The Department of Homeland Security (DHS) United States Citizenship and Immigration Service (USCIS) published a notice of proposed rulemaking in the Federal Register , 75 FR 54528, September 8, 2010, proposing to exempt portions of the system of records from one or more provisions of the Privacy Act because of criminal, civil, and administrative enforcement requirements. The system of records is the DHS/USCIS-012 Citizenship and Immigration Data Repository (CIDR) System of Records. The DHS/USCIS-012 CIDR System of Records notice was published concurrently in the Federal Register , 75 FR 54642, September 8, 2010. Comments were invited on both the Notice of Proposed Rulemaking (NPRM) and System of Records Notice (SORN).

DHS received six comments on the NPRM. Of the six comments, one was submitted in duplicate. No comments were received on the SORN.

Three of the five original comments received were generally in support of the proposed rule. Two commentors expressed opposition generally to DHS' collection and use of personally identifiable information (PII) for any reason other than to investigate individuals who may have violated the law. The Privacy Act of 1974 permits a federal agency, including DHS, to collect information pertaining to individuals provided that it has the requisite statutory authority to do so. The Privacy Act requires federal agencies to publish in the Federal Register a description denoting the type and character of each system of records that the agency maintains including the authority, purpose, category of records, and routine uses in order to make agency recordkeeping practices transparent, to notify individuals regarding the uses to which PII is put, and to assist individuals to more easily find such files within the agency. DHS met these requirements with the publication of the DHS/USCIS-012 CIDR SORN on September 10, 2010 in the Federal Register . As noted in DHS/USCIS-012 CIDR SORN, the authority to collect information within CIDR is §§ 101 and 103 of the Immigration and Nationality Act, as amended (8 U.S.C. 1101 and 1103), and the regulations issued pursuant thereto; § 451 of the Homeland Security Act of 2002 (Pub. L. 107-296); E.O. 12958; E.O. 13356; E.O. 13388; and E.O. 12333.

In addition, as set forth in the DHS/USCIS-012 CIDR SORN, the CIDR system will not collect any new information, but rather, is a mirror copy of USCIS's major immigrant and non-immigrant benefits databases combined into a single user interface and presented in an updated, searchable format on the classified network. This system takes existing USCIS data and recompiles them into a system for the following three purposes: (1) Vetting USCIS application information for indications of possible immigration fraud and national security concerns; (2) detecting possible fraud and misuse of immigration information or position by USCIS employees, for personal gain or by coercion; and (3) to respond to requests for information (RFIs) from the DHS Office of Intelligence and Analysis (I&A) and/or the federal intelligence and law enforcement community members that are based on classified criteria.

After consideration of public comments, the Department will implement the rulemaking as proposed.

Background

Under the regulations in “Subpart—Fruits and Vegetables” (7 CFR 319.56-1 through 319.56-50, referred to below as the regulations), the Animal and Plant Health Inspection Service (APHIS) prohibits or restricts the importation of fruits and vegetables into the United States from certain parts of the world to prevent plant pests from being introduced into and spread within the United States.

The requirements for importing Hass avocados into the United States from Michoacán, Mexico, are described in § 319.56-30. Those requirements include pest surveys and pest risk-reducing practices, treatment, packinghouse procedures, inspection, and shipping procedures.

On May 14, 2010, we published in the Federal Register (75 FR 27225-27227, Docket No. APHIS-2008-0060) a proposal  1 to amend the regulations to:

• Allow the importation of Hass avocados from Michoacán, Mexico, into Puerto Rico, under the same conditions required for importation into the 50 States;

• Provide for the Mexican national plant protection organization (NPPO) to use an approved designee to inspect avocados for export; and

• Limit the scope of suspension of export certification to the orchard or packinghouse in which pests are found, rather than the municipality in which the orchard or packinghouse is located.

We solicited comments concerning our proposal for 60 days ending July 13, 2010. We received four comments by that date. They were from associations of avocado producers and representatives of State and foreign governments. They are discussed below by topic.

One commenter stated that invasive pests are one of the foremost challenges for California avocado growers and that research has definitively shown that some of the most pernicious avocado pests presently found in California originated in Mexico and Central America. This commenter stated that growers are apprehensive about any modification of export protocols that shifts risk to the domestic producer, and the commenter characterized the proposed rule as an example of such risk-shifting.

The commenter did not specify which pernicious avocado pests prompted this concern. The regulations in § 319.56-30 set out a systems approach designed to mitigate the risk of introducing quarantine pests via the importation of Hass avocados from Mexico into the United States. By any measure, the systems approach has been successful at this goal. In 9 years of fruit cutting and inspection of Hass avocados imported from Mexico, over 28 million fruit were examined (20.2 million in the orchards, 7.2 million in packinghouses, and 602,490 at border inspection ports) for pests. Twice, the quarantine pest Contrachelus perseae was found, both times in backyard avocados that would not have been eligible to be exported to the United States. Both outbreaks of this pest were eradicated. All other avocados from this export program have been found to be free of quarantine pests. There is no evidence that the importation of Hass avocados from Mexico has resulted in the introduction of quarantine pests into the United States.

The proposed changes are minor updates designed to provide additional flexibility in operating the export program while continuing to provide protection against the introduction of quarantine pests.

We did not receive any comments expressing concern about allowing the importation of Hass avocados from Mexico into Puerto Rico. However, one commenter requested that we eliminate all restrictions on the importation and distribution of Hass avocados to the U.S. territories as well. The commenter stated that, unless there is a sound scientific reason to ban Mexican Hass avocados from being distributed into the U.S. territories, APHIS should allow the trade, whether or not there has been a formal diplomatic request to lift this trade barrier. The commenter stated that the Plant Protection Act (7 U.S.C. 7701 et seq. ) clearly considers the territories to be part of the United States.

The commenter noted that Hass avocados produced in California, Chile, New Zealand, and the Dominican Republic can all be imported or moved interstate to the U.S. territories without any additional safeguards or other mitigations for known pests. The commenter stated that if APHIS were to maintain such restrictions on Mexican Hass avocados without a scientific justification, it would risk violating the nondiscrimination provisions of the World Trade Organization's Agreement on the Application of Sanitary and Phytosanitary Measures and the comparable provisions of the North American Free Trade Agreement.

Finally, the commenter stated, maintaining a trade restriction may trap unwary U.S. or Mexican produce handlers who are consolidating shipments of produce to the territories.

The commenter also stated that, if the commenter's proposed change was adopted, it would be appropriate to eliminate box markings for restricted distribution, as the extremely small markets in the U.S. territories would not justify the expensive and burdensome box marking and storage arrangements that would be necessary for packers, importers, and marketers, nor the potential compliance costs incurred by APHIS.

Section 319.56-1 prohibits the importation of all fruits or vegetables except as provided in the regulations. We only allow the importation of fruits or vegetables after conducting an analysis of the pest risk associated with the importation of said fruits or vegetables. As noted in the commodity import evaluation document we made available to the public along with the proposed rule, the risks associated with the importation of Hass avocados from Mexico to U.S. territories have not been analyzed. Therefore, we will not allow such importation until an analysis is completed. The differing pest situations in each of the territories require us to conduct separate analyses regarding the importation of Hass avocados from Mexico into each territory.

Hass avocados produced in California have historically been allowed to move freely within the United States, which, as the commenter notes, clearly includes the territories; we expect that any pests associated with the interstate movement of avocados from California would have been introduced into the territories long ago. The risk analyses for the importation of Hass avocados from Chile, New Zealand, and the Dominican Republic all included analysis specific to the territories.

As the importation of most fruits and vegetables is prohibited under § 319.56-1, we ask that foreign governments interested in exporting fruits and vegetables to the United States, or to new areas within the United States, make formal requests to do so, so that we can prioritize our risk analysis activity. If we receive a formal request to analyze the risks associated with the importation of Hass avocados from Mexico into the U.S. territories, we will consider it.

With respect to the commenter's concern regarding produce handlers, for consignments imported into the 50 States and Puerto Rico, we will include as a condition of the import permit a prohibition on moving the avocados to any U.S. territory. In the past, we have found such restrictions to be effective at preventing the unauthorized interstate movement of fruits and vegetables. As part of allowing the importation of Hass avocados from Mexico into Puerto Rico, we proposed to remove the requirement for marking boxes to indicate limitations on their distribution from paragraph (c)(3)(vii) of § 319.56-30 for that reason.

However, we are not removing the remaining box marking requirements in paragraph (c)(3)(vii), which require the avocados to be packed in boxes or crates that are clearly marked with the identity of the grower, packinghouse, and exporter. This information is necessary in case we need to conduct traceback on Hass avocados imported from Mexico.

The regulations in § 319.56-30(c)(3)(iv) require samples of Hass avocados produced in Michoacán, Mexico, to be selected, cut, and inspected by the Mexican NPPO and found free from pests. We proposed to amend that paragraph to provide for avocados to be selected, cut, and inspected by either the Mexican NPPO or its approved designee. We stated that the use of approved designees in situations such as this is consistent with the International Plant Protection Convention's International Standard for Phytosanitary Measures (ISPM) No. 20, 2 which, among other things, describes a system that NPPOs may use to authorize other government services, non-governmental organizations, agencies, or persons to act on their behalf for certain defined functions.

One commenter supported this change, but stressed the importance of reviewing the criteria that will be utilized by the Mexican NPPO to choose a designee for these purposes. Another commenter noted that ISPM No. 20 states that, for the use of approved designees, the ISPM guidelines state that “operational procedures” are required and that “procedures should be developed for the demonstration of competency and for audits, corrective actions, system review and withdrawal of authorization.” This commenter recommended that APHIS require the Mexican NPPO to provide detailed procedures consistent with ISPM No. 20 before making this change. The commenter also recommended that the regulations indicate that APHIS retains the right to conduct periodic audits to verify that the procedures, once implemented, are being properly performed by the NPPO's designee.

We will review and approve the Mexican NPPO's procedures for approving designees to select, cut, and inspect fruit before the Mexican NPPO begins using approved designees. The specific process by which this takes place will be detailed in the workplan that the Mexican NPPO provides to APHIS annually. APHIS must approve the workplan. For that reason, it is not necessary to delay changing the regulations in order to ensure that APHIS can review and approve the Mexican NPPO's procedures for approving designees. With respect to the second commenter's other recommendation, the introductory text of paragraph (c) of § 319.56-30 already indicates that APHIS will be directly involved with the NPPO in the monitoring and supervision of activities carried out under § 319.56-30. This would include monitoring the procedures for approving designees.

Two commenters recommended that we allow the Mexican NPPO to use approved designees for the pest surveys and trapping required in paragraph (c)(1) of § 319.56-30. The commenters stated that there may be many highly qualified entomologists or other experts in the private sector that would be available for contracting with the Mexican NPPO to carry out phytosanitary tasks in the avocado orchards.

These commenters suggested that we amend the introductory text of paragraph (c), which currently indicates that personnel carrying out tasks required in paragraph (c) must be “hired, trained, and supervised by the Mexican NPPO,” to indicate that it allows the use of accredited inspectors to perform these tasks.

It was necessary to amend paragraph (c)(3)(iv) in order to accommodate the use of approved designees because that paragraph specifically required the Mexican NPPO to select, cut, and inspect fruit. However, the requirement that personnel who perform tasks required in paragraph (c) of § 319.56-30 be hired, trained, and supervised by the Mexican NPPO does not mean that those personnel have to be employees of the Mexican NPPO; they can be hired as contractors, provided that they are trained and supervised by the Mexican NPPO, and provided that they operate in accordance with the various procedures described in ISPM No. 20. Thus, the regulations already accommodate the use of approved designees for these functions. We appreciate the opportunity to clarify this point.

Paragraph (e) of § 319.56-30 sets out the procedures that are followed when a pest is detected in the surveys and inspections required in paragraph (c). Under paragraph (e)(1), when avocado seed pests other than the avocado stem weevil Copturus aguacatae ( Heilipus lauri, Conotrachelus aguacatae, C. perseae, or Stenoma catenifer ) are detected during semiannual pest surveys, orchard surveys, packinghouse inspections, or other monitoring or inspection activities, the entire municipality in which the pests are discovered loses its pest-free certification and avocado exports from that municipality are suspended. However, our regulations in paragraphs (e)(2) and (e)(3) call for the suspension of the export certification of individual orchards and packinghouses where the avocado stem weevil, Copturus aguacatae, is detected, rather than for the suspension of the export certification of the entire municipality. Based on our experience with the avocado seed pests in the Mexican Hass avocado export program, we proposed to replace paragraphs (e)(1) through (e)(3) of § 319.56-30 with a new paragraph (e) stating that suspension of avocado shipments applies to orchards or packinghouses within a municipality when H. lauri, C. aguacatae, C. perseae, Copturus aguacatae, or S. catenifer are detected.

One commenter stated that APHIS should establish a buffer zone with a radius of at least 1 square mile from the specific site where an avocado seed pest is detected. The commenter added that orchards encompassed in part or in their entirety by this buffer zone should be suspended from the avocado export program until the pests of concern have been eradicated. To support this position, the commenter cited recent research conducted in Guatemala by Dr. Mark Hoddle, an entomologist at the University of California, Riverside, which has shown that S. catenifer are vigorous fliers that commence flight at dusk and continue on and off until dawn. The commenter quoted a personal communication from Dr. Hoddle stating that it is highly likely that S. catenifer flies more than 100 meters in one night. The study from which this figure was derived measured flight distances between release points and pheromone traps designed to lure male avocado seed moths. The commenter stated that this distance is almost certainly different for females, which are likely to fly even farther, if necessary, to locate a site suitable for egg-laying; this assertion was based on a personal communication from Dr. Jocelyn Millar, also an entomologist at the University of California, Riverside. The commenter further stated that various moth species have been documented to fly “at least several kilometers” to locate pheromone sources, citing Hoddle, M.S., et al., “Field optimization of the sex pheromone of Stenoma catenifer (Lepidoptera: Elachistidae): Evaluation of lure types, trap height, male flight distances, and number of traps needed per avocado orchard for detection,” scheduled for publication in an upcoming issue of the Bulletin of Entomological Research.

Another commenter, supporting the change we proposed, cited a Web site presented by Dr. Hoddle  3 that states that the flight of S. catenifer when released from vials ranged between 3 and 12 meters; those moths invariably sought refuge in nearby fallen leaves and other debris. The commenter also stated that the original pest risk assessment for the importation of Hass avocados year-round and into all 50 States, prepared in 2004, contained an appendix confirming the limited mobility of the seed pests other than S. catenifer.

We appreciate the commenters submitting additional information about S. catenifer. In citing Dr. Hoddle's Web site, the second commenter did not mention that the flights of 3 to 12 meters occurred when S. catenifer was released during the day (specifically, at 2 p.m.). As discussed by the first commenter, S. catenifer has been shown to fly longer distances at night in at least some circumstances.

However, the evidence from Dr. Hoddle's studies regarding S. catenifer' s mobility in Guatemala may not necessarily be relevant to its mobility in Mexico. S. catenifer is known to respond to changes in climate; Guatemala's is a hot climate with periodic shifts from wet to dry seasons, while the province of Michoacán is drier and cooler.

More importantly, conducting the Mexican Hass avocado export program has given us extensive information about how H. lauri, C. aguacatae, C. perseae, Copturus aguacatae, and S. catenifer behave in commercial Hass avocado production in Michoacán. As noted earlier, only twice has any one of these pests been found, both times in backyard avocados that would not have been eligible to be exported to the United States, and none of the quarantine pests identified in the 2004 pest risk assessment (including the seed pests at issue here) have been found in avocados presented for importation into the United States.

The information provided by the first commenter does not change our conclusion, based on years of evaluation of the effectiveness of the systems approach used to mitigate pests in approved municipalities, that the mobility of avocado seed pests, including S. catenifer, creates no greater risk of their avoiding detection than the mobility of the avocado stem weevil, and that the same scope of export suspension should apply to avocado seed pests and the stem weevil. Given our years of experience with surveying and inspecting for these pests in Michoacán, we have determined that the proposed changes are appropriate.

As noted in the proposed rule, if avocado seed pests are present in places of production close to a place of production in which an avocado seed pest is found, the required surveys would find it in those nearby places of production, and we would suspend those places of production as well. The entire municipality would be suspended if the pests were detected in all places of production within that municipality.

In addition, if circumstances were to change, and S. catenifer or any of the other seed pests were to suddenly begin infesting commercially produced avocado fruit across wide distances, our surveys and inspections would find the pest, and we would make any necessary adjustments to the program or suspend it while we determined appropriate mitigations for the pests.

One commenter stated that suspension of orchards and packinghouses when a pest is found can and should be based on the scientific evidence of the biology of the particular pest and its known mobility at various stages. Such suspensions should be no greater than scientifically necessary to protect against exported avocados being a pathway for infestations.

The changes in this final rule limit suspension to the orchard or packinghouse where a pest is found. If the commenter is recommending suspending only portions of an orchard or packinghouse when a pest of particularly low mobility is found in the orchard or packinghouse, we would not consider that operationally feasible, since avocados and pests may be moved around freely within orchards or packinghouses.

One commenter stated that, from the inception of the export program, APHIS has based its assumptions about S. catenifer and other seed pests on the results of fruit cutting. The commenter stated that small larvae of these pests may easily be overlooked in fruit that, in all respects, appears uninfested or damage-free. Consequently, the commenter stated, orchard surveys that rely on fruit cutting should not inform APHIS' decisionmaking on the mobility of avocado seed pests.

We disagree with the commenter. Inspection using fruit cutting is an effective mitigation for these pests. Avocado fruit discolor immediately when larvae bore tunnels in the fruit, meaning that damage can be easily detected in cut fruit. Inspection has served as an effective mitigation thus far in preventing the introduction of these pests into the United States, even given the great volumes of Hass avocados that have been imported since the beginning of the program.

One commenter recommended that we remove paragraphs (f) and (h) from § 319.56-30, as paragraph (f) relates to restrictions that have been removed from the regulations and paragraph (h) is duplicated by paragraph (g).

We agree. In a final rule published in the Federal Register on October 29, 2010 (75 FR 66643-66644, Docket No. APHIS-2008-0016), we made these changes, although we removed paragraph (g) rather than paragraph (h).

That final rule also revised paragraph (c)(3)(vii) to accommodate the use of bulk shipping bins for Hass avocados from Mexico and to remove outdated restrictions. That paragraph has also contained the box marking requirements reflecting the prohibition on importing Hass avocados from Mexico into Puerto Rico or the U.S. territories. We had proposed to remove the last two sentences of the paragraph, which contained the box marking requirement and the outdated restrictions; instead, this final rule specifically removes the box marking requirement.

One commenter stated that the administrative instructions found in 7 CFR 352.29 were published to support and maintain the former shipping restrictions on Mexican Hass avocados, which were removed several years ago. This commenter stated that there are no longer any restrictions on moving Mexican avocados through the United States. The commenter stated that these administrative instructions no longer serve any valid purpose and should be eliminated to avoid confusion by the public.

The commenter misunderstands the scope and purpose of § 352.29, which regulates the movement of all avocados from anywhere in Mexico through the United States, rather than the importation of avocados into the United States. The regulations in § 319.56-30 allow only Hass variety avocados from the State of Michoacán to be imported into the United States. However, when exporting to countries other than the United States, Mexican producers and exporters may wish to move avocados of other varieties or from other areas of Mexico through the United States before the avocados arrive at their ultimate destination, in order to use U.S. ports of export. The provisions in § 352.29 allow such transit to occur safely.

One commenter presented extensive information on the use of sex pheromones to lure and trap S. catenifer and recommended that we work with the Mexican NPPO to deploy pheromone traps for monitoring and detection purposes in Michoacán.

We appreciate the commenter updating us on the progress of this research. We will review the information submitted and consider whether to incorporate pheromone trapping into the Mexican Hass avocado export program. If we determine that requiring such trapping would be useful, we will publish a proposed rule and take public comment on the use of pheromone trapping.

One commenter complimented the NPPO of Peru on its cooperation in researching S. catenifer and recommended that we encourage and facilitate a level of cooperation between California scientists and the Mexican NPPO comparable to the level of cooperation those scientists receive from the NPPO of Peru.

We support the Mexican NPPO working with private collaborators on managing quarantine pest problems. As members of the North American Plant Protection Organization, APHIS and the Mexican NPPO share a commitment to controlling and eliminating quarantine pest populations. We will continue to encourage collaboration with private groups should opportunities arise.

Therefore, for the reasons given in the proposed rule and in this document, we are adopting the proposed rule as a final rule, with the changes discussed in this document.

This is a substantive rule that relieves restrictions and, pursuant to the provisions of 5 U.S.C. 553, may be made effective less than 30 days after publication in the Federal Register .

Immediate implementation of this rule is necessary to provide relief to those persons who are adversely affected by restrictions we no longer find warranted. The shipping season for Hass avocados from Mexico is year-round. Making this rule effective immediately will allow interested producers and others in the marketing chain to benefit from these changes. Therefore, the Administrator of the Animal and Plant Health Inspection Service has determined that this rule should be effective upon publication in the Federal Register .

This final rule has been determined to be not significant for the purposes of Executive Order 12866 and, therefore, has not been reviewed by the Office of Management and Budget.

In accordance with the Regulatory Flexibility Act, we have analyzed the potential economic effects of this action on small entities. The analysis is summarized below. Copies of the full analysis are available on the Regulations.gov Web site ( see footnote 1 in this document for a link to Regulations.gov) or by contacting the person listed under FOR FURTHER INFORMATION CONTACT.

Puerto Rico has a relatively small avocado industry, importing most of its supply from the Dominican Republic. In 2007, 737 Puerto Rican farms harvested avocados, a significant decrease from the 1,217 farms reported in 2002, and suggesting an increasing reliance on imports. Most, if not all, of these farms are small. Most avocados grown in Puerto Rico, as in the rest of the Caribbean and in Florida, are not Hass variety but larger, smooth-skinned varieties.

We expect this rule to primarily result in increased import competition. Any impacts for Puerto Rico's small entities will depend in part upon the extent to which Hass avocados imported from Mexico substitute for the larger, smooth-skinned varieties produced domestically. Avocado imports from Mexico will directly compete with Hass avocados that may be shipped from California.

Other amendments included in this rule provide for the Mexican NPPO to use an approved designee to inspect avocados for export, and when seed pests are detected, for suspension of avocado imports from specific orchards or packinghouses rather than from the entire municipality where the affected orchards or packinghouses are located. These changes will benefit U.S. entities generally by facilitating the inspection process in Mexico and minimizing import disruptions and reductions due to pest detections.

Under these circumstances, the Administrator of the Animal and Plant Health Inspection Service has determined that this action will not have a significant economic impact on a substantial number of small entities.

This final rule allows Hass avocados to be imported into Puerto Rico from Michoacán, Mexico. State and local laws and regulations regarding Hass avocados imported under this rule will be preempted while the fruit is in foreign commerce. Fresh fruits are generally imported for immediate distribution and sale to the consuming public, and remain in foreign commerce until sold to the ultimate consumer. The question of when foreign commerce ceases in other cases must be addressed on a case-by-case basis. No retroactive effect will be given to this rule, and this rule will not require administrative proceedings before parties may file suit in court challenging this rule.

This final rule contains no new information collection or recordkeeping requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

On May 8, 2007, OTS published an interim final rule adding 12 CFR part 585. This new part implemented section 19(e) of the FDIA, which prohibits any person who has been convicted of any criminal offense involving dishonesty, breach of trust, or money laundering (or who has agreed to enter into a pretrial diversion or similar program in connection with a prosecution for such an offense) from holding certain positions with a SLHC. Section 19(e) also authorizes the Director of OTS to provide exemptions from the prohibitions, by regulation or order, if the exemption is consistent with the purposes of the statute.

The interim final rule described the actions that are prohibited under the statute and prescribed procedures for applying for an OTS order granting a case-by-case exemption from the prohibition. The rule also provided regulatory exemptions to the prohibitions, including a temporary exemption for persons who held positions with respect to a SLHC on October 13, 2006, the date of enactment of section 19(e). This temporary exemption expired on September 30, 2010, unless a case-by-case exemption was filed prior to that expiration date. 1

OTS has decided to reinstitute the temporary regulatory exemption, with a new expiration date of December 31, 2012. OTS notes that the reinstituted regulatory exemption applies from October 13, 2006 until December 31, 2012 and includes the period after October 1, 2010 until today. Given that this reinstitution of the temporary exemption will reduce needless disruptions of SLHC operations, OTS has concluded that reinstituting the exemption is consistent with the purposes of section 19(e) of the FDIA.

For the reasons set out in the interim final rule, 2 OTS has concluded that: notice and comment on this extension are unnecessary and contrary to the public interest under section 552(b)(B) of the Administrative Procedure Act (APA); there is good cause for making the extension effective immediately under section 553(d) of the APA; and the delayed effective date requirements of section 302 of the Riegle Community Development and Regulatory Improvement Act of 1994 (CDRIA) do not apply.

For the reasons stated in the interim final rule, 3 OTS has concluded that this rule does not require an initial regulatory flexibility analysis under the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ), and that this rule should not have a significant impact on a substantial number of small entities, as defined in the RFA.

OTS has determined that this rule does not involve a change to collections of information previously approved under the Paperwork Reduction Act (44 U.S.C. 3501 et seq. )

For the reasons stated in the interim final rule, 4 OTS has determined that this rule will not result in expenditures by state, local, and tribal governments, in the aggregate, or by the private sector, of more than $100 million in any one year.

OTS has determined that this rule is not a significant regulatory action under Executive Order 12866.

Section 722 of the Gramm-Leach-Bliley Act (12 U.S.C. 4809) requires the Agencies to use “plain language” in all final rules published after January 1, 2000. OTS believes that the final rule is presented in a clear and straightforward manner.

On March 18, 2010, the NCUA Board issued a Notice of Proposed Rulemaking (NPR or Proposal) to amend parts 701, 708a, and 708b of NCUA's rules. 75 FR 15574 (March 29, 2010).

The Proposal would have:

• Added a new § 701.4 clarifying the authorities and duties of FCU directors in managing the affairs of their credit unions and revising § 701.33 limiting indemnification of FCU officials and employees for liability arising from improper decisions that affect the fundamental rights of credit union members.

• Revised the existing provisions of Part 708a on insured credit union to MSB conversions.

• Added a new subpart C to Part 708a setting forth procedural and substantive requirements for converting an insured credit union to a bank by merger.

• Revised the existing provisions of Part 708b on insured credit union mergers with other credit unions and the termination of Federal share insurance.

The public comment period for the NPR closed on May 28, 2010. NCUA received comments from 40 commenters including ten Federal and State credit unions, 16 credit union trade organizations (which included 13 State credit union leagues), one State credit union regulators' association, six law firms, two credit union consultants, an individual credit union member, an election teller, a private deposit insurer, an association representing the interests of converting credit union members, and one bank trade association. The most significant comments on each part of the Proposal are discussed in the following section-by-section analysis of the revisions in this final rule.

The Proposal included a new § 701.4, titled “General authorities and duties of Federal credit union boards of directors.”

Proposed paragraph (a) provided that the management of each Federal credit union is vested in its board of directors, and that while a Federal credit union board of directors may delegate the execution of operational functions to Federal credit union personnel, the ultimate responsibility of each Federal credit union's board of directors for that Federal credit union's management is non-delegable. The language of the proposal mirrors the duties of the Federal Home Loan Bank directors, as expressed in a rule promulgated by the Federal Housing Finance Agency (FHFA). 12 CFR 917.2(b)(1).

Some commenters stated that NCUA should clarify that while an FCU's board of directors has the ultimate responsibility for the management of the credit union, this responsibility does not include day-to-day management. One commenter said that NCUA should withdraw the language in the second sentence of proposed paragraph (a) making the board's ultimate responsibility for the credit union's management non-delegable. This commenter stated the FCU Act vests the management of each FCU in the board of directors, but it does not prohibit the board from delegating the management of the credit union. The commenter further stated that since an FCU's board is composed primarily of unpaid volunteers the board of directors should be allowed to delegate the management to compensated executives. The commenter recommended NCUA substitute language that the board of directors provides the general direction for the credit union, which would better reflect the policy-making role of the board.

The NCUA Board agrees that paragraph (a) should more closely track the language of section 113 of the FCU Act, which employs the language “general direction and control.” Accordingly, the final rule substitutes “general direction and control” for “management.” This amendment clarify that the directors do not actually manage the credit union. The board of directors, however, may not and cannot delegate its ultimate statutory responsibility for the proper management of the credit union.

Proposed paragraph (b) set forth the fiduciary duties of FCU directors. It charged each director to:

• Carry out his or her duties as a director in good faith, in a manner reasonably believed to be in the best interests of the membership of the FCU, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances (paragraph (b)(1));

• Administer the affairs of the FCU fairly and impartially and without discrimination in favor of or against any particular member (paragraph (b)(2));

• Understand the FCU's balance sheet and income statement and ask, as appropriate, substantive questions of management and the internal and external auditors (paragraph (b)(3)); and

• Direct the operations of the FCU in conformity with the requirements set forth in the Federal Credit Union Act, the NCUA's regulations, other applicable law, and sound business practices (paragraph (b)(4)).

Proposed paragraph (b)(1) stated that the directors have a fiduciary duty to act in the best interests of credit union members, particularly in connection with matters affecting the fundamental rights of members, such as mergers and conversions. A few commenters objected to the statement in (b)(1) that directors owe fiduciary rights to members and asserted that because members have little right to the equity in their credit unions, credit union members resemble customers of other depository institutions more than shareholders in corporations. Other commenters stated that the duties of the board of directors run first to the credit union and not to the members individually or collectively.

These views are wrong from both a philosophical and legal standpoint. As stated in the preamble to the NPR, the NCUA Board is particularly concerned about assertions that the members of a credit union do not own the credit union, or that the duties of the directors do not flow to the members but, rather, flow in some amorphous way only to the institution. A lack of focus on the interests of the members makes it easier for officials and management to make decisions that benefit themselves personally, even if those decisions are not necessarily in the best interests of the membership as a whole. 1

The Board cannot emphasize enough that the members own an FCU and that directors of an FCU must consider the interests of the membership as a whole, and put those interests first, when making decisions that affect the credit union. Accordingly, the NCUA Board is revising the final paragraph (b)(1) of § 701.4 of the Proposal to emphasize that each FCU director must carry out his or her duties in a manner the director believes to be in the best interests of the membership of the credit union as a whole.

One commenter was concerned that a focus on the membership as a whole might keep an FCU from developing new branches or ATMs because some members would be closer to the new branch or ATM and might find the new facility more convenient to use than other members. The Board recognizes that in the short term some members may benefit geographically from an FCU's expansion plans. Such marginal geographical benefits, or other marginal access benefits, will not by themselves cause an FCU expansion to violate the fiduciary duties of an FCU's Board.

One commenter suggested that there might be a difference between the short term interests of credit union members and their long term interests. In the unusual situation where there might be such a perceived conflict, the board of directors should, as part of its due diligence, carefully define the perceived conflict, weight the competing short and long term interests, make a choice based on the greatest needs of the members, and explain the board's choice. Proposed paragraph (b)(1) required FCU directors to carry out their duties with the care an ordinarily prudent person in a like position would use under similar circumstances. This language was based in part on Model Business Corporation Act (MBCA) § 8.30, titled “Standards of Conduct for Directors.” Some commenters recommended updating the italicized phrase to omit the words “ordinarily prudent” so as to use a 1998 change to § 8.30 of the MBCA employing the language “with the care that a person in a like position would reasonably believe appropriate.”  2 These commenters believe the words “ordinarily prudent” heighten the risk of litigation.

The NCUA Board does not agree with the commenters. The ordinarily prudent person formulation has been adopted by 41 States while the newer MBCA language has been adopted by only six States. 3 In addition, the proposed language mirrors the current standard applicable to directors of the Federal Home Loan Banks as set forth in 12 CFR 917.2(b)(1). Accordingly, the final rule retains the traditional formulation for a director's standard of care—“with the care an ordinarily prudent person in a like position would use.”

