[Federal Register Volume 73, Number 249 (Monday, December 29, 2008)]
[Rules and Regulations]
[Pages 79307-79313]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-30602]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 712 and 741

RIN 3133--AD20


Credit Union Service Organizations

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: NCUA is issuing a final rule amending its credit union service 
organization (CUSO) regulation. The amendment adds two new categories 
of permissible CUSO activities: Credit card loan origination and 
payroll processing services. The amendment also adds new examples of 
permissible CUSO activities within existing categories and expands the 
permissible scope of certain services to include persons eligible for 
credit union membership. The amendment imposes new regulatory limits on 
the ability of credit unions to recapitalize their CUSOs in certain 
circumstances. Although the CUSO rule generally only applies to federal 
credit unions (FCUs), the amendment revises and extends to all 
federally insured credit unions the provisions ensuring that credit 
union regulators have access to books and records and that CUSOs are 
operated as separate legal entities; however, the rule also contains a 
procedure through which state regulators may seek an exemption from the 
access to records provisions for credit unions in their state. The 
amendment clarifies that CUSOs may buy and sell participations in loans 
they are authorized to originate. Finally, the amendment deletes as 
unnecessary the section in the current rule concerning amendment 
requests. These amendments clarify the rule, enhance CUSO operations, 
and address safety and soundness concerns.

DATES: This rule will become effective on January 28, 2009.

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

SUPPLEMENTARY INFORMATION: 

A. Background

    FCUs have the authority to lend up to 1% of their paid-in and 
unimpaired capital and surplus and to invest an equivalent amount in 
credit union organizations. 12 U.S.C.1757(5)(D), (7)(I). NCUA regulates 
this FCU lending and investing authority in the CUSO rule. 12 CFR Part 
712. The CUSO rule permits an FCU to invest in or lend to a CUSO only 
if the CUSO primarily

[[Page 79308]]

serves credit unions, its membership, or the membership of credit 
unions contracting with the CUSO. 12 CFR 712.3(b).
    NCUA's policy is to review its 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 amendment is, in part, a result of NCUA's 2007 review under 
IRPS 87-2, which covered the middle third of the regulations, including 
part 712. The amendment is intended to update and clarify the 
regulation.

B. Proposed Rule

    On April 17, 2008, the NCUA Board issued a proposed rule to amend 
Part 712. 73 FR 23982 (May 1, 2008). The proposal described each of the 
changes covered in this final rule, including a discussion of the 
reason for each change, and an invitation for public comment. NCUA also 
solicited comment on whether to change the rule to allow for a majority 
owner of a CUSO to conduct a consolidated opinion audit, although the 
Board was not proposing that change. The public comment period closed 
on June 30, 2008. NCUA received comments regarding the proposed changes 
from five credit unions, six national trade associations, eight state 
credit union trade associations, one law firm and four CUSOs, for a 
total of twenty-four comments. Of these, three commenters also 
addressed the consolidated opinion audit question.

