[Federal Register Volume 73, Number 104 (Thursday, May 29, 2008)]
[Proposed Rules]
[Pages 30818-30820]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-11927]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 721

RIN 3133-AD12


Incidental Powers

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

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SUMMARY: NCUA proposes to amend its regulation governing a federal 
credit union's (FCU's) incidental powers by adding illustrations of 
permissible activities under the categories of correspondent services, 
operational programs, and finder activities. These amendments will 
provide useful information to FCUs by clarifying and updating the 
illustrations regarding permissible activities.

DATES: Comments must be received on or before July 28, 2008.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     NCUA Web Site: http://www.ncua.gov/news/proposed_regs/proposed_regs.html. Follow the instructions for submitting comments.
     E-mail: Address to ncua.gov">regcomments@ncua.gov. Include ``[Your 
name] Comments on Notice of Proposed Rulemaking (Incidental Powers)'' 
in the e-mail subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.

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

SUPPLEMENTARY INFORMATION:

A. Background

    NCUA's policy is to review regulations periodically to ``update, 
clarify and simplify existing regulations and eliminate redundant and 
unnecessary provisions.'' Interpretive Ruling and Policy Statement 
(IRPS) 87-2, Developing and Reviewing Government Regulations. NCUA 
notifies the public about the review, which is conducted on a rolling 
basis so that a third of its regulations are reviewed each year. This 
proposed rule is the result of NCUA's 2007 review under IRPS 87-2, 
which covered the middle third of the regulations, including part 721. 
The proposed changes are intended to update and clarify the regulation.
    Part 721 describes the incidental powers an FCU may exercise under 
the incidental powers authority in the Federal Credit Union Act (Act), 
which provides an FCU may ``exercise such incidental powers as shall be 
necessary or requisite to enable it to carry on effectively the 
business for which it was incorporated.'' 12 U.S.C. 1775(17). The 
current part 721 resulted from a rulemaking involving an advance notice 
of proposed rulemaking in 1999, a proposed rule in 2000, and a final 
rule

[[Page 30819]]

in 2001 that replaced the former group purchasing rule. 64 FR 66413 
(Nov. 26, 1999); 65 FR 70526 (Nov. 24, 2000); 66 FR 40845 (Aug. 6, 
2001). The former group purchasing rule permitted FCUs to endorse and 
make available insurance plans and other third party products to their 
members and to perform administrative functions on behalf of the 
vendors. 12 CFR 721.1 (as codified in the CFR as of January 1, 2000). 
Until the revision in 2001, the former group purchasing rule had been 
in place with little change since 1985 and recognition of a broad range 
of other activities as permissible under the incidental powers 
authority of the Act appeared only in legal opinions NCUA's Office of 
General Counsel (OGC) issued. 66 FR at 40845-46.
    Briefly summarized, the current incidental powers rule: provides a 
standard derived from well-established case law for recognizing an 
incidental powers activity; incorporates into broad, ``pre-approved'' 
categories of activities the activities legal opinions had recognized; 
describes an application process for adding new activities and seeking 
advisory opinions from NCUA's OGC on whether an activity would fit 
within an existing category; cautions FCUs to comply with any laws, 
regulations, or legal opinions applicable to the activities; expressly 
permits FCUs to earn income from their incidental powers activities; 
and sets out conflict of interest provisions. 12 CFR Part 721. The rule 
specifically states the examples of activities within each category are 
provided as illustrations and ``not as an exclusive or exhaustive 
list.'' 12 CFR 721.3. The broad categories include certification 
services, correspondent services, electronic financial services, excess 
capacity, financial counseling services, finder activities, loan-
related products, marketing activities, monetary instrument services, 
operational programs, stored value products, and trustee or custodial 
services.
    The Board believes it will be helpful to clarify certain provisions 
and update the rule by adding examples of activities that have been 
recognized as permissible incidental powers activities since 2001. 
Also, since 2001, questions have arisen from time to time about the 
sale of third-party insurance products, negotiation of discounts, 
endorsements, and provision of administrative services to support the 
sale of a third party's products or services. As noted in the preamble 
to the proposed rule in 2000, the Board intended to incorporate the 
concept of group purchasing, particularly with regard to insurance 
products, into the category of finder activities. 65 FR at 70527. 
Further, the Board specifically noted that it contemplated the 
negotiation of ``membership-wide rates or benefits with vendors'' as 
part of being a finder of products, not only insurance. Id. Although 
the continued permissibility of activities covered by the former group 
purchasing rule was addressed in preambles in the rulemaking several 
years ago, the Board believes it will be helpful to add language to the 
regulatory text under the finder activities category regarding 
negotiation of discounts, sale of third-party insurance products, and 
administrative functions on behalf of third-party vendors.

B. Proposed Changes

Section 721.3(b): Correspondent Services With Foreign Credit Unions

    The proposed rule would recognize that FCUs may provide 
correspondent services to foreign as well as federal or state-chartered 
credit unions. Generally, correspondent service agreements address 
circumstances where a credit union, as a service to another credit 
union, provides a service to a member of the other credit union, for 
example, where the geographic location of the member does not permit 
the member's own credit union to provide the service. A typical service 
would be receipt of funds from a member by another credit union for 
credit to the member's account with his or her credit union where the 
member is located some distance from his or her credit union. The 
current rule permits correspondent services between ``credit unions'' 
and NCUA regulations generally define credit union to mean a federal or 
state chartered credit union. 12 CFR 700.2(d). In 2006, an OGC legal 
opinion recognized as permissible an FCU receiving funds from a member 
of a foreign credit union that the FCU would then transmit to the 
member's credit union located in a foreign country. OGC Op. 05-0915 
(March 3, 2006) (available on the NCUA Web site at ncua.gov). To update 
this category in the rule, the Board proposes to revise this provision 
to permit FCUs to provide correspondent services to both foreign and 
domestic credit unions. The Board cautions, however, that credit unions 
should consult United States and international laws before engaging in 
any transaction with a foreign credit union.

Section 721.3(f): Finder Activities

    Finder activities is the category of incidental powers that allows 
FCUs to introduce its members to an outside vendor so that the two 
sides may negotiate and consummate a transaction. 12 CFR 721.3(f). The 
proposed amendments clarify that finder activities include an FCU's 
negotiation of group discounts and the performance of administrative 
functions for outside vendors. As noted previously, the negotiation of 
group discounts was contemplated under the old group purchasing rule 
and ``performing administrative functions on behalf of the vendors'' 
was expressly included in the old rule. See also OGC Op. 02-0221 (April 
26, 2002) (available on the NCUA Web site at ncua.gov) (An FCU, as a 
finder, may provide information about vendors, perform administrative 
functions for the parties, and negotiate group discounts or benefits on 
behalf of its membership). The Board believes the additional language 
will be a helpful clarification.
    The proposed amendment would add language elaborating that vendors 
may be providers of non-financial products or financial products, 
including insurance. As noted above, the former group purchasing rule 
permitted FCUs to endorse and make available insurance plans and other 
third party products to their members and, in revising Part 721, the 
Board did not intend to limit previously permissible activities. 
Further, as noted above, the Board stated, when it was revising Part 
721, that it considered promotion of third party insurance covered by 
the finder activities category. The Board believes specifically noting 
insurance as an example in the regulation will be a helpful 
clarification.
    The Board also proposes to add language to Sec.  721.3(f) 
clarifying that FCUs may act as finders for the financial products of 
other financial institutions. The incidental powers rule does not limit 
the types of vendors or products and services an FCU may promote or 
facilitate, and the Board believes an FCU bringing its members together 
with another financial institution may significantly benefit members 
where an FCU does not or is unable to provide to provide the product or 
service.
    Nevertheless, as with any incidental powers activities, but 
particularly here where the product may be a regulated investment or 
financial product, FCUs must be particularly mindful of the provisions 
of Sec.  721.5. This section states that, in engaging in any incidental 
powers activity, FCUs must comply with all applicable law and 
regulations. See also OGC Op. 02-0221 (April 26, 2002) (available on 
the NCUA Web site at ncua.gov) (FCU, as finder, may offer its members 
depository products of other financial institutions but should clearly 
understand legal and safety and soundness issues related to the 
activity).

[[Page 30820]]

Further, FCUs must be mindful that, although the rule generally permits 
them to perform administrative functions in connection with finder 
activities, in connection with the sale of financial products, FCUs 
must be cautious that these functions do not create an agency or 
brokerage relationship and trigger compliance problems under any 
applicable laws or regulations. FCUs unclear as to the permissibility 
of a particular function should consult with their own private legal 
counsel with expertise in the activity or may consult with NCUA's 
OGC.\1\
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    \1\ For example, the Board notes FCUs should consult the Real 
Estate Settlement Procedures Act (RESPA) when accepting fees from a 
third party, as a finder of mortgage related products. NCUA's 
incidental powers rule permits FCUs to earn income for those 
activities determined to be incidental to its business. 12 CFR 
721.6. RESPA, however, prohibits financial institutions from 
accepting fees or payments for referring members to settlement 
service providers in mortgage related transactions. 24 CFR 3500. 
FCUs acting as a finder of mortgage related products should consult 
RESPA to determine if the acceptance of fees in a particular 
transaction is prohibited.
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Section 721.3(j): Payroll Services

    The proposed rule adds payroll services to the operational programs 
category. Generally, this category describes programs an FCU can 
establish to deliver products and services that enhance member service 
and promote safe and sound operation. 12 CFR 721.3(j). Payroll services 
permit an FCU to make disbursements from a business member's account to 
third parties, as well as deduct the appropriate amounts for income 
taxes and employee-paid benefit premiums. In a 2006 opinion letter, 
NCUA recognized that payroll services are related to other permissible 
activities, such as electronic financial services and payroll 
deductions, and concluded providing payroll services is a permissible 
operational program. OGC Op. 05-1204 (February 15, 2006) (available on 
the NCUA Web site at ncua.gov).

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a proposed rule may have on 
a substantial number of small credit unions (those under $10 million in 
assets). This proposed rule adds to the language of preexisting 
permissible activities for FCUs. The proposed rule, therefore, will not 
have a significant economic impact on a substantial number of small 
credit unions and a regulatory flexibility analysis is not required.

Paperwork Reduction Act

    NCUA has determined that the proposed amendments will not increase 
paperwork requirements and a paperwork reduction analysis is not 
required.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. The proposed rule would not have substantial 
direct effects on the states, on the connection between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. NCUA has 
determined that this proposed rule does not constitute a policy that 
has federalism implications for purposes of the executive order.

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

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

List of Subjects in 12 CFR Part 721

    Credit unions, Functions, Implied powers, and Insurance.

    By the National Credit Union Administration Board on May 22, 
2008.
Mary Rupp,
Secretary of the Board.

    For the reasons stated in the preamble, the National Credit Union 
Administration proposes to amend 12 CFR part 721 as set forth below:

PART 721--INCIDENTAL POWERS

    1. The authority citation for part 721 continues to read as 
follows:

    Authority: 12 U.S.C. 1757(17), 1766 and 1789.

    2. Amend Sec.  721.3 as follows:
    a. Amend the first sentence in paragraph (b) by adding the phrase 
``including foreign credit unions'' after the words ``other credit 
unions''.
    b. Revise paragraph (f) to read as set forth below.
    c. Amend the second sentence in paragraph (j) by adding ``payroll 
services'' after the phrase ``payroll deduction,''.


Sec.  721.3  What categories of activities are preapproved as 
incidental powers necessary or requisite to carry on a credit union's 
business?

* * * * *
    (f) Finder activities. Finder activities are activities in which 
you introduce or otherwise bring together outside vendors with your 
members so that the two parties may negotiate and consummate 
transactions and include vendors of non-financial products, vendors 
that are other financial institutions, and vendors of financial 
products such as insurance and securities. Finder activities may 
include endorsing a product or service, negotiating group discounts on 
behalf of your members, offering third party products and services to 
members through the sale of advertising space on your Web site, account 
statements and receipts, and selling statistical or consumer financial 
information to outside vendors to facilitate the sale of their products 
to your members. You may perform administrative functions on behalf of 
vendors to facilitate transactions between your members and another 
institution.
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 [FR Doc. E8-11927 Filed 5-28-08; 8:45 am]
BILLING CODE 7535-01-P