[Federal Register Volume 76, Number 101 (Wednesday, May 25, 2011)]
[Rules and Regulations]
[Pages 30250-30253]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-12826]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 745

RIN 3133-AD79


Share Insurance and Appendix

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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

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DATES: The rule is effective June 24, 2011.

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

SUPPLEMENTARY INFORMATION:

A. Background

1. The Dodd-Frank Act

    Section 343 of the Dodd-Frank Act amended the Federal Credit Union 
Act (FCU Act) to include full share insurance coverage, beyond the 
Standard Maximum Share Insurance Amount (SMSIA),\2\ for the net amount 
held in a noninterest-bearing transaction account by any member or 
depositor at an insured credit union. The term ``noninterest-bearing'' 
should be read as including ``nondividend-bearing'' to translate the 
provisions of the Dodd-Frank Act into credit union terminology.\3\ 
Insured credit unions are not required to take any action to receive 
this additional insurance coverage. The additional coverage mandated by 
Section 343 of the Dodd-

[[Page 30251]]

Frank Act is temporary through December 31, 2012.
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    \2\ The SMSIA is defined as $250,000. 12 CFR 745.1(e).
    \3\ Federal credit unions cannot offer interest-bearing 
accounts; they can only pay dividends pursuant to the Federal Credit 
Union Act. Some state chartered, federally insured credit unions may 
offer interest-bearing accounts pursuant to their state credit union 
acts.
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2. The Proposed Rule

    In December 2010, the NCUA Board issued a proposed rule to clarify 
its interpretation of the Dodd-Frank Act provisions regarding 
noninterest-bearing transaction accounts. 75 FR 80367 (December 22, 
2010). The following summarizes the issues discussed in the proposal.
Amendments to Share Insurance Rules
    Section 343 of the Dodd-Frank Act amended the share insurance 
provisions of the FCU Act (12 U.S.C. 1787(k)(1)) to provide separate 
insurance coverage for noninterest-bearing transaction accounts. 
Accordingly, as discussed in detail below, NCUA proposed to revise its 
share insurance regulations in 12 CFR Part 745 to include this new 
temporary share insurance account category.
Definition of Noninterest-Bearing Transaction Account
    The proposed rule incorporated the definition of noninterest-
bearing transaction account in section 343 of the Dodd-Frank Act. 
Section 343 defines a noninterest-bearing transaction account as ``an 
account or deposit maintained at an insured credit union with respect 
to which interest is neither accrued nor paid; on which the account 
holder or depositor is permitted to make withdrawals by negotiable or 
transferable instrument, payment orders of withdrawal, telephone or 
other electronic media transfers, or other similar items for the 
purpose of making payments or transfers to third parties or others; and 
on which the insured credit union does not reserve the right to require 
advance notice of an intended withdrawal.'' This definition of 
noninterest-bearing transaction account encompasses only traditional, 
noninterest-bearing demand deposit (checking or share draft) accounts 
that allow for an unlimited number of deposits and withdrawals at any 
time,\4\ whether held by a business, an individual, or other type of 
member. It does not include negotiable order of withdrawal (NOW) 
accounts, money-market accounts (MMA), or Interest on Lawyers Trust 
Accounts (IOLTA).
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    \4\ The NCUA Board does not believe the general provisions of 
Article III, Section 5(a) of the Federal Credit Union Bylaws, or 
other similar provisions, affect the definition of noninterest-
bearing transaction account or the share insurance coverage of this 
kind of account. Article III, Section 5(a) of the bylaws states that 
with respect to member withdrawals from share accounts, the federal 
credit union's board of directors has the right, at any time, to 
require members to give up to 60 days written notice of intention to 
withdraw the whole or any part of the amounts paid in by members. 
The NCUA Board considers this a broad, administrative provision that 
does not alter the nature of an account that otherwise satisfies the 
definition of a noninterest-bearing transaction account.
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    Under the proposal, whether an account is considered noninterest-
bearing or nondividend bearing is determined by the terms of the 
