[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