[Federal Register Volume 75, Number 245 (Wednesday, December 22, 2010)]
[Proposed Rules]
[Pages 80364-80367]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-32131]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 75, No. 245 / Wednesday, December 22, 2010 / 
Proposed Rules  

[[Page 80364]]



NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

RIN 3133-AD76


Sample Income Data To Meet the Low-Income Definition

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

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SUMMARY: The NCUA is proposing to permit federal credit unions (FCUs) 
that do not qualify for a low-income designation using the geo-coding 
software the NCUA has developed for that purpose to submit an analysis 
of a statistically valid sample of their member income data as evidence 
they qualify. The current rule requires, as an alternative to NCUA's 
geo-coding software, that member data drawn from loan applications or 
member surveys be used to show a majority of the members are low-
income. Permitting FCUs to use a statistically valid sample of member 
incomes drawn from loan files or a survey will ease the burden on FCUs 
attempting to qualify for a low-income designation.

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/news/proposed_regs/proposed_regs.html. Follow the instructions for submitting comments.
     E-mail: Address to [email protected]. Include ``[Your 
name] Comments on Proposed Rule on Sample Data for Low-Income 
Designation'' 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: The following agency staff may be 
contacted at the address listed above or the telephone numbers provided 
here. Robert Leonard, Director of Consumer Access, Office of Consumer 
Protection, (703) 518-1143; Olga Bruslavski, Economist, Office of the 
Chief Economist, (703) 518-6495; Regina Metz, Staff Attorney, Office of 
General Counsel, (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Background

    The Federal Credit Union Act (Act) authorizes the NCUA Board to 
define ``low-income members'' so that credit unions with a membership 
predominantly consisting of low-income members can benefit from certain 
statutory relief and receive assistance from the Community Development 
Revolving Loan Fund. 12 U.S.C. 1752(5), 1757a(b)(2)(A), 1757a(c)(2)(B), 
1772c-1.
    In 2008, the Board proposed substantial changes to the rule 
addressing low-income designation, which had previously been based on 
measuring median household income, with geographic differentials for 
certain areas with higher costs of living. 73 FR 22836 (April 28, 
2008).\1\ In brief, the Board proposed, and adopted in the final rule, 
replacement of median household income with median family income or 
median earnings for individuals as better measures, in line with 
standards used by other federal agencies. 73 FR 71909 (Nov. 26, 2008). 
NCUA also undertook as part of the regulatory changes to facilitate the 
low-income designation process by eliminating the requirement for 
credit unions to apply for the designation. NCUA is in the process of 
implementing geo-coding software to automate the low-income designation 
process for credit unions during the examination process.
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    \1\ Section 701.34 is the rule addressing low income designation 
and although it specifically addresses only federal credit unions, 
pursuant to Sec.  741.204(b) of the NCUA Regulations, a state 
chartered credit union may obtain a low-income designation from its 
state regulator, with the concurrence of the appropriate NCUA 
regional director, on the same basis as provided in Sec.  701.34(a).

    NCUA will make the determination of whether a majority of an 
FCU's members are low-income based on data it obtains during the 
examination process. This will involve linking member address 
information to publicly available information from the U.S. Census 
Bureau to estimate member earnings. Using automated, geo-coding 
software, NCUA will use member street addresses collected during FCU 
examinations to determine the geographic area and metropolitan area 
for each member account. NCUA will then use income information for 
the geographic area from the Census Bureau and assign estimated 
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earnings to each member.

73 FR at 71910-11. NCUA's software ensures that the same categories of 
data available for estimated member income at a particular credit union 
are compared with like categories of statistical data on income from 
the Census Bureau. In particular, individual member earnings 
information is compared to median individual earnings data and family 
income information is compared to median family income data.\2\
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    \2\ NCUA's geo-coding software, known within the agency as the 
``Low-Income Designation Assessment Tool,'' is currently a stand-
alone software program developed by NCUA's Office of the Chief 
Information Officer with guidance from regional staff experienced in 
low-income designation. Regional staff as well as Economic 
Development Specialists currently use the tool as needed based on 
requests from credit unions. Eventually, the same software rules 
will be embedded into the NCUA AIRES examination software. The 
current version performs 30 different ratio calculations for each 
member based on a variety of factors and data to determine whether 
the member meets the low-income definition. The variety of ratios is 
expansive in order to provide all of the possible options for 
members to meet the definition. Factors recognize the following: (1) 
Data sources include both decennial income data as well as American 
Community Survey income data; (2) different data is incorporated for 
metro vs. non-metro geographic areas; and (3) ratio options include 
comparisons of census tract and block group income data, to zip 
code, county, MSA, state, and national data, plus comparisons of 
county income data to CBSA, state, and national income data.

