[Federal Register Volume 76, Number 212 (Wednesday, November 2, 2011)]
[Rules and Regulations]
[Pages 67583-67591]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-28335]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 701, 705, and 741

RIN 3133-AD91


Community Development Revolving Loan Fund Access for Credit 
Unions

AGENCY: National Credit Union Administration (NCUA).

[[Page 67584]]


ACTION: Final rule.

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SUMMARY: NCUA is issuing a final rule to change its regulation 
governing the process by which the agency solicits, receives, 
evaluates, and acts on credit union applications for loans and 
technical assistance grants from the Community Development Revolving 
Loan Fund (CDRLF or Fund). The changes update the rule to increase 
transparency and are intended to improve its organization, structure, 
and ease of use by credit unions. The revisions do not reflect a change 
to the fundamental mission of the CDRLF, but instead remove unnecessary 
detail and outdated processes in the regulation while adding 
clarification and flexibility. The final rule also clarifies the 
application process and adds requirements addressing reporting and 
monitoring.

DATES: This rule is effective December 2, 2011.

FOR FURTHER INFORMATION CONTACT: Pamela Williams, Credit Union Program 
Analyst, Office of Small Credit Union Initiatives, or Pamela Yu, Staff 
Attorney, Office of General Counsel, at the above address or telephone 
(703) 518-6643 (Ms. Williams) or (703) 518-6540 (Ms. Yu).

SUPPLEMENTARY INFORMATION: 

A. Background

    On May 19, 2011, the NCUA Board (Board) issued a Notice of Proposed 
Rulemaking (proposal or proposed rule) to make comprehensive revisions 
to part 705, which governs the process by which the agency solicits, 
receives, evaluates, and acts on credit union applications for loans 
and technical assistance grants from the CDRLF. 76 FR 30286 (May 25, 
2011). The CDRLF was created by Congress in 1979 and has been 
administered exclusively by NCUA since 1986. The Fund, with over $17.6 
million in assets as of June 30, 2011, serves as a source of financial 
support, in the form of both loans and technical assistance grants, for 
credit unions serving predominantly low-income members. It also serves 
as a source of funding to help low-income credit unions respond to 
emergencies arising in their communities. The Board has delegated to 
the Office of Small Credit Union Initiatives (OSCUI) authority to make 
the determination of how to allocate the finite resources of the Fund 
among qualifying credit unions.
    The proposed rule was intended to streamline the regulation, reduce 
burdens, and better reflect the technological changes that have taken 
place since the regulation's last substantive amendment in 1993. The 
proposal removed some of the detail in the regulation dealing with 
administrative aspects of the program to provide the agency with 
greater flexibility to make changes to suit specific circumstances. 
Other proposed revisions added detail to the rule. For example, to 
provide greater transparency and better guidance and information to 
prospective applicants, the proposed rule included information about 
how NCUA evaluates applications. Additionally, the proposal added a new 
section addressing reports to and monitoring by NCUA. This new section 
was designed to help the agency assure that an award from the Fund is 
used in the manner and for the purposes represented by the recipient 
credit unions.

B. Summary of Comments

    The public comment period for the proposed rule closed on July 25, 
2011. Four commenters responded: two credit union trade associations 
and two state credit union leagues. All commenters were generally 
supportive of the proposal. In particular, several expressed support 
for specific aspects of the proposal, including the examples of 
permissible loan fund uses; the increase in the maximum loan limit to 
provide loans in excess of $300,000; the removal of the mandatory 
requirement for matching funds; the elimination of the requirement for 
a Community Needs Plan; and the new section to permit NCUA, on an 
emergency basis, to provide CDRLF funds to credit unions with unplanned 
or unexpected expenses. Three commenters, however, offered suggestions 
for improvement on one or more aspects of the proposal. Of these, one 
commenter made a general suggestion that NCUA offer as much assistance 
as necessary to credit unions seeking CDRLF funds. The other two 
commenters offered more specific suggestions to improve or clarify the 
rule. NCUA has reviewed and analyzed the comment letters it received in 
response to the proposal and has adopted most of the public comments 
either by incorporation into the final rule or through related Notices 
of Funding Opportunities.