Summary of Comments

    A. General. Many commenters supported most aspects of the proposal, 
generally agreeing in principle with the approach of expanding CUSO 
authority and providing clarification through the addition of examples 
under approved categories, including the ability to buy and sell 
participations in loans they are authorized to make. Several commenters 
urged NCUA to expand authority by authorizing CUSOs to engage in any 
activity permissible for FCUs. Eight commenters specifically requested 
NCUA authorize CUSOs to make car loans, including direct lending and 
the purchase of retail installment sales contracts from vehicle 
dealerships, noting advantages that would flow to credit unions from 
the ability to consolidate and leverage in this business. Another 
commenter suggested NCUA authorize CUSOs to engage in payday lending as 
well.
    The Board has elected not to expand CUSO lending authority beyond 
that which was proposed. A primary rationale for allowing CUSOs to 
engage in loan origination is, in some cases, such as business, student 
and real estate lending, a level of expertise that may not be 
attainable by individual credit unions is necessary for a successful 
loan program. While the Board is convinced successful administration of 
a credit card program requires this type of specialization and 
expertise, the same is not true in the case of vehicle lending, which 
most credit unions are able to manage successfully at the individual 
credit union level. In response to the comments suggesting CUSOs should 
be permitted to engage in any activity permissible for FCUs, the Board 
notes the statutory authority for FCU activities is separate from the 
authority granted to FCUs to lend to and invest in CUSOs, which 
provides CUSOs are ``primarily to serve the needs of member credit 
unions'' and provide ``services which are associated with the routine 
operations of credit unions.'' 12 U.S.C. 1757(5)(D), 1757(7)(I).
    Some commenters questioned the wisdom and the authority of allowing 
CUSOs to expand into new areas. These commenters pointed out that NCUA 
lacks direct supervisory authority over CUSOs and other third party 
service providers and so suggested that expansions would lead to safety 
and soundness concerns. Two of these commenters also criticized what 
they characterized as continued erosion of the distinction between 
services that CUSOs may provide for credit unions and services that may 
be provided to credit union members and others. One commenter suggested 
the credit union charter is in danger of simply becoming a shell, 
permitting the ownership of businesses that are allowed to engage in 
virtually any pursuit available to the credit union.
    B. Specific Comments and NCUA response. Upon consideration of the 
public comments, the NCUA Board has made some changes in the final 
rule. The specific comments and NCUA's responses are discussed in the 
following section-by-section analysis.
    Expansion of certain services to persons within the field of 
membership. Several commenters supported the proposal to expand the 
range of individuals for whom CUSOs may provide certain types of 
services. Supporters noted their agreement with the logic in the 
proposal that the enactment of the Financial Services Regulatory Relief 
Act of 2006 (FSRRA; Pub. L. 109-351, sections 502-503; 120 Stat. 1966 
(2006)), authorizing credit unions to provide certain services to 
individuals within their field of membership even though the 
individuals were not members, supports a parallel argument broadening 
the scope for CUSOs offering comparable services if primarily limited 
to the same population. A few suggested the categories of service be 
more closely correlated to the specific services authorized by FSRRA; 
one suggested the proposal be broadened, in view of the open-ended 
nature of the statutory term ``money transfer instrument'' as used in 
FSRRA.
    Some commenters opposed the expansion, asserting that FSRRA makes 
no mention of CUSOs and, thus, the proposed expansion is unauthorized. 
One commenter, representing the banking industry, also challenged the 
basic premise underlying all CUSO services provided to natural persons, 
whether a credit union member or not. The commenter argued that the 
original intent of Congress in amending the FCU Act to allow FCUs to 
invest in or lend to CUSOs was that CUSOs would only provide services 
to credit unions, not to their members. The commenter also specifically 
criticized NCUA's reluctance to define what the term ``primarily 
serves'' means and noted that, in this context in particular, the 
potential for a significant expansion of CUSO services is present.
    The Board has considered these arguments but has determined to 
proceed with the concept of creating an expanded scope of individuals 
who are eligible to receive certain CUSO services. With respect to the 
``original intent'' argument, the Board notes that the FCU Act contains 
no restriction on FCUs making loans to or investing in a CUSO that 
provides services to natural persons as opposed to credit unions. An 
FCU may make a loan to a CUSO ``established primarily to serve the 
needs of its member credit unions, and whose business relates to the 
daily operations of credit unions.'' 12 U.S.C. 1757(5)(D). An FCU may 
invest in a CUSO ``providing services which are associated with the 
routine operation of credit unions.'' 12 U.S.C. 1757(7)(I). The 
legislative history cited by the commenter in support of its view 
relates only to the authority of FCUs to make loans to CUSOs. It has no 
bearing on the investment authority. Moreover, the referenced 
legislative history contains a listing of the types of services the 
committee members envisioned a CUSO would provide, and while most of 
the services listed are services typically provided to credit unions, 
the listing

