[Federal Register Volume 75, Number 245 (Wednesday, December 22, 2010)]
[Proposed Rules]
[Pages 80367-80370]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-32129]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 745

RIN 3133-AD79


Share Insurance and Appendix

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule with request for comments.

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SUMMARY: Section 343 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act) \1\ provides that, on a temporary 
basis, the NCUA Board shall fully insure the net amount that any member 
or depositor at an insured credit union maintains in a noninterest-
bearing transaction account. Although this insurance coverage is self-
implementing, and therefore already in place, this proposed rule: 
clarifies the definition of the term ``noninterest-bearing transaction 
account;'' provides that this new insurance coverage is separate from, 
and in addition to, other coverage provided in NCUA's share insurance 
rules; and imposes certain notice and disclosure requirements.
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    \1\ Public Law 111-203 (July 21, 2010).

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DATES: Comments must be received on or before February 22, 2011.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web Site: http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the 
instructions for submitting comments.
     E-mail: Address to [email protected]. Include ``[Your 
name] Comments on Proposed Rule 745, Share Insurance and Appendix'' in 
the e-mail subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    Public Inspection: All public comments are available on the 
agency's Web site at http://www.ncua.gov/RegulationsOpinionsLaws/comments as submitted, except as may not be possible for technical 
reasons. Public comments will not be edited to remove any identifying 
or contact information. Paper copies of comments may be inspected in 
NCUA's law library at 1775 Duke Street, Alexandria, Virginia 22314, by 
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, 
call (703) 518-6546 or send an e-mail to [email protected].

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

SUPPLEMENTARY INFORMATION:

I. The Dodd-Frank Act

    Section 343 of the Dodd-Frank Act amends the Federal Credit Union 
Act (FCU Act) to include full share insurance coverage, beyond the 
Standard Maximum Share Insurance Amount (SMSIA),\2\ for the net amount 
held in a noninterest-bearing transaction account by any member or 
depositor at an insured credit union. Throughout this proposal, the 
term ``noninterest-bearing'' should be read as including ``nondividend-
bearing'' to translate the provisions of the Dodd-Frank Act into credit 
union terminology.\3\ Insured credit unions are not required to take 
any action to receive this additional insurance coverage. The 
additional coverage provided by Section 343 of the Dodd-Frank Act is 
temporary through December 31, 2012.
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    \2\ The SMSIA is defined as $250,000. 12 CFR 745.1(e).
    \3\ Federal credit unions cannot offer interest-bearing 
accounts; they can only pay dividends pursuant to the Federal Credit 
Union Act. Some State chartered, Federally insured credit unions may 
offer interest-bearing accounts pursuant to their State credit union 
acts.
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II. The Proposed Rule

Amendments to Share Insurance Rules

    Section 343 of the Dodd-Frank Act amends the share insurance 
provisions of the FCU Act (12 U.S.C. 1787(k)(1)) to provide separate 
insurance coverage for noninterest-bearing transaction accounts. 
Accordingly, as discussed in detail below, NCUA proposes to revise its 
share insurance regulations in 12 CFR Part 745 to include this new 
temporary share insurance account category.

Definition of Noninterest-Bearing Transaction Account

    The proposed rule incorporates the definition of noninterest-
bearing transaction account in section 343 of the Dodd-Frank Act. 
Section 343 defines a noninterest-bearing transaction account as ``an 
account or deposit maintained at an insured credit union with respect 
to which interest is neither accrued nor paid; on which the account 
holder or depositor is permitted to make withdrawals by negotiable or 
transferable instrument, payment orders of withdrawal, telephone or 
other electronic media transfers, or other similar items for the 
purpose of making payments or transfers to third parties or others; and 
on which the insured credit union does not reserve the right to require 
advance notice of an intended withdrawal.'' This definition of 
noninterest-bearing transaction account encompasses only traditional, 
noninterest-bearing demand deposit (checking or share draft) accounts 
that allow for an unlimited number of deposits and withdrawals at any 
time,\4\

[[Page 80368]]

whether held by a business, an individual, or other type of member. It 
does not include negotiable order of withdrawal (NOW) accounts, money-
market accounts (MMA), or Interest on Lawyers Trust Accounts (IOLTA).
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    \4\ The NCUA Board does not believe the general provisions of 
Article III, Section 5(a) of the Federal Credit Union Bylaws, or 
other similar provisions, affect the definition of noninterest-
bearing transaction account or the share insurance coverage of this 
kind of account. Article III, Section 5(a) of the bylaws states that 
with respect to member withdrawals from share accounts, the Federal 
credit union's board of directors has the right, at any time, to 
require members to give up to 60 days written notice of intention to 
withdraw the whole or any part of the amounts paid in by members. 
The NCUA Board considers this a broad, administrative provision that 
does not alter the nature of an account that otherwise satisfies the 
definition of a noninterest-bearing transaction account.
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    Under this proposal, whether an account is considered noninterest-
bearing or nondividend bearing is determined by the terms of the 
account agreement and not by the fact that the dividend rate on an 
account may be zero percent at a particular point in time. For example, 
an insured credit union might offer an account with a dividend rate of 
zero percent except when the balance exceeds a prescribed threshold. 
Similarly, an account that normally bears dividends might have a 
dividend rate of zero for a particular period if the board of directors 
of the insured credit union where the account is maintained determines 
not to, or is prohibited from, declaring a dividend for that period. 
Such an account would not qualify as a noninterest-bearing transaction 
account even when the balance is less than the prescribed threshold or 
no dividend is declared and the dividend rate is zero percent for a 
particular period. Under the proposed rule, such an account would be 
treated as an interest-bearing or dividend-bearing account at all times 
because the account agreement provides for the payment of dividends 
under certain circumstances. However, the waiving of fees on an account 
would not be treated as the earning of dividends. For example, an 
insured credit union can sometimes waive fees or provide fee-reducing 
credits for members with share draft accounts. Under the proposed rule, 
such account features would not prevent an account from qualifying as a 
noninterest-bearing transaction account, as long as the account 
otherwise satisfies the definition of a noninterest-bearing transaction 
account.
    The proposed rule's definition of noninterest-bearing transaction 
account would include official checks issued by insured credit unions, 
such as negotiable cashier's or certified checks. Ownership of such 
instruments and the right to full insurance coverage are determined 
pursuant to Sec.  745.11 of NCUA's share insurance rules regarding 
accounts evidenced by negotiable instruments.
    Funds swept (or transferred) from a share account to either another 
type of share account or a non-deposit account are treated as being in 
the account to which the funds were transferred prior to the time of 
failure. For example, if pursuant to an agreement between an insured 
credit union and its member, funds are swept daily from a noninterest-
bearing transaction account to an account or product that is not a 
noninterest-bearing transaction account, then the funds in the 
resulting account or product would not be eligible for full insurance 
coverage as a noninterest-bearing transaction account. However, the 
proposed rule includes an exception from this treatment of swept funds 
in situations where funds are swept from a noninterest-bearing 
transaction account to a noninterest-bearing savings account, such as 
an MMA. Often referred to as ``reserve sweeps,'' these products could 
entail an arrangement in which a single account is divided into two 
sub-accounts, a transaction account and an MMA. The amount and 
frequency of sweeps are often determined by an algorithm designed to 
minimize required reserves. In some situations, members may be unaware 
that this sweep mechanism is in place. Under the proposed rule, such 
accounts would be considered noninterest-bearing transaction accounts. 
Apart from this exception for reserve sweeps, MMAs and noninterest-
bearing savings accounts do not qualify as noninterest-bearing 
transaction accounts.

Insurance Coverage

    As noted, pursuant to section 343 of the Dodd-Frank Act, all funds 
held in noninterest-bearing transaction accounts are fully insured, 
without limit. As also specifically provided for in section 343 of the 
Dodd-Frank Act, this unlimited coverage is separate from, and in 
addition to, the coverage provided to members with respect to other 
accounts held at an insured credit union. This means that funds held in 
noninterest-bearing transaction accounts will not be counted for 
purposes of determining the amount of share insurance on shares held in 
other accounts, and in other rights and capacities, at the same insured 
credit union. For example, if a member has a $225,000 share certificate 
and a no-dividend share draft account with a balance of $300,000, both 
held in a single ownership capacity, he or she would be fully insured 
for $525,000 (plus dividends accrued on the share certificate), 
assuming the member has no other single-ownership funds at the same 
credit union. First, coverage of $225,000 (plus accrued dividends) 
would be provided for the share certificate as a single ownership 
account (12 CFR 745.3) up to the SMSIA of $250,000. Second, full 
coverage of the $300,000 share draft account would be provided 
separately, despite the share draft account also being held as a single 
ownership account, because the account qualifies for unlimited separate 
coverage as a noninterest-bearing transaction account.

Disclosure and Notice Requirements

    NCUA proposes notice and disclosure requirements to ensure that 
credit union members are aware of and understand what types of accounts 
will be covered by the temporary share insurance coverage for 
noninterest-bearing transaction accounts. There are two such 
requirements. As explained in detail below, insured credit unions must 
post a prescribed notice in their main office, each branch and, if 
applicable, on their Web site, and insured credit unions must notify 
members individually of any action they take to affect the share 
insurance coverage of funds held in noninterest-bearing transaction 
accounts.
1. Posted Notice
    The proposed rule would require each insured credit union that 
offers noninterest-bearing transaction accounts to post, prominently, a 
copy of the following notice in the lobby of its main office, in each 
branch and, if it offers Internet deposit services, on its Web site:

Notice of Changes in Temporary NCUA Insurance Coverage for Transaction 
Accounts

    In accordance with the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, through December 31, 2012, all funds in 
``noninterest-bearing transaction accounts'' are insured in full by 
the National Credit Union Administration. This unlimited coverage is 
in addition to, and separate from, the coverage of at least $250,000 
available to members under the NCUA's general share insurance rules.
    The term ``noninterest-bearing transaction account'' includes a 
traditional share draft account (or demand deposit account) on which 
the insured credit union pays no dividend. It does not include any 
transaction account that may earn dividends, such as a negotiable 
order of withdrawal (``NOW'') account, money-market account, or 
Interest on Lawyers Trust Account (``IOLTA''), even if share drafts 
may be drawn on the account.
    The temporary full insurance coverage of ``noninterest-bearing 
transaction accounts'' expires on December 31, 2012. After December 
31, 2012, funds in noninterest-bearing transaction accounts will be 
insured under the NCUA's general share insurance rules, subject to 
the Standard Maximum Share Insurance Amount of $250,000.
    For more information about NCUA insurance coverage of 
transaction accounts, visit http://www.ncua.gov.

[[Page 80369]]

2. Notice To Sweep Account and Other Members Whose Coverage on 
Noninterest-Bearing Transaction Accounts Is Affected by an Insured 
Credit Union Action
    Under the proposed notice requirements, if an insured credit union 
modifies the terms of its account agreement so that the account may pay 
dividends, the insured credit union must notify affected members that 
the account no longer will be eligible for full share insurance 
coverage as a noninterest-bearing transaction account. Though such 
notifications would be mandatory, the proposed rule does not impose 
specific requirements regarding the form of the notice. Rather, NCUA 
would expect insured credit unions to act in a commercially reasonable 
manner and to comply with applicable State and Federal laws and 
regulations in informing members of changes to their account 
agreements.

III. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact any proposed regulation may 
have on a substantial number of small credit unions (those under $10 
million in assets). The proposed amendments enhance share insurance 
coverage for members with no significant direct cost to credit unions. 
Accordingly, the NCUA has determined and certifies that the proposed 
rule, if adopted, will not have a significant economic impact on a 
substantial number of small credit unions within the meaning of the 
Regulatory Flexibility Act, 5 U.S.C. 601-612.

Paperwork Reduction Act

    In accordance with section 3512 of the Paperwork Reduction Act of 
1995 (``PRA''), 44 U.S.C. 3501 et seq., an agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid Office of Management 
and Budget (``OMB'') control number. This Notice of Proposed Rulemaking 
(``NPR'') contains disclosure requirements, some of which implicate PRA 
as more fully explained below.
    The proposed new disclosure requirements are contained in sections 
745.14(c)(1) and 745.14(c)(2). More specifically, section 745.14(c)(1) 
would require that each insured credit union that offers noninterest-
bearing transaction accounts post a ``Notice of Changes In Temporary 
NCUA Insurance Coverage For Transaction Accounts'' in the lobby of its 
main office and domestic branches and, if it offers Internet deposit 
services, on its Web site. Section 745.14(c)(2) would require that 
insured credit unions notify members of any action that affects the 
share insurance coverage of their funds held in noninterest-bearing 
transaction accounts.
    The disclosure requirement in section 745.14(c)(1) would normally 
be subject to PRA. However, because NCUA has provided the specific text 
for the notice and allows for no variance in the language, the 
disclosure is excluded from coverage under PRA because ``the public 
disclosure of information originally supplied by the Federal government 
to the recipient for the purpose of disclosure to the public is not 
included'' within the definition of ``collection of information.'' 5 
CFR 1320.3(c)(2). Therefore, NCUA is not submitting the section 
745.14(c)(1) disclosure to OMB for review.
    The disclosure requirement in section 745.14(c)(2) regarding sweep 
accounts and any action that affects the share insurance coverage of 
funds held in noninterest-bearing transaction accounts is mandatory for 
all insured credit unions, although insured credit unions would retain 
flexibility regarding the form of the notice. Therefore, in conjunction 
with publication of this NPR, NCUA is submitting to OMB a request to 
review the estimated burden associated with this disclosure 
requirement.
    The estimated burden for the proposed new disclosure under section 
745.14(c)(2) is as follows:
    Title: ``Disclosure of Share Account Status.''
    Affected Public: Insured credit unions.
    Estimated Number of Respondents: 150.
    Frequency of Response: On occasion (average of once per year per 
credit union).
    Average Time per Response: 8 hours.
    Estimated Annual Burden: 1,200 hours.
    Comments are invited on:
    (a) Whether this collection of information is necessary for the 
proper performance of NCUA functions, including whether the information 
has practical utility;
    (b) The accuracy of the estimates of the burden of the information 
collection, including the validity of the methodologies and assumptions 
used;
    (c) Ways to enhance the quality, utility, and clarity of the 
information to be collected;
    (d) Ways to minimize the burden of the information collection on 
respondents, including through the use of automated collection 
techniques or other forms of information technology; and
    (e) Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    All comments will become a matter of public record. Comments may be 
submitted to NCUA by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: Address to [email protected]. Include ``[Your 
name] Comments on PRA Collection for Proposed Rule 745, Share Insurance 
and Appendix'' in the e-mail subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    Comments may also be submitted to the OMB Desk Officer for the 
NCUA, Office of Information and Regulatory Affairs, Office of 
Management and Budget, New Executive Office Building, Washington, DC 
20503 with a copy to Mary Rupp, Secretary of the Board, NCUA, 1775 Duke 
Street, Alexandria, VA 22314. All comments should refer to the ``Share 
Insurance Regulations--Unlimited Coverage for Noninterest-Bearing 
Transaction Accounts.''

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 effect 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

[[Page 80370]]

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).

Agency Regulatory Goal

    NCUA's goal is to promulgate clear and understandable regulations 
that impose minimal regulatory burden. We request your comments on 
whether the proposed amendments are understandable and minimally 
intrusive if implemented as proposed.

List of Subjects in 12 CFR Part 745

    Credit unions, Share insurance.

    By the National Credit Union Administration Board on December 
16, 2010.
Mary F. Rupp,
Secretary of the Board.

    For the reasons discussed above, NCUA proposes to amend 12 CFR Part 
745 as follows:

PART 745--SHARE INSURANCE AND APPENDIX

    1. The authority citation for Part 745 continues to read as 
follows:

    Authority: 12 U.S.C. 1752(5), 1757, 1765, 1766, 1781, 1782, 
1787, 1789.

    2. Amend Sec.  745.1 by adding a new paragraph (f) to read as 
follows:


Sec.  745.1  Definitions.

* * * * *
    (f) The term noninterest-bearing transaction account means an 
account or deposit maintained at an insured credit union--
    (1) With respect to which either interest or dividends are neither 
accrued nor paid;
    (2) On which the account holder or depositor is permitted to make 
withdrawals by negotiable or transferable instrument, payment orders of 
withdrawal, telephone or other electronic media transfers, or other 
similar items for the purpose of making payments or transfers to third 
parties or others; and
    (3) On which the insured credit union does not reserve the right to 
require advance notice of an intended withdrawal.

    3. Add Sec.  745.14 to read as follows:


Sec.  745.14  Noninterest-bearing transaction accounts.

    (a) Separate insurance coverage. Through December 31, 2012, a 
member's funds in a ``noninterest-bearing transaction account'' (as 
defined in Sec.  745.1(f) of this part) are fully insured, irrespective 
of the SMSIA. Such insurance coverage shall be separate from the 
coverage provided for other accounts maintained at the same insured 
credit union.
    (b) Certain swept funds. NCUA will treat funds swept from a 
noninterest-bearing transaction account to a noninterest-bearing 
savings deposit account as being in a noninterest-bearing transaction 
account.
    (c) Disclosure and notice requirements. (1) Each insured credit 
union that offers noninterest-bearing transaction accounts must post 
prominently the following notice in the lobby of its main office, in 
each branch and, if it offers Internet deposit services, on its Web 
site:

Notice of Changes in Temporary NCUA Insurance Coverage for Transaction 
Accounts

    In accordance with the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, through December 31, 2012, all funds in ``noninterest-
bearing transaction accounts'' are insured in full by the National 
Credit Union Administration. This unlimited coverage is in addition to, 
and separate from, the coverage of at least $250,000 available to 
members under the NCUA's general share insurance rules.
    The term ``noninterest-bearing transaction account'' includes a 
traditional share draft account (or demand deposit account) on which 
the insured credit union pays no interest or dividend. It does not 
include any transaction account that may earn interest or dividends, 
such as a negotiable order of withdrawal (``NOW'') account, money-
market account, or Interest on Lawyers Trust Account (``IOLTA''), even 
if share drafts may be drawn on the account.
    The temporary full insurance coverage of ``noninterest-bearing 
transaction accounts'' expires on December 31, 2012. After December 31, 
2012, funds in noninterest-bearing transaction accounts will be insured 
under the NCUA's general share insurance rules, subject to the Standard 
Maximum Share Insurance Amount of $250,000.
    For more information about NCUA insurance coverage of transaction 
accounts, visit http://www.ncua.gov.
    (2) If an insured credit union uses sweep arrangements, modifies 
the terms of an account, or takes other actions that result in funds no 
longer being eligible for full coverage under this section, the insured 
credit union must notify affected members and clearly advise them, in 
writing, that such actions will affect their share insurance coverage.

[FR Doc. 2010-32129 Filed 12-21-10; 8:45 am]
BILLING CODE 7535-01-P