Proposed paragraph (b)(2) required that the directors administer the affairs of the Federal credit union fairly and impartially and without discrimination in favor of or against any particular member. Proposed paragraph (b)(2) employed the language of the Federal Home Loan Bank regulation, 12 CFR 917.2(b)(2), and its underlying Federal Home Loan Bank Act (FHLB Act) statutory provision. 12 U.S.C. 1427(j). Some commenters expressed a concern that this “without discrimination” language, combined with the general statement of duties owed to the members in (b)(1), could provide members with a cause of action and increase the risk of litigation.

The NCUA Board does not agree with these comments. First, as stated in the preamble of the NPR, this rulemaking does not create a Federal cause of action in favor of particular individuals or groups of individuals. 75 FR 15574, 15578 n.11. Second, NCUA's research revealed no case law holding that there is an implied private right of action under the equivalent language in the FHLB Act or regulations. In fact, there is case law to the contrary holding that there is no express or implied private right of action under § 1427(j) of the FHLB Act. Fidelity Financial Corp. v. Federal Home Loan Bank of San Francisco, 589 F. Supp. 885, 891, 894 (N. D. Cal. 1983).

Proposed paragraph (b)(3) required each director, at the time of election or appointment, or within a reasonable time thereafter, not to exceed three months, have at least a working familiarity with basic finance and accounting practices, including the ability to read and understand the FCU's balance sheet and income statement and to ask, as appropriate, substantive questions of management and the internal and external auditors.

Many commenters objected to three months as an unreasonably short period in which to become adequately proficient at understanding accounting and finance; several suggested substituting 12 months for three months. Those favoring 12 months stated that many credit union directors serve on a part-time basis, particularly at small credit unions, and acquiring proficiency within only three months would be extraordinarily difficult.

The NCUA Board believes that having a working familiarity with basic finance and accounting practices is essential to being able to perform a credit union director's functions. After considering these comments, however, the Board has decided that directors should be given more time in which to meet this requirement. Accordingly, this final rule revises paragraph (b)(3) to provide for a six-month period in which to gain at least a working familiarity with basic finance and accounting practices, including the ability to read and understand the Federal credit union's balance sheet and income statement. As the preamble to the NPR indicated, there are a multiple of sources of training in finance and accounting, including training provided by credit unions, outside sources, or, for small credit unions, NCUA's Office of Small Credit Union Initiatives. Accordingly, six months provides ample time for training while ensuring that directors who lack proper training do not procrastinate in obtaining the necessary training.

Some commenters asked for clarification about what the phrase as appropriate meant in the phrase: “to ask, as appropriate, substantive questions of management and the internal and external auditors.” The commenters wondered whether it meant that questions should be tailored to the size and complexity of the credit union. In fact, the NCUA Board added the as appropriate language to the proposed rule so directors would not feel they had to ask questions just for the sake of asking.

Several other commenters objected to the financial literacy requirement for a variety of reasons. For example, one commenter argued the Proposal takes away one of the core right of members to elect directors of their choice, and that requiring a director to be financially literate or become financially literate within a short period of time would impose an eligibility requirement in violation of the FCU Act and the bylaws. Another commenter asserted that the financial literacy requirement imposes an eligibility requirement in violation of the FCU Act. This commenter believes any member of a credit union, so long as he or she is an adult and has not been convicted of a crime involving dishonesty or breach of trust as provided for, is eligible to serve as a director, regardless of financial literacy. 12 U.S.C. 1761(a), 1785(d).

The Board agrees that any member of an FCU who meets the eligibility requirements of the FCU Act may run for, and serve as, an FCU director. As a matter of safety and soundness, however, a serving director does need to become literate within a reasonable period of time after election or appointment. The level of necessary literacy depends on the size and complexity of the FCU.

Another commenter stated that the Proposal is vague and subjective because it provides no definitive measurements for when and how a director will be considered sufficiently trained in the use of financial statements and other data. This commenter believes that without specific and objective standards, it will be left up to the subjectivity of a given examiner to determine whether directors are in compliance with this requirement. The NCUA Board disagrees. Again, directors must obtain financial knowledge commensurate with the size and complexity of their credit union. The Board also notes there are multiple ways for resolving disputes between credit unions and their examiners. See, e.g., Interpretive Ruling and Policy Statement (IRPS) 95-1, as amended by IRPS 02-1.

Proposed paragraph (b)(4) required each director to direct the operations of the Federal credit union in conformity with the requirements set forth in the FCU Act, the NCUA's regulations, other applicable law, and sound business practices. The final rule revises this section to substitute the phrase “direct management's operations” for “direct the operations.”

Proposed paragraph (c)(1) stated that the board of directors and all its committees have authority to retain staff and outside counsel, independent accountants, financial advisors, and other outside consultants at the expense of the Federal credit union. Paragraph (c)(2) states that the board of directors or any committee of the board may require FCU staff that are providing services to the board or committee under paragraph (c)(1) report directly to the board or committee. Paragraph (c)(3) provides that in discharging board or committee duties, a director who does not have knowledge that makes reliance unwarranted is entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, prepared or presented by officers or employees of the FCU, legal counsel, independent accountants, or other experts, and committees of the board of which the director is not a member.

Some commenters opposed the provision requiring FCU employees (staff) to report directly to the board of directors or committees of the board, stating this would undermine management's authority over the employees of the credit union. Another commenter questioned whether committees other than the supervisory committee had the authority to require employees to report directly to the committee. One commenter argued that direct contact between the board of directors and the credit union's employees would put employees at the beck and call of the board and could interfere with the employees' regular duties.

The NCUA Board disagrees. An FCU's board of directors cannot permit the chief executive officer (CEO) to screen all the board's information sources. While the board of directors should not attempt to bypass the CEO in giving direction to management and employees, the board is free to ask any manager, employee, or independent contractor to provide the board and its committees information directly and not through the filter of the CEO. The NCUA's Office of General Counsel has previously opined that board members must be free to gather information from any source in the credit union to perform their board duties. OGC Op. No. 03-0763 (Sept. 29, 2003).

The Proposal instructed FCU directors on the authority and limits of the director's ability to rely on information provided by others. A director is generally entitled to rely on information prepared or presented by employees or consultants whom the director reasonably believes to be reliable and competent in the functions performed. No commenters addressed proposed paragraph (d) of § 701.4.

Some commenters asked about the interplay between § 701.4 and the business judgment rule. One commenter recommended that in the preamble to a final rule NCUA indicate its policy and intention whether the business judgment rule applies in actions brought against the directors of FCUs.

The business judgment rule is a burden of proof issue associated with particular causes of actions. Since the proposed rule does not create an express or implied private right of action, a third party seeking to bring a cause of action must look to State law to establish the cause of action. It is likely that the existence, and form, of any business judgment rule would depend on the law of the State under which the private cause of action would reside. Of course, the business judgment rule does not apply at all to administrative enforcement actions brought by NCUA.

Accordingly, and except as described above, the NCUA Board adopts § 701.4 as proposed.

As stated in the NPR preamble, the NCUA Board desires to ensure that FCU officials and employees are held personally accountable, where appropriate, for egregious violations of their fiduciary duties. NCUA will not permit an FCU to indemnify officials and employees against liability based on an aggravated breach of the duty of care when such a breach may affect fundamental rights and financial interests of the FCU members.

Accordingly, the Proposal included a new paragraph (c)(5) in § 701.33 prohibiting an FCU from indemnifying an official or employee for personal liability related to any decision made by that individual on a matter significantly affecting the fundamental rights and interests of the FCU's members. Such indemnification, however, was limited to situations in which the decision giving rise to the claim for indemnification is determined by a court to have constituted gross negligence, recklessness, or willful misconduct. Matters affecting the fundamental rights and interests of FCU members include, charter and share insurance conversions and terminations.

The Proposal also included corresponding amendments to the indemnification provisions of the standard bylaws of FCUs and Federal corporate credit unions. Of the 24 commenters addressing this revision, most opposed it. Most of those opposed argued that the proposed provision would have the unintended consequence of discouraging qualified individuals from serving as directors because of the expanded potential for personal liability. Others asserted it would disadvantage the FCU charter as compared to the State charter because FCU directors would face an even higher burden compared to State chartered CU directors.

The NCUA Board does not agree with these commenters. The proposed prohibition on indemnification is limited to the extraordinary circumstance of a board considering a proposal to change the credit union's charter or insurance status. Not only are these situations rare, but the prohibition would only apply in the very limited circumstance of an aggravated breach of the duty of care as determined by a court.

Some commenters stated that the proposed rule's silence on the advancement of expenses would also disadvantage FCUs in attracting directors. To alleviate this concern, the final rule permits the FCU to advance funds to pay or reimburse reasonable legal fees and other professional expenses incurred by the official or employee to assist the official or employee in resisting lawsuits that the FCU considers meritless. The decision to advance funds requires the FCU's board of directors make a good faith determination, after due investigation, that:

• The official or employee acted in good faith and in a manner he or she believed to be in the best interests of the members;

• The payment will not materially adversely affect the credit union's safety and soundness; and

• The official or employee provides a written affirmation of his or her good faith belief that the relevant standard of conduct in § 701.4 have been met and a written undertaking to reimburse the credit union, to the extent not covered by payments from insurance, the advanced funds if it ultimately decided that the official or employee is not entitled to indemnification.

The NCUA Board is also adding a new provision to § 701.33 reinforcing that fiduciary duties are owed to the members. Existing (and unchanged) § 701.33(c)(2) states that indemnification shall be consistent either with the standards applicable to credit unions generally under the law of the State where the FCU is located or the MBCA, as specified by the credit union. The MBCA standard under which a corporation may indemnify a director requires that the director acted in good faith and with the reasonable belief that his or her conduct was in the best interests of the corporation. MBCA § 8.51(a). A commenter stated that this appears to conflict with the Proposal's statement that FCU directors' duties are owed to the membership and not to the credit union per se. The NCUA Board agrees that there is an apparent conflict and has added a new paragraph (c)(7) to § 701.33 to resolve this conflict. The new (c)(7) states that, the extent an FCU has chosen to follow State law or the MBCA, the FCU must substitute “best interests of the members” for any language in State law or the MBCA indicating that duties are owed to any persons or entities (such as the credit union or the corporation) other than the membership as a whole.

Accordingly, and except as described above, the final rule amends § 701.33 as proposed.

The proposed amendments to Parts 708a and 708b revise existing rules on credit union to mutual savings bank (MSB) conversions and conversions to nonfederal deposit insurance. The revisions are designed to better protect the secrecy and integrity of the voting process. The Proposal also reorganized Part 708a and added a new subpart C to Part 708a that establishes procedural and substantive requirements for converting a credit union to a bank through a merger.

The preamble to the Proposal included a detailed section-by-section description and analysis for revised Parts 708a and 708b. 75 FR 15574, 15579-15585 (March 29, 2010). The Board adopted many sections of the Proposal without change, and the detailed analysis of most of these sections is not repeated in this preamble.

The Proposal included a new definition of “secret ballot” in § 708a.101 to prohibit credit union employees from helping members complete ballots or handling completed ballots. One commenter argued the prohibition would prevent employees from responding to any questions at all about the election because of the unclear delineation between answering questions and helping with a ballot. The NCUA Board disagrees. The definition of “secret ballot” prohibits credit union officials from assisting members in completing ballots or handling completed ballots. The provision only prohibits an employee from physically touching a ballot or telling a member which way to vote, and does not prohibit an employee from answering questions. While one commenter said the prohibition on employees handling ballots would create unnecessary difficulties for members, another commenter suggested the rule should also require the independent entity to empty the ballot boxes in credit union branches. After considering the comments, the NCUA Board determined the rule as proposed appropriately protects the secrecy of members' votes without imposing an undue burden on credit unions. Accordingly, the final rule adopts the definition as proposed.

The Proposal added new definitions for “independent entity” and “conducted by an independent entity.” These definitions describe the qualifications of, and requirements applicable to, the entity responsible for tabulating member votes on the conversion proposal. The new definitions would prohibit the independent entity from providing any interim vote results to credit union management as well as prohibit the opening or tallying of ballots during the election period. As discussed in the Advance Notice of Proposed Rulemaking, NCUA has documented several instances where credit union management's access to interim vote tallies raised concerns about the fairness of elections and the communications to members. 73 FR 5461, 5466 (January 30, 2008).

Several commenters stated the definition of “conducted by an independent entity” as proposed would pose practical challenges. Some of these commenters said the requirement to delay the counting of ballots until after the conclusion of the special meeting would make counting the ballots and certifying the results to NCUA within 10 days much more difficult. The NCUA Board agrees that the change in procedure contemplated by the Proposal could make certification within 10 days more difficult and has lengthened the period for certification under section 708a.107 to 14 days. Another commenter, a company that conducts corporate elections, explained that the usual way the independent entity determines which members have voted is by opening the ballot and checking the validity of the control number and matching it with a member name. This commenter stated that because the independent entity needs to know which members have voted to produce a list of members who have not voted, the bar on opening ballots during the election period would make it much more difficult to produce the list of members who have yet to vote. The NCUA Board understands the Proposal might require election tellers and credit unions to modify the envelope format so that the outside of the envelope would show the ballot control number. The documented problems with interim vote tallies and the difficulty of ensuring that election tellers with access to interim tallies do not share these tallies with credit union management justify requiring election tellers to change their usual procedures if necessary. NCUA believes those rare cases where voters might not complete a ballot correctly, and so be listed as having voted when they did not actually vote properly, will not affect the fairness of the overall voting process.

Another of the commenters suggested that the independent entity should be allowed to tally ballots as they are received, and only communicating the interim tallies to the credit union should be prohibited. The Board believes it would be too easy for a teller to unintentionally communicate the interim voting results to the credit union.

One commenter who supported the rule as proposed suggested the rule should also prohibit giving credit union management the names of members who have not voted, because members opposing the conversion cannot obtain this information. As an alternative, this commenter suggested allowing management to provide an election reminder notice to the independent entity and having the independent entity mail it to members who have not voted. The Board is not aware of situations where allowing credit union management to obtain lists of non-voting members during the election period has compromised the fairness of an election, and having such lists allows the credit union to conserve resources by only soliciting those who have not yet voted.

Accordingly, the final rule adopts the definitions of “independent entity” and “conducted by an independent entity” as proposed.

The Proposal also amended the list of disclosures in § 708a.104 (previously § 708a.4) to add disclosures related to the cost of the conversion, the conversion's effect on the availability of facilities, and a statement that NCUA neither supports nor endorses the conversion proposal.

Most commenters were opposed to the requirement to disclose the costs of the conversion. One opposing commenter asserted that the costs are irrelevant to members and most of the costs are incurred before members are notified, while another said any such disclosures would be only speculation. The NCUA Board disagrees that simply because, as one commenter alleges, most of the costs have occurred, or, as another commenter alleges, most of the costs are in the future, that members will find these costs, or cost estimates, irrelevant. One of the commenters supporting the cost disclosures also suggested the cost disclosures should be updated in the mailings to members 60 and 30 days before the vote, because any attempted opposition to a conversion proposal causes the credit union to incur additional advertising expenses to respond to the opposition. This suggestion goes beyond the scope of the Proposal. The NCUA Board will consider how these cost disclosure requirements will work in practice before proposing any additional disclosure requirements.

The Proposal also required the converting credit union to disclose the projected effect of the conversion on the availability of facilities, including, at a minimum, the name and location of any branches, shared branches, and ATM networks to which members may lose access. Two commenters objected on the grounds it requires too much precision in advance predictions. The NCUA Board disagrees, as considering the future availability of facilities is a fundamental part of planning for the charter conversion transactions to which this disclosure applies. Moreover, the rule does not require a definitive, final statement about the availability of facilities—the disclosure can state a transaction “could” result in the loss of certain facilities, for example.

The Proposal required the disclosure to include the statement that “NCUA does not approve or disapprove of the conversion proposal or the reasons advanced in support of the proposal.” Most commenters did not oppose this disclosure, although several suggested slight amendments. One commenter suggested either deleting the phrase “or the reasons advanced in support of the proposal” or revising the phrase to read “or the reasons in support of or against the proposal.” The NCUA Board agrees that adding the language “or against” is a helpful clarification of NCUA's neutrality in the final rule and has made this change. A commenter also suggested including this disclosure on the member-to-member communication as well, but this suggestion goes beyond the scope of the Proposal and the Board declines to adopt it.

Except as described above, the final rule adopts § 708a.104 as proposed.

The Proposal added a new paragraph to the voting guidelines section, § 708a.113 (previously § 708a.13), recommending against the use of credit union employees to solicit member votes. Although most commenters opposed this guidance, the opposing commenters tended to mischaracterize it as a requirement. The voting guidelines, including the recommendation to not use staff to solicit member votes, do not impose mandatory requirements, but simply suggest how credit unions can ensure an election is conducted fairly and in a manner that does not jeopardize the operations and condition of the converting credit union. NCUA may in the future propose a requirement that converting credit unions to use an independent third party to solicit votes rather than diverting credit union employees from their usual duties. In this final rule, NCUA strongly encourages credit unions to use an independent third party if soliciting votes.

Accordingly, the final rule adopts the revisions to § 708a.113 as proposed, with minor revisions to highlight NCUA's recommendation against using credit union employees to solicit votes.

The Proposal included a new subpart C to Part 708a regulating mergers of credit unions into banks. The majority of commenters on these provisions generally supported the concept of regulating these types of transactions, and several commenters noted that these provisions fill a gap in current regulations. Specific comments addressed to certain provisions of subpart C are discussed below.

§ 708a.303(a) requires a credit union's board of directors, when looking to merge into a bank, to determine the merger value of the credit union either by conducting an auction or retaining a “qualified appraisal entity” to estimate the merger value of the credit union before directors select a bank merger partner and vote on a proposal to merge. A qualified appraisal entity must have no past financial relationship with the merging credit union, the continuing bank, or any law firm representing the credit union or the bank in connection with the merger.

Proposed § 708a.304 requires the credit union to disclose its merger value, and whether any merger payment will be made to members, to NCUA. This section also requires the notice to NCUA to include all information the credit union relied on in making the selection of a merger partner and, if the payment to members is less than the merger value, an explanation of why the merger and the merger partner selected are in the best interests of the members. The Regional Director must disapprove a proposed merger where the merger payment is less than the merger valuation, unless members receive some additional, quantifiable benefit.

Commenters on the merger value provisions were equally divided. Opposing commenters found the merger value requirement too onerous, costly, or beyond NCUA's authority. The NCUA Board disagrees with these latter commenters. In a transaction that fundamentally changes the nature of the credit union and its members' ownership, knowing the value of the credit union is critical to the members' decision on approving the merger proposal. This valuation is also critical to NCUA's ability to make the statutorily required determination of whether a proposed merger meets the “convenience and needs of the members.” 12 U.S.C. 1785(c)(5). While the merger valuation requirement may entail addition procedures, analysis, and costs for the credit union proposing the transaction, knowing the merger value, and whether members are receiving compensation for this value, outweighs institutions' concerns about additional procedures.

Some supporting commenters suggested revisions to the merger valuation process. A few would expand the requisite analysis to include intangible items such as the value of the relationship between the members and the credit union and would exclude the value of benefits a credit union member could get simply by becoming a bank customer in addition to a credit union member. The NCUA Board has not modified the rule as suggested by these commenters. The NCUA Board will examine how the merger valuation provision works in future practice before making adjustments to the procedure.

Finally, one commenter suggested that a “qualified appraisal entity” under this provision should not only have no past relationship with the continuing bank or the merging credit union and any law firm representing either institution, but also no past relationship with the bank's affiliates or holding company. The NCUA Board agrees that to be a qualified appraisal entity, the entity must also have no past relationship with a bank's owners, affiliates, or holding companies, and the final rule reflects this.

Proposed paragraph 708a.304(g) required the Regional Director to review the merging credit union's Notice of Intent to Merge and Request for Approval (NIMRA) and either disapprove the NIMRA or authorize the credit union to proceed to the member vote. Section 708a.308 requires the Regional Director to review the methods and procedures of the membership vote and approve or disapprove the merger. Several commenters expressed concerns about the amount of discretion given to the Regional Directors in these reviews, with some suggesting these reviews exceed the scope of NCUA's authority.

The NCUA Board does not share these concerns, and the final rule retains the proposed delegations. The authority and discretion the NCUA Board gives to Regional Directors under this provision is entirely in keeping with the role assigned to the NCUA Board and the NCUA Board's authority to delegate duties to staff under the FCU Act. The FCU Act requires the NCUA Board to assure that a Federally insured credit union's merger with another type of financial institution, among other requirements, meets the “convenience and needs of the members.” 12 U.S.C. 1785(c)(5). The FCU Act also permits the NCUA Board to delegate any of its responsibilities to staff. 12 U.S.C. 1766(d). As part of its statutorily required assessment of whether a proposed transaction meets the convenience and needs of the members, the NCUA Board is delegating to the Regional Director the determination of whether the notice of a proposal to merge and the methods and procedures used to conduct the member vote were adequate.

Proposed § 708a.305 includes required disclosures to credit union members for credit union-to-bank mergers similar to those required for credit union-to-bank conversions. Comments were evenly split between support of and opposition to the disclosures.

One commenter recommended a change to § 708a.305(d)(2), which says a member “could” lose all ownership interests if the bank converts to a stock bank and members do not purchase stock. This commenter recommended replacing the word “could” with “will,” because the fact that a member needs to re-purchase the ownership interest indicates the member no longer has it. Conversely, an opposing commenter stated the member rights disclosures ignore the rights of MSB members to subscribe to the initial stock offering. While the NCUA Board agrees with the first commenter that a former credit union member will lose ownership interests if the MSB later converts to a stock bank and the MSB member does not subscribe to the stock offering, the final rule retains the word “could” because a total loss of ownership interests is dependent on the MSB converting to a stock bank. The NCUA Board does not agree the disclosure ignores MSB members' rights to subscribe to the initial stock offering, since the disclosure explicitly mentions the possibility that the MSB member may purchase stock.

Proposed § 708a.306 requires that at least 20 percent of members participate in the vote on merging with a bank. One commenter deemed 20 percent too low, since it would allow a merger with a bank with only 10 percent of the credit union members voting affirmatively. Another commenter deemed 20 percent too burdensome and opined the expenses of recruiting members to vote would drive down the value of the credit union to the potential merger partner. The final rule retains the 20 percent participation requirement. This requirement is identical to the participation requirement for converting from Federal deposit insurance under the FCU Act. 12 U.S.C. 1786(d)(2).

As discussed above, the final part 708a, Subpart A (for credit union conversions to MSBs) contained modified definitions of “independent entity” and “conducted by an independent entity.” This final part 708a, Subpart C (for credit union mergers into banks) contains similar modifications.

Accordingly, and except as described above, the final rule adopts the new part 708a, subpart C as proposed.

Subpart A of Part 708b regulates credit union-to-credit union mergers and termination of NCUSIF insurance. As discussed below, the Proposal required merging credit unions disclose and explain, in certain mergers, the factors used to determine whether a share adjustment will be paid to members of the merging credit union. The Proposal also required additional disclosures to members and to NCUA regarding compensation increases to key credit union staff and officials. 708b.103(a)((5) Disclosures related to share adjustments.

Proposed paragraph 708b.103(a)(5) expanded on the existing requirement in § 708b.103 for merging credit unions to state the amount of any share adjustment in the summary of the merger plan given to members. The Proposal required, where the net worth ratio of the merging credit union exceeds the net worth ratio of the continuing credit union by more than 500 basis points, an explanation of the factors used in establishing the amount of any proposed adjustment or in determining no adjustment is necessary. Contrary to some commenters' interpretations, the Proposal did not require payment of a share adjustment.

Several commenters argued these disclosures were unnecessary and would discourage mergers or disputed that members of a merging credit union are entitled to the net worth of a merging credit union. The NCUA Board disagrees. As discussed in the preamble to the Proposal, in many cases a merger involves a smaller credit union with limited services and a high net worth ratio (NWR) seeking to merge with a much larger credit union with more services but a lower NWR. 75 FR 15574, 15584 (March 29, 2010). The higher NWR of the merging credit union includes retained earnings that could have been spent, but were not spent, on additional product offerings or more favorable rates. Because, in these situations, the members of the merging credit union have paid for the higher NWR with reduced services or less favorable rates, the NCUA Board believes that where a NWR disparity exists, the members of the merging credit union need to know how any merger dividend, if a merger dividend is offered, was calculated. Accordingly, the final rule adopts paragraph (a)(5) as proposed.

The Proposal amended §§ 708b.103 and 708b.106 to require disclosure to NCUA and to credit union members of any “merger-related financial arrangement,” defined to include any increase in direct or indirect compensation to board members or senior management officials that exceeds the greater of 15% or $10,000. Half of the comments on this provision supported the general concept of increased disclosure in this area. Most opposing commenters suggested a higher threshold for compensation increases that would trigger disclosures, and several found the $10,000 trigger too low for larger credit unions. The NCUA Board reiterates that the threshold for requiring disclosure is a compensation increase that exceeds the greater of 15% or $10,000. Accordingly, for officials with higher salaries, the threshold for disclosure would be compensation increases of more than 15%. The Proposal required disclosures only for compensation increases above certain thresholds and thus balances any privacy interests of the employees with the interests of members in knowing when material financial incentives have been proposed to directors and senior management officials.

Several commenters also suggested this disclosure was unnecessary because it would be included in Internal Revenue Service filings and, for FCU members, accessible under NCUA's regulation on access to books and records. The NCUA Board disagrees that these alternate means of accessing compensation information are adequate for the purposes of a member vote on a merger, because information from these sources is unlikely to be available to members during the voting period. The NCUA Board believes members should know whether credit union directors or senior management officials stand to gain financially from a merger before voting on the merger proposal. Accordingly, the final rule adopts these disclosure changes as proposed.

Subpart B of Part 708b regulates share insurance conversions. The proposed changes to Part 708b include the prohibition on interim vote tallies and the ban on employees assisting with or handling ballots in transactions resulting in the termination of NCUSIF share insurance.

The commenters' chief concern about the practical effects of the Proposal—that the prohibition on opening ballots in the definition of “conducted by an independent entity” would make it difficult to ascertain which members had voted—was the same as the concern expressed in the context of credit union-to-bank conversions. Commenters on this section also noted that for conversions from Federal deposit insurance the FCU Act requires 20% of credit union members to vote. 12 U.S.C. 1786(d)(2). The 20% quorum requirement, commenters said, makes it especially important that the credit union proposing the insurance conversion knows how many members have voted, and also more difficult to count the ballots and certify the results within 10 days after the election because a higher proportion of members must vote. As discussed above, the NCUA Board sees no reason why the election teller cannot modify the ballot envelope to allow the election teller to produce a list of members who have voted, and thus a list of those who have not yet voted, and so the Board has not changed the proposed definition. Also as discussed above, the Board is extending the deadline for certifying the election results from 10 days to 14 days after the close of the voting period to allow the teller more time for counting the ballots.

Several commenters opined that applying the ban on interim vote tallies to insurance conversions was unnecessary because the concerns NCUA has documented with previous elections occurred in the context of charter conversions rather than insurance conversions. The NCUA Board disagrees. The same potential for problems exists with any election where credit union officials have access to interim voting tallies, so the NCUA Board has prohibited credit union officials from obtaining interim vote tallies on all transactions affecting a credit union's charter or insurance status. Other commenters suggested NCUA's requirements in this area impermissibly preempt State law. Again, the NCUA Board disagrees, because the FCU Act explicitly gives the NCUA authority to regulate conversion from Federal deposit insurance. 12 U.S.C. 1785(b)(1)(D).

Accordingly, and except as described above, the final rule adopts the proposed changes to Subpart B of § 708b.

The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact a proposed rule may have on a substantial number of small credit unions (those under ten million dollars in assets). Only a few credit unions convert in a given year. Accordingly, the NCUA Board certifies that this final rule will not have a significant economic impact on a substantial number of small credit unions, and, therefore, a regulatory flexibility analysis is not required.

The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in which an agency by rule creates a new paperwork burden on regulated entities or modifies an existing burden. 44 U.S.C. 3507(d). For purposes of the PRA, a paperwork burden may take the form of either a reporting or a recordkeeping requirement, both referred to as information collections. NCUA identified and described several information collection requirements in the proposed rule. As required by the PRA, NCUA submitted a copy of the proposed regulation to the Office of Management and Budget (OMB) for its review and approval and invited comment on the PRA aspects.

While NCUA received comments on the proposed rule, no commenters specifically addressed the agency's estimates of burden hours or costs as set out in the preamble to the Proposal. Accordingly, NCUA anticipates that OMB will approve NCUA's submission.

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.

This final rule will not have substantial direct effects on the States, on the connection between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. NCUA has determined that this rule does not constitute a policy that has federalism implications for purposes of the executive order.

NCUA has determined that this 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).

The Small Business Regulatory Enforcement Act of 1996 (Pub. L. 104-121) (SBREFA) 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's determination about whether this rule is a major rule for purposes of SBREFA is pending.

Effective July 30, 2008, HERA, Public Law 110-289, 122 Stat. 2654, amended the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq. ) (Safety and Soundness Act) to establish FHFA as an independent agency of the Federal government. 1 HERA transferred the supervisory and oversight responsibilities of the Office of Federal Housing Enterprise Oversight (OFHEO) over Fannie Mae and Freddie Mac (collectively, Enterprises), and of the Federal Housing Finance Board (FHFB) over the Banks (collectively, regulated entities) and the Bank System's Office of Finance to FHFA.

The Safety and Soundness Act provides that FHFA is headed by a Director with general supervisory and regulatory authority over the regulated entities. FHFA is charged, among other things, with overseeing the prudential operations of the regulated entities. FHFA is also charged to ensure that the regulated entities: Operate in a safe and sound manner including maintenance of adequate capital and internal controls; foster liquid, efficient, competitive, and resilient national housing finance markets; comply with the Safety and Soundness Act and rules, regulations, guidelines and orders issued under the Safety and Soundness Act, and the respective authorizing statutes of the regulated entities; carry out the respective missions through activities authorized and consistent with the Safety and Soundness Act and the authorizing statutes; and, engage in activities and operations that are consistent with the public interest.

Section 1116 of HERA amended section 1319A of the Safety and Soundness Act (12 U.S.C. 4520) to require FHFA to engage in certain activities to promote a diverse workforce. It also requires each regulated entity to establish an Office of Minority and Women Inclusion, or designate an office, responsible for carrying out the requirements of the section and such requirements and standards established by the Director. Section 1319A of the Safety and Soundness Act requires the regulated entities to promote diversity in all activities and at every level of the organization, including management, employment and contracting. Furthermore, 12 U.S.C. 1833e, as amended, and Executive Order 11478 require FHFA and the regulated entities to promote equal opportunity in employment and contracting.

On January 11, 2010, FHFA published a proposed rule on Minority and Women Inclusion to implement section 1116 of HERA, 12 U.S.C. 4520. The proposal set forth minimum requirements for regulated entity diversity programs as well as requirements for reporting on these programs. The proposal also set forth the minimum requirements for the agency's own diversity program.

The proposed rule consisted of the following subparts: Subpart A addressed matters of general application; subpart B applied only to FHFA's internal operational requirements under section 1116 of HERA; and subpart C implemented the requirements under section 1116 of HERA for the regulated entities. FHFA initially established a 60-day comment period but, at the request of the public, extended that period another forty-five (45) days. 2 The extended comment period closed on April 26, 2010.