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[[Page 80365]]

    Recently, the Board issued an interim final rule amending Sec.  
701.34(a)(1) to clarify that median family income and median earnings 
for individuals are alternative bases on which credit union members may 
qualify as low income. 75 FR 47171 (Aug. 5, 2010).
    In addition, the interim final rule also addressed the subsection 
of the rule where the option for credit unions to submit their own 
information for purposes of qualifying for the designation was amended 
to clarify that actual member data must be compared with a like 
category of statistical data. For example, if a credit union provides 
individual income information for members, the median earnings for 
individuals must be used to determine if the members are low-income.
    The final rule in November 2008 also provided credit unions an 
alternative to relying on NCUA's geo-coding software, namely, the 
option of providing actual income information about their members as a 
basis for qualifying as a LICU. The Board is now proposing to amend the 
low-income rule further to permit credit unions that wish to submit 
their own data for purposes of qualifying for the designation to use a 
statistically valid, random sample of member incomes drawn from loan 
files or a member survey as the basis for the analysis.

Proposed Rule

    Only one credit union has applied for a low-income designation 
using actual membership income data after failing to qualify on the 
basis of NCUA's geo-coding software. The Board recognizes several 
factors may be involved but, primarily, the Board believes credit 
unions may find it difficult to meet the requirement of collecting 
actual income data establishing the low-income status of at least 50% 
plus one of their members. Conducting a survey of members in which a 
credit union asks members to disclose their income poses the problem of 
achieving a sufficient response rate with the underlying issue of the 
general reluctance members may have about disclosing their income in a 
survey. Obtaining income information from loan applications, among 
other issues, may be a problem for credit unions because many simply 
have not made loans to over 50% of their members. For these reasons, 
the Board is proposing to permit those credit unions that do not 
qualify based on NCUA's geo-coding software to use a statistically 
valid, random sample of member incomes from loan files or a member 
survey as the basis for the analysis.\3\
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    \3\ NCUA's regulation on Supervisory Committee Audits and 
Verifications, 12 CFR part 715, permits a Supervisory Committee or 
its designee to use a statistical method in performing member 
account and passbook verifications. 12 CFR 715.8(b)(2). The 
amendment in this proposed rule includes much of the same criteria 
as in that rule for an acceptable sample with some changes in 
language to fit the context of this rule.
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    Currently, Sec.  701.34(a)(3), with the August 5, 2010 amendment, 
states as follows:

    Federal credit unions that do not receive notification that they 
qualify for a low-income credit union designation but believe they 
qualify may submit information to the regional director to 
demonstrate they qualify for a low-income credit union designation. 
For example, federal credit unions may provide actual member income 
from loan applications or surveys to demonstrate a majority of their 
membership is low-income members. Actual member income data must be 
compared to a like category of statistical data, for example, actual 
individual member income may only be compared to total median 
earnings for individuals for the metropolitan area where they live 
or national metropolitan area, whichever is greater.