[[Page 79309]]

also includes ``non-profit debt counseling services.'' H.R. Rep. No. 
95-23, at 11 (1977), reprinted in 1977 U.S.C.C.A.N. 105, 115. Thus, the 
original listing of services includes a service that would only be 
provided to individuals. This service has been an approved CUSO 
category since the original CUSO rule was promulgated in 1979. Since 
that time, the rule has evolved and now includes numerous services that 
are intended to be provided to individuals.
    With respect to the expansion of the scope argument, the Board 
notes the intention of FSRRA is to encourage FCUs to reach out to 
individuals in the community who have no formal relationship with a 
depository institution but who are in need of certain basic financial 
services, such as check cashing and wire transfer services. With the 
enactment of FSRRA, FCUs can offer these services to individuals 
regardless of their membership status, so long as they are within the 
FCU's field of membership. A CUSO's authority has always been 
derivative; since FSRRA has expanded the scope of services that FCUs 
may provide, the Board believes a parallel expansion for CUSOs is 
appropriate and supportable.
    The Board has, however, re-evaluated the approach taken in the 
proposed rule and has determined to clarify and narrow the scope of 
this provision. The proposed rule simply noted that services covered in 
FSRRA ``correspond'' to the checking and currency services and the 
electronic transaction services categories in the CUSO rule. 73 FR 
23982-83. The Board now believes that some, but not all, of the 
services described in these two categories correlate with the scope of 
FSRRA. The Board has determined some of the examples listed under these 
two categories in the CUSO rules, such as data processing, electronic 
income tax filing, and ATM services are not within the scope of 
services contemplated by the authority FSRRA granted to FCUs and that 
is the basis for the expansion for CUSOs. Moreover, the categories in 
the CUSO rule are not designed as defining limits, but rather are set 
out, with illustrative examples, to outline the types of services 
permissible for CUSOs. Therefore, the final rule clarifies the services 
CUSOs may provide to individuals who are not credit union members but 
simply within the field of membership by expressly referencing the 
regulation applicable to FCUs. Accordingly, the final CUSO rule cross-
references Sec.  701.30, which implements the FSRRA authority for FCUs, 
and indicates FCUs with a loan or an investment with a CUSO engaged in 
providing any of these particular services will be considered compliant 
with our rule to the extent the CUSO provides them primarily to persons 
within the FCU's field of membership.
    Credit card loan origination. The majority of commenters supported 
this amendment, noting agreement with the advantages described in the 
preamble to the proposed rule, such as improved efficiencies and 
creation of an industry-based alternative for credit unions seeking to 
sell their portfolios. Other commenters, however, questioned the wisdom 
of this expansion, suggesting that NCUA lacked sufficient oversight 
authority for CUSOs and that the proposal would result in increased 
safety and soundness risks. The NCUA Board disagrees with the 
commenters who oppose this expanded authority for FCUs and, for the 
reasons stated in the preamble to the proposed rule, adopts the 
proposed amendment without change.
    The Board notes, in this respect, concerns some commenters 
identified about an FCU's ability to acquire a participation interest 
in a portfolio consisting of credit card loans. In the preamble to the 
proposed rule, the Board observed that, given the revolving, open-end 
nature of credit cards, NCUA's loan participation rule would not 
support a sale to an FCU of a participation interest in a credit card 
portfolio. NCUA's loan participation rule contemplates an acquisition 