FHFA received 23 comment letters to the proposed rule from individuals and entities. Three letters came from private citizens. Fannie Mae, Freddie Mac, and eleven of the Banks submitted comment letters. The Banks of Atlanta, Boston, Chicago, Dallas, Indianapolis, New York, San Francisco, Seattle, Topeka, Des Moines and Pittsburgh sent comments that were generally similar. The Bank System's fiscal agent, the Office of Finance, also submitted a comment. The following trade associations or potential vendors to the regulated entities submitted comment letters: The National Association of Hispanic Real Estate Professionals (NAHRE); the New America Alliance (NAA); FinaCorp Securities; Trade Street Advisors (TSA); the Asian Real Estate Association of America (AREAA); and the National Association of Securities Professionals (NASP). The comments were extensive, thoughtful and significant. All comments were considered. None of the comments addressed the provisions of subpart B with respect to the requirements for FHFA's internal diversity management program. A discussion of significant comments as they relate to the provisions of the final rule follows.

This regulation finalizes subpart A, addressing matters of general applicability, and subpart C, addressing regulation of diversity at the regulated entities and the Bank System's Office of Finance. FHFA has decided to reserve subpart B of the proposed rule. After the comment period for the proposed rule closed, the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203 (Dodd-Frank) was enacted. Section 342 of Dodd-Frank expands on the requirements of HERA. Unlike HERA, Dodd-Frank requires the agency to establish and staff a separate Office of Minority and Women Inclusion responsible for carrying out operational diversity requirements. The requirements of Dodd-Frank are similar, but not identical to HERA and apply to several other financial regulatory agencies. FHFA plans to finalize subpart B once it has reconciled the requirements of HERA section 1116, the reserved subpart B to this rule, and section 342 of Dodd-Frank. FHFA wants to ensure that any proposed requirements under subpart B of the rule will facilitate the appropriate alignment of the agency's diversity and inclusion program with the programs the other agencies subject to section 342 of Dodd-Frank will be implementing.

FHFA responds to specific concerns below as it explains aspects of the rule commented upon. After considering the comments received in response to the proposed rule, FHFA is adopting a final rule implementing the provisions of section 1116 of HERA that apply to Fannie Mae, Freddie Mac, and the Banks.

All eleven of the Banks that submitted comments and the Office of Finance commented that the proposed rule exceeds FHFA's authority under HERA in several respects, but most notably by including any coverage of disabilities in the rule. The comments suggest that coverage of the rule must be strictly limited to HERA's identification of minorities and women.

FHFA disagrees. HERA contains more than sufficient authority for the Director to expand the coverage of the rule. Several provisions of HERA make clear that the provisions of section 1116 are minimum standards on which the Director may expand as he determines appropriate. Section 1116, in explaining the responsibilities of a regulated entity's Office of Minority and Women Inclusion, requires the office to “carry out this section and all matters of the entity relating to diversity * * * in accordance with such standards and requirements as the Director shall establish.” 12 U.S.C. 4520(a) (emphasis added). The reference to “this section and all matters of the entity relating to diversity” signals that Congress did not intend the terms of the section to limit the Director's authority. They indicate an understanding that “all matters of the entity relating to diversity” is not limited to matters relating to minorities and women. That understanding is buttressed by the unqualified authority for the Director to establish “such standards and requirements” as he determines appropriate.

The Director's authority does not stop at the language of section 1116. The Director has broad general regulatory authority (12 U.S.C. 4511(b)(2)) which is required to include a principal duty of “oversee[ing] the prudential operations of each regulated entity.” 12 U.S.C. 4513(a)(1)(A). Moreover, the scope of the Director's authority includes “exercis[ing] such incidental powers as may be necessary or appropriate to fulfill the duties and responsibilities of the Director in the supervision and regulation of each regulated entity.” 12 U.S.C. 4513(a)(2)(B).

The Director believes that the anti-discrimination provisions in the Rehabilitation Act of 1973 (29 U.S.C. 791, 793, 794, and 794a) and the congressional findings concerning extensive discrimination and barriers to economic participation faced by individuals with disabilities underlying the Americans with Disabilities Act (42 U.S.C. 12101) (ADA) constitute sufficient reason to include individuals with disabilities and disabled-owned businesses within the scope of this final rule. The final rule includes requirements for inclusion and diversity with respect to individuals with disabilities.

In several instances, the proposed rule used the term “disabled” to refer to the community of individuals with disabilities. The final rule changes that terminology to “individuals with disabilities” or “persons with disabilities,” where appropriate. Consistent with current convention and usage in the ADA, the final rule no longer refers to individuals with disabilities as “disabled” and the definition of “disabled” has been removed. The term “disabled-owned business” is separately defined and is retained for ease of use.

Several commenters requested removal of data reporting requirements with respect to disabilities. FHFA found their comments compelling to the extent that some elements of the proposed rule create unnecessary tension with medical privacy and anti-discrimination statutes. Therefore, data reporting with respect to disabilities is significantly reduced in the final rule, as discussed below. However, the rule retains some data reporting requirements and continues to require outreach to the individuals with disabilities.

A significant number of commenters requested that the agency clarify the scope of the contracts subject to the requirements of the rule. Several commenters proposed that the agency limit the rule to contracts for services. Several others proposed that the final rule apply to contracts for goods and services, but as described by the Federal Deposit Insurance Corporation's own outreach regulation. 3 Some commenters raised serious concerns about applying the rule to loans, advances and other contracts that are for neither goods nor services.

Section 1116(c) of HERA, entitled “Applicability,” provides: “This section shall apply to all contracts of a regulated entity for services of any kind, including services of investment banking, asset management entities, broker-dealers, financial services entities, underwriters, accountants, investment consultants, and providers of legal services.” This makes clear that the section covers all contracts for services. However, the section does not limit the scope to just contracts for services as a number of commenters asserted. On the contrary, section 1116(b) seeks inclusion and diversity “in all business and activities of the regulated entity at all levels, including in procurement, insurance and all types of contracts (including contracts for the issuance or guarantee of any debt, equity, or mortgage-related securities, the management of its mortgage and securities portfolios, the making of its equity investments, the purchase, sale, and servicing of single- and multi-family mortgage loans, and the implementation of its affordable housing program and initiatives).” An interpretation that limits coverage to contracts for services makes section 1116(b) a nullity. Even restricting coverage to contracts for goods and services severely limits section 1116(b) beyond the plain language of the statute.

However, FHFA understands the practical difficulties in applying a rule to cover contracts for services, contracts for goods, and contracts for all other subjects, such as financial contracts, loans, financial transactions, financial instruments, realty, deeds, mortgages, letters of credit, confidentiality and non-disclosure agreements, software and other licenses, corporate operating agreements and similar arrangements, and the Banks' advances. HERA, by requiring every contract for services to be covered but not using the same inclusive language for all contracts, allows for reasonable distinctions. FHFA believes that contracts for goods that are for more than minimal amounts, as well as contracts for services, present great opportunities for the regulated entities and the Office of Finance to advance the interests of diversity. The final rule requires demographic data reporting and all other relevant elements in the regulation for every contract for services and every contract for goods that equals or exceeds $10,000 in annual value (whether as a single contract or as a series of contracts or renewals with a single vendor). The final rule exempts from the material clause and demographic data reporting requirements of §§ 1207.21(b)(6), 1207.22 and 1207.23(b)(11) through 1207.23(b)(13) all other contracts. The regulated entities' diversity outreach efforts in contracting under § 1207.21(c), however, should seek to include every type of contract. Paragraph (b) has been added to § 1207.3, “Limitations,” to reflect these distinctions. To further ensure the reasonable implementation of this limitation, section 1207.21(b) is expanded to require that each regulated entity and the Office of Finance identify the types of contracts it considers exempt under § 1207.3(b).

A few commenters asked for guidance with respect to what certifications FHFA would accept for minority-, women-, and disabled-owned businesses. Other commenters requested clarity with respect to identifying qualified businesses. The proposed rule noted that the definition of “disabled-owned businesses” is satisfied by a business that qualifies with the U.S. Small Business Administration (SBA) as a Service-Disabled Veteran-Owned Small Business Concern. Other methods of certification exist through State government entities, trade associations and specialty organizations, and chambers of commerce, such as the US Business Leadership Network, a national disability organization of businesses, or the National Association of Minority and Women Owned Law Firms.

Despite inherent shortcomings in self-certification, FHFA believes that the regulated entities and the Office of Finance should be allowed to rely on a self-certification from a business so long as both the certification and the reliance are in good faith. Nonetheless, FHFA prefers that the regulated entities rely on certifications from qualified independent third parties.

Several commenters urged FHFA to disclaim the use of demographic quotas, while other commenters urged the agency to establish numerical targets and goals. Nothing in the proposed rule, or in the final rule, envisions or suggests the use of quotas. Additionally, a generally applicable regulation is not the vehicle through which to prescribe remedial targets for specific circumstances at particular entities. FHFA will not forego the use of any legally permissible standards, methods, tools and techniques that it determines appropriate to analyze data reported and to measure progress or adherence to standards. Diversity at each regulated entity and the Office of Finance needs to be evaluated separately. FHFA is not willing to impose an artificial standard on all entities. Deficiencies at a regulated entity or the Office of Finance will be addressed as they arise on a case-by-case and issue-by-issue basis. The use of remedies to address the deficiencies will be tailored to fit the circumstances at hand.

Several commenters requested that FHFA use regional demographic data when analyzing workforce diversity and the progress of each regulated entity. FHFA responds by noting that it will use the data it considers appropriate in the context of what it is evaluating. Regional demographic data are appropriate for some purposes, but not for all. By way of example only, it would be appropriate to apply national data when recruiting for employees or soliciting for contractors on a national basis. Under no circumstance will FHFA accept regional demographic data as a means of justifying the failure to make efforts to advance diversity.

One private citizen commented that any approach to inclusion and diversity that recognizes characteristics like gender and race are misguided and counterproductive. Another private citizen commented that FHFA should not require the creation of Offices of Minority and Women Inclusion and should let existing agencies, such as the Equal Employment Opportunity Commission (EEOC), regulate diversity at the regulated entities.

Both of these comments are mistaken and take issue with the public policy expressed by Congress in section 1116 of HERA. Congress directed each regulated entity to establish an Office of Minority and Women Inclusion, or designate an office to perform the functions required by the statute of such an office. Congress also required that the regulated entities pay attention to and report on gender and racial diversity in their activities including in employment and contracting. FHFA does not have the discretion to ignore the statute. Moreover, HERA gives certain regulatory oversight and enforcement authority to FHFA to broadly encourage diversity in employment, contracting, and all business and activities at the regulated entities which are not otherwise subject to such regulation.

Existing agencies do not, as one private citizen suggested, regulate diversity in employment or contracting at the regulated entities. The EEOC is an enforcement agency to which certain demographic data is reported. It files lawsuits and investigates and processes charges of discrimination in employment against businesses for violations of anti-discrimination laws. It publishes reports about employment discrimination as well as diversity trends and progress throughout the country and in specific segments of the economy. The EEOC's regulations provide guidelines for addressing and avoiding employment discrimination and it issues recommended best practices and legal policy announcements. It does not exercise regulatory oversight of diversity. Furthermore, its authority is limited to discrimination in employment. The EEOC has no authority with respect to contracting in any industry. Similarly, unlike Federally insured depository institutions, FHFA's regulated entities are not considered government contractors subject to Executive Order 11246, under which the Department of Labor's Office of Federal Contract Compliance Programs (OFCCP) exercises mainly enforcement authority with respect to discrimination on specific bases at many financial institutions and other companies. In short, the responsibilities given to FHFA are not—as the commenter suggested—duplicative of existing regulatory regimes.

In several instances, the proposed rule used the term “disabled” to refer to the community of individuals with disabilities. The final rule uses the term “individuals with disabilities” or “persons with disabilities” instead of “disabled” where appropriate. This change is made consistent with current convention and usage in the ADA. The final rule no longer refers to individuals with disabilities as “disabled” and the definition of “disabled” has been removed. The term “disabled-owned business” is separately defined and is retained for ease of use.

Seven Banks commented that the proposed definition of “business and activities” is too broad, exceeds the scope of HERA, and makes compliance with some sections of the proposed rule impossible.

FHFA disagrees. The definition is intentionally broad and all-inclusive because the statute's description of covered activities is broad and all-inclusive. Section 1116 of HERA applies the diversity and inclusion requirements to “all matters of the entity relating to diversity in management, employment and business activities * * *” 12 U.S.C. 4520(a). It extends to “all business and activities * * * at all levels, including in procurement, insurance and all types of contracts (including contracts for the issuance of debt, equity or mortgage-related securities, the management of its mortgage and securities portfolios, the making of its equity investments, the purchase, sale and servicing of single- and multi-family mortgage loans, and the implementation of its affordable housing program and initiatives).” 12 U.S.C. 4520(b). The breadth of the definition is necessary to ensure that “all types of contracts,” management activities, employment, procurement and “all contracts * * * for services of any kind” (12 U.S.C. 4520(c)) in fact are captured by the regulation. The final rule retains the proposed definition.

Seven Banks identified as problematic the definition of “disabled-owned business” because it relies on inherently unreliable self-identifications. Another regulated entity suggested expressly permitting the use of voluntary commercially reasonable efforts to identify qualified populations. Self-identifications, while not ideal, are commonly relied upon, including in the decennial censuses. With respect to disabilities, certain inquiries cannot be made and some disabilities are not observable. Self-identification actually is a preferred method for classification. FHFA does not believe that further clarification is needed, having addressed the issues of business certifications above. The final rule retains the proposed definition.

Five regulated entities commented that the proposed definition of “minority” is inconsistent with HERA, which cross-references section 1204 of the Financial Institutions Reform Recovery and Enforcement Act of 1989. The commenters are correct. Although under the Director's authority, FHFA can require reporting with respect to classifications that are beyond those included in the mandatory definition of “minority,” the final rule conforms the definition of “minority” to that referenced in HERA.

One Bank requested that FHFA limit the definition of “disability” by disregarding the so-called “regarded as” alternative contained in both the Rehabilitation Act of 1973  4 and the ADA. 5 FHFA declines to adopt the suggestion. The definition incorporates standards developed by authorities responsible for enforcing the ADA and FHFA finds no reason to create a narrower definition than that which Federal law has recognized for more than thirty (30) years.

Nine Banks and the Office of Finance requested that FHFA limit the phrase “to the maximum extent possible” to actions that are consistent with other laws and accounting for safety and soundness concerns. FHFA believes that compliance with other applicable laws is an inherent qualification on any action and need not be expressed in the final rule. With respect to safety and soundness considerations, the final rule reflects that safety and soundness are concerns that should be balanced when implementing the phrase “to the maximum extent possible.” However, the goals of inclusion and diversity are not inconsistent with safety and soundness. Therefore, safety and soundness should not be used, and FHFA will not accept it, as a justification for the regulated entities and the Office of Finance failing to make efforts to advance inclusion and diversity.

The proposed rule did not include individuals with disabilities in describing FHFA's policy to promote nondiscrimination, diversity, and inclusion. The final rule corrects that omission, consistent with the rest of the rule. Additionally, the final rule clarifies that the described policy is a minimum standard. The final rule also removes references to any standards pertaining to FHFA in § 1207.2(b) and (c) since subpart B in which the standards were addressed has been reserved.

Six Banks requested clarification that an entity would be in compliance with paragraph (a) of this section if some of the responsibilities of § 1207.20 were performed by employees outside of the designated Office of Minority and Women Inclusion. The final rule retains the language from the proposed rule. However, FHFA does not believe it necessary for an Office of Minority and Women Inclusion to operate in isolation from other parts of the entity. As long as the Office of Minority and Women Inclusion, or other designated office, remains responsible and accountable for directing and implementing the entity's diversity and inclusion program, other units of the entity may assist as required. FHFA encourages efforts to integrate respect for and attention to diversity and inclusion throughout each regulated entity.

Five Banks objected to the use of the phrase “standards and guidance” in § 1207.20(c). The final rule uses the phrase “standards and requirements” to conform to the language in 12 U.S.C. 4520(a). Nonetheless, FHFA intends to use various tools to implement this regulation and guidances may be among them, when appropriate.

Eight Banks commented that paragraph (a) of this section should not be broadened beyond the demographic classifications of “minority” and gender, noted in HERA. Section 1207.21(a) requires an equal opportunity notice and FHFA declines to narrow the identification of so-called “protected classes” recognized in an equal opportunity notice. FHFA notes that the exact language of the notice is not prescribed, but making this notice exclusive, rather than inclusive, of classifications is inconsistent with encouraging diversity. If anything, the proposed rule's requirement is under-inclusive, as it only addresses protected classifications recognized in Federal employment discrimination laws. Many businesses, perhaps some regulated entities, already have policies that recognize equal opportunity for other classifications, such as marital or parental status, sexual orientation or political affiliation. The final rule clarifies that the status classifications required in the notice establishes a minimal level of inclusiveness and additional coverage is voluntary to the entity. The notice should be supplemented and amended from time-to-time as additional protected classifications are identified in Federal anti-discrimination laws. For additional clarity, the final rule also requires the entity to confirm its commitment against retaliation, a fundamental principle for realizing the objective of equal opportunity.

Eight regulated entities objected to the “alternative media” publication requirements in paragraphs (a) and (b) of this section as overly burdensome.

FHFA disagrees. The proposed rule language required the regulated entities and the Office of Finance to make certain notices, policies and procedures readily accessible to the public “(including through alternative media— e.g., Braille, audio—as necessary).” The language with respect to Braille and audio formats is illustrative of accessibility and not prescriptive. The proposed rule was clear that if alternative media formats were “necessary,” they should be used. FHFA has decided to use the phrase “alternative media formats, as necessary,” to make it very clear that the language does not limit the types of alternative formats a regulated entity or the Office of Finance should use when necessary to make notices, policies and procedures accessible.

One regulated entity commented that FHFA should modify paragraphs (b) and (c) of this section to clarify that demographic preferences in hiring and contracting are not required. FHFA declines to make the requested modification because it is unnecessary. Nothing in the proposal or the final rule requires preferences. However, the comment alerted FHFA to the fact that recruiting and outreach to sources for applicants for employment who are minorities, women or individuals with disabilities had been omitted from the proposal. To correct this oversight, the final rule adds a clause to paragraph (b)(5) of this section requiring the regulated entities and the Office of Finance to encourage and engage in recruiting and outreach for applicants for employment from minorities, women and individuals with disabilities.

Twelve of the regulated entities submitted comments objecting to paragraph (b)(3) of this section requiring alternative dispute resolution mechanisms for complaints of discrimination. The requirement is procedural. It does not create a substantive right, but provides a process that is known for both the regulated entity and claimants to resolve disputes early. However, FHFA does not intend to micro-manage the affairs of the regulated entities and the Office of Finance. If, in the exercise of management judgment, a regulated entity or the Office of Finance determines that an alternative dispute resolution mechanism is advisable, FHFA encourages it to make the process transparent and known through the entity's policies. The final rule requires internal procedures for accepting and resolving complaints of discrimination, but does not require any particular design or the use of alternative dispute resolution options.

Ten Banks contended that the reasonable accommodation procedure requirement of paragraph (b)(4) of this section exceeds HERA's scope and creates substantive rights for individuals with disabilities.

FHFA disagrees. The substantive and enforceable right is created by the American with Disabilities Act. 6 The final rule requires the regulated entities and the Office of Finance to establish transparent procedures for fulfilling their legal obligations under the ADA to provide reasonable accommodations to employees and applicants for employment. The final rule retains the language of the proposal.

Eleven Banks and the Office of Finance objected to the proposed paragraph (b)(6) of this section requiring that all contracts contain a material clause committing the contractor to the principles of non-discrimination and diversity and that all contractors require such clauses in subcontracts for goods and services provided to the regulated entities. The Banks believe that requiring such clauses places them at a competitive disadvantage in contracting; that such clauses are unenforceable; and that the requirement interferes with a Bank's and a contractor's right to contract. The final rule retains the requirement. As a matter of public policy FHFA believes that any regulated entity or the Office of Finance, as a Federal government sponsored enterprise, should decline to enter into business with contractors who find such clauses objectionable. Similar clauses have been required in government contracts under Executive Order 11246 for more than (forty) 40 years. Unlike the requirements for government contracts, FHFA has not prescribed specific language to be included. Each entity is free to develop the specific language of its own required clause. In developing the clause, each entity can address the difficulties it believes exist for enforcement. These clauses create contractual conditions that a contractor or subcontractor can accept or reject. FHFA does not believe that such provisions pose any greater enforcement difficulty than any other contractual condition. Nevertheless, FHFA recognizes that in some contexts and for limited types of contracts these clauses may not be commercially reasonable to obtain. Therefore, § 1207.3(b) establishes certain limitations on the material clause requirement.

Nine regulated entities asked FHFA to confirm that the required standards and procedures for publication of contracting opportunities under paragraph (c)(2) of this section may include reasonable exceptions identified by the regulated entity or the Office of Finance. The commenters were concerned that the expansive scope of the proposed regulation could hinder their ability to engage in certain business transactions. Although the commenters did not provide options for addressing or implementing their suggestions, FHFA recognizes that the requirements under paragraph (c)(2) of this section could result in unintended hardships for the regulated entities and the Office of Finance.

FHFA finds that the publication, solicitation and competitive bidding processes are critical to ensuring broad and fair participation of potential vendors, thereby enhancing the opportunities for a more diverse pool of contractors. The final rule retains the publication and bidding process requirements. However, each regulated entity and the Office of Finance may exercise reasonable discretion to develop thresholds, exceptions, or limitations for implementing paragraph (c)(2) of this section. A new § 1207.21(b)(7) requires the regulated entities and the Office of Finance to develop policies and procedures that address the rationale, necessity, and parameters for employing any thresholds, exceptions, or limitations with respect to implementing paragraph (c)(2) of this section. The thresholds, exceptions, or limitations for implementing § 1207.21(c)(2) must be commercially reasonable and consistent with the intent of HERA. Under the express terms of HERA, procedures to “review and evaluat[e] * * * contract proposals and to hire service providers shall include a component that gives consideration to the diversity of the applicant.” 12 U.S.C. 4520(b). The final rule retains, in § 1207.21(c)(3), the requirement for considering diversity.

Seven Banks asked that the final rule enumerate the expected deliverables necessary for the preliminary status report, as required by paragraph (a)(1) of this section.

FHFA declines to expand on the requirement as requested, because the expansion is unnecessary. Paragraph (a)(1) of this section, as proposed, required the preliminary report to describe “actions taken, plans for and progress toward implementing the provisions of 12 U.S.C. 4520 and this part; and including to the extent available the data and information required by this part to be included in an annual report.” The proposed rule provides sufficient information for the regulated entities and the Office of Finance to understand what is required to be included in the preliminary reports.

Nine regulated entities and the Office of Finance commented on the timing of reports. Some requested that the annual report required by paragraph (c) of this section not be required until at least 120 days after the end of a reporting period. Others requested that the due date for submission be April 1 of each year rather than February 1 and beginning in 2012 rather than 2011. Others requested that the first annual reporting period begin on the date that the final rule is effective while others suggested an October 1 to September 30 reporting period. The comments are far from uniform, but they illustrate that the regulated entities are likely to require significantly different lengths of time to place in operation an infrastructure capable of providing the information required by the rule. Therefore, FHFA has determined that the transition period before the filing of preliminary reports should be lengthened from 90 to 180 days after the effective date of the final rule.

The commenters also presented various and not always consistent alternative reporting periods and dates for their annual accomplishment reports. FHFA understands the challenges the regulated entities and the Office of Finance may encounter when submitting their annual accomplishment reports. As a result, the first annual report under the rule will be required on March 1, 2012, and will report on the period of January 1 through December 31, 2011. The March 1 date for annual reports provides a minimal amount of time for the agency to analyze information and include elements in its own report to Congress. The January 1 through December 31 reporting period maintains consistency with the periods covered in its annual reports to Congress.

One regulated entity suggested that the rule consolidate the annual summary required by § 1207.22(d) and the annual report under § 1207.22(c). Another requested that the annual report coincide with the due date for an annual financial report.

FHFA declines to adopt either suggestion. The annual report and the annual summary serve different purposes. The summary is the minimum information that HERA requires to be reported along with each entity's annual report to the Director. The annual report is more detailed and provides greater specificity to aid the agency in fulfilling its regulatory responsibilities.

One regulated entity requested modification to paragraph (b) of this section to provide that the information in annual reports will not be disclosed to the public. Other commenters requested that all information gathered from the regulated entities and the Office of Finance be publicly available. Another regulated entity argued that FHFA should acknowledge that it is bound by other statutes to maintain the confidentiality of some of the information reported, such as reports filed with the EEOC. The applicability of this provision to FHFA is not clear, but FHFA does not intend to publicly release the subject information and data.

FHFA considers the reports and data to be related to examinations and examination, operation, or condition reports. In general, FHFA will consider all the information and data attributed to a particular regulated entity to be non-public, subject to Freedom of Information Act Exemption (b)(8) and to the examination privilege. The agency does not intend to make attributed information public. However, FHFA intends to use the information and data arrayed or aggregated in a variety of ways, without attribution to specific institutions, in order to identify trends, success or lack of success, or best practices each regulated entity can use to assess or improve its own programs. Additionally, FHFA may use such unattributed information in various formats to inform the public on such trends, success, lack of success and best practices among the regulated entities. As a result, FHFA does not believe that any change to the rule is required in this respect.

Two regulated entities asked for clarification of the term “third-party contractor” as used in paragraph (d) of this section. “Third-party contractor” is an undefined term used in 12 U.S.C. 4520(d). In the context of this part, FHFA considers the term to be co-extensive with the term “contractor” and deletes “third-party” from the final rule. The intent is to capture the various types of contracts entered into between a regulated entity and another person or entity independent of the regulated entity, as limited by § 1207.3(b) of the final rule.

One commenter recommended that the final rule should establish a threshold amount and require large contractors to report on any subcontracting activities. FHFA believes the purpose of the suggestion is an effort to ensure that businesses owned by minorities, women and individuals with disabilities are not used as fronts to steer a majority of the “real” work and business under a contract to other businesses. However, FHFA does not believe that the final rule should establish such detailed requirements. The good faith requirements described above with respect to business certifications are in part intended to address the concern. Moreover, FHFA expects the regulated entities and Office of Finance to develop their contracting policies to ensure that methods are present for verifying that the performing contractor is in fact the qualified minority-, women- or disabled-owned business.

Eleven regulated entities and the Office of Finance, to differing degrees, objected to voluntary self-identification by employees, directors, and contractors. The commenters objected to the use of voluntary self-identification because it could yield unreliable data for the annual reports. Self-identification is an accepted means of gathering demographic data. The decennial censuses rely on self-identification. The EEOC and the OFCCP also recognize that self-identification, as well as visual observation identification, are among acceptable means of gathering demographic data. This issue also is addressed above with respect to the definition of “disabled-owned business” and business certifications. The final rule is not changed to address this objection.

Twelve regulated entities requested removal of § 1207.23 (b)(3) because the regulated entity will not be able to provide the disability classification for individuals who applied for, but were not offered, employment. The comments raise a significant issue in that anti-discrimination laws severely restrict pre-employment inquiries about disabilities. Consequently, the final rule deletes from paragraphs (b)(3) and (4) of this section references to reporting by disability classification.

Nine Banks requested clarification of paragraphs (b)(3), (7) and (8), of this section allowing regulated entities to use minimum job qualifications as a threshold for reporting the number of individuals applying for employment or promotion. This issue relates to the identification of who is an applicant under anti-discrimination in employment laws. FHFA believes that the regulated entities should follow the guidance provided by the EEOC and the OFCCP in determining what constitutes an applicant requiring reporting. It is not FHFA's charge or intent to interpret the statutes enforced by other agencies.

Eleven regulated entities commented that requiring data on employment terminations under § 1207.23(b)(5) is inconsistent with the proposed rule's statement that personally identifiable information is not required.

FHFA disagrees. The provision requires that the entities present a simple numerical tally of employment terminations, whether voluntary or involuntary. It does not require the entities to submit any identifiable information. While it is theoretically possible that someone with access to attributed data from a sufficiently small population of terminations and with pre-existing knowledge of personally identifiable information on an entity's workforce could deduce the identity of a terminated employee, the prospect is remote and too attenuated to require any adjustment to the rule. The provision does not require personally identifiable information and the entities should not report personally identifiable information.

Eleven regulated entities requested removal of the requirements in § 1207.23(b)(10) with respect to outreach to low-income and inner-city populations, activities to provide financial literacy education and efforts to provide contracting technical assistance. These activities are not required of the regulated entities by HERA and are removed from paragraph (b)(10) of this section. However, if a regulated entity engages in such activities, FHFA encourages the entity to report on them.

One Bank requested modification to §§ 1207.23 (b)(15) and (16) to remove the requirement to report information about complaints and claims of discrimination, the outcomes of those complaints and claims, and the amounts paid in settlements and judgments. FHFA believes that this data is important for identifying trends and the costs of discrimination claims at each regulated entity separately and in aggregate. The final rule retains the proposed provision.

Nine regulated entities requested removal of §§ 1207.23(b)(18) and (19) as beyond the scope of the reporting requirements of 12 U.S.C. 4520(d). The final rule retains both provisions which require narrative self-analyses of the entity's progress, successes, needs for improvement and plans for fulfilling the policy and purpose of the regulation. Neither provision is precluded by HERA; both are consistent with FHFA's regulatory responsibilities.

After review of all comments, FHFA concluded that no change to this section is needed.

Section 1313(f) of the Safety and Soundness Act, as amended by section 1201 of HERA, requires the Director, when promulgating regulations relating to the Banks, to consider the differences between the Banks and the Enterprises with respect to the Banks' cooperative ownership structure; mission of providing liquidity to members; affordable housing and community development mission; capital structure; and joint and several liability. The Director may also consider any other differences that are deemed appropriate. In preparing the rule, the Director considered the differences between the Banks and the Enterprises as they relate to the above factors. Comments were solicited on these differences in relation to the proposed rule.

A significant difference exists in the nature of advances and other financial contracts that the entities may enter. Specifically, the Banks' advances are contracts that are entered between a Bank and its members only, limiting the universe of potential counterparties. Because advances are neither contracts for goods nor contracts for services, they are carved out of reporting requirements under the rule. The final rule also provides the entities latitude to exclude contracts from solicitation and bidding requirements on commercially reasonable bases, so long as those exclusions are identified. The unique character of advances and the restricted market for them provide some reasons that a Bank might exclude them from outreach, solicitation and bidding requirements. However, the demographic profile of the restricted market should not be an excuse to forego diversity efforts. Outreach and recruiting to banks that are owned by diverse individuals is encouraged, which in turn diversifies the market for advances. The final rule reflects the flexibility needed to address these differences.

The Director has considered the above factors and comments and concluded that none of the unique factors relating to the Banks warrants establishing different treatment under this final regulation.

The final regulation does not contain any information collection requirement that requires the approval of the Office of Management and Budget under the Paperwork Reduction Act (44 U.S.C. 3501 et seq. ).

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) requires that a regulation that has a significant economic impact on a substantial number of small entities, small businesses, or small organizations shall include an initial regulatory flexibility analysis describing the regulation's impact on small entities. Such an analysis need not be undertaken if the agency has certified that the regulation will not have a significant economic impact on a substantial number of small entities. 5 U.S.C. 605(b). FHFA has considered the impact of the final regulation under the Regulatory Flexibility Act. FHFA certifies that the final regulation is not likely to have a significant economic impact on a substantial number of small business entities because the regulation is applicable only to the regulated entities and the Office of Finance, which are not small entities for purposes of the Regulatory Flexibility Act.