12 CFR 701.34(a)(3). The proposed rule would add language to this 
paragraph permitting credit unions to rely on a data sample as long as 
it meets certain criteria, including a narrative describing sampling 
technique and evidence supporting its validity. The proposed rule would 
require the random sample be representative of the membership, 
sufficient in both number and scope on which to base conclusions, and 
have a minimal confidence level of 95% and a confidence interval of 
5%.\4\ The Board recognizes the 95% confidence level and 5% confidence 
interval is a widely accepted and used threshold for statistical 
significance in research and policy analysis.
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    \4\ Confidence levels and confidence intervals are statistical 
concepts that relate to the precision of the estimates produced by 
the sampling approach. Confidence level is the probability that the 
results of a sampling approach are within the confidence interval of 
the true answer. Confidence interval specifies the allowable margin 
of error around the true answer. There are a number of online 
resources that will compute required sample size given population, 
confidence levels, and confidence intervals including http://www.raosoft.com/samplesize.html.
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    NCUA will evaluate the sample income data and the supporting 
narrative to verify it is a statistically valid, random sample. NCUA 
will expect the narrative and supporting materials to address the 
following:
     Representativeness of Members. If a credit union is 
relying on income data drawn from its loan files, a credit union's 
submission needs evidence that members with loans are representative of 
the broader membership. If members with loans are not representative of 
the broader membership, the sampling methodology may not be 
appropriate. If a credit union is relying on income data from a survey, 
a credit union must provide evidence regarding the representativeness 
of its responses and adequacy of response rate.
     Income Definition and Timing: If relying on income data 
from a survey, the survey needs to be clear regarding its definition of 
income to ensure accurate responses from members and permit the credit 
union to use appropriate sources for comparison. If relying on income 
data from loan files, NCUA will expect the analysis to:
    [cir] Clearly differentiate household versus individual income and 
income versus earnings in the loan files and use appropriate sources 
for comparison.\5\
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    \5\ The interim final rule the Board issued in July 2010 
clarified that where a credit union submits its own information for 
purposes of qualifying for the designation, actual member data must 
be compared with a like category of statistical data, meaning 
individual income information for members must be compared to the 
median earnings for individuals. 75 FR 47171 (Aug. 5, 2010).
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    [cir] Address the age of the income data found in loan files by 
excluding loan files over five years old.
    [cir] Address issues related to income verification, for example, 
addressing general credit union practices related to income 
verification and percentage of loans in the selected sample with 
unverified income. For surveys, address credit union verification, if 
any, of self-reported income information from members.
     Based on membership size and conservative statistical 
sampling practices and requirements, establish minimum sample size of 
members with income data from loan files or valid survey responses.
     Describe the method used for sampling loan files or 
conducting a survey, including any external validation or oversight.
     For income data from loan files, submit the well-
documented data set used in the analysis and, for surveys, a copy of 
the survey, data summary, and narrative, as necessary to describe the 
conduct of the survey.
    NCUA staff will review a credit union's submission, may contact a 
credit union to resolve any questions about its submission or to 
request additional information, and will inform a credit union as to 
whether it qualifies as expeditiously as possible. The proposed rule 
does not establish a time frame for a NCUA staff's review and 
determination because the Board believes a submission under the 
proposed amendment is likely to

[[Page 80366]]

present issues unique to the submitting credit union. The Board 
believes both credit unions and NCUA will benefit from having the 
flexibility to evaluate a credit union's submission and potentially 
resolve questions without regulatory time constraints. The Board 
anticipates that credit unions considering a submission will find it 
helpful to contact NCUA staff to discuss their approach to providing 
sample income data before undertaking a review of loan files or 
conducting a survey.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact any regulation may have on 
a substantial number of small entities. 5 U.S.C. 603(a). For purposes 
of this analysis, NCUA considers credit unions having under $10 million 
in assets small entities. Interpretive Ruling and Policy Statement 03-
2, 68 FR 31949 (May 29, 2003). As of December 31, 2007, out of 
approximately 8,410 federally insured credit unions, 3,599 had less 
than $10 million in assets.
    This proposed rule directly affects all low-income credit unions, 
of which currently there are approximately 1,100. NCUA estimates 
approximately 700 low-income credit unions are small entities but that 
only one or two in a year will avail themselves of the option of 
providing actual data or sample data to meet the low-income criteria 
and receive the designation. Therefore, NCUA has determined this 
proposed rule will not have an impact on a substantial number of small 
entities.

