[Federal Register Volume 73, Number 205 (Wednesday, October 22, 2008)]
[Rules and Regulations]
[Pages 62854-62856]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-25128]



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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 721

RIN 3133-AD12


Incidental Powers

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: NCUA is amending 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: This rule is effective November 21, 2008.

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

SUPPLEMENTARY INFORMATION:

A. Background

    In May, the NCUA Board issued a proposed rule to update and clarify 
Part 721 of NCUA's regulations. 73 FR 30818 (May 29, 2008). The 
proposed rule recommended adding illustrations of permissible 
activities under the categories of correspondent services, operational 
programs, and finder activities.

B. Discussion

    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. The 
proposed rule was 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 were intended to update and clarify the 
regulation.

C. Summary of Changes

    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 from NCUA's 
Office of General Counsel (OGC) have recognized; and 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. This final rule adds illustrations of permissible 
activities to the categories of correspondent services, operational 
programs, and finder activities. Under the category of correspondent 
services, this final rule recognizes FCUs may provide correspondent 
services to foreign as well as federal or state-chartered credit 
unions. This final rule also clarifies the category of finder 
activities includes an FCU's negotiation of group discounts and the 
performance of administrative functions for outside vendors. Finally, 
this final rule adds payroll services to the operational programs 
category. The regulatory text in this final rule is the same as the 
regulatory text in the proposed rule.

D. Summary of Comments

    The NCUA Board received seven comment letters regarding the 
proposal: Three from credit union trade associations; two from state 
credit union leagues; and two from FCUs. All of the comment letters 
generally supported the amendments in the proposed rule.
    On September 10, 2008, NCUA received notice that two comment 
letters submitted via the Federal eRulemaking Portal regarding this 
rulemaking had not been forwarded to NCUA. This was due to a minor 
software problem that has been corrected.\1\ The comment period for 
this rule closed on July 28, 2008. As noted above, all seven comment 
letters NCUA received supported the amendments and the Board believes, 
given the identity of these commenters, which includes major credit 
union trade associations, state leagues, and individual credit unions, 
that these comment letters broadly and fairly represent the views of 
interested parties. The only suggested changes involved suggestions to 
expand provisions in the rule beyond the proposed rule.
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    \1\ The interagency ``eRulemaking Program'' launched the Web 
site http://www.regulations.gov in January 2003 to provide access 
and an opportunity to comment on all proposed federal regulations at 
one online portal. NCUA's understanding is that the software problem 
has been corrected and safeguards are now in place to ensure this 
error will not occur for future proposed rules. Questions about this 
matter may be directed to John Moses, Chief, eRulemaking Program 
Branch, Environmental Program Agency, 1200 Pennsylvania Ave., NW., 
Washington, DC 20460, 202/566-1352, [email protected].
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    The Board believes it is appropriate and fair in these 
circumstances to proceed with the final rule rather than delay 
implementation. This rule creates no burden for FCUs but merely 
incorporates as illustrations in the rule certain activities already 
recognized as permissible in legal opinions from NCUA's OGC. Moreover, 
the rule, itself, permits ongoing requests to the NCUA and OGC for 
consideration of whether an activity is permissible as an incidental 
powers activity. 12 CFR 721.4. NCUA's OGC may recognize an activity as 
permissible through an interpretive legal opinion without necessitating 
a rule change. For these reasons, the Board concludes there is no need 
to reopen the comment period and the interest of the public and FCUs is 
served by proceeding with the final rule. Commenters are free to submit 
requests for legal interpretation to OGC or follow the petition process 
provided in the rule. Id.
    Three commenters, however, suggested additional changes to Part 
721, including some comments suggesting NCUA permit FCUs to offer 
particular services to nonmembers. As discussed below, the suggested 
changes are either outside the scope of this rule, prohibited by 
statute, or addressed in another section of NCUA's regulations. The 
Board notes the incidental powers rule addresses only those activities 
and services an FCU can offer to its members and this authority is 
generally not a basis for FCUs to provide services to nonmembers.
    One commenter suggested including, as an incidental power, the 
ability to sell or lease ``excess capacity'' that the credit union does 
not anticipate ever using. Alternatively, this commenter suggested 
extending the time period for an FCU to implement an expansion policy. 
The Federal Credit Union Act (the Act) authorizes FCUs to ``purchase, 
hold, and dispose of property necessary or incidental to its 
operations.'' 12 U.S.C. 1757(4). The Act does not otherwise authorize 
FCUs to purchase or hold property. The current incidental powers rule 
recognizes the authority to sell ``excess capacity.'' Given that an FCU 
is generally only authorized to purchase and hold property for ``its 
operations,'' the excess capacity authority granted in the rule 
requires an FCU to make investments in facilities, equipment, or 
services in good faith with the intent of serving its members and the 
expectation the ``excess capacity'' will be taken up by future 
expansion of services to members. 12 CFR 721.3(d). The suggested 
change, therefore, would expand the powers of FCUs beyond the statutory 
authority