On July 30, 2008, the Housing and Economic Recovery Act (HERA) (Pub. L. 110-289, 122 Stat. 2564) was signed into law. Among other things, HERA established FHFA as a new independent agency and transferred the supervisory and oversight responsibilities for Fannie Mae and Freddie Mac from the Office of Federal Housing Enterprise Oversight (OFHEO) to FHFA. HERA amended the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (Safety and Soundness Act), Public Law 102-550 (codified at 12 U.S.C. 4501 et seq. ). The Safety and Soundness Act required FHFA to establish criteria, by regulation, governing the portfolio holdings of the Enterprises. 12 U.S.C. 4624. The purpose of such regulation is to ensure that the portfolio holdings are backed by sufficient capital and consistent with the mission and the safe and sound operations of the Enterprises. 12 U.S.C. 4624(a). In establishing criteria governing the portfolio holdings of the Enterprises, the Safety and Soundness Act directed FHFA to consider the ability of the Enterprises to provide a liquid secondary market through securitization activities, the portfolio holdings in relation to the overall mortgage market, and adherence to standards of prudential management and operations established by FHFA in accordance with section 1313B of the Safety and Soundness Act. 12 U.S.C. 4624. The Safety and Soundness Act further required that any criteria governing Enterprise portfolio holdings ensure that such holdings be consistent with the Enterprises' mission, which includes facilitating the financing of affordable housing for low- and moderate-income families in a manner consistent with their overall public purposes. 12 U.S.C. 4624(a); 12 U.S.C. 4501(7).

Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) chartered by Congress for the purposes of establishing secondary market facilities for residential mortgages. 12 U.S.C. 1716 et seq. (Fannie Mae Charter Act) and 12 U.S.C. 1451, et seq. (Freddie Mac Corporation Act). Specifically, Congress established the Enterprises to provide stability in the secondary market for residential mortgages, respond appropriately to the private capital market, provide ongoing assistance to the secondary market for residential mortgages, and promote access to mortgage credit throughout the country. 12 U.S.C. 4624(b).

The Enterprises grew rapidly during the late 1990s into the early 2000's—nearly doubling their combined net holdings of mortgage assets from 1996 to 1999 and more than tripling those net holdings from 1996 to 2002. Accounting and other internal control issues caused the Enterprises to slow the growth of, and in the case of Fannie Mae, shrink, their mortgage asset portfolios after 2003. Because of increased operational risk, OFHEO, predecessor to FHFA, imposed on each Enterprise a 30 percent capital surcharge, and in mid-2006, the Enterprises agreed to cap the growth of their mortgage portfolio holdings due to their accounting, internal control, and risk management weaknesses.

At the end of 2009, the Enterprises had combined assets of just over $1.7 trillion and combined mortgage assets of approximately $1.5 trillion. At that time, the Enterprises guaranteed the credit risk of mortgage loans backing nearly $3.9 trillion of mortgage-backed securities (MBS). In total, Fannie Mae and Freddie Mac owned and guaranteed approximately 46.7 percent of the nation's residential mortgage debt outstanding as of the end of 2009.

The U.S. housing markets began deteriorating in mid-2007, and the deterioration continued throughout 2008. The price volatility and liquidity problems in financial markets that ensued led to sizeable credit and market losses at both Enterprises, depletion of their capital, and an inability of the Enterprises to raise new capital and to access debt markets in their customary way. Significant safety and soundness issues and risk that the Enterprises would be unable to fulfill their missions caused FHFA, with the concurrence of the Secretary of the Treasury and the Chairman of the Board of Governors of the Federal Reserve, on September 6, 2008, to place the Enterprises into conservatorship. By board approval, each Enterprise consented to the appointment of a conservator. The goals of FHFA in placing the Enterprises into conservatorship included enhancing the capacity of each Enterprise to fulfill its mission of providing liquidity and stability to the mortgage markets and mitigating the systemic risk which each poses and which had contributed to instability in mortgage and broader financial markets.

Critical to the establishment of the conservatorships were the actions taken at the same time by the Treasury—consistent with its authority granted in HERA—to provide ongoing financial support to the Enterprises to ensure they remain active participants in the marketplace. Upon establishment of conservatorships for the Enterprises, FHFA acting on behalf of each Enterprise entered into separate PSPAs with the Treasury on September 7, 2008. The PSPAs prevent Enterprise capital from being exhausted and are the cornerstone of the financial support that the Treasury is providing to Fannie Mae and Freddie Mac. Under the PSPAs, each Enterprise's business operations was fortified through an initial commitment by the Treasury to acquire up to $100 billion of senior preferred stock in each Enterprise as necessary to ensure that the Enterprise avoids a negative net worth, determined in accordance with generally accepted accounting principles.

In return for the support provided through the PSPAs, Fannie Mae and Freddie Mac provided certain compensation to the Treasury and accepted various restrictions. The compensation to the Treasury initially included the issuance by each Enterprise of $1 billion in senior preferred stock and warrants for the purchase of common stock representing 79.9 percent of its outstanding common stock. In addition, the Enterprises agreed to limitations on their business activities. In particular, while the PSPAs do not restrict how each Enterprise can increase its net MBS outstanding (MBS held by others), they initially limited the growth of each Enterprise's mortgage asset portfolio to a maximum balance of $850 billion at the end of 2009. Thereafter, the PSPAs stipulated that the mortgage asset portfolios must shrink by at least 10 percent per year until each Enterprise's holdings of mortgage assets reached a balance of $250 billion, at which point, no further reduction would be required by the PSPA.

The PSPAs were amended in September 2008 and in May 2009. The latter amendment, among other things, doubled Treasury's funding commitment to each Enterprise to $200 billion from $100 billion, and increased the size of each Enterprise's mortgage asset portfolio allowed under the PSPAs by $50 billion to $900 billion. The revised and amended PSPAs left unchanged the requirement that after December 31, 2009, the portfolio holdings of each Enterprise be reduced by at least 10 percent per year from the amount of mortgage assets held at the close of the preceding year until each Enterprise's portfolio holdings of mortgage assets reached a size of $250 billion.

To further solidify Treasury support for the Enterprises and the role they continue to play in the housing and mortgage markets during the current crisis, the Treasury and FHFA, on December 24, 2009, again amended the PSPAs. 1 That amendment let stand the maximum allowable amount of mortgage assets each Enterprise could own on December 31, 2009—$900 billion. However, the covenant requiring the Enterprises to reduce their mortgage assets was revised such that it is based on the maximum amount that they were permitted to own as of December 31 of the immediately preceding calendar year, rather than the amounts they actually owned at that time. As revised, beginning on December 31, 2010 and each year thereafter, each Enterprise is required to reduce its mortgage assets to at most 90 percent of the maximum allowable amount each was permitted to own as of December 31 of the immediately preceding calendar year, until the amount of their respective mortgage assets reaches $250 billion, at which point, no further reduction is required by the PSPA. As noted in FHFA's February 2, 2010 letter to the leaders of the Senate Banking Committee and the House Financial Services Committee on the status and future of the conservatorship, the amendment to the portfolio limits provides the Enterprises with flexibility to purchase delinquent loans out of guaranteed mortgage-backed securities pools as necessary.

Since the establishment of the conservatorships, the combined losses at the two Enterprises depleted all of their capital and required them to draw $150.8 billion of senior preferred stock pursuant to the PSPAs through September 2010. By providing a capital backstop to the Enterprises, the Treasury's commitment under the PSPAs effectively eliminated any mandatory triggering of receivership and ensures that the Enterprises have the ability to fulfill their financial obligations and perform their statutory mission without increasing their systemic risk.

On January 30, 2009, FHFA published in the Federal Register an interim final regulation which added new subchapter C of part 1252 to 12 CFR Chapter XII. See 74 FR 5609. The interim final regulation adopted, by reference, the portfolio holdings criteria established in the PSPAs, as may be amended from time to time. The establishment of criteria governing Enterprise portfolio holdings in the PSPAs in the interim final rule represented an exercise of authority consistent with the authority granted by Congress under section 1369E of the Safety and Soundness Act. FHFA's goals for the conservatorship include fortifying the capacity of the Enterprises to support the secondary mortgage market. The initial criteria for Enterprise portfolio holdings established in the PSPAs provided the Enterprises with some immediate capacity to provide stability and liquidity to the secondary mortgage market, while mitigating systemic risk, and facilitating Enterprise efforts to achieve a balance between their mission and safe and sound operations in the intermediate term. The February PSPA amendments provided some additional capacity to address market conditions. The December PSPA amendments provided additional flexibility to allow for the purchase of delinquent mortgages. Despite having some additional capacity to grow their retained portfolios since the establishment of the conservatorships, the primary source of Enterprise retained portfolio purchases has been delinquent mortgages. The Enterprises remain on track to be below the $810 billion retained portfolio limit as of December 31, 2010. The retained portfolio reduction provided for in the PSPAs avoids the need for potentially destabilizing liquidation in the near term, while ensuring that in the future the potential for systemic risk associated with these portfolios is reduced.

The interim final regulation also solicited comments on the overall interim final rule and to a series of questions that relate to portfolio holdings when the Enterprises are no longer subject to their respective PSPAs. Specifically, the interim final rule raised a number of general questions related to the benefits of the Enterprises' purchases and holdings of mortgage assets and the risks, including systemic risk, posed by the mortgage asset holdings, and the mission-related need for the portfolios. The interim final rule also posed specific questions related to the size, composition, and funding of the Enterprises' mortgage asset portfolios.

Finally, the interim final rule solicited comments on a series of general questions related to the Enterprises' holding of non-mortgage assets as well as specific questions on the size and composition of the non-mortgage assets portfolios. While the portfolio holdings criteria set forth in the PSPAs do not address Enterprise holdings of non-mortgage assets, FHFA noted in the interim final regulation the need for the Enterprises to maintain adequate levels of liquidity in order to carry out their day-to-day operating activities. Adequate levels of liquidity strengthen the Enterprises' ability to meet their statutory mission of providing stability and liquidity to the secondary mortgage market, during good times and during periods of market stress, without incurring extraordinary financing costs.

The comment period for the interim final rule closed on June 1, 2009; eight (8) comment letters were received. Those letters are available at the FHFA Web site, http://www.fhfa.gov/Default.aspx?Page=89&ListNumber=5&ListID=278&ListYear=2009&SortBy=#278 .

FHFA requested comments on all aspects of the interim final rule as well as comments on the issues and questions set forth in the preamble concerning criteria governing Enterprise portfolio holdings that will apply when the Enterprises are no longer subject to the PSPAs. In response to that request, FHFA received eight (8) comment letters. Commenters represented trade and special interest groups of various sectors of the housing and mortgage markets. There were no comments from researchers, policymakers, lawmakers, or Enterprise competitors or counterparties.

Two comments included discussion of the interim final regulation. The majority (five) of the public comments included responses to the questions posed regarding Enterprise portfolio holdings when the Enterprises are no longer subject to the PSPAs. Only two (2) commenters touched on Enterprise portfolio holdings while the Enterprises are in conservatorship. One commenter suggested strategies for reengineering the nation's mortgage finance system. In general, commenters were silent on questions regarding the Enterprises' non-mortgage portfolio holdings.

While FHFA considered all comments received, it is important to note that the final rule is based on the fact that the Enterprises are in conservatorship, and that the question of their future status has not yet been resolved.

Several commenters argued that the mortgage asset portfolios of Fannie Mae and Freddie Mac were beneficial because of the limited or lack of access to secondary markets for certain mortgage products. One commenter noted in particular, the absence of a secondary mortgage market for Home Equity Conversion Mortgages and argued that holding those mortgages in portfolio is the only way of providing liquidity to that segment of the mortgage market.

Commenters also responded to FHFA's question concerning the ability of the Enterprises to fulfill their mission without the mortgage portfolios. One commenter stated that the Enterprises, through the 1990s, had fulfilled their mission without portfolios. Some others, however, thought that some portfolio capacity is necessary to provide price stability and liquidity during periods of market stress. A number of commenters expressed concern about the implication of shrinking the portfolios on, for instance, multifamily and some non-standard loans.

Several commenters argued that the Enterprises' purchase of mortgage assets should vary over the credit cycle or conditions in the secondary markets. One commenter suggested that the portfolios should be viewed as a “safety valve” for providing liquidity when secondary market conditions are adverse or mortgage credit conditions drive away other lending sources.

Relative to the question about the type of mortgage assets the Enterprises should be allowed to hold, one commenter saw little rationale for allowing the Enterprises to hold their own, Ginnie Mae, or private-label mortgage-backed securities (MBS), except during periods of market illiquidity. That commenter suggested that the portfolios should generally be used only to meet mission goals that cannot be met though securitization.

With respect to the question concerning the use of portfolio holdings criteria and the capital regulations and other supervisory tools to address the Enterprises' exposure to additional risk posed by their holdings, one commenter suggested that FHFA establish risk-based capital requirements to cover all portfolio activities. Another commenter suggested that the Enterprises' capital requirements be calibrated in such a manner as to provide incentives for the Enterprises to minimize their portfolio holdings. Still another commenter urged that the Enterprises be held to similar portfolio capitalization standards as commercial banks, noting also that loans held, which have interest rate and credit risk, should be differentiated from loans sold as MBS, which primarily have credit risk for the Enterprises.

Given that the future status of the Enterprises is not yet resolved, FHFA has determined that it is premature to establish criteria or to address the substantive questions raised in the supplementary information to the interim final rule at this stage. There is currently no resolution as to the necessary reforms for the housing finance system or to the question of what form the Enterprises will take if or when they emerge from conservatorship. These issues affect the appropriate regulatory framework. Given these fundamental unresolved issues, the final rule adopts the portfolio limits set forth in the PSPAs. FHFA may revisit the rule when circumstances warrant.

The commenters raised several issues relating to the interim final rule. In one instance, a commenter suggested incorporating the Treasury portfolio limits by restating them in the rule itself, rather than reference the PSPAs. The commenter expressed concern over not knowing how long the PSPAs would remain in effect and over the lack of public notice and comment when the PSPAs are modified or terminated. The commenter noted that the May 2009 amendment to the PSPAs increasing the portfolio limits to $900 billion for each Enterprise was accomplished without notice and comment. Accordingly, the commenter suggested specifying the portfolio limits in the regulation, which would provide an opportunity for public notice and comment when modifications are made to those portfolio limits, and would ensure that limits remain in place should the PSPAs terminate.

FHFA determined that the proposed change is not necessary or prudent at this time. Section 1369E of the Safety and Soundness Act, as amended by section 1109 of HERA, provides for regulatory portfolio criteria governing the Enterprises as self-sustaining, privately managed and owned companies, and does not specifically address an Enterprise's portfolio holdings when the Enterprise is in conservatorship. Currently, both Enterprises are in conservatorship and require regular Treasury capital infusions under the PSPAs to remain solvent.

The circumstances of the portfolio regulation are such that it is not reasonable to interpret the Safety and Soundness Act's portfolio provision as requiring notice-and-comment rulemaking in order to change the portfolio limits when the Enterprises are in conservatorship and supported by Treasury infusions of capital. The principal concerns of the statute are safety and soundness, capital adequacy, and limiting systemic risk posed by the Enterprises' retained portfolios. Those concerns are addressed in conservatorship through the vehicles of the PSPAs and FHFA's on-going oversight of the Enterprises' risk management practices. Under the PSPAs, the Treasury provides capital, while enumerated significant business decisions require Treasury approval. While the Enterprises are operating under conservatorship, FHFA maintains continual oversight of the risk management practices associated with the Enterprises' retained portfolios, even more directly than it does in its capacity as regulator. In terms of systemic risk, the PSPAs prescribe an orderly reduction in the portfolios, reducing risk to the Enterprises while at the same time providing market stability by not requiring a too-rapid sell-off of portfolio assets. In addition, allowing room within the portfolio limits for repurchases of delinquent mortgages from outstanding MBS is necessary for loan modifications, which also contribute to overall market stability. Balancing these competing needs in a time of market stress such as the present requires greater flexibility in portfolio management than notice-and-comment rulemaking permits, and therefore in these circumstances, when the Enterprises are in conservatorship, we do not interpret the statute as requiring it. Accordingly, the final regulation retains the language from the interim final regulation.

Another commenter suggested that, pursuant to HERA, FHFA establish a formal process of reviewing the Enterprises' portfolio holdings and a mechanism for adjusting the portfolio limits based on such reviews. Such a process would allow formal periodic adjustment of the portfolio parameters in response to conditions in the market. Related to the process of adjusting the portfolio parameters, a third commenter expressed concern over the 10 percent reduction in the Enterprise portfolios after December 31, 2009. This commenter asks for greater flexibility during times of crisis. FHFA monitors the Enterprises' portfolios through supervisory and conservatorship channels. If market conditions dictate a need to consider the portfolio reduction provisions in the PSPAs, FHFA will take the appropriate actions to seek amendments to the PSPAs. FHFA thus concludes no change to the interim final rule in this regard is necessary at this time.

FHFA adopts the portfolio holdings criteria established by the PSPAs, as may be amended from time to time, as the standard governing the holding of mortgage assets by the Enterprises. Under the PSPAs, which currently have the same portfolio holdings criteria for both Enterprises, beginning on December 31, 2010, and each year thereafter, each Enterprise is required to reduce its mortgage assets to 90 percent of the maximum allowable amount it was permitted to hold as of December 31 of the immediately preceding calendar year, until the maximum amount of the mortgage assets owned by each Enterprise reaches $250 billion. Thus, the maximum allowable amount of mortgage assets that each Enterprise may own as of December 31, 2010, is $810 billion.

This regulation will remain in effect until amended or the Enterprises are no longer subject to the PSPAs. Amendments to the portfolio limits and criteria on the limits can be made by amendment of the PSPAs. Under the final regulation, the Enterprises are to comply with the PSPA portfolio limits as amended from time to time.

While the final regulatory criteria incorporate the PSPAs' portfolio limits as agreed upon by the Treasury and FHFA as conservator, the Safety and Soundness Act provides that the Director monitor the portfolio of each Enterprise and authorizes the Director to order an Enterprise to dispose of or acquire any asset under terms and conditions to be determined by the Director, if the Director determines that such action is consistent with the purposes of the Safety and Soundness Act or the authorizing statute of the Enterprise. 12 U.S.C. 4624(c).

Section 1252.1 adopts the portfolio holdings criteria established by the PSPAs, as they may be amended from time to time, as the standard for this rule.

Under the current PSPAs, which have the same portfolio holdings criteria for both Enterprises, an Enterprise may hold mortgage assets up to $900 billion as of December 31, 2009. Starting on December 31, 2010, the Enterprise portfolio limits will decrease annually by 10 percent from the maximum limit in the preceding year until the limit reaches a level of $250 billion, at which point, no further decrease is currently required. Adjustments could be made to those criteria by amendment of the PSPAs.

Compliance with the PSPAs is necessary to ensure that each Enterprise receives adequate capital to support its ongoing business operations. FHFA's goals for the conservatorship include strengthening Enterprise capacity to support the secondary mortgage market. The criteria for Enterprise portfolio holdings established in the PSPAs provided the Enterprises capacity to provide stability and liquidity to the secondary mortgage market (including the purchase of delinquent mortgages), while mitigating systemic risk, and facilitating Enterprise efforts to achieve a balance between their mission and safe and sound operations in the intermediate term. The retained portfolio reduction provided for in the PSPAs avoids the need for potentially destabilizing liquidation in the near term, while ensuring that in the future the potential for systemic risk associated with these portfolios is reduced.

FHFA's establishment of PSPA portfolio criteria as its regulatory criteria represents an exercise of authority consistent with the authority granted by Congress under section 1369E of the Safety and Soundness Act.

Section 1252.2 addresses the effective duration of the interim rule. FHFA expects these regulations to be effective until any amendment or until the Enterprises are no longer subject to the terms and obligations of the PSPAs.

The regulation does not contain any collections of information pursuant to the Paperwork reduction Act of 1995 (44 U.S.C. 3501 et seq. ). Therefore, FHFA has not submitted any information to the Office of Management and Budget for review.

The regulation applies only to the Enterprises, which do not come within the meaning of small entities as defined in the Regulatory Flexibility Act (RFA). See 5 U.S.C. 601(6). Therefore, in accordance with section 605(b) of the RFA, 5 U.S.C. 605(b), FHFA, hereby, certifies that the regulation will not have a significant economic impact on a substantial number of small entities.

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an airworthiness directive (AD) that would apply to certain Model 737-200, -300, -400, and -500 series airplanes. That NPRM was published in the Federal Register on May 7, 2010 (75 FR 25124). That NPRM proposed to require repetitive inspections for cracking of certain fuselage frames and stub beams, and corrective actions if necessary. That NPRM also proposed an optional repair, which would terminate the repetitive inspections. For airplanes on which a certain repair is done, that NPRM also proposed to require repetitive inspections for cracking of certain fuselage frames and stub beams, and corrective actions if necessary.

We gave the public the opportunity to participate in developing this AD. We considered the comments received.

Boeing asked that paragraph (i) of the NPRM be changed to include a high frequency eddy current (HFEC) inspection. Boeing stated that Boeing Alert Service Bulletin 737-53A1254, Revision 1, dated July 9, 2009, provides two options for inspections: detailed and HFEC. Boeing added that for areas where the repair hinders the inspection, both detailed and HFEC inspection options were provided, depending on which option was chosen for the original inspection.

We agree with the commenter for the reasons provided. We have changed paragraph (i) of this AD to include an option for the HFEC inspection.

Boeing also asked that the compliance time specified in paragraph (g)(3) of the NPRM be changed to “the sooner of (i) within 4,500 flight cycles after the effective date of the AD or (ii) within 9,000 flight cycles after the previous inspection done in accordance with Boeing Alert Service Bulletin 737-53A1254, dated February 17, 2005.” Boeing stated that new data indicate that the repeat interval for the area below the floor should be changed to 9,000 flight cycles from 4,500 flight cycles. Boeing added that for airplanes on which the inspection in the original issue of Boeing Alert Service Bulletin 737-53A1254 has been done, the compliance time as written in Boeing Alert Service Bulletin 737-53A1254, Revision 1 ( i.e., 3,000 flight cycles from release of Revision 1 or 4,500 flight cycles from previous inspection, whichever is sooner), could cause a significant impact by putting some airplanes out of compliance. Boeing noted that the NPRM could potentially allow a longer compliance time than that in the original issue of the service bulletin. Boeing recommends that paragraph (g)(3) be changed as specified previously.

We acknowledge the commenter's concern and provide the following. The compliance times required by paragraph (g) are at the “later of,” not the “sooner of,” the compliance times specified in paragraphs (g)(3)(i) and (g)(3)(ii). We agree that the compliance times specified in paragraphs (g)(3)(i) and (g)(3)(ii) of this AD are somewhat confusing and can be clarified. Therefore, we have combined paragraphs (g)(3)(i) and (g)(3)(ii) with paragraph (g)(3) to provide that clarification.

Southwest Airlines asked that the initial inspection threshold required by paragraphs (g)(1) and (g)(2) of the NPRM be changed. Southwest stated that the specified threshold will pose a significant burden on its airline to complete the inspections within the required timeframe. Southwest projected that half of its Model 737-300 and -500 fleet will require an out-of-sequence maintenance visit to support this inspection threshold. Southwest added that this is based on its current substantial maintenance schedule, fleet utilization, and the proposed compliance thresholds based on each airplane's total flight cycles.

We do not agree with the commenter's request. No supporting data were submitted proposing alternative inspection thresholds to maintain an adequate level of safety for its fleet. However, under the provisions of paragraph (m) of this AD, we will consider requests for approval of an alternative inspection threshold if sufficient data are submitted to substantiate that changing the initial inspection threshold would provide an acceptable level of safety. We have not changed the AD in this regard.

We reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting the AD with the changes described previously. We also determined that these changes will not increase the economic burden on any operator or increase the scope of the AD.

We estimate that this AD affects 635 airplanes of U.S. registry. The following table provides the estimated costs for U.S. operators to comply with this AD.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979), and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

You can find our regulatory evaluation and the estimated costs of compliance in the AD Docket.

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an airworthiness directive (AD) that would apply to certain Model 737-600, -700, -700C, -800, and -900 series airplanes. That NPRM was published in the Federal Register on October 19, 2009 (74 FR 53442). That NPRM proposed to require inspections for scribe lines in the fuselage skin at lap joints, the splice strap at certain butt joints, the skin or doubler at certain approved repair doublers, and the skin at decal locations; and related investigative and corrective actions, if necessary.

We gave the public the opportunity to participate in developing this AD. We considered the comments received from the commenters.

The National Safety Transportation Board (NTSB) and Air Transport Association (ATA), on behalf of its member AirTran, support the intent of the NPRM.

The Boeing Company requests that we revise the NPRM to refer to the latest version of the appropriate service information, Boeing Service Bulletin 737-53A1289, Revision 1, dated November 18, 2009.

We agree to refer to the latest version of the service information. Boeing Service Bulletin 737-53A1289, Revision 1, dated November 18, 2009, shows changes of airplane operators in Paragraph 1.A., Effectivity, and clarifies requirements for inspections of areas of the fuselage having decals. Boeing Service Bulletin 737-53A1289, Revision 1, dated November 18, 2009, does not require additional work beyond the original version of that service bulletin, which was cited as the appropriate source of service information in the NPRM. We have revised the AD requirements to refer to Boeing Service Bulletin 737-53A1289, Revision 1, dated November 18, 2009, as the appropriate source of service information, and we have added paragraph (h) to this final rule to provide credit for actions performed in accordance with Boeing Alert Service Bulletin 737-53A1289, dated January 14, 2009.

The Boeing Company requests that we revise the NPRM to update the exception referenced in Note 1 of the NPRM because Boeing Service Bulletin 737-53A1289, Revision 1, dated November 18, 2009, adds an exception to the inspections. The additional exception is described in subparagraph 1.f. in paragraph 1.E., “Compliance,” of that service bulletin. Southwest Airlines also requests that we add the same provision. Southwest notes that the additional provision states, “If the operator's records show that decal installation and removal procedures were used, at all times since delivery, which included pre-cutting decals prior to installation on the airplane and no use of metallic tooling of any kind during the installation or removal of decals on the airplane, then the [decal] inspections [per Tables 5 through 9] are not required.”

We agree. The specified decal installation and removal procedures have been shown to not result in scribe damage to the fuselage. We have updated Note 1 in this AD to include the additional exception specified in subparagraph 1.f. in paragraph 1.E., “Compliance,” of Boeing Service Bulletin 737-53A1289, Revision 1, dated November 18, 2009.

The National Transportation Safety Board (NTSB) is concerned that the NPRM does not address the underlying condition that mechanics and technicians do not have the knowledge, training, and awareness to recognize that minor damage to pressurized airplane skin can result in fatigue cracking, which can result in depressurization events. The NTSB requests that the FAA reexamine existing maintenance practices and training techniques to educate personnel about the serious consequences of minor scratches and scribe lines on pressurized fuselage skin panels.

We acknowledge the NTSB's concerns. However, such training is outside the scope of the AD requirements as defined in 14 CFR part 39. (Part 12 provides inspection procedures for scribe marks found before the initial inspection.) We have worked with industry groups and manufacturers to increase awareness of scribe lines and their effects on skin panels. This topic has also been addressed at Industry Steering Committee (ISC), Maintenance Steering Group (MSG), and Structures Task Group (STG) meetings. We have not changed the AD in regard to this issue.

Continental Airlines (Continental) requests that we review the hard time date of July 1, 2007, that is stated in “Compliance,” paragraph 1.E.1(a) through 1.E.1(e) of Boeing Alert Service Bulletin 737-53A1289, dated January 14, 2009. Continental states that a hard time date should not matter if the operator can provide documents that show sealant and decals were removed using an approved method after the operator received the airplane.

We have reviewed the hard time date, as requested by the commenter. The date of July 1, 2007, was selected because all the Boeing documentation was revised as of this date to detail the proper method for removing paint, sealant, and decals. Not all operators may have used methods equivalent to the methods stated in this documentation, but they may have used methods detailed in documentation published before this date. As a result, the date of July 1, 2007, is included appropriately in Boeing Service Bulletin 737-53A1289, Revision 1, dated November 18, 2009. Operators may submit a request for approval of an alternative method of compliance (AMOC) if their methods for removing paint, sealant, and decals were implemented before July 1, 2007, and provide an acceptable level of safety. We have not changed the AD in regard to this issue.

Continental requests that the instructions given in Part 12 of the work instructions of Boeing Alert Service Bulletin 737-53A1289, dated January 14, 2009, be incorporated into the structural repair manual (SRM) before the release of the AD because the SRM is for non-routine or non-scheduled events. (Part 12 provides inspection procedures for scribe marks found before the initial inspection.) Continental states that the current instructions make it difficult to comply with the NPRM by the operators' mechanics because they would use the SRM only for repair to damages that are discovered or that occurred during a non-routine event.

We disagree with the request. Significant effort has been made to educate operators about the effects of scribe lines on the fuselage structure. Therefore, all mechanics should be aware of scribe lines. Also, the service bulletins pertaining to scribe lines for all Boeing models contain instructions for repairing scribe line damage found before the inspection threshold. We have not changed the AD in regard to this issue.

Continental requests that we revise the NPRM to allow all repairs using the SRM. Continental states that it does not agree that all repairs need to be approved by Boeing or the FAA Seattle Aircraft Certification Office, as specified in Boeing Alert Service Bulletin 737-53A1289, dated January 14, 2009, and in paragraphs (i) and (k) of the NPRM. Continental proposes that we add an exception to Boeing Alert Service Bulletin 737-53A1289, dated January 14, 2009, to allow all repairs other than repairs done for the Limited Return to Service (LTRS) program to be accomplished in accordance with the SRM or to be FAA-approved.

Continental states because the scribe lines do not result from a design deficiency, no differences exist between these repairs and any other repairs on the airplanes. Continental states that if such an exception is not allowed, operators are unfairly penalized by being forced to use Boeing's repair services. While Continental acknowledges that paragraph (k)(2) of the NPRM (now paragraph (p)(2) of the final rule) allows requests for AMOC approvals, it states that the FAA's response time to approve AMOCs does not allow airplanes to return to service in a timely manner that supports operational requirements. Continental states that this is why the designee program exists as given in section 183.29 of the Federal Aviation Regulations (14 CFR 183.29) and FAA Order 8100.15, which should not be overridden by the proposed AD.

We agree to revise the final rule to add an exception to the accomplishment instructions specified by Boeing Service Bulletin 737-53A1289, Revision 1, dated November 18, 2009. We agree that repairs to the fuselage where the scribe line is removed are not different from other repairs to the airplane. Also, Boeing has revised the Allowable Damage section of the SRM to address scribe line damage. We have added a new paragraph (k) to the final rule to allow for repair in accordance with an FAA-approved method. We have also added Note 2 to the final rule that provides guidance for repairing scribe damage.

Continental requests that we correct the “Relevant Service Information” section in the NPRM because Boeing Alert Service Bulletin 737-53A1289, dated January 14, 2009, does not specify final repairs by using the SRM. Instead, Continental states that Boeing Alert Service Bulletin 737-53A1289, dated January 14, 2009, specifies to contact Boeing for final repairs.

We agree. However, this section does not appear in this final rule. We have not changed the AD in regard to this issue.

Air Transport Association (ATA), on behalf of its member American Airlines (American), states that the list of exceptions in section 1.E, “Compliance,” of Boeing Alert Service Bulletin 737-53A1289, dated January 14, 2009, should be revised to specify that airplanes that have been scuff sanded and repainted do not require inspections in areas where they have been repainted. American states that it does not use complete paint on the external surfaces and leaves most of the fuselage in natural metal finish. American states that it rarely accomplishes a chemical strip of the painted stripes and that the sealant can be damaged by chemical strippers. This process does not require removal and reapplication, which might cause scribe marks.

We partially agree. The operator's unique finish on the fuselage limits the potential for the development of scribe lines. However, we do not agree that changing this AD is necessary because operators may interpret such an exception to allow sanding after paint and sealant are removed, and these methods might eliminate any evidence of scribe marks. Operators may submit requests for approval of an AMOC for their particular finish configuration. We have not changed the AD in regard to this issue.

ATA, on behalf of its members Air Tran Airlines (Air Tran) and American, requests that we revise the costs of compliance. AirTran states that complying with the NPRM would cost $2,500 per airplane and that it would have to procure special tooling for each site performing the inspection. American Airlines states that complying with the NPRM without any changes would cost it $1,004,080 for labor and $3,458,455 for additional out-of-service time.