of a specific portion of a discrete loan or schedule of loans. 12 CFR 
701.22. By its nature, a credit card portfolio consists of many 
individual, dynamic, credit relationships: typically, new card holders 
enter the pool underlying the portfolio, and credit limits for existing 
card holders in the pool may change. Under the loan participation rule, 
either event would require modifications to the original schedule of 
loans as well as approval from the credit union's board or investment 
committee. 12 CFR 701.22(d)(3), (4). Of equivalent concern, credit 
cards by their nature have no discrete maturity date. It is unclear how 
a participant, once having made its purchase, would know when its 
interest has matured and may be recouped. Without tracking specific 
payments received on specific accounts in the portfolio, a 
participant's interest appears to be more closely aligned with the 
overall performance of the portfolio than with any discrete segment of 
it. In this respect, it resembles an investment rather than a 
participation.
    Extending examination and corporate separateness requirements to 
federally insured, state chartered credit unions (FISCUs). Several 
commenters opposed this aspect of the proposal. Some characterized it 
as unnecessary, while others objected to the increased compliance 
burden on credit unions. A few questioned whether NCUA has the 
authority to impose this requirement; one added that NCUA lacked 
expertise to conduct this type of review. The commenter representing 
state credit union regulators suggested NCUA should continue to rely 
primarily on cooperation with state regulators and should specifically 
exempt credit unions from compliance in states in which the regulatory 
structure is adequate. The commenter opposed an across the board 
application of the rule, noting that it could simply add another layer 
of regulation without an improvement in regulatory oversight. This 
commenter recognized the validity of NCUA's insistence on corporate 
separateness for all federally insured credit unions but asked that 
NCUA specifically set out the regulatory requirement in part 741, 
rather than incorporate the provisions by reference.\1\ This commenter 
also advocated creation of thresholds for application of the rule, with 
certain types of business exempt from compliance and suggested the 
proposal not apply where a credit union simply has a loan to the CUSO 
or a de minimis investment.
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    \1\ Part 741, which sets out requirements for federal share 
insurance, is divided into two subparts: the first subpart has 
requirements on insurance applicable to both FCUs and state 
chartered credit unions not addressed elsewhere in the regulations. 
The second subpart part identifies and incorporates by reference 
provisions in other parts of the regulations, which apply to FCUs, 
that also apply, in whole or in part, to FISCUs.
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    In view of these comments, the Board has determined to adopt and 
incorporate into the rule a procedure whereby a state credit union 
regulator can request an exemption for FISCUs in that state from 
compliance with Sec.  712.3(d)(3), based on a showing to the 
appropriate NCUA regional director of three things: first, current 
state law provides the regulator with full rights of access to relevant 
books and records of the CUSO; second, the regulator is willing and 
able to provide NCUA with equal access; and, third, access must be 
available to NCUA on its own timetable. The final version of Sec.  
712.10 incorporates these concepts. The procedure outlined here is 
similar to that which applies in the member business loan context and 
enables a state regulator to initiate a request for an exemption which, 
if approved by the NCUA Board, would exempt FISCUs chartered in that 
state from compliance