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granted by the Act. With regard to expanding the time frame for taking 
up ``excess capacity of fixed assets,'' the fixed asset regulation, and 
not Part 721, specifically addresses the time frames for the future use 
of fixed assets. 12 CFR 701.36. The commenter's suggestion is outside 
the scope of this rule. The Board notes the fixed asset rule is among 
the first third of NCUA's regulations scheduled for review in 2009 and 
public comments for potential rulemaking concerning that rule are 
welcome.
    This commenter also suggested NCUA should permit FCUs to engage in 
three additional activities under the incidental powers regulation. 
First, the commenter suggested NCUA allow FCUs to buy and sell loan 
portfolios of other credit unions as investments. Part 703 of NCUA's 
regulations addresses the permissible investments an FCU can hold. 12 
CFR Part 703. The commenter's suggestion is outside the scope of the 
proposed rule. Like the fixed asset regulation, NCUA's investment rule 
is among the first third of NCUA's regulations scheduled for review in 
2009, and the public is welcome to submit comments. The Board also 
notes the sale and purchase of loans among credit unions is generally 
permissible, subject to other provisions in NCUA's regulations. 12 CFR 
701.22, 701.23, 741.8, 742.4.
    Second, the commenter suggested NCUA permit FCUs to establish 
Interest on Lawyers Trust Accounts (IOLTAs). In brief, an IOLTA is an 
interest bearing account set up by attorneys to hold client funds. The 
interest, which lawyers cannot keep for themselves because the funds 
belong to their clients, can be donated to charities. The issue for 
credit unions regarding IOLTAs is that the Nation Credit Union Share 
Insurance Fund generally only provides insurance to the beneficial 
owners of an account, and they must be members. Under NCUA's insurance 
rules, all the clients whose funds are in the IOLTA would have to be 
members of the credit union where the account is established for the 
client funds in the IOLTA to be fully insured. NCUA's position on 
insurance coverage of IOLTAs currently remains as set out in an opinion 
from the OGC, OGC Op. 96-0841 (September 17, 1996), and is available on 
the agency Web site at http://www.ncua.gov.
    Finally, the commenter suggested NCUA allow FCUs to sell gift cards 
and travelers checks to nonmembers. Generally, FCUs may only provide 
financial products and services to members, and the incidental powers 
rule only addresses activities and services for members. In 2006, NCUA 
adopted a new regulation authorizing FCUs to provide certain services 
to nonmembers within the field of membership, which implemented 
authority the Financial Services Reform Act granted. 12 CFR 701.30. The 
Board notes Sec.  701.30(a) specifically authorizes an FCU to sell 
travelers checks to nonmembers who are within its field of membership; 
the rule does not, however, specifically address gift cards. 
Consideration of whether gift cards or other stored value products 
would be permissible under Sec.  701.30 is outside the scope of this 
rulemaking on incidental powers activities.
    Another commenter suggested NCUA include four additional activities 
in the incidental powers regulation. First, the commenter suggested 
NCUA should permit FCUs to engage in activities authorized as 
incidental for state credit unions in the state or states in which they 
operate. Many states currently have parity provisions in state laws 
permitting a state-chartered credit union to engage in any activity 
permissible for an FCU. The Act does not have a similar provision 
allowing FCUs to engage in incidental powers authorized by the states 
in which the operate, and the Board cannot grant by regulation broader 
authority than that provided in the Act.
    Second, the commenter suggested NCUA allow FCUs to manage 
repossessed properties for other credit unions. FCUs can hold 
repossessed assets only temporarily and NCUA restricts FCUs from 
holding these types of assets permanently in an income-producing 
manner. NCUA Accounting Manual Sec.  300. An FCU, however, could manage 
repossessed property for another credit union if it has excess capacity 
in this area of its operations, subject to the ``good faith'' limits of 
the rule. 12 CFR 21.3(d).
    Third, the commenter suggested NCUA should permit FCUs to accept 
pre-paid funeral home accounts. Generally, a pre-paid funeral home 
account involves a funeral director receiving pre-payment of funds for 
services and establishing a type of trust account at a financial 
institution to hold the funds. Subject to membership limitations, FCUs 
can accept funds for pre-paid funeral accounts. This subject is 
addressed in a legal opinion from the OGC, OGC Op. 01-0120 (March 29, 
2001), and is available on the agency Web site at www.ncua.gov. Briefly 
summarized, if the trust account is a revocable trust where the 
consumer can get a refund of payments, then, like the comment on IOLTAs 
discussed above, account insurance coverage depends on whether the 
beneficial owner of the funds in the account is a member.
    Finally, the commenter suggested NCUA permit a foreign currency 
investment pilot program. Investments are generally addressed in Part 
703 of NCUA's regulations. The Board notes it considered a pilot 
program in 2007 similar to the one suggested by the commenter; however, 
a lack of support led to its withdrawal. 72 FR 41956 (Aug. 1, 2007) 
(advance notice of proposed rulemaking titled, ``Permissible Foreign 
Currency Investments for Federal Credit Unions and Corporate Credit 
Unions''); withdrawn Spring 2008 Semiannual Regulatory Agenda.
    Two commenters also urged NCUA to expand the test used to determine 
if an activity is within an FCU's incidental powers. One commenter 
contended the Office of the Comptroller of the Currency (OCC) has a 
broader test for determining what activities are incidental and 
suggested NCUA mirror that test. The test NCUA uses is derived from the 
statutory authority in the Act that permits FCUs to engage in 
activities that are ``necessary or requisite to enable it [FCUs] to 
carry on effectively the business for which it is incorporated.'' 12 
U.S.C. 1757(17). The OCC evaluates incidental activities under 
substantially identical statutory authority, which states banks can 
carry out activities that are necessary to carry on the business of 
banking. 12 U.S.C. 24(Seventh). In addition, OCC's current regulations 
contain a test substantially similar to NCUA's. For example, OCC's 
regulation states ``a national bank may conduct * * * activities that 
are permissible for a national bank to engage in directly either as 
part of, or incidental to, the business of banking as determined by the 
OCC, or otherwise under statutory authority.'' 12 CFR Sec.  5.34(e)(1). 
Also, OCC's guidance on permissible activities for banks tracks its 
aforementioned regulation and shows no significant departure from the 
statutory authority or the test NCUA currently uses. Office of the 
Comptroller of the Currency, ``Activities Permissible for a National 
Bank 2007'' (June 2008 ed.).

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,

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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 October 16, 
2008.
Mary Rupp,
Secretary of the Board.

0
For the reasons stated in the preamble, the National Credit Union 
Administration is amending 12 CFR part 721 as set forth below:

PART 721--INCIDENTAL POWERS

0
1. The authority citation for part 721 continues to read as follows:

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


0
2. Amend Sec.  721.3 as follows:
0
a. Amend the first sentence in paragraph (b) by adding the phrase 
``including foreign credit unions'' after the words ``other credit 
unions.''
0
b. Revise paragraph (f) to read as set forth below:
0
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.
* * * * *
[FR Doc. E8-25128 Filed 10-21-08; 8:45 am]
BILLING CODE 7535-01-P