We have revised the costs of compliance to increase the labor rate from $80 to $85. However, we have not changed the costs of compliance otherwise. The cost information below describes only the direct costs of the specific actions required by this AD. Based on the best data available, the manufacturer provided the number of work hours necessary to do the required actions. This number represents the time necessary to perform only the actions actually required by this AD. We recognize that, in doing the actions required by an AD, operators might incur incidental costs in addition to the direct costs. The cost analysis in AD rulemaking actions, however, typically does not include incidental costs such as the time required to gain access and close up, time necessary for planning, or time necessitated by other administrative actions. Those incidental costs, which might vary significantly among operators, are almost impossible to calculate.

Southwest Airlines (Southwest) and Qantas request that we revise the AD to require reporting of only crack findings. Southwest notes that AD 2006-07-12, Amendment 39-14539 (71 FR 16211, March 31, 2006), a similar AD that requires inspection for scribe lines on Model 737 airplanes, requires the reporting of cracks found only during LRTS inspections, not scribe lines found as a result of the initial scribe inspections. Qantas asks why a report for a one-time inspection is required.

We agree to provide clarification of the rationale for reporting requirements and to revise the reporting requirements. The data will be used to determine if the existing inspection thresholds and the repeat inspection intervals provided in the LRTS program may be increased, which may result in less work for operators in the future. We have revised paragraph (o) of this final rule to require reporting only positive findings of cracks found during any inspections required by this AD.

Southwest requests that we revise the AD to either state how to address scribe lines found in zones outside of those zones specified in Boeing Alert Service Bulletin 737-53A1289, dated January 14, 2009, or add a statement that “no zone” scribes do not require repetitive inspections or terminating actions. Southwest did not provide justification for its request.

We disagree that revising the NPRM is necessary. This AD requires inspections and a terminating action in only the zones identified in Boeing Service Bulletin 737-53A1289, Revision 1, dated November 18, 2009. Any zone that is not identified in Boeing Service Bulletin 737-53A1289, Revision 1, dated November 18, 2009, is not subject to inspection or repair requirements of this rule. (See paragraph 3.A. Note 13 of Boeing Service Bulletin 737-53A1289, Revision 1, dated November 18, 2009.) We have not changed the AD in regard to this issue.

Southwest requests that we revise the AD to address scribe lines that are less than 0.001 inch deep. Southwest states that Boeing Alert Service Bulletin 737-53A1289, dated January 14, 2009, states that no further inspections are required for such scribe lines, but Southwest requests that the AD specifically state that such lines do not require terminating action. Southwest asks why the compliance time is “before further flight” if no inspections are required. Southwest asks if that means no additional NDT inspections are required at the time of finding such lines.

We partially agree with the commenter's request. The compliance table in paragraph 1.E., “Compliance,” of the service bulletin requires clarification as it shows the compliance time of “before further flight” for inspecting scribe lines that are less than 0.001 inch deep. We have clarified this issue by stating in paragraph (m) of this AD that no further inspections are required provided that correct sealant removal procedures are used.

Southwest requests that we revise the AD to allow operators to blend scribe lines in accordance with the SRM by treating the scribe line as a gouge or scratch. Southwest states that the 737-700 SRM does not address scribe lines in the Allowable Damage section. Southwest states that Boeing Service Bulletin 737-53A1262 (the appropriate source of service information for a one-time inspection for scribe lines and cracks in the fuselage skin at certain lap joints, butt joints, external repair doublers, and other areas in AD 2006-07-12, Amendment 39-14539 (71 FR 16211, March 31, 2006)) allows the blending of scribe lines in accordance with the SRM by treating the scribe line as a gouge or scratch. However, Southwest notes, Boeing Alert Service Bulletin 737-53A1289, dated January 14, 2009, does not allow for the same treatment, but recommends that operators contact Boeing for repair instructions.

We agree. All Boeing Model 737 SRMs were revised as a result of the scribe issue to address scribe damage in butt joints and within 1.0 inch of lap splice lower edges and external repair edges. This information is found in the Allowable Damage sections of the SRMs. We have added Note 2 to this final rule, as noted previously.

Southwest requests that accomplishing repairs or modifications in accordance with Boeing Service Bulletin 737-53-1232 be an approved method for terminating scribe line inspections. Southwest did not provide any justification for its request.

We disagree. The repair and modification specified in Boeing Service Bulletin 737-53-1232 are specifically designed for chem mill step cracking, not scribe lines. The modification specified in Boeing Service Bulletin 737-53-1232 would not meet the requirements of this AD. The modification provided in Boeing Service Bulletin 737-53A1289, Revision 1, dated November 18, 2009, does not extend a minimum of three fastener rows below any scribe line damage at a lap joint, and the doubler and tripler used on the repair specified in Boeing Service Bulletin 737-53A1289, Revision 1, dated November 18, 2009, do not extend a minimum of three fastener rows below any scribe damage at a lap joint. We have not changed the AD in regard to this issue.

Southwest requests that we revise the NPRM to contain a provision excluding inspections of areas that are covered by repairs that span a minimum of three rows above and below the inspection area.

We agree with the commenter. This exception is provided in other scribe line ADs for other Boeing airplane models and should apply in this AD as well. We have added paragraph (l) to this AD to provide this exception to Boeing Service Bulletin 737-53A1289, Revision 1, dated November 18, 2009. In addition, we have also added an exception to not require removal of a repair even if it does not span a potential scribe by 3 or more fastener rows and there is no evidence of scribe lines within 10 inches of the repair.

Southwest requests that we include an exception for inspections of areas under the dorsal fin fairing. Southwest requests that this area be treated the same as the wing-to-body fairing, i.e., if the area under the dorsal fin fairing has never been stripped or repainted since delivery, then the scribe line inspection should not be required in that area.

We agree. We have added paragraph (n) of this final rule to provide an exception for this area.

Qantas states since a scribe line can occur at any time during the service life of an airplane and at many locations, this program uses both total flight cycles and structural criticality of location to determine the inspection requirements. Qantas asks if the compliance time takes into account scribe lines induced before the first repainting of the airplane.

We agree to provide clarification. The compliance times specified in Boeing Service Bulletin 737-53A1289, Revision 1, dated November 18, 2009, do not account for scribe lines induced before the first repainting. All analysis was accomplished using the assumption that scribe lines might be induced during repainting only when the sealant is removed from lap and butt joints and around external doublers. The FAA has received no prior reports of scribe line damage on Model 737NG airplanes before the first repainting. We will investigate the reports provided by the commenter and all operators, and will take action as necessary. We have not changed the AD in regard to this issue.

ATA, on behalf of its member American, requests that we do not consider as part of the AD the methodology in Part 11—“Surface Finish Restoration” of Boeing Alert Service Bulletin 737-53A1289, dated January 14, 2009. American states that it has internal processes that meet the intent of the requirement for the reapplication of removed finishes, although those processes may not be identical in material, workflow, or processes.

We partially agree with the commenter. While the unique finishes on the fuselage may warrant using different processes than those used on a typical fuselage, we disagree with the request because the commenter did not provide details on the processes that meet the intent of the AD. We will consider requests for an approval of an AMOC if data demonstrate that it meets an acceptable level of safety. We did not change the AD in regard to this issue.

We have revised the “Alternative Methods of Compliance (AMOCs)” paragraph in this AD to clarify the delegation authority for the Boeing Commercial Airplanes Organization Designation Authorization. We have also revised paragraph (k) of this final rule to clarify that repairs must be made in accordance with an FAA-approved method.

We have revised the applicability of the existing AD to identify model designations as published in the most recent type certificate data sheet for the affected models.

We reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting the AD with the changes described previously. We also determined that these changes will not increase the economic burden on any operator or increase the scope of the AD.

Since issuance of the NPRM, we have increased the labor rate used in the Costs of Compliance from $80 per work-hour to $85 per work-hour. The Costs of Compliance information, below, reflects this increase in the specified hourly labor rate.

We estimate that this AD affects 782 airplanes of U.S. registry. The following table provides the estimated costs for U.S. operators to comply with this AD.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979), and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

You can find our regulatory evaluation and the estimated costs of compliance in the AD Docket.

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an airworthiness directive (AD) that would apply to the specified products. That NPRM published in the Federal Register on October 6, 2010 (75 FR 61655). That NPRM proposed to require installation of a FADEC backup battery, replacement of the supplement pilot's operating handbook and FAA approved airplane flight manual, and revision of the limitations section of the supplement airplane maintenance manual.

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM or on the determination of the cost to the public.

We reviewed the relevant data and determined that air safety and the public interest require adopting the AD as proposed—except for minor editorial changes. We have determined that these minor changes:

• Are consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM.

We estimate that this AD affects zero airplanes of U.S. registry.

We estimate the following costs to comply with this AD:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to the specified products. That NPRM was published in the Federal Register on August 25, 2010 (75 FR 52290). That NPRM proposed to correct an unsafe condition for the specified products. The MCAI states:

We gave the public the opportunity to participate in developing this AD. We considered the comment received. Air Line Pilots Association, International (ALPA), supports the NPRM.

We reviewed the available data, including the comment received, and determined that air safety and the public interest require adopting the AD as proposed.

We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information.

We might also have required different actions in this AD from those in the MCAI in order to follow our FAA policies. Any such differences are highlighted in a Note within the AD.

We estimate that this AD will affect 13 products of U.S. registry. We also estimate that it will take about 72 work-hours per product to comply with the basic requirements of this AD. The average labor rate is $85 per work-hour. Required parts will cost about $1,080 per product. Where the service information lists required parts costs that are covered under warranty, we have assumed that there will be no charge for these parts. As we do not control warranty coverage for affected parties, some parties may incur costs higher than estimated here. Based on these figures, we estimate the cost of this AD to the U.S. operators to be $93,600, or $7,200 per product.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify this AD:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket.

You may examine the AD docket on the Internet at http://www.regulations.gov; or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains the NPRM, the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647-5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an airworthiness directive (AD) that would apply to the specified products. That NPRM was published in the Federal Register on February 22, 2010 (75 FR 7557). That NPRM proposed to require a detailed inspection of the entryway door movable ceiling panel for pin migration at either end of the hinge assembly and damage to the pin; a detailed inspection for correct crimp at both ends and damage to hinge stock; a detailed inspection of the ceiling area for any visible cosmetic and/or tie-rod chafing that could be caused by a migrated hinge pin; a detailed inspection for wire damage and/or breakage; and other specified and corrective actions if necessary.

We gave the public the opportunity to participate in developing this AD. The following presents the comments received on the proposal and the FAA's response to each comment.

Air Line Pilots Association, International (ALPA) and UPS support the intent of the NPRM.

Boeing requested that we clarify the compliance requirements and associated compliance times in paragraph (g) of the NPRM. Boeing stated that the phrase “all applicable other specified and corrective actions” is stated twice, and as a result, the requirements are interpretive and misleading. Boeing pointed out that the proposed requirement to do these actions before further flight is misleading.

We agree to clarify. Other specified actions include re-partmarking the moveable panel ceiling and the hinge assemblies, if necessary. Corrective actions include crimping the hinge assembly, repairing tie-rod chafing, repairing wire damage, and replacing the hinge assembly. The phrase is stated twice, and each phrase has a different purpose. The first purpose is to state that the actions must be done in accordance with Boeing Service Bulletin 767-25-0477, dated August 27, 2009. The second purpose is to state that the other specified and corrective actions must be done before further flight if any pin migration, improper crimping, tie-rod damage or wire damage was found. We have revised paragraph (g) of this AD to clarify the intent.

Boeing asked that we revise the second sentence of paragraph (e) to state that “The FAA is issuing this AD to detect and correct improperly crimped hinge pins, which could damage tie rods and wire bundles, causing shorts in many systems.” Boeing stated that it has determined the probability of an airplane-level hazard to be extremely remote, and disagrees with the references to the spar shut-off valve, oxygen masks, and flammability-related concerns.

We disagree with the request to revise the unsafe condition because the unsafe condition description as written accurately reflects valid safety concerns.

Regarding the spar fuel shut-off valve, although the wiring is redundant, a short to ground will cause the valve circuit breaker to trip, resulting in the valve remaining in the last commanded position. If the valve fails in the open position, it may not be possible to isolate fuel flow from the tanks to the engine during an engine fire. This would be a latent failure of a required system function. While the engine fuel valve may still be available to the flight crew to stop fuel flow to the engine in an emergency, unavailability of the spar fuel shut-off valve eliminates the required isolation capability of the fuel system upstream of the engine.

In regard to the airplane's oxygen system, while failure of the oxygen mask deployment system does not pose a significant airplane-level hazard, unavailability of the oxygen system could consequently result in exposing the passengers and cabin attendants to hypoxia following a depressurization event.

In regard to the flammability-related concerns, while self-extinguishing and fire-resistant materials are used throughout the airplane, burned wires have resulted from migrated hinge pins and are a potential ignition source in a hidden area.

We have not changed the AD in regard to these issues.

Continental Airlines (CAL) stated that it has addressed the safety issue in accordance with Boeing Service Request 1-132547518, dated October 18, 2005, and requested clarification on the possibility of receiving approval of an alternative method of compliance (AMOC) based on its findings and corrective actions.

We agree to clarify the requirements to receive approval of an AMOC. Under the provisions of paragraph (h) of this AD, we will consider approving any alternative method of compliance if the proposal provides an acceptable level of safety. However, additional substantiation may be required for an AMOC approval based on existing service information and as such, applicants will need to request an AMOC approval in accordance with paragraph (h) of this AD. We have not changed the AD in regard to this issue.

UPS requested that Boeing Service Bulletin 767-25-0477, dated August 27, 2009, be revised to clarify and provide better detail regarding which wire bundles to inspect for damage. UPS stated that this service bulletin does not provide enough detail to properly identify the wire bundles that need to be inspected if a hinge pin is found to have migrated. UPS stated that the “approximate location of damage wire bundles” as stated in Boeing Service Bulletin 767-25-0477, dated August 27, 2009, could allow maintenance personnel to miss damaged wire bundles since it does not specify the location or the wire bundle numbers.

In response to the request from UPS to provide additional detail about wire bundle locations, Boeing Service Bulletin 767-25-0477, dated August 27, 2009, indicates that damaged wire bundles should be located in the vicinity of the migrated pin. The detailed inspections required by this AD cover multiple areas, and we cannot predict which wire bundles may be damaged. Boeing Service Bulletin 767-25-0477, dated August 27, 2009, provides an adequate level of detail to perform the required inspections. Boeing might revise Boeing Service Bulletin 767-25-0477, dated August 27, 2009, in the future, and we might consider additional rulemaking at that time. We have not changed the AD in regard to this issue.

UPS requested that we remove Model 767-300F airplanes from the applicability of the NPRM. UPS stated that the wire bundles that are subject to the inspections specified in Boeing Service Bulletin 767-25-0477, dated August 27, 2009, for Model 767-300F airplanes only consist of wiring for the crew entry door dome light, and does not consist of wiring for the other systems that are called out by the NPRM. UPS stated that it believed that Boeing supports this statement. UPS stated that it has not experienced any dome light system shorts or burned wires in this area.

We disagree with the request. While the wire bundle that is in close proximity to the ceiling panel hinge pin may indeed contain wiring for the crew entry door dome light, it is possible that additional wiring for other systems is also susceptible to damage from a migrating hinge pin. The wiring that could be affected by a migrating ceiling panel hinge pin on the Model 767-300F includes wiring for the same systems that could be affected by a migrating hinge pin on Model 767-200, -300, and -400ER airplanes. In addition, although UPS has not encountered wire chafing due to a migrating hinge pin, hinge pins have migrated on other airplanes, and wiring damage has resulted. We have not changed the AD in regard to this issue.

We reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting the AD with the change described previously.

We estimate that this AD affects 273 airplanes of U.S. registry.

We estimate the following costs to comply with this AD:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

On May 19, 2010, we issued EAD No. 2010-11-52, to require inspecting the AHRS unit to determine if it is at a Mod Status “18.” If the nameplate indicates that either AHRS unit is a Mod Status “18,” the EAD requires installing placards on the instrument panel to prohibit single pilot IFR and single pilot night flight and reducing airspeeds to 120 KIAS if both autopilots uncouple during IMC or night flight. The EAD also requires inserting the Active Temporary Revision listed in Table 1 into the Limitations section of the RFM to limit the minimum flight crew to 2 pilots for IFR and night flight. That action was prompted by reports of intermittent malfunctions of the LITEF AHRS units of the navigation system. The EAD states that the condition, if not corrected, could result in malfunction of the autopilots, inability to reset the autopilots, an uncommanded roll, reduction in rotorcraft functional capabilities, inability of the crew to perform the required tasks, and subsequent loss of control of the helicopter.

Since issuing EAD 2010-11-52, we have discovered that we did not draw the appropriate distinctions between IFR and IMC as used in the intended operating limitations, and we did not state the requirement to reduce the airspeed to 120 KIAS if both autopilots uncouple during IMC or night flight. Further, we did not intend to adopt as a limitation the provision contained in the Active Temporary Revisions relating to pilots keeping their hands and feet near the flight controls as this is considered normal conduct of a helicopter pilot exercising good care and sound judgment regardless of the AHRS unit installed.

We have reviewed Sikorsky Alert Service Bulletin No. 76-34-11, dated May 17, 2010 (ASB). The ASB specifies informing operators of an interim minimum flight crew restriction of two pilots for IFR and night flight for helicopters equipped with LITEF LCR-100, Mod Status “18,” AHRS units. The ASB also specifies removing and inspecting the AHRS units to determine if part number (P/N) 145130-7100, Mod Status “18,” is installed, and if it is installed, identifying the unit with a placard with a different P/N. Finally, the ASB specifies installing 2 placards, P/N SS9140-1746, or locally fabricated placards, one on each side of the instrument panel.

Since an unsafe condition has been identified that is likely to exist or develop on other Sikorsky model helicopters of these same type designs, this AD supersedes EAD 2010-11-52 by retaining the current requirements but by clarifying the appropriate distinctions between IFR and IMC as used in the intended operating limitations. Also, in this AD we state the requirement to reduce the airspeed to 120 KIAS if both autopilots uncouple during IMC or night flight. Further, we have removed the Active Temporary Revisions to correct the provision relating to pilots keeping their hands and feet near the flight controls. In the place of the Active Temporary Revisions, we are now requiring you to insert a copy of this AD into the Limitations section of the applicable RFM to address the airspeed limitations and the minimum flight crew. Accomplish the actions in this AD by following specified portions of the ASB described previously. This AD does not require installing placards containing the Sikorsky P/N 76070-60019-101 on the AHRS unit as specified in the Sikorsky ASB. Also, this AD revises the unsafe condition statement by stating that the actions are intended to implement operating limitations based on an anomaly in the AHRS related to the 26 volt AC inverter that could result in a decoupling of both autopilots and to prevent loss of control of the helicopter during IMC and night flight.

The short compliance time involved is required because the previously described critical unsafe condition can adversely affect the controllability of the helicopter. Therefore, determining if the AHRS unit is an affected unit, installing certain placards on the instrument panel, and inserting limitations into the Limitations section of the applicable RFM are required within 5 days, and this AD must be issued immediately.

Since a situation exists that requires the immediate adoption of this regulation, it is found that notice and opportunity for prior public comment hereon are impracticable, and that good cause exists for making this amendment effective in less than 30 days.

We estimate that this AD will affect 1 helicopter in the U.S. registry. We estimate it will take about 1 work hour to inspect the AHRS unit to determine if it is a Mod Status “18,” 1 work hour to fabricate and install a placard, and 1/2 work hour to revise the RFM. The average labor rate is $85 per hour and there are only minimal parts costs. Based on these figures, the total cost impact of this AD on U.S. operators is $213.

This AD is a final rule that involves requirements affecting flight safety, and we did not precede it by notice and an opportunity for public comment. We invite you to send any written relevant data, views, or arguments regarding this AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2010-1250; Directorate Identifier 2010-SW-075-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the AD. We will consider all comments received by the closing date and may amend the AD in light of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive concerning this AD. Using the search function of the docket Web site, you can find and read the comments to any of our dockets, including the name of the individual who sent the comment. You may review the DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (65 FR 19477-78).

We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that the regulation:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared an economic evaluation of the estimated costs to comply with this AD. See the AD docket to examine the economic evaluation.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that supersedes AD 2006-05-09, Amendment 39-14506 (71 FR 12122, March 9, 2006). The existing AD applies to certain Model 747-200C, -200F, -400, -400D, and -400F series airplanes. That NPRM was published in the Federal Register on March 18, 2010 (75 FR 13046). That NPRM proposed to continue to require repetitive inspections for cracks in the overlapping (upper) skin of the upper fastener row of the lap joints of the fuselage skin in Sections 41, 42, and 46; and related investigative and corrective actions, if necessary. That NPRM also proposed to expand the inspection area in the existing AD, and add a modification of certain lap joints and certain post-repair inspections of the lap joints. Accomplishing the modification would end the repetitive inspections required by the existing AD.

We provided the public the opportunity to participate in the development of this AD. We have considered the comments that have been received on the NPRM.

Boeing asked that we revise the language in paragraph (k) of the NPRM to indicate that additional actions are required in the area of the modification for operation beyond 15,000 total flight cycles after doing the proposed modification. Boeing stated that Revision 2 of Boeing Alert Service Bulletin 747-53A2499 is currently in work at the Boeing Company, and that Revision 2 recommends accomplishing additional actions after doing the modification.

Since this comment was submitted, we have received and reviewed Boeing Service Bulletin 747-53A2499, Revision 2, dated August 12, 2010. Boeing Alert Service Bulletin 747-53A2499, dated August 11, 2005; and Revision 1, dated October 30, 2008; were referred to in the NPRM as the appropriate source of service information for accomplishing the actions. No more work is necessary for airplanes on which Boeing Alert Service Bulletin 747-53A2499, Revision 1, dated October 30, 2008, was used for doing the required actions. Revision 2 of this service bulletin moves certain airplanes from Group 1 to Groups 15 and 16, adds post-modification actions, and contains editorial changes.

We have revised paragraphs (c), (g), (h), (i), (j), and (k) of this AD to refer to Boeing Service Bulletin 747-53A2499, Revision 2, dated August 12, 2010. In addition, we have removed Notes 1 and 2 of this AD since that information is incorporated into Boeing Service Bulletin 747-53A2499, Revision 2, dated August 12, 2010. We have also added a new paragraph (n) to the AD to give credit for accomplishing the specified actions in accordance with Boeing Alert Service Bulletin 747-53A2499, Revision 1, dated October 30, 2008.

Although Boeing Service Bulletin 747-53A2499, Revision 2, dated August 12, 2010, includes post-modification actions, this AD will not mandate those actions. The threshold for the skin lap joint modification mandated by this AD is 30,000 total flight cycles. Adding 15,000 flight cycles to the threshold would extend the compliance time for the recommended additional actions to 45,000 total flight cycles. We have determined that it is highly unlikely that a Model 747 airplane will reach that number of total flight cycles. This determination also takes into consideration the proposed wide spread fatigue damage (WFD) operating rules imposing operating limits that could be significantly lower than 45,000 total flight cycles.

In light of these factors, we have determined that this final rule must be issued without any further delay due to the severity of the unsafe condition addressed by this AD. Further rulemaking might be issued in the future to mandate the additional actions included in Boeing Service Bulletin 747-53A2499, Revision 2, dated August 12, 2010. We have not changed the AD in this regard.

Japan Airlines (JAL) asked that we delay issuance until the manufacturer can release Revision 2 of Boeing Alert Service Bulletin 747-53A2499. JAL stated that Boeing has issued Service Bulletin Information Notices 747-53A2499 IN 01, dated April 2, 2009; and 747-53A2499 IN 02, dated September 10, 2009; to Boeing Alert Service Bulletin 747-53A2499, Revision 1, dated October 30, 2008, to notify operators of a typo and revised drawings. JAL noted that operators cannot accomplish a correct inspection and modification unless the information provided in Boeing Service Bulletin Information Notices 747-53A2499 IN 01 and 747-53A2499 IN 02 is used. JAL added that including Revision 2 of this service bulletin would reduce unnecessary burden on both operators and the manufacturer.

All Nippon Airways (ANA) also asked that the modification be done in accordance with Revision 2 of Boeing Alert Service Bulletin 747-53A2499 instead of Boeing Alert Service Bulletin 747-53A2499, Revision 1, dated October 30, 2008. ANA stated that it has already performed the terminating modification at stringer 6 using Boeing Alert Service Bulletin 747-53A2499, Revision 1, and had to request AMOCs during the modification because certain drawings in Boeing Alert Service Bulletin 747-53A2499, dated August 11, 2005; and Revision 1, dated October 30, 2008; were not specific to the modification. ANA added that this will reduce the AMOC requests to this proposed AD, in addition to reducing the maintenance burden.

We partially agree with the commenters. We do not agree to delay this AD, due to the severity of the unsafe condition. However, as described previously, Boeing has issued Boeing Service Bulletin 747-53A2499, Revision 2, dated August 12, 2010. Therefore, we have revised the requirements in this AD to allow the use of Boeing Service Bulletin 747-53A2499, Revision 2, dated August 12, 2010, for accomplishing the specified actions.

We reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting the AD with the changes described previously. We also determined that these changes will not increase the economic burden on any operator or increase the scope of the AD.

There are about 735 airplanes of the affected design in the worldwide fleet. This AD affects 96 airplanes of U.S. registry.

The actions that are required by AD 2006-05-09 and retained in this AD take about 541 work-hours per airplane, at an average labor rate of $85 per work-hour. Based on these figures, the estimated cost of the currently required actions is $45,985 per airplane, per inspection cycle.

The new Area 2 inspections take about 124 work-hours per airplane, at an average labor rate of $85 per work-hour. Based on these figures, the estimated cost of the new inspections specified in this AD for U.S. operators is $1,011,840, or $10,540 per airplane, per inspection cycle.

The new modification takes about 4,799 work hours per airplane, at an average labor rate of $85 per work-hour. Required parts cost per airplane will be minimal. Based on these figures, the estimated cost of the new modification specified in this AD for U.S. operators is $39,159,840, or $407,915 per airplane.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866;

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket. See the ADDRESSES section for a location to examine the regulatory evaluation.

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an airworthiness directive (AD) that would apply to the specified products. That NPRM published in the Federal Register on July 8, 2010 (75 FR 39189). That NPRM proposed to require repetitive inspections for cracking in the body skin around the aft corners of the nose wheel well; for certain airplanes, repetitive inspections for cracking in the skin splice plate at the aft corners of the nose wheel well; and related investigative and corrective actions if necessary. The NPRM also proposed to require repetitive post-modification inspections for cracking in the body skin and the skin splice plate; for certain airplanes, an inspection for steel cross-shaped doublers on the larger aluminum doublers; and corrective action if necessary. The NPRM also proposed to require repetitive surface high frequency eddy current (HFEC) inspections of a certain bulkhead outer chord, skin splice plate, and outer chord radius filler for cracking; repetitive detailed inspections for cracking of the bulkhead frame web and body skin; and corrective actions if necessary. That NPRM also proposed to provide for optional terminating action for certain repetitive inspections.

We gave the public the opportunity to participate in developing this AD. The following presents the comments received on the proposal and the FAA's response to each comment.

Boeing requested that we revise paragraph (r) of the NPRM to note that the threshold of the initial inspection, in accordance with Boeing Document No. D6-35022, Volumes 1 and 2 “Supplemental Structural Inspection Document (SSID) for Model 747 Airplanes,” Revision G, dated December 2000, Item F-4, remains as given in AD 2004-07-22 R1 (73 FR 1052, January 7, 2008) (A correction to AD 2004-07-22 R1 was published in the Federal Register on February 14, 2008 (73 FR 8589)). Boeing stated that while the inspection method and intervals provided in Boeing Alert Service Bulletin 747-53A2305, Revision 2, dated January 15, 2009, are alternative methods of compliance (AMOCs) to Revision G of the Model 747 SSID, Item F-4, the requirement to comply with the SSID inspection threshold remains as given in AD 2004-07-22 R1.

We disagree with the request to revise paragraph (r) of this AD to include the requested notation. Paragraph (r) of this AD does not provide any indication of change to the initial inspection threshold for the initial inspection according to Revision G of the Model 747 SSID, Item F-4. As the commenter stated, the inspection threshold for Item F-4 remains as given in AD 2004-07-22 R1. Paragraph (b) of this AD also indicates that no other AD is affected by this AD. No change has been made to the AD in this regard.

Japan Airlines (JAL) requested approval of an AMOC for inspections for airplanes that have been previously repaired. JAL stated that 14 of its Model 747-400 airplanes have had repair doublers already installed in the affected areas that deviate from Boeing Alert Service Bulletin 747-53A2305, Revision 2, dated January 15, 2009; therefore, alternative inspection procedures are necessary for the repaired structure. JAL stated that it will have to obtain AMOC approval for each of its 14 airplanes. JAL also stated that since it takes additional work for both JAL and Boeing to obtain the AMOC approval, an exception should be allowed to admit all of the existing repairs as an AMOC for the proposed actions. JAL also proposed the alternative of an approval letter from the FAA for their existing repairs before the effective date of the AD. As an alternative, JAL requested a grace period to allow an extended compliance time for the inspection of previously repaired airplanes.

We disagree with the request for AMOC approval for previously repaired airplanes and for a grace period. An AMOC cannot be included in an AD, because an AMOC can be written for an AD only after the AD is published. Because the repairs previously done on these 14 airplanes can be unique to each airplane and are different from the repair requirements of this AD, each instance will need to be re-evaluated for this AD as an AMOC to ensure continued operational safety. However, under the provisions of paragraph (u) of this AD, after the AD is published we will consider requests for approval of an alternative method of compliance if sufficient data are submitted to substantiate that the previous repairs would provide an acceptable level of safety.

We also disagree with the request to include a grace period. A grace period of 1,500 flight hours from the effective date of this AD was already included in paragraphs (k), (o), and (r) of this AD.

No change has been made to this AD.

We reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting the AD as proposed.

We estimate that this AD affects 160 airplanes of U.S. registry.

We estimate the following costs to comply with this AD:

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued EASA Airworthiness Directive 2010-0027, dated February 19, 2010 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

The corrective actions include performing a manual pull test to confirm the integrity of the ring tag, and if necessary, replacing the ring tag with a new ring tag. You may obtain further information by examining the MCAI in the AD docket.

Airbus has issued Service Bulletin A320-28A1173, dated October 21, 2008. The actions described in this service information are intended to correct the unsafe condition identified in the MCAI.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are issuing this AD because we evaluated all pertinent information and determined the unsafe condition exists and is likely to exist or develop on other products of the same type design.

There are no products of this type currently registered in the United States. However, this rule is necessary to ensure that the described unsafe condition is addressed if any of these products are placed on the U.S. Register in the future.

We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information.

We might also have required different actions in this AD from those in the MCAI in order to follow FAA policies. Any such differences are highlighted in a Note within the AD.

Since there are currently no domestic operators of these airplane models with these serial numbers, notice and opportunity for public comment before issuing this AD are unnecessary.

This AD is a final rule that involves requirements affecting flight safety, and we did not precede it by notice and opportunity for public comment. We invite you to send any written relevant data, views, or arguments about this AD. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2010-1201; Directorate Identifier 2010-NM-081-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this AD. We will consider all comments received by the closing date and may amend this AD because of those comments.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this AD.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify this AD:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket.

On October 21, 2010, the FAA published in the Federal Register a notice of proposed rulemaking to amend Class E airspace for Mansfield, OH, creating additional controlled airspace at Mansfield Lahm Regional Airport (75 FR 64965) Docket No. FAA-2010-0771. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received. Class E airspace designations are published in paragraph 6005 of FAA Order 7400.9U dated August 18, 2010, and effective September 15, 2010, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by amending Class E airspace extending upward from 700 feet above the surface to accommodate SIAPs at Mansfield Lahm Regional Airport, Mansfield, OH. This action is necessary for the safety and management of IFR operations at the airport.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in subtitle VII, part A, subpart I, section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends controlled airspace at Mansfield Lahm Regional Airport, Mansfield, OH.