account agreement and not by the fact that the dividend rate on an 
account may be zero percent at a particular point in time. For example, 
an insured credit union might offer an account with a dividend rate of 
zero percent except when the balance exceeds a prescribed threshold. 
Similarly, an account that normally bears dividends might have a 
dividend rate of zero for a particular period if the board of directors 
of the insured credit union where the account is maintained determines 
not to, or is prohibited from, declaring a dividend for that period.
    Such an account would not qualify as a noninterest-bearing 
transaction account even when the balance is less than the prescribed 
threshold or no dividend is declared and the dividend rate is zero 
percent for a particular period. Under the proposed rule, such an 
account would be treated as an interest-bearing or dividend-bearing 
account at all times because the account agreement provides for the 
payment of dividends under certain circumstances. However, under the 
proposal, the waiving of fees on an account would not be treated as the 
earning of dividends. For example, an insured credit union can 
sometimes waive fees or provide fee-reducing credits for members with 
share draft accounts. Under the proposed rule, such account features 
would not prevent an account from qualifying as a noninterest-bearing 
transaction account, as long as the account otherwise satisfies the 
definition of a noninterest-bearing transaction account.
    The proposed rule's definition of noninterest-bearing transaction 
account would include official checks issued by insured credit unions, 
such as negotiable cashier's or certified checks. Ownership of such 
instruments and the right to full insurance coverage are determined 
pursuant to Sec.  745.11 of NCUA's share insurance rules regarding 
accounts evidenced by negotiable instruments.
    Under the proposal, funds swept (or transferred) from a share 
account to either another type of share account or a non-deposit 
account are treated as being in the account to which the funds were 
transferred prior to the time of failure. For example, if pursuant to 
an agreement between an insured credit union and its member, funds are 
swept daily from a noninterest-bearing transaction account to an 
account or product that is not a noninterest-bearing transaction 
account, then the funds in the resulting account or product would not 
be eligible for full insurance coverage as a noninterest-bearing 
transaction account. However, the proposed rule includes an exception 
from this treatment of swept funds in situations where funds are swept 
from a noninterest-bearing transaction account to a noninterest-bearing 
savings account, such as an MMA. Often referred to as ``reserve 
sweeps,'' these products could entail an arrangement in which a single 
account is divided into two sub-accounts, a transaction account and an 
MMA. The amount and frequency of sweeps are often determined by an 
algorithm designed to minimize required reserves. In some situations, 
members may be unaware that this sweep mechanism is in place. Under the 
proposed rule, such accounts would be considered noninterest-bearing 
transaction accounts. Apart from this exception for reserve sweeps, 
MMAs and noninterest-bearing savings accounts do not qualify as 
noninterest-bearing transaction accounts.
Insurance Coverage
    As noted in the proposal, pursuant to section 343 of the Dodd-Frank 
Act, all funds held in noninterest-bearing transaction accounts are 
fully insured, without limit. As specifically provided for in section 
343 of the Dodd-Frank Act, this unlimited coverage is separate from, 
and in addition to, the coverage provided to members with respect to 
other accounts held at an insured credit union. This means that funds 
held in noninterest-bearing transaction accounts will not be counted 
for purposes of determining the amount of share insurance on shares 
held in other accounts, and in other rights and capacities, at the same 
insured credit union. For example, if a member has a $225,000 share 
certificate and a no-dividend share draft account with a balance of 
$300,000, both held in a single ownership capacity, he or she would be 
fully insured for $525,000 (plus dividends accrued on the share 
certificate), assuming the member has no other single-ownership funds 
at the same credit union. First, coverage of $225,000 (plus accrued 
dividends) would be provided for the share certificate as a single 
ownership account (12 CFR 745.3) up to the SMSIA of $250,000. Second, 
full coverage of the $300,000 share draft account would be provided 
separately, despite the share draft account also being held as a single 
ownership account, because the account