[[Page 79310]]

with this requirement of the CUSO rule. See 12 CFR 723.20.
    The Board has not adopted the other recommended restrictions the 
commenters advocated. The Board is not persuaded as to the merit of 
these other elements. Risk to the credit union derives from the 
transactions in which the CUSO is engaged, not the extent or character 
of the credit union's interest in it. While some lines of business for 
CUSOs are less risky than others, any CUSO engaged in a business 
affecting member money, member transactions, or member personal 
information presents a potential risk. Where a CUSO is engaged in a low 
volume, low risk venture, NCUA is unlikely to have a reason to insist 
on access to its books and records. Since it is the access, rather than 
the requirement of having an agreement with the CUSO, that presents the 
burden to institutions, the Board believes an exception based on line 
of business is likewise not warranted.
    Reciprocity. The Board has retained the proposed change in Sec.  
712.3(d)(3), as discussed in the preamble to the proposed rule, to 
require an FCU's agreement with its CUSO to permit access not only to 
NCUA but also to any state regulator having supervisory responsibility 
over any FISCU that has a loan, an investment, or a contractual 
agreement for products or services with the CUSO. This requirement 
assures a regulator with responsibility for a credit union can review 
and evaluate the risk to which its institutions may be exposed. Even 
though NCUA enjoys a cooperative relationship with state credit union 
regulators and typically shares relevant information with them, the 
Board recognizes there may be circumstances in which access to books 
and records is useful or necessary for the state regulator. At the same 
time, the Board does not anticipate that extending the rule in this way 
will result in an inordinate number of requests for access by state 
regulators to CUSO books and records.
    Transition Period for Compliance. The Board has also retained in 
the final rule the provisions in the proposal providing FISCUs with 
time to develop and enter agreements with their CUSOs and to obtain 
legal opinions addressing corporate separateness issues. Similarly, the 
final rule provides a transition period for FCUs with loans to or 
investments in CUSOs to make changes in the agreements they currently 
have with their CUSOs. As discussed in the proposal, the compliance 
date the rule establishes for each of these changes is not earlier than 
six months following the date of publication of the final rule in the 
Federal Register.
    Prior approval for certain CUSO recapitalizations. Several 
commenters opposed this aspect of the proposal. Some suggested notice 
to NCUA, rather than prior approval, should be sufficient; one national 
trade association suggested changing the threshold below which approval 
is necessary to credit unions with a net worth of less than four 
percent. Notwithstanding these comments, for the safety and soundness 
reasons discussed in the preamble to the proposed rule, the Board has 
determined to retain this provision and adopts the amendment as 
proposed.
    Elimination of specific amendment procedures in part 712. Half the 
commenters opposed eliminating the specific amendment procedures in 
Sec.  712.7. Most indicated they prefer the unique procedure in the 
rule, even though a generic amendment procedure is available in part 
791. Commenters noted they did not want to have to rely on the three-
year rolling regulatory review underlying the generic amendment process 
and, also, that changes in the financial sector can occur rapidly and, 
therefore, the sixty-day time limits in the CUSO rule are preferable. 
One commenter suggested NCUA keep the unique amendment provisions but 
extend the applicable time limits if necessary.
    Notwithstanding these comments, the Board has determined to 
eliminate the amendment provisions from part 712, as discussed in the 
preamble to the proposed rule. The Board notes, in this respect, that 
the generic amendment provisions in part 791 are not tied to the three-
year cycle NCUA follows in reviewing its regulations. Members of the 
public may request an amendment to any rule, at any time, under the 
procedures in part 791. If circumstances warrant, NCUA is able to move 
quickly and can, if necessary, issue an interim final rule effective 
within a short time frame. 5 U.S.C. 553(b)(B). Accordingly, the 
separate amendment provisions in Sec.  712.7 are redundant and 
unnecessary.
    Payroll services. A substantial number of commenters supported this 
expansion. Banking industry commenters noted opposition, however, 
suggesting the change would serve to further erode what they see as the 
credit union's principal mission of serving individual consumers, 
especially those of modest means. The Board notes FCUs have provided 
services and support to their members who are entrepreneurs and small 
business owners for many years and enabling CUSOs to provide this 
service to those members is a logical, efficient expansion of CUSO 
authority. Accordingly, the Board is adopting this amendment as 
proposed.
    Additional Examples of Permissible Activities Within Approved 
Categories. The proposed rule outlined several new examples of 
permissible CUSO activities related to the routine daily operation of 
credit unions, including real estate settlement services, employee 
leasing and support, purchase of non-performing loans, business 
counseling and related services for credit union business members, and 
referral and processing of loan applications for members turned down by 
the credit union. The Board has determined to include each of these 
examples in the final rule.
    The Board has received requests during the comment period for this 
rulemaking and previously to consider permitting CUSOs to provide 
stored value products, such as gift cards, pre-paid credit cards, 
postage stamps, transportation tokens, and so forth, to credit union 
members. Although not included specifically in the proposed rule, the 
Board concludes that stored value products should be added as an 
illustration under Sec.  712.5(a), Checking and currency services. 
Section 712.5(a) is amended to add a new example titled ``stored value 
products.'' The Board intends stored value products in part 712 to have 
the same meaning as provided in the incidental powers rule for FCUs. 12 
CFR 721.3(k). Currently, CUSOs provide check cashing, currency 
services, and sale of money orders under Sec.  712.5(a)(1), (2), and 
(3). The Board believes permitting persons to convert their funds into 
stored value products may, in many instances, provide a safer and more 
convenient transaction. Like many of the CUSO services, the Board also 
believes selling stored value products, such as gift cards, pre-paid 
credit cards, postage stamps, transportation tokens, and similar media, 
is not an economical endeavor for individual credit unions yet is one 
that credit unions would like to make available. Therefore, this 
additional example is added in the final rule.
    Loan Participations. For the reasons outlined in the proposed rule, 
the Board has also determined to include in the final rule the 
clarifying amendment specifying that CUSOs are authorized to buy and 
sell participations in loans they are authorized to make.
    Other aspects. Two commenters expressed support for allowing a 
credit union with a majority ownership interest in a CUSO to obtain a 
consolidated opinion audit. Another commenter, noting the expense of 
procuring an opinion audit can be significant, suggested the rule be 
revised by incorporating a de minimis threshold. The commenter 
suggested the

[[Page 79311]]

rule should provide that a non-opinion audit be given to investors with 
less than a controlling interest (the commenter suggested less than 20% 
ownership as the measure) but at least $50,000 and a separate opinion 
audit only be required where the interest is at least $200,000.
    The Board has determined not to adopt this modification for the 
following reasons. A financial statement audit provides the advantage 
of an independent, qualified and licensed third party attesting to the 
fair presentation of the CUSO's financial statements in accordance with 
generally accepted accounting principles as of a given date. A third 
party relies on this opinion in conducting its due diligence 
surrounding an investment decision. A non-opinion audit by either a 
licensed or unlicensed person does not provide that opinion the Board 
is seeking to guide credit union investment decisions.
    CUSOs that must consolidate their financial statements with a 
parent credit union owner already receive a consolidated financial 
statement audit. Expanding the scope of that engagement to include a 
separate, CUSO-only financial statement audit does not double the cost. 
CUSOs that are not required to consolidate their financial statements 
with a parent credit union already must obtain a separate financial 
statement audit, so the current rule does not impose substantial, 
additional burden on CUSOs.
    Finally, the Board notes that the numbering and placement of new or 
updated authorities in Sec.  712.5 are different than were proposed. 
The final rule maintains the numbering and placement in the current 
rule by adding the two new subsections at the end of the existing rule, 
rather than in the middle. This should eliminate confusion where 
interested parties make reference to particular provisions in the 
future. The Board believes these changes are consistent with its 
ongoing efforts to reduce regulatory burden while assuring that credit 
unions operate in a safe and sound manner.

Regulatory Procedures

Regulatory Flexibility Act

    As noted in the proposed rule, the Regulatory Flexibility Act (RFA) 
requires NCUA to prepare an analysis to describe any significant 
economic impact any proposed regulation may have on a substantial 
number of small entities. NCUA considers credit unions having less than 
ten million dollars in assets to be small for purposes of RFA. 
Interpretive Ruling and Policy Statement (IRPS) 87-2 as amended by IRPS 
03-2. The proposed changes to the CUSO rule impose minimal compliance 
obligations by requiring credit unions to comply with certain one-time 
regulatory requirements concerning agreements with CUSOs and 
maintenance of separate corporate identities. Of the 3,599 credit 
unions (FCUs and FISCUs) with assets of less than ten million dollars 
that filed a form 5300 call report with NCUA as of December 31, 2007, 
only 195 reported any interest in a CUSO. Since approximately only 5.5% 
of credit unions meeting the small credit union definition reported 
having any interest in CUSOs of any type, NCUA has determined and 
certifies that the final rule will not have a significant economic 
impact on a substantial number of small credit unions. Accordingly, the 
NCUA has determined that an RFA analysis is not required.

Paperwork Reduction Act

    The final rule contains information collection requirements. As 
required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), 
NCUA submitted a copy of the proposed amendments as part of an 
information collection package to the Office of Management and Budget 
(OMB) for its review and approval of a modification of any existing 
collection of information. On November 25, 2008, the OMB approved the 
modification request and re-assigned the collection Control Number 
3133-0149.

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 major aspects of the rule apply only to 
federally-chartered credit unions. There is some impact on state 
chartered, federally-insured credit unions. By law, these institutions 
are already subject to numerous provisions of NCUA's rules, based on 
the agency's role as the insurer of member share accounts and the 
significant interest NCUA has in the safety and soundness of their 
operations. In developing the proposal and the final rule, NCUA worked 
closely with representatives of the state credit union regulatory 
community. The final rule incorporates a mechanism by which states may 
request an exemption from coverage of the rule for institutions in that 
state, provided certain criteria are met. In any event, the final rule 
will not have substantial direct effects on the states, on the 
relationship between the national government and the states, or on the 
distribution of power and responsibilities among the various levels of 
government. NCUA has determined that this proposal 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

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

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Act of 1996 (Pub. L. 104-
121) provides generally for congressional review of agency rules. A 
reporting requirement is triggered in instances where NCUA issues a 
final rule as defined by section 551 of the Administrative Procedure 
Act. 5 U.S.C. 551. The Office of Management and Budget has determined 
that this rule is not a major rule for purposes of the Small Business 
Regulatory Enforcement Fairness Act of 1996.

List of Subjects

12 CFR Part 712

    Administrative practices and procedure, Credit, Credit unions, 
Investments, Reporting and recordkeeping requirements.

12 CFR Part 741

    Bank deposit insurance, Credit unions, Reporting and recordkeeping 
requirements.

    By the National Credit Union Administration Board on December 
18, 2008.
Mary F. Rupp,
Secretary of the Board.

0
Accordingly, NCUA amends 12 CFR parts 712 and 741 as follows:

Part 712--CREDIT UNION SERVICE ORGANIZATIONS (CUSOs)

0
1. The authority citation for part 712 continues to read as follows:

    Authority: 12 U.S.C. 1756, 1757(5)(D), and (7)(I), 1766, 1782, 
1784, 1785 and 1786.


0
2. Amend Sec.  712.1 by revising the last sentence to read as follows:

[[Page 79312]]

Sec.  712.1  What does this part cover?

* * * Sections 712.3(d)(3) and 712.4 of this part apply to state-
chartered credit unions and their subsidiaries, as provided in Sec.  
741.222 of this chapter.


0
3. Amend Sec.  712.2 by adding a new paragraph (d)(3) to read as 
follows:


Sec.  712.2  How much can an FCU invest in or loan to CUSOs, and what 
parties may participate?

* * * * *
    (d) * * *
    (3) Special rule in the case of less than adequately capitalized 
FCUs. This paragraph (d)(3) applies in the case of either an FCU that 
is currently less than adequately capitalized, as determined under part 
702, or where the making of an investment in a CUSO would render the 
FCU less than adequately capitalized under part 702. Before making an 
investment in a CUSO, the FCU must obtain prior written approval from 
the appropriate NCUA regional office if the making of the investment 
would result in an aggregate cash outlay, measured on a cumulative 
basis (regardless of how the investment is valued for accounting 
purposes) in an amount in excess of one percent of the credit union's 
paid in and unimpaired capital and surplus.
* * * * *


Sec.  712.3  [Amended]

0
4. Amend Sec.  712.3 as follows:
0
a. Amend paragraph (b) by removing the period at the end of the 
sentence and adding the phrase ``; provided, however, that with respect 
to any approved CUSO service, as set out in Sec.  712.5, that also 
meets the description of services set out in Sec.  701.30 of this 
chapter, this requirement is met if the CUSO primarily provides such 
services to persons who are eligible for membership in the FCU or are 
eligible for membership in credit unions contracting with the CUSO.'' 
in its place.
0
b. Revise paragraph (d)(3) to read as follows:


Sec.  712.3  What are the characteristics of and what requirements 
apply to CUSOs?

* * * * *
    (d) * * *
    (3)(i) Provide NCUA, its representatives, and the state credit 
union regulatory authority having jurisdiction over any federally 
insured, state-chartered credit union with an outstanding loan to, 
investment in or contractual agreement for products or services with 
the CUSO with complete access to any books and records of the CUSO and 
the ability to review CUSO internal controls, as deemed necessary by 
NCUA or the state credit union regulatory authority in carrying out 
their respective responsibilities under the Act and the relevant state 
credit union statute.
    (ii) The effective date for compliance with this section is June 
29, 2009.
* * * * *

0
5. Amend Sec.  712.5 as follows:
0
a. Amend paragraph (a)(2) by removing the word ``and'' after the 
semicolon;
0
b. Amend paragraph (a)(3) by adding ``and'' after the semicolon;
0
c. Add a new paragraph (a)(4);
0
d. Amend paragraph (b)(9) by removing the word ``and'' after the 
semicolon;
0
e. Amend paragraph (b)(10) by adding ``and'' after the semicolon;
0
f. Add a new paragraph (b)(11);
0
g. Amend paragraph (c) by removing the semicolon at the end of the 
sentence and replacing it with the phrase: ``, including the authority 
to buy and sell participation interests in such loans;''
0
h. Amend paragraph (d) by removing the semicolon at the end of the 
sentence and replacing it with the phrase: ``, including the authority 
to buy and sell participation interests in such loans;''
0
i. Amend paragraph (f)(5) by removing the word ``and'' after the 
semicolon ;
0
j. Amend paragraph (f)(6) by adding ``and'' after the semicolon;
0
k. Amend paragraph (h)(2) by removing the word ``and'' after the 
semicolon;
0
l. Amend paragraph (h)(3) by adding ``and'' after the semicolon;
0
m. Amend paragraph (j)(2) by removing the word ``and'' after the 
semicolon;
0
n. Amend paragraph (j)(3) by adding ``and'' after the semicolon;
0
o. Add new paragraphs (f)(7), (h)(4), and (j)(4) through (j)(6);
0
p. Amend paragraph (n) by removing the semicolon at the end of the 
sentence and replacing it with the phrase: ``, including the authority 
to buy and sell participation interests in such loans;''
0
o. Add new paragraphs (s) and (t).
    The additions read as follows:


Sec.  712.5  What activities and services are preapproved for CUSOs?