On October 28, 2010, the FAA published in the Federal Register a notice of proposed rulemaking to amend Class E airspace for Taos, NM, reconfiguring controlled airspace at Taos Regional Airport (75 FR 66345) Docket No. FAA-2010-0842. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received. Class E airspace designations are published in paragraph 6005 of FAA Order 7400.9U dated August 18, 2010, and effective September 15, 2010, which is incorporated by reference in 14 CFR Part 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by amending Class E airspace for the Taos, NM area. Decommissioning of the Ski NDB and cancellation of the NDB approach at Taos Regional Airport has made this action necessary for the safety and management of IFR operations at the airport.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in subtitle VII, part A, subpart I, section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends controlled airspace at Taos Regional Airport, Taos, NM.

On October 21, 2010, the FAA published in the Federal Register a notice of proposed rulemaking to amend Class E airspace for Farmington, MO, creating additional controlled airspace at Farmington Regional Airport (75 FR 64969), Docket No. FAA-2010-0769. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received. Class E airspace designations are published in paragraph 6005 of FAA Order 7400.9U dated August 18, 2010, and effective September 15, 2010, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by amending Class E airspace extending upward from 700 feet above the surface to accommodate SIAPs at Farmington Regional Airport, Farmington, MO. This action is necessary for the safety and management of IFR operations at the airport.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in subtitle VII, part A, subpart I, section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends controlled airspace at Farmington Regional Airport, Farmington, MO.

On October 21, 2010, the FAA published in the Federal Register a notice of proposed rulemaking to amend Class E airspace for Columbus, OH, creating additional controlled airspace at Port Columbus International Airport (75 FR 64966) Docket No. FAA-2010-0770. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received. Class E airspace designations are published in paragraph 6005 of FAA Order 7400.9U dated August 18, 2010, and effective September 15, 2010, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by amending Class E airspace extending upward from 700 feet above the surface to accommodate SIAPs at Port Columbus International Airport, Columbus, OH. This action is necessary for the safety and management of IFR operations at the airport.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in subtitle VII, part A, subpart I, section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends controlled airspace at Port Columbus International Airport, Columbus, OH.

In consideration of the foregoing, the Federal Aviation Administration amends 14 CFR part 71 as follows:

On October 21, 2010, the FAA published in the Federal Register a notice of proposed rulemaking to amend Class E airspace for Johnson, KS, creating additional controlled airspace at Stanton County Municipal Airport (75 FR 64968) Docket No. FAA-2010-0841. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received. Class E airspace designations are published in paragraph 6005 of FAA Order 7400.9U dated August 18, 2010, and effective September 15, 2010, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by amending Class E airspace extending upward from 700 feet above the surface to accommodate SIAPs at Stanton County Municipal Airport, Johnson, KS. This action is necessary for the safety and management of IFR operations at the airport. Adjustments to the geographic coordinates for the airport would also be made in accordance with the FAA's National Aeronautical Navigation Services.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in subtitle VII, part A, subpart I, section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends controlled airspace at Stanton County Municipal Airport, Johnson, KS.

On October 21, 2010, the FAA published in the Federal Register a notice of proposed rulemaking to establish Class E airspace for Central City, NE, creating controlled airspace at Central City Municipal—Larry Reineke Field Airport (75 FR 64971) Docket No. FAA-2010-0837. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received. Class E airspace designations are published in paragraph 6005 of FAA Order 7400.9U dated August 18, 2010, and effective September 15, 2010, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by establishing Class E airspace extending upward from 700 feet above the surface to accommodate SIAPs at Central City Municipal—Larry Reineke Field Airport, Central City, NE. This action is necessary for the safety and management of IFR operations at the airport.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in subtitle VII, part A, subpart I, section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it establishes controlled airspace at Central City Municipal—Larry Reineke Field Airport, Central City, NE.

On October 22, 2010, the FAA published in the Federal Register a notice of proposed rulemaking to establish Class E airspace for Benton, IL, creating controlled airspace at Benton Municipal Airport (75 FR 65254) Docket No. FAA-2010-0838. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received. Class E airspace designations are published in paragraph 6005 of FAA Order 7400.9U dated August 18, 2010, and effective September 15, 2010, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by establishing Class E airspace extending upward from 700 feet above the surface to accommodate SIAPs at Benton Municipal Airport, Benton, IL. This action is necessary for the safety and management of IFR operations at the airport.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in subtitle VII, part A, subpart I, section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it establishes controlled airspace at Benton Municipal Airport, Benton, IL.

On October 26, 2010, the FAA published in the Federal Register a notice of proposed rulemaking to amend controlled airspace at Rawlins, WY (75 FR 65582). Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received.

Class E airspace designations are published in paragraph 6002 of FAA Order 7400.9U dated August 18, 2010, and effective September 15, 2010, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in that Order.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by amending Class E surface airspace at Rawlins Municipal Airport/Harvey Field. The airspace is being reconfigured due to the decommissioning of the Sinclair NDB, and cancellation of the NDB approach. This action is necessary for the safety and management of IFR operations.

The FAA has determined this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, section 106 discusses the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in subtitle VII, part A, subpart I, section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends controlled airspace at Rawlins Municipal Airport/Harvey Field, Rawlins, WY.

On October 21, 2010, the FAA published in the Federal Register a notice of proposed rulemaking to remove Class E airspace for Lone Star, TX. (75 FR 64972) Docket No. FAA-2010-0772. Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FAA. No comments were received. Class E airspace designations are published in paragraph 6005 of FAA Order 7400.9U dated August 18, 2010, and effective September 15, 2010, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

This action amends Title 14 Code of Federal Regulations (14 CFR) part 71 by removing the Class E airspace extending upward from 700 feet above the surface at the former Lone Star Steel Company Airport, Lone Star, TX. The airport has been abandoned and all SIAPs have been cancelled, therefore, controlled airspace is no longer needed for the safety and management of IFR operations.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this regulation: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in subtitle VII, part A, subpart I, section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it removes controlled airspace at the former Lone Star Steel Company Airport, Lone Star, TX.

Pursuant to public comments and consumer survey evidence submitted in response to two Federal Register Notices, the FTC amends the Platinum Group Metals Section (hereinafter “Platinum Section”) of the Commission's Guides for the Jewelry, Precious Metals, and Pewter Industries (“Jewelry Guides” or “Guides”), 16 CFR 23.7, and also amends the Scope and Application Section of the Guides, 16 CFR 23.0. The amendments to the Platinum Section provide that marketers may non-deceptively mark and describe “platinum/base metal alloys,” those containing at least 500 parts per thousand (“ppt”), but less than 850 ppt, pure platinum and less than 950 ppt total platinum group metals (“PGM”) as “platinum” using certain disclosures. 1 In supporting this conclusion, the following Federal Register Notice provides background information; summarizes the record established by the public comments; analyzes this record based on the applicable Commission standard; and sets forth the text of the amendments to the Platinum Section and to the Scope and Application Section of the Guides.

The Commission issued the Jewelry Guides to help marketers avoid making jewelry claims that are unfair or deceptive under Section 5 of the FTC Act, 15 U.S.C. 45. Industry guides, such as these, are administrative interpretations of the law. Therefore, they do not have the force of law and are not independently enforceable. The Commission can take action under the FTC Act, however, if a business makes marketing claims inconsistent with the Guides. In any such enforcement action, the Commission must prove that the act or practice at issue is unfair or deceptive in violation of Section 5 of the FTC Act. 2

To help marketers avoid unfair or deceptive acts or practices in connection with the sale of platinum, the Platinum Section contains a general statement regarding the deceptive use of the term “platinum” (and the names of other PGM) and provides examples of potentially misleading and non-violative uses of the term “platinum.”  3 Specifically, Section 7(a) states:

On December 15, 2004, Karat Platinum, a jewelry manufacturer, requested an FTC staff opinion regarding the application of the Platinum Section to a new product consisting of 585 ppt platinum and 415 ppt copper and cobalt (non-precious metals). The request stated that the company believed that the Platinum Section did not prohibit marking or describing the product as “platinum,” or address how to mark or describe the product other than to prohibit misrepresentations. The staff responded on February 2, 2005, agreeing that the Guides did not address the marketing of this product, and providing guidance. 6

Because of the public interest in this issue, the Commission published a Federal Register Notice (“2005 FRN”)  7 soliciting public comment regarding whether it should revise the Guides to address this new product. The Commission also sought comment regarding whether the Guides should address how to mark or describe non-deceptively platinum-clad, filled, coated, or overlay jewelry products.

Based on the 2005 FRN comments and consumer survey evidence, the Commission issued a Federal Register Notice in 2008 (“2008 FRN”) soliciting comment on a proposed amendment to the Platinum Section to address these issues. Prior to the close of the comment period on May 27, 2008, the Platinum Guild International (“PGI”) and the Jewelers' Vigilance Committee (“JVC”) requested a 90-day extension. The Commission extended the comment period until August 25, 2008. 8

The vast majority of the 62 responsive comments  9 recommended that the Commission revise the Platinum Section to include guidance for platinum/base metal alloy jewelry. These commenters further recommended that the Commission provide that marking or describing platinum/base metal alloy jewelry as “platinum” is deceptive. The commenters asserted that platinum jewelry has always been produced as nearly pure or combined with other PGM (hereafter “platinum/PGM”), 10 and that platinum/base metal alloys do not share the same characteristics as these products. 11 Karat Platinum disagreed that the use of the term “platinum” to describe platinum/base metal alloys is deceptive.

The 2005 record included consumer perception studies and product testing. PGI submitted a study it commissioned from Dr. Thomas J. Maronick, (“2005 Platinum Awareness Study”), 12 a 2003 marketing survey conducted by Hall & Partners, 13 and two tests evaluating platinum/base metal alloys. 14 The 2005 Platinum Awareness Study found that 39.5% of consumers believe that products marked or described as “platinum” are pure or nearly pure and that certain qualities or attributes typically associated with platinum are important to a substantial number of consumers. 15 The study also found that a majority of consumers would not expect platinum/base metal alloys containing more than 40% base metal to be called “platinum” if they do not possess the attributes present in higher purity platinum or platinum/other PGM products. 16 In addition, the study showed that the majority of consumers do not fully understand numeric jewelry markings, particularly those using chemical abbreviations, such as 585 Pt./415 Co.Cu. The PGI product tests indicated that certain platinum/base metal alloys are inferior to higher purity platinum jewelry in terms of wear and oxidation resistance, as well as weight loss, and that they cannot be resized using certain procedures. 17 Karat Platinum submitted a test of its alloy which suggested that the alloy is superior or equivalent to higher purity platinum jewelry in several respects, but is less dense than higher purity platinum jewelry. Karat Platinum did not test whether its alloy is hypoallergenic.

Several comments also suggested that the Commission provide guidance on how to describe platinum-clad, filled, plated, or overlay products, but most did not discuss what guidance the Commission should provide.

Based on the 2005 FRN record, the Commission issued a 2008 FRN soliciting comment on a proposed revision to the Platinum Section to address the marketing of platinum/base metal alloys. 18 The Commission explained that the record supported the conclusion that a substantial number of consumers believed products marked or described as “platinum” are nearly pure and possess certain desirable qualities that some platinum/base metal alloys may not possess. In addition, the Commission stated that the record indicated that if a description of a platinum/base metal alloy as “platinum” is qualified only with a content disclosure using numbers and chemical abbreviations, consumers likely would not understand the disclosure. However, there was no evidence that a more descriptive disclosure would not adequately qualify the claim. The Commission, therefore, proposed specific qualifying disclosures. 19

The Commission's proposal provided that marketers may physically mark or stamp a platinum/base metal alloy jewelry article with the product's chemical composition ( e.g., 585 Pt./215 Co./200 Cu.), but that when making any other representation that the product contains platinum, marketers should clearly and conspicuously disclose, immediately following the name or description of the product:

(1) That the product contains platinum and other non-platinum group metals;

(2) The product's full composition, by name and not abbreviation, and the percentage of each metal; and

(3) That the product may not have the same attributes or properties as products containing at least 850 ppt pure platinum, or at least 500 ppt pure platinum and at least 950 ppt PGM.

In the 2008 FRN, the Commission again sought comment whether it should revise the Platinum Section to address platinum-clad, filled, plated, or overlay products and, if so, how.

In response, the Commission received 58 comments. 20 Most were short without detailed discussion. However, Karat Platinum; JVC, on behalf of several industry associations;  21 and PGI submitted detailed comments. The JVC and PGI comments included survey evidence.

We summarize the comments and survey evidence below addressing: (1) Use of the word “platinum” to describe platinum/base metal alloys; (2) the Commission's proposed disclosures; (3) harmonization with international standards; (4) the commenters' proposed amendments to the Guides; and (5) guidance regarding platinum-clad, filled, plated, or overlay jewelry.

Many commenters asserted that use of the term “platinum” to describe a platinum/base metal alloy would deceive consumers in a manner that could not be remedied with disclosures. 22 Most made this assertion without supporting evidence. JVC and PGI, however, relied on the findings from PGI's 2005 Platinum Awareness Study and provided 2008 survey evidence (“2008 Platinum Attitude Study”). 23 Specifically, PGI pointed to the 2008 survey's findings that consumers expect products marked or described as “platinum” to be nearly pure and that products with “platinum,” in their name, such as “Karat Platinum,” “Platinum Five,” or “Platinum V,” confuse or mislead consumers concerning the products' metal content and attributes. 24 PGI argued that because of these perceptions, it is inherently misleading to refer to platinum/base metal alloys as “platinum,” and the deception cannot be cured by qualifying language. 25 Therefore, JVC and PGI asserted that marketers should describe platinum/base metal alloys using a name that does not include “platinum” or “plat,” so consumers will not be confused or misled about the alloy's contents or attributes. 26 Tiffany & Co. (“Tiffany”) agreed, suggesting that platinum/base metal alloys should be “creatively and individually named by the manufacturer.”  27 Several other commenters recommended that the FTC “consider a new and different name” for the alloy but did not propose a particular name. 28

Karat Platinum disagreed, arguing that the term “platinum” can be qualified sufficiently so that consumers understand that a product is not pure platinum. 29 Karat Platinum, however, did not submit any survey evidence.

JVC and PGI asserted that the Commission's three proposed disclosures were confusing, inadequate, and unworkable. Karat Platinum disagreed, but suggested some revisions to the third disclosure and asserted that marketers of higher purity platinum or platinum/PGM jewelry should be subject to the proposed second and third disclosures. Below, we discuss the three proposed disclosures.

The first proposed disclosure provided that marketers of platinum/base metal alloys state that their product “contains platinum and other non-platinum group metals.” Several commenters argued that this disclosure will confuse consumers. For example, 54% of consumers surveyed in the 2008 Platinum Attitude Study did not know what the phrase “other non-platinum group metals” meant. 30 PGI further stated that when the survey asked consumers to classify metals as platinum or non-platinum group, they were largely unable to do so correctly. 31 Karat Platinum, by contrast, commented that this disclosure would provide useful information to consumers about the product. 32

The Commission's second proposed disclosure provided that marketers list the full composition of the product (by name and not abbreviation) and the percentage of each metal. JVC and PGI asserted that consumers will not comprehend this disclosure. In support of this position, JVC cited the 2008 Platinum Attitude Study. Specifically, when consumers were asked whether they understood the meaning of “58.5% Platinum and 41.5% Copper/Cobalt,” 55% said yes, 33% stated that they did not know, and 12% stated that they were not sure. 33 Moreover, JVC opined that because consumers will not understand the disclosure, they will focus only on the term “platinum” and believe that the product is the equivalent of platinum products that are at least 85% platinum. 34 PGI added that listing the percentages of each metal still may not alert consumers of the differences between “diluted” platinum alloys and higher purity products. 35

Tiffany agreed and asserted that disclosing each alloying component in full without abbreviation would not achieve consumer knowledge. Tiffany noted that research has shown that consumers do not understand metal content disclosures. Thus, it contended that “disclosing that the ‘platinum’ piece has a certain percentage of copper * * * is not instructive.”  36

In contrast, Karat Platinum asserted that disclosing the composition of platinum/base metal alloys using the full names and percentages of the constituent metals is a good practice. 37 It explained that the Commission's proposed disclosures—that the product contains platinum and other non-platinum group metals and the full names and percentage of the metals—“provides the greatest likelihood of effectively conveying information to consumers.”  38 However, it noted that marketers of “high grade and platinum/PGM” do not have to disclose their products' full composition. 39 Karat Platinum asserted that the Commission should remedy this inconsistency and modify the second proposed disclosure to provide that all marketers of platinum products make full compositional disclosures. 40

Karat Platinum opined that full compositional disclosure for all platinum products would benefit consumers in at least two ways. First, it asserted that it is a “myth” that platinum/PGM products are composed of an industry-standard material. It noted that high-grade platinum products may have “dramatically different” characteristics. For example, it compared two platinum rings, one containing 95% platinum and 5% ruthenium with another containing 95% platinum and 5% iridium. It stated that the former product is “significantly more scratch resistant and durable.”  41 Second, Karat Platinum explained that certain marketers “have engaged in the long-standing practice of characterizing high-grade and platinum/PGM alloys as ‘pure’ platinum” when the products all contain less than 100% platinum. 42 Karat Platinum, however, did not submit any consumer perception evidence indicating that the current marketing for higher purity platinum/other PGM products misleads consumers.

The Commission's third proposed disclosure provided that marketers disclose “that the product may not have the same attributes as products containing at least 850 parts per thousand pure Platinum, or at least 500 parts per thousand pure Platinum and at least 950 parts per thousand PGM.”  43 The proposed amendment further provided that a marketer need not make this third disclosure “if the marketer has competent and reliable scientific evidence that, with respect to all attributes material to consumers * * * such product is equivalent to [higher purity platinum/other PGM] products.” Many commenters asserted that this disclosure is confusing and unworkable.

Several commenters asserted that the third disclosure is confusing because it does not require that marketers specify the attributes of platinum/base metal alloys that differ from platinum/PGM products or explain how the alloy differs with respect to these attributes. The 2008 Platinum Attitude Study asked consumers about eight separate product attributes of platinum/base metal engagement rings: durability, luster, density, scratch resistance, tarnish resistance, ability to be resized or repaired, hypoallergenicity, and the retention of precious metal content over time. From 40% to 80% of consumers surveyed (depending on the product property) would expect a salesperson to inform them about these attributes and would also want the information physically attached to the product. 44 JVC asserted that these results demonstrate that the proposed disclosure “will not impart any of the information consumers want and need.”  45 The 2008 survey, however, did not evaluate consumer understanding of the third proposed disclosure.

JVC asserted that “[t]o make this disclosure fair and complete, full disclosure about each of the eight important attributes * * * would be required.” 46 JVC explained: “[a] consumer could easily purchase a [platinum/base metal alloy] ring without understanding that it might not hold a diamond as well, or might tarnish, or may not be hypoallergenic.” 47 Other commenters expressed similar concerns. 48

Tiffany, for example, explained that “[o]ur experience has shown that consumers who are in the process of buying a platinum product, feel as though they understand the product's makeup (platinum is pure) and characteristics (hypoallergenicity and others) and are there (typically in a rush) to decide based on issues such as style and fit, not a chemistry discussion of alloy makeup.”  49 Tiffany opined that this disclosure, combined with the second, full composition disclosure, will baffle and frustrate consumers, potentially causing them to walk away from the sale.

The comments further asserted that marketers cannot realistically deliver the third proposed disclosure. Specifically, JVC and PGI contended that the 2008 Platinum Attitude Study found that consumers expect jewelry information to be physically attached to the product. 50 However, both JVC and PGI asserted that the volume of information included in the disclosure, combined with the first and second proposed disclosures, cannot be attached to the jewelry itself, or on a small tag affixed to the jewelry. 51 JVC further stated that if the third proposed disclosure is revised to include additional information necessary to fully inform consumers, this additional information will make attachment to jewelry more difficult. 52 Therefore, JVC noted, jewelry sales personnel will need to orally disclose the information, or provide it in writing with the purchase.

Several commenters asserted that reliance on the salesperson or on written information delivered with the purchase is problematic. JVC opined that the average jewelry salesperson would be hard pressed to deliver this information. 53 It further asserted that the jewelry retail sales force is not equipped to discuss this complex metallurgical disclosure and simply will not provide the information, or will provide incorrect information. 54 PGI noted that it would be difficult, if not impossible, to ensure that the sales personnel impart correct information comparing all of the differences between a multitude of new alloys. 55

In addition, JVC submitted a Jewelers of America (“JA”) study that asked JA members about the “realities” of selling jewelry. The JA study, in part, found that 57.4% of the respondents said that it would be “difficult” or “very difficult” to tell consumers that the jewelry may not have the attributes of higher purity platinum products and to explain those differences. 56 JVC asserted that such technical disclosures—spoken or written—at the point of sale are likely to have a “chilling” effect and that consumers “may very well walk away from any product that requires these confusing, lengthy and unappealing disclosures.”  57

Moreover, JVC explained that nearly half of the respondents to the JA study stated that attribute disclosures could not be attached to the jewelry in the form of a tag or other physical means. 58 Several commenters concurred, asserting that without physical attachment, the disclosures likely will not remain with the jewelry product over time. JVC explained that the jewelry could be re-sold, repaired, or appraised without any identification of the alloy. 59 It asserted that a jeweler repairing a platinum/base metal alloy might not know the contents and this could create the risk that the item will be damaged during the repair process. A jewelry repair dealer expressed similar concern, explaining: “it will be virtually impossible for any jewelry repair technician to properly repair or size * * * jewelry under the new proposal.”  60 Another commenter opined that, short of an assay of the jewelry piece, the platinum/base alloy product distinctions “will not be discernible even to the well trained professional.”  61

In contrast, Karat Platinum asserted that the proposed disclosures do not need to include more detailed information or be physically attached to the platinum/base metal alloy products. It suggested that marketers' inclusion of the proposed disclosures with the marketing materials “is more than sufficient to ensure that the information is available to consumers.”  62 It further opined that, by making marketing material available, consumers are “provided with sufficient information to put them in a position to inquire from their jewelers, or from other knowledgeable sources, such as a company's marketing information, Web site, or the Internet, as to the relative value, properties, and characteristics of a product.”  63 Similarly, another commenter stated that the point of sale is the ideal way to inform consumers of the platinum/base metal alloy content. 64

Many commenters asserted that the substantiation provision that allows marketers to avoid making the third disclosure is inadequate and unworkable because it is too vague and gives marketers too much discretion. JVC and PGI explained that, even though the proposed amendment lists five important attributes as examples, 65 the seller self-determines which product attributes are material. 66 JVC asserted that a disclosure that relies on a subjective standard presents endless possibilities for non-compliance. 67 Moreover, JVC explained that because “there are no industry-wide, universally-accepted testing methods that produce ‘competent and reliable’ evidence,” there is no standard for testing these attributes. 68 PGI similarly noted that marketers are inappropriately left to their own devices to “cherry pick” which tests they should conduct to self-determine that they are exempt from making a particular disclosure. 69

Karat Platinum raised three concerns with the adequacy of the platinum attributes listed in the provision. First, it explained that the five attributes listed in the provision do not include all the attributes that the 2005 Platinum Awareness Study identified as important to the greatest number of consumers. 70 For example, in that study a substantial majority of consumers indicated they would want to know the weight of a product setting, yet that characteristic was not included explicitly in the third proposed disclosure. Second, Karat Platinum noted that because Dr. Maronick pre-selected the attributes, the participants had no choice in deciding which characteristics were important. Third, it asserted that when participants were allowed to write in the characteristics important to them they “indicated that they would want to know ‘everything’ about the platinum product.”  71 Thus, Karat Platinum recommended the Commission “conduct independent fact finding to determine what properties are material to consumers.”  72

In addition, Karat Platinum contended that the Commission should provide that all marketers of platinum products—not just those marketing platinum/base metal alloys—“maintain evidence that their product meets those expectations,” or alert consumers that they do not. 73

JVC, PGI, and numerous other commenters asserted that the Commission's proposal is not in harmony with international standards and will impede foreign commerce. 74 JVC explained that products made of platinum/base metal alloys cannot be sold as “platinum” in foreign jurisdictions that have adopted standards promulgated by the International Organization for Standardization (“ISO”) or the World Jewellery Confederation (“CIBJO”). 75 Moreover, JVC noted that platinum/base metal alloys could not be sold as “platinum” products in “hallmarking” countries—those that require that precious metal jewelry (including platinum) be stamped by approved assaying guilds before they are sold—because they contain base metals. 76 Thus, JVC opined that if platinum/base metal alloy products are marketed as “platinum” in the U.S., it “will undermine the international perception of U.S.-made products, threatening the integrity of the entire U.S.-platinum jewelry market abroad.”  77 Tiffany agreed, noting that the FTC should not take actions to place manufacturers in a situation where their products are not salable overseas. 78

JVC proposed that the Commission amend the Guides to provide that marketers cannot describe any product containing more than 5% non-platinum group metal as “platinum.”  79 JVC also proposed revising the Guides to state that certain practices are unfair or deceptive instead of stating that they may be misleading. Karat Platinum suggested that the provision in the Commission's proposed amendment allowing marketers to physically stamp platinum/base metal alloys with their chemical composition and the substantiation provision be included in section 23.7(c) of the Platinum Section, instead of section 23.7(b). 80 Because section 23.7(c) discusses markings that the Commission would not consider misleading, Karat Platinum explained that the amendment permitting physical stamping is more appropriate in that section.

In its 2008 FRN, the Commission also solicited comments concerning whether it should amend the Platinum Section to address other products that contain platinum, such as platinum-clad, filled, plated, coated, or overlay products, which the Guides currently do not address. The Commission received several comments in response. Most did not recommend specific guidance, but asserted that, if the Commission amends the Guides to provide that platinum/base metal alloy products should be described with a “non-platinum” descriptor, then such “descriptors should also apply to plated, filled, rolled, and any other form that is not complete or near complete of platinum content.”  81

JVC commented that the Commission should provide “standards” regarding the thickness of the plating to ensure durability—similar to those set for gold—to protect consumers against deceptive practices. 82 Its proposed provision stated that surface-plating with platinum should be composed of at least 950 ppt platinum and specified a minimum thickness of .125 microns of platinum electroplate and .5 microns for heavy electroplate. JVC's proposal also provided that, if the plating is of at least 950 ppt platinum, but does not meet the minimum thickness, then the product should be described as “platinum-flashed” or “platinum-washed.” The proposal also stated that certain descriptions may be misleading: “overlay,” “filled,” “clad,” “rolled-plate,” “covered,” or “coated.”  83 However, JVC did not provide evidence that consumers are being, or are likely to be, deceived by any current marketing for platinum-plated jewelry or evidence that JVC's proposed terms would not mislead consumers.

Based on the complete record, the Commission amends the Guides to address the marketing of products containing platinum/base metal alloys. The purpose of the Jewelry Guides is to help marketers avoid deceptive or unfair conduct. 84 The record demonstrates that deception will likely result if marketers describe platinum/base metal alloys as “platinum” without disclosing additional information. The record, however, does not show that the qualified use of the term “platinum” would be deceptive. Moreover, the record furnishes sufficient evidence for the Commission to provide guidance on qualifying disclosures.

Thus, the Commission concludes that it should amend the Guides to state that marketers may describe platinum/base metal alloys as “platinum” with appropriate disclosures. Amending the Guides in this manner is superior to the other available options: (1) Amending the Guides to state that marketers should not describe such products as “platinum,” or (2) not addressing the issue in the Guides at all.

Commenters, however, raised several concerns about the disclosures the Commission proposed in its 2008 FRN. The Commission has considered these comments and addresses them below, either revising its previous proposal or explaining why the record does not support revision. Finally, the Commission declines to amend the Guides to address the marketing of products with platinum plating or coatings at this time.

In 2005, the Commission found that deception would likely result if marketers describe platinum/base metal alloys as “platinum” without disclosing information regarding their composition and attributes. 85 The 2008 comments do not dispute this finding. 86 In fact, newly submitted consumer perception data further supports this conclusion.

Specifically, the 2008 Platinum Attitude Study, like the 2005 Platinum Awareness Study, shows that most consumers expect products described as “platinum” to contain a high percentage of platinum. Fifty-nine percent (59%) of the consumers surveyed expect a product described as “platinum” to contain at least 80% pure platinum and 69% expect at least 75% pure platinum. 87 The new data also show that many consumers expect products described using names that include the word “platinum,” or the root “plat,” to have the same attributes as products traditionally marketed as “platinum” to consumers in the United States. 88 For example, 60% of those surveyed expect that a product described as “Karat Platinum” would definitely or probably have the same attributes as “platinum;” and 24% expect that even a product described as “Platinum Alloy” would definitely or probably have the same attributes as platinum. 89

These expectations, however, will often not be met with products made from platinum/base metal alloys. Specifically, PGI's 2005 testing indicates that certain platinum/base metal alloys are inferior to platinum/PGM products in terms of wear and oxidation resistance, as well as weight loss, and that they cannot be resized using certain procedures. 90 Moreover, Karat Platinum's 2005 testing shows that its platinum/base metal alloy is less dense than platinum/PGM products. 91 Therefore, describing such products as “platinum” without qualification is likely to result in deception regarding their purity and attributes.

As noted earlier, JVC, PGI, and numerous retailers opposed amending the Guides to state that marketers of platinum/base metal alloys may describe them as “platinum” in a qualified manner. These commenters contended that marketers cannot describe such alloys as “platinum” without deceiving consumers no matter what information they disclose. Accordingly, they recommended that the Commission amend the Guides to state that marketers should not describe such alloys as “platinum.” 92

In evaluating whether a representation is misleading the Commission examines not only the claim itself, but the net impression of the entire advertisement. 93 Thus, in order to state that marketers should never describe platinum/base metal alloys as “platinum,” the Commission would have to conclude that no reasonable qualification is sufficient to render the term non-deceptive. The record, however, does not support this position. The 2008 Platinum Attitude Study suggests that a clear majority of consumers (55%) understood the proposed full name and percentage content disclosure. 94 In contrast, only 13% of consumers said they understood disclosures using abbreviations. 95

Moreover, the study likely understates the effectiveness of the proposed full name and percentage content disclosure for several reasons. First, this disclosure is designed to work in tandem with the third proposed disclosure (that the product may not have all the attributes of platinum/PGM), and the study did not test the third disclosure, either alone or in conjunction with the full name and percentage content disclosure. Second, some consumers who stated that they did not understand the disclosure may have understood that the item contained 58.5% platinum but found the phrase “41.5% Copper/Cobalt,” which did not disclose the percentage of each metal, confusing. Third, as discussed in section III.C.2 below, consumer perception data regarding gold jewelry shows that the proposed full name and percentage content disclosure likely would be even more effective than the above figures suggest. On its face, this second disclosure appears to be clear, and the record lacks any evidence to the contrary.

Finally, guidance stating that marketers cannot describe platinum/base metal alloys using the term “platinum” would deprive consumers of truthful information, specifically that those products are primarily comprised of platinum. 96

Having determined that describing platinum/base metal alloys as “platinum” without qualification will likely lead to deception, and that the record does not show that the qualified use of the term “platinum” would be deceptive, the Commission concludes that disclosures are the appropriate means for attempting to prevent deception. Because the comments and new consumer perception evidence reinforce the concerns the Commission considered in its 2008 FRN, the following analysis begins with the Commission's proposed three-tiered disclosure regime.

