[Federal Register Volume 76, Number 122 (Friday, June 24, 2011)]
[Rules and Regulations]
[Pages 36976-36979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-15731]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

RIN 3133-AD76


Sample Income Data To Meet the Low-Income Definition

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: The NCUA is amending its regulation to permit federal credit 
unions (FCUs) that do not qualify for a low-income designation using 
the geo-coding software the agency has developed for that purpose to 
submit an analysis of a statistically valid sample of member income 
data as evidence they qualify for the designation. The final rule, by 
permitting FCUs to use a statistically valid sample of member incomes 
drawn from loan files or a survey, eases the burden on FCUs seeking to 
qualify for a low-income designation. The final rule is very similar to 
the proposed, with additional wording about not combining a survey and 
loan file review.

DATES: This rule is effective July 25, 2011.

FOR FURTHER INFORMATION CONTACT: The following agency staff may be 
contacted at the address or the telephone numbers provided here: John 
Worth, Chief Economist, Office of the Chief Economist, telephone (703) 
518-6308; Olga Bruslavski, Economist, Office of the Chief Economist, 
(703) 518-6495; Robert Leonard, Director of Consumer Access, Office of 
Consumer Protection, (703) 518-1143; Regina Metz, Staff Attorney, 
Office of General Counsel, (703) 518-6540; National Credit Union 
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428.

SUPPLEMENTARY INFORMATION:

Background

    The Federal Credit Union Act (Act) authorizes the NCUA Board to 
define ``low-income members'' so that credit unions with a membership 
predominantly consisting of low-income members can benefit from certain 
statutory relief and receive assistance from the Community Development 
Revolving Loan Fund. 12 U.S.C. 1752(5), 1757a(b)(2)(A), 1757a(c)(2)(B), 
1772c-1. Currently, NCUA uses geo-coding software during the 
examination processes to designate low-income credit unions, as 
follows:

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

73 FR at 71910-11.

    Credit unions also currently have the option to submit actual 
member data for purposes of qualifying for the low-income designation. 
NCUA's regulation at section 701.34(a)(3) provides that:

    Federal credit unions that do not receive notification that they 
qualify for a low-income credit union designation but believe they 
qualify may submit information to the regional director to 
demonstrate they qualify

[[Page 36977]]

for a low-income credit union designation. For example, federal 
credit unions may provide actual member income from loan 
applications or surveys to demonstrate a majority of their 
membership is low-income members. Actual member income data must be 
compared to a like category of statistical data, for example, actual 
individual member income may only be compared to total median 
earnings for individuals for the metropolitan area where they live 
or national metropolitan area, whichever is greater.

12 CFR 701.34(a)(3).

Proposed Rule

    In December 2010, the NCUA Board proposed to amend NCUA's low-
income rule to permit FCUs that would like the option to submit their 
own data for purposes of qualifying for the low-income designation to 
use a statistically valid, random sample of member incomes drawn from 
loan files or a member survey as the basis for the analysis. 75 FR 
80364 (Dec. 22, 2010). The NCUA Board recognized FCUs may find it 
difficult to meet the requirement of collecting actual income data to 
establish the low-income status of at least 50% plus one of their 
members. An FCU conducting a survey of members asking its members to 
disclose their incomes can also be problematic. It can be difficult for 
the FCU to achieve a sufficient survey response rate and also members 
can be reluctant to disclose their income in a survey. Credit unions 
can also have difficulties obtaining sufficient member-income 
information from their loan applications because many credit unions 
have not made loans to over 50% of their members.
    The proposed rule added language permitting FCUs to rely on a data 
sample as long as it meets certain criteria, and requiring the FCUs to 
submit a narrative describing sampling technique and evidence 
supporting its validity. The proposed rule required the random sample 
be representative of the FCU membership, sufficient in both number and 
scope on which to base conclusions, and have a minimal confidence level 
of 95% and a confidence interval of 5%.\1\ The NCUA Board recognized 
the 95% confidence level and 5% confidence interval is a widely 
accepted and used threshold for statistical significance in research 
and policy analysis.
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    \1\ Confidence levels and confidence intervals are statistical 
concepts that relate to the precision of the estimates produced by 
the sampling approach. Confidence level is the probability that the 
results of a sampling approach are within the confidence interval of 
the true answer. Confidence interval specifies the allowable margin 
of error around the true answer. There are a number of online 
resources that will compute required sample size given population, 
confidence levels, and confidence intervals including http://www.raosoft.com/samplesize.html.
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Comments
    NCUA received eight comments on the proposed rule, published in the 
Federal Register on December 22, 2010. One commenter was a credit 
union, five were credit union leagues and trade associations, one was a 
bank trade association, and one was an individual. Most commenters 
strongly supported the goal of the proposed rule and agreed with the 
basic structure and framework NCUA proposed. The comments generally 
dealt with the specifics of the sampling approach and the NCUA review.
    Three commenters expressed the need for additional language either 
in the text of the proposal or as a policy, letter or appendix to rule, 
which would address specifics of what is required of a credit union to 
qualify under the new approach. In response, NCUA stresses the rule 
will permit flexibility and will enable NCUA to work with potential 
candidates. NCUA may in the future consider issuing a letter to credit 
unions or other additional guidance on some of the specific elements of 
the rule if warranted.
    Three commenters expressed concerns over the confidence level/
interval specified in the proposal (95%/5%). Commenters differed in 
their approach: Two credit union trade associations recommended 
lowering the confidence level or interval (e.g., to 95%/10%) in order 
to decrease the required sample size and burden. The bank trade 
association advocated increasing them (e.g. 99%/5% or 95%/1%) to avoid 
incorrect low-income credit union designations. In response, NCUA's 
position is that a 95%/5% benchmark provides a good balance. NCUA will 
consider a more flexible approach in the future if warranted.
    The bank trade association recommended expanding the sampling 
population from members with loans to all members to increase the 
representativeness of the results. NCUA's position is that the rule 
already adequately addresses this concern. While allowing FCUs to 
sample only their members with loans, the proposed rule preamble 
extensively discusses the need to establish representativeness of the 
results, which can be achieved by a relatively simple comparison of 
incomes of all members to incomes of borrowers using the NCUA geo-
coding software.
    Three commenters recommended changing the ``look back'' period for 
loans, currently proposed at 5 years. As with the issue of the 
confidence measures above, commenters differed in their approach. Two 
credit union groups recommended increasing the look back to 10 years, 
while the bank trade association recommended shortening the period to 
no more than 2 years. The NCUA Board finds that the 5-year look back 
period provides a good balance. The Board emphasizes that the NCUA will 
consider a more flexible approach in the future if warranted.
    The bank trade association advocated incorporating into the rule a 
method by which non-sensitive parts of FCU submissions can be made 
available to public. In response, NCUA's position is that the public is 
already permitted to request release of information under the Freedom 
of Information Act (FOIA) and will be able to obtain information as 
permitted through that process.
    Two credit union groups recommend incorporating a timeframe for 
NCUA review. NCUA will review the applications for the low-income 
applications in a timely manner, but the final rule does not 
incorporate a timeframe into the regulation.
    A credit union league suggested that NCUA allow FCUs to use geo-
coding software alternative to the NCUA's tool to reduce the amount of 
required supporting documentation and to encourage leagues or their 
service corps to develop alternative tools.
    NCUA believes that the use of any geo-coding software will produce 
similar results and the use of alternative software will increase the 
need for documentation and review relative to using the NCUA software.
    One individual opposed the rule and recommended using actual 
incomes of the entire membership to make the determinations. NCUA 
previously addressed difficulties with the commenter's approach in the 
preamble to the proposed rule.
Final Rule
    The NCUA Board has adopted a final rule very similar to the 
proposed rule, but includes new wording about not combining a survey 
and loan file review. As stated in the proposed rule, NCUA will 
evaluate the sample income data and the supporting narrative to verify 
it is a statistically valid, random sample. NCUA emphasizes that a 
sample has to be drawn entirely from loan files or entirely from the 
survey; no combination will be allowed, as there is no statistically 
valid methodology for combining a member survey and a loan file 
sampling approach.
    NCUA will expect the narrative and supporting materials to address 
the following:
     Representativeness of Members. If a credit union is 
relying on income data

[[Page 36978]]

drawn from its loan files, a credit union's submission needs evidence 
that members with loans are representative of the broader membership. 
If members with loans are not representative of the broader membership, 
the sampling methodology may not be appropriate. If a credit union is 
relying on income data from a survey, a credit union must provide 
evidence regarding the representativeness of its responses and adequacy 
of response rate.
     Income Definition and Timing: If relying on income data 
from a survey, the survey needs to be clear regarding its definition of 
income to ensure accurate responses from members and permit the credit 
union to use appropriate sources for comparison. If relying on income 
data from loan files, NCUA will expect the analysis to:
    [cir] Clearly differentiate household versus individual income and 
income versus earnings in the loan files and use appropriate sources 
for comparison.
    [cir] Address the age of the income data found in loan files by 
excluding loan files over five years old.
    [cir] Address issues related to income verification, for example, 
addressing general credit union practices related to income 
verification and percentage of loans in the selected sample with 
unverified income. For surveys, address credit union verification, if 
any, of self-reported income information from members.
     Based on membership size and conservative statistical 
sampling practices and requirements, establish minimum sample size of 
members with income data from loan files or valid survey responses.
     Describe the method used for sampling loan files or 
conducting a survey, including any external validation or oversight.
     For income data from loan files, submit the well-
documented data set used in the analysis and, for surveys, a copy of 
the survey, data summary, and narrative, as necessary to describe the 
conduct of the survey.
    NCUA staff will review an FCU's submission, may contact the FCU to 
resolve any questions about its submission or to request additional 
information, and will inform the FCU whether it qualifies as 
expeditiously as possible. The final rule does not establish a time 
frame for a NCUA staff's review and determination because the Board 
believes a submission under the final rule is likely to present issues 
unique to the submitting FCU. The Board believes FCUs and the NCUA will 
benefit from having the flexibility to evaluate a credit union's 
submission and potentially resolve questions without regulatory time 
constraints. FCUs that are considering making a submission will find it 
helpful to contact NCUA staff to discuss their approach in providing 
sample income data before undertaking a review of loan files or 
conducting a survey.
    Lastly, the final rule has possible implications for federally 
insured, state-chartered credit unions (FISCUs) under NCUA's 
regulations at section 741.204(b). Under this section, a FISCU must 
obtain a low-income designation to accept certain nonmember accounts, 
if these can be accepted under state law. Additionally, pursuant to 
section 705.3, in order to participate in the Community Revolving Loan 
Program, a low-income determination must be made pursuant to section 
701.34. The appropriate state regulator makes the low-income 
designation, with the concurrence of NCUA, on the same basis as 
provided in section 701.34(a) for FCUs. 12 CFR 741.204(b).

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact any regulation may have on 
a substantial number of small entities. 5 U.S.C. 603(a). For purposes 
of this analysis, NCUA considers credit unions having under $10 million 
in assets small entities. Interpretive Ruling and Policy Statement 03-
2, 68 FR 31949 (May 29, 2003). As of December 31, 2010, out of 
approximately 4,589 FCUs, 1,868 had less than $10 million in assets.
    This rule directly affects all low-income FCUs, of which currently 
there are approximately 945. NCUA estimates approximately 533 low-
income FCUs are small entities, but that only about two in a year will 
avail themselves of the option of providing actual data or sample data 
to meet the low-income criteria and receive the designation. Therefore, 
NCUA has determined this rule will not have an impact on a substantial 
number of small entities.

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 (OIRA) is reviewing this final rule and we have 
recommended to OIRA that it is not a major rule for purposes of SBREFA.

Paperwork Reduction Act

    The low-income rule contains a ``collection of information'' within 
the meaning of section 3502(3) of the Paperwork Reduction Act of 1995, 
44 U.S.C. 3502(3), to the extent the rule permits FCUs that do not 
qualify under NCUA's geo-coding software the option of applying on the 
basis of actual membership income data and, as set out in this 
amendment to the rule, the additional option of submitting a random and 
statistically valid sample of membership income data to meet the rule's 
requirement that a majority of its members are low-income as defined in 
the rule.
    The final rule will permit FCUs, which do not qualify for a low-
income designation using the geo-coding software the NCUA has developed 
for that purpose, to submit an analysis of a statistically valid sample 
of their member income data as evidence the FCUs qualify. NCUA does not 
believe many FCUs are likely to apply for the designation on the basis 
of their member income data, perhaps two applications per year.
    If relying on income data drawn from loan files, NCUA estimates an 
FCU that maintains its loan files electronically can use statistical 
computer programs that are freely available and its own staff. In that 
case, staff time is estimated at about 40 hours. If an FCU uses the 
services of a contractor or other outside party, such as a computer 
programmer, it is estimated those services would cost approximately 
$100 per hour, for a cost of approximately $4,000. If an FCU conducts a 
survey, various free computer programs are available on the internet. 
The costs of conducting a survey may vary significantly depending on 
the size of the membership. If an FCU uses the services of a contractor 
or other outside party to assist it in developing and conducting a 
survey, the costs are estimated at approximately $4,000 to $5,000.
    In summary, NCUA estimates the total information collection burden 
represented by this proposal involving: 2 respondents, 80 annual burden 
hours, and an annual cost burden of approximately $10,000. NCUA has 
submitted these numbers to OMB and is awaiting review.

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,

[[Page 36979]]

NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), 
voluntarily complies with the executive order. The final rule would not 
have substantial direct effect on the states, on the connection between 
the national government and the states, or on the distribution of power 
and responsibilities among the various levels of government. NCUA has 
determined this final 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 final rule would not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Public Law 105-277, 112 
Stat. 2681 (1998).

Agency Regulatory Goal

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

List of Subjects in 12 CFR Part 701

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

     By the National Credit Union Administration Board, on June 17, 
2011.
Mary F. Rupp,
Secretary of the Board.

    For the reasons stated above, NCUA amends 12 CFR part 701 as 
follows:

PART 701--ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNIONS

0
1. The authority for part 701 continues to read as follows:

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


0
2. Amend Sec.  701.34 by adding the following at the end of paragraph 
(a)(3):


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

    (a) * * *
    (3) * * * A Federal credit union may rely on a sample of membership 
income data drawn from loan files or a member survey provided the 
Federal credit union can demonstrate the sample is a statistically 
valid, random sample by submitting with its data a narrative describing 
its sampling technique and evidence supporting the validity of the 
analysis, including the actual data set used in the analysis. The 
random sample must be representative of the membership, must be 
sufficient in both number and scope on which to base conclusions, and 
must have a minimum confidence level of 95% and a confidence interval 
of 5%. A Federal credit union must draw the sample either entirely from 
loan files or entirely from the survey, and must not combine a loan 
file review with a survey. NCUA will provide a response to the Federal 
credit union within 60 days of its submission.

[FR Doc. 2011-15731 Filed 6-23-11; 8:45 am]
BILLING CODE 7535-01-P