* * * * *
    (a) * * *
    (4) Stored value products.
    (b) * * *
    (11) Employee leasing services
* * * * *
    (f) * * *
    (7) Business counseling and consultant services;
* * * * *
    (h) * * *
    (4) Real estate settlement services;
* * * * *
    (j) * * *
    (4) Real estate settlement services;
    (5) Purchase and servicing of non-performing loans; and
    (6) Referral and processing of loan applications for members whose 
loan applications have been denied by the credit union;
* * * * *
    (s) Credit card loan origination;
    (t) Payroll processing services.


Sec.  712.7  [Removed and Reserved]

0
6. Remove and reserve Sec.  712.7.

0
7. Add a new Sec.  712.10 to read as follows:


Sec.  712.10  How can a state supervisory authority obtain an exemption 
for state chartered credit unions from compliance with Sec.  
712.3(d)(3)?

    (a) The NCUA Board may exempt federally insured credit unions in a 
given state from compliance with Sec.  712.3(d)(3) if the NCUA Board 
determines the laws and procedures available to the supervisory 
authority in that state are sufficient to provide NCUA with the degree 
of access to CUSO books and records it believes is necessary to 
evaluate the safety and soundness of credit unions having business 
relationships with CUSOs owned by credit union(s) chartered in that 
state.
    (b) To obtain the exemption, the state supervisory authority must 
submit a copy of the legal authority pursuant to which it secures 
access to CUSO books and records to NCUA's regional office having 
responsibility for that state, along with all procedural and 
operational documentation supporting and describing the actual 
practices by which it implements and exercises the authority.
    (c) The state supervisory authority must also provide the regional 
director with an assurance that NCUA examiners will be provided with 
co-extensive authority and will be allowed direct access to CUSO books 
and records at such times as NCUA, in its sole discretion, may 
determine necessary or appropriate. For purposes of this section, 
access includes the right to make and retain copies of any CUSO record, 
as to which NCUA will accord the same level of control and 
confidentiality that it uses with respect to all other examination-
related materials it obtains in the course of its duties.
    (d) The regional director will review the applicable authority, 
procedures and assurances and forward the exemption

[[Page 79313]]

request, along with the regional director's recommendation, to the NCUA 
Board for a final determination.
    (e) For purposes of this section, whether an entity is a CUSO shall 
be determined in accordance with the definition set out in Sec.  
741.222 of this chapter.

PART 741--REQUIREMENTS FOR INSURANCE

0
8. The authority citation for part 741 continues to read as follows:

    Authority: 12 U.S.C. 1757, 1766, 1781-1790, and 1790d.


0
9. Add a new Sec.  741.222 to read as follows:


Sec.  741.222.  Credit union service organizations.

    (a) Any credit union that is insured pursuant to Title II of the 
Act must adhere to the requirements in Sec.  712.3(d)(3) and Sec.  
712.4 of this chapter concerning agreements between credit unions and 
their credit union service organizations (CUSOs) and the requirement to 
maintain separate corporate identities. For purposes of this section, a 
CUSO is any entity in which a credit union has an ownership interest or 
to which a credit union has extended a loan and that is engaged 
primarily in providing products or services to credit unions or credit 
union members, or, in the case of checking and currency services, 
including check cashing services, sale of negotiable checks, money 
orders, and electronic transaction services, including international 
and domestic electronic fund transfers, to persons eligible for 
membership in any credit union having a loan, investment or contract 
with the entity.
    (b) This section shall have no preemptive effect with respect to 
the laws or rules of any state providing for access to CUSO books and 
records or CUSO examination by credit union regulatory authorities.
    (c) The effective date for compliance with this section is June 29, 
2009.

[FR Doc. E8-30602 Filed 12-24-08; 8:45 am]
BILLING CODE 7535-01-P