The first proposed disclosure provided that marketers of platinum/base metal alloys disclose that their products “contain platinum and other non-platinum group metals.” The 2008 Platinum Attitude Study, however, suggests that few consumers understand this disclosure. Only 20% of those surveyed indicated that they knew what the phrase “other non-platinum group metals” meant. 97 Moreover, many consumers who said either they “knew” or “were not sure of” the disclosure's meaning did not know whether cobalt, copper, palladium, rhodium, and silver are non-platinum group metals (over 60% for cobalt, palladium, and rhodium, and 47% for copper and silver). 98 The Commission, therefore, concludes that this disclosure is unlikely to provide useful information. Accordingly, the adopted amendment excludes this provision. 99

The second proposed disclosure provided that marketers of platinum/base metal alloys disclose the product's full composition, by name and not abbreviation, and the percentage of each metal in the product. 100 The consumer perception data suggests that the majority of consumers understand this disclosure. Indeed, 55% of those surveyed indicated that they knew what the phrase “58.5% Platinum and 41.5% Copper/Cobalt” meant. 101 In addition, the “vast majority” of those who indicated either they “knew” or “were not sure” what the disclosure meant correctly identified the platinum and copper/cobalt combination or indicated that the product had a combination of the metals. 102

Although a substantial minority of consumers surveyed said they did not understand the disclosure, or were not sure what it meant, many of those consumers may have understood that a product with 58.5% platinum is less “pure” than traditional platinum products. 103 Indeed, consumer perception data addressing gold jewelry suggests that this is the case. Specifically, even though many consumers cannot define the term “14 karat gold” accurately, they understand that “14 karat” represents the amount of gold in the product and that 18 karat gold jewelry contains more gold than 14 karat gold jewelry. 104 Similarly it is reasonable to conclude that consumers would understand that a product labeled 58.5% platinum would contain a lower percentage of platinum than a product they expect to have 85% platinum. Therefore, the Commission concludes that the second proposed disclosure is the best option for addressing possible deception regarding the purity of platinum/base metal alloys.

Furthermore, consumer perception data suggests that this type of disclosure would also help prevent deception regarding the attributes of platinum/base metal alloys. Specifically, survey participants were asked whether a ring containing 58.5% Platinum and 41.5% Copper/Cobalt is likely to differ from a platinum ring on eight specific attributes. 105 Depending on the attribute, between 28% and 43% of the respondents indicated the ring would differ from platinum. 106 This data suggests that many consumers exposed to this type of disclosure do not have the impression that platinum/base metal alloys have the same attributes as platinum/PGM products. More than half the consumers surveyed, however, indicated that they “were not sure” or “did not know” whether the product differed from platinum. 107 Therefore, further disclosure is needed to avoid deception.

The third proposed disclosure advised marketers to state that a platinum/base metal alloy may not have all the attributes that consumers associate with higher purity platinum/PGM products. It also provided that marketers need not make this disclosure if they possess competent and reliable scientific evidence that, with respect to all attributes material to consumers, such product is equivalent to products containing at least 850 ppt pure platinum, or at least 500 ppt pure platinum and at least 950 ppt PGM. The comments filed in 2008 raise six concerns regarding this provision.

First, commenters noted that many consumers do not understand the terms “platinum group metals” or “other non-platinum group metals.” 108 As a result, it is likely that these consumers would not fully understand this disclosure. To address this issue, the Commission has revised the disclosure to replace the reference to PGM with the phrase “traditional platinum products.”

The most common platinum jewelry currently marketed in the United States contains at least 85% platinum. 109 Consumers, therefore, would reasonably understand that traditional platinum products are those having the attributes of products containing at least 85% platinum. This conclusion is further supported by the 2008 survey and comments from industry demonstrating that consumers expect platinum products to be from 85% to all or almost all pure. The amended Guides, therefore, treat “traditional platinum” as that containing at least 85% pure platinum. This change provides consumers with a short, clear disclosure which is consistent with their current views. Additionally, the new definition provides a more limited universe of comparison, which should help marketers respond to questions precipitated by the disclosure. 110

Second, several comments suggested that the Commission specify each material attribute identified in the consumer perception data instead of merely listing examples. Adopting this suggestion should provide greater clarity for marketers. Accordingly, the provision now states that marketers need not make this disclosure if they have the required evidence “with respect to the following attributes or properties: durability, luster, density, scratch resistance, tarnish resistance, hypoallergenicity, ability to be resized or repaired, retention of precious metal over time, and any other attribute or property material to consumers.”  111

Third, Karat Platinum contended that the Commission provides insufficient guidance regarding the evidence needed to substantiate that platinum/base metal alloys have the same material attributes as higher purity platinum products. Specifically, Karat Platinum explained that marketers would not know which higher purity platinum products to which they should compare their products. To support this point, Karat Platinum submitted evidence showing that traditional platinum products can differ from each other with respect to scratch resistance and durability. 112

Although the record shows that traditional platinum products can differ from each other with respect to certain attributes, these differences may be insignificant to consumers, and the record does not indicate that consumers have been deceived as a result. If some traditional platinum products differ from each other in immaterial ways, it follows that some platinum/base metal alloys may likewise differ from traditional platinum in immaterial ways. The Commission, therefore, concludes that a platinum/base metal alloy marketer need not make the third disclosure to prevent deception if the material attributes of its product do not differ materially from the attributes of any traditional platinum product.

Fourth, JVC argued that only full disclosure of every materially different attribute would prevent deception because consumers want and expect this information. 113 JVC further contended that it would be impractical for marketers to make such disclosures; and therefore, the Commission should amend the Guides to prevent marketers from using the term “platinum” to describe platinum/base metal alloys. The Commission disagrees. The purpose of the Guides is not to maintain uniformly high product standards, but to prevent unfairness and deception. 114 The potential deception here is consumers' assumption that platinum/base metal alloys are as pure as traditional platinum and/or that they have the same attributes as traditional platinum. A clear and conspicuous disclosure of a product's composition and that its attributes may differ from those of traditional platinum addresses this potential deception. If consumers are then interested in how this new product differs from traditional platinum products, they can seek further information before purchasing a jewelry product. 115

Fifth, some commenters argued that the substantiation proviso is too subjective, and therefore, unworkable. 116 They contended that marketers will differ in their understanding of which attributes are material and the tests they should use to determine differences. They added that no industry-wide, universally-accepted testing methods or standards relating to the attributes of jewelry currently exist.

Neither of these arguments warrants further modifying the proposed proviso. Marketers are responsible for substantiating their claims. 117 In this case, the evidence demonstrates that using the term “platinum” to describe a platinum/base metal alloy conveys the claim that the product has the same attributes as traditional platinum. Marketers, therefore, may make disclosures to dispel this claim, avoid the claim altogether, or obtain competent reliable scientific evidence to substantiate the claim. For marketers seeking to avoid the disclosure and still use the term “platinum” to describe their platinum/base metal alloys, the proviso identifies eight material attributes of jewelry based on the consumer perception data in the record. If additional attributes are, or become, material to consumers, marketers are responsible for determining what those attributes are and obtaining the corresponding substantiation. 118 This places jewelry sellers in no different a position than any other marketer. 119

Furthermore, the record shows that tests do exist for determining how some material attributes of jewelry products differ from each other. Indeed, both Karat Platinum and PGI submitted tests showing whether, and to what extent, certain material attributes of various platinum/base metal alloys differ from those of platinum/PGM products. Moreover, marketers need not rely on industry-wide, universally-accepted tests or standards, so long as they have competent and reliable scientific evidence. 120 Indeed, marketers frequently develop evidence to substantiate their claims even in the absence of industry-wide, universally-accepted tests or standards. 121 The challenges in developing such evidence cited by commenters are not unique to the jewelry industry and do not warrant further modification of the proviso.

Finally, some commenters contended that the third proposed disclosure would present endless possibilities for non-compliance and enforcement would be hopelessly difficult. 122 The Commission issues guidance to help those marketers who are trying to comply with the law, not for those who are intent on violating it. The Guides themselves, however, are not independently enforceable. Therefore, the Commission would have to bring any enforcement action under Section 5 of the FTC Act and prove that a marketer lacked substantiation for its claims, regardless of what the Guides provided.

The comments filed in 2008 raise four general objections to the proposed amendment, none of which warrant modifications. First, commenters contended that the proposed disclosures are unworkable because: Consumers will not read lengthy, technical written disclosures; the average jewelry sales personnel lack the expertise to make oral disclosures effectively; and the disclosures will likely have a chilling effect on sales. 123

These objections are not persuasive. With regard to written disclosures, there is no evidence in the record indicating that consumers will not read written disclosures regarding a platinum/base metal alloy's composition and a simple statement that it may differ from traditional platinum. Moreover, the Commission has reduced the size of the proposed disclosures by eliminating the first proposed disclosure, and has simplified the language in the third proposed disclosure. These changes make the disclosures shorter and non-technical, and therefore, easier to comprehend. Additionally, the 2008 Platinum Attitude Study suggests that most consumers can read and understand disclosures regarding the composition of jewelry using the full name and percentage of each metal.

With regard to the inability of sales personnel to make oral disclosures, the record includes the JA e-mail survey showing that 52.5% of the retailers surveyed would find it “difficult” or very “difficult” to make the disclosures orally. Sales clerks, however, need not make any disclosure if marketers clearly and conspicuously make the written disclosures provided in the amended Guides. Moreover, simply because making a disclosure is difficult does not mean that it cannot reasonably be done. 124

With regard to any chilling effect disclosure may have on sales, no commenter has a larger stake in robust sales of platinum/base metal alloy products than Karat Platinum. Yet Karat Platinum, an entity that would be responsible for making the disclosures, indicated that the disclosures are workable and does not object to them. The Commission, therefore, finds this argument unpersuasive.

Second, many commenters objected to the proposed amendment because it conflicts with international standards. As the Commission explained in its 2008 FRN, however, this is not a basis for rejecting the amendment. Although the Commission generally prefers to harmonize its guidance with international laws and standards, Commission Guides must be based upon deception or unfairness. 125 The commenters base their argument on conflicts between the Commission's proposed amendment and ISO and CIBJO standards. These standards, however, are technical industry standards developed through a consensus-building process based on a variety of considerations—such as facilitating trade and promoting international cooperation—and not solely upon deception. 126 Harmonization with international standards is typically favored. Where, as here, however, there is insufficient evidence that a particular claim ( i.e., a qualified platinum representation) is deceptive, the Commission cannot promulgate a guide stating that marketers should not make the representation solely to achieve harmony. 127

Third, some commenters argued that any written disclosure regarding the composition of platinum/base metal alloy jewelry would likely become separated from the jewelry over time. 128 They contended that, as a result, jewelers could not effectively appraise, resize, or repair the jewelry at a later time. However, the commenters' proposed solution, amending the Guides to state that marketers should not describe platinum/base metal alloys as “platinum,” fails to resolve this problem. Specifically, describing such alloys as something other than “platinum” at the time of purchase does not insure that jewelers would have the information necessary to identify, value, resize, or repair the jewelry in the future.

Physically stamping or marking jewelry to indicate its composition would address this concern. The Guides currently do not require stamping, and there is no evidence that such a requirement is necessary in this case. In fact, Karat Platinum already marks its products with composition information. 129 However, the Commission amends Section 23.7(c) of the Guides to clarify that marketers may mark or stamp platinum/base metal alloy jewelry accurately to indicate composition using parts per thousand and standard chemical abbreviations ( e.g., 585 Pt., 415 Co.) without triggering the new disclosure. This amendment should insure that marketers are not deterred from marking their products based upon the Commission's new platinum guidance. The Commission proposed this amendment in its 2008 FRN, and no commenter specifically objected. If actual deception occurs based on the lack of marking, or the lack of further disclosure, the Commission may consider amending the Guides at a later date.

Finally, although Karat Platinum supported the Commission's general approach, it argued that the Commission should level the playing field by amending the Guides to provide that marketers of both platinum/base metal alloys and platinum/PGM products make the same composition and attribute disclosures detailed above. Karat Platinum argued that consumers do not understand the chemical abbreviations used to describe platinum/PGM products containing less than 95% platinum any better than they understand the chemical abbreviations used to describe the content of platinum/base metal alloys. It also argued that platinum/PGM products differ from each other with respect to material attributes such as durability and scratch resistance.

The record suggests that marketers of at least some products consisting of at least 50% but less than 85% platinum and at least 95% PGM may need to make additional disclosures when describing their products as “platinum” to avoid deception; however, further evidence is needed. The attributes of these products may vary depending upon the combination of metals used. We have no evidence whether these differences are material to consumers. Absent such evidence we decline to amend the Guides to provide for additional disclosures. Marketers of these products must ensure that they are not making deceptive statements about their products based on reasonable consumer perception.

We, therefore, conclude that the disclosures, described above, are the best option for addressing deception regarding the attributes of platinum/base metal alloys described as “platinum.”

Several comments proposed that the Commission provide detailed guidance regarding the marketing of products containing platinum plating or coating. The JVC comment, for example, proposed addressing a number of issues relating to the marketing of such products, including the platinum content and thickness of platinum plating, washing or flashing, and heavy plating. The record, however, does not include any evidence regarding how consumers perceive products with platinum plating or coating or the claims made for them. Nor does the record include any evidence showing how the industry proposal would address any problem that may exist, or how consumers would perceive the disclosures contemplated by the proposal. Accordingly, the Commission declines to amend the Guides to address the marketing of products with platinum plating or coatings at this time. 130

The Joint Board is proposing to simplify the administration of its Privacy Act systems of records by consolidating the current nine systems into three systems of records and to revise the data elements of consolidated systems of records notices so as to ensure that they accurately reflect the jurisdictional coverage and operational requirements of the Joint Board's regulations, which are set out at 20 CFR parts 901 through 903.

The Joint Board will publish separately in the Federal Register a notice proposing to consolidate and revise its Privacy Act systems of records. As described in the notice, the Joint Board proposes to consolidate its systems of records as follows:

JBEA-2, Charge Case Inventory Files, will be renamed “Enrolled Actuary Disciplinary Records” and will consolidate all disciplinary-related records from that system and from the following systems—

JBEA-4, Enrollment Files;

JBEA-8, Suspension and Termination Files; and

JBEA-9, Suspension and Termination Roster.

JBEA-4, Enrollment Files, will be renamed “Enrolled Actuary Enrollment Records” and will consolidate all enrollment-related records from that system and from the following systems—

JBEA-1, Application Files;

JBEA-2, Charge Case Inventory Files;

JBEA-3, Denied Applications;

JBEA-5, Enrollment Roster;

JBEA-7, General Information;

JBEA-8, Suspension and Termination Files; and

JBEA-9, Suspension and Termination Roster.

JBEA-6, General Correspondence File, will be renamed “Correspondence and Miscellaneous Records.”

The following systems of records will be deleted upon implementation of the consolidated and revised systems:

JBEA-1, Application Files;

JBEA-3, Denied Applications;

JBEA-5, Enrollment Roster;

JBEA-7, General Information;

JBEA-8, Suspension and Termination Files; and

JBEA-9, Suspension and Termination Roster.

If a system of records contains investigative material compiled for law enforcement purposes, section (k)(2) of the Privacy Act permits the head of an agency to promulgate a rule to exempt a system of records from the Privacy Act's provisions granting individuals certain rights with respect to the records that pertain to them, including the right to review and copy the records. As permitted by section (k)(2), the Joint Board published the following documents to exempt certain systems of records:

On August 27, 1975 (40 FR 39387), the Joint Board published a proposed rule to exempt five systems of records, designating the rule as 20 CFR part 903.

On September 30, 1975 (40 FR 45113), the Joint Board published its proposed Privacy Act regulations, designating such regulations as 20 CFR part 903, and in the same publication, the Joint Board republished its proposed rule to exempt five systems of records, redesignating the exempting rule as 20 CFR 903.8.

On January 8, 1976 (41 FR 1493), the Joint Board published its final Privacy Act regulations as 20 CFR part 903 and in the same publication, the Joint Board published its final rule to exempt five systems of records, designating the exempting rule as 20 CFR 903.8.

The systems of records for which the Joint Board has claimed exemptions are listed in 20 CFR 903.8(a) as follows:

JBEA—Enrollment Files;

JBEA—Application Files;

JBEA—General Information;

JBEA—Charge Case Inventory Files; and

JBEA—Suspension and Termination Files.

This direct final rule will amend 20 CFR 903.8 as follows:

a. The exempt system currently listed as “JBEA—Charge Case Inventory Files” will be listed as “JBEA-2, Enrolled Actuary Disciplinary Records.”

b. The exempt system currently listed as “JBEA—Enrollment Files” will be listed as “JBEA-4, Enrolled Actuary Enrollment Records.”

c. The following systems will be deleted from the listing of exempt systems:

JBEA—Application Files;

JBEA—General Information; and

JBEA—Suspension and Termination Files.

d. Language such as “Exemption will be claimed” (§ 903.8(b)), which incorrectly implies that the Joint Board has yet to seek exemptions, and language such as the “the Joint Board seeks exemption” (§ 903.8(c)(2)(i), (ii), (iii), (iv), (v), and (vi)), which incorrectly implies that the Joint Board's claims for exemptions are still pending, will be revised.

e. Internal references will be corrected.

These regulations are being published as a direct final rule because the amendments do not impose any requirements on any member of the public. These amendments are the most efficient means for the Joint Board to implement its internal requirements for complying with the Privacy Act.

Accordingly, pursuant to 5 U.S.C. 553(b)(3)(B), the Joint Board finds good cause that prior notice and other public procedures with respect to this rule are unnecessary, and good cause for making this direct final rule effective 90 days after publication in the Federal Register .

Pursuant to Executive Order 12866, it has been determined that this direct final rule is not a significant regulatory action, and therefore, does not require a regulatory impact analysis.

Because no notice of proposed rulemaking is required, the provisions of the Regulatory Flexibility Act, 5 U.S.C. 601-612, do not apply.

Thorn Bioscience LLC, 1044 East Chestnut St., Louisville, KY 40204, filed NADA 141-319 that provides for use of SUCROMATE Equine (deslorelin acetate), an injectable suspension, in mares for inducing ovulation. The NADA is approved as of November 5, 2010, and the regulations are amended in 21 CFR 522.533 to reflect the approval.

In addition, Thorn Bioscience LLC has not been previously listed in the animal drug regulations as a sponsor of an approved application. Accordingly, 21 CFR 510.600(c) is being amended to add entries for this firm.

In accordance with the freedom of information provisions of 21 CFR part 20 and 21 CFR 514.11(e)(2)(ii), a summary of safety and effectiveness data and information submitted to support approval of this application may be seen in the Division of Dockets Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane, rm. 1061, Rockville, MD 20852, between 9 a.m. and 4 p.m., Monday through Friday.

The Agency has determined under 21 CFR 25.33 that this action is of a type that does not individually or cumulatively have a significant effect on the human environment. Therefore, neither an environmental assessment nor an environmental impact statement is required.

Under section 512(c)(2)(F)(ii) of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360b(c)(2)(F)(ii)), this approval qualifies for 3 years of marketing exclusivity beginning on the date of approval.

This rule does not meet the definition of “rule” in 5 U.S.C. 804(3)(A) because it is a rule of “particular applicability.” Therefore, it is not subject to the congressional review requirements in 5 U.S.C. 801-808.

Background

The final regulations (TD 9505) that are the subject of this document are under section 411 of the Internal Revenue Code.

As published, the final regulations (TD 9505) contain errors that may prove to be misleading and are in need of clarification.

The temporary regulations (TD 9508) that are the subject of this document are under section 863 of the Internal Revenue Code.

As published, the temporary regulations (TD 9508) contain an error that may prove to be misleading and is in need of clarification.

On May 20, 2010, the Commission published in the Federal Register a rule proposing Simplified Proceedings in certain civil penalty proceedings. 75 FR 28223. The Commission explained that since 2006, the number of new cases filed with the Commission has dramatically increased, and that in order to deal with that burgeoning caseload, the Commission is considering methods to simplify and streamline its procedures for handling certain civil penalty proceedings.

The Commission invited comments on the proposed rule through June 21, 2010. The Commission received comments from: (1) The Law Offices of Adele L. Abrams; (2) the United Mine Workers of America; (3) the Secretary of Labor through the Office of the Solicitor (“MSHA” or the “Secretary”); (4) Public Citizen; (5) Industrial Minerals Association-North America; (6) Alliance Coal, LLC; (7) Chris Barber; (8) Arch Coal, Inc.; (9) Jackson Kelly PLLC; and (10) Imerys.

The major differences between the simplified procedures set forth in the proposed rule and current conventional procedures were that, under the proposed simplified procedures, answers to petitions for assessment of penalty would not be required; motions would be eliminated to the greatest extent practicable; early discussions among the parties and the Commission Administrative Law Judge (“Judge”) would be required to narrow and define the disputes between parties; parties would be required to disclose certain materials early in the proceedings; discovery would not be permitted except as ordered by the Judge; interlocutory appeals would not be permitted; and post-hearing briefs would not be allowed, except as ordered by the Judge. Although the administrative process would be streamlined, hearings would remain full due process hearings as they are under conventional procedures. The proposed rule is unchanged in many ways, and the characteristics of Simplified Proceedings described above also are present in this final rule.

A commenter suggested that the Commission should implement Simplified Proceedings as a pilot program and then conduct an independent evaluation of whether the new procedures were successful in streamlining and simplifying cases before finalizing the Simplified Proceedings rule. The Commission agrees that Simplified Proceedings should be implemented as a pilot program for a finite period of time. Accordingly, this final rule shall be implemented as a pilot program for nine to twelve months. During the pilot program, the Commission will gather information to assess the success of Simplified Proceedings ( e.g., comparing how long it takes to process cases under Simplified Proceedings compared to processing under conventional procedures, and whether there is any beneficial impact on the Commission's backlog of undecided cases). The Commission intends to publish the results of its pilot program and request comments regarding the regulated community's experience with Simplified Proceedings. These comments and the information gathered from the Commission during the pilot program will form the basis of any future final Simplified Proceedings rule.

The Commission proposed various characteristics to describe which cases might be eligible for Simplified Proceedings. Under the proposed rule, cases designated for Simplified Proceedings by the Chief Judge or the Judge's designee would not involve complex issues of law or fact and would generally include one or more of the following characteristics: (1) Limited number of citations; (2) an aggregate proposed penalty of not more than $15,000 per docket and not more than $50,000 per proceeding; (3) no citation or order issued under sections 104(b), 104(d), 104(e), 105(c), 107(a), 110(b), 110(c), or 111 of the Mine Act; (4) not involving a fatality; or (5) a hearing that is expected to take not more than one day.

In the preamble to the proposed rule, the Commission discussed the difficulty in describing the criteria for eligibility for Simplified Proceedings, noting that it would be useful for the Commission to consider, at an early stage, all of the contested civil penalties that might be at issue in a single hearing. The Commission explained that it plans to review each petition for assessment of penalty and proposed penalty assessment form in its consideration of whether a case is appropriate for Simplified Proceedings. MSHA currently groups citations and orders and their proposed penalties on a proposed penalty assessment form based upon a 30-day billing cycle. Under MSHA's current practice for grouping citations and orders, the Commission would not have a complete view of all of the contested penalties that may be relevant in a particular hearing. Accordingly, the Commission requested suggestions regarding criteria that might be used to better group proposed penalties and the underlying citations and orders.

Industry commenters suggested that citations and orders should be grouped by inspection on a proposed assessment form. MSHA agreed that citations and orders should be grouped by inspection (which MSHA designates by an “event number”), and further by inspector where more than one inspector is involved in an inspection.

The Commission also received comments suggesting that some factors should be added to make more cases eligible for Simplified Proceedings, such as that cases should be included in which parties mutually agree to opt-in to Simplified Proceedings. The Commission received other suggestions for excluding cases from Simplified Proceedings, such as that cases should be excluded if they involve special assessments, pure legal issues, expert witnesses, and the occurrence of injury or illness. Commenters had varying opinions on the number of citations, penalty amount, and hearing length that should make a case eligible for Simplified Proceedings.

The Commission agrees that, prior to docketing, citations and orders for some cases should be grouped by inspection, and further by inspector where more than one inspector is involved in an inspection. The Commission should then have a clearer picture of the citations and orders that might be at issue in a hearing and whether the case is appropriate for Simplified Proceedings. The Commission has conferred with MSHA regarding the grouping of citations and orders. We expect this grouping to occur prior to the effective date of this final rule.

As to eligibility criteria for Simplified Proceedings, the Commission has concluded that cases designated for Simplified Proceedings shall not involve fatalities or the occurrence of injuries or illnesses. Furthermore, cases designated for Simplified Proceedings will generally include one or more of the following characteristics: (1) The case involves only citations issued under section 104(a) of the Mine Act; (2) the proposed penalties were not specially assessed under 30 CFR 100.5; (3) the case does not involve complex issues of law or fact; (4) the case involves a limited number of citations to be determined by the Chief Judge or his designee; (5) the case involves a limited penalty amount to be determined by the Chief Judge or his designee; (6) the case will involve a hearing of limited duration to be determined by the Chief Judge or his designee; (7) the case does not involve only legal issues; and (8) the case does not involve expert witnesses. Information gathered during the pilot program may better clarify appropriate criteria for Simplified Proceedings eligibility.

The Commission proposed that a civil penalty proceeding would be designated for Simplified Proceedings by the Chief Judge or the Judge's designee. Under proposed section 2700.102, after a case has been designated for Simplified Proceedings, the Commission would issue a notice of designation to the parties, which would also provide certain information, such as contact information for the Judge assigned to the case, including the Judge's e-mail address. In addition, parties would be required to file a notice of appearance providing specific contact information for the counsel or representative acting on behalf of the party, if that information had not already been provided. The operator would not be required to file an answer to the petition for assessment of civil penalty.

Under proposed section 2700.103, even if a case had not been designated for Simplified Proceedings by the Chief Judge or the Judge's designee, a party had the opportunity to request that a case be designated. The Commission proposed that the request would need to be in writing and state whether the request is opposed. The request would also address the characteristics specified in the rule that make the case appropriate for designation. If a request for designation were granted, under the proposed rule, the parties would be required to file and serve notices of appearance providing specific contact information unless such contact information had already been provided. Under the proposed rule, if a party requested Simplified Proceedings, the deadline for filing an answer to a petition for assessment of penalty would be suspended. If a request were denied, the time for filing an answer would begin to run upon issuance of the Judge's order denying the request.

The Commission received comments suggesting that the decision to opt-in to Simplified Proceedings should be exclusively controlled by the parties. Some commenters also suggested that parties should be able to opt-in to Simplified Proceedings at any time, that all cases should be eligible for Simplified Proceedings, and that any request to opt-in should be consented to by all parties.

The Commission has declined to adopt these suggestions and has made very few changes to proposed sections 2700.102 and 2700.103. Similar to the Simplified Proceedings rule adopted by the Occupational Safety and Health Review Commission (“OSHRC”) ( see 29 CFR 2200.203), the Commission concludes that some cases that meet certain criteria should be designated for Simplified Proceedings by the Commission, and that the decision to opt-in should not be within the exclusive control of the parties. If a party disagrees with a case's designation for Simplified Proceedings, the party may file a motion to opt-out pursuant to section 2700.104. The Commission has further determined that parties should not be able to automatically opt-in to Simplified Proceedings in any type of case even with the mutual consent of all parties. However, a mutual request to opt-in involving a case that does not meet the eligibility criteria may be granted at the discretion of the Judge. Regarding the timing of a party's request for Simplified Proceedings, proposed section 2700.103 did not set forth a specific time for when a party must file its request for Simplified Proceedings, and a deadline has not been set forth in the final rule. The Commission is not requiring that all requests to opt-in must be consented to by all parties. Finally, the Commission has determined that paragraph (d) should be revised to conform more closely with the language of section 2700.100(b)(1).

Under proposed section 2700.104, if it became apparent at any time that a case was not appropriate for Simplified Proceedings, the assigned Judge could discontinue Simplified Proceedings upon the Judge's own motion or upon the motion of any party. A party would have the opportunity to move to discontinue the Simplified Proceedings at any time during the proceedings but no later than 30 days before the scheduled hearing. The moving party would be required to confer with the other parties and state in the motion if any other party opposes or does not oppose the motion. Parties opposing the motion would have eight business days after service of the motion to file an opposition. The Commission proposed that if Simplified Proceedings were discontinued, the Judge would issue such orders as are necessary for an orderly continuation under conventional rules.

The Commission received some comments suggesting that opting-out of Simplified Proceedings should be exclusively controlled by the parties, while other comments expressed agreement with the language proposing that opting-out should be within the discretion of the Judge. Another commenter suggested that more information should be provided regarding the grounds for a Judge's decision to discontinue Simplified Proceedings.

The Commission has concluded that the rule should be adopted as proposed. However, if the pilot program reveals that revisions should be made to the process for discontinuing Simplified Proceedings, the Commission will consider making those revisions.

The Commission proposed in section 2700.107 that discovery would “only be allowed under the conditions and time limits set by the Judge.” Rather than requiring the disclosure of documents and materials through discovery, the Commission proposed a more expeditious means for disclosure through the mandatory exchange of documents and materials and through a pre-hearing conference. More specifically, proposed section 2700.105 provided that within 30 calendar days after a case had been designated for Simplified Proceedings, each party would provide to all other parties copies of all documents, electronically stored information and tangible things that the disclosing party had and would use to support its claims or defenses. Materials required to be disclosed under the proposed rule would include, but would not be limited to, inspection notes, citation documentation, narratives, photos, diagrams, preshift and onshift reports, training documents, mine maps and witness statements (subject to the provisions of 29 CFR 2700.61). Under proposed section 2700.106, as early as practicable after the parties received these materials, the Judge would order and conduct a pre-hearing conference. Proposed section 2700.106 further provided that at the pre-hearing conference, the parties would discuss the following: Settlement of the case; the narrowing of issues; an agreed statement of issues and facts; defenses; witnesses and exhibits; motions; and any other pertinent matter. At the conclusion of the conference, the Judge would issue an order setting forth any agreements reached by the parties and would specify in the order the issues to be addressed by the parties at the hearing.

The industry commenters generally suggested that there should not be a ban on discovery, and that they should be permitted to depose the inspector who issued the contested citations and orders. MSHA, on the other hand, commented that discovery should be allowed only in extraordinary circumstances. The Commission believes that the limit on discovery is a key provision to simplifying and streamlining cases designated for Simplified Proceedings. The final rule replaces the language in proposed section 2700.107 with the language of proposed section 2700.100(b)(5), which more clearly articulates that discovery is generally prohibited.

Regarding the mandatory disclosure of information by parties set forth in proposed section 2700.105, commenters suggested that the time-frame for disclosure of documents should be changed from 30 to 45 days. Commenters also suggested expanding the information which must be disclosed to include all documents related to a matter that are in a party's possession (and not just those that it would use in litigation) and the disclosure of documents supporting the opposing party's claims.

The final rule changes the time-frame for disclosure to 45 days and requires the exchange of information suggested in the comments. The Commission has further expanded disclosure to include rebuttal forms and to specify requirements for privilege logs. An expanded exchange of information balances the lack of discovery permitted by the Simplified Proceedings rule.

Regarding proposed section 2700.106, the Commission received comments stating that, since admissions made in the interest of settlement are not intended to be admissible in formal proceedings, a Judge assigned to a Simplified Proceedings case, who will ultimately decide the case, should not hear settlement discussions during a pre-hearing conference. A commenter also suggested that the hearing date should be set during the pre-hearing conference.

The Commission agrees that the Judge assigned to a Simplified Proceedings case should not hear the content of the settlement discussions during the pre-hearing conference, and that the rule should clarify that only settlement efforts by the parties (not the actual content of settlement) will be discussed during pre-hearing conferences. The final rule further requires that a settlement discussion occur between parties before the pre-hearing conference. In order to allow as much flexibility as possible, the rule has not been revised to require a hearing date to be set at the end of the pre-hearing conference.

The Commission proposed in section 2700.108 that as soon as practicable after the conclusion of the pre-hearing conference, the Judge would hold a hearing on any issue that remained in dispute. The hearing would be a full due process hearing. Each party would present oral argument at the close of the hearing, and post-hearing briefs would not be permitted except by order of the Judge. The Judge would issue a written decision that would constitute the final disposition of the proceedings within 60 calendar days after the hearing. If the Judge announced a decision orally from the bench, it would be reduced to writing within 60 calendar days after the hearing.