Paperwork Reduction Act

    The low-income rule contains a ``collection of information'' within 
the meaning of section 3502(3) of the Paperwork Reduction Act of 1995, 
44 U.S.C. 3502(3), to the extent it permits federal credit unions that 
do not qualify under NCUA's geo-coding software the option of applying 
on the basis of actual membership income data and, as set out in this 
proposed amendment to the rule, the additional option of submitting a 
random and statistically valid sample of membership income data to meet 
the rule's requirement that a majority of its members are low-income as 
defined in the rule.
    The proposed rule would permit FCUs, which do not qualify for a 
low-income designation using the geo-coding software the NCUA has 
developed for that purpose, to submit an analysis of a statistically 
valid sample of their member income data as evidence they qualify. NCUA 
does not believe many FCUs are likely to apply for the designation on 
the basis of their member income data, perhaps two applications per 
year.
    If relying on income data drawn from loan files, NCUA estimates an 
FCU that maintains its loan files electronically can use statistical 
computer programs that are freely available and its own staff. In that 
case, staff time is estimated at about 40 hours. If an FCU uses the 
services of a contractor or other outside party, such as a computer 
programmer, it is estimated those services would cost approximately 
$100 per hour, for a cost of approximately $4,000. If an FCU conducts a 
survey, various free computer programs are available on the Internet. 
The costs of conducting a survey may vary significantly depending on 
the size of the membership. If an FCU uses the services of a contractor 
or other outside party to assist it in developing and conducting a 
survey, the costs are estimated at approximately $4,000 to $5,000.
    In summary, NCUA estimates the total information collection burden 
represented by this proposal involving: 2 respondents, 80 annual burden 
hours, and an annual cost burden of approximately $10,000.
    Anyone wishing to submit comments on this information collection 
requirement should direct them to the Office of Information and 
Regulatory Affairs, OMB, Attn: NCUA Desk Officer, New Executive Office 
Building, Washington, DC 20503, with a copy to Mary Rupp, Secretary of 
the Board, National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia 22314-3428.
    The NCUA considers comments by the public on this proposed 
collection of information in:
     Evaluating whether the proposed collection of information 
is necessary for the proper performance of the functions of the NCUA, 
including whether the information will have a practical use;
     Evaluating the accuracy of the NCUA's estimate of the 
burden of the proposed collection of information, including the 
validity of the methodology and assumptions used;
     Enhancing the quality, usefulness, and clarity of the 
information to be collected; and
     Minimizing the burden of collection of information on 
those who are to respond, including through the use of appropriate 
automated, electronic, mechanical, or other technological collection 
techniques or other forms of information technology; e.g., permitting 
electronic submission of responses.
    The Paperwork Reduction Act requires OMB to make a decision 
concerning the collection of information contained in the proposed 
regulation between 30 and 60 days after publication of this document in 
the Federal Register. Therefore, a comment to OMB is best assured of 
having its full effect if OMB receives it within 30 days of 
publication. This does not affect the deadline for the public to 
comment to the NCUA on the proposed regulation.

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 this proposed rule does not constitute a policy that has 
federalism implications for purposes of the executive order.

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

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

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 amendment is understandable and minimally 
intrusive if implemented as proposed.

List of Subjects in 12 CFR Part 701

    Credit unions, Low income, Nonmember deposits, Secondary capital, 
Shares.

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

    For the reasons stated above, NCUA proposes to amend 12 CFR part 
701 as follows:

[[Page 80367]]

PART 701--ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNIONS

    1. The authority for part 701 continues to read as follows:

    Authority:  12 U.S.C. 1752(5), 1757, 1765, 1766, 1781, 1782, 
1787, 1789; Title V, Pub. L. 109-351, 120 Stat. 1966.

    2. Amend Sec.  701.34 by adding the following at the end of 
paragraph (a)(3):


Sec.  701.34  Designation of low-income status; Acceptance of secondary 
capital accounts by low-income designated credit unions.

    (a) * * *
    (3) * * * A Federal credit union may rely on a sample of membership 
income data drawn from loan files or a member survey provided the 
federal credit union can demonstrate the sample is a statistically 
valid, random sample by submitting with its data a narrative describing 
its sampling technique and evidence supporting the validity of the 
analysis, including the actual data set used in the analysis. The 
random sample must be representative of the membership, must be 
sufficient in both number and scope on which to base conclusions, and 
must have a minimum confidence level of 95% and a confidence interval 
of 5%.
* * * * *
[FR Doc. 2010-32131 Filed 12-21-10; 8:45 am]
BILLING CODE 7535-01-P