[[Page 30252]]

qualifies for unlimited separate coverage as a noninterest-bearing 
transaction account.
Disclosure and Notice Requirements
    In the proposal, NCUA imposed notice and disclosure requirements to 
ensure that credit union members are aware of and understand what types 
of accounts will be covered by the temporary share insurance coverage 
for noninterest-bearing transaction accounts. The proposal included two 
such notice requirements. The first requires insured credit unions to 
post a prescribed notice in their main offices, each branch and, if 
applicable, on their Web sites.
    The second notice requires insured credit unions to notify members 
individually of any action they take to affect the share insurance 
coverage of funds held in noninterest-bearing transaction accounts. 
Although this second notice requirement continues to be mandatory in 
the final rule, it is noteworthy that NCUA does not impose specific 
requirements regarding the form of the notice. Rather, NCUA expects 
insured credit unions to act in a commercially reasonable manner and to 
comply with applicable state and federal laws and regulations in 
informing members of changes to their account agreements.

B. Summary of Comments

    NCUA received seven comments to the proposed rule issued in 
December 2010. Many of the commenters acknowledged that the proposal 
necessarily adhered to the standards mandated in the Dodd-Frank Act 
regarding noninterest-bearing transaction accounts. Four commenters 
specifically noted their support for the rule. The other commenters did 
not oppose the proposal, but they expressed some concern or made some 
suggestion for improving the proposal.
    One commenter suggested NCUA should update its website regarding 
the share insurance coverage for noninterest-bearing transaction 
accounts. NCUA agrees this would be helpful in ensuring credit unions 
are fully aware of the additional share insurance coverage and the 
conditions under which it is available. NCUA will update its website in 
this regard.
    Some commenters expressed concern over how the proposal would 
affect the share insurance deposit, equaling 1% of insured shares, 
which each insured credit union is required to maintain with the NCUA 
(``NCUA Share Insurance Capitalization Deposit'').
    They requested NCUA discuss this in the final rule. The NCUA Share 
Insurance Capitalization Deposit is based on a credit union's insured 
shares. NCUA's 5300 Call Report considers shares in noninterest-bearing 
transaction accounts part of a credit union's total insured shares. 
Accordingly, a credit union's NCUA Share Insurance Capitalization 
Deposit will be based, in part, on the amount of insured shares its 
members have in noninterest-bearing transaction accounts.
    Other commenters requested NCUA shorten the prescribed notice 
required by the proposal. They stated a shorter, more succinct notice 
would be more effective and less confusing. NCUA believes this is a 
good recommendation and adopts a shorter version of the prescribed 
notice in this final rule. All other aspects of the proposed rule are 
adopted as proposed.

C. Regulatory Procedures

Regulatory Flexibility Act

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

Paperwork Reduction Act

    In accordance with section 3512 of the Paperwork Reduction Act of 
1995 (``PRA''), 44 U.S.C. 3501 et seq., an agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid Office of Management 
and Budget (``OMB'') control number. This final rule contains 
disclosure requirements, some of which implicate PRA as more fully 
explained below.
    The new disclosure requirements are contained in Sec.  745.14(c)(1) 
and 745.14(c)(2). More specifically, Sec.  745.14(c)(1) requires that 
each insured credit union that offers noninterest-bearing transaction 
accounts post a ``Notice of Changes In Temporary NCUA Insurance 
Coverage For Transaction Accounts'' in the lobby of its main office and 
domestic branches and, if it offers internet deposit services, on its 
Web site. Section 745.14(c)(2) requires that insured credit unions 
notify members of any action that affects the share insurance coverage 
of their funds held in noninterest-bearing transaction accounts.
    The disclosure requirement in Sec.  745.14(c)(1) would normally be 
subject to PRA. However, because NCUA has provided the specific text 
for the notice and allows for no variance in the language, the 
disclosure is excluded from coverage under PRA because ``the public 
disclosure of information originally supplied by the Federal government 
to the recipient for the purpose of disclosure to the public is not 
included'' within the definition of ``collection of information.'' 5 
CFR 1320.3(c)(2). Therefore, NCUA is not submitting the Sec.  
745.14(c)(1) disclosure to OMB for review.
    The disclosure requirement in Sec.  745.14(c)(2) regarding sweep 
accounts and any action that affects the share insurance coverage of 
funds held in noninterest-bearing transaction accounts is mandatory for 
all insured credit unions, although insured credit unions would retain 
flexibility regarding the form of the notice. Therefore, in conjunction 
with publication of this rule, NCUA has submitted to OMB a request to 
review the estimated burden associated with this disclosure 
requirement, and that approval is pending.
    The estimated burden for the proposed new disclosure under Sec.  
745.14(c)(2) is as follows:
    Title: ''Disclosure of Share Account Status.''
    Affected Public: Insured credit unions.
    Estimated Number of Respondents: 150.
    Frequency of Response: On occasion (average of once per year per 
credit union).
    Average Time per Response: 8 hours.
    Estimated Annual Burden: 1,200 hours.

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act (SBREFA) of 
1996, Public Law 104-121, provides generally for congressional review 
of agency rules. A reporting requirement is triggered in instances 
where NCUA issues a final rule as defined by Section 551 of the 
Administrative Procedures Act. 5 U.S.C. 551. The Office of Information 
and Regulatory Affairs, an office within OMB, has reviewed this rule 
and determined that, for purposes of SBREFA, this is not a major rule.

[[Page 30253]]

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. This rule would not have substantial direct 
effect on the states, on the connection between the national government 
and the states, or on the distribution of power and responsibilities 
among the various levels of government. NCUA has determined that this 
rule does not constitute a policy that has federalism implications for 
purposes of the executive order.

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

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

List of Subjects in 12 CFR Part 745

    Credit unions, Share insurance.

    By the National Credit Union Administration Board on May 19, 
2011.
Mary F. Rupp,
Secretary of the Board.

    For the reasons discussed above, NCUA amends 12 CFR Part 745 as 
follows:

PART 745--SHARE INSURANCE AND APPENDIX

0
1. The authority citation for Part 745 continues to read as follows:

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

0
2. Amend Sec.  745.1 by adding a new paragraph (f) to read as follows:


Sec.  745.1  Definitions.

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

0
3. Add Sec.  745.14 to read as follows:


Sec.  745.14  Noninterest-bearing transaction accounts.

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

NOTICE OF CHANGES IN TEMPORARY NCUA INSURANCE COVERAGE FOR TRANSACTION 
ACCOUNTS

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

[FR Doc. 2011-12826 Filed 5-24-11; 8:45 am]
BILLING CODE 7535-01-P