The Commission received no comments on proposed section 2700.108 and adopts the rule without change.

The Commission proposed conforming changes to Rule 5(c), 29 CFR 2700.5(c). Those changes conform the contact information required in Simplified Proceedings with the contact information required in all proceedings. The Commission received no comments on the proposed changes to Rule 5(c) and adopts the rule as proposed.

The Commission received a comment suggesting that rulemaking comments should be posted on the Commission's Web site. The Commission agrees and shall make rulemaking comments, including those to this final rule, available on the Commission's Web site ( http://www.fmshrc.gov ).

A commenter stated that the Commission should provide sufficient information to allow the commenter to assess whether the Simplified Proceedings rule is sufficient to help draw down the Commission's backlog of undecided cases quickly. The Commission intends to provide such information after it conducts the pilot program.

The Commission received comments that it should adopt settlement procedures similar to those found in OSHRC's rules at 29 CFR part 2200, subpart H. The Commission will consider the appropriateness of promulgating a settlement subpart after the conclusion of the pilot program for Simplified Proceedings.

Although notice-and-comment rulemaking requirements under the Administrative Procedure Act (“APA”) do not apply to rules of agency procedure ( see 5 U.S.C. 553(b)(3)(A)), the Commission invites members of the interested public to submit comments on this final rule. The Commission will accept public comments until January 12, 2011.

The Commission is an independent regulatory agency and, as such, is not subject to the requirements of E.O. 12866, E.O. 13132, or the Unfunded Mandates Reform Act, 2 U.S.C. 1501 et seq.

The Commission has determined under the Regulatory Flexibility Act (5 U.S.C. 601 et seq .) that this rule would not have a significant economic impact on a substantial number of small entities. Therefore, a Regulatory Flexibility Statement and Analysis has not been prepared.

The Commission has determined that the Paperwork Reduction Act (44 U.S.C. 3501 et seq. ) does not apply because this rule does not contain any information collection requirements that require the approval of the Office of Management and Budget.

The Commission has determined that the Congressional Review Act, 5 U.S.C. 801, is not applicable here because, pursuant to 5 U.S.C. 804(3)(C), this rule “does not substantially affect the rights or obligations of non-agency parties.”

Regulatory Information

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because to do so would be contrary to public interest since the event will have begun by the time the notice could be published and comments taken.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register because to do otherwise would be contrary to public interest since the event will have begun by the time the notice could be published and comments taken.

The U.S. Army Corps of Engineers will be completing repairs on The Dalles Lock from December 10, 2010 until April 1, 2010. The dangers associated with such a large scale construction project necessitate the establishment of this safety zone to help ensure the safety of the workers conducting the repairs as well as the maritime public.

The safety zone created by this rule covers all waters of the Columbia River encompassed within the area created by a line beginning at the tip of the south wall of The Dalles Lock entrance basin at 45°37′03.4″ N, 121°08′02.6″ W; thence continuing northwest from the south wall of The Dalles Lock entrance basin to the Washington bank at 45°37′06.0″ N, 121°08′06.1″ W; thence continuing southwest along the bank of the Columbia River to the east end of The Dalles Lock; thence across the downstream gate to the south lock wall of The Dalles Lock; thence continuing along the south lock wall of The Dalles Lock and the south wall of The Dalles Lock entrance basin to the starting point at 45°37′03.4″ N, 121°08′02.6″ W. Geographically, this area encompasses The Dalles Lock and the upstream lock entrance basin of The Dalles Lock.

The safety zone will be in effect from 6 a.m. on December 10, 2010 through 11:59 p.m. on April 01, 2011. All persons and vessels are prohibited from entering or remaining in the safety zone unless authorized by the Captain of the Port or designated representative.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 of these statutes or executive orders.

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order.

The Coast Guard has made this determination based on the fact that the safety zone created by this rule will not significantly affect the maritime public because the area covered has little commercial or recreational activity. In addition, vessels may enter the safety zone with the permission of the Captain of the Port or his designated representative.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. This rule may affect the following entities some of which may be small entities: The owners and operators of vessels intending to operate in the area covered by the safety zone created in this rule. The safety zone will not have a significant economic impact on a substantial number of small entities because the area covered has little commercial or recreational activity. In addition, vessels may enter the safety zone with the permission of the Captain of the Port or his designated representative.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we offer to assist small entities in understanding the rule so that they can better evaluate its effects on them and participate in the rulemaking process.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or Tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have Tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian Tribes, on the relationship between the Federal Government and Indian Tribes, or on the distribution of power and responsibilities between the Federal Government and Indian Tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies.

This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA)(42 U.S.C. 4321-4370f), and have concluded this action is one of a category of actions which do not individually or cumulatively have a significant effect on the human environment. This rule is categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction. This rule involves the establishment of a safety zone.

An environmental analysis checklist and a categorical exclusion determination are available in the docket where indicated under ADDRESSES .

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because to do so would be contrary to public interest since immediate action is necessary to ensure the safety of the maritime public during the removal of these military munitions.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register because to do otherwise would be contrary to public interest since immediate action is necessary to ensure the safety of the maritime public during the removal of these military munitions.

From April to October 2010, the Port of Seattle discovered discarded military munitions while conducting required routine security dives around pier 90/91 prior to cruise ship arrivals. On eight occasions, divers discovered munitions that date back decades to when the facility was used by the military. Each time, after the items were removed, the Navy and/or Coast Guard determined there was no imminent threat for tenants, cruise terminal operations, and all other commercial vessel operations who utilize the facility. Port police continued to perform routine dives throughout the summer during cruise season.

The U.S. Army Corps of Engineers has designated Pier 90 and 91 as a Formerly Used Defense Site (FUDS) and has assumed responsibility for removal of discarded military munitions from this area.

The safety zone created by this rule encompasses all waters within 100 yards of Pier 90/91 between terminal 89 and the Elliott Bay Marina Breakwater on Elliott Bay in Seattle, Washington. The safety zone can also be described as all waters shoreward of a line extending from Elliot Bay Marina Breakwater at 47-37.646N, 122-23.227W then southeasterly to 47-37.537N, 122-23.015W then east to 47-37.537N, 122-22.767W then northeasterly to 47-37.611N, 122-22.678W. Entry into the safety zone by any person or vessel is prohibited unless authorized by the Captain of the Port or designated representative.

The Army Corps of Engineers is authorized under the authority of the FUDS program to conduct site investigation and time-critical removal action of the submerged munitions at Piers 90 and 91. Therefore, authorized survey operations and contracted divers will be allowed to perform duties associated with the planned ammunition removal during the enforcement of this rule.

The safety zone will be enforced by U.S. Coast Guard personnel. The Captain of the Port may be assisted by other Federal, State, or local agencies as needed.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 of these statutes or executive orders.

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. The Coast Guard has made this finding based on the fact that the safety zone created by this rule is limited in time and duration. Also, maritime traffic can transit around the zone.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities. This rule will affect the following entities, some of which may be small entities: the owners or operators of vessels intending to transit the safety zone during periods of enforcement. The rule will not have a significant economic impact on a substantial number of small entities, however, because the safety zone created by the rule is limited in time and duration, and maritime traffic can transit around the zone.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we offer to assist small entities in understanding the rule so that they can better evaluate its effects on them and participate in the rulemaking process.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or Tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have Tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian Tribes, on the relationship between the Federal Government and Indian Tribes, or on the distribution of power and responsibilities between the Federal Government and Indian Tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies.

This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have concluded this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule is categorically excluded, under figure 2-1, paragraph (34)(g), of the Commandant Instruction from further environmental documentation. This rule involves the establishment of a safety zone.

Under figure 2-1, paragraph (34)(g), of the Instruction, an environmental analysis checklist and a categorical exclusion determination will be made available in the docket.

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule. Publishing a NPRM would be impracticable because immediate action is needed to protect the public due to the First Night Pittsburgh fireworks display that will occur in the city of Pittsburgh, PA.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register . Publishing an NPRM and delaying its effective date would be impracticable based on the short notice received for the event and the short period that the safety zone will be in place. Immediate action is needed to provide safety and protection during the First Night Pittsburgh fireworks display that will occur in the city of Pittsburgh, PA.

The First Night Pittsburgh fireworks display is scheduled to take place on December 31, 2010, on the Allegheny River. A safety zone is needed to protect the public from the hazards associated with the fireworks display.

The Coast Guard is establishing a temporary safety zone extending the entire width of the river between mile markers 0.6 and 0.8 on the Allegheny River. Vessels shall not enter into, depart from, or move within this safety zone without permission from the Captain of the Port Pittsburgh or his authorized representative. Persons or vessels requiring entry into or passage through a safety zone must request permission from the Captain of the Port Pittsburgh, or a designated representative. They may be contacted on VHF-FM Channel 13 or 16, or through Coast Guard Sector Ohio Valley at 1-800-253-7465. This rule will be effective from 5:30 p.m. to 6:45 p.m. on December 31, 2010. The Captain of the Port Pittsburgh will inform the public through broadcast notices to mariners of the enforcement period for the safety zone as well as any changes in the planned schedule.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 of these statutes or executive orders.

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order.

This rule will be in effect for a short period of time and notifications to the marine community will be made through broadcast notices to mariners. The impacts on routine navigation are expected to be minimal.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

This rule will affect the following entities, some of which may be small entities: the owners or operators of vessels intending to transit that portion of the waterways between mile markers 0.6 and 0.8 on the Allegheny River, extending the entire width of the river.

This safety zone will not have a significant economic impact on a substantial number of small entities for the following reasons. This rule will be enforced for a short period of time, on a weekend day, and during a time when vessel traffic is low.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we offer to assist small entities in understanding the rule so that they can better evaluate its effects on them and participate in the rulemaking process.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more (adjusted for inflation) in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies.

This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA)(42 U.S.C. 4321-4370f), and have concluded this action is one of a category of actions which do not individually or cumulatively have a significant effect on the human environment. This rule is categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction. This rule involves establishing, disestablishing, or changing Regulated Navigation Areas and security or safety zones.

An environmental analysis checklist and a categorical exclusion determination are available in the docket where indicated under ADDRESSES .

Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA. This supplementary information section is arranged as follows:

On October 6, 2009, Minnesota submitted a site-specific sulfur dioxide (SO 2 ) State Implementation Plan (SIP) revision request for Marathon Petroleum Co, LLC, (Marathon) in the Saint Paul Park area of Minneapolis-St.Paul, Minnesota. This area had been designated as nonattainment of the SO 2 National Ambient Air Quality Standards (NAAQS) in 1979, but was redesignated to attainment for SO 2 on May 13, 1997 (62 FR 26230), after meeting the requirements of the Clean Air Act and measuring eight quarters of monitored air quality data below the SO 2 NAAQS. The October 6, 2009 submittal serves to update the SO 2 maintenance plan for St. Paul Park.

Minnesota places its SIP conditions in joint Title I/Title V documents, in the form of State Air Emission Permits. The SIP conditions are listed in the State's documents as Title I conditions, which refers to Title I of the Clean Air Act. The documents also contain Title V permit conditions for the affected facilities. The most recently approved Title I SIP conditions for this Marathon facility (previously known as Marathon Ashland Petroleum LLC) were those which were placed in Minnesota's Air Emission Permit No. 16300003-003. These SIP conditions were Federally approved into Minnesota's SO 2 SIP on May 20, 2002 (67 FR 35437).

The October 6, 2009, SO 2 SIP revision request accounts for several changes since 2002 at the Marathon Petroleum refinery, including the installation of a new sulfur recovery unit, physical changes to three existing heaters, and the installation of two new boilers. These changes were set forth in Air Emission Permits 16300003-006 and 16300003-016. The State requested that EPA approve into the SIP only the permit conditions labeled “Title I Condition: State Implementation Plan for SO 2 NAAQS,” and remove all non-SIP-related “Title I Conditions” from the SIP.

Marathon has planned or implemented several changes to SO 2 -emitting units at the St. Paul Park facility since 2002. The company has installed a new sulfur recovery unit at the facility, made changes to three of its heaters, and installed two new boilers. SIP conditions have been altered to represent these new or modified units.

Minnesota's permit action 16300003-006, issued November 5, 2002, authorized Marathon to install a new sulfur recovery unit (SRU) and a Shell Claus off-gas treating (SCOT) tail gas unit. Allowable SO 2 emissions from the new Number 3 SRU are restricted to 15 lb/hr (on a 3-hour average) and 39 tons per year (tpy). A continuous emissions monitor (CEM) will be used to measure SO 2 emissions from the units.

Under the same permit action, Marathon made physical changes to two heaters. Changes to the Hot Oil Heater (EU016, 5-34-B-2) only affected its stack dispersion characteristics, but did not change its SO 2 emission limit. Changes to the Number 2 Crude Charge Heater (EU006, 5-2-B-3) included the replacement of its burners with low-nitrogen oxides burners and the replacement of its convection sections and stack. These changes removed the heater's ability to burn refinery fuel oil. Permit action 16300003-006 primarily discussed reductions in the emissions of nitrogen oxides from this heater and did not address the effect on SO 2 of removing refinery fuel oil. The revised permit allows only natural gas and refinery fuel gas for this heater, but the SO 2 limits for the Number 2 Crude Charge Heater remain unchanged at 34 lb/hr and 0.2834 lb/MMBTU.

In 2007, Marathon replaced the burner in the Heavy Distillate Hydrotreater Charge Heater (EU017). With the new burner, this heater can no longer combust refinery fuel oil. In permit action 16300003-016, issued on September 11, 2009, EU017 was restricted to natural gas and refinery fuel gas only, and its SO 2 SIP emission limit was reduced accordingly, from 66.6 lb/hr to 2.97 lb/hr. This represents a 279 tpy reduction in allowable SO 2 emissions. In addition, some former SIP testing and recordkeeping requirements relating to the use of refinery fuel oil have been removed for this heater.

Permit action 16300003-016 also allows two new boilers to be installed at the Marathon facility. The new boilers, Boiler 92 (EU092) and Boiler 93 (EU093), are limited to 0.025 lb/MMBtu of SO 2 , and are only permitted to use natural gas or refinery fuel gas. The new boilers' 7.2 lb/hr (31.5 tpy) emissions increase will be offset by the shutdown of three other boilers at the facility: Boiler 5 (EU001), Boiler 4 (EU020) and Boiler 6 (EU021). The permit provides that Boilers 4, 5, and 6 must be shut down 180 days after the new boilers begin operating or 60 days after both new boilers achieve maximum operating rate, whichever comes first. Boilers 92 and 93 are not allowed to begin operating until EPA has approved their SIP limits. Boilers 4 and 6 are allowed to use either natural gas, refinery fuel gas, or refinery fuel oil. Boiler 5 can only use natural gas or refinery fuel gas. Their shutdown will bring a 323 tpy reduction in allowable SO 2 emissions.

The SO 2 source configuration and emission limit changes in permits 16300003-006 and 16300003-016 were evaluated using air dispersion modeling. Modeling analyses were performed when the Number 3 SRU and Boiler 92 and 93 installations were originally permitted (2002 and 2009). These analyses were submitted as part of the October 6, 2009 SIP revision request. Because EPA's air quality modeling recommendations have changed since 2002, the analyses were not both performed using the same dispersion model.

Modeling for the Number 3 SRU installation and the physical changes to heaters EU006 and EU016 was performed in 2002, using the ISCST3 model, which was the EPA-recommended model at the time. The predicted SO 2 concentrations for the Marathon facility and neighboring SO 2 sources, including a background concentration, were below the SO 2 NAAQS.

Modeling for the Boiler 92 and 93 installation and the emission limit reductions for heater EU017 was performed in 2009, using the EPA recommended dispersion model, AERMOD, version 07026. This modeling included all sources at the Marathon facility, and served to replace the 2002 modeling analysis. Both the new boilers (EU092 and EU093) and the existing boilers (EU001, EU020, and EU021) were included in the modeling, although Marathon's permit requires the three existing boilers to be shut down 180 days after the two new boilers begin operating. SO 2 emissions from neighboring facilities were also included in the modeling. The 2009 AERMOD dispersion modeling used five years of meteorological data from 1986-1990. Surface meteorological data was measured at Minneapolis-St. Paul, MN, and upper air data was measured at St. Cloud, MN. The modeling used a receptor grid with 100 meter resolution. The resulting modeled SO 2 concentrations, including a representative background SO 2 concentration, were below the SO 2 NAAQS.

On June 22, 2010, EPA published final revisions to the SO 2 NAAQS, which added a one-hour standard (75 FR 35520). The SIP actions for the Marathon facility and the accompanying air quality analyses were finalized and the SIP revision request was submitted to EPA before EPA had proposed the new SO 2 NAAQS (December 8, 2009; 74 FR 64810). Given the timing of this SIP revision request, and the fact that it represents an overall decrease in SO 2 emissions, EPA finds that the October 6, 2009 submittal is complete and will not adversely affect Minnesota's ability to attain and maintain the one-hour SO 2 standard.

EPA is approving Minnesota's October 6, 2009 site-specific SO 2 SIP revision request for Marathon Petroleum Co, LLC, in the Saint Paul Park area of Minneapolis-St.Paul, Minnesota. We are publishing this action without prior proposal because we view this as a noncontroversial amendment and anticipate no adverse comments. However, in the proposed rules section of this Federal Register publication, we are publishing a separate document that will serve as the proposal to approve the State plan if relevant adverse written comments are filed. This rule will be effective February 28, 2011 without further notice unless we receive relevant adverse written comments by January 27, 2011. If we receive such comments, we will withdraw this action before the effective date by publishing a subsequent document that will withdraw the final action. All public comments received will then be addressed in a subsequent final rule based on the proposed action. The EPA will not institute a second comment period. Any parties interested in commenting on this action should do so at this time. If we do not receive any comments, this action will be effective February 28, 2011.

Under the Clean Air Act, the Administrator is required to approve a SIP submission that complies with the provisions of the Clean Air Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve State choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely approves State law as meeting Federal requirements and does not impose additional requirements beyond those imposed by State law. For that reason, this action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq. );

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. );

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and

• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, this rule does not have Tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the State, and EPA notes that it will not impose substantial direct costs on Tribal governments or preempt Tribal law.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by February 28, 2011. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. Parties with objections to this direct final rule are encouraged to file a comment in response to the parallel notice of proposed rulemaking for this action published in the proposed rules section of today's Federal Register , rather than file an immediate petition for judicial review of this direct final rule, so that EPA can withdraw this direct final rule and address the comment in the proposed rulemaking. This action may not be challenged later in proceedings to enforce its requirements. ( See section 307(b)(2).)

The SIP is a living document which the State revises as necessary to address its unique air pollution problems. Therefore, EPA from time to time must take action on SIP revisions containing new and/or revised regulations to make them part of the SIP. On May 22, 1997 (62 FR 27968), EPA revised the procedures for incorporating by reference Federally-approved SIPs as a result of consultations between EPA and the Office of the Federal Register (OFR). The description of the revised SIP document, IBR procedures and “Identification of plan” format are discussed in further detail in the May 22, 1997 Federal Register document. On February 10, 2005 (70 FR 7024), EPA published a Federal Register beginning the new IBR procedure for West Virginia. On February 28, 2007 (72 FR 8903) and February 10, 2009 (74 FR 6542), EPA published updates to the IBR material in West Virginia.

Since the publication of the last IBR update, EPA has approved the following regulatory changes to the IBR materials in paragraph 52.2520(c):

1. Addition of Regulation 45 CSR 39.

2. Revisions to the following regulations: 45 CSR 6, 45 CSR 8, 45 CSR 40, and 45 CSR 41.

3. Removal of the following regulations: 45 CSR 1, 45 CSR 9, 45 CSR 12, and 45 CSR 26.

In this document, EPA is doing the following:

1. Announcing the update to the IBR material as of November 1, 2010.

2. Making corrections to the following entries listed in the paragraph 52.2520(c) chart, as described below:

a. 45 CSR 6—removing text from the “Additional explanation/citation at 40 CFR § 52.2565” column.

b. 45 CSR 7—revising the dates in the State effective date column so that the date format is consistent with that found throughout the paragraph.

c. 45 CSR 21—reinstating section 45 CSR 45-21-36, which had been inadvertently removed from this paragraph. On February 1, 1995, (60 FR 6022), EPA approved 45 CSR 21, Section 36 as part of the West Virginia SIP.

d. 45 CSR 39—Correcting the regulation title of section 45-39-15 in the “Title/subject” column.

e. 45 CSR 41—correcting the regulation title to read “Control of Annual Sulfur Dioxides Emissions.”

3. In paragraph 52.2420(e), correcting the date format in the “EPA approval date column” for the entry entitled “State of West Virginia Transportation Conformity Requirements.”

EPA has determined that today's rule falls under the “good cause” exemption in section 553(b)(3)(B) of the Administrative Procedures Act (APA) which, upon finding “good cause,” authorizes agencies to dispense with public participation, and section 553(d)(3) which allows an agency to make a rule effective immediately (thereby avoiding the 30-day delayed effective date otherwise provided for in the APA). Today's rule simply codifies provisions which are already in effect as a matter of law in Federal and approved State programs. Under section 553 of the APA, an agency may find good cause where procedures are “impractical, unnecessary, or contrary to the public interest.” Public comment is “unnecessary” and “contrary to the public interest” since the codification only reflects existing law. Immediate notice in the CFR benefits the public by removing outdated citations and correcting non-substantive errors in the table entries.

Under the Clean Air Act, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve State choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely approves State law as meeting Federal requirements and does not impose additional requirements beyond those imposed by State law. For that reason, this action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq. );

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. );

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and

• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, this rule does not have Tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the State, and EPA notes that it will not impose substantial direct costs on Tribal governments or preempt Tribal law.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . This rule is not a “major rule” as defined by 5 U.S.C. 804(2).

EPA has also determined that the provisions of section 307(b)(1) of the Clean Air Act pertaining to petitions for judicial review are not applicable to this action. Prior EPA rulemaking actions for each individual component of the West Virginia SIP compilations had previously afforded interested parties the opportunity to file a petition for judicial review in the United States Court of Appeals for the appropriate circuit within 60 days of such rulemaking action. Thus, EPA sees no need in this action to reopen the 60-day period for filing such petitions for judicial review for this “Identification of plan” reorganization update action for West Virginia.

On November 17, 2008 (73 FR 67825), EPA published a notice of proposed rulemaking (NPR) for the Commonwealth of Virginia. The NPR proposed approval of amendments to the Commonwealth's existing ambient air quality standards for particulate matter in 9VAC5 Chapter 30. The formal SIP revision was submitted by the Commonwealth of Virginia on January 7, 2008. EPA received no comments on the proposal to approve Virginia's SIP revision. However, regulation 9VAC5-30-65E included an incorrect reference of the Federal Register document for the annual and 24-hour PM 2.5 NAAQS that were established by the EPA on July 18, 1997 as 62 FR 28856 instead of 62 FR 38652. On September 29, 2010, EPA received a correction to the regulation (9VAC5 Chapter 30) that contains the ambient air quality standards set out in 40 CFR 50. The SIP revision made the necessary correction to reference the Federal Register document appropriately.

The Commonwealth's SIP revision to the Virginia Regulations for the Control and Abatement of Air Pollution: 9VAC5 Chapter 30—Ambient Air Quality Standards incorporates the annual and 24-hour PM 2.5 national ambient air quality standards that were established by the EPA on July 18, 1997 and on October 17, 2006. The revision is consistent with the national ambient air quality standards. The SIP revision amends the PM 2.5 standard to add the new 24-hour standard of 35 µg/m 3 , retains the current 24-hour standard of 65 µg/m 3 during the transition to the new standard, adds transitional language to clarify implementation of these standards, and removes obsolete language referencing the annual PM 10 standard. The SIP revision also adds new reference conditions.

In 1995, Virginia adopted legislation that provides, subject to certain conditions, for an environmental assessment (audit) “privilege” for voluntary compliance evaluations performed by a regulated entity. The legislation further addresses the relative burden of proof for parties either asserting the privilege or seeking disclosure of documents for which the privilege is claimed. Virginia's legislation also provides, subject to certain conditions, for a penalty waiver for violations of environmental laws when a regulated entity discovers such violations pursuant to a voluntary compliance evaluation and voluntarily discloses such violations to the Commonwealth and takes prompt and appropriate measures to remedy the violations. Virginia's Voluntary Environmental Assessment Privilege Law, Va. Code Sec. 10.1-1198, provides a privilege that protects from disclosure documents and information about the content of those documents that are the product of a voluntary environmental assessment. The Privilege Law does not extend to documents or information (1) that are generated or developed before the commencement of a voluntary environmental assessment; (2) that are prepared independently of the assessment process; (3) that demonstrate a clear, imminent and substantial danger to the public health or environment; or (4) that are required by law.

On January 12, 1998, the Commonwealth of Virginia Office of the Attorney General provided a legal opinion that states that the Privilege law, Va. Code Sec. 10.1-1198, precludes granting a privilege to documents and information “required by law,” including documents and information “required by Federal law to maintain program delegation, authorization or approval,” since Virginia must “enforce Federally authorized environmental programs in a manner that is no less stringent than their Federal counterparts. * * * ” The opinion concludes that “[r]egarding § 10.1-1198, therefore, documents or other information needed for civil or criminal enforcement under one of these programs could not be privileged because such documents and information are essential to pursuing enforcement in a manner required by Federal law to maintain program delegation, authorization or approval.”

Virginia's Immunity law, Va. Code Sec. 10.1-1199, provides that “[t]o the extent consistent with requirements imposed by Federal law,” any person making a voluntary disclosure of information to a state agency regarding a violation of an environmental statute, regulation, permit, or administrative order is granted immunity from administrative or civil penalty. The Attorney General's January 12, 1998 opinion states that the quoted language renders this statute inapplicable to enforcement of any Federally authorized programs, since “no immunity could be afforded from administrative, civil, or criminal penalties because granting such immunity would not be consistent with Federal law, which is one of the criteria for immunity.”

Therefore, EPA has determined that Virginia's Privilege and Immunity statutes will not preclude the Commonwealth from enforcing its program consistent with the Federal requirements. In any event, because EPA has also determined that a state audit privilege and immunity law can affect only state enforcement and cannot have any impact on Federal enforcement authorities, EPA may at any time invoke its authority under the CAA, including, for example, sections 113, 167, 205, 211 or 213, to enforce the requirements or prohibitions of the state plan, independently of any state enforcement effort. In addition, citizen enforcement under section 304 of the Clean Air Act is likewise unaffected by this, or any, state audit privilege or immunity law.

EPA is approving the amendments to the existing air quality standards for particulate matter in 9VAC5 Chapter 30 as a revision to the Virginia SIP.

Under the Clean Air Act, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq. );

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. );

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and

• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, this rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the state, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law.

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register. A major rule cannot take effect until 60 days after it is published in the Federal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by February 28, 2011. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action, amending ambient air quality standards for particulate matter, may not be challenged later in proceedings to enforce its requirements. ( See section 307(b)(2).)

On July 23, 2010, the Pennsylvania Department of Environmental Protection (PADEP) submitted to EPA a SIP revision concerning the adoption of the EPA CTGs for large appliance and metal furniture; flat wood paneling; and paper, film, and foil surface coating processes.

Section 172(c)(1) of the CAA provides that SIPs for nonattainment areas must include reasonably available control measures (RACM), including RACT for sources of emissions. Section 182(b)(2)(A) provides that for certain nonattainment areas, States must revise their SIPs to include RACT for sources of VOC emissions covered by a CTG document issued after November 15, 1990 and prior to the area's date of attainment.

CTGs are intended to provide State and local air pollution control authorities information that should assist them in determining RACT for VOCs from various sources, including large appliance coatings, metal furniture coatings, flat wood paneling coatings, and paper, film, and foil coatings. In developing these CTGs, EPA, among other things, evaluated the sources of VOC emissions from this industry and the available control approaches for addressing these emissions, including the costs of such approaches. Based on available information and data, EPA provided recommendations for RACT for VOCs from large appliance coatings, metal furniture coatings, flat wood paneling coatings, and paper, film, and foil coatings.

In December 1977, EPA published CTGs for large appliance coatings (EPA-450/2-77-034), surface coating of metal furniture (EPA-450/2-77-032), and surface coating of paper (EPA-450/2-77-008). In June 1978, EPA published a CTG for flat wood paneling coatings (EPA-450/2-78-034). These CTGs discuss the nature of VOC emissions from these industries, available control technologies for addressing such emissions, the costs of available control options, and other items.

EPA promulgated national standards of performance for new stationary sources (NSPS) for the industries listed above, and EPA also published a national emission standard for hazardous air pollutants (NESHAP) for these industries.

In 2006 and 2007, after conducting a review of currently existing State and local VOC emission reduction approaches for these industries, reviewing the 1977/1978 CTGs and the NESHAPs for these industries, and taking into account the information that has become available since then, EPA developed new CTGs for: Surface coating of large appliances, entitled Control Techniques Guidelines for Large Appliance Coatings (Publication No. EPA 453/R-07-004; September 2007); surface coating of paper, entitled Control Techniques Guidelines for Paper, Film, and Foil Coatings (Publication No. EPA 453/R-07-003; September 2007); surface coating of metal furniture, entitled Control Techniques Guidelines for Metal Furniture Coatings (Publication No. EPA 453/R-07-005; September 2007); and surface coating of flat wood paneling, entitled Control Techniques Guidelines for Flat Wood Paneling Coatings (Publication No. EPA 453/R-06-004).

Large appliance coatings include, but are not limited to, materials referred to as paint, topcoats, basecoats, primers, enamels, and adhesives used in the manufacture of large appliance parts or products. Coatings are a critical constituent to the large appliance industry. The metal furniture coatings product category includes the coatings that are applied to the surfaces of metal furniture. Metal furniture coatings serve decorative, protective, and functional purposes. Flat wood paneling coatings means wood paneling products that are any interior, exterior or tileboard (class I hardboard) panel to which a protective, decorative, or functional material or layer has been applied. Emissions of VOCs from flat wood coating facilities occur primarily at the coating line, although some emissions also occur at paint mixing and storage areas. The paper, film, and foil product category includes coatings that are applied to paper, film, or foil surfaces in the manufacturing of several major product types for the following industry sectors: Pressure sensitive tape and labels; photographic film; industrial and decorative laminates; abrasive products; and flexible packaging. The category also includes coatings applied during miscellaneous coating operations for several products including: Corrugated and solid fiber boxes; die-cut paper paperboard and cardboard; converted paper and paperboard not elsewhere classified; folding paperboard boxes, including sanitary boxes; manifold business forms and related products; plastic asceptic packaging; and carbon paper and inked ribbons. VOC emissions from large appliance, metal furniture, flat wood paneling, and paper, film, or foil surface coating processes result from the evaporation of the components of the coatings and cleaning materials.

On July 23, 2010, the Pennsylvania Department of Environmental Protection (PADEP) submitted to EPA a SIP revision concerning the adoption of the EPA CTGs for large appliance and metal furniture; flat wood paneling; and paper, film, and foil surface coating processes in Allegheny County. EPA develops CTGs as guidance on control requirements for source categories. States can follow the CTGs or adopt more restrictive standards. Allegheny County has adopted EPA's CTG standards into ACHD Rules and Regulations, Article XXI, Air Pollution Control, section 2105.77 for large appliance and metal furniture; section 2105.78 for flat wood paneling; and section 2105.79 for paper, film, and foil surface coating processes ( see EPA 453/R-07-004, September 2007; EPA 453/R-07-003, September 2007; EPA 453/R-07-005, September 2007; EPA 453/R-06-004). Additionally, the SIP revision included revisions to an existing regulation (section 2105.10) for surface coating processes and related definitions (section 2101.20). This action affects sources that use large appliance and metal furniture; flat wood paneling; and paper, film, and foil surface coating processes in Allegheny County.

New regulation, section 2105.77, Control of VOC Emissions from Large Appliance and Metal Furniture Surface Coating Processes establishes the following emissions limits of VOCs for Large Appliance and Metal Surface Coatings: