pay dividends as deemed appropriate by its board of directors. 
Previously, the payment of dividends was subject to a complex formula.
---------------------------------------------------------------------------

    \58\ 12 U.S.C. 60.
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    10. Repeals the loans-to-one borrower limitations for savings 
associations in section 5(u)(2)(A) of the Home Owners' Loan Act.\59\ 
Section 404 eliminated the loans-to-one borrower provision that 
restricts loans by savings associations to develop domestic residential 
housing units to a $500,000 per unit for each single-family dwelling 
unit, while retaining the overall limitation for a residential 
development of the lesser of $30 million or 30 percent of the 
unimpaired capital and unimpaired surplus.
---------------------------------------------------------------------------

    \59\ 12 U.S.C. 1464(u)(2)(A).
---------------------------------------------------------------------------

    11. Allows savings associations to invest in bank service companies 
under the Bank Service Company Act \60\ and expands the locations at 
which a bank service company may provide services that are permissible 
for each of its investing members.
---------------------------------------------------------------------------

    \60\ 12 U.S.C. 1842 and 1863.
---------------------------------------------------------------------------

    12. Amends federal law to facilitate and coordinate the supervision 
of state banks operating across state lines by the bank's home and host 
state bank supervisors. For example, section 711 of the FSRRA amends 
section 10(h) of the FDI Act \61\ to provide for a host state bank 
supervisor to exercise its supervisory and examination authority in 
accordance with any cooperative agreement between the host state and 
home state bank supervisors.
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    \61\ 12 U.S.C. 1820(h).
---------------------------------------------------------------------------

    13. Authorizes member banks to use pass-through reserve accounts. 
Section 603 of the FSRRA permitted member banks to count as reserves 
deposits in other banks that are passed through by those banks to the 
Board as required reserve balances, rather than requiring a member bank 
to maintain its reserves either in an account at a Federal Reserve Bank 
or as vault cash.
    14. Amends the Securities Exchange Act of 1934 and the Investment 
Advisors Act of 1940 to remove the duplicative oversight burden and to 
provide savings associations with the same exemptions from registration 
and reporting requirements currently provided to banks.

Appendix I-B: Methodology of the Agencies' EGRPRA Review Process

    This interagency review formally began in 2003, under the 
leadership of then-FDIC Vice Chairman (now OTS Director) John Reich, 
whom FFIEC asked to chair this effort. The three-year process included 
a review of almost all of the Agencies' 131 regulations in an effort to 
reduce regulatory burden, where appropriate, or to recommend statutory 
changes to reduce burden when the Agencies lack authority to do so 
unilaterally.
    Under Mr. Reich's leadership, the Agencies established an 
interagency EGRPRA Task Force consisting of senior-level 
representatives from each of the Agencies. In accordance with statutory 
requirements, the federal banking agencies have categorized and divided 
their regulations into 12 categories by type.\62\
---------------------------------------------------------------------------

    \62\ As discussed in Part II, NCUA prepared comparable 
categories of its rules affecting credit unions.
---------------------------------------------------------------------------

    The statute requires that the Agencies publish one or more 
categories of the regulations for public comment on a periodic basis. 
The requests for comment should ask commenters to identify regulations 
that are outdated, unnecessary or unduly burdensome.
    The EGRPRA Task Force recommended, and the Agencies agreed, to put 
one or more categories out for public comment every six months, with 
90-day comment periods, for the remainder of the review period that 
ended in September 2006. The Agencies decided that spreading out 
comments over three years would provide sufficient time for the 
industry, consumer groups, the public and other interested parties to 
provide more meaningful comments on our regulations, and for the 
Agencies to carefully consider all recommendations.
    The table below indicates which categories of regulations were 
published in each of the six Federal Register notices, as well as the 
dates they were issued:

----------------------------------------------------------------------------------------------------------------
         Federal Register Notice                             Sought comment on:                     Issue date
----------------------------------------------------------------------------------------------------------------
First....................................  The Agencies' overall regulatory review plan, as well      06/16/2003
                                            as the following initial three categories of
                                            regulations for comment: Applications and Reporting;
                                            Powers and Activities; and International Operations.
                                            (See 68 FR 35589.)
Second...................................  The lending-related consumer protection regulations,       01/20/2004
                                            which included Truth-in-Lending (Regulation Z),
                                            Equal Credit Opportunity Act (ECOA), Home Mortgage
                                            Disclosure Act (HMDA), Fair Housing, Consumer
                                            Leasing, Flood Insurance and Unfair and Deceptive
                                            Acts and Practices. (See 69 FR 2852.)
Third....................................  The consumer protection regulations that relate            07/20/2004
                                            primarily to deposit accounts/relationships. (See 69
                                            FR 43347.)
Fourth...................................  The regulations related to anti-money laundering,          02/03/2005
                                            safety and soundness, and securities. (See 70 FR
                                            5571.)
Fifth....................................  The regulations related to banking operations;             08/11/2005
                                            directors, officers and employees; and rules of
                                            procedure. (See 70 FR 46779.)
Sixth....................................  The Agencies' Prompt Corrective Action regulations as      01/04/2006
                                            well as the rules relating to the disclosure and
                                            reporting of CRA-related agreements. (See 71 FR
                                            287.) Since the Agencies had recently sought public
                                            comment of the burdens associated with their general
                                            capital and CRA rules, the Agencies did not seek
                                            further burden reduction comments on those rules
----------------------------------------------------------------------------------------------------------------

    The Agencies readily recognized that consumer and public insight 
into regulatory burden issues would be critical to the success of their 
effort. Consequently, the regulatory agencies tried to make it as 
convenient as possible for all interested parties to receive 
information about the EGRPRA project and to comment on what they 
thought were the most critical regulatory burden issues.

[[Page 62065]]

EGRPRA Web Site

    The Agencies established an EGRPRA Web site (http://www.egrpra.gov). The Web site provides an overview of the EGRPRA review 
process, a description of the Agencies' action plan, information about 
our banker and consumer outreach sessions, and a summary of the top 
regulatory burden issues cited by bankers and consumer groups. The Web 
site also includes direct links to the actual text of each regulation 
and a button for relaying comments. Comments submitted through the Web 
site were automatically transmitted to each of the Agencies. Comments 
were then posted on the EGRPRA Web site for everyone to see. The Web 
site proved to be a popular source for information about the EGRPRA 
project, with thousands of ``hits'' being reported every month.
    While written comments were important to the Agencies' efforts to 
reduce regulatory burden, the Agencies believed that it was also 
important to have face-to-face meetings with bankers and consumer/
community group representatives so that they would have an opportunity 
to directly communicate their views to the regulators on the issues 
that most concern them.

Outreach Meetings

    The federal banking agencies decided to sponsor a total of 10 
banker outreach meetings in different cities around the country to 
heighten industry awareness of the EGRPRA project. The meetings 
provided an opportunity for the Agencies to listen to bankers' 
regulatory burden concerns, explore comments and suggestions, and 
identify possible solutions.
    More than 500 bankers (mostly CEOs) and representatives from the 
American Bankers Association, America's Community Bankers, Independent 
Community Bankers of America, the Conference of State Bank Supervisors 
(CSBS), as well as representatives from numerous state trade 
associations participated in the meetings. In addition, more than 70 
representatives from the Agencies, CSBS, and the state regulatory 
agencies participated. The Agencies believe that the banker outreach 
meetings were useful and productive. Summaries of the issues raised 
during those meetings were posted on the EGRPRA Web site.
    The Agencies also co-sponsored three outreach meetings specifically 
for consumer and community groups. Representatives from a number of 
consumer and community groups participated in the meetings along with 
representatives from the Agencies and CSBS. Those meetings produced 
many suggestions and provided a useful perspective on the effectiveness 
of many existing regulations.
    Finally, the Agencies sponsored three joint banker and consumer/
community group focus group meetings in an effort to develop greater 
consensus among the parties on legislative proposals to reduce 
regulatory burden.
    The Agencies found these outreach and focus group meetings to be 
extremely helpful in identifying the most burdensome regulations for 
the industry, discussing possible solutions and understanding the 
concerns of consumer and community groups about changing certain 
provisions of the current law and regulations.

Appendix I-C: Summary of Comments, by Federal Register Notice Release 
and by Subject Matter for the Federal Banking Agencies

I. Federal Register Notice Release No. 1: Applications and Reporting, 
Powers and Activities, and International Operations

(Note: The notice also requested comment on the overall EGRPRA 
process.)
A. General Comments
    1. Regulatory Burden. The federal banking agencies received general 
comments on regulatory burden through the Federal Register notice 
process as well as during the various Bankers Outreach meetings.
    One commenter was appreciative of recent efforts to reduce the 
regulatory requirements on small institutions and encouraged regulators 
to continue reviewing regulations and making exceptions for smaller 
institutions. Another industry group commenter was concerned that small 
institutions are still disproportionately burdened because they cannot 
afford to hire more employees to comply with the volume of regulation. 
The same commenter complained that credit unions do not have to pay the 
taxes that small institutions pay.
    Most bankers asserted that, while the compliance burden is 
particularly taxing on small institutions, reducing regulatory burden 
would assist banks of all sizes in refocusing on their core mission: 
Meeting the financial needs of the public while providing value to 
stakeholders at all levels.
    Many other commenters were concerned with the increased burden 
associated with the consumer regulations, SARS/CTR filings, BSA 
compliance, and PATRIOT Act, some of which is not exclusively related 
to banking.
    2. Examination Burden. During the outreach meetings, bankers asked 
the federal banking agencies to better coordinate examinations, 
particularly at banks that are regulated by multiple agencies, such as 
the State, Board, and FDIC. They explained that the burden is 
especially difficult for management and directors of affiliated 
institutions because examiners seem to be in one or more of the 
institutions all of the time conducting different types of exams. They 
complained that preparing pre-exam packages and responding to examiner 
questions is time consuming for management. On the other hand, they 
applauded the exams where the state and federal regulators worked 
together. Bankers also suggested that regulators use the findings of 
the safety and soundness examination to determine the need for, and 
scope of, specialty area examinations.
    One commenter suggested that the federal banking agencies adopt a 
risk-based or two-tiered approach based on an institution's size and 
complexity of operations. While another industry commenter complained 
about the amount of examination time spent when the institution and the 
examiners struggle to interpret complex compliance rules.
    3. Continuous Regulation Review. A few commenters encouraged the 
federal banking agencies to use sunset provisions to regularly review 
the need for regulations. One commenter cited the newly proposed 
identity theft regulations as an example of a regulation that needs to 
be reevaluated on a regular basis.
    Another commenter requested that the FDIC lead an effort to bring 
together regulators, bankers, legislators, and consumers to review all 
consumer regulations to streamline the disclosure process, so that 
consumers receive disclosures that are meaningful and concise. More 
specifically, the commenter recommended:
     Implementing burden reduction recommendations that are 
rule changes and do not require legislative action to implement needed 
changes faster.
     Improving guidance from the Agencies so that it is clear 
and consistent.
B. Powers and Activities
    1. Activities of Insured State Banks. Part 362 of the FDIC rules 
and regulations implement section 24 of the FDI Act that restrict and 
prohibit insured state banks and their subsidiaries from engaging in 
activities and investments that are not permissible for national banks 
and their subsidiaries. Some of the commenters

[[Page 62066]]

questioned the need for FDIC review of subsidiary activities that are 
not permissible for a national bank, terming the requirement unclear.
    2. Bank Holding Companies and Financial Holding Companies. Two 
industry trade association commenters urged the Board to revise its 
Small Bank Holding Company Policy Statement in Regulation Y to increase 
the asset-size cap from $150 million to $500 million or $1 billion for 
purposes of defining a ``small bank holding company.'' One commenter 
also encouraged the Board to revise the Statement to increase the debt-
to-equity ratio from 1:1 to 3:1 as the threshold for dividend payment 
restrictions, because purchasers of small banks frequently need to 
borrow all or a substantial portion of the purchase price.
    A commenter also urged the Board to revise Regulation Y to remove 
restrictions on the activities of a subsidiary of a subsidiary bank of 
a bank holding company (BHC). The commenter noted that these 
restrictions have created competitive inequities, in some cases, by 
preventing subsidiaries of state member banks with a BHC from engaging 
in activities in which subsidiaries of state nonmember banks may engage 
under relevant state law, including activities approved by the FDIC for 
state nonmember banks and their subsidiaries.
    Several commenters, including industry trade associations, stated 
that a BHC that is not a financial holding company (FHC) should be 
authorized to conduct an expanded scope of insurance agency activities 
directly or through a nonbanking subsidiary, rather than indirectly 
through a subsidiary bank that is authorized under state law to engage 
in such activities. Two commenters contended that BHCs that are well 
managed and well capitalized and that have satisfactory CRA performance 
records should be allowed to engage in the broader range of activities 
permitted for FHCs, including securities and insurance underwriting, 
even if the BHCs have chosen not to become FHCs. They also stated that 
such BHCs should be permitted to file post-notices for proposals to 
engage in permissible nonbanking activities to the same extent that 
FHCs can file post-notices.
    In addition, one commenter urged the Board to amend the FHC rules 
in Regulation Y that relate to organizing, sponsoring and managing 
mutual funds (12 CFR 225.86(b)(3)) to remove the requirement that a FHC 
reduce its ownership in a fund to less than 25 percent of the fund's 
equity within one year of sponsoring the fund. The commenter asserted 
that such restriction was unduly burdensome, because it was not 
mandated by the GLBA and appeared to result unnecessarily in more 
limited authority for an FHC's domestic mutual fund activities than 
what currently is authorized under the Board's Regulation K for mutual 
fund activities conducted abroad.
    An industry trade association commenter also stated that the 
statutory cross-marketing prohibitions on subsidiary depository 
institutions of an FHC should be revised to apply only with respect to 
cross marketing of products and services of a company in which the FHC 
holds a controlling interest of more than 25 percent.
    3. State Member Banks. To help ease burden on state member banks 
with excess capital, a commenter requested that the Board eliminate the 
restriction in Regulation H on dividend payments (12 CFR 208.5) for 
well-capitalized banks that will remain well capitalized following 
payment of the dividends. Another commenter asserted that the branching 
and investment authority for state member banks should not be limited 
to what is permissible for a national bank.
    4. Community Development Corporations, Community Development 
Projects, and Other Public Welfare Investments. One commenter suggested 
that the OCC should reduce the burden of the self-certification 
requirement for public welfare investments, either by waiving the 
requirement for well-managed national banks with an Outstanding CRA 
performance rating, by creating a de minimis level below which no 
certification is required, or by establishing a like-kind investment 
exception similar to that found in 12 CFR 5.
    Also, the commenter stated that federal savings associations should 
be able to invest in community development entities to the same extent 
as national banks. Under current law, savings associations may only 
make such investments through a service corporation. Because many 
savings associations do not have service corporations, this limits 
their ability to serve low- and moderate-income communities.
    Another commenter stated that the Board should update its 
regulatory interpretation on community welfare investments (12 CFR 
225.127) to reference the quantitative limits on those investments that 
would not require prior Federal Reserve System (FRS) approval in terms 
of a percentage of the BHC's consolidated Tier 1 and Tier 2 capital 
plus the balance of the allowance for loan and lease losses excluded 
from Tier 2 capital. Currently, the interpretation provides that a BHC, 
directly or indirectly, may make community welfare investments up to 5 
percent of the BHC's consolidated ``capital stock and surplus'' without 
FRS approval.
    5. Financial Subsidiaries. Several commenters proposed removing 
certain limits on financial subsidiaries of banks, such as:
     The requirement that each of the 100 largest banks must 
maintain a top-three debt rating in order to hold a financial 
subsidiary.
     The prohibition on insurance underwriting and real estate 
development activities in a financial subsidiary.
     The requirements that financial subsidiaries not be 
treated as ordinary subsidiaries for capital, 23A/23B, and anti-tying 
purposes.
    6. OCC Lending Limits. One commenter urged the OCC to include 
agricultural loans in the categories of loans eligible for higher 
lending limits under an OCC pilot program allowing eligible national 
banks to take advantage of higher lending limits for small business 
loans and residential real estate loans. The commenter further urged 
that the $500,000 cap contained in the CRA regulation and Call Report 
instructions not apply in such cases.
    7. Debt Cancellation Contracts and Debt Suspension Agreements. One 
commenter proposed that the OCC make permanent the temporary suspension 
of rules regarding banks offering a periodic payment option and 
associated disclosures to Debt Collection Contracts (DCCs) and Debt 
Suspension Agreements (DSAs) sold by unaffiliated, nonexclusive third 
parties in connection with closed-end consumer loans. The same 
commenter stated that the OCC should extend the exception to all 
consumer loans, other than real estate loans, regardless of how such 
loans are sold.
    One commenter stated that the OCC should retain its regulations 
concerning DCCs and DSAs.
    8. Investment. One commenter proposed that the OCC revise 12 CFR 
1.3(h) to permit a national bank to purchase (without OCC approval) for 
its own account shares of an investment company or other entity, 
provided that (1) the portfolio of assets of the investment company or 
other entity consists exclusively of assets that a national bank may 
purchase and sell for its own account and (2) the bank's holdings of 
such shares do not exceed the limits set forth in section 1.4(e) of the 
regulations. The commenter likewise proposed expanding the

[[Page 62067]]

definition of investment company in 12 CFR 1.1(c) to include entities 
that are exempt under section 3(c)(1) of the Investment Company Act.
    One commenter proposed amending the Investment Adviser's Act to 
exclude savings associations from the definition of investment adviser.
    9. Dividend Payment. A commenter proposed that, for national banks 
with a single shareholder, dividends payable in property other than 
cash should not require the prior approval of the OCC under 12 CFR 
5.66, if the property is dividended at fair market value, the dividend 
does not exceed the limits set out in 12 U.S.C. 60, and the dividend 
comprises an ``insubstantial amount'' (less than 1 percent) of the 
bank's capital and surplus.
    10. Branching. One commenter proposed that 12 U.S.C. 36(g)(1) and 
1828(d)(4)(A) should be revised to allow national banks to engage in de 
novo interstate branching to the same extent as savings associations. 
They also recommended elimination of the states' authority to prohibit 
an out-of-state bank or BHC from acquiring an in-state bank that has 
not existed for at least five years. Another commenter proposed that 
the FDIC thoroughly examine the procedures for a bank to close a branch 
and notify its customers, and determine whether there are ways to make 
the process less onerous.
    11. Real Estate Lending. One commenter suggested an amendment to 12 
U.S.C. 1464(c)(2)(B)(i) to increase the statutory limit for loans 
secured by nonresidential real property and/or that OTS establish 
practical guidelines for non-residential real property lending at 
levels exceeding 400 percent of capital.
    Another commenter suggested elimination of the $500,000 per unit 
purchase price limit contained in section 1464(u)(2) of the HOLA. 
Another commenter suggested that the other real estate owned standards 
be amended to provide greater flexibility to banks, including allowing 
them to lease a property when they cannot dispose of it rapidly.
    12. Fiduciary Powers. One commenter stated that the SEC's final 
rule to implement the safe harbors for traditional trust activities and 
other services performed by financial institutions should apply to 
savings banks and savings associations and should not impose 
unnecessary burdens on community banks engaged in fiduciary activities.
    13. Scope of Investment Advisers Act. One commenter stated that the 
Investment Advisers Act of 1940 and its regulations burden savings 
associations unfairly, because savings associations and savings banks 
are not exempt from the definition of investment adviser. The commenter 
proposed amending the Investment Advisers Act to exclude savings 
associations from the definition of investment adviser.
    14. Application of Interest Rate Exportation Doctrine to Banks with 
Multi-State Branches. Two commenters expressed concerns about agency 
guidance on interest rate exportation. The commenter noted that the 
guidance varied between OTS, OCC, and FDIC, and that its application 
could vary by transaction. The commenter recommended that the Agencies 
clarify that banks could use their home state interest rates regardless 
of the contacts (or lack thereof) between the home state and the loan. 
The Agencies should further clarify the factors that the institution 
needs to consider when they use the rate of a state other than the home 
state. The commenter said that the Agencies should issue a new joint 
rule to clarify these issues. The federal banking agencies also should 
review their interpretations concerning what constitutes ``interest'' 
under the export doctrine, to ensure consistency.
    15. Consumer Lending Limits for Savings Associations. One 
commenter, without recommending a particular change, noted that savings 
associations are developing business strategies that require more 
flexible consumer loan limits. The commenter urged OTS to review HOLA 
to see whether the agency could provide additional flexibility without 
amending the statute.
    16. Savings Association Business Lending Authority. One commenter 
suggested that federal savings associations be permitted to fully 
engage in small business lending and that the lending limit on other 
business loans be increased to 20 percent of assets. Expanding the 
business lending authority of federal savings associations would help 
to increase small business access to credit and expand the amount of 
loans made to small and medium-sized businesses.
    17. Bank Service Company Act. One commenter proposed amending both 
the Bank Service Company Act and HOLA to provide parallel investment 
authority for banks and savings associations to participate in both 
bank service companies and savings association service corporations.
    18. Eliminate Loan-to-One Borrower Residential Housing Exception. A 
commenter asserted that the $30 million/30 percent of all capital 
limits on residential lending for federal savings associations is 
sufficient to prevent concentrated lending to one housing developer and 
the per-unit cap ($500,000) is excessive. The commenter stated that OTS 
should either eliminate the per-unit cap or index it to inflation.
C. Applications and Reporting
    Commenters recommended changes to ease regulatory burden relief in 
the applications and reporting area.
    1. Applications (generally). Some commenters suggested general 
changes in the applications area, including both legislative and 
regulatory changes. These changes included:
     Providing expedited application/notification requirements 
for well-capitalized and well-managed banks with satisfactory CRA 
performance record ratings.
     Expediting application review and processing time, 
including by delegating certain applications to regional offices.
     Allowing electronic applications filing.
     Publishing a list of approved or denied activities.
     Handling routine applications, such as branch 
applications, as after-the-fact notice filings.
     Exempting well-capitalized savings associations from 
dividend notice requirements.
     Eliminating the requirement that a BHC receive prior FRS 
approval to acquire additional shares of a subsidiary BHC (such as when 
a BHC's ESOP that is a registered BHC wants to purchase additional 
shares of the BHC).
     Converting applications (such as new branch applications) 
to after-the fact notices.
    Some of the other changes that industry commenters suggested to 
improve the applications process included:
     Making publication requirements for different applications 
consistent.
     Terminating current requirements for applicants/
notificants to publish announcements of their regulatory filings in 
newspapers, because few people read the newspaper notices, such 
publications are expensive, and publication delays can lengthen 
processing times.
     Changing the Board's ex parte contact policy regarding 
protested applications to be consistent with the other Agencies' 
policies on protested applications.
     Allowing institutions to incorporate by reference 
previously filed documentation, with updates or certification of 
continued accuracy.
     Recognizing the distinction between internal restructuring 
and acquisition of a non-affiliated entity, with lesser information 
requirements for the former.
     Reconsidering the positions of the OCC and the Board that 
commonly

[[Page 62068]]

advised mutual funds or other investment funds are considered ``acting 
in concert,'' and thereby subject to Change in Control (CIC) notice 
requirements, whenever a fund family collectively acquires 10 percent 
or more of a bank or bank holding company. In addition, a fund's 
ownership of shares should not be attributed to the investment advisor 
(or its parent organization) for purposes of the CIC regulations.
    2. Bank Merger Act Applications. Many industry commenters suggested 
that the Agencies make their merger reviews more consistent with 
reviews by the Department of Justice or ask Congress to provide the 
Agencies with sole authority to conduct competitive analysis of bank 
mergers. In addition, credit union deposits should be included in the 
anti-competitive analysis of mergers because credit unions are active 
competitors with banks. Case-by-case analysis of such deposits imposes 
burdens on the applicant. Credit unions are full competitors with 
banks.
    In addition, another industry commenter recommended the following 
suggestions to ease the burden associated with the Bank Merger Act 
(BMA):
     Applying BMA streamlined filing procedures and timeframes 
to mergers between qualified banks and their affiliates.
     Clarifying that transfers of ``substantially all'' assets 
would not be subject to the BMA if the transfer does not materially 
impact the institution.
     Establishing a BMA de minimus exception for affiliate 
transfers of deposit liabilities.
    3. OCC Business Combination Rule. One commenter noted that the 
OCC's business combinations rule (12 CFR 5.34) permits nonbank 
subsidiaries to merge into national banks, but the FDIC's regulations 
require the filing of an application with the FDIC and require the 
publication of notice and an opportunity for public comment on such 
transactions. The commenter said that the FDIC should eliminate the 
notice and opportunity for comment requirements as unnecessary when the 
merging entity is a wholly owned bank operating subsidiary. 
Alternatively, the FDIC should be able to waive these requirements on a 
case-by-case basis.
    4. Savings and Loan Holding Company Applications. One commenter 
suggested that OTS revise the publication requirements for Form H(e) 
applications to conform to those included in the BMA. The same 
commenter suggested that OTS revise the requirements of Items 110.20(d) 
and 220.30 of the Form H(e) application to request a list limited to 
those affiliated persons (as defined in 12 CFR 561.5) who are officers 
participating in major policy making functions of the applicant 
(especially where the applicant's stock is publicly held and no 
shareholder owns or controls more than 10 percent of the outstanding 
shares of stock). Similarly, another commenter urged OTS to streamline 
its Form H(e) application process if the thrift is highly rated and 
well managed. This commenter urged OTS to streamline the requirements 
of Item 110.40 where the application is for an internal reorganization. 
Likewise, OTS should limit or eliminate the requirements of Item 210.20 
when the applicant is well known; the information is readily available 
to OTS in other reported materials, and in situations involving an 
internal reorganization. The commenter also proposed that OTS eliminate 
Item 210.50 when the applicant is well known to OTS.
    This commenter also proposed that OTS revise Item 410.10(c) to 
request information only on those management officials the board has 
designated as participants in major policy making functions. Similarly, 
OTS should eliminate the requirements of Item 410.20 for those 
transactions involving holding companies whose directors are elected by 
shareholders, if the shares of the company's stock are publicly held 
and widely traded.
    For corporate reorganizations, OTS should streamline the 
requirements of Item 510.10. One specific suggestion was to eliminate 
the requirements of Item 510(a)(1) in transactions involving an 
applicant familiar to OTS, in corporate reorganizations, and for 
savings associations operating in relatively small geographic areas. 
Similarly, OTS should streamline the requirements of Item 620.10 for 
corporate reorganizations. Finally, this commenter recommended that OTS 
limit Items 720.10 and 720.30 to a request for those locations affected 
by the transaction, where the transaction involves a large savings 
association and/or an applicant that is well known to OTS.
    Commenters encouraged OTS to consider several other changes to 
their rules including:
     Eliminating the requirement for formal meetings/hearings 
on applications when a commenter asks for one.
     Placing additional controls on the 30-day notice period 
for well-managed, well-capitalized thrifts to avoid the notice becoming 
a de facto application process without any set deadline and clarifying 
the conditions upon which such notice will become an application.
     Amending its mutual holding company regulations and 
guidance and its mutual-to-stock conversion regulations.
     Allowing an application/notice waiver process for 
transactions reviewed by another regulator.
     Changing the Change-in-Control regulations to be 
consistent with the other Agencies.
    5. Reports (generally). Other comments more specifically applied to 
the reporting area. The general comments about reporting requirements 
included the following suggestions:
     Apply the materiality threshold for reporting purposes 
consistently across different regulatory reports.
     Clarify why certain data is collected.
     Revise the Summary of Deposits report instructions and 
definitions to reflect the types of branches that have come into use 
since emergence of interstate banking.
    6. Report Inconsistencies. Several industry commenters would like 
to see more consistency between Call Report schedules and FRY-9C 
schedules. They offered the following additional steps to reduce 
regulatory burden:
     Permit banks to submit one form and require Agencies to 
share the data since the two reports are practically identical and are 
compared to each other for discrepancies.
     Reconcile inconsistencies between the two reports to 
eliminate the burden of formatting and calculating the same financial 
data for different reports. For example, there are inconsistencies in 
the Income Statement, Interest Sensitivity data on various schedules, 
Past Due & Nonaccruals, and various memoranda items. There are also 
inconsistencies between the data definitions of the Call Report and FR-
2416.
     Classify all overdrafts with the appropriate loan category 
on Schedule C or classify them as ``all other loans.'' Currently both 
reports require classification of overdrafts as ``planned'' or 
``unplanned.'' This is not a distinction that member banks make in 
their internal and external reporting. In addition, regulatory reports 
require that unplanned overdrafts be reported as other loans, except 
when made to a depository institution, a foreign government or an 
official institution, in which case they are classified on the 
respective line.
    7. Call Reports. Commenter suggestions related specifically to Call 
Reports included:

[[Page 62069]]

     Removing items that are unnecessary for supervision.
     Modifying reported items to conform to banks' internal 
reporting systems.
     Reducing penalties for noncompliance, which currently are 
excessive.
     Eliminating the requirement that three bank directors sign 
because Call Reports are electronically submitted.
     Reducing the level of detail in loans, securities, and 
deposits schedules.
     Reconsidering the requirement for disclosure of tax-exempt 
income in Income Statement memoranda items and re-pricing for complex 
bank organizations because of their limited usefulness.
     Reconsidering the relevance of requiring disclosure 
details on Schedule RC-O, as current level of FDIC assessments is zero.
     Providing real time access to the electronic Call Report 
filing system.
     Including on the Call Report all items necessary for 
supervision of peer group analysis.
     Not diminishing data reporting requirements for Call 
Reports.
    8. FRY Reports. Commenter suggestions related specifically to the 
Board's FRY Reports included:
     FRY-8: Requiring a signature by one officer of the BHC, 
rather than signatures by an officer of each subsidiary bank.
     FRY-9C and -9LP: Eliminating or decreasing the frequency 
of filing, or decreasing the level of detail that is required (as in 
FRY-11).
D. International Operations
    The majority of comments on the category of international 
operations regulations concerned the Board's Regulation K, as described 
below. A commenter also stated that OTS should relax its rules that 
prohibit thrifts from owning less than 100 percent of a foreign 
operating subsidiary.
    Commenters questioned the limitations set forth in section 211.8(b) 
of Regulation K (12 CFR 211.8(b)) on direct investments by member 
banks. That section, which implements section 25 of the Federal Reserve 
Act (12 U.S.C. 601), authorizes only investments in (1) foreign banks, 
(2) domestic or foreign holding companies for foreign banks, and (3) 
foreign organizations formed for the some purpose of performing 
nominee, fiduciary, or other banking services incidental to the 
activities of a foreign branch or foreign bank affiliate of the member 
bank. In contrast, section 211.8(c) of Regulation K (12 CFR 211.8(c)), 
which implements section 25A of the Federal Reserve Act (12 U.S.C. 611 
et seq.) and section 4(c)(13) of the Bank Holding Company Act (12 
U.S.C. 1843(c)(13)), authorizes a greater range of [foreign] 
investments for bank holding companies and Edge and agreements 
corporations. The commenters asserted that no valid purpose is served 
by limiting member bank's foreign investments and suggested that member 
banks be permitted to make the full range of investments permitted to 
bank holding companies and Edge and agreement corporations.
    Commenters also suggested that the regulators should permit member 
banks that are well capitalized and well managed and that have 
satisfactory CRA performance ratings and existing overseas operations 
to establish foreign branches using the same approval process that is 
available for domestic branches and nonbanking operations using the 
same process available for domestic nonbanking activities. Finally, one 
commenter requested that Edge corporations be permitted to accept 
domestic deposits from domestic customers, provided the majority of the 
depositor's deposits were Edge-permissible.

II. Federal Register Notice Releases No. 2 and 3: Consumer Protection 
Lending-Related Rules and Other Consumer Protection Rules: Account/
Deposit Relationships and Miscellaneous Consumer Rules

A. Flood Insurance
    1. General. An overwhelming number of commenters stated that 
customers often do not understand why flood insurance is required and 
that the federal government--not the bank--imposes the requirement. 
Commenters said that the government should do a better job of educating 
consumers about the reasons and requirements of flood hazard insurance. 
Moreover, the Agencies should streamline and simplify flood insurance 
requirements to make them more understandable.
    One commenter, representing a state bankers' association, stated 
that many of its members questioned why the banking industry had to 
police the borrowers' choices. Another commenter asked why the burden 
of the flood insurance regulation is on financial institutions rather 
than on the insurance industry.
    One commenter asked whether the $5,000 value threshold for 
triggering flood insurance coverage could be increased. Another 
commenter urged more guidance on a specific period in which the notice 
should be given.
    One commenter suggested that responsibility should be shifted away 
from financial institutions for the constant monitoring of whether 
borrowers continue to maintain flood insurance on the property. 
Although the commenter agreed that the loan should not be made without 
flood insurance, requiring the financial institution to constantly 
review whether flood insurance is up to date is a burdensome task. The 
bank must constantly review files and in many cases force-place 
insurance on the borrower. The institution should be able to rely on 
the NFIP (the insurer) to inform the financial institution that the 
borrower has dropped coverage rather than the institution having to 
monitor the files internally.
    Another commenter expressed concern about 12 CFR 22.9, Notice of 
special flood hazards and availability of federal disaster relief 
assistance. The commenter noted that when a bank makes, increases, 
extends, or renews a loan secured by a building or a mobile home 
located or to be located in a special flood hazard area, the bank must 
mail or deliver a written notice to the borrower and servicer in all 
cases. The commenter said that, if this same loan is renewed before the 
expiration of the initial flood zone determination, there should be no 
need to provide another notice to the consumer.
    One commenter recommended that the Agencies provide more guidance 
on flood insurance. In particular, the commenter said that consumers 
should have easier access to flood zone information and the ability to 
determine if the information is current. The Agencies should streamline 
flood insurance requirements so the lender can easily identify the 
appropriate amount of coverage.
    2. Simplification of Process. One commenter suggested a simplified 
disclosure concerning flood insurance that would read as follows: ``Is 
the property you want to purchase in a flood plain? YES or NO--If NO, 
go to next question; if YES see below. The estimate given by a local 
agent for flood insurance coverage on the property is $------ per year. 
You are required to provide proof of flood insurance coverage through 
an agent of your choosing by loan closing. If you want to know the 
identity of the agent that gave this estimate, please ask your 
lender.''
    Another commenter asked for additional clarification or 
interpretation of the flood insurance regulations through a ``Q and A'' 
format. The commenter noted that, in the past year their external 
auditors informed them that they needed to compare the flood

[[Page 62070]]

zone listed on the insurance policy to the zone listed on the 
determination to ensure they are the same. The external auditors 
directed the institution to request that the flood zone on the 
insurance policy be changed if it were not the same as the zone listed 
on the determination. The commenter contended that this requirement is 
not part of the regulation, but a new unwritten interpretation. That 
constitutes a burden on the financial institution. Because the 
institution cannot force an agent to make the change, the only thing 
the institution can do is document the file accordingly.
    3. Opt-Outs. One commenter stated that flood insurance requirements 
should consider the value of the land even if the land is located in a 
flood zone. If the value of the land exceeds the amount of the loan, 
the borrower should be able to opt out of purchasing flood insurance. 
Also, currently if the loan is on vacant land in a flood zone, the 
institution must advise the customer. This commenter stated that this 
requirement should be eliminated since vacant land cannot be insured. 
Because of the regulators' strong stance on this requirement, 
institutions are at a competitive disadvantage with non-regulated 
mortgage companies. The commenter asserted that the financial 
institution's customers would also benefit from this requested change.
    4. Loan Closings. A few commenters noted that when borrowers use a 
property located in a special flood hazard area as security on a loan, 
lenders must provide notice to the borrowers within a ``reasonable 
period of time'' prior to closing. This notice advises borrowers that 
the property is in a flood plain and requires flood insurance under the 
NFIP prior to closing the loan. The commenter further noted that, while 
a reasonable period of time is not expressly defined, the NFIP 
guidelines and agency examiners specify 10 days as a ``reasonable 
period.'' The timeframe protects the customer from losing their loan 
commitment while they shop for adequate, affordable insurance coverage. 
The reasonable period of time was not, however, intended to delay 
closing if the borrowers have purchased adequate coverage. Currently, 
there are examiners in the field instructing banks to wait a minimum of 
5 to 10 days from the time they provide notice to the borrower until 
closing, even if the borrower has insurance coverage in place before 
the time period has expired. Clarification is needed in this area for 
both creditors and examiners.
    One commenter suggested that the Agencies expand the Flood 
Determination form to include questions about collateral for the loan, 
such as, building only, contents only, or both, and if available at the 
time of the determination, questions about the loan amounts related to 
these items or the collateral value assigned to each. The service 
provider should then estimate the amount of insurance coverage 
required, based upon the current requirements, and place an estimate on 
the Flood Determination form.
    5. Flood Insurance in Unincorporated Areas. One commenter noted the 
difficulty in complying with flood insurance requirements in 
unincorporated areas, since flood insurance is available only in 
incorporated areas. Flood hazard determinations are required though on 
all parcels of land which have a ``structure'' as defined in the 
regulation. That includes a grain bin or even an old barn that is 
beginning to fall over. Because flood insurance is unavailable for 
these unincorporated areas, it seems very wasteful of time, money and 
effort to require the flood hazard determination. Even if flood 
insurance were available however, it would seem wasteful to require a 
flood insurance determination on a dilapidated building which adds no 
economic value to the property. The commenter requested a review of the 
regulations and consideration of the issue of flood determinations on 
all structures, particularly in areas where flood insurance is 
unavailable. Another commenter noted that its bank is in a hill area 
where flood areas are clearly defined. The commenter noted that it has 
the responsibility to obtain flood insurance where needed, but that a 
detailed disclosure is still required even though the property is on 
top of a hill.
    6. Special Flood Hazard Areas. Several commenters noted that 
notices are required for Special Flood Hazard Areas (SFHA). Lenders 
must provide this notice on loan originations as well as refinances. 
During a refinance, it is unduly burdensome for a lender to be required 
to give the notice within a reasonable time (ten days prior to closing) 
when the borrower is already aware that the property is located in a 
SFHA because they have an active flood policy in effect.
    One commenter said that most appraisals disclose the flood status, 
and stated that a separate form is unnecessary given that the appraisal 
makes note of the information. Requiring a standard form is redundant 
and adds additional costs, either directly by the bank or indirectly 
through the appraisal.
    7. Applicability to Certain Types of Property/Structures. In urging 
the regulators to simplify the flood insurance regulations, one 
commenter noted that the regulators said that the definition of 
``permanently affixed'' meant that utilities were hooked to the mobile 
home. However, the commenter had interpreted ``permanently affixed'' as 
wired down or set on a foundation. As a result of the misunderstanding, 
the bank almost received a fine.
    Another commenter urged modification of flood insurance to allow 
for exemptions for farm buildings like storage sheds, hay barns, and 
other nonresidential buildings.
    Two commenters suggested that investors purchasing commercial 
property can determine themselves whether they need flood insurance.
    Several commenters stated that they would also like to see the 
Agencies reconsider the requirement for insurance on a structure in a 
flood zone when the value of the land alone used as collateral supports 
the extension of credit. It should be the consumer's choice in that 
situation to purchase the insurance, just as it is when the consumer 
owns the collateral outright. Another commenter questioned why a 
borrower has to purchase flood insurance for a structure that is not 
considered as collateral for loan repayment. It is an additional burden 
to the financial institution to require the borrower to get the 
insurance, wait the 10 days after notifying the borrower of the 
requirement, and then close the transaction.
    Another commenter further asked that the flood insurance regulation 
provide guidance on how to address buildings that the borrower intends 
to tear down. The commenter noted that it had had situations in which 
the borrower purchased property that was in a flood zone, and, within 
one week of the loan, the property was torn down. It is burdensome for 
the borrower to go through the time and expense of obtaining flood 
insurance for temporary situations such as this; however, the 
regulation provides no exceptions. The commenter acknowledged that, 
under the NFIP guidelines, insurance would not be required if the 
building had no value and this is reflected in the appraisal. In the 
borrower's example, however, the building had value. The commenter 
recommended an exception for buildings that will be torn down within an 
allotted timeframe from the closing date of the loan.
    The commenter also requested that the regulation clarify what is 
acceptable coverage for condominiums when a Residential Condominium 
Building

[[Page 62071]]

Association Policy (RCBAP) is in place. The FEMA handbook ``Mandatory 
Purchase of Flood Insurance Guidelines'' outlines that a unit owner can 
acquire supplemental building coverage that will apply only to that 
part of a loss that exceeds 80 percent of replacement cost of the 
RCBAP. The commenter asked the Agencies to clarify that the financial 
institution need only to confirm that the RCBAP is for at least 80 
percent replacement cost rather than 100 percent replacement cost.
    8. Flood Insurance Maps. One commenter expressed concern that FEMA 
flood maps are often years out of date, and that the maps are not 
regularly adjusted. Moreover, in cases where the institution attempts 
to update the map, there are often long paperwork delays.
    Another commenter noted that it is often difficult for bankers to 
assess whether a particular property is located in a flood hazard zone 
because flood maps are not easily accessible and are not always 
current. Even once a property has been identified as subject to flood 
insurance requirements, the regulations make it difficult to determine 
the proper amount, and customers do not understand the relationship 
between property value, loan amount and flood insurance level. Once 
flood insurance is in place, it can be difficult and costly to ensure 
that the coverage is kept current and at proper levels. As a result, 
many institutions rely on third-party vendors to assist in this 
process, but that adds costs to the loan. A commenter noted that the 
process for flood map amendment or revision is tedious for the 
consumer.
    9. Force Placement. A few commenters noted that the financial 
institution is unable to force place a small amount of additional 
insurance on existing policy holders even if there is insufficient 
coverage on the property. Instead, the institution must work with the 
agent in trying to get the additional coverage placed, which the 
commenter contended cannot always be accomplished in a timely manner. 
The commenter suggested that the regulators amend the Mortgage 
Portfolio Protection Program rules to allow institutions to force place 
the additional coverage.
    10. Appraisals. One commenter noted that its regulator says that if 
a current appraisal is not available, the bank must rely on the most 
recent hazard insurance policy to determine the value of the dwelling 
for purposes of calculating the required amount of flood insurance. 
This is not in the regulation. The commenter urged that the regulation 
provide guidance as to how old an appraisal can be before it is 
outdated. The regulation requires that the lender track flood insurance 
to ensure that proper coverage remains in place, therefore causing the 
commenter to review the flood insurance at least once a year at its 
renewal, and sometimes more often if the loan is modified or renewed. 
The commenter found that it is constantly recalculating the required 
amount of flood insurance because the hazard insurance increases every 
year due to automatic inflationary increases. The commenter complained 
that the institution continuously must require many of its customers to 
increase their flood insurance every year. This is an unanticipated 
expense to a borrower and can cause difficulty in the relationship, not 
to mention the administrative cost to the institution. The commenter 
proposed that the flood insurance should not have to be increased above 
the original required amount, unless the loan amount increases.
    The commenter further noted that its regulator allows its 
institution to combine the building and contents coverage when 
determining the proper amount of flood insurance for a commercial 
property loan that is secured by both. However, if the loan is secured 
by the building only, the institution can refer to the building 
coverage only. The commenter said that such a policy is inconsistent, 
especially since the regulation provides guidance on how to determine 
building coverage; the building should be determined independently of 
the contents on a loan that contains both as collateral.
    The commenter also stated that the initial notification prior to 
the loan closing is all that is reasonably needed and that regulators 
should eliminate the notification at the time of renewal, extension, or 
increase in the loan amount. The borrower is informed prior to closing 
that the property securing the loan is in a flood zone and flood 
insurance must be obtained. Because the institution must track this 
flood insurance, the borrower will be informed via a separate notice, 
should their insurance expire, that they have 45 days to obtain 
coverage or insurance will be force placed. As a commercial lender, the 
commenter cross-collateralizes loans to a business and renews the loans 
on an annual basis. Since these actions do not necessarily have the 
same maturity date, the borrower is continuously being sent notices 
that the property is in a flood zone. According to the commenter, 
borrowers think this is somewhat of a nuisance, and it is an 
administrative burden for financial institutions.
    11. Miscellaneous. One commenter noted that, when a loan is new and 
secured by property in a flood zone, or property in a flood zone is 
added to an existing loan, there is no 30-day waiting period for flood 
insurance. However, the commenter found that this is not the case when 
the flood insurance is up for renewal and the premium is paid 30 days 
late. In cases such as this, the customer does have a 30-day grace 
period regardless of whether they have a loan. The commenter urged 
regulators to eliminate the 30-day grace period on delinquent policy 
renewals.
B. Truth in Lending Act/Regulation Z
    Regulation Z was one of the regulations that received the most 
comments during the EGRPRA process. A general comment from many 
financial institution industry commenters was that consumers are 
frustrated and confused by the volume and complexity of documents 
involved in obtaining a loan (especially a mortgage loan), including 
the TILA disclosures as well as the RESPA disclosures. Industry 
commenters requested that the disclosures be written in a manner to 
facilitate consumer understanding. Many comments from both industry and 
consumer group commenters were also received on specific issues 
concerning Regulation Z.
    1. Rescission. Industry commenters called the right of rescission 
one of the most burdensome requirements, and many suggested either 
eliminating the right to rescind or allowing consumers to waive the 
right more freely than under the current rule (which requires a bona 
fide personal financial emergency). Other industry suggestions 
included:
     Exempting regularly examined institutions from the 
rescission requirements (or allowing free consumer waivers for such 
institutions).
     Exempting transactions where the initial request for a 
loan comes from the consumer (rather than from a solicitation by the 
lender).
     Exempting refinancings (at least where no new money is 
extended).
     Exempting bridge loans.
     Exempting loans to ``sophisticated borrowers'' (for 
example, those with income over $200,000 or assets over $1,000,000), or 
freely allowing waiver in such cases.
     Dropping the requirement to delay disbursement of loan 
proceeds.
     Shortening the rescission deadline (such as, 11 a.m. on 
the next business day).
    Industry commenters provided the following to support their 
suggestions:
     Consumers rarely exercise their right to rescind.

[[Page 62072]]

     Many consumers dislike having to wait three business days 
to receive the loan proceeds.
     Because consumers can review the early TILA disclosures 
given within three days after the loan application, consumers have 
ample opportunity to understand the transaction and therefore do not 
need the right to rescind later.
    A few commenters said that a bank (even without the requirement) 
would work with a consumer who had a change of heart within several 
days after the mortgage closing. Arguments in support of dropping the 
delay-of-disbursement rule included that the rule is not statutory; 
that lenders, closing agents, consumers and others all incur extra 
effort and expense by not being able to finalize the transaction on the 
day of closing (including, for consumers, extra interest); and that if 
rescission should occur after disbursement has been made, the 
transaction can be unwound without great difficulty.
    Consumer groups argued that the right of rescission is critical for 
consumers and must be maintained. They noted that the fact consumers 
rarely rescind suggests that the rule is not burdensome for lenders. 
Whether or not consumers rescind, they assert that the option to 
rescind provides incentive for lenders to comply with TILA. They also 
noted that consumers need time after closing to review the loan 
documents, including required regulatory disclosures, because loan 
terms often change at closing.
    Consumer representatives believed that rules allowing consumers to 
waive the right of rescission should remain narrow and that the rule 
allowing waivers for bona fide personal financial emergencies works 
well. These commenters are concerned that such consumers may be unduly 
pressured to waive their right to rescind, or that they may too freely 
request a waiver because they are in need of the loan proceeds 
(especially in the case of low-income consumers). Consumer groups 
opposed the industry suggestion to exempt some refinancings because 
much abusive lending involves refinancings. However, one consumer group 
comment asserted that burden could be reduced by dropping the delay-of-
disbursement rule.
    2. Mortgage Loan Rules (generally). Industry commenters suggested 
that the RESPA disclosures, required under regulations issued by the 
Department of Housing and Urban Development, and the TILA disclosures 
should be consolidated into a single disclosure scheme, and generally, 
that one set of disclosures should apply to mortgage loan transactions, 
as opposed to multiple rules from various regulators. Commenters 
pointed to the large regulatory burden imposed because of the 
voluminous documents required at mortgage loan closings.
    Consumer group commenters agreed with lenders that TILA and RESPA 
disclosures should be integrated. These commenters also suggested that 
lenders should provide consumers with accurate disclosures at the time 
of application, instead of estimates. In addition, consumer group 
commenters also stated that the method for calculating the finance 
charge for mortgage loans should include all costs.
    3. Home Ownership Equity Protection Act Rules. With regard to the 
special rules under the Home Ownership and Equity Protection Act of 
1994 (HOEPA), industry commenters asserted that the disclosures 
required under HOEPA are redundant and unnecessary, and that 
determining HOEPA coverage is difficult. They suggested using only the 
rate spread test, and not the fee test. Other suggestions included:
     Using the same rate spread test as for the Home Mortgage 
Disclosure Act (HMDA) disclosures.
     Making the HOEPA period for providing disclosures (three 
business days prior to consummation of the mortgage transaction) 
coincide with the TILA rescission period.
     Excluding credit life insurance premiums from the fee test 
for HOEPA coverage.
    In support of the last suggestion, commenters stated that some 
consumers may want credit life insurance, yet lenders will not provide 
it so as to avoid HOEPA coverage. A commenter stated that the 
requirement for making HOEPA disclosures three business days before 
closing poses problems for both the bank and the consumer, because if 
the consumer decides at the last minute to change a term (such as, 
purchase credit life insurance and finance the premium), new 
disclosures and an additional three-day waiting period are required.
    Consumer group commenters urged that because abusive lending 
continues to increase, regulators should keep the HOEPA rules in place.
    4. Home Equity Line of Credit Rules. With regard to the special 
Regulation Z rules for home equity lines of credit (HELOCs), industry 
commenters suggested eliminating the requirement to provide the Board-
prescribed home equity brochure, arguing that the brochure is 
unnecessary now that HELOCs are common and consumers are familiar with 
them. Another industry suggestion was that lenders be allowed a choice 
as to when to provide HELOC disclosures: Either at the time of receipt 
of the application or within three days of that date, for consistency 
with RESPA's good faith estimate and TILA's early disclosure 
requirements. The consumer representatives suggested that disclosures 
for HELOCs should be the same as disclosures for closed-end mortgage 
loans.
    5. Adjustable-Rate Mortgage Disclosures. Consumer groups, 
commenting on the special application-stage disclosures for adjustable-
rate mortgage (ARM) loans, stated that the disclosures should be loan-
specific, as the technology now exists to provide such information. 
These commenters also advocated greater penalties for lenders that do 
not comply.
    6. Finance Charge and Annual Percentage Rate Issues. Industry 
commenters asserted that it is difficult to determine which costs must 
be included or excluded in calculating the finance charge and annual 
percentage rate (APR), especially with regard to third-party fees, and 
that these calculations should be simplified. Commenters stated that 
consumers do not understand, are confused by, and are not interested in 
the APR, and that disclosure of the interest rate, loan term, monthly 
payment, and closing costs should be sufficient. One commenter 
suggested that the tolerances for finance charge should be increased to 
reflect inflation, and perhaps stated as a percentage of the loan 
balance. Another commenter suggested that APRs should reflect (1) the 
fact that mortgage loans are paid off after 7 to 10 years on average 
(rather than 30), and (2) the probability that, for a variable-rate 
loan, the initial low rate will rise over time.
    7. Credit Card and Other Open-End Credit Issues. Industry 
commenters also addressed the rules for credit cards. Some institutions 
asserted that consumers can use rules for resolving billing errors to 
``game the system,'' subjecting banks to fraud. These commenters argued 
that penalties should be imposed on consumers who make frivolous or 
fraudulent claims. Other industry commenters suggested that provisions 
of Regulation Z governing credit card disputes should be made 
consistent with the rules for debit cards under Regulation E and the 
Electronic Fund Transfer Act. They also noted that they need more time 
to investigate billing errors. Commenters also suggested that card 
issuers be allowed to issue additional credit cards for an existing 
account even when the consumer's existing credit card is not replaced 
or renewed.

[[Page 62073]]

    Consumer representatives suggested that open-end credit account 
disclosures be revised to illustrate the effect of making only the 
minimum payments. They suggested that the disclosure tables provided 
with credit card solicitations and applications (the ``Schumer box'') 
also be provided with account-opening disclosures. They also suggested 
that consumers be permitted to provide oral notice of a billing error 
(rather than written notice, as under the current rule).
    8. Advertising Rules. Industry commenters stated that the TILA 
rules regarding credit advertising are not clear, and that it is 
difficult to determine what may or must be included in an 
advertisement. Commenters also suggested providing exceptions for radio 
and television advertisements, similar to those under Regulation DD and 
the Truth in Savings Act.
    9. Miscellaneous. Other industry comments included:
     Harmonizing the requirements for closed-end credit 
disclosures with those for open-end credit.
     Simplifying Regulation Z terminology.
     Providing greater flexibility in Regulation Z restitution 
requirements.
    In addition, a few commenters opposed the Board's proposal for a 
single standard for ``clear and conspicuous'' for Regulations B, E, M, 
Z, and DD, arguing that the changes would cause problems and expenses 
and that the existing standards in each regulation are sufficient.
    Other consumer group comments included:
     Keeping TILA/Regulation Z requirements intact.
     Adjusting the statutory damage caps for inflation (which 
would adjust the $1,000 cap to $5,350).
     Adjusting the jurisdictional cap ($25,000) for inflation 
(because many moderately priced automobile loans are now exempt).
     Maintaining the tolerance levels for error without any 
adjustments because technology permits lenders to make increasingly 
accurate calculations.
     Covering ``bounce protection programs'' under Regulation 
Z, or prohibit such programs altogether.
C. Home Mortgage Disclosure Act Regulation C
    Regulation C was another subject of very heavy comment from 
financial institutions. Numerous commenters stated that collecting 
HMDA-mandated information was their most burdensome regulatory 
requirement. Commenters also added that compliance costs millions of 
dollars for paperwork with no meaningful results. Some commenters 
called for the outright repeal of HMDA or to have its requirements 
seriously modified. In addition, many commenters questioned the utility 
of the information collected.
    Other general comments received from industry commenters included:
     Recent amendments to Regulation C have resulted in a large 
increase in burden and cost, without a cost-benefit analysis of the 
additional data requested by consumer activists.
     The original burden-reduction purpose of the HMDA review 
was lost, and Agencies should issue guidance to the media and public on 
the proper interpretation of HMDA data.
     Lending institutions were concerned that the HMDA data may 
be unfairly interpreted; for example, denials to minority applicants 
may appear high if a lender has an aggressive outreach program that 
generates many applications, or is in a rural area with few minorities.
    Consumer group commenters argued that the recent Regulation C 
amendments significantly enhanced HMDA data collection and will provide 
critical information and, thus, should be given time to take effect. 
These commenters contended that insufficient time has passed to permit 
fair consideration of the benefits and burdens of the changes.
    Many comments from both industry and consumer group commenters were 
also received on the following specific issues concerning Regulation C.
    1. Institutions Subject to Regulation. A major issue for industry 
commenters was coverage of depository institutions under HMDA. Many 
suggested that the asset threshold for the exemption should be 
increased from its current level (at the time of the solicitation of 
comment) of $33 million, with some suggesting a coverage threshold of 
at least $250 million and others suggesting $500 million or $1 billion. 
One commenter stated that some bank holding companies maintain a number 
of bank charters in order to stay under the reporting threshold. Others 
suggested changing to a coverage test based on mortgage loan activity, 
such as exempting depository institutions with fewer than 100 loan 
originations annually. Another suggestion was to apply a tiered 
approach, where only larger institutions would be required to collect 
data on the rate spread, HOEPA status, and manufactured housing status. 
Some industry commenters stated that it was unfair to cover depository 
institutions in rural areas and that the percentage of the 
institution's loans in the metropolitan statistical area should 
determine coverage or a population threshold should be used.
    Consumer groups opposed increasing the threshold for HMDA 
exemptions, and supported increased coverage, including covering 
lenders with assets under $33 million and lenders in rural areas. They 
asserted that many ``problem lenders'' are small lenders, and broader 
coverage would provide a better picture of the entire mortgage market. 
They also suggested lowering the thresholds to cover more non-
depository lenders (specifically, by removing the 10 percent threshold, 
and lowering the $25 million threshold to $10 million) to address 
depository institutions' complaints about a level playing field. 
Consumer groups also advocated including all HMDA-reportable loans in 
calculating coverage under these thresholds.
    2. Types of Loans Reported. Industry commenters asserted that the 
new definition of refinancing in Regulation C is overly broad, and 
would require reporting of small business and farm loan refinancings. 
Commenters believed that such loans should not be covered and would 
distort HMDA data. Also, commenters pointed to compliance difficulties 
because such loans are generally not handled in consumer lending 
departments (where most HMDA-reportable loans are handled). In 
addition, commenters argued that reporting of such loans would impose 
more burden on the Agencies, which will have to sort the data to make 
them usable. Commenters also asked for clarification on whether small 
business loans that will now be reportable under HMDA should still be 
reported under the Community Reinvestment Act (CRA). Some commenters 
suggested that business-purpose loans generally (including loans on 
multifamily and/or rental property), as well as withdrawn loan 
applications, should not be reportable. On the other hand, other 
industry commenters suggested that all residential or home-equity 
lending should be reported, arguing that determining the underlying 
loan purpose is difficult and that this change would reduce reporting 
errors.
    3. Data Reported. Industry commenters argued that the volume of 
data required is excessive and burdensome, and that the value of the 
data has been overestimated and should be reconsidered. A few 
commenters suggested that unnecessary data fields be removed and that 
the focus be on fields that are truly meaningful or that regulators use 
market share to determine whether a lender is fulfilling its 
obligations. Industry commenters also

[[Page 62074]]

stated that certain information is difficult to determine, such as the 
definition of refinancing, rate spread (the difference between APR and 
a Treasury-bond-based index), HOEPA status (whether or not a loan is 
subject to HOEPA), and property location (especially in rural areas). 
Commenters asked for a consistent rule for determining loan amount for 
both HELOCs and closed-end home improvement loans. A few commenters 
argued that the definition of ``home improvement loan'' is too broad.
    Many commenters stated that the rules for determining HOEPA status 
and rate spread are too complex. Suggestions included revising the HMDA 
trigger for reporting the rate spread to be consistent with the rate 
trigger used to determine coverage under HOEPA. Commenters also stated 
that reporting the APR instead of the rate spread would be simpler, 
more accurate, and more meaningful. Several commenters also suggested 
that MSAs needed to be readjusted or redefined for HMDA purposes.
    In addition, some commenters suggested that the Board reconsider 
its recent changes to the categories for race and ethnicity data. 
Commenters stated that determining when to use multiple categories is 
difficult when reporting race and ethnicity data by visual observation 
(and noted that asking the questions may be offensive to applicants). 
They asserted that the government is perpetuating racial 
categorizations and suggested that, in telephone applications, lenders 
should be allowed to send the applicants a form requesting race and 
ethnicity, rather than asking for the information during the telephone 
conversation. Also, a commenter suggested that no penalty should apply 
if the lender inadvertently collects the monitoring data in a situation 
where such data are not required.
    Consumer groups believed that institutions should report more data 
under HMDA, and that the new items should include pricing information 
on all loans, critical loan terms (such as the existence of prepayment 
penalties), and key underwriting variables (such as, credit scores, 
loan-to-value, debt-to-income ratios). They believed institutions 
should report property location, even for rural areas and metropolitan 
areas where the institution does not have offices. They also asserted 
that institutions should report monitoring information for purchased 
loans.
D. Equal Credit Opportunity Act/Regulation B and Fair Housing Act
    Regulation B also received hundreds of comments from industry 
commenters. General comments from industry commenters included:
     The Agencies should provide more guidance on fair lending 
because settlements in fair lending cases are too vague to provide 
guidance.
     The Agencies should work with lenders to provide them with 
more flexibility and choice in complying with Regulation B.
     The regulation should not apply to business credit.
    Consumer representatives said that Regulation B should not be 
streamlined or weakened.
    1. Evidence of Intent to Apply Jointly. Many industry comments on 
Regulation B focused on provisions, adopted by the Board in a recent 
regulatory review, regarding joint applications. Financial institutions 
contended that the new rules regarding how creditors must evidence the 
intent of the parties to apply jointly are problematic, particularly 
for business and agricultural loans, and for telephone and Internet 
applications. A commenter stated that the new rules almost require all 
parties and their spouses to come in to the bank's office to complete 
applications. The commenters also noted issues with respect to the 
proper use of Fannie Mae and Freddie Mac forms (including some 
conflicting guidance from different agencies on whether use of these 
forms would be sufficient to show intent to apply jointly). Some 
commenters argued that both borrowers' signatures on the note should be 
sufficient evidence of the party's intent to apply jointly, or that 
completion of the application form as a joint application should be 
sufficient evidence of such intent. In addition, some suggested that in 
business and farm lending where there is an ongoing relationship 
between the borrower and the lender, providing evidence of intent to 
apply jointly at the outset of the relationship should suffice.
    2. Data on Race and Ethnicity. In regard to Regulation B, some 
commenters suggested eliminating the collection of monitoring 
information on the race, ethnicity, and gender of applicants for loans 
to purchase or refinance a principal dwelling. Commenters stated that, 
if consumers do not wish to provide the information, the lender should 
not have to guess race and ethnicity. Commenters also argued that 
sufficient information is collected under HMDA and therefore should not 
be separately required under Regulation B. One commenter contended that 
the Regulation B data collection requirement poses problems for banks 
not subject to HMDA, because they may use HMDA loan application forms, 
yet the data collection rules under Regulation B differ from those 
under HMDA. Other commenters suggested that this information should be 
collected on all loans (or on all real-estate secured loans) or on 
none.
    Consumer representatives also addressed the collection of 
monitoring information. They urged that lenders be required, or allowed 
voluntarily, to collect and report information on the demographics of 
small business borrowers, asserting that lending to businesses in low- 
to moderate-income areas has stagnated.
    3. Interaction with the PATRIOT Act. Commenters also addressed the 
interaction between Regulation B and the PATRIOT Act, such as, the 
Regulation B prohibition on obtaining information on gender and race or 
national origin and the PATRIOT Act requirement to maintain sufficient 
information to identify a customer. Commenters asked for more guidance 
on whether or not a copy of the borrower's photo identification may be 
kept in a loan file, and suggested that the prohibition against 
retaining copies of drivers' licenses in loan documentation should be 
dropped.
    4. Adverse Action Notices. Many commenters criticized the adverse 
action notice requirements of Regulation B, and stated that consumers 
do not like receiving adverse action notices. Commenters argued that 
lenders need more flexibility in dealing with loan applicants (such as, 
a bank may wish to offer a customer an alternative to the loan 
originally applied for, but this may trigger an adverse action notice 
requirement). A few commenters suggested that the Agencies redefine the 
Regulation B definition of ``application.'' A complaint in this area 
was that it is difficult to know when an application has been made for 
purposes of Regulation B, because the distinction between an inquiry 
and an application is not clearly defined. Commenters recommended that 
an easily understood rule should be developed on when an adverse action 
notice is required (such as, it may be difficult to determine whether 
an application is incomplete, or has been withdrawn). Another comment 
was that the number of reasons to include on the adverse action notice 
is a problem. One commenter stated that the Agencies should better 
coordinate the adverse action notice requirements of Regulation B with 
those of the Fair Credit Reporting Act.

[[Page 62075]]

    5. Miscellaneous. Other suggested changes concerning ECOA or 
Regulation B included:
     Repealing the ECOA and Fair Housing Act logo and poster 
display requirements.
     Allowing consideration for ownership of a cell phone when 
determining creditworthiness.
     Amending the regulation to clarify whether the institution 
must provide the consumer with information from an automatic 
underwriting when used instead of an appraisal report.
     Abolishing the requirement to provide a loan applicant 
with a notice of the right to receive an appraisal as unnecessary.
     Relaxing the rules for special purpose credit programs.
     Easing Regulation B restrictions to allow the offering of 
special accounts for seniors.
     Replacing ECOA, Fair Housing Act, and other fair lending 
legislation with a single antidiscrimination act.
E. Consumer Leasing Act/Regulation M
    A few industry commenters addressed Regulation M issues. Comments 
included suggestions that the Agencies update jurisdictional limits and 
statutory damages, and amend Regulation M to eliminate new disclosures 
for month-to-month renewals of leases, and instead require disclosures 
only when a lease is extended at least 12 months beyond its original 
term. This would avoid covering, for example, a lease extension while 
the consumer and lessor work out terms for a buyout of the vehicle.
    Consumer group commenters did not comment on Regulation M issues.
F. Unfair or Deceptive Acts or Practices (UDAP)/Credit Practices Rule/
Regulation AA and OTS UDAP Regulation \63\
    Industry commenters offered a few suggestions regarding Regulation 
AA, including:
---------------------------------------------------------------------------

    \63\ No comments were received on the OTS UDAP regulation.
---------------------------------------------------------------------------

     Non-purchase-money, non-possessory security interests in 
household goods should be allowed in some cases.
     First-lien mortgages should be exempt from the cosigner 
notice requirements (because such loans involve low risk, and the 
cosigners in these transactions are usually aware of the terms and thus 
do not need notice).
    Regarding UDAP issues more generally, industry commenters stated 
that, if supervisory agencies pursue enforcement actions in this area, 
the Agencies should release information about the actions to provide 
guidance to the industry.
    Consumer groups commented generally that current UDAP protections 
should not be weakened. They also argued that current agency UDAP 
guidance overemphasizes disclosures rather than substantive protections 
against abuse. Consumer group commenters suggested that the Agencies 
address the following practices in the UDAP rules:
     Equity stripping (such as, exorbitant fees, loan flipping, 
packing and financing of ancillary products).
     Practices that make borrowers vulnerable to foreclosure 
(such as subprime prepayment penalties, balloon payments and negative 
amortization in subprime loans, and mandatory arbitration clauses).
     Practices that exploit vulnerable populations (such as, 
steering borrowers toward subprime products targeting particular ethnic 
groups, the elderly, and/or low-to-moderate income persons and 
neighborhoods).
    Commenters also suggested that the Agencies address payday lending 
and bounce protection under UDAP rules.
    Consumer comments on Regulation AA specifically included the 
suggestion that the Board adopt the Federal Trade Commission's ``Holder 
Rule'' to make it applicable to banks. (The Holder Rule requires that a 
consumer credit sale contract contain language prominently stating that 
any holder of the contract is subject to any claims and defenses that 
the consumer could assert against the seller of the goods or services 
that are the subject of the contract.)
G. Interagency Privacy Rule and Information Security Guidelines
    The majority of these comment letters addressed the interagency 
rules, which are substantively identical, regarding the privacy of 
customer information (12 CFR 40, 216, 332, and 573) (Privacy Rule). 
Many of the letters were substantively similar form letters and some 
letters were submitted by multiple individuals associated with a single 
depository institution. A few of the letters also addressed the 
interagency guidelines regarding safeguarding of customer information 
(12 CFR 30, Appendix B; 208, Appendix D-2; 364, Appendix B; 570, 
Appendix B; and 225, Appendix F) (501(b) Guidelines), which also are 
substantively identical. The Privacy Rule and 501(b) Guidelines 
implement Title V of the GLBA.
    The most frequent comment, by far, on the Privacy Rule was that the 
annual notice requirement was unnecessary because it was confusing for 
consumers and/or unduly burdensome for depository institutions. Many 
commenters suggested alternative follow-up notice requirements that 
were more limited in scope than the present rule. The most frequently 
suggested alternative was that no follow-up notice should be required 
unless and until a depository institution's policy changes. Another 
suggestion was that the Agencies require annual notices only for those 
depository institutions that share in a manner that triggers the 
consumer's right to opt out.
    Many commenters expressed general concern that the privacy notices 
are too detailed and legalistic, which impedes consumers' ability to 
understand such notices. Some of these commenters suggested specific 
alternative approaches. Some commenters also suggested that the banking 
agencies should develop a model form that depository institutions could 
use as a compliance safe harbor, although commenters differed on 
whether use of such a form should be required or voluntary.
    Some commenters opined that there should be a uniform national 
standard for privacy notices because the federal rule, when combined 
with additional state requirements that vary from state to state, 
created compliance difficulties for depository institutions.
    Commenters opined generally that the 501(b) Guidelines were 
unnecessary and/or overly burdensome. Some of these commenters thought 
that the flexibility of the Guidelines made it difficult for depository 
institutions to determine what would constitute compliance and 
suggested that the Agencies provide clarification in this regard. In 
addition, some commenters expressed concern that different examiners 
held depository institutions to different compliance standards and 
suggested that the Agencies promote more consistent compliance 
examinations.
H. Section 109 of the Interstate Banking and Branching Efficiency Act 
of 1994, Prohibition Against Deposit Production Offices
    Only two comments were received on the regulations that prohibit a 
bank from establishing or acquiring branches outside of its home state 
primarily for the purpose of deposit production pursuant to section 
109. One industry trade association cited the statute's requirement 
that the Agencies not impose any additional paperwork collection or 
regulatory burden when enforcing the provision and stated that the 
Agencies have complied with the statute's intent. Another industry 
trade

[[Page 62076]]

association supported the regulatory requirements and did not recommend 
any regulatory changes but recommended a statutory change that would 
increase the threshold for measuring compliance. Instead of a covered 
bank currently needing to have a loan-to-deposit ratio in states into 
which it branches that equals one-half (50 percent) of the state bank's 
overall loan-to-deposit ratio, the industry trade association wants a 
covered bank to have a ratio that equals 80 percent of the state ratio.
I. Electronic Fund Transfer Act/Regulation E
    1. Products Subject to Regulation. An industry commenter suggested 
that, among stored value products, Regulation E should apply only to 
products that have the characteristics of traditional deposit accounts, 
and not to those that do not represent account ownership at a 
depository institution but that instead are designed to be treated like 
cash. In contrast, consumer groups suggested applying Regulation E to 
payroll cards (arguing that payroll cards may be forced on employees, 
yet lack protections), and to other stored value cards. Consumer group 
commenters also stated that consumers are confused by differences in 
protection among debit cards, payroll cards, and other stored-value 
cards. One commenter stated that the Electronic Funds Transfer Act 
(EFTA) should be revised to ensure that all consumer payment mechanisms 
have the maximum level of consumer protections.
    2. Error Resolution Rules. A number of industry commenters 
addressed the error resolution rules of Regulation E. Commenters 
suggested that the Agencies make Regulation E rules consistent with 
rules of the National Automated Clearing House Association (NACHA). For 
example, under the NACHA rules the consumer has 60 days from the date 
of posting the transaction, while under Regulation E the consumer has 
60 days after they have been provided with a periodic statement. Other 
suggestions were that the time for a consumer to give notice of error 
be reduced from 60 days to 30 days, and that the time for the bank to 
resolve the error (or provisionally recredit the consumer's account) be 
increased from 10 business days to 20 business days. Commenters also 
suggested that the difference between the time for institutions to 
resolve errors under Regulation E, and the time for merchants to 
respond to the institution, be reduced (to lessen the possibility of 
the merchant responding after the institution has made a provision 
credit final). In addition, commenters asserted that the bank should 
not be required to act unless the consumer puts the error claim in 
writing.
    A bank stated that its cost per dispute is approximately $32, and 
that the mandated time periods for error resolution, notice 
requirements, and research requirements are very burdensome. Another 
commenter called the error resolution provisions the most misunderstood 
in the regulation, and asked for additional clarification or examples. 
Another comment was that the error resolution procedures are confusing, 
since they vary depending upon whether the transaction in question 
occurred in a new account. Further, according to the comment, the 
Regulation E definition of ``new account'' does not match the 
definition of the term in Regulation CC; the definitions should be made 
consistent.
    Another commenter asserted that the bank is prohibited from 
collecting any dispute fee from the consumer, even if it is found after 
investigation that no error occurred.
    3. Consumer Liability for Unauthorized Transactions. Industry 
commenters criticized the Regulation E limits on consumer liability for 
unauthorized electronic fund transfers and urged the Agencies to 
increase the limits and shorten the timeframes for consumers to report 
loss or theft. It was argued that the existing limits were appropriate 
when electronic transfers were a new technology, but unfair today when 
consumers are familiar with the need to protect their PIN, and where 
24/7 access to account information is available to allow consumers to 
detect suspicious activity.
    Thus, commenters suggested that the rules on consumer liability 
should incorporate a negligence standard, such that if the consumer's 
negligence leads to unauthorized transactions, the consumer's liability 
increases. Commenters urged that in cases in which the consumer writes 
the PIN on the debit card (or keeps the PIN and card in the same 
location), or if the financial institution can otherwise substantiate 
consumer negligence, the consumer's liability should be increased to 
$500. Another commenter recommended that the consumer's basic level of 
liability, currently $50, be increased to $250, and that the consumer 
be required to report the loss within five business days from the 
bank's receipt of the first unauthorized transaction. A commenter 
suggested adopting a comparative negligence standard consistent with 
check law under the Uniform Commercial Code. Another suggestion was 
that the limits on consumer liability for unauthorized electronic fund 
transfers be adjusted annually for inflation. Regarding signature-based 
debit card transactions, it was suggested that merchants that accept 
such transactions without verifying the consumer's signature (or even 
in all cases, whether or not the merchant verifies the signature) 
should be held accountable.
    A commenter suggested that the same rules should apply to credit 
card, ATM, and debit card transactions, because it is confusing to 
consumers as well as bank employees when different sets of rules apply 
depending upon the type of transaction.
    Consumer group commenters suggested that institutions should not be 
permitted to place the burden of proof on a consumer regarding a claim 
of an unauthorized transfer; rather, the institution should reimburse 
the consumer unless the institution can prove that the transfer was 
authorized.
    4. Automated Teller Machine Fee Disclosures. An industry commenter 
stated that the requirement to provide notice of an automated teller 
machine (ATM) fee both by posting the notice at the ATM, and by 
providing the notice on the ATM screen (or on a paper notice issued by 
the ATM), involved useless duplication.
    5. Change in Terms Notices. Many commenters suggested that the 
requirement to give notice of a change in account terms or conditions 
should be changed from 21 days in advance of the change to 30 days in 
advance, to make the notification timeframe consistent with Regulation 
DD and simplify compliance. An alternative suggested by one commenter 
was to conform the Regulation DD time period to that under Regulation 
E.
    6. Account-Opening Disclosures. A commenter stated that providing 
disclosures simply because the account could have an electronic 
transfer is expensive when many accounts do not have such activity.
    7. Periodic Statements. Commenters suggested that, in the case of 
consumers who have online or telephone access to monitor their accounts 
and transactions daily, the requirement for a monthly or quarterly 
periodic account statement is unnecessary. A commenter contended that 
the requirement to provide periodic statements quarterly for accounts 
with electronic access but no activity is unduly burdensome, and 
suggested that the Agencies amend the rule to allow for semiannual or 
annual statements in such cases.
    8. Disclosures (generally). A commenter stated that required EFT

[[Page 62077]]

disclosures are too lengthy and are likely not read by consumers.
    9. Issuance of Debit Cards. A commenter generally supported the 
Board's current proposed amendment to the Regulation E staff commentary 
that would clarify that institutions may issue multiple debit cards as 
a renewal or substitute for an existing single card if the card issuer 
complies with certain validation requirements set forth in the 
regulation.
    10. Telephone Authorization for Recurring Debits. A commenter 
generally supported the Board's proposed amendment to the Regulation E 
staff commentary that would withdraw a comment that states that a tape-
recorded telephone conversation does not constitute written 
authorization for purposes of the requirement that preauthorized 
recurring electronic debits to a consumer's account be authorized by 
the consumer only in writing. However, the commenter recommended that 
the Board specifically confirm that such a tape-recorded authorization 
would satisfy the requirements of the Electronic Signatures in Global 
and National Commerce Act (E-Sign Act) (and thereby comply with 
Regulation E), as opposed to merely withdrawing the comment and not 
addressing the interpretation of the E-Sign Act.
    11. Notice of Variable-Amount Recurring Debits. A commenter 
generally supported the Board's proposed amendment to the Regulation E 
staff commentary that would provide that a financial institution need 
not give a consumer the option of receiving an advance notice of the 
amount and scheduled date of a variable-amount preauthorized recurring 
electronic transfer from the consumer's account to another account held 
by the consumer, even if the other account is held at another financial 
institution.
J. Truth in Savings Act /Regulation DD
    A general industry comment was that compliance with Regulation DD 
can be time-consuming and costly, and therefore many banks have 
eliminated various accounts and combined statements, doing a disservice 
to consumers. It was also stated that when Regulation DD was 
promulgated, few consumers had complained about inability to comparison 
shop using simple interest rate information.
    1. ``Level Playing Field.'' A few commenters suggested that credit 
unions should be required to provide disclosures similar to those of 
Regulation DD in order to enable consumers to make an informed 
decision.
    2. Disclosures (generally). A commenter stated that required Truth 
in Savings Act (TISA) disclosures are too lengthy and are likely not 
read by consumers. Another commenter suggested that the disclosures be 
simplified, shortened, and written in a ``plain English'' format. 
Another commenter recommended that examiners cite only substantive 
violations; the commenter stated that using the term ``Personal Money 
Market'' in the initial disclosure and the term ``Money Market'' in the 
periodic statement was cited as a violation but should not have been. 
Many commenters asserted that their customers pay little attention to 
the TISA disclosures. These commenters argued that there is a cost for 
developing the programs and procedures to produce the disclosures, but 
if consumers are not paying attention to the disclosures, then the 
regulatory requirement is needless. The commenters recommended that the 
banking Agencies conduct a study involving all interested parties, 
including banks, consumers, and software providers, to determine 
whether the TISA disclosures are truly serving their purpose and to 
streamline, simplify, and improve the effectiveness of the disclosures.
    A commenter suggested that the disclosure requirements be the same 
for both paper and electronic forms, to simplify the regulatory 
framework and ease compliance burdens.
    A consumer group commented that the regulation should require TISA 
disclosures to be made available on financial institutions' Web sites.
    3. Change in Terms Notices. Commenters suggested that the 
requirement to provide a notice of change in terms 30 days in advance 
of the effective date of the change be revised to provide for a shorter 
period of advance notice. It was noted that, when interest rates 
change, a shorter period better reflects the changing market.
    4. Renewals of Certificates of Deposit. A few commenters addressed 
the requirement to provide disclosures before renewals of certificates 
of deposit (CDs). One commenter noted that TISA disclosures are 
provided at the time of initial purchase of the CD and argued that, if 
the CD will be renewed on the same terms, no further disclosure should 
be required. The comments also noted that if the terms will change at 
renewal, disclosure of the changes would already have been provided 
under the change-in-terms notice requirements. Another commenter 
suggested simplifying the notices by eliminating the different 
requirements for varying maturities of automatically renewable CDs, as 
well as between automatically renewable CDs and not automatically 
renewable CDs (calling for one standard notice that would include the 
date the existing account matures and a statement that the consumer 
should contact the institution to obtain further information).
    5. Advertising Requirements. A commenter requested clarification 
that electronic billboards are included in the exempt category of 
``outdoor media'' and that voice response units are included in the 
exempt category of ``telephone response machines.'' The commenter 
stated that, during examinations, the media in question are not 
consistently treated as exempt from the advertising requirements. 
Another commenter suggested that the Agencies simplify the advertising 
rules, especially for banks that are subject to the Federal Trade 
Commission Act that prohibits unfair and deceptive practices in 
advertising.
    6. ``Bounce Protection'' Amendments. A few commenters addressed the 
proposed amendments to Regulation DD regarding bounce protection 
programs. These commenters expressed opposition to the proposals, in 
particular those relating to disclosing aggregated overdraft fees on 
periodic statements and to advertising specific fees and terms of 
overdraft services. One of these commenters stated that the aggregated 
fees proposal would be costly to implement and an unnecessary 
disclosure for consumers; and that the advertising proposal would be 
difficult to comply with because there are numerous and ever-changing 
reasons why an institution may refuse to pay an overdraft (which would 
have to be disclosed by institutions promoting overdraft services). 
Another of these commenters recommended that, if the Board adopts the 
proposals, the Board should allow the industry adequate time to make 
system and personnel changes necessary to comply. Another commenter 
stated that the costs and burdens of implementing the new rules, if 
adopted, would lead many community banks to discontinue offering this 
product, doing a disservice to consumers.
    7. Record Retention Requirements. A commenter suggested that 
institutions that are examined more frequently than once every two 
years be required to retain records of compliance for one examination 
cycle (rather than for two years, as currently required).

[[Page 62078]]

K. Consumer Protection in Sales of Insurance
    A number of industry commenters addressed the interagency 
regulations on consumer protection in insurance sales, implementing 
section 47 of the Federal Deposit Insurance Act enacted as part of the 
GLBA. Commenters raised issues related to the disclosure requirements 
of the regulations.
    Consumer group commenters did not comment on the regulations on 
consumer protection in insurance sales.
    1. Types of Insurance and Annuities Covered by Disclosure 
Requirements. One of the suggestions most frequently expressed by 
commenters was that the Agencies should exclude from disclosure 
insurance products that do not involve investment features or 
investment risk from the disclosure that there is investment risk 
associated with the product, including possible loss of value. For 
example, commenters argued that fixed-rate annuities guarantee the 
return to the policyholder, and that the Agencies should exclude such 
annuities from the investment risk disclosure.
    Commenters also focused on the disclosure that an insurance product 
is not a deposit and is not insured by the FDIC or any other government 
agency. They contended that the disclosure requirement should apply 
only to insurance products that are similar to a deposit product 
because of the fact that consumers might confuse such insurance 
products with an FDIC-insured deposit. They argued that the disclosure 
requirement should not apply to types of insurance such as credit life, 
property and casualty, crop, flood, and term life insurance, where, 
because such insurance products are not similar to a deposit product, 
there is no likelihood of confusion. Commenters suggested that making 
the disclosure for insurance products such as credit life insurance in 
fact confuses consumers (rather than alleviates confusion), and 
therefore requires institution personnel to spend time explaining the 
disclosure to consumers.
    2. Duplicative Disclosure Requirements. Commenters noted that 
credit life insurance is subject to a disclosure requirement under 
section 47 of the FDIA--the fact that the institution may not condition 
an extension of credit upon the purchase of an insurance product or 
annuity from the institution--and also to a similar disclosure 
provision under the Truth in Lending Act. The former disclosure is made 
at application and the latter at loan closing. Commenters suggested 
that a single disclosure at loan closing should be sufficient. 
Commenters also stated that some state laws require similar 
disclosures. One commenter asserted that, therefore, a consumer in such 
a state must sign four times to purchase credit insurance (twice for 
federal disclosures, once for the state disclosure, and once on the 
insurance company's form). Commenters argued that consumers are 
confused by the multiplicity of disclosures that have no real meaning 
for the average consumer.
    3. Procedures for Providing Disclosures. Commenters addressed the 
fact that the regulations require the disclosures both orally and in 
writing, and suggested that a single method should suffice (for 
example, written disclosures should be sufficient, except for telephone 
sales, in which case oral disclosures should be sufficient). Commenters 
also noted the requirement to obtain the consumer's written 
acknowledgment that they received disclosures arguing it is burdensome 
and unnecessary. One commenter also suggested that an oral 
acknowledgment should suffice in the case of a telephone sale (the 
regulations, in that circumstance, require that the institution both 
obtain an oral acknowledgment on the telephone, and make reasonable 
efforts to obtain a written acknowledgment).
L. Advertisement of Membership (Deposit Insurance)--12 CFR Part 328
    Several comments were received. Two commenters had no 
recommendations for changes. One of these commenters, an industry trade 
association, noted it had received few questions or complaints about 
part 328 since it was revised in 1989. The second commenter, also an 
industry trade association, said banks generally do not find the 
regulation burdensome as long as it is reasonably interpreted and not 
strictly construed--such as, allowing banks to take deposits at a 
customer service desk or a branch manager's desk without having to 
display the official bank sign.
    Some commenters recommended changing part 328. One commenter 
favored simplifying the exceptions to the official advertising 
statement requirement to say that it applies only when advertising 
deposits. Another commenter recommended eliminating the exception to 
official advertising statement requirement for radio and television ads 
that do not exceed 30 seconds. Several commenters from an industry 
trade association questioned the need for the official sign, and one 
commenter of that industry trade association thought requiring the 
official advertising statement on bank merchandise was excessive. One 
commenter thought that not every teller window required an official 
sign, saying that posting the official sign on the front door or in the 
lobby should be sufficient. Finally, one commenter asked for 
clarification when the official advertising statement is required, 
saying that the FDIC should not require the official advertising 
statement on promotional items.
M. Deposit Insurance Coverage--12 CFR Part 330
    One commenter suggested simplifying the rules for the various types 
of accounts, particularly when combining accounts to maximize coverage 
limits. Commenters noted the difficulty in explaining the rules to 
customers. A number of commenters mentioned that the EDIE educational 
program was very helpful and some commenters asked that it be sent to 
every financial institution and branch location to assist employees in 
responding to customer questions. Most commenters also suggested 
raising, or not lowering, the deposit insurance limits. Some commenters 
who favored raising the limit suggested the limits be indexed for 
inflation. In addition, commenters suggested the following:
     Merge the BIF and SAIF.
     Assess growth related premiums on rapidly growing 
institutions, but not small de novo institutions.
     Give FDIC the flexibility to manage the insurance fund and 
spread recapitalization over a reasonable period.
    Commenters also suggested that a rebate system be established, that 
the need to ``structure'' deposits be eliminated, and that assessment 
forms are unnecessary.
N. Deposit Insurance Regulations
    Many other commenters supported legislation that would merge the 
BIF and SAIF fund and allow every institution that benefits from 
deposit insurance to pay something when they enter the system. The 
commenters suggested that the Agencies factor into the risk-based 
assessment other factors such as, number of interstate locations, types 
of products offered, and exam ratings. Another commenter suggested that 
new entities that open with FDIC coverage, such as American Express, 
but have not paid into the fund, should pay a substantial fee.
    One commenter felt the purpose of the fees, to prevent dilution of 
the SAIF and to ensure payment of FICO bonds, no longer exists so the 
fees are moot.
    One commenter stated that deposit insurance coverage rules need 
simplifying and streamlining. The same commenter additionally 
recommended

[[Page 62079]]

that FDIC distribute information to every branch office of every bank 
and otherwise disseminate tools more broadly so that consumers 
understand how to expand coverage.
O. Notification of Changes of Insured Status--12 CFR Part 307
    The one commenter, a trade association, stated that no bank or 
savings association has ever raised a regulatory burden concern about 
the requirements and therefore, the commenter had no recommendations 
for change.
P. OTS Advertising Regulation and Tying Restriction Exception
    There were no comments on either OTS regulation. (12 CFR 563.27 and 
12 CFR 563.33)

III. Federal Register Release No. 4--Anti-Money Laundering, Safety and 
Soundness and Securities Regulations

A. Anti-Money Laundering
    1. Bank Secrecy Act and Money Laundering. The Agencies received 
over 125 comments discussing various issues pertaining to compliance 
with the BSA and other AML legal requirements. In addition to the 
written comments received, issues associated with BSA compliance ranked 
among the most burdensome requirements identified by bankers during the 
nationwide outreach meetings that the federal banking agencies 
conducted during the EGRPRA process. Whether in written comments 
submitted in response to the Federal Register notice, or in oral 
comments delivered at the outreach meetings, bankers expressed deep 
concern over the costs in time, money, and staffing associated with 
complying with the BSA and, particularly, whether such efforts are 
useful and cost effective.
    a. Currency Transaction Report Thresholds. In comments submitted to 
the Federal Register, as well as in the various Bankers Outreach 
Meetings, commenters were unanimous in supporting changes to the 
currency transaction report (CTR) requirements. With the exception of 
one commenter, all were unanimous that the current threshold of $10,000 
for filing CTRs needs to be increased. The suggested numbers for a new 
threshold ranged from $15,000 to $50,000, with most commenters urging a 
new threshold of $20,000 or $25,000. The reasons given for the need to 
increase the threshold varied among the commenters. A number of 
commenters noted that the $10,000 threshold had been established over 
three decades ago and that there was a need to adjust the threshold for 
inflation. A majority of the commenters discussed how burdensome the 
CTR requirements were, both because of the low reporting threshold and 
because of the belief that law enforcement did little, if anything, 
with the CTRs that banks file. One commenter noted that the low 
threshold ``clutters the system'' with CTRs that do not have enough 
value to justify the cost of filing, data entry, storage and retrieval. 
Raising the threshold, some commenters believed, would be more 
efficient for both law enforcement and the banks. A couple of 
commenters suggested reviewing/adjusting thresholds annually to allow 
for inflation, and to enable government to make changes based on 
resources and law enforcement needs.
    One commenter suggested that lowering the CTR threshold to $5,000 
would reduce duplicative paperwork burden. This commenter contended 
that lowering the threshold would avoid double filing of paperwork, 
because banks must file CTRs on aggregated transactions that meet the 
threshold of $10,000 and SARs on the individual deposits making up the 
total. The commenter asserted that most SARs are required to be filed 
because a customer has structured deposits that trigger the $10,000 
threshold and, if the threshold is lowered to $5,000, the commenter 
suggested that only a CTR would be required for these same 
transactions. Another commenter took a different view and noted that 
excessive SARs for ``structured'' transactions are being required 
because the current $10,000 threshold is too low. This commenter 
suggested raising the CTR threshold to $25,000.
    One commenter noted that exemptions from CTR reporting are too 
complicated and it is easier for a bank to file a CTR than undertake 
the determination that a customer qualifies for an exemption. The 
commenter recommended that the federal banking agencies tell FinCEN 
that CTR exemption rules need to be amended to allow exemption 
designations for all non-listed businesses other than businesses 
designated by FinCEN as increased risk, without regard to transaction 
history, and exemptions should be done through a one-time filing.
    Another commenter proposed eliminating the one-year CTR exemption 
waiting period. This commenter stated that since the PATRIOT Act 
already requires upfront information to enable institutions to identify 
customers, it is duplicative and burdensome to not allow CTR exemptions 
until a year has passed. On a related note, another commenter said that 
it would be better for there to be no CTR reporting until a customer 
was deemed suspicious by the depository institution, or until the 
government told the institution to begin such reporting. Yet, another 
commenter suggested eliminating the annual recertification requirement 
for exempt customers. Another commenter stated that it had not made use 
of a so-called Phase II exemption due to the time and personnel needed 
to monitor and document activity over a 12-month period to ensure that 
customers qualify for the exemption. This commenter said that the only 
requirement should be to eliminate the exemption when a customer's 
attributes no longer qualify for the exemption. Three commenters said 
that the biennial filing of exempt accounts is unnecessary because 
banks review the exemptions annually. Another commenter proposed that 
the period for establishing a relationship for purposes of an exemption 
be reduced from 12 months to 3 to 6 months.
    One commenter suggested replacing daily CTRs with monthly cash 
transaction reporting. The commenter suggested that a report for any 
customer with cash transactions of over $50,000 would help government 
focus on the riskiest customers. Another suggested statutory changes to 
eliminate the CTR form. The commenter suggested that the form is 
difficult to fill out and that it would be easier for banks to give 
monthly reports of all deposit accounts that had aggregate cash in/cash 
out of $10,000 for the month containing account name, account number, 
taxpayer ID number, account address, and total cash in and cash out. 
This approach, said the commenter, would eliminate ``thousands of 
hours'' spent preparing individual CTRs for everyday deposits/
withdrawals. It would also eliminate the need to file SARs for amounts 
just under $10,000.
    One commenter noted that the exemption system for CTRs does not 
work well for community banks, because it is not cost effective for 
small institutions that do not file a lot of CTRs and fear regulatory 
action if the exemption is used incorrectly. The commenter recommended 
that the agencies work with FinCEN to allow institutions to more 
quickly exempt business customers. Another commenter urged easing 
exemption requirements for existing customers as a way of reducing 
burden on banks.
    b. Suspicious Activity Reports. SARs were the subject of much of 
the same criticism that CTRs received--commenters suggested they are 
burdensome, are not followed up on, and are not cost effective. Many 
commenters stressed the need for

[[Page 62080]]

clearer, more consistent SAR guidance. One commenter urged the banking 
agencies to create a consistent policy on SARs together with FinCEN and 
DOJ. Another commenter suggested that further guidance is needed. The 
commenter asked how far back does one need to research the account once 
suspicious activity is found; the commenter suggested 1 to 3 months. 
Another commenter said ``we need an FBI agent on staff to interpret SAR 
rules.'' Several commenters noted how time consuming it could be for a 
financial institution to file a SAR. One commenter noted that the FBI 
investigated only one SAR filed by the bank and then did not pursue it, 
adding ``it seems there needs to be a loss to the bank of 100K before 
the FBI will investigate.''
    Another commenter noted (see above) that the current $10,000 
threshold for CTRs leads to SARs being filed for structured 
transactions just under that amount; these SARs constitute, according 
to the commenter, almost 50 percent of all the SARs filed and drive up 
the costs of the system that stores/processes all the data.
    Many commenters noted that the increased volume of SARs is 
degrading their effectiveness. Commenters suggested that agencies 
should work with FinCEN to provide detailed guidance on when SARs 
should be filed and what documentation banks need to maintain. One 
commenter noted that banks currently need to ``over comply'' with SARs 
requirements and that there is no consistency from agency to agency. 
Several commenters contended that little or nothing is done with SARs 
once they are submitted.
    Several commenters suggested raising the threshold for filing SARs, 
with one commenter stating that the threshold amount should be raised 
to $100,000. Another commenter suggested that the threshold be tied to 
inflation. In the case of SARs, the threshold should be $10,000 when a 
suspect is known and $50,000 when no suspect has been identified. 
Another commenter suggested that the threshold for ``money laundering 
SARs'' be raised from $5,000 to a higher amount.
    Many commenters said that unclear requirements from the agencies 
regarding SARs have led them to file so-called ``defensive SARs.'' One 
commenter noted that banks do this to protect themselves against 
examiner criticism. Moreover, a commenter noted SAR filings make CTR 
filings redundant.
    One commenter noted that it does not make sense that a person 
identified as a money launderer can move from bank to bank. The 
commenter recommended developing a ``watch list'' of such individuals.
    One commenter said that clearer guidance is needed on when filing 
is necessary. Specifically, the commenter suggested eliminating the 
requirement that a bank must file a SAR every 90 days after the first 
SAR is filed. Another commenter noted that the beginning of the 30-day 
period for SAR reporting is unclear and that banks should be given 
ample time to examine the activity or maintain a process for the 
investigation of facts; the 30-day period should begin with a bank 
determination that suspicious activity has occurred and that a SAR is 
needed.
    c. Customer Identification Program. Many commenters noted the 
burden that the customer identification program (CIP) currently imposes 
on banks, and the inconvenience that it creates for long-time 
customers. One commenter noted that ``in our town, we gawk when 
strangers come in.'' This commenter suggested a BSA exemption for banks 
under $100 million in assets in communities with a population of less 
than 25,000.
    Another commenter suggested that the current definition of 
``established customer'' be amended to make clear that it is a customer 
from whom the bank has already obtained the information required by 31 
CFR 103.121(b)(2)(i). In addition, this commenter suggested amending 
existing 31 CFR 103.29 to replace references to ``deposit account 
holder'' and ``person who has a deposit account'' with ``established 
customer.'' The result would be definitions of ``customer'' as defined 
in CIP regulations and ``established customer'' (one whose basic 
information has been obtained).
    One commenter noted that the frequently asked questions (FAQs) 
developed for CIPs were helpful. Additional questions and answers 
should be developed as the need arises. This commenter also indicated 
that FAQs directed at community banks would be helpful as well. Another 
commenter stated that current regulations fail to distinguish between 
relationships with individual versus institutional customers. The 
commenter suggested creating distinctions between such customers.
    Three commenters suggested adding more clarification about what 
types of identification are acceptable. Another commenter made the same 
point but added that the confusion relates in particular to customers 
like the Amish and the extent of identification needed. The commenter 
noted that community banks have had to close accounts and not open new 
ones because of identification issues. The commenter indicated this has 
impacted elderly and foreign customers in particular and has given rise 
to an underground network of financial services.
    One commenter said that the definition of ``non-U.S. persons'' 
under the CIP should be limited to foreign citizens who are not U.S. 
resident aliens. The current definition, according to the commenter, is 
too broad and makes providing services to immigrant markets very 
problematic. The commenter added that the burden of verifying customer 
information is greater than any benefit.
    One commenter noted that some BSA requirements are duplicative. 
Specifically, the commenter pointed out that BSA requirements for 
recordkeeping with respect to signature authority duplicates PATRIOT 
Act CIP requirements. The commenter noted that 31 CFR 103.34 (b)(1) 
requires that the bank retain each signature card for deposit or share 
accounts and notations of specific identifying information while 
section 103.121(b)(2)(ii) requires similar identity verification and 
documentation. It would make sense to eliminate section 103.34(b)(1) in 
light of the overlap. The commenter pointed out other redundancies, 
this one between 31 CFR 103.34(b)(11) (requiring a record of each name, 
address and taxpayer identification number for purchasers of 
certificates of deposit (CDs)) and 31 CFR 103.121(b)(2)(i) (requiring 
the name, date of birth, address, and identification number of each 
customer). Although section 103.34(b)(11) also requires additional 
records related to the CD issued, according to the commenter, the 
identifying information of the customer is redundant and should be 
deleted.
    One commenter recommended requiring business type/occupation 
documentation at the time of account opening. According to the 
commenter, this information already is included in CTRs but not for 
CIPs. The commenter suggested that having this information available up 
front would enable the government to narrow searches and focus efforts 
on particular types of businesses or occupations.
    One commenter suggested that the Department of the Treasury should 
review the requirement to obtain and perform verification of a 
business' Employer Identification Number (EIN) as part of the CIP. The 
commenter proposed that the Department of the Treasury enable financial 
institutions to obtain and verify a government-issued identification 
instead of the EIN. The commenter further proposed that the Department 
of the Treasury review the

[[Page 62081]]

requirement to obtain a physical street address for all applicants 
under the CIP. The commenter noted many customers use postboxes to 
protect their privacy but the post office nevertheless registers it as 
a physical address. Finally, this commenter suggested eliminating the 
record retention requirement imposed by the CIP. The commenter argued 
that the need to maintain name, physical address, date of birth and 
taxpayer identification number on the account for five years after the 
account is closed creates a significant burden for financial 
institutions. The commenter proposed that the Department of the 
Treasury consolidate the record retention requirements in the CIP and 
require that financial institutions maintain the information for five 
years from the date that the account is opened. Another commenter 
suggested that records be maintained no more than two years after an 
account is closed.
    Another commenter said that it understood the importance of the CIP 
but suggested that the renewal requirement for the reliance safe harbor 
be eliminated. The safe harbor should authorize reliance on an 
affiliated financial institution without regard to documenting a formal 
reliance certificate. Yet another commenter questioned whether the 
current exception for existing customers provides much relief and asked 
what constitutes ``reasonable belief'' that the financial institution 
knows the identity of the customer.
    One commenter suggested clarification on the discrepancies that 
exist between the requirement to maintain sufficient information to 
identify a customer under section 326 of the PATRIOT Act and Regulation 
B's prohibition on maintaining information on the gender/race of a 
borrower.
    2. Increased Regulatory Burden. There was broad consensus among the 
commenters that the agencies' regulatory policy with regard to BSA and 
the PATRIOT Act needs to be clarified. Many commenters expressed their 
concern about the perceived ``raising of the bar'' concerning BSA 
programs and policies. Many of these commenters noted that the 
perception of raising the bar causes banks to file reports in cases 
where it should not be necessary. Two commenters pointed out what they 
called the ``disconnect'' between what agency officials are saying 
about BSA policy in Washington versus what examiners are saying. A 
commenter asserted that examiners should be looking to help, not 
punish, bankers seeking to comply with BSA. One commenter suggested 
that there be regional committees made up of bankers and regulators to 
formulate effective means to monitor BSA. Another commenter noted that 
the level of documentation required under AML regulations is too 
burdensome. This commenter noted that the level of documentation 
required for small accounts that occasionally cash checks is time 
consuming. Another commenter proposed, in light of complicated BSA 
compliance, that there be an agency person located in the bank full 
time, rather than getting after-the-fact interpretations. Another 
commenter noted the growing responsibility being placed on banks 
without sufficient support from the agencies. On a related matter, a 
number of commenters noted that agency interpretations of BSA 
requirements are ``unpredictable,'' with four commenters noting that 
the agencies seem to issue different interpretations, making compliance 
difficult.
    One commenter noted that regulations are created with little 
direction on how to comply, and with too little time between the final 
rule and implementation. In the view of this commenter, three to six 
months is not sufficient, seeing that customers need to be notified, 
disclosures need to be rewritten, and forms changed. Moreover, state 
laws (especially BSA and privacy) conflict with federal laws too 
frequently. This commenter suggested keeping state and federal 
regulations consistent, reduce record keeping requirements to match 
exam periods, raise the threshold for reporting, increase the time 
between a final rule and implementation, provide definitive answers, 
provide better guidance, and provide a tax credit equal to the cost of 
regulatory burden.
    One commenter noted that, since 1999, the banking industry has had 
to manage the implementation of new rules or changes to old rules 
roughly every 1.5 weeks, with BSA rules constituting a significant part 
of the burden. One commenter called for specific guidance from 
regulators regarding the identification of high-risk customers. The 
same commenter suggested that the agencies issue clear guidance with 
respect to what is needed in the narrative section of SARs. Some 
commenters suggested that the agencies try to issue uniform guidance--
one specifically called for all BSA regulations being joint 
regulations. One commenter pointed to the 2005 interagency guidelines 
issued for Money Service Business accounts as the type of joint 
guidance for which agencies should be striving.
    a. Money Services Businesses. Regulatory requirements on this issue 
drew a lot of criticism, with many commenters calling for a reduction 
in the due diligence requirements with respect to Money Services 
Businesses (MSBs). One commenter noted that banks have become the 
``unofficial regulator'' of MSBs. The commenter noted that many banks 
have been forced to close such accounts and that examiners are giving 
the message that they do not like to see banks working with such 
businesses. The commenter said that the reporting burden should be on 
the MSBs, rather than on the banks. One commenter noted that it is not 
a bank's responsibility to determine if an MSB has registered with 
FinCEN. One commenter proposed that the threshold for the check casher 
category be expanded to reduce burden on independent grocery stores, 
especially those with limited check cashing services as an adjunct to 
their business; such stores, the commenter said, should not need a full 
compliance program but rather should just have to comply with CTR and 
SAR reporting. Another commenter made a similar observation--that large 
commercial check cashers and payday lenders may pose a risk that 
smaller ``mom and pop'' shops do not. Another commenter said that the 
type of account monitoring that is necessary and expectations of 
examiners need to be clearly defined. Commenters noted the need for 
regulations setting forth in a clear manner what is considered high- 
versus low-risk MSB activity. One commenter noted that the cost of 
monitoring money service businesses is ``prohibitive.'' Moreover, noted 
this commenter, discontinuing business with such businesses ultimately 
hurts the wider community. One commenter said that examiners need to 
have a better understanding of existing guidance on MSBs. One commenter 
contended that bank responsibility for monitoring such businesses is 
creating a new class of unbanked businesses, with banks having to close 
such accounts because the regulatory risks and costs are too high. If 
banks are to accept such accounts again, the agencies need to reduce 
regulatory requirements. Another commenter suggested that the emphasis 
should be on wire transfer departments, and not on small businesses; 
the commenter added that if MSB work is so important, the government 
should do it directly, rather than through the banks.
    One commenter suggested that a clearer definition of ``check 
casher'' is needed. Currently, a person becomes a check casher for 
cashing checks in excess of $1,000 per day. The

[[Page 62082]]

commenter noted that, on occasion, a business inadvertently exceeds the 
limit, and questioned whether such a business would be deemed a MSB 
forever. The commenter suggested that businesses be able to file a 
statement saying that exceeding the limit was inadvertent and would not 
happen again. Likewise, the definition of check casher needs to be 
revised so that an employer who cashes employees' paychecks is not 
considered a check casher under the regulations.
    One commenter noted that MSBs play an important role in providing 
services to persons who may not have traditional banking relationships. 
The commenter said that banks need regulators' help to recognize 
unidentified MSBs. Another commenter asserted that recent guidelines do 
not provide sufficient relief of costs, burden, and exposure stemming 
from continued business with MSBs and that the institution is closing 
out many such accounts.
    One commenter asked whether private ATM owners are considered MSBs 
under existing regulations and urged that the matter be clarified. 
Another commenter said that businesses should be notified by the state 
when they apply/renew business licenses that they may qualify as an MSB 
if they meet certain criteria.
    b. Correspondent Accounts/Shell Banks. Commenters' comments 
included:
     The safe harbor requires certification to open an account 
and recertification every three years. The recertification process is 
costly and burdensome and banks are duplicating this effort.
     FinCEN should maintain a central depository where foreign 
banks could submit their certification and U.S. banks could access it 
directly through FinCEN.
     The recertification requirement for shell banks should be 
eliminated or, alternatively, the period for recertifications should be 
extended to five years. Additionally, the shell bank certification 
process is burdensome and time consuming and getting recertifications 
from existing customers is very burdensome. The definition of 
correspondent account should be clarified, because the current 
definition is extremely broad and covers virtually every relationship 
that is, or could be expected to be, ongoing.
     Banks and broker-dealers spend millions to comply with 
requirements that they obtain ownership and other information from each 
foreign bank with which they do business and to confirm that the 
foreign bank has a physical presence in a jurisdiction. There is no 
evidence that this helps detect terrorist financing or money 
laundering. Agencies should review the need to continue these practices 
and adjust the regulations accordingly.
     The costs/burden/regulatory risk associated with foreign 
correspondent banking had led it to terminate four out of five 
relationships that it had with foreign correspondent banks. Increased 
due diligence requirements have turned the bank into a de facto 
regulator of foreign institutions. The loss of trade financing, payment 
transfers, etc. could have a negative impact on the economy.
     Correspondent banking relationships are being reduced or 
eliminated because of BSA demands, yet these relationships are at the 
height of many banking relationships and the banks in question know 
their Latin American correspondent institutions well.
    c. Sales of Monetary Instruments. Commenters proposed that record 
retention requirements for selling monetary instruments between $3000 
and $10,000 in currency be revised so that only banks that engage in 
such transactions with persons who are not ``established customers'' 
would have to comply with the record keeping requirements.
    d. Office of Foreign Assets Control Compliance. Commenters proposed 
that there be a bank safe harbor for Office of Foreign Assets Control 
(OFAC) compliance. They also requested clarification of institutions' 
obligations regarding automated clearing house transactions and about 
how often they should check their customer base against the OFAC list.
    e. Politically Exposed Persons. Commenters indicated that the 
Department of the Treasury should provide a more detailed definition of 
the term ``Politically Exposed Person,'' or PEP. They noted that the 
PATRIOT Act requires enhanced scrutiny of private banking accounts of 
current and former senior foreign political figures, thereby requiring 
financial institutions to identify such individuals but also their 
family, businesses, close associates, and others. The commenters stated 
that it was not possible for banks to undertake such detailed 
investigations, that the Department of the Treasury should provide a 
definition of ``senior foreign political figures,'' and what 
constitutes a relationship in terms of these requirements. Another 
commenter said that examiners had indicated that enhanced scrutiny is 
applied to any account/transaction involving PEP, regardless of risk, 
and recommends clarifying whether the same level of monitoring is 
expected for PEPs associated with low-risk lines of businesses and 
products.
    Finally, commenters indicated that there are no definitive sources 
for banks to consult regarding accounts of senior foreign political 
figures/their families/close associates. Moreover, once someone is 
deemed a PEP, the regulations do not provide a way to change the 
designation.
B. Safety and Soundness
    1. Corporate Practices. Some commenters recommended that all the 
Agencies review their operations in the following areas:
     Conduct a study of exam reports to evaluate whether 
examiners are appropriately distinguishing management from board 
obligations in their exam findings, conclusions, and recommendations.
     Review existing regulations that examiners rely on to 
support their prescriptions that directors undertake more managerial-
type responsibilities.
     Incorporate additional detailed guidance in examiner 
training on distinct and different roles of bank management and the 
board.
    2. Appraisal Standards for Federally Related Transactions. Most 
comments focused on the threshold to obtain an appraisal stating that 
the $250,000 threshold, which has been the same since implementation of 
the regulation in the early 1990s, is out of date and burdensome. One 
commenter remarked that in 1992, the government-sponsored entity 
conforming loan limit was $202,300, and now it stands at $333,701 (at 
the time of the comment), yet the de minimus amount for the appraisal 
rule is still $250,000. Some suggested that the threshold be raised 
from $250,000 to $500,000. Others suggested raising the threshold to a 
higher level to account for inflation and increased cost of housing, 
land, and real estate in general.
    Other comments questioned the necessity to require an appraisal by 
a licensed or certified real estate appraiser. One commenter indicated 
that bank staff can do an adequate job of assessing property valuation. 
Another commenter indicated that a banker should be able to use the 
County Assessor's value on loans up to $500,000 without requiring a 
formal appraisal. Another commenter suggested that assessed values 
should be permitted as acceptable valuation for some loans since 
assessed values typically are more conservative than full-market-value 
appraisals. One banker indicated that it cost $30 to do an appraisal 
via the Internet (using databases) and $250 to hire an appraiser to 
visit the property. Yet, in his

[[Page 62083]]

experience, the Internet information was just as reliable. Another 
questioned the need for appraisals when the transactions are between a 
bank and a governmental sponsored entity. Some felt that appraisal 
standards are too stringent for residential transactions that are sold 
into the secondary market, particularly given the market discipline 
imposed by such transactions.
    3. Frequency of Safety and Soundness Examinations. Some commenters 
stated that on-site examinations are a tremendous time commitment and 
result in significant disruption to the bank and suggested the Agencies 
should use a risk-based approach when determining examination frequency 
that results in less frequent on-site examinations for well-managed, 
well-capitalized institutions. Commenters believed that regulators 
could satisfy the annual examination requirement with a less 
burdensome, off-site examination process that uses information already 
supplied through existing reporting requirements. Other commenters 
suggested lengthening the examination cycle to 18 to 24 months for 
banks that have historically exhibited sound banking practices. 
Commenters recommended that the various regulatory bodies review 
interim data, conduct informal management reviews, and use discretion 
to expedite a review cycle when there is more than average risk.
    4. Lending Limits. One commenter remarked that the lending limit 
for national banks is 15 percent of capital and surplus, while Kansas's 
state-chartered banks have enjoyed a general lending limit of 25 
percent of capital and surplus for almost eight years. Many of their 
national bank competitors would like to see the federal law changed for 
national banks as well. Another commenter recommended that lending 
limits be revised upward to state law permissible lending limits.
    Several commenters remarked that Regulation O limits on inadvertent 
overdrafts should be increased from the current level of $1,000.
    5. Real Estate Lending Standards. There was no recommendation for 
changing the real estate lending standards regulation; however, there 
were a few comments that suggested modifying the interagency guidelines 
that are attached to the regulation. The commenters remarked that the 
method of risk calculation does not appropriately measure risk of 
potential loss. Commenters also stated that the supervisory loan-to-
value guidelines hamper the ability of small community banks to compete 
in the marketplace.
    6. Security Devices and Procedures. No comments received.
    7. Standards for Safety and Soundness. Commenters stated that the 
Agencies' rules on safeguarding customer information were unnecessary 
in light of community bank practices and the rules add cost and burden 
to their operations. Most commenters believed the information 
technology requirements are excessive compared to the level of 
technology available. Some commenters recommended that the Agencies 
provide risk assessment models to assist in identifying and quantifying 
possible threats. Some commenters stated that overseeing service 
providers is burdensome and that the Agencies should provide a model 
form or checklist. Others asserted that the Agencies should clarify 
expectations about information security requirements regarding non-
affiliated third parties and provide examples on the types of third 
parties covered and not covered by the guidelines. Most commenters 
wanted to receive additional guidance on best practices for compliance 
with the guidelines. Some commenters remarked that examination 
practices are too burdensome and need to be adjusted to the size and 
sophistication of each institution. Others expressed their uncertainty 
about examination results after incurring significant expenses. One 
commenter stated that the cost for the security review alone totaled 
$2,000.
    8. Transactions With Affiliates. The sole commenter stated that the 
requirement to prove affiliate arrangements are on terms and under 
circumstances ``that are substantially the same as those prevailing at 
the time for comparable transactions with or involving other non-
affiliated companies'' is extremely burdensome. The commenter remarked 
that it is difficult to find cases in which identical services are 
offered by third parties and stated that while the rule attempts to 
provide relief in such cases, in practice, it offers little relief. The 
commenter asserted that 12 U.S.C. 371c-1(a)(1)(b) permits the 
institution, in the alternative, to prove that it, in good faith, would 
pay a non-affiliated third party an equivalent fee for similar 
services. However, in order to respond to an inquiry concerning an 
institution's reliance on a 12 U.S.C. 371c-1(a)(1)(b), a substantial 
amount of supporting documentation on the fees and services would be 
necessary to prove that the fees are not excessive. The commenter 
believes that there should be an exception to the comparable 
transaction requirement, or alternatively, a reduced burden of proof 
required if both the parent and the financial institution subsidiary 
are rated as financially sound, and the bank is CAMELS ``1'' or ``2'' 
rated. If there is minimal risk to the FDIC insurance fund (as would be 
the case for a sound company), the terms of the affiliate transactions 
should be irrelevant. Alternatively, the commenter suggested that 
regulators should relieve institutions of the comparable transaction 
requirement if the total fees paid to the affiliate do not exceed the 
amount that could be paid to the affiliate in dividends.
9. Safety and Soundness--Board
    a. Extensions of Credit by Federal Reserve Banks. No comments 
received.
    b. Limitations on Interbank Liabilities. No comments received.
10. Safety and Soundness--FDIC
    a. Annual Independent Audits and Reporting Requirements. Several 
commenters noted that the exemption from the external independent audit 
and internal control requirements in 12 CFR part 363 for depository 
institutions with less than $500 million in assets was adequate. 
Because of consolidation, together with the application of the public 
company auditing standard to banks, the exemption needs to be increased 
to $1 billion to reduce the burden on smaller institutions.
    One commenter recommended eliminating the current requirement in 
part 363 for annual reports by management and external auditors on the 
effectiveness of internal control over financial reporting for those 
insured depository institutions with $500 million to $1 billion in 
assets that are not public companies.
    b. Unsafe and Unsound Banking Practices (standby letters of credit, 
brokered deposits). No comments received.
11. Safety and Soundness--OCC
    a. Other Real Estate Owned. No comments received.
12. Safety and Soundness--OTS
    a. Audits of Savings Associations and Savings Association Holding 
Companies. Refer to above comment under FDIC heading.
    b. Financial Management Policies. No comments received.
    c. Lending and Investments--Additional Safety and Soundness 
Limitations. A commenter wrote that OTS should eliminate the credit 
enhancement requirement on mortgage and home equity loans that exceed a 
90 percent loan-to-value (LTV) ratio as it creates a competitive 
disadvantage. The commenter pointed out that the cost of

[[Page 62084]]

credit enhancement drives qualified customers to nonbanking lenders 
that do not have such requirements and can offer lower-cost products. 
The commenter remarked that OTS should eliminate the recordkeeping and 
reporting requirements for loans that exceed certain LTV limits because 
they are burdensome and increase overhead costs, which affects loan 
pricing. The commenter explained that the tracking and reporting 
requirement is difficult because the association captures the 
information at the account or customer level, and the regulation 
requires comparison of loans across systems, and aggregation of loans 
based on collateral. The commenter further remarked that OTS could 
adequately address any safety and soundness concerns created by high 
LTV loans through underwriting policies that ensure that borrowers have 
the capacity to service such loans.
C. Securities
    The federal banking agencies received several comments concerning 
how the Agencies can reduce regulatory burden with respect to 
securities regulations. Many of the comments received addressed 
perceived regulatory difficulties associated with complying with the 
requirements of the SOX.
    1. Regulatory Compliance. One commenter said that penalties 
governing violations of the securities laws need to be significantly 
relaxed, adding that offenders should have to contribute to the 
community from which they took rather than be jailed.
    2. Reporting Requirements under the Securities Exchange Act of 1934 
(34 Act). The letters contained several comments concerning the 
increased burden that commenters felt SOX had imposed on public 
companies, but especially for community banks. Commenters urged the 
federal banking agencies to work with the SEC to minimize the reporting 
burden for community banks. These commenters stated that making 
institutions that are not publicly traded and are less than $1 billion 
in assets comply with independent audit and independent audit committee 
requirements is very burdensome and that finding outside professionals 
to help comply with these requirements, especially in small 
communities, can be impossible. This commenter noted that it is 
difficult to attract and retain outside directors for audit committees 
in view of the risks involved. The threshold should be raised to $1 
billion for compliance with such requirements.
    Some commenters expressed concern about the cost of section 404 
compliance (internal control reports). They said that the effort and 
expense of additional certifications, documentation, and testing 
requirements are not commensurate with the operational risks. One 
commenter noted in particular that community banks lack the internal 
resources to meet the Public Company Accounting Oversight Board's 
attestation standard. Banks face much higher consulting costs, and 
increases in their auditing fees, as well as legal compliance costs.
    Other commenters noted that the time spent on section 404 
compliance detracts from other matters, such as daily operations, long-
term performance, and strategic planning. One commenter said that 
section 404 compliance requirements had forced banks to abandon regular 
risk audits in favor of concentrating on section 404 compliance.
    Several commenters suggested following the requirements of the 
FDIC's part 363 instead of having to comply with section 404. The 
requirement of a separate audit of internal controls has created 
unnecessary burden; instead, a thorough review of how management 
reaches its conclusions about internal controls would be as effective, 
but less burdensome, than the required audit. The independent audit, 
commenters argued, duplicates work done through a company's internal 
audit function and senior management. Some commenters suggested that 
the FDIC and the other agencies work with the SEC to explore how to 
streamline the audit and attestation process.
    One commenter urged scaling back the standards to a reasonable 
level of inquiry that allows an auditor to opine on the conclusions 
reached by management. In the opinion of the commenter, there are other 
protections in place to safeguard the investing public and that make 
the section 404 burdens ``inappropriate.'' If the SEC does not extend a 
full exemption to depository institutions, they should revise section 
404 to provide for a partial exemption for those institutions exempt 
from the part 363 requirements--either by changing the regulations or 
through a change in the law.
    a. Acceleration of Filing Deadlines. One commenter noted that, 
since the passage of SOX, the SEC has accelerated the filing deadlines 
for periodic reports on Forms 10-Q and 10-K, current reports on Form 8-
K, and insider beneficial ownership reports under section 16 of the 34 
Act. The commenter noted that smaller public community banks do not 
have employees dedicated solely to filing these reports. The two-
business-day deadline for section 16 reports is especially difficult, 
because the reports have to be gathered from principal shareholders, 
directors, and executive officers. The four-business-day filing 
requirement for Form 8-K creates difficulties. To ease the burden on 
small banks, the SEC should change the deadline for insured depository 
institutions to 10 calendar days for filing current reports on Form 8-K 
and section 16 beneficial ownership reports.
    The SEC likewise should freeze current deadlines for periodic 
reports rather than implement the final step in the acceleration 
schedule that would require annual reports to be filed within 60 days 
and interim reports within 35 days.
    b. Thrift Securities Issues. One commenter said that OTS should 
move the requirement in 12 CFR 563.5 that savings association 
certificates must include a statement about the lack of FDIC insurance 
to a place where it is adjacent to relevant material and can be more 
easily found. The commenter specifically suggested moving the section-
to-section 552.6-3, which discusses the certificates for savings 
associations generally. In addition, OTS should delete the notice 
requirements in sections 563g.4(c) and 563g.12, because it should not 
be necessary to report the results of an offering 30 days after the 
first sale, every six months during the offering, and then again 30 
days after the last sale.
    One commenter suggested that the Board, the FDIC, and the OCC 
conform their rules to those issued by OTS and permit quarterly, rather 
than monthly, statements be sent for transactions in cash management 
sweep accounts. The commenter noted that most investment companies 
provide statements on a quarterly basis to customers.
    c. Confirmation of Securities Transactions. One commenter suggested 
extending the confirmation period so that it could be given to 
customers as late as one to two days after completion of the 
transaction. The Agencies should raise the general exemption from 200 
to at least 500 securities transactions for customers over a three-year 
period, exclusive of government securities transactions.
    d. Recordkeeping/Confirmation of Securities Transactions. One 
commenter suggested revising 12 CFR 12.7(a)(4) because quarterly 
reports for personal securities transactions does not meet the intended 
purposes. The commenter contended that the regulation relies on 
employee disclosure of accounts and requires a great deal of effort for 
a process that tracks only those transactions that the employee chooses 
to reveal. The administration of the

[[Page 62085]]

quarterly process involves tracking statements, updating quarterly 
forms, identifying new employees quarterly to add to the list, 
identifying terminated employees for removal from the list, and then 
tracking the return of the forms. This is a great deal of effort to 
expend on a process that tracks only those transactions that the 
employee chooses to reveal. The burden far outweighs the benefit 
according to this commenter.

IV. Federal Register Notice No. 5--Banking Operations, Directors, 
Officers and Employees and Rules of Procedure

A. Banking Operations
    1. Funds Availability/Regulation CC. Many commenters addressed the 
provisions of Regulation CC (12 CFR 229) that relate to funds 
availability.
    a. General Comments. Several commenters provided general views on 
Regulation CC as a whole. One commenter indicated that the commentary 
to Regulation CC provides extremely helpful examples on how to 
implement the regulation and suggested that the Board do a comparable 
commentary for its Regulation D. However, other commenters expressed 
concern that Regulation CC is too complex and difficult, mainly because 
of the number of criteria that a bank must consider to determine the 
maximum hold period for a particular deposit. Another commenter 
expressed concern that the complexity of the regulations increased 
banks' legal and compliance risks. Still others indicated that the time 
periods provided in the availability schedule generally are too long in 
light of what they perceived as faster clearing times permitted by 
electronic collection of checks.
    Other commenters mentioned that aside from the need to lengthen 
hold periods for official bank checks and government checks (an issue 
discussed below) that the generally applicable hold periods should 
remain unchanged. Some of these commenters argued that only a small 
percentage of checks are being cleared more expeditiously as a result 
of the Check 21 Act, and that there has not yet been the industry-wide 
improvement in collection and return times that would be necessary to 
warrant shortening hold periods. Some of these commenters argued that 
shortening hold periods at this time would increase the fraud-related 
risks of banks that do not clear checks electronically.
    b. Comments Relating to Fraud Associated with Next-Day Availability 
Items. The most frequent comment related to increases in fraud 
associated with items for which banks must give next-day funds 
availability, particularly official bank checks, postal money orders, 
and other items drawn on units of government. Most commenters that 
identified this issue suggested increasing the generally applicable 
maximum hold time for these items to increase the likelihood that the 
depositary bank would learn of the fraud before it was required to make 
the funds deposited by the fraudulent item available for withdrawal. 
Some commenters questioned who benefits from expedited availability for 
official bank checks and government checks and suggested that 
permissible hold periods for those items could be lengthened without 
unduly burdening anyone.
    In addition, some commenters suggested that, at a minimum, the 
Board should adopt an interim rule extending availability for fraud-
prone items while it figured out how to address the problem 
permanently. Other commenters suggested that banks were placing 
extended holds on official bank checks and government checks with the 
regulators' knowledge and tacit approval, even though doing so violated 
the EFA Act and Regulation CC. Commenters also expressed concern that 
the industry, rather than the bank regulators, was taking the lead to 
address the problems associated with fraud involving next-day 
availability items.
    According to one commenter, Treasury checks and USPS money orders 
presented the biggest fraud risks associated with next-day availability 
items because the Department of the Treasury and the USPS, 
respectively, by statute have longer periods of time than do banks to 
decide whether or not to a return an item unpaid. The commenter 
suggested that new accounts were particularly vulnerable to fraudulent 
Treasury checks and USPS money orders because banks cannot delay the 
availability of the first $5,000 deposited into a new account by such 
items and because the bank has less familiarity with the depositor. In 
addition, this commenter suggested that the Department of the Treasury 
and USPS should lose their right of return if they did not pay or 
return an item within seven days. This commenter also asked that the 
Board revise Regulation CC to provide that an account is new for six 
months, as opposed to 30 days in the existing rule.
    Another commenter indicated that, although many depositary banks 
that receive next-day availability items attempt to verify the validity 
of those items, purported issuing institutions are increasingly 
reluctant to confirm whether they issued a particular check. This 
commenter suggested that the banking agencies should issue guidance 
that identifies ways in which banks can reduce the risk of loss 
associated with fraud related to such checks. The commenter suggested 
that any such guidance should request that all depository institutions 
cooperate in addressing this common problem.
    Most commenters that addressed the issue of official bank check and 
government check fraud advocated a regulatory change in response to 
what they perceived to be a widespread problem. However, other 
commenters noted that they applied the same availability policy for all 
but a few checks (presumably by giving faster availability than the law 
requires for many items) yet had not experienced heightened fraud-
related problems because of that practice.
    c. Comments on the Scope and Application of Exception Holds. 
Several commenters advocated changes in the scope of the exception 
holds that banks may apply to large check deposits, to deposits made in 
new accounts by official bank checks and government checks, and to 
checks that the depositary banks has reasonable cause to doubt it 
cannot collect from the paying bank. Commenters opined that these 
changes would simplify application of these exception holds and better 
protect banks.
    Under the large deposit exception, up to the first $5,000 of an 
aggregate deposit by check(s) on a single banking day is subject to the 
general availability schedule but the bank may place an additional 
reasonable hold on the amount exceeding $5,000. Similarly, under the 
new account exception, the bank must make up to $5,000 deposited to a 
new account on any one banking day by official bank check(s) or 
government check(s) available according to the generally applicable 
availability schedule but may delay the availability of the amount 
exceeding $5,000 until the ninth business day after deposit.
    Two commenters suggested that the large deposit exception and the 
large-deposit provision of the new account exception should allow banks 
to withhold the entire amount of the relevant large-dollar check 
deposit. Because the depository bank usually will not learn whether a 
check is fraudulent for several days after the deposit, these 
commenters thought that the requirements to make the first $5,000 
available left banks vulnerable to fraud, particularly with respect to 
new depositors.
    Another commenter suggested that applying the same hold period for 
the

[[Page 62086]]

entire deposit amount also would reduce customer confusion. In some 
cases, a commenter noted, the EFA Act and Regulation CC allow a bank to 
place a longer hold on a large deposit in an established account than 
it can place on a large deposit by official bank check or government 
check in a new account. The commenter questioned the logic of this 
result.
    Under Regulation CC, a bank can delay availability of the entire 
amount of a check that it reasonably believes is uncollectible. 
However, a bank cannot place an exception hold on a check for 
reasonable cause to doubt collectibility based merely on the fact that 
a check is of a particular class. In that regard, some commenters 
suggested that banks should be able to delay availability based on the 
class to which a check belongs. These commenters indicated that banks 
were experiencing increasing losses due to credit card checks as a 
class because a paying bank typically returns a credit card check if 
charging the consumer's credit card for the amount of the check would 
exceed the consumer's credit limit. They suggested that banks should be 
able to delay availability on the basis that a check is a credit card 
check or, alternatively, that credit card checks should be excluded 
from the check definition and exempted from Regulation CC's funds 
availability provisions on that basis.
    d. Comments Relating to Notice Requirements and Model Notices. 
Several comments addressed the notices that Regulation CC requires. One 
commenter suggested that banks should not be required to provide notice 
to depositors of changes that improve availability times. Another 
commenter suggested that the model notice for exception holds is 
confusing because it lists all the reasons and contains check boxes for 
each reason. This commenter encouraged the Board to revise the 
exception hold notice to make it more meaningful to consumers.
    e. Comments Relating to Reallocating Liability for Remotely Created 
Checks. Generally, if a paying bank wants to return a check due to an 
unauthorized drawer's signature, it must do so by midnight of the next 
day after it receives presentment of the check. If it misses this 
deadline, the paying bank generally becomes accountable for the check. 
One commenter noted that the Board had proposed a rule that would amend 
Regulation CC to reallocate liability to the depositary bank when a 
paying bank's customer disputes a check that was remotely created by 
someone else. This commenter urged the Board to adopt a final rule 
reallocating liability as soon as possible and thought that such a rule 
should apply to checks drawn on all types of accounts, preempt 
inconsistent state laws, include specific loss recovery procedures for 
handling consumer claims concerning remotely created checks, and 
provide an effective date six months from publication. This commenter 
stated that remotely created checks were operationally more analogous 
to ACH transactions than to other checks. On that basis, the commenter 
thought that banks should have a 60-day right of return before becoming 
accountable for remotely created checks and also should have the 
ability, when recrediting a consumer for an unauthorized remotely 
created check, to delay availability of the recredit if the account is 
new or the bank suspects fraud (similar to the exception safeguards 
applicable to recredit claims for electronic funds transfers).
    f. Miscellaneous Comments. Miscellaneous comments included 
discussion of the treatment of prepaid consumer products. A commenter 
indicated that prepaid consumer card products should not be considered 
``deposits'' for purposes of Regulation D and therefore should not be 
included as ``accounts'' that are subject to the availability 
provisions of Regulation CC. Prepaid card products, the commenter 
noted, typically are activated and available for use promptly after the 
consumer receives them and that usually there is little or no delay 
when value is added to an existing, activated card. The commenter 
further expressed the concern that application of the availability 
provisions of Regulation CC to prepaid card products would be complex 
and costly for banks and likely would confuse consumers--consumers who 
would not experience delays in access to their funds but nonetheless 
would receive funds availability disclosures.
    2. Reserve Requirements/Regulation D. Many comment letters 
suggested changes to Regulation D (Reserve Requirements of Depository 
Institutions, 12 CFR 204). The most frequent suggestions were to remove 
the limitations on the number of convenient withdrawals and transfers 
per month that may be made from a savings deposit, and to allow for-
profit entities to hold interest-bearing NOW account checking accounts. 
Other suggestions included creating a regulatory commentary, changing 
reporting practices, and clarifying existing regulatory text.
    a. Remove Limitations on Savings Deposit Withdrawals and Transfers. 
Several commenters suggested that the Board eliminate the regulatory 
restrictions on the number of certain kinds of transfers and 
withdrawals that may be made each month from a savings deposit. Some 
commenters suggested that the Board do away with all limitations; 
others suggested that the Board eliminate the restrictions on 
preauthorized or automatic transfers that may be made from savings 
deposits that are linked to transaction accounts in a ``sweep account'' 
arrangement, or at least increase the number of such transfers to a 
higher number, such as 24 per month (i.e., one every business day).
    b. Expand Negotiable Order of Withdrawal (NOW) Account Eligibility. 
Three commenters suggested removing restrictions on eligibility to 
maintain NOW accounts so that corporate and for-profit entities may 
maintain them. NOW accounts are interest-bearing checking accounts. NOW 
accounts function like demand deposits. ``Demand deposits,'' however, 
are subject to the Regulation Q prohibition against payment of interest 
(see Regulation Q, infra), while NOW accounts are not. NOW accounts are 
specifically authorized by 12 U.S.C. 1832. Section 1832 limits the 
types of depositors that are eligible to hold NOW accounts to 
individuals, non-profit entities, and governmental units.
    c. Incorporate Board or Staff Interpretations and Opinions into 
Regulation or Commentary. Several commenters stated that numerous staff 
opinions and interpretations relating to Regulation D issues, some 
dating back many years, are not available on the Board's Web site or in 
the Board's regulatory publications. These commenters suggested that 
these opinions and interpretations be collected and incorporated into 
an official or staff commentary to Regulation D.
    d. Miscellaneous Suggestions. Several other commenters made 
miscellaneous suggestions for amendments to Regulation D. One commenter 
suggested including U.S. banks' foreign branch deposits in the 
Regulation D definition of deposit so that such deposits would receive 
deposit priority over other general obligations of such banks in the 
event of bank liquidation. Another commenter suggested that the Board 
should not impose reserve requirements on the liabilities of 
subsidiaries of parent depository institutions when the parent holds 
only a recently acquired and relatively insignificant interest in the 
subsidiary.
    One commenter stated that Regulation D and Regulation Q appeared 
unnecessarily duplicative of similar FDIC regulations (for example, 12 
CFR 329, Interest on Deposits) and suggested

[[Page 62087]]

that the Agencies promulgate joint regulations on these subjects.
    In addition, a commenter suggested clarifying the regulatory text 
of the Regulation D definition of savings deposit, citing the 
definition's difficulty to read and interpret. This commenter also 
suggested extending the period of time over which a depository 
institution's average transaction accounts should be computed so as to 
reduce ``spikes'' in reserves when transaction accounts rise suddenly 
and also suggested that there should be reduced regulatory reporting 
for depository institutions that regularly meet reserve requirements by 
holding vault cash.
    Finally, one commenter suggested that the Board amend the 
Regulation D definition of deposit to exclude all prepaid card 
products.
    3. Prohibition against Payment of Interest on Demand Deposits/ 
Regulation Q. Several commenters addressed the Board's Regulation Q 
(Prohibition against Payment of Interest on Demand Deposits, 12 CFR 
217). Of these, the majority suggested that the Board authorize the 
payment of interest on demand deposits or eliminate the prohibition 
outright. The other comments suggested expanding the eligibility to 
hold NOW accounts in order to allow corporations and other for-profit 
entities to hold interest-bearing checking accounts. One commenter 
expressed support for Regulation Q in its current state and recommended 
that it not be repealed.
    a. Eliminate Prohibition against Payment of Interest on Demand 
Deposits. Several commenters suggested that the Board eliminate the 
prohibition in Regulation Q against the payment of interest on demand 
deposits. One commenter stated that, if the statutory prohibition 
against payment of interest on demand deposits were repealed, the Board 
should allow a two-year phase-in period during which depository 
institutions could offer MMDAs (savings deposits) with the capacity to 
make up to 24 preauthorized or automatic transfers per month to a 
linked transaction account.
    4. Reimbursement for Providing Financial Records/Regulation S. Two 
comment letters addressed the provisions of Regulation S (12 CFR part 
219), which relate to a financial institution's right to reimbursement 
for certain record requests by government authorities.
    One commenter stated that the rule contained too many exceptions to 
the general reimbursement requirement and suggested that the rule 
require the government to always reimburse the institution unless the 
institution itself is a target of the investigation to which the 
request relates. Another commenter stated that the Board should review 
and update the fee schedule for reimbursements more regularly.
    5. Collection of Checks and Other Items by Board and Funds 
Transfers through Fedwire (Regulation J). No comments received.
    6. Assessments. The one commenter, a state association, polled its 
members and submitted the following summary of the comments it 
received: Many members believe the current risk-based system recognizes 
the efforts of sound management and encourages banks to maintain a high 
rating. Some members expressed strong sentiment that the two insurance 
funds be merged, and that every institution that benefits from the 
deposit insurance should have to pay something when they enter the 
system. One member suggested that other risk factors such as the number 
of interstate locations, types of products offered, and exam ratings 
should be factored into the risk-based fee assessment.
    7. Assessments of Fees upon Entrance to or Exit from the Bank 
Insurance Fund or Savings Association Insurance Fund. Two comments were 
received. One commenter supports legislation that would merge the BIF 
and SAIF funds. The other commenter believes new entities that open 
with FDIC coverage, but have not paid into the fund, should pay a 
substantial entry fee.
    8. Determination of Economically Depressed Regions. No comments 
received.
B. Directors, Officers, and Employees
    1. Regulation O. Generally, most commenters requested a review of 
Regulation O reporting requirements and quantitative thresholds, 
because they view them as overly burdensome and somewhat ambiguous, 
with outdated dollar amounts that need updating to reflect today's 
economy. One industry recommendation for relieving some of the burden 
without creating more risk to the industry was to ease lending limits 
and reporting requirements for banks with composite ratings of ``1'' or 
``2'' and management ratings of not lower that ``2.'' Another 
recommendation by community banks was to add a Regulation O summary 
chart to capture the limitations on loans to various types of insiders 
in an easy to grasp, comprehensive way, with cross references to 
Regulation W. Another idea was to review Regulation O interpretive 
letters issued over the years and convert them into a commentary 
comparable to the Regulation CC commentary.
    2. Management Interlocks. Several commenters asserted that the 
exemptions in the Board's Regulation L that would allow otherwise 
prohibited persons to serve in a management position should be drafted 
in a clearer manner. Most of these commenters also noted that the 
management interlocks restriction is especially challenging for small 
community banks, particularly in rural areas.
    One commenter said that OTS is the only federal banking agency that 
takes the position that the Depository Institutions Management 
Interlocks Act applies to trust-only institutions. The commenter urged 
OTS to reevaluate its position.
    3. Board Composition Requirements. Several commenters requested 
that OTS amend its regulation to permit a majority of directors of a 
savings association to be officers or employees of the association as 
long as the holding company owns at least 60 percent of any class of 
voting shares of the association.
C. Rules of Procedure
    1. Uniform Rules of Practice and Procedure. One comment was 
received from a trade association that noted that since the Rules of 
Practice and Procedure were updated within the past five years, its 
members suggested no significant burden reductions.
    The Agencies did not receive any other comments on the individual 
agency rules of procedures.

V. Federal Register Notice No. 6--Prompt Corrective Action, Capital and 
Community Reinvestment Act--Related Agreements

A. Capital
    The Agencies requested EGRPRA-related comments on capital 
regulations as part of a broader joint ANPR seeking comment on proposed 
risk-based capital guidelines that was published in the Federal 
Register on October 20, 2005. (See 70 FR 61068, October 20, 2005.) Few 
of the comments received addressed burden reduction per se, although a 
number of the comments did address ways in which capital regulations, 
and proposed revisions thereto, could contribute to, or ease, financial 
institutions' regulatory burden. Several comments fit into this 
category.
    1. Opt-Out for Highly Capitalized Banks. Several commenters 
supported the Agencies adopting an opt-out provision as part of a 
revised Basel I that would give highly capitalized community banks the 
option to continue using the existing risk-based capital rules and 
avoid the regulatory burden of more complex risk-based

[[Page 62088]]

rules. One commenter noted that for such banks, computing risk-based 
capital minimums and ratios using the Basel IA formula could present 
significant regulatory burden without any corresponding benefit. The 
same commenter suggested that the opt-out be limited to banks with less 
than $5 billion in assets that have a capital-to-asset ratio of 7 
percent or higher.
    2. Number of Risk-Weight Categories. Several commenters said that 
the revisions to the risk categories should not add additional 
categories that would create undue regulatory burden for banks.
    3. Same Rules for All Institutions. Two commenters noted, with some 
concern, that the banking agencies tend to develop one size fits all 
rules, regardless of the number of staff available, or lack thereof, to 
comply with the rules, as well as the cost to comply, as a percentage 
of assets. The commenter requested that regulations relate to the true 
risk that an institution's size and location pose to the banking 
industry. One of these commenters urged that the federal banking 
agencies not set a single standard for banks, noting that it could 
result in significant regulatory burden for some of the less complex 
banks in the country.
    4. General Burden. Several commenters expressed concern that Basel 
IA could lead to increased regulatory burden for banks not adopting the 
more advanced Basel II approach. One commenter expressed concern that 
international banks could face increased burden since the proposed 
Basel IA rule changes could impose additional and duplicative burdens 
on their U.S. bank subsidiaries. The commenter noted that many U.S. 
subsidiaries of international banks do not collect data that Basel IA 
would require. This commenter urged simplification and flexibility in 
the standards for Basel IA to reduce or eliminate the need to change 
existing data systems to meet requirements. A second commenter 
expressed concern that the proposed capital rules likewise could 
require banks to develop new data gathering systems that they do not 
currently have, increasing burden on them.
    Another commenter urged the Agencies to give all non-Basel II 
institutions the option of using either the existing Basel I framework 
or the proposed Basel IA standard. This commenter urged regulators not 
to require institutions to calculate a capital charge under Basel IA.
    5. Calculation for Disallowed Deferred Tax Assets in Calculating 
Risk-Based Capital Ratio. One commenter recommended that the Agencies 
review Call Report instructions and the calculation for disallowed 
deferred tax assets in calculating risk-based capital ratios. The 
commenter urged that, for small banks (under $150 million in assets), 
regulators should eliminate the calculation and simplify the 
instructions. Outsourcing the calculations, according to the commenter, 
is not cost-effective for community banks. Since many such banks 
already hold 12 percent or more risk-based capital, the results of the 
calculation are insignificant to the overall capital calculations of 
these banks. The commenter stated that there must be an easier, more 
cost-effective way of calculating these numbers.
B. Community Reinvestment
    The banking agencies' regulations implementing the Community 
Reinvestment Act (CRA) were not included in the sixth EGRPRA request 
for comment along with the agencies' other regulations falling within 
the broader EGRPRA category of Community Reinvestment (i.e., the CRA 
Sunshine regulations, discussed under B.3 below).\64\ During the past 
two years, the agencies solicited comment, separately from the EGRPRA 
process, on burden reduction measures for their CRA regulations and 
received voluminous comments in response.\65\ The banking agencies have 
adopted final rules revising the CRA regulations, mindful of the 
comments related to burden reduction.\66\ The banking agencies felt it 
appropriate to include a summary of the comments to the CRA rules in 
this report on regulatory burden, however, because the regulatory 
burden imposed by community reinvestment rules was one of the foremost 
topics raised by commenters to the CRA rules, at the EGRPRA outreach 
meetings as well as in written comments submitted in response to the 
EGRPRA requests for comment. The following summarizes those comments, 
divided into those comments received by the Board, FDIC, and OCC in 
response to their joint notice requesting comment, and those received 
in response to the separate OTS request for comment.
---------------------------------------------------------------------------

    \64\ See 71 FR 287, January 4, 2007.
    \65\ See 66 FR 37602, July 19, 2001 (Joint Advance Notice of 
Proposed Rulemaking); 69 FR 5729, February 6, 2004 (Joint Notice of 
Proposed Rulemaking); 69 FR 51611, August 20, 2004 (FDIC Notice of 
Proposed Rulemaking); 69 FR 56175, September 20, 2004 (FDIC 
extension of comment period for proposed rule); 69 FR 68257, 
November 24, 2004 (OTS Notice of Proposed Rulemaking); and 70 FR 
12148, March 11, 2005 (OCC, the Board, and FDIC Notice of Proposed 
Rulemaking).
    \66\ See 69 FR 51155, August 18, 2004 (OTS Final Rule); 70 FR 
10023, March 2, 2005 (OTS Final Rule); and 70 FR 44256, August 2, 
2005 (OCC, the Board, and FDIC Final Rule).
---------------------------------------------------------------------------

    1. CRA Proposed Interagency Rulemaking. Together the federal 
banking agencies received over 10,000 public comments from consumer and 
community organizations, banks and industry trade associations, 
academics, federal and state government representatives, and 
individuals on the Agencies' proposal to reduce undue regulatory burden 
by extending eligibility for streamlined lending evaluations and the 
exemption from data reporting to banks under $1 billion without regard 
to holding company affiliation.
    a. Increase in Size Threshold for Small Banks from $250 million to 
$1 billion. Most banks were supportive of changing the threshold for 
small institutions. Community organizations opposed the proposal 
stating that an increase would cause banks to reduce their investments 
and services in low- and moderate-income areas and result in a 
reduction in the public data available. Some community organizations 
criticized the proposal to adjust the asset threshold annually for 
small and intermediate small banks based on changes to the Consumer 
Price Index (CPI), while most banks supported tying the small and 
intermediate small bank thresholds to changes in the CPI.
    b. Community Development Test for Intermediate Small Banks. Many 
banks opposed the creation of separate new standards and suggested 
institutions with less than $500 million in assets be evaluated under 
the streamlined small bank lending test. Most community organizations 
supported the requirement for a bank to engage in all three activities 
to earn a satisfactory rating on the Community Development Test (CDT) 
and asserted that the primary consideration should be the institution's 
responsiveness to community needs. Many banks and industry trade 
associations commented favorably on the flexibility that the CDT 
offered and some large banks requested that the CDT be made available 
to banks with assets of $1 billion or more. A number of banks and trade 
associations supported raising the threshold without creating a tier of 
intermediate small banks (ISBs) that would be subject to the CDT. A few 
banks stated that the regulatory burden reduction would not be realized 
if banks continue to collect information under the proposed CDT. A 
number of community organizations supported the evaluation of ISBs 
under a CDT and a streamlined lending test.

[[Page 62089]]

    c. Community Development Definition. Banks and community 
organizations generally supported expanding the definition to make bank 
activities eligible for community development consideration in a larger 
number of rural areas. Comments were received on defining ``rural'' 
using existing government definitions (Office of Management and Budget 
and Census Bureau) and community organizations offered a variety of 
suggestions. Banks favored revising the definition to include 
activities in a designated disaster area; some community organizations 
opposed the revision. Banks expressed concerns about many banks having 
few or no eligible tracts in their assessment areas, increasing 
pressure to make community development investments outside of their 
assessment areas. Banks asked that any rule distinguishing 
``underserved'' rural areas be simple. Some expressed concern that 
using the CDFI Fund's criteria for distressed areas would be 
complicated and cause uncertainty, but some indicated the criteria were 
appropriate. Many banks suggested that an area be eligible regardless 
of its income if targeted by a government agency for redevelopment. 
Community banks expressed a strong preference that a bank's support for 
meeting community needs such as education be considered as ``community 
development'' in rural communities of all kinds, not just 
``underserved'' or ``low- or moderate-income'' communities. Community 
organizations disagreed that all rural areas should be eligible, but 
agreed that more rural areas should be eligible than are now. Many 
requested that the Agencies consider both expanding the standard for 
classifying rural tracts as low- or moderate-income and adopting 
criteria such as the distress criteria of the CDFI Fund to identify 
additional eligible tracts. At the same time, community organizations 
generally sought to keep the proportion of eligible rural tracts in 
rough parity with the proportion of eligible urban tracts.
    d. Effect of Certain Credit Practices on CRA Evaluations. Most 
community organizations strongly supported the proposal and recommended 
that the provision be expanded to include evidence of discriminatory or 
other illegal credit practices by any affiliate of a bank. Some banks 
and industry trade associations opposed the standard as unnecessary 
because other legal remedies are available to address discriminatory or 
other illegal credit practices and opposed extending the ``illegal 
credit practices'' standard to loans by an affiliate that are 
considered in a bank's lending performance. A few large banks were 
concerned that their CRA performance would be adversely affected by 
technical violations of law.
    2. CRA Proposed Rulemaking--OTS. OTS received an overwhelming 
number of comments on the CRA NPR issued in 2004. Most comments were 
from financial institutions and their trade associations (Financial 
Institution Comments) or from consumer and community members and 
organizations (for example, civil rights organizations, Community 
Development Corporations, Community Development Financial Institutions, 
community developers, housing authorities, and individuals) (Consumer 
Comments). Other commenters included members of Congress, other federal 
government agencies, and state and local government agencies and 
organizations.
    The Financial Institution Comments strongly supported raising the 
asset threshold and eliminating the holding company test. Most of these 
commenters expressly supported raising the asset threshold beyond the 
level in the proposed rule. Most suggested thresholds ranging from $1 
billion to $2 billion. Many commenters argued that raising the asset 
threshold would reduce regulatory burden and allow community banks to 
focus their resources on economic development and meeting credit 
demands of the community, rather than compliance burdens. They also 
asserted that raising the asset threshold was necessary to reflect 
consolidation in the bank and thrift industries. Other commenters noted 
that raising the asset threshold to $1 billion would have only a small 
effect on the amount of total industry assets under the large 
institution test but would provide substantial additional relief by 
reducing the compliance burden on more than 500 additional 
institutions.
    The consumer comments strongly opposed raising the asset threshold 
and urged the banking agencies to withdraw the proposed rule. Most of 
the comments focused on the proposed raising of the asset threshold to 
$500 million but did not specifically mention the proposed elimination 
of the holding company test. Many consumer comments argued that raising 
the asset threshold would eliminate the investment and service parts of 
the CRA examination for many institutions, would reduce the rigor of 
CRA examinations, and would lead to less access to banking services and 
capital for underserved communities. In particular, these commenters 
argued that Low Income Housing Tax Credits and Individual Development 
Accounts would suffer, diminishing the effectiveness of the 
Administration's housing and community development programs. The 
commenters observed that this would be contrary to the statutory 
obligation on financial institutions to affirmatively serve credit and 
deposit needs on a continuing basis. Commenters also noted that the 
change would disproportionately affect rural communities and small 
cities where smaller institutions have a significant market share. 
Other consumer comments emphasized the need for rural banks and other 
depository institutions to serve the investment and deposit needs of 
all the communities in which they are chartered and from which they 
take deposits.
    Comments from members of Congress were mixed. One commenter 
supported raising the asset threshold to $1 billion. It stated that 
such a move would not have a significant impact on the total amount of 
assets nor the total number of institutions covered by the large 
institution examination, but would provide relief to many additional 
institutions. Other commenters opposed raising the asset threshold. OTS 
received other letters from members of the U.S. Senate that generally 
echoed the consumer comments discussed above.
    3. Disclosure and Reporting of Community Reinvestment Act--Related 
Agreements (CRA Sunshine Act)--12 CFR part 35; 12 CFR 207 (Regulation 
G); 12 CFR part 346; 12 CFR part 533. The Agencies received several 
written comments on the CRA Sunshine Act requirements and comments were 
made at several of the Agencies' outreach meetings. One commenter 
representing an industry trade association believes that the 
implementing regulations do hold the regulatory burden on community 
organizations and financial institutions to a minimum, consistent with 
the requirements of the statute. Another commenter representing a 
financial institution stated that the regulation has not affected its 
level of CRA activity; however, the additional disclosure and reporting 
has increased the time, effort and cost to comply. In addition, the 
commenter remarked that the benefits of disclosing the information have 
yet to be publicly communicated and believes the regulation should be 
repealed. Yet another commenter representing financial institutions 
stated that Congress should repeal the Act because it does not further 
the purposes of the CRA and imposes significant paperwork, regulatory 
and cost burdens on banks that far outweigh any benefits. This 
commenter believes the law does not further the interests of 
communities;

[[Page 62090]]

instead, it wastes resources that could be better deployed to serving 
the affordable credit and financial services needs of communities. 
Short of repeal of the law, the commenter urges the Agencies to 
completely overhaul the implementing regulations.
    Other comments from bankers, consumer groups, and outreach meeting 
participants were also supportive of repealing the provisions of the 
Act. In the interim, commenters suggested that the Agencies take steps 
to reduce unnecessary burden. Commenters also suggested the Agencies 
clarify that only those agreements that would have a material impact on 
a bank's CRA rating should be disclosed, so long as community groups' 
First Amendment or other constitutionally protected rights were 
preserved.
    Commenters also stated that the theory the provisions were based on 
were flawed and disclosures filed have not exposed any pattern of 
improper payments by banks to community groups and that allegations 
that community groups have succeeded in using CRA mainly as a vehicle 
for funding their organizations are baseless. Instead, commenters 
contended that the CRA Sunshine Act has imposed an additional and 
unnecessary burden on both banks and nonprofits and that confusion as 
to the circumstances and contacts that trigger disclosure remain. 
Commenters argue that repeal would facilitate the flow of capital to 
affordable housing, small business, and community development financing 
for low- and moderate-income people and communities. In addition, a 
commenter recommends:
     Exempting all CRA contacts that arise in the context and 
purpose of ordinary CRA business dealings, absent any coercive aspect.
     Allowing disclosure should only be triggered by comments 
or testimony made in conjunction with CRA-related agreements during a 
CRA examination or a deposit facility application process.
     Revising the material impact standard and make it, not CRA 
contact, the trigger for requiring disclosure under the proposed rule.
     Providing a reporting exemption for non-negotiating 
parties of a CRA agreement.

Appendix I-D: Economic Growth and Regulatory Paperwork Reduction Act 12 
U.S.C.A. 3311

United States Code Annotated
Title 12. Banks and Banking
Chapter 34. Federal Financial Institutions Examination Council
Section 3311. Required review of regulations
(a) In general
    Not less frequently than once every 10 years, the Council and each 
appropriate federal banking agency represented on the Council shall 
conduct a review of all regulations prescribed by the Council or by any 
such appropriate federal banking agency, respectively, in order to 
identify outdated or otherwise unnecessary regulatory requirements 
imposed on insured depository institutions.
(b) Process
    In conducting the review under subsection (a) of this section, the 
Council or the appropriate federal banking agency shall--
    (1) categorize the regulations described in subsection (a) of this 
section by type (such as consumer regulations, safety and soundness 
regulations, or such other designations as determined by the Council, 
or the appropriate federal banking agency); and
    (2) at regular intervals, provide notice and solicit public comment 
on a particular category or categories of regulations, requesting 
commentators to identify areas of the regulations that are outdated, 
unnecessary, or unduly burdensome.
(c) Complete review
    The Council or the appropriate federal banking agency shall ensure 
that the notice and comment period described in subsection (b)(2) of 
this section is conducted with respect to all regulations described in 
subsection (a) of this section not less frequently than once every 10 
years.
(d) Regulatory response
The Council or the appropriate federal banking agency shall--
    (1) publish in the Federal Register a summary of the comments 
received under this section, identifying significant issues raised and 
providing comment on such issues; and
    (2) eliminate unnecessary regulations to the extent that such 
action is appropriate.
(e) Report to Congress
    Not later than 30 days after carrying out subsection (d)(1) of this 
section, the Council shall submit to the Congress a report, which shall 
include--
    (1) a summary of any significant issues raised by public comments 
received by the Council and the appropriate federal banking agencies 
under this section and the relative merits of such issues; and
    (2) an analysis of whether the appropriate federal banking agency 
involved is able to address the regulatory burdens associated with such 
issues by regulation, or whether such burdens must be addressed by 
legislative action.

CREDIT(S)

(Pub. L. No. 104-208, Div. A, Title II, Section 2222, September 30, 
1996, 110 Stat. 3009-414.)

II. NCUA Report

A. Introduction
    The National Credit Union Administration (NCUA), an independent 
regulatory agency within the executive branch, oversees the nation's 
system of federal credit unions (FCU) and provides federal share 
insurance for all federally insured credit unions. Throughout the 
Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) 
process, NCUA participated in the planning and comment solicitation 
process with the other Federal Financial Institutions Examination 
Council (FFIEC) agencies. Because of the unique circumstances of 
federally insured credit unions and their members, however, NCUA issued 
its notices separately from the other FFIEC agencies. NCUA's notices 
were consistent and comparable with those published by the other FFIEC 
agencies, except on issues unique to credit unions. As required by 
EGRPRA, the NCUA invited public review and comment on any aspect of its 
regulations that are outdated, unnecessary, or unduly burdensome.
    Accordingly, this NCUA report, provided separately from that of the 
other FFIEC agencies, summarizes the comments NCUA received. The NCUA 
report also identifies and discusses the significant issues raised by 
commenters.
    The regulatory review required by EGRPRA has provided a significant 
opportunity for the public and NCUA to step back and review groups of 
related regulations and identify possibilities for streamlining. The 
EGRPRA review's overall focus on the ``forest'' of regulations offers a 
new perspective in identifying opportunities to reduce

[[Page 62091]]

regulatory burden. Of course, reducing regulatory burden must be 
consistent with ensuring the continued safety and soundness of 
federally insured credit unions and appropriate consumer protections.
    EGRPRA also recognizes that burden reduction must be consistent 
with NCUA's statutory mandates, many of which currently require 
implementing regulations. In response to the review process, commenters 
highlighted certain areas in which legislative changes might be 
appropriate. In this respect, the NCUA has carefully considered the 
relationship among burden reduction, regulatory requirements and 
statutory mandates.\67\ Section V of this NCUA report describes the 
statutory changes affecting credit unions in the Financial Services 
Regulatory Relief Act of 2006 (FSRRA), enacted by Congress in October 
2006.
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    \67\ Credit unions are also subject to regulations issued by 
other nonbanking agencies, such as rules issued by the Department of 
Housing and Urban Development (under Real Estate Settlement 
Procedures Act of 1974) and by the Department of the Treasury (under 
the BSA including rules required by the PATRIOT Act). The rules of 
these other agencies are beyond the scope of NCUA's EGRPRA review 
and NCUA's jurisdiction. NCUA intends, however, to alert the 
relevant agencies about comments it has received raising significant 
issues regarding these related rules.
---------------------------------------------------------------------------

    Finally, NCUA has, independent of EGRPRA, developed and implemented 
its own regulatory review process. Since 1987, a formally adopted NCUA 
policy requires review of NCUA regulations at least once every three 
years with a view toward eliminating, simplifying, or otherwise easing 
the regulatory burden.\68\ The review includes an internal review and 
solicitation of public comments concerning many of the same aspects 
that EGRPRA also involves. Considered together, these two processes 
enable NCUA to conduct an ongoing, comprehensive review of its rules 
and regulations with a view toward improving regulatory structure, 
systems, and efficiency.
---------------------------------------------------------------------------

    \68\ Interpretive Ruling and Policy Statement (IRPS) 87-2, 52 FR 
35231 (September 8, 1987), as amended by IRPS 03-2, 68 FR 32127 (May 
29, 2003).
---------------------------------------------------------------------------

B. NCUA Methodology
    As required by EGRPRA, NCUA first categorized its regulations by 
type, such as ``consumer regulations'' or ``safety and soundness'' 
regulations. NCUA categorized its regulations into 10 broad categories. 
A listing of the regulations by category is attached as Appendix II-A 
of this report. Next, the FFIEC agencies provided notice and solicited 
comment from the public on one or more of these regulatory categories. 
Notices were published in the Federal Register for a 90-day comment 
period. A summary of the comments received by NCUA, including the 
Federal Register citation, is attached as Appendix II-B of this report; 
a summary of the comments received by the other FFIEC agencies is in 
Appendix I-C.
    1. Outreach. Through numerous programs and policies, NCUA conducts 
outreach to credit unions and the public and provides opportunities for 
individuals, groups and institutions affected by or interested in 
credit unions to communicate with the agency. These include programs 
such as Access Across America, in which NCUA principals travel the 
country and solicit input, ideas, and policy suggestions from credit 
unions and their members on a wide range of topics. The agency also has 
a national ombudsman who investigates complaints relating to regulatory 
issues and recommends solutions on matters that cannot be resolved at 
the operational (regional) level. The agency has an active Web site, 
with comprehensive contact information for all program offices. The Web 
site also discloses travel schedules for NCUA's board members, who 
travel extensively throughout the country to speak and listen to 
concerns of credit unions and their members. In view of these programs, 
NCUA did not participate in the banker or consumer outreach meetings 
the FDIC held at various locations during 2004 and 2005.
C. Significant Issues Raised
    NCUA received a total of 41 comments in response to its 6 notices. 
Some of the comments addressed rules administered by the Federal 
Reserve Board affecting all depository institutions, including credit 
unions, and those comments were forwarded to the Federal Reserve Board 
for consideration. With respect to matters exclusively relating to 
credit unions, the most significant issues raised and the agency's 
response follows, including NCUA's evaluation of the merits of 
suggested rule changes as well as a description of any action the 
agency has taken.
    1. Anti-Money Laundering. The area of Bank Secrecy Act compliance 
has grown in significance in recent years, along with concerns about 
personal and financial privacy among consumers. Several commenters 
sought guidance and clarification from NCUA about filing Suspicious 
Activity Reports (SARs). In addition to a request for additional 
guidance, several commenters recommended raising the threshold for 
filing Currency Transaction Reports from the current $10,000 trigger, 
as well as raising the monetary instruments trigger and the money 
laundering trigger. One commenter sought an outright exemption from the 
filing requirements for small credit unions. Two commenters recommended 
merging the Office of Foreign Assets Control with the Financial Crimes 
Enforcement Network.
    NCUA is not the primary agency with responsibility for these rules. 
Nevertheless, NCUA is concerned about the need for clearer guidance for 
credit unions in fulfilling their obligations in this area. Effective 
November 27, 2006, NCUA issued a final rule modifying section 748.1(c) 
of its rules to clarify the reportable activity this section covers, 
identifying important filing procedures and highlighting record 
retention requirements. The final rule addresses other key aspects of 
the SAR process, including the confidentiality of the reports and safe 
harbor information. The rule requires a credit union to inform its 
board of directors promptly of its SAR reporting activity.
    While the changes expand the amount of information in the rule, 
they do not increase regulatory burden. The changes are intended to 
provide fundamental information about the SAR process in a single 
location to facilitate the ability of credit unions to access reporting 
and filing requirements quickly. The board notification provision 
formalizes a common practice and, together with the other proposed 
changes, provides consistency with the SAR regulations established by 
the other FFIEC regulators. The changes are not intended to and do not 
eliminate the need for credit unions to review the instructions 
accompanying the SAR form and the requirements of 31 CFR 103.18, which 
may be necessary to ensure a report is accurately and fully completed.
    2. Risk-Based Capital. Several comments called for a risk-based 
approach to capital requirements for federal credit unions (FCUs). One 
noted that credit unions are unique among financial institutions in 
their regulatory capital structure, which makes only limited 
distinctions in the types or quality of assets in determining their 
capital position. These commenters assert an approach to capital that 
takes into account the various types of assets FCUs hold would provide 
greater flexibility and better protection against risks to safety and 
soundness.
    NCUA agrees with these comments but notes that a change to the FCU 
Act is required to implement them. In 2005, NCUA prepared and submitted 
to Congress a proposal for a risk-based capital program coupled with a 
prompt corrective action (PCA) enforcement plan. Since that time, NCUA 
has met

[[Page 62092]]

with members of Congress and with representatives of the Department of 
the Treasury to discuss the proposal and to respond to questions or 
concerns. As of year-end 2006, Congress had not enacted legislation 
implementing the risk-based capital program.
    In 1998, Congress amended the FCU Act to apply PCA requirements to 
federally insured credit unions based on net worth levels. A credit 
union is considered:
     ``Well capitalized'' if it has a net worth ratio of not 
less than 7 percent,
     ``Adequately capitalized'' if it has a net worth ratio of 
not less than 6 percent,
     ``Undercapitalized'' if it has net worth below 6 percent,
     ``Significantly undercapitalized'' if it has a net worth 
ratio of less than 4 percent, and
     ``Critically undercapitalized'' if it has a net worth 
ratio less than 2 percent.
    A credit union whose capital ratio falls below 6 percent is 
required to produce a net worth restoration plan and may also be 
subject to other regulatory requirements. A credit union that becomes 
undercapitalized is subject to specific restrictions on asset growth 
and the ability to make member business loans. In cases involving a 
credit union that is critically undercapitalized, the NCUA Board has 90 
days to take action as the Board determines, such as conserving, 
liquidating the credit union or other appropriate action.
    NCUA and federally insured credit unions have had more than seven 
years of experience operating under the 1998 PCA rules. This 
experience, as supported by the Call Report data, indicates the PCA 
categories set by statute are too high. NCUA believes they operate to 
penalize low risk institutions, which results in an inefficient use of 
capital. The categories also overshadow any risk-based system and limit 
the benefits of behavior modification that would otherwise flow from a 
robust risk based PCA requirement. The rules also contribute to 
unwarranted bias against credit union charters by establishing a ``one-
size-fits-all'' effect for federally insured credit unions and create 
inequities in treatment for the required deposit in the National Credit 
Union Share Insurance Fund (NCUSIF) and membership capital in corporate 
credit unions.
    NCUA believes the statutory mandate to take prompt corrective 
action to resolve problems at the least long-term cost to the NCUSIF is 
sound public policy. Further, this policy is consistent with NCUA's 
fiduciary responsibility to the NCUSIF. However, PCA for credit unions 
does not adequately distinguish between low-risk and higher risk 
activities.
    The current PCA system's high leverage requirement (ratio of net 
worth to total assets) coupled with the natural tendency for credit 
unions to manage to capital levels well above the PCA requirements 
essentially creates a one-size-fits-all system. This penalizes 
institutions with conservative risk profiles. While providing adequate 
protection for the NCUSIF, a well-designed, risk-based system with a 
lower leverage requirement would more closely relate required capital 
levels with the risk profile of the institution and allow for better 
use of capital.
    The current high leverage ratio imposes an excessive capital 
requirement on low-risk credit unions. With a lower leverage 
requirement working in tandem with a well-designed, risk-based 
requirement, credit unions would have a greater ability to serve 
members and manage their compliance with PCA. By managing the 
composition of the balance sheet, credit unions could shift as needed 
to lower risk assets resulting in the need to hold less capital. A PCA 
system comparable to that in the banking system would provide 
sufficient protection for NCUSIF. Such a system for credit unions would 
also remove charter bias and level the playing field by eliminating 
differing capital standards unrelated to risk. While credit unions 
cannot raise capital as quickly in some cases as other financial 
institutions, the majority of credit unions have a relatively 
conservative risk profile (driven by the restrictions of powers 
relative to other institutions and their cooperative, member-owned 
structure) and a comparatively low loss history. Thus, credit unions 
should not be required to hold excessive levels of capital.
    3. Field of Membership and Chartering. This subject generated the 
greatest number of comments. The following reflects the most 
significant issues. Commenters suggested:
     Eliminating the requirement that a proposed group to be 
added to an existing credit union's membership must be located in 
``reasonable geographic proximity'' to a credit union's service 
facility or alternatively permitting a shared ATM or other shared 
facility to meet this requirement. In addition, with respect to adding 
groups to an existing charter, commenters suggest eliminating the 
requirement that a group (as opposed to the credit union) must provide 
documentation about its ability and willingness to establish and 
support a credit union of its own.
     Removing the preference that groups with membership in 
excess of 3,000 consider forming their own credit union rather than 
joining an existing credit union, and clarifying that the preference is 
not applicable in the case of voluntary mergers of credit unions.
     Allowing an FCU that converts to a community charter to 
retain select employee groups located outside the community.
     Allowing an FCU to provide check cashing and wire transfer 
services to nonmembers.
    The last of these items was addressed, with NCUA support, in the 
FSRRA, and FCUs may now provide check cashing and wire transfer 
services to nonmembers within their field of membership. Full 
implementation of the remaining suggestions would require legislative 
action to change the FCU Act. With respect to the first proposal, NCUA 
believes the current geographic proximity requirement is appropriate. 
As noted in NCUA's Chartering and Field of Membership Manual (Manual), 
groups served by a credit union must have access to a service facility. 
As further clarified in the Manual, the lack of availability of other 
credit union service is a factor to be considered in this respect. The 
Manual also describes a variety of service facility types, such as 
owned branches (including mobile branches) and proprietary ATMs that 
meet this requirement. A shared ATM does not qualify as a service 
facility within this meaning. The Manual describes circumstances in 
which a shared branch or other shared facility will qualify. Overall, 
as reflected by the Manual, NCUA continues to believe accessibility to 
credit union services must remain as the primary consideration in 
determining whether a proposed group should be included within a credit 
union's field of membership.
    Similarly, NCUA does not support a change to the statutory bias in 
favor of groups numbering more than 3,000 actual and potential members 
chartering their own credit union. NCUA believes every group would 
benefit from having its own credit union if it has the resources 
necessary to make the venture viable. The Manual provides sufficient 
flexibility for credit unions to accept groups over 3,000 where stand-
alone viability, properly documented, is unlikely, and NCUA is not 
aware of undue burden arising from this requirement. In mergers, NCUA 
interprets the FCU Act to require a similar analysis where a group 
numbering greater than 3,000 is served

[[Page 62093]]

by a credit union proposing to merge with another credit union, except 
in cases where the continuing credit union is also providing services 
to the same group. NCUA supports a change to the FCU Act to eliminate 
this requirement in the case of mergers.
    NCUA supports the other chartering suggestions. The agency 
perceives little or no benefit from requiring a credit union that 
converts from a multiple common bond or occupational charter to a 
community charter to exclude employee groups currently served by the 
credit union from continued service under the community charter. Credit 
unions should not be required to face the difficult choice of 
converting to a community basis or maintaining fidelity with a group 
that formed the original basis for the charter but which may no longer 
represent an economically viable basis for continued operations. NCUA 
notes, in this respect, that many credit unions faced with this dilemma 
have elected to surrender their federal charter in favor of a state 
charter.
    4. Member Business Lending. In the area of member business lending, 
commenters suggested it would reduce regulatory burden if NCUA could:
     Raise the level below which a member business loan does 
not count against the aggregate ceiling for member business loans by a 
single credit union from $50,000 to $100,000.
     Raise or eliminate the aggregate member business loan 
ceiling, which currently stands at the lesser of 1.75 times a credit 
union's net worth or 12.25 percent of its total assets.
    Commenters assert that credit unions making member business loans 
do not adversely affect the profitability of other financial 
institutions. Moreover, they assert, credit unions frequently provide 
business loans in amounts and circumstances that many commercial banks 
will not. These credit union loans fulfill credit needs of small 
businesses and sole proprietorships, many of which operate on a scale 
too small to attract the interest of commercial banks; in many cases, 
they are not able to afford the rates and charges imposed by more 
traditional commercial lenders.
    Changing these restrictions requires changing the FCU Act. NCUA 
concurs in the points made by the commenters and supports both a change 
in the aggregate limits and an increase in the threshold below which a 
member business loan need not be counted against the aggregate limits. 
The agency believes FCUs have shown an excellent capacity for making 
prudent lending decisions in this area and also that its rules provide 
an adequate regulatory framework.
    Another comment made in this area was that NCUA should take steps 
to align its member business rules with SBA's lending requirements to 
facilitate FCU participation in various SBA guaranteed lending 
programs. NCUA amended its member business lending rule in October 2004 
specifically to accomplish this objective. Results have been excellent, 
with many credit unions now availing themselves of the SBA guarantee, 
to the significant benefit of both credit unions and small business 
members. Effective January 20, 2006, NCUA again amended its member 
business lending rule, this time to broaden the definition of 
construction and development loans.
D. Accomplishments and Burden Reduction Efforts
    1. NCUA's Regulatory Flexibility Program. Independent of the EGRPRA 
burden reduction initiative, NCUA established a Regulatory Flexibility 
Program (RegFlex) in 2002 to exempt qualifying credit unions in whole 
or in part from a series of regulatory restrictions. Qualifying credit 
unions are also granted certain additional powers. (See 12 CFR 742.) A 
credit union may qualify for RegFlex automatically or by application to 
the appropriate Regional Director. To qualify automatically for 
RegFlex, a credit union must have a composite CAMEL rating of ``1'' or 
``2'' for two consecutive examination cycles and, as originally 
conceived, was required to achieve a net worth ratio of 9 percent (200 
basis points above the net worth ratio to be classified ``well 
capitalized'') for a single Call Reporting period. If a credit union is 
subject to a risk-based net worth (RBNW) requirement, however, the 
credit union's net worth must surpass that requirement by 200 basis 
points.
    A credit union unable to qualify automatically for RegFlex may 
apply to the appropriate Regional Director for a RegFlex designation if 
it has a CAMEL ``3'' rating or better or meets the net worth criterion. 
A Regional Director has the discretion to grant RegFlex relief in whole 
or in part to an eligible credit union. A credit union's RegFlex 
authority can be lost or revoked. A credit union that qualified for 
RegFlex automatically is disqualified once it fails, as the result of 
an examination (but not a supervision contact), to meet either the 
CAMEL or net worth criteria in the rule. (See 12 CFR 742.6.) RegFlex 
authority can be revoked by action of the Regional Director for 
``substantive and documented safety and soundness reasons'' (see 12 CFR 
742.2(b)). The decision to revoke is appealable to NCUA's Supervisory 
Review Committee, and, thereafter, to the NCUA Board. (See 12 CFR 
742.7.) RegFlex authority ceases when that authority is lost or 
revoked, even if an appeal of a revocation is pending. (Id.) Past 
actions taken under that authority are ``grandfathered,'' i.e., they 
will not be disturbed or undone.
    From its inception, the RegFlex program has given qualifying credit 
unions relief from the following regulatory restrictions:
     Fixed Assets. The maximum limit on fixed assets (5 percent 
of shares and retained earnings) (see 12 CFR 701.36(c)(1));
     Nonmember Deposits. The maximum limit on nonmember 
deposits (20 percent of total shares or $1.5 million, whichever is 
greater) (see 12 CFR 701.32(b));
     Charitable Contributions. Conditions on making charitable 
contributions (relating to the charity's location, activities and 
purpose, and whether the contribution is in the credit union's best 
interest and is reasonable relative to its size and condition) (see 12 
CFR 701.25);
     Discretionary Control of Investments. The maximum limit on 
investments over which discretionary control can be delegated (100 
percent of credit union's net worth) (see 12 CFR 703.5(b)(1)(ii) and 
(2));
     Zero-Coupon Securities. The maximum limit on the maturity 
length of zero-coupon securities (10 years) (see 12 CFR 703.16(b));
     ``Stress Testing'' of Investments. The mandate to ``stress 
test'' securities holdings to assess the impact of a 300-basis-point 
shift in interest rates (see 12 CFR 703.12(c));
     Purchase of Eligible Obligations. Restrictions on the 
purchase of eligible obligations (see 12 CFR 701.23(b)), thus expanding 
the range of loans RegFlex credit unions can purchase and hold as long 
as they are loans those credit unions would be authorized to make 
(auto, credit card, member business, student, and mortgage loans, as 
well as loans of a liquidating credit union up to 5 percent of the 
purchasing credit union's unimpaired capital and surplus).

Along with amendments to parts 703 (investments) and 723 (member 
business loans) in 2003, RegFlex credit unions received further relief 
from the following restrictions:
     Member Business Loans. The requirement that principals 
personally guarantee and assume liability for member business loans 
(see 12 CFR 723);
     Borrowing Repurchase Transactions. The maturity limit on

[[Page 62094]]

investments purchased with the proceeds of a borrowing repurchase 
transaction; (Id.); and
     Commercial Mortgage-Related Securities. The restriction on 
purchasing commercial mortgage-related securities of issuers other than 
the government sponsored enterprises (Id.)
    In 2005, the NCUA Board reassessed the RegFlex program to ensure 
its continued availability to credit unions least likely to encounter 
safety and soundness problems, thus minimizing the risk of loss to the 
NCUSIF. The agency's experience indicated these credit unions 
consistently maintain a high net worth ratio and a high CAMEL rating. 
Accordingly, the NCUA Board issued a proposed rule reducing from 9 
percent to 7 percent the minimum net worth ratio to qualify for 
RegFlex, but extending from one to six quarters the period the minimum 
net worth must be maintained to qualify. That rule was finalized in 
February 2006.
    2. Improvements to NCUA Call Report (Form 5300). Like the other 
federal financial institution regulators, NCUA requires all federally 
insured credit unions to file periodic reports with the agency. (See 12 
CFR 741.6.) Effective with the reports due for the second quarter of 
2006, NCUA made significant revisions to the form 5300. The revised 
Form NCUA 5300 consolidates information, reduces ancillary schedules, 
and is easier to read and use. Based on the revisions, the short form 
is no longer needed, and the new design provides many benefits for 
credit unions. The Call Report will be consistent in form each cycle, 
which should assist smaller credit unions in completing the form. The 
form is now shorter--16 pages, compared to 19 pages in the previous 
version. In addition, the revised form is designed so small credit 
unions generally will not have to complete supporting schedules. Only 
the first 10 pages require input by all credit unions. For comparison, 
the previous short form was only 8 pages, but the new, easier format 
will reduce the burden.
    The new design also provides efficiencies and benefits to NCUA. By 
eliminating the short form, the NCUA only has to maintain one 5300 
form, one set of edits and warnings, and one set of Financial 
Performance Report specifications. This will improve efficiency and 
reduce the likelihood of introducing errors in the reporting system. In 
addition, the cost of printing and mailing will be reduced with the 
distribution of a single form. Both internal and external quarterly 
financial trend analysis will be improved, since all credit unions will 
report comprehensive quantitative data. Further, the shift to one Call 
Report will simplify maintenance of the Financial Performance Report 
and provide additional data needed for small credit unions to use the 
expanded Financial Performance Report fully. Additionally, trend 
reports from NCUA's Automated Integrated Regulatory Examination System 
(AIRES) will be more consistent and detailed for smaller credit unions. 
For example, quarterly detail that is currently not provided for real 
estate loans and investments will be available. In summary, the 
consolidation of the Call Report and elimination of the Form NCUA 
5300SF will improve the agency's efficiency, increase the accuracy of 
the information collected, and simplify the reporting process for 
credit unions, large and small.
    3. Other Regulatory Burden Reduction Efforts. Effective July 3, 
2003, NCUA amended its investment rule for FCUs. (See 12 CFR 703.) The 
amendments clarified and reformatted the rule to make it easier to read 
and locate information. The amendments expanded FCU investment 
authority to include purchasing equity-linked options for certain 
purposes and exempted RegFlex eligible FCUs from several investment 
restrictions. As noted previously, NCUA made changes in its RegFlex 
program to conform to the revisions to the investment rule.
    Effective October 31, 2003, NCUA amended its member business loan 
(MBL) regulations to provide greater flexibility to credit unions to 
meet the business loan needs of their members within statutory limits 
and appropriate safety and soundness parameters. (See 12 CFR 723.) 
Major changes included: (1) Reducing construction and development loan 
equity requirements; (2) allowing RegFlex credit unions to determine 
whether to require personal guarantees by principals; (3) allowing 
well-capitalized credit unions to make unsecured MBLs within certain 
limits; (4) providing that purchases of nonmember loans and nonmember 
participation interests do not count against a credit union's aggregate 
MBL limit, subject to an application and approval process; (5) allowing 
100 percent financing on certain business purpose loans secured by 
vehicles; (6) providing that loans to credit unions and credit union 
service organizations (CUSOs) are not MBLs for purposes of the rule; 
and (7) simplifying MBL documentation requirements. Other provisions in 
the MBL regulation were simplified and unnecessary provisions were 
removed. At the same time, NCUA amended its PCA rule regarding the risk 
weighting of MBLs and its CUSO rule to permit CUSOs to originate 
business loans.
    Effective January 29, 2004, NCUA updated and clarified the 
definitions of certain terms used in the loan participation rule. (See 
12 CFR 701.22.) Specifically, the definition of ``credit union 
organization'' was amended to conform to the terms of the CUSO rule. 
Also, the definition of ``financial organization'' was broadened to 
provide FCUs greater flexibility in choosing appropriate loan 
participation partners.
    Also effective January 29, 2004, NCUA amended its share insurance 
rules to simplify and clarify them and provide parity with the deposit 
insurance rules of the Federal Deposit Insurance Corporation (FDIC). 
(See 12 CFR 745.) These amendments provided continuation of coverage 
following the death of a member and for separate coverage after the 
merger of insured credit unions for limited periods of time. The 
amendment also clarified that the interests of nonqualifying 
beneficiaries of a revocable trust account are treated as the 
individually owned funds of the owner even where the owner has not 
actually opened an individual account. Finally, the amendment clarified 
that there is share insurance coverage for Coverdell Education Savings 
Accounts, formerly known as Education IRAs.
    Effective March 26, 2004, NCUA revised its rules concerning maximum 
borrowing authority to permit federally insured, state-chartered credit 
unions (FISCUs) to apply for a waiver from the maximum borrowing 
limitation of 50 percent of paid-in and unimpaired capital and surplus 
(shares and undivided earnings, plus net income or minus net loss). 
(See 12 CFR 701 and 741.) This amendment provided FISCUs with more 
flexibility by allowing them to apply for a waiver up to the amount 
permitted under state law. In the same rulemaking, NCUA added a 
provision to its regulations to allow an FCU to act as surety or 
guarantor on behalf of its members. The final rule established certain 
requirements to ensure FCUs and FISCUs, if permitted under state law, 
acting as a surety or guarantor, are not exposed to undue risk.
    Effective April 1, 2004, NCUA revised its living trust account 
rules to provide insurance coverage of up to $100,000 per qualifying 
beneficiary who, as of the date of a credit union's failure, would 
become entitled to the living trust assets upon the owner's death. (See 
12 CFR 745.) The intent of this amendment was to provide for share 
insurance coverage for qualifying beneficial interests irrespective of 
defeating contingencies,

[[Page 62095]]

an issue that had proven to be quite complex and confusing to many 
credit unions and their members. The amended rule also specifically 
allowed for separate insurance for both a life estate and a remainder 
interest for qualifying beneficiaries. This configuration is typically 
used by a husband and wife, with the survivor receiving a life estate 
and the remainder interest going to specified qualified beneficiaries 
upon the death of the survivor. NCUA determined to amend its rule to 
make it consistent with the FDIC's position and determined not to 
require a credit union to maintain records disclosing the names of 
living trust beneficiaries and their respective trust interests. The 
FDIC solicited comment specifically on this matter and concluded that 
to do so would be unnecessary and burdensome. The NCUA Board concurred 
with that judgment, recognizing that a grantor may elect to change the 
beneficiaries or their interests at any time before death and requiring 
a credit union to maintain a current record of this information is 
impractical and unnecessarily burdensome.
    The general principles governing share insurance coverage in NCUA's 
regulations, however, still require that the records of the credit 
union disclose the basis for any claim of separate insurance (see 12 
CFR 745.2(c)). This obligation may be met if the title of the account 
or other credit union records refer to a living trust. The final rule 
makes reference to this requirement, but specifically disclaims any 
requirement that the credit union's records must identify beneficiaries 
or disclose the amount or nature of their interest in the account. 
NCUA's objectives in this rule change were to simplify the rule and 
also to conform all types of revocable trust arrangements to similar 
rules on calculating insurance coverage.
    Effective July 29, 2004, the NCUA amended its regulations governing 
an FCU's authority to act as trustee or custodian to authorize FCUs to 
serve as trustee or custodian for Health Savings Accounts (HSAs). (See 
12 CFR 721 and 724.) The NCUA issued the rule as an interim final rule 
so FCUs and their members could take advantage of the authority granted 
in the Medicare Prescription Drug, Improvement and Modernization Act of 
2003 (Medicare Act). The Medicare Act authorizes the establishment of 
HSAs by individuals who obtain a qualifying high deductible health plan 
and specifies that an HSA may be established and maintained at an FCU. 
The final rule also amended NCUA's incidental powers regulation to 
include trustee or custodial services for HSAs as a pre-approved 
activity.
    Effective August 30, 2004, NCUA amended its Community Development 
Revolving Loan Program (CDRLP) regulation to permit student credit 
unions to participate in the program. (See 12 CFR 705.) Before this 
rule change, NCUA took the position that, although student credit 
unions are designated as low-income credit unions for purposes of 
receiving nonmember deposits, they did not qualify to participate in 
the CDRLP because they were not specifically involved in the 
stimulation of economic development activities and community 
revitalization. NCUA changed its view, recognizing the importance of 
student credit unions and their impact on the economic development and 
revitalization of the communities they serve. Student credit unions not 
only provide their members with valuable financial services generally 
not available but also a unique opportunity for financial education. 
NCUA acknowledged that well run student credit unions would benefit 
greatly from participation in the CDRLP and changed its rule. As a 
result, these credit unions are now better able to serve their 
communities.
    Effective August 2, 2004, NCUA issued final revisions to its 
regulations regarding investment in collateralized mortgage obligations 
(CMOs) to authorize all FCUs and corporate credit unions to invest in 
exchangeable CMOs representing interests in one or more stripped 
mortgage backed securities (SMBS), subject to certain safety and 
soundness limitations. (See 12 CFR 703.) Before that date, NCUA 
regulations prohibited FCUs and certain corporate credit unions from 
investing in SMBS and exchangeable CMOs that represent interests in one 
or more SMBS. NCUA determined its concern about the safety and 
soundness aspects of direct SMBS investment could be reconciled for 
some exchangeable CMOs representing interests in one or more SMBS, 
which can be safe investments for credit unions. The rule also 
authorized FCUs and corporate credit unions to accept exchangeable CMOs 
as assets in a repurchase transaction or as collateral on a securities 
lending transaction regardless of whether the CMO contains SMBS.
    Effective October 29, 2004, the NCUA Board issued final revisions 
to its fixed-asset rule. (See 12 CFR 701.36.) The fixed-asset rule 
governs FCU ownership of fixed assets and, among other things, limits 
investment in fixed assets to 5 percent of a FCU's shares and retained 
earnings. The amendment clarified and reorganized the requirements of 
the rule to make it easier to understand. The final rule also 
eliminates the requirement that an FCU, when calculating its investment 
in fixed assets, include its investments in any entity that holds fixed 
assets used by the FCU and established a timeframe for submission of 
requests for waiver of the requirement for partial occupation of 
premises acquired for future expansion.
    Effective November 26, 2004, NCUA amended the collateral and 
security requirements of its MBL rule to enable credit unions to 
participate more fully in Small Business Administration (SBA) 
guaranteed loan programs. (See 12 CFR 723.) As noted above, in 2003, 
NCUA had amended its MBL rule and other rules related to business 
lending to enhance credit unions' ability to meet members' business 
loans needs. In addition to comments on those amendments, NCUA received 
other suggestions on how it could improve the MBL rule. Among the most 
significant, commenters suggested NCUA amend the MBL rule ``so that it 
could be better aligned with lending programs offered by the Small 
Business Administration,'' such as the SBA's Basic 7(a) Loan Program.
    While NCUA recognized the merits of this suggestion, NCUA could not 
include it in the final rulemaking because it addressed issues outside 
the scope of the rulemaking. The Administrative Procedure Act generally 
prohibits federal government agencies from adopting rules without 
affording the opportunity for public comment. (See 5 U.S.C. 553.) NCUA 
noted in the final rule, however, that it would review this suggestion 
to determine if it would be appropriate to act on it in a subsequent 
rulemaking. As a result of that review, NCUA issued a proposed 
amendment to its MBL rule in June 2004 to permit credit unions to make 
SBA guaranteed loans under SBA's less restrictive lending requirements 
instead of under the more restrictive MBL rule's lending requirements. 
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, these SBA programs directed as small 
businesses are ideally suited to the mission of many credit unions.
    NCUA noted in the proposal that it recognizes NCUA's collateral and 
security requirements for MBLs, including construction and development 
loans, are generally more restrictive than those of the SBA's 
guaranteed loan programs and could hamper a credit union's ability to

[[Page 62096]]

participate fully in SBA loan programs. As a result, the MBL rule's 
collateral and security requirements could prevent a credit union from 
making a particular loan that it could otherwise make under SBA's 
requirements. NCUA adopted the final rule to provide relief from these 
more restrictive requirements and to enable credit unions to better 
serve their members' business loans needs.
    Effective October 21, 2005, NCUA amended its rule concerning CUSOs 
to provide that a wholly owned CUSO need not obtain its own annual 
financial statement audit from a certified public accountant if it is 
included in the annual consolidated audit of the FCU that is its 
parent. (See 12 CFR 712.) The amendment reduced regulatory burden and 
conformed the regulation with agency practice, which, since 1997, had 
been to view credit unions with wholly owned CUSOs in compliance with 
the rule if the parent FCU has obtained an annual financial statement 
audit on a consolidated basis.
    Effective January 20, 2006, NCUA revised its MBL rule to clarify 
the minimum capital requirements a federally insured corporate credit 
union (corporate) must meet to make unsecured MBLs to members that are 
not credit unions or corporate credit union service organizations. (See 
12 CFR 723.) NCUA also revised the definition of a construction or 
development loan (C&D loan) to include certain loans to borrowers who 
already own or have rights to property and the definition of net worth 
to be more consistent with its definition in the FCU Act and NCUA's PCA 
regulation. Finally, the rule clarified that a state may rescind a 
state MBL rule without NCUA's approval.
    Effective January 22, 2007, NCUA revised its rule governing the 
conversion of insured credit unions to mutual savings banks or mutual 
savings associations. The final rule improves the information available 
to members and the board of directors as they consider a possible 
conversion. The final rule includes revised disclosures, revised voting 
procedures, procedures to facilitate communications among members, and 
procedures for members to provide their comments to directors before 
the credit union board votes on a conversion plan.
    The conversion issue has been among the most significant and 
important issues confronting the credit union industry. As noted in the 
preamble to the proposed rule, published for a 60-day comment period in 
June 2006, the conversion from a credit union charter to a bank charter 
is a fundamental shift. The decision to convert belongs to the members. 
To make this decision, members must be fully informed as to the reasons 
for the conversion and have time to consider the advantages and 
disadvantages of conversion. They should also have an opportunity to 
communicate their views to the credit union's directors and to 
communicate with other members about the proposed conversion.
    The NCUA solicited public comment on ways to improve the conversion 
process in each of these areas. The final rule, adopted after 
consideration of all public comments, requires a converting credit 
union to give advance public notice that the board intends to vote on a 
conversion proposal and establishes procedures for members to share 
their views with directors before they adopt the proposal; thereafter, 
the rule outlines a procedure for any member to share his views about 
the proposal among the membership. The rule also clarifies that credit 
union directors may vote in favor of a conversion proposal only if they 
have determined the conversion is in the best interests of the members 
and requires the board of directors to submit a certification to the 
NCUA of its support for the conversion proposal and plan. The rule also 
simplifies the required disclosures and includes new requirements for 
delivery of both the disclosures and the ballots to the membership. 
Finally, the rule sets out procedures to govern NCUA's review and 
approval of a conversion request and procedures for appeal of the 
decision to the NCUA Board.
E. Legislative Issues
    1. Financial Services Regulatory Relief Act of 2006. Congress 
enacted the FSRRA in October. The EGRPRA process served as an impetus 
to the FFIEC agencies to work together in considering legislative 
recommendations in connection with burden reduction objectives. The new 
law makes several changes to the FCU Act, including several new powers 
for FCUs and clarification of NCUA's enforcement authority. The 
provisions affecting FCU powers are summarized below.
    a. Check Cashing and Money Transfer Services. The new law changes 
section 107(5) of the FCU Act, 12 U.S.C. 1757(5), to allow FCUs to 
provide check cashing and money transfer services to all persons 
described in the field of membership and, therefore, eligible to become 
members of the credit union, whether or not they have actually joined 
the credit union. This expansion will introduce low cost financial 
services to persons of low income and will provide a viable alternative 
for them to the frequently expensive, sometimes predatory practices to 
which they are often relegated. It will also allow these persons to 
begin to gain confidence in more traditional financial organizations, 
which many of them, especially recent immigrants, often lack. NCUA 
believes this measure is in furtherance of the credit union mission of 
serving persons of modest means in their field of membership.
    b. Increase in Loan Maturity Limits. The new law makes a change to 
the FCU Act to permit the NCUA Board to establish FCU general loan 
maturity limits up to 15 years or longer, liberalizing the previous 
statutory limit of 12 years (see 12 U.S.C. 1757(5)). The increase, 
implemented through a rulemaking finalized in October, provides FCUs 
with the flexibility to make loans for a much wider variety of 
purposes, in accordance with commonly accepted market practices. This 
liberalization also permits FCUs to offer products and services 
commonly available from other financial institutions.
    c. Preservation of Credit Union Net Worth in Mergers. The new law 
amends the FCU Act to preserve the net worth of credit unions after a 
merger (see 12 U.S.C. 1790d(o)(2)(A)). Under the new law, a continuing 
credit union in a merger can include pre-merger retained earnings of 
the merging credit union in calculating regulatory net worth. The 
change, which will also require a change to NCUA's PCA rules, was 
necessary because a proposed final rule by the Financial Accounting 
Standards Board (FASB) would count only the retained earnings of the 
continuing credit union toward net worth following a merger. The FASB 
proposal has the effect of artificially lowering the post-merger 
capital ratio for the resulting credit union. Without this change, 
voluntary mergers between credit unions would have been discouraged.
    While the FSRRA was an important step in addressing regulatory 
burden, NCUA believes it is important for Congress to continue to look 
for ways to reduce any unnecessary regulatory burdens on credit unions. 
NCUA developed or supported a number of legislative burden reducing 
proposals that ultimately were not included in the FSRRA. Congress may 
find these proposals a useful starting point in considering additional 
regulatory relief measures in the future.
F. Conclusion
    The NCUA fully supports the rationale of the EGRPRA legislation. 
That rationale conforms with the NCUA's own independent commitment

[[Page 62097]]

to review its regulations periodically to assure they are effective, 
necessary, and not unduly burdensome.

Appendix II-A: Subject and Regulation Cite, by Category

------------------------------------------------------------------------
             Category                     Subject        Regulation cite
------------------------------------------------------------------------
1. Applications and Reporting....  Change in official    12 CFR 701.14
                                    or senior executive
                                    officer in credit
                                    unions that are
                                    newly chartered or
                                    in troubled
                                    condition.
                                   Field of membership/  12 CFR 701.1;
                                    chartering.           IRPS 03
                                   Fees paid by federal  12 CFR 701.6
                                    credit unions.
                                   Conversion of         12 CFR 708a
                                    insured credit
                                    unions to mutual
                                    savings banks.
                                   Mergers of federally  12 CFR 708b
                                    insured credit
                                    unions; voluntary
                                    termination or
                                    conversion of
                                    insured status.
                                   Applications for      12 CFR 741.0;
                                    insurance.            741.3; 741.4;
                                                          741.6
                                   Conversion to a       12 CFR 741.7
                                    state-chartered
                                    credit union.
                                   Purchase of assets    12 CFR 741.8
                                    and assumption of
                                    liabilities.
2. Powers and Activities:
    a. Lending, Leasing and        Loans to members and  12 CFR 701.21
     Borrowing.                     lines of credit to
                                    members.
                                   Participation loans.  12 CFR 701.22
                                   Borrowed funds from   12 CFR 701.38
                                    natural persons.
                                   Statutory lien......  12 CFR 701.39
                                   Leasing.............  12 CFR 714
                                   Member business       12 CFR 723
                                    loans.
                                   Maximum borrowing...  12 CFR 741.2
    b. Investment and Deposits...  Investment and        12 CFR 703
                                    deposit activities.
                                   Fixed assets........  12 CFR 701.36
                                   Credit union service  12 CFR 712
                                    organizations
                                    (CUSOs).
                                   Payment on shares by  12 CFR 701.32
                                    public units and
                                    nonmembers.
                                   Designation of low-   12 CFR 701.34
                                    income status;
                                    receipt of
                                    secondary capital
                                    accounts by low-
                                    income designated
                                    credit unions.
                                   Share, share draft,   12 CFR 701.35
                                    and share
                                    certificate
                                    accounts.
                                   Treasury tax and      12 CFR 701.37
                                    loan depositories;
                                    depositories and
                                    financial agents of
                                    the government.
                                   Refund of interest..  12 CFR 701.24
    c. Miscellaneous Activities..  Incidental powers...  12 CFR 721
                                   Charitable            12 CFR 701.25
                                    contributions and
                                    donations.
                                   Credit union service  12 CFR 701.26
                                    contracts.
                                   Purchase, sale, and   12 CFR 701.23
                                    pledge of eligible
                                    obligations.
3. Agency Programs...............  Community             12 CFR 705
                                    Development
                                    Revolving Loan
                                    Program.
                                   Central liquidity     12 CFR 725
                                    facility.
                                   Designation of low-   12 CFR 701.34
                                    income status;
                                    receipt of
                                    secondary capital
                                    accounts by low-
                                    income designated
                                    credit unions.
                                   Regulatory            12 CFR 742
                                    Flexibility Program.
4. Capital.......................  Prompt corrective     12 CFR 702
                                    action.
                                   Adequacy of reserves  12 CFR 741.3(a)
5. Consumer Protection...........  Nondiscrimination     12 CFR 701.31
                                    requirement (Fair
                                    Housing).
                                   Truth in Savings      12 CFR 707
                                    (TIS).
                                   Loans in areas        12 CFR 760
                                    having special
                                    flood hazards.
                                   Privacy of consumer   12 CFR 716
                                    financial
                                    information.
                                   Share insurance.....  12 CFR 745
                                   Advertising.........  12 CFR 740
                                   Disclosure of share   12 CFR 741.10
                                    insurance.
                                   Notice of             12 CFR 741.5
                                    termination of
                                    excess insurance
                                    coverage.
                                   Uninsured membership  12 CFR 741.9
                                    share.
6. Corporate Credit Unions.......  Corporate credit      12 CFR 704
                                    unions.
7. Directors, Officers, and        Loans and lines of    12 CFR
 Employees.                         credit to officials.  701.21(d)
                                   Reimbursement,        12 CFR 701.33
                                    insurance, and
                                    indemnification of
                                    officials and
                                    employees.
                                   Retirement benefits   12 CFR 701.19
                                    for employees.
                                   Management officials  12 CFR 711
                                    interlock.
                                   Fidelity bond and     12 CFR 713
                                    insurance coverage.
8. Money Laundering..............  Report of crimes or   12 CFR 748.1(c)
                                    suspected crimes.
                                   Bank Secrecy Act....  12 CFR 748.2
9. Rules of Procedure............  Liquidation           12 CFR 709 and
                                    (involuntary and      710
                                    voluntary).
                                   Uniform rules of      12 CFR 747
                                    practice and          subpart A
                                    procedure.
                                   Local rules of        12 CFR 747,
                                    practice and          subpart B
                                    procedure.
10. Safety and Soundness.........  Lending.............  12 CFR 701.21
                                   Investments.........  12 CFR 703
                                   Supervisory           12 CFR 715
                                    committee audit.
                                   Security programs...  12 CFR 748
                                   Guidelines for        12 CFR 748,
                                    safeguarding member   Appendix A
                                    information.
                                   Records preservation  12 CFR 749
                                    program and record
                                    retention appendix.

[[Page 62098]]

 
                                   Appraisals..........  12 CFR 722
                                   Examination.........  12 CFR 741.1
                                   Regulations codified  12 CFR 741,
                                    elsewhere in NCUA's   subpart B
                                    regulations as
                                    applying to federal
                                    credit unions that
                                    also apply to
                                    federally insured
                                    state-chartered
                                    credit unions.
------------------------------------------------------------------------

Appendix II-B: Summary of Comments, by Category

I. Applications and Reporting (68 FR 35589, June 16, 2003)

A. Field of Membership and Chartering Section 701.1; IRPS 03-1
    Seven commenters commented on field of membership (FOM) and 
chartering. The commenters were generally pleased with the direction 
NCUA has taken with chartering; however, six commenters encouraged NCUA 
to do even more in this area. One commenter cautioned NCUA to chart a 
prudent course in this area and carefully consider the effects of 
granting larger FOMs to FCUs with low penetration in their existing 
FOMs.
    The statutory changes suggested by some of the commenters were:
     Remove the ``reasonable proximity'' requirement in section 
1759(f)(1)(B) of the FCU Act. Requiring a physical presence does not 
make sense in this century of Internet and remote banking.
     Remove the preference in the Credit Union Membership 
Access Act (CUMAA) for forming new groups over adding a group to an 
existing credit union. A few commenters suggested eliminating the 
presumption in CUMAA that a group over 3,000 may be able to form its 
own credit union, requiring a special analysis and consideration.
     Clarify that the limitation of 3,000 does not apply to 
voluntary mergers of healthy FCUs.
     Eliminate the undefined local community test.
     Allow FCUs to continue to serve SEGs after the FCU 
converts to a community charter. Numerous FCUs have converted to state 
charter because of this limitation.
     Leave it to each FCU as to how to define ``family'' and 
``household.''
     State that commercial banks and thrifts have no standing 
to challenge NCUA FOM policies that implement the FCU Act.
     Allow FCUs to provide check cashing and money transfer 
services to nonmembers.
    The regulatory changes suggested to IRPS 03-1 were:
     The IRPS permits an FCU to add a select group if it is in 
``reasonable proximity'' to a wholly owned ATM or a service facility in 
which it has some ownership interest. Several commenters suggested 
deleting the ``wholly owned'' requirement for ATMs and the ownership 
requirement for a service facility. The commenters noted that the 
wholly owned requirement penalizes smaller credit unions and hurts 
credit unions that have joined an ATM network in the spirit of 
cooperation.
     Eliminate the geographic limitation on occupational common 
bond based on employment in a trade, industry, or profession (TIP). It 
is not required in the FCU Act, and any safety and soundness concerns 
can be addressed in the business plan.
     TIP should not be limited to single common bond credit 
unions.
     Eliminate the requirement that a credit union expanding to 
add a group must include with its application certain documentation 
from the group. The credit union should be allowed to provide all the 
necessary information. Most groups do not have the time or the 
expertise to provide the information NCUA requires. NCUA should allow 
an FCU to provide and attest to the information that is currently 
required in the group's documentation.
     Remove the restrictions on voluntary mergers. The 
legislative history and recent court decisions support the 
interpretation that the limitations on the expansion of multiple common 
bond credit unions do not apply to voluntary mergers.
B. Fees Paid by Federal Credit Unions Section 701.6
    Five commenters commented on this provision of the regulations. One 
commenter supported NCUA's efforts to decrease costs and urged NCUA to 
continue this effort. Four commenters noted that the overhead transfer 
rate (OTR) is directly related to the operating fee and urge more 
transparency in the process. Some of the suggestions in conjunction 
with greater transparency were that NCUA: Make certain it is basing its 
calculations on accurate information; place the procedures for 
calculating the OTR in the regulations; and release the OTR analysis to 
the credit union community 60 days prior to setting a new OTR. One 
commenter commended NCUA on its efforts to accurately calculate the 
OTR.
C. Applications for Insurance Sections 741.0; 741.3; 741.4; 741.6
    One commenter commented on these provisions. The commenter 
suggested NCUA digitize the insurance application (a digital package of 
electronic forms). The commenter made the following suggestions for the 
Form 5300 Call Report: (1) Make filing as easy as possible (electronic 
filing with edit checks); (2) minimize the changes to the Call Report, 
because this is unduly burdensome to small credit unions; and (3) 
improve the instructions.
D. Change in Officials Section 701.14
    Two commenters commented on this provision. One commenter stated 
the regulation is overly burdensome and invasive and suggested NCUA 
review and simplify it. The other commenter suggested shortening the 
timeframe for the region to determine if the application is complete 
from 10 to 5 days and shortening the region's 30-day timeframe to 
approve or disapprove an application. The commenter believes newly 
chartered and troubled credit unions should be a high priority, and 
that any delay in the process could derail the success of the credit 
union.
E. Conversion of Insured Credit Union to Mutual Savings Bank Part 708a
    Four commenters commented on this provision. The commenters 
supported NCUA's proposed changes to this provision. The proposal is 
intended to ensure more accurate disclosure by requiring credit unions 
to provide the members with specific information so that they have 
sufficient knowledge to make an informed decision. The commenters also 
suggested amending the statute so that NCUA can require a higher 
percentage for approval than a majority of those voting (see 12 U.S.C. 
1785(b)(2)(B)). The commenters do not believe it is right that a small 
number of members could decide the fate of the credit union. The 
suggestions were to require that a majority of all members vote in 
favor of the conversion or that a minimum of 20 percent of the members 
vote and that a majority of those members vote in favor of the 
conversion. (This is the requirement for conversion to private 
insurance.)

[[Page 62099]]

F. Mergers of Federally Insured Credit Unions; Voluntary Termination or 
Conversion of Insured Status Part 708b
    Three commenters commented on this process. One commenter suggested 
amending the voting requirements in section 708b.203(c), which covers 
the conversion from federal to private insurance, from a majority of 
the members that vote, provided 20 percent vote, to requiring a 
majority of all members, as is required for termination of insurance in 
section 708b.201(c). This would require an amendment to section 
1785(d)(2) of the FCU Act.
    One commenter suggested allowing credit unions converting from 
state to federal charter to retain investments authorized under state 
law but not authorized under federal law for a reasonable period of 
time instead of requiring immediate divestiture.
    One commenter asked NCUA not to follow expected guidance from FASB 
on the issue of merging credit unions. The guidance is expected to 
require the acquiring credit union in a merger of two or more credit 
unions to treat the merger as a purchase rather than a pooling of 
interests.
G. Conversion to State Chartered Credit Union Section 741.7
    One commenter commented on this provision. The commenter suggested 
that when an FCU converts to state charter it should not be required to 
submit a new request for insurance and go through the insurance review 
process.

II. Powers and Activities

A. Lending, Leasing, and Borrowing
    1. Loans to Members and Lines of Credit to Members Section 701.21. 
Five commenters commented on this provision. Three commenters suggested 
amending the FCU Act to give NCUA more latitude in adjusting the 
interest rate. One commenter suggested simplifying section 
701.21(c)(7), the regulatory provision governing interest rates, by 
reducing it to one paragraph and stating the current rate, effective as 
of a date certain and explaining that the rate is periodically revised 
by NCUA.
    Two commenters suggested revising the FCU Act by either eliminating 
the statutory 12-year loan limitation or increasing it to 15 years (see 
12 U.S.C. 1757(5)).
    One commenter suggested increasing the 20-year limitation on mobile 
home loans and home equity loans (see 12 CFR 701.21(f)).
    Two commenters suggested amending the FCU Act to eliminate the 
requirement for board approval for loans to officials over $20,000 and 
instead allow the board to set the limit or, at a minimum, raise the 
amount (see 12 U.S.C. 1757(5)(A)(5)).
    One commenter suggested that NCUA review its regulatory preemption 
provisions to ensure that they are consistent with the current case 
law.
    One commenter suggested moving the overdraft policy rules from the 
lending section of the regulations to the share section. The commenter 
is concerned that by including them in the lending provision this may 
lend support to the position that overdraft policies fall within 
Regulation Z.
    One commenter suggested clarifying in the regulations that the 
board may delegate the setting of loan rates and terms to credit union 
management.
    One commenter suggested eliminating the provision in section 
701.21(g) that states that ``no loan shall be secured by a residence 
located outside the United States, its territories and possessions, or 
the Commonwealth of Puerto Rico.'' Credit unions serve facilities that 
have locations throughout the world. Because of this provision an FCU 
cannot assist a member trying to buy a home in a foreign country.
    2. Loan Participation Section 701.22. One commenter commented on 
this section. The commenter suggested revising section 701.22(d)(4) by 
removing the requirement that an FCU that is not the originating lender 
get the approval of the board of directors or investment committee 
prior to disbursement. The commenter believes that the rule should 
allow the board to delegate this authority to senior management with 
the board setting the parameters. The commenter also suggests removing 
the requirement in section 701.22(c)(2) that the originating lender 
retain 10 percent of the face amount of the loan. The commenter notes 
that other types of financial institutions do not have this limitation. 
This is a statutory requirement and would require an amendment to the 
FCU Act (see 12 U.S.C. 1757(5)(E)).
    3. Share, Share Draft, and Share Certificate Accounts Section 
701.35. Two commenters commented on this provision. One commenter 
suggested NCUA pursue a statutory change to permit credit unions to 
accept deposits as well as shares. One commenter suggested a 
legislative change to delete from the FCU Act the requirement that 
``[i]f the par value of a share exceeds $5, dividends shall be paid on 
all funds in the regular share account once a full share has been 
purchased.'' (See 12 U.S.C. 1763.)
    4. Member Business Loans Part 723. Five commenters commented on 
this provision, and all five suggested raising the statutory exemption 
from $50,000 to $100,000 with one recommending deleting it in its 
entirety (see 12 U.S.C. 1757a(c)(B)(iii)). The commenters believe this 
amendment is necessary for credit unions to provide better service to 
their members. Two commenters suggested eliminating or revising the 
statutory restriction limiting a credit union's business lending to the 
lesser of either 1.75 times net worth or 12.25 percent of total assets 
(see 12 U.S.C. 1757a(a)). The commenters note that credit unions' 
business lending has no effect on the profitability of other insured 
institutions and is filling a niche for business loans of modest 
amounts. They suggest that, at a minimum, the amount should be raised 
to the amount permitted for thrifts.
    Two commenters supported targeted statutory relief, such as for 
agricultural and faith-based loans.
    One commenter suggested additional relief in section 701.21 for 
residential mortgage lending when the borrowing is basically for 
personal investment rather than for true business enterprise purposes. 
This commenter also suggested: Better aligning the MBL regulatory 
requirements with SBA's loan requirements; and providing additional 
flexibility with respect to the regulatory loan-to-value limitation for 
MBLs.
    5. Maximum Borrowing Section 741.2. Two commenters commented on 
this provision. One commenter noted that NCUA has a proposed rule out 
for comment removing the borrowing limitation of 50 percent of paid-in 
and unimpaired capital and surplus for federally insured state-
chartered credit unions. The commenter noted the limitation is 
statutory for FCUs and that the commenter would restrict its comments 
on this issue to the proposed rule. The other commenter suggested 
allowing all RegFlex credit unions to exceed the limitation or remove 
it for all credit unions. This suggestion would require an amendment to 
section 1757(9) of the FCU Act.
    6. Leasing Part 714. One commenter commented on this section. The 
commenter suggested that NCUA amend the rule by eliminating the 25 
percent residual value requirement in section 714.4(c). The commenter 
believes credit unions should have the ability to make an informed 
business decision as to what the residual value should be for each 
lease.
B. Investment and Deposits
    1. Designation of Low-Income Status; Receipt of Secondary Capital 
Accounts by Low-Income Designated Credit

[[Page 62100]]

Unions Section 701.34. Four commenters commented on this provision. Two 
commenters suggested eliminating the 20 percent of total shares limit 
on nonmember deposits in low-income credit unions. These commenters 
noted that the limit restricts philanthropic and corporate investment 
and that prompt corrective action (PCA) already addresses the safety 
and soundness concerns this limitation is addressing. One commenter 
suggested eliminating the requirement in section 701.34(b)(3) that a 
secondary capital account have a minimum maturity of five years. The 
commenter believes this is overly restrictive.
    One commenter stated its support for secondary capital and 
encouraged NCUA to allow the use of secondary capital in all credit 
unions.
    2. Fixed Assets Section 701.36. Three commenters commented on this 
provision. Two commenters suggested reviewing section 701.36(d), which 
requires an FCU that purchases property for expansion to have a plan to 
utilize the property for its own operation. The commenters believe this 
requirement unnecessarily limits an FCU's future expansion options. The 
commenters suggested three years is not a reasonable time to require 
full utilization and suggested deleting it and conditioning the 
purchase of the property on an ongoing relationship with the sponsor or 
other entity willing to provide long-term leases.
    One commenter objected to the 5 percent of shares and retained 
earnings limitation on the purchase of fixed assets in section 
701.36(c). The commenter believes this is too limiting and that the 
definition of fixed assets should be modified to only include land and 
buildings. In addition, the commenter suggested that for FCUs applying 
for a waiver from the 5 percent limitation that NCUA not require copies 
of blueprints. This is not a regulatory requirement but may be required 
by some regions. The commenter believes the waiver process should be 
simplified.
    3. Investment and Deposit Activity Part 703. Three commenters 
commented on this provision. The commenters identified the following 
restricted activities as areas for relief: Asset-backed securities, 
short-term corporate commercial paper, corporate notes and bonds, non-
agency mortgage-backed securities, shares and stocks of other financial 
institutions, derivative authority in order to hedge interest rate 
risk, utilization of financial futures or interest rate risk, 
securities related to small businesses, residual interest in CMOs/
REMICs, mortgage servicing rights, and real estate investment trusts. 
One commenter suggested allowing FCUs that have the expertise to engage 
in these activities to do so instead of limiting expanded investment 
options to RegFlex credit unions.
    One commenter suggested exempting all FCUs and not just RegFlex 
FCUs from the 100 percent limitation in section 703.5(b)(ii). This 
provision permits an FCU to delegate discretionary control over the 
purchase and sale of its investments to a person other than a credit 
union employee up to 100 percent of its net worth. This commenter also 
suggested lifting the prohibition on the purchase of an investment with 
the proceeds from a borrowing transaction if the purchased investment 
matures after the maturity of the borrowing repurchase transaction. 
This provision does not apply to RegFlex credit unions.
    One commenter supported legislation that would increase the 
investment options for FCUs so that they have the same authority that 
is approved for other federally regulated financial institutions. This 
commenter also supported exempting FCUs from registering with the 
Securities and Exchange Commission as broker/dealers when engaging in 
certain activities. Banks are already exempt from this requirement.
    4. Credit Union Service Organization Part 712. Three commenters 
commented on this provision. Two of the commenters supported a 
statutory change to remove the 1 percent limitation on investments and 
loans to credit union service organizations (CUSOs) or, at a minimum, 
increase it to 3 percent or 5 percent.
    Two commenters suggested that, although the list of permissible 
activities in the current regulation is broader than prior versions of 
the rule, NCUA should go even further. The commenters suggested the 
rule include guidance as to which activities are related to the routine 
activities of an FCU and allow FCUs to determine if the activity is 
permissible. The specific examples currently in the rule should be 
included as an appendix to the rule and for guidance purposes only.
C. Miscellaneous Activities
    1. Incidental Powers Part 721. Two commenters commented on this 
provision. One commenter supported legislation to permit FCUs to 
operate full trust departments. The other commenter suggested expanding 
section 721.3(d) to permit FCUs to lease excess space regardless of 
whether it intends to eventually occupy space. This restriction 
prevents FCUs from being competitive with banks.
    2. Charitable Contributions Section 701.25. Three commenters 
commented on this provision. One commenter suggested eliminating the 
rule in its entirety because this activity does not pose a safety and 
soundness concern. Two commenters suggested eliminating the requirement 
in section 701.25(b) that a not-for-profit recipient that is not a 
501(c)(3) be located in or conduct activities in the community in which 
the credit union has a place of business. The commenters suggested 
allowing the FCU to select the recipient based on location of members.
    3. Purchase, Sale and Pledge of Eligible Obligations Section 
701.23. One commenter commented on this provision and suggested a 
statutory change to remove the limitation of 5 percent of unimpaired 
surplus and capital limitation on the purchase of eligible obligations 
(see 12 U.S.C. 1757(13)).
    4. FCU Bylaws. Two commenters suggested that NCUA include the FCU 
Bylaws in its EGRPRA review. One of those commenters also noted that, 
by including some of the standard bylaw amendments in the revised 1998 
FCU Bylaws (FCU Bylaws) and requiring NCUA approval to adopt those not 
included in the FCU Bylaws, NCUA had reduced regulatory flexibility. It 
should be noted that as part of its 2004 regulatory review NCUA is 
seeking comment on the FCU Bylaws.

III. Agency Programs Parts 705, 725, and 742; Section 701.34 (70 FR 
75986, December 22, 2005)

    One commenter suggested reducing NCUA's requirement that a credit 
union have 7 percent capital for six consecutive quarters to be 
eligible for participation in the agency's RegFlex program. This 
commenter urged the agency to continue to look for ways, consistent 
with safety and soundness considerations, to reduce the regulatory 
burden for community development and low-income credit unions. One 
commenter recommended NCUA adopt the approach followed by the 
Department of the Treasury's CDFI Fund for designating median incomes 
in geographic areas for NCUA's program of designating low-income credit 
unions. The commenter noted that NCUA follows this convention in 
designating ``underserved areas.'' This commenter also opposed recent 
changes by NCUA to the secondary capital rules, such as the requirement 
to obtain the Regional Director's approval before accepting an 
investment of secondary capital. This commenter offered several 
comments on

[[Page 62101]]

aspects of the NCUA's revolving loan program rule, including 
eliminating some unnecessary provisions, improving the administration 
of other provisions, and either eliminating the community needs plan 
outright or making it subject to public review. The commenter 
recommended NCUA consider changing the loan program into a secondary 
capital program and eliminating as unnecessary and burdensome 
compliance with our non-member public unit share account rules once the 
loan to NCUA is repaid.

IV. Capital Part 702; Section 741.3 (70 FR 75986, December 22, 2005)

    Seven of the eight commenters expressed strong support for a risk-
based capital approach and advocated that NCUA continue to pursue 
necessary changes to the FCU Act to enable it to fully implement such a 
program. Six of these also advocated implementation of a risk-based 
capital program for corporate credit unions as well, and urged NCUA to 
continue its ongoing dialogue with the industry on this topic. One 
commenter noted that corporations have relatively more conservative 
investments and less risky loan portfolios, which supports the argument 
that a risk-based approach to capital is appropriate. One commenter 
noted that credit unions are unique among regulated financial 
institutions in their absence of a risk-based capital regime. In 
respect of the prompt corrective action rules, one commenter 
recommended that NCUA not require a credit union meeting the 
``adequately capitalized'' test to undertake corrective action; another 
suggested that corrective action not be required where the credit 
union's capital ratio falls between 4 percent and 5 percent. One 
commenter noted that implementation of a risk-based net worth program 
could be complicated and expensive for smaller credit unions. Another 
commenter noted its support for the current accounting treatment 
allowed for a credit union's investment in the NCUSIF.

V. Consumer Protection

A. Lending-Related Rules (69 FR 5300, February 4, 2004)

    Note: Includes certain Federal Reserve Board (FRB) rules that 
affect credit unions. Commenters did not offer suggestions on any 
rule developed or issued by NCUA, although one commenter suggested 
that the Federal Credit Union Act should be amended by eliminating 
or modifying the usury ceiling contained in section 107 of the Act.

    1. Regulation Z, Truth in Lending 12 CFR 226 (FRB). Two commenters 
suggested amending Regulation Z to require that the costs associated 
with accepting a below-market financing offer, such as foregoing an 
available rebate or price reduction, be included in the finance charge 
and calculation of the annual percentage rate (APR). Two commenters 
suggested revising Regulation Z's requirement that debt cancellation 
fees may only be excluded from APR where the applicant has asked for 
the debt cancellation product in writing. The commenters characterized 
this requirement as unduly burdensome and asked that it be amended. 
They noted that many applicants seek credit through telephonic or 
electronic means, and that requiring a written request for a debt 
cancellation product is time-consuming and unnecessary. Two commenters 
requested that Regulation Z be amended to exclude cash advance fees 
from APR, noting these fees are typically assessed on a one-time basis, 
which they consider to be inconsistent with the purpose of disclosing 
APR. Two commenters requested that fees assessed as part of an 
overdraft protection program be excluded from APR. One commenter 
recommended that the three-day right of rescission available to 
applicants seeking a home equity loan or a mortgage refinance be 
eliminated. The commenter characterized the provision as unnecessary 
and rarely used. One commenter recommended that Regulation Z be amended 
to permit use of a consolidated APR disclosure where rates for cash 
advance, purchase, and balance transfer are the same. One commenter 
asked that the Federal Reserve provide clearer guidance on Regulation 
Z's disclosure requirements where a risk-based credit card program is 
offered.
    Two commenters recommended amending the Truth in Lending Act to 
eliminate the required use of APR. These commenters suggested that use 
of APR has become counterproductive and confusing to consumers, who do 
not understand what costs comprise APR or why there is a difference 
between their note rate and the APR. One noted that several of the cost 
components in APR are not imposed or controlled by the lender. One 
stated that most consumers no longer use APR for comparison purposes, 
and also that the costs of calculating APR exceed any benefit from its 
use. Both commenters believe consumers would be better served with a 
more simplified disclosure of the interest rate and an itemization of 
costs and discount points assessed by the lender.
    2. Regulation C, Home Mortgage Disclosure 12 CFR 203 (FRB). Three 
commenters objected to recent amendments to Regulation C adopted by the 
Federal Reserve requiring lenders to pursue questioning related to race 
when they receive applications electronically or via the telephone. 
These commenters stated that lenders who receive these types of 
applications are typically unaware of the applicant's race. They 
suggested that pursuit of such information by the lender is both 
unnecessary and possibly counterproductive, instilling doubt in the 
mind of the applicant as to the integrity of the process. One commenter 
cautioned that the Federal Reserve should avoid exalting the pursuit of 
data over the regulation's basic purpose, which is to discourage 
unlawful discrimination. Two commenters pointed out that the Federal 
Reserve's recent determination to change Hispanic to an ethnic rather 
than a racial category could be counterproductive, since ethnicity is 
not a protected class under the fair lending rules. One commenter 
suggested that the Federal Reserve should raise the threshold for 
reporting obligations under Regulation C to include only those lenders 
who originate at least $25 million in mortgage loans annually. This 
change would place depository institution lenders on the same footing 
as non-depository lenders. One commenter opposed the Federal Reserve's 
recent amendment to this rule expanding the definition of home loan to 
include any loan in which some amount of the proceeds is earmarked for 
home improvement. The commenter believes this change makes the scope of 
the rule too broad and more difficult to monitor for compliance 
purposes.
    3. Regulation B, Equal Credit Opportunity 12 CFR Part 202 (FRB). 
All four commenters objected to the Federal Reserve's recent amendments 
to Regulation B imposing new standards for determining if an 
application for credit has been made jointly. The commenters believe 
these new standards, which preclude a lender from relying on either a 
joint financial statement or joint signatures on the promissory note as 
evidence of intent to jointly apply for an extension of credit, unduly 
increase the compliance burden and will result in delays. One commenter 
noted that use of the new standards is particularly difficult with 
telephonic or electronic credit applications.
    4. Flood Insurance Part 760. Two commenters complained that the 
federal statute that authorizes funding for flood insurance needs 
annual congressional appropriation. The commenters are concerned that 
the appropriation

[[Page 62102]]

process results in needless uncertainty about whether the required 
funds will be available. The commenters suggested that the enabling 
legislation be amended to provide for an automatic appropriation.
    5. Federal Credit Union Act; Usury Ceiling. One commenter called 
for an amendment to section 107 of the Federal Credit Union Act to 
eliminate the 15 percent annual interest rate ceiling. The commenter 
noted that the FCU Act provides the NCUA Board with authority to 
establish a different usury ceiling under certain circumstances for 
periods not in excess of 18 months. The commenter stated that the 
possibility of change every 18 months creates uncertainty hindering the 
development of new loan products. The commenter believes the NCUA Board 
has ample authority to regulate against interest rate risk and 
suggested that the statutory usury ceiling has become unnecessary and 
arguably excessive.
    6. Guidance on Electronic Disclosures. One commenter asked that the 
Federal Reserve provide guidance to the financial sector about the use 
of electronic disclosures under its lending regulations, as well as its 
electronic funds transfer and truth in savings regulations. The 
commenter stated that greater flexibility is necessary concerning what 
constitutes an ``electronic address'' and that clarification is 
necessary about how a consumer may evidence his or her consent to 
accept disclosures electronically.
B. Share Account--Deposit Relationships and Miscellaneous Consumer 
Regulations (69 FR 41202, July 8, 2004)

    Note: Includes FRB rules governing Electronic Fund Transfers 
(Regulation E).

    1. Truth in Savings Part 707. Two commenters suggested amending the 
Truth in Savings rule to eliminate the requirement that annual 
percentage yield on savings accounts be calculated and disclosed 
periodically, citing confusion that results on the part of consumers 
from this calculation. Two commenters also suggested that the rule be 
amended to eliminate the cumulative reporting of fees, as is presently 
required. One commenter suggested updating the dollar amount for 
determining if a bonus is permissible from $10 to $25, along with 
eliminating the required aggregation of de minimis items. Other 
suggestions to improve this rule included conforming the change in 
terms notice requirement to the 21 days that is required in Regulation 
E, as well as permitting the use of the acronym ``APY'' for annual 
percentage yield, similar to that which is permitted in Regulation Z 
for annual percentage rate. A commenter suggested modifying the 
requirement in the rule pertaining to advance disclosures in the case 
of non-check transactions, citing the difficulty in doing so with 
present technology. Two commenters suggested allowing notices to be 
delivered electronically through the home banking interface, rather 
than through e-mail, given the better security available in such 
programs. One commenter noted that this is a preferable approach in 
other consumer disclosures as well, such as Regulations Z, E, and M. 
Finally, one commenter supported the continued use of this rule as the 
principal avenue for regulation of bounce protection programs.
    2. Privacy Part 716. Two commenters noted opposition to the 
requirement of annual consumer privacy notices where there has been no 
change in privacy policy and no right of opt-out. One commenter 
acknowledged this is a statutory requirement and sought NCUA's support 
for a change in the law. This commenter also stated there was no need 
to change the form of privacy notices, especially where a short form 
with no opt out is used. Three commenters indicated that any change to 
the privacy notices ought to await completion of rule changes required 
by the Fair and Accurate Credit Transactions Act (FACT Act), which was 
enacted last year and amends the Fair Credit Reporting Act. One 
commenter suggested NCUA should amend the definition of affiliate to 
include a company that may be owned or controlled by more than one 
credit union.
    3. Electronic Funds Transfers 12 CFR Part 205 (FRB). Two commenters 
opposed any change from current requirements relating to debit card 
transactions, and indicated that technological difficulties exist with 
providing fee information in connection with point of sale debit card 
transactions. One commenter also noted opposition to any requirement 
that transaction fees on ATM or POS transactions be disclosed on a 
year-to-date, cumulative basis on periodic account statements.
    4. Share Insurance Part 745. One commenter approved of the use of 
examples of share insurance coverage in the appendix to the share 
insurance regulation and asked that two additional examples, relating 
to insurance coverage for joint revocable trusts, be added. One 
commenter suggested that NCUA include the examples as part of official 
staff commentary, subject to notice and public comment. The commenter 
also recommended that NCUA include staff interpretations in the 
official commentary, as an alternative to the use of private legal 
opinion letters.\69\
---------------------------------------------------------------------------

    \69\ The appendix to part 745 is published for comment as part 
of the rulemaking process and includes both example and 
interpretations.
---------------------------------------------------------------------------

VI. Corporate Credit Unions (70 FR 75986, December 22, 2005)

A. Corporate Credit Unions Part 704
    Commenters addressed several other aspects of the corporate rule 
and related matters. One commenter requested different treatment for 
corporations for Bank Secrecy Act compliance and anti-money laundering 
rules because of corporates' lower risk profile. One commenter 
advocated more flexibility for corporates' investments, such as 
permitting derivatives indexed to inflation, to allow beneficial 
hedging opportunities. This commenter also advocated narrowing the 
scope of the corporate CUSO rule so the rule only applies to CUSOs in 
which a corporate has a controlling interest. This commenter opposed 
the loan limits applicable to corporate lending to CUSOs and suggested 
NCUA make loans to CUSOs subject to the same or comparable rules as 
member loans. This commenter stated the requirement that a corporate 
obtain a legal opinion addressing the issue of corporate separateness 
is burdensome and unnecessary in view of the actual risks. This 
commenter also asserted part B Expanded Authority, part V, is unduly 
burdensome when applied to wholesale corporates, because it restricts 
loan participation authority to loans made by members and natural 
person credit unions cannot be members of wholesale corporates.
    Two commenters requested NCUA change the provisions of section 
704.2 to enable corporates to settle ACH transactions on the settlement 
date, not the advice date. One commenter requested NCUA remove the 
restriction in section 704.14(a)(2), contending it unnecessarily 
restricts corporates from considering the full range of potential 
directors. This commenter also advocated that NCUA allow CUSOs to 
engage in the full range of permissible lending available to credit 
unions and allow corporates to deal in CUSO loans in the same manner as 
credit union loans. This commenter advocated greater flexibility in the 
loans to one borrower limits, especially for corporates holding 
expanded authorities. This commenter also indicated the requirement in 
section 704.12(a)(1), pertaining to providing

[[Page 62103]]

services to nonmembers only through a correspondent agreement, is 
overly burdensome and reduces competition and so should be eliminated. 
Finally, this commenter recommended NCUA prepare guidance on corporate 
mergers because they are likely to continue for the foreseeable future.

VII. Directors, Officers, and Employees (70 FR 39202, July 7, 2005)

A. Parts 711 and 713; Sections 701.21, 701.33, and 701.19
    1. Officers, Directors, and Employees. Two commenters wrote in 
support of a provision currently in both the Credit Union Regulatory 
Improvements and the Regulatory Relief bills pending in Congress that 
would allow a credit union to reimburse a volunteer for wages lost due 
to time spent in service to the credit union. Two commenters 
recommended that NCUA amend section 701.21, the general lending rule, 
to specify that a credit union employee who is also a member of its 
board of directors can receive any discounts, for example in interest 
rates, that the credit union makes available to other employees.
    Two commenters that had previously submitted comments on the 
proposed amendments to part 713 reiterated their comments here. Each 
suggested that NCUA expand its eligibility criteria for the higher 
deductible beyond credit unions that qualify under NCUA's RegFlex 
program and allow well capitalized credit unions to qualify under the 
rule. One reiterated its support for the proposed changes to the 
coverage limits in the rule. The other reiterated its request that NCUA 
add a waiver procedure to enable credit unions needing a longer time 
period to procure a bond with different coverage as required by the 
rule. This same commenter asked that we also include an exemption 
procedure for credit unions to avoid having to meet the new coverage 
limits. A third commenter suggested that NCUA clarify the distinction 
between references to a credit union's board of directors and the NCUA 
Board.
    One commenter requested that NCUA broaden the provisions in section 
701.19(c) to allow greater discretion and flexibility in making 
investments to support employee benefit plans.

VIII. Anti-Money Laundering (70 FR 5946, February 4, 2005)

A. Anti-Money Laundering Part 748
    Five commenters sought guidance and clarification from NCUA 
concerning requirements to file SARs; one sought an outright exemption 
from the filing requirements for small credit unions. Three commenters 
recommended raising the threshold for filing Currency Transaction 
Reports from the current $10,000 trigger; one sought an expansion of 
the time in which filing is required to 30 days. One commenter 
recommended raising the thresholds for reporting on monetary 
instruments from the current $3,000 trigger and for filing money 
laundering SARs from its current reporting threshold of $5,000. This 
commenter also advocated establishing a de minimis threshold for 
reporting insider theft and abuse, as well as eliminating the annual 
recertification requirements for exempt customers. Two commenters 
sought training and guidance from NCUA, in concert with the other 
banking regulators, on what constitutes an adequate anti-money 
laundering program and what requirements apply in testing and auditing 
of these programs. Two commenters recommended that the Office of 
Foreign Assets Control be merged with FinCEN under the auspices of the 
Department of the Treasury.

IX. Rules of Practice and Procedure (70 FR 39202, July 7, 2005)

A. Parts 709, 710, 747
    1. Rules of Practice and Procedure. No commenters addressed any 
aspect of the rules of practice and procedure.

X. Safety and Soundness (70 FR 39202, July 7, 2005)

A. Safety and Soundness Parts 703, 715, 722, 741, 748, 749; Section 
701.21
    Four commenters suggested amending the Federal Credit Union Act to 
provide NCUA with greater flexibility in establishing maximum rates and 
maturities on loans. One commenter suggested liberalizing the 
requirements in the lending rules governing approval for loans to 
insiders. Although the MBL rule was not specifically included in this 
notice, two commenters recommended changes to it, including expanding 
the permissible maturity limits and allowing individual boards of 
directors to make some of the decisions that currently require NCUA 
waiver or specific approval. One commenter suggested expanding the 
privileges available to RegFlex credit unions in the MBL context to all 
adequately capitalized credit unions. The same commenter suggested 
raising the threshold for the mandatory use of appraisals above its 
current statutory limit of $250,000 for real estate loans.
    Three commenters addressed the investments rule. One recommended 
eliminating restrictions on purchasing steeply discounted CMOs, and 
another suggested extending the investment privileges available to 
RegFlex credit unions to all adequately capitalized credit unions. The 
third commenter suggested amending the investment regulation to require 
closer monitoring and reporting of investments that fall outside of the 
board's investment policy.
    One commenter requested that the NCUA permit smaller credit unions 
to file the 5300 Call Report on a semiannual or annual basis, rather 
than a quarterly basis. Four commenters sought clarification and 
liberalization of our recordkeeping rule, including guidance on what 
constitutes a vital record and clarification about the time period 
after which records that pertain to a merged credit union may be 
destroyed by the continuing credit union.
B. Impact of NCUA Rules on Federally Insured Credit Unions Part 741
    One commenter sought clarification on the extent to which NCUA's 
rules apply to state-chartered, federally insured credit unions. This 
commenter opposed NCUA's current method, as reflected in 12 CFR 741, 
that notes those rules that apply to federally insured state credit 
unions. The commenter believes this approach leads to confusion and 
uncertainty, especially when a rule may not apply in its entirety to a 
state credit union. The commenter recommends NCUA should restate 
explicitly which of the rules outside of part 741 apply to these credit 
unions, even if this results in some redundancy in the rules.
C. Miscellaneous
    Two commenters addressed documents recently published by NCUA that 
provide guidance to credit unions. The guidance documents, dealing with 
overdraft protection programs and incident response programs in cases 
involving breach of security, are intended to assist credit unions to 
comply applicable regulatory and statutory requirements but do not have 
the force or effect of regulations. One commenter suggested that the 
bounce program guidance was incorrect in calling for overdrafts to be 
reported as loans, and also questioned the recommendation in the 
guidance concerning notice to consumers about the availability of 
overdraft protection in non-checking account transactions such as debit 
card or ATM use. The other commenter, addressing the security program 
guidance, recommended that NCUA clarify the steps a credit union should 
take in

[[Page 62104]]

monitoring an account that has been the subject of a security breach.
    Although not discussed in an EGRRPA notice, one commenter offered 
specific suggestions in support of several items included in the 
regulatory relief bills currently pending, including support for 
raising the CUSO investment authority from 1 percent to 3 percent of 
assets, or higher as determined by the credit union's level of capital 
adequacy. The commenter also supports allowing a continuing credit 
union in a merger to include the retained earnings of the merging 
credit union in calculating and reporting its net worth, as well as 
permitting credit unions to cash checks and provide wire transfer 
services to anyone within the field of membership. Finally, the 
commenter supports allowing a converting credit union to continue to 
serve members of a select employee group post-conversion and providing 
NCUA with greater flexibility in adjusting the FCU usury ceiling.

XI. Total Comments Received, by Type

    In response to its 6 published notices soliciting comment on its 10 
categories of rules, NCUA received a total of 41 comments. Of these, 17 
were generated by national trade associations, 13 by natural person 
credit unions, 6 by state credit union leagues, 3 by corporate credit 
unions, and 2 by individuals.
    End of text of the Joint Report to Congress, July 31, 2007, 
Economic Growth and Regulatory Paperwork Reduction Act

Tamara J. Wiseman,
Executive Secretary, Federal Financial Institutions Examination 
Council.
[FR Doc. 07-5385 Filed 10-31-07; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P; 6720-01-P; 7535-01-P