C. Final Rule

    Title. The word ``access'' has been added to the title of this part 
to more accurately describe it. As noted above, the new name of the 
part is ``Community Development Revolving Loan Fund Access for Credit 
Unions.''
    Sec.  705.1. Authority, Purpose and Scope. No commenters opposed 
the proposed changes to this section. Therefore, the Board is adopting 
Sec.  705.1 substantially as proposed. Minor grammatical modifications 
have been made for clarity. The final rule combines and summarizes the 
essential elements in the first three sections of the previous rule. It 
also contains revised language regarding NCUA's expectations for the 
financial awards provided through the Fund. With these revisions, NCUA 
offers a more precise description of the impact that awards from the 
Fund can have on credit unions, their membership, and their 
communities. In addition, this section contains a general statement 
that any loans or technical assistance grants from the Fund are subject 
to NCUA's discretion and funds availability. 12 CFR 705.1(b). To 
achieve a more concise and streamlined rule, a general statement is 
included in this section rather than repeating it throughout the 
regulation.
    Sec.  705.2. Definitions. The final rule adopts Sec.  705.2 
substantially as proposed, with a few minor grammatical or 
typographical changes. In 2008, the Board amended the criteria for 
determining whether a credit union qualifies for low-income 
designation. 73 FR 71909 (Nov. 26, 2008); see also 75 FR 47171 (Aug. 5, 
2010). The final rule's definition of ``low-income members'' reflects 
that change. The final rule also defines ``qualifying credit unions,'' 
which was a newly defined term in the proposed rule. A ``qualifying 
credit union'' is one that may be, or has agreed to be, examined by 
NCUA and holds a current low-income designation. The final rule 
clarifies that low-income designations are made pursuant to Sec.  
701.34 for federal credit unions and Sec.  741.204 for federally 
insured, state-chartered credit unions. For non-federally insured, 
state-chartered credit unions, low-income designations must be made by 
the appropriate state regulator under applicable state standards with 
the concurrence of NCUA. However, the definition of ``qualifying credit 
union'' applies only to those credit unions that NCUA may examine or 
that agree to be examined by NCUA. This requirement will enable NCUA to 
obtain all relevant information about a credit union's financial 
condition, so that it can make the most prudent and responsible choices 
among credit union applicants seeking awards from the Fund. Thus, if a 
non-federally insured credit union is interested in participating in 
the CDRLF program, it must first agree to examination by NCUA. The 
revised definition of ``participating credit union'' is a qualifying 
credit union that has

[[Page 67585]]

submitted an application which has been approved by NCUA. Other newly 
defined terms in the final rule, including ``notice of funding 
opportunity,'' ``application,'' ``loan,'' and ``technical assistance 
grant'' are self-explanatory.
    Sec.  705.3. Eligibility. This section is adopted as proposed, with 
minor typographical modifications. Under the final rule, a credit union 
must complete an application and meet the underwriting criteria 
established by NCUA in order to be eligible to receive an award.
    Sec.  705.4. Permissible Uses of Loan Funds. Section 705.4 of the 
final rule includes examples of permissible uses of loan funds received 
from the CDRLF. This list is non-exhaustive and illustrative. Several 
commenters expressed support for this aspect of the proposal. 
Accordingly, the Board is adopting this section, substantially as 
proposed, in the final rule. Minor modifications have been made to 
clarify the examples given. The final rule also adds operational 
programs, such as security or disaster recovery, as another example of 
a permissible use. Additionally, NCUA may announce other funding 
priorities and provide examples of other permissible uses of loan funds 
in the related Notice of Funding Opportunity.
    Sec.  705.5. Terms and Conditions. The final rule eliminates much 
of the information previously set out in former Sec. Sec.  705.5 and 
705.7. The final rule provides that NCUA will establish the specific 
terms and conditions governing each particular loan in the related 
Notice of Funding Opportunity and the applicable loan documents. The 
rule also includes general information about the maximum loan amount, 
the interest rate, repayment, acceleration, and matching requirements.
    The Board notes that the maximum loan amount is generally $300,000, 
but loans may exceed this amount in certain circumstances. In the 
related Notice of Funding Opportunity, NCUA will include the factors it 
will consider when deciding whether to make a loan in excess of 
$300,000.
    To allow NCUA greater flexibility in establishing appropriate 
interest rates, the final rule eliminates specific reference to the 
range of interest rates that may be charged on a loan from the Fund (1% 
to 3% under the previous rule). Instead, it references the CDRLF's 
Interest Rate Policy, which is located on NCUA's Web site. The specific 
interest rate for a particular funding will be included in the related 
Notice of Funding Opportunity.
    The final rule generally retains the previous rule's provisions 
addressing repayment, maturity, matching, and acceleration. One 
significant difference, however, is that the matching requirement is no 
longer mandatory. NCUA may require matching funds at its discretion, on 
a case-by-case basis, depending on the financial condition of the 
particular credit union. One commenter generally supported the 
elimination of the mandatory matching requirement, but suggested that 
NCUA should not require that these funds be obtained from a non-
government source. The Board emphasizes that the purpose of this 
requirement is to discourage credit unions from depending too heavily 
on government funding to support their operations. Allowing a credit 
union to match its CDRLF funding with other government funding would be 
contrary to this purpose. Accordingly, the final rule retains the non-
government element of matching when required.
    In addition, the final rule retains language indicating that, at 
NCUA's discretion, a loan from the Fund must be recorded as a note 
payable or nonmember deposit. One commenter asked for clarification 
regarding when a loan should be recorded as a note payable or nonmember 
deposit. The Board notes that specific information about how a credit 
union should record a loan from the Fund will be provided in the 
applicable loan agreement.
    The final rule also provides that NCUA may allow flexible repayment 
of loan principal in some instances. Specific details about flexible 
repayment options will be provided in the related Notice of Funding 
Opportunity and other applicable program materials.
    Sec.  705.6. Application and Award Processes. In order to increase 
transparency, the final rule combines key information about the CDRLF 
application and award processes into one streamlined section of the 
rule. This section also clarifies the way in which a credit union 
applies for funds and how NCUA renders a decision on that application. 
Each subsection is discussed in further detail below.
    (a) Notice of Funding Opportunity. This subsection corresponds to 
former Sec.  705.9, but provides more detail about how and where NCUA 
will publicly announce loan and technical assistance grant program 
initiatives. The proposed rule eliminated the requirement that NCUA 
publish an annual notice of program opportunities in the Federal 
Register because information regarding program opportunities would be 
provided by various other means. One commenter suggested NCUA should 
continue to publish an annual notice, although another commenter 
disagreed. The final rule adopts this subsection as proposed. The Board 
emphasizes that Notices of Funding Opportunities will be published as 
often as necessary in the Federal Register. Information and notice of 
program opportunities will also be provided on NCUA's Web site (http://www.ncua.gov), provided through Letters to Credit Unions and the 
agency's electronic mail service, or publicized through various other 
means. In some cases, notices will be published more frequently than 
once a year. If there are no changes to the program or its 
requirements, however, notice is not necessary and will no longer be 
required annually under the final rule.
    (b) Application Requirements. This section describes the 
information that applicant credit unions must provide to NCUA when 
applying for financial awards from the CDRLF. To simplify and 
streamline the application requirements, the final rule incorporates 
provisions from Sec. Sec.  705.5(a), (b)(1), and (b)(5) of the previous 
rule. Additionally, to minimize burdens on applicants, the final rule 
eliminates the requirement that a credit union develop a Community 
Needs Plan (see former Sec.  705.6). Instead, an applicant credit union 
must provide a written narrative describing how it intends to use a 
financial award from the Fund. The narrative should demonstrate that 
the award will enhance the products and services the credit union 
provides to its members. It also should describe how those enhanced 
products and services will support the economic development of the 
community served by the credit union.
    Under the proposal, CDRLF loan applicants would be required to 
provide financial projections to support their applications. One 
commenter, however, raised concerns about the cost burden imposed by 
this requirement. This commenter also suggested that if financial 
projections are required, NCUA should provide a template to assist 
credit union in making its projections. In most cases, the Board does 
not anticipate that financial projections will be necessary to support 
the credit union's application. Accordingly, the Board is removing this 
requirement from the final rule. If financial projections are necessary 
for a particular award, NCUA will request those projections through the 
related Notice of Funding Opportunity. The Board notes that OSCUI has 
provided training to credit unions on the development of financial 
projections, and NCUA will consider making

[[Page 67586]]

operating tools such as a template available to credit unions.
    This subsection also describes the additional information that is 
required from non-federally insured credit unions. Notably, under the 
final rule, non-federally insured, state-chartered credit unions must 
provide documentation of the credit union's status as a low-income 
credit union. Also, non-federally insured, state-chartered credit 
unions must agree to be examined by NCUA.
    (c) Evaluation and Selection of Participating Credit Unions. This 
subsection, which is substantively adopted as proposed, describes the 
criteria that NCUA will generally evaluate in deciding among competing 
applications for the limited CDRLF funds. As requests for funding 
routinely exceed available funds, the information provided in this 
subsection is intended to help credit unions develop and refine their 
applications. This information also will help credit unions better 
understand how the agency makes its determinations. For example, NCUA 
will consider financial and performance considerations, whether the 
proposed uses of funds are compatible with program goals, and whether 
the credit union is likely to be successful in accomplishing its stated 
objectives. The Board notes, however, that other relevant criteria may 
be evaluated in the agency's selection process, depending on the 
funding initiative, economic environment, or other factors. Any other 
criteria that the agency will evaluate will be identified in the 
related Notice of Funding Opportunity.
    Under the proposal, this subsection stated that, with regard to 
qualifying credit unions, NCUA will consult with and consider 
information from an applicant credit union's examiners. The proposed 
rule also required the concurrence of the applicant credit union's 
supervising Regional Director before an award is made. One commenter 
did not agree with this requirement. This commenter suggested that if a 
credit union meets NCUA's underwriting criteria for a loan, the lending 
decision should not also be subject to the Regional Director's 
discretion. The Board disagrees. Assurance that a credit union is 
capable of effectively deploying, administering, and repaying the loan 
proceeds is necessary to NCUA's prudent management of this limited 
financial resource. The Board believes that input from the regional 
staff responsible for the direct supervision of the applicant credit 
union is an essential element of the evaluation process. It also will 
help ensure that awards from the Fund are appropriately distributed. 
The Board notes that consultation with examination staff and the 
Regional Director has been a matter of practice, and including the 
requirement in the regulation improves transparency.
    (d) Requests for Additional Information. Under the final rule, NCUA 
may, at its discretion, require additional information from applicants 
before rendering its decision on an award. The failure to provide the 
requested information may result in rejection of the application.
    (e) Timing. NCUA will include in the related Notice of Funding 
Opportunity a timeframe to submit all requested information. Where NCUA 
requests additional clarifying information for a particular credit 
union, the agency will also provide a deadline for the credit union to 
provide that information. A failure to submit all of the requested 
information by the stated deadline may result in rejection of the 
application without further consideration.
    (f) Notice of Award and Appeals. This subsection describes the 
process by which NCUA will notify an applicant credit union whether it 
has qualified for a loan or request for technical assistance. If its 
application is denied, a credit union may appeal that decision to the 
Board. A commenter expressed concern that a credit union that is 
considered nonqualified based on its application would not have the 
ability to appeal to the Board on the question of qualification. The 
Board notes that Sec.  705.6(f)(1) of the proposed rule, which is 
finalized in this rule, allows an applicant to appeal to the Board on 
the question of qualification. It is important to note, however, that 
the scope of Board's review on appeal is limited to the threshold 
question of qualification and not the issue of whether, among qualified 
applicants, a particular loan or technical assistance grant is funded. 
Awards from the Fund are discretionary and that determination is not 
subject to administrative appeal to the Board.
    (g) Disbursement. This subsection provides that before NCUA will 
disburse a loan, the participating credit union must sign all 
applicable loan documents and the promissory note. This section also 
states that NCUA may, in its discretion, choose not to disburse the 
entire loan at once. One commenter suggested that if NCUA chooses not 
to disburse a particular loan all at once, it should provide written 
notice to the credit union with a schedule of release of subsequent 
loan funds and any performance measures that the credit union must meet 
in order to obtain the subsequent funds. The Board notes that the 
related Notice of Funding Opportunity will provide specific details 
about the disbursement process if a loan is not disbursed in a single 
payment.
    Sec.  705.7. Urgency. The proposed rule provided that, on an 
emergency basis, NCUA may consider a funding request from a qualifying 
credit union experiencing an unplanned or unexpected expense that the 
credit union is unable to meet with its own resources. Several 
commenters expressed support for this provision and the Board adopts 
this section without substantive change.
    Under the final rule, the credit union will be required to 
demonstrate a compelling need for immediate assistance without which 
its continued operations would be threatened or severely disrupted. 
NCUA will evaluate these applications to determine if emergency funding 
is warranted. Urgent needs for funding are not part of any specific 
initiative, but rather an ongoing process that will not be included in 
specific Notices of Funding Opportunities. The Board emphasizes that 
technical assistance grants and loans provided under this section are 
on an emergency basis and should not be a regular source of funding for 
credit unions. Credit unions requesting urgent funding must still 
demonstrate a purpose consistent with the goals of the Fund.
    Sec.  705.8. Qualifying State-Chartered Credit Unions. This section 
incorporates language from Sec.  705.8 of the previous regulation, and 
sets out the specific requirements that are applicable to state-
chartered credit unions. These requirements include obtaining written 
concurrence from the credit union's state regulatory authority, making 
state examination reports available to NCUA, and agreeing to 
examination by NCUA. In the proposal, an examination under this 
subsection would allow NCUA to examine the credit union only to verify 
compliance with this part. Upon consideration, however, the Board has 
determined that prudent management of the Fund requires NCUA to be able 
to examine the entire financial condition of a state-chartered credit 
union. Thus, the final rule removes this limitation. Additionally, the 
Board notes that written concurrence from a state regulatory authority 
does not guarantee NCUA approval of a credit union's application.
    Sec.  705.9. Reporting and Monitoring. The final rule establishes a 
new framework for NCUA to monitor the use of CDRLF funding to ensure 
that award recipients actually use the funds for intended purposes. 
Under the final rule, participating credit unions are required,

[[Page 67587]]

at such times and in such formats as NCUA shall direct, to submit 
reports to describe how the funds have been used and the results that 
have been obtained. Additionally, NCUA may, at its discretion, review 
certain existing information, such as call report data and examination 
reports, to evaluate the effectiveness of the loan and technical 
assistance programs. One commenter raised concerns that the language 
permitting NCUA to require reporting ``at such times and in such 
formats as NCUA shall direct'' is overly broad. The Board notes that in 
the event NCUA requires reporting, it will provide specific detail 
about the post-award reporting requirements in the related Notice of 
Funding Opportunity. As such, credit unions will likely have ample 
advance notice of the nature and format of information that award 
recipients will be required to report.
    Sec.  705.10. Technical Assistance Grants. Section 705.10 of the 
proposal is adopted, unchanged from the proposed rule. In general, 
technical assistance grants are provided on a reimbursement basis to 
cover expenditures approved in advance and supported by receipts. This 
section describes the permissible uses of technical assistance grant 
funds and discusses the appeal rights for technical assistance grant 
reimbursement denials in accordance with NCUA Interpretative Ruling and 
Policy Statement (IRPS) 11-1. 76 FR 3674 (Jan. 20, 2011). IRPS 11-1 
provides that technical assistance grant reimbursement denials may only 
be appealed to NCUA's Supervisory Review Committee. Credit unions must 
make appeals within 30 days from the date of the denial. Id. The 
determination of NCUA's Supervisory Review Committee is final and its 
decisions may not be appealed to the Board.

D. Conforming Amendments

    The Board is making two technical amendments to Sec.  701.32(c) and 
Sec.  741.207 to conform to the changes in this final rule. The 
conforming amendments modify existing cross-references to part 705.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires NCUA to prepare an 
analysis to describe any significant economic impact any proposed 
regulation may have on a substantial number of small entities. NCUA 
considers credit unions having less than ten million dollars in assets 
to be small for purposes of RFA. IRPS 87-2, as amended by IRPS 03-2. 
The revisions to part 705 are designed to update and streamline the 
rule, thereby reducing the burden for credit unions that are seeking 
CDRLF awards. Moreover, the rule implements a program that is entirely 
voluntary on the part of credit unions. It has no impact on credit 
unions that elect not to pursue this funding opportunity. NCUA has 
determined and certifies that this final rule does not have a 
significant economic impact on a substantial number of small credit 
unions. Accordingly, the NCUA has determined that an RFA analysis is 
not required.

Paperwork Reduction Act

    There are aspects of the CDRLF program that involve information 
collection within the meaning of the Paperwork Reduction Act of 1995 
(PRA). 44 U.S.C. 3507(d). Previously, NCUA sought and obtained Office 
of Management and Budget (OMB) approval for its use of certain 
documents, including the application and report forms used to monitor 
and follow up on how credit unions have used CDRLF funds. These 
documents were assigned OMB Control No. 3133-0138, which remained valid 
through December 2010. Documentation was submitted with the proposed 
rule, however, it was incorrect. NCUA has corrected and resubmitted an 
application for reinstatement of OMB Control No. 3133-0138 for the 
CDRLF loan program. Comment has been requested on this submission. 76 
FR 62456 (Oct. 7, 2011). Organizations and individuals that wish to 
submit comments on this information collection requirement must do so 
by November 7, 2011.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the Executive Order. The financial award programs administered 
through the CDRLF are available to FCUs as well as to state-chartered 
credit unions. By law, state-chartered institutions with federal share 
insurance are already subject to numerous provisions of NCUA's rules, 
based on the agency's role as the insurer of member share accounts and 
the significant interest NCUA has in the safety and soundness of their 
operations. The final rule will not have substantial direct effects 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. 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

    The NCUA has determined that this final 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).

List of Subjects

12 CFR Part 701

    Advertising, Aged, Civil rights, Credit, Credit unions, Fair 
housing, Individuals with disabilities, Insurance, Marital status 
discrimination, Mortgages, Religious discrimination, Reporting and 
recordkeeping requirements, Sex discrimination, Signs and symbols, 
Surety bonds.

12 CFR Part 705

    Credit unions, Loans, Grants, Revolving fund, Community programs, 
Low income.

12 CFR Part 741

    Bank deposit insurance, Credit unions, Reporting and recordkeeping 
requirements.

    By the National Credit Union Administration Board on October 27, 
2011.
Mary F. Rupp,
Secretary of the Board.

    For the reasons discussed above, NCUA amends 12 CFR parts 701, 705, 
and 741 of title 12, chapter VII, of the Code of Federal Regulations as 
follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

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

    Authority:  12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759, 
1761A, 1761B, 1766, 1767, 1782, 1784, 1786, 1787, 1789. Section 
701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 is also 
authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601-3610. 
Section 701.35 is also authorized by 42 U.S.C. 4311-4312.


Sec.  701.32  [Amended]

0
2. Section 701.32 is amended by removing in paragraph (c) the citation 
``Sec.  705.7(b)'' and adding in its place the citation ``Sec.  
705.5(g)''.

0
3. Revise part 705 to read as follows:

[[Page 67588]]

PART 705--COMMUNITY DEVELOPMENT REVOLVING LOAN FUND ACCESS FOR 
CREDIT UNIONS

Sec.
705.1 Authority, purpose, and scope
705.2 Definitions
705.3 Eligibility requirements
705.4 Permissible uses of loan funds
705.5 Terms and conditions
705.6 Application and award processes
705.7 Urgency
705.8 Qualifying state-chartered credit unions
705.9 Reporting and monitoring
705.10 Technical assistance grants

    Authority:  12 U.S.C. 1756, 1757(5)(D), and (7)(I), 1766, 1782, 
1784, 1785 and 1786.


Sec.  705.1  Authority, purpose, and scope.

    (a) This part 705 is issued by the National Credit Union 
Administration (NCUA) under section 130 of the Federal Credit Union 
Act, 12 U.S.C. 1772c-1, which implements the Community Development 
Credit Union Revolving Loan Fund Transfer Act (Pub. L. 99-609, 100 
Stat. 3475 (Nov. 6, 1986)).
    (b) This Part describes how NCUA makes money available to credit 
unions from its Community Development Revolving Loan Fund (Fund). NCUA 
administers the Fund and makes both loans and technical assistance 
grants to credit unions in accordance with the eligibility criteria and 
other qualifications, subject to the terms and conditions set out in 
this Part. All loans and technical assistance grants made under this 
Part are subject to funds availability and NCUA's discretion.
    (c) The Fund is intended to support the efforts of credit unions 
through loans and technical assistance grants needed for:
    (1) Providing basic financial and related services to members in 
their communities;
    (2) Enhancing their capacity to better serve their members and the 
communities in which they operate; and
    (3) Responding to emergencies.
    (d) The policy of NCUA is to revolve funds to credit unions as 
often as practical in order to achieve maximum economic impact on as 
many credit unions as possible. NCUA anticipates the financial awards 
provided to credit unions through the Fund will better enable them to 
support the communities in which they operate. With these awards, 
credit unions will be able to provide basic financial services to low-
income members of these communities, resulting in more opportunities 
for these members to improve their financial circumstances.
    (e) This Part generally establishes the following:
    (1) Definitions;
    (2) The application process and requirements for qualifying for a 
loan from the Fund;
    (3) The evaluation process;
    (4) How loan funds are to be made available and their repayment; 
and
    (5) Technical assistance grants to be provided to credit unions.


Sec.  705.2  Definitions.

    For purposes of this Part, the following terms shall have the 
meanings assigned to them in this section.
    Application means a form supplied by the NCUA by which a Qualifying 
Credit Union may apply for a loan or a technical assistance grant from 
the Fund.
    Board refers to the National Credit Union Administration Board.
    Credit Union means a credit union chartered under the Federal 
Credit Union Act or under the laws of any state of the United States.
    Fund means the Community Development Revolving Loan Fund.
    Loan is an award in the form of an extension of credit from the 
Fund to a Participating Credit Union that must be repaid, with 
interest.
    Low-income Members are those members defined in Sec.  701.34 of 
this chapter.
    Notice of Funding Opportunity, as more fully described in Sec.  
705.6 of this part, means the notice NCUA publishes describing one or 
more loan or technical assistance grant programs or initiatives 
currently being supported by the Fund and inviting interested 
Qualifying Credit Unions to submit applications to participate in the 
program(s) or initiative(s).
    Participating Credit Union refers to a Qualifying Credit Union that 
has submitted an application for a loan or a technical assistance grant 
from the Fund which has been approved by NCUA. A Participating Credit 
Union shall not be deemed to be an agency, department, or 
instrumentality of the United States because of its receipt of a 
financial award from the Fund.
    Program means the Community Development Revolving Loan Fund Program 
under which NCUA makes loans and technical assistance grants available 
to credit unions.
    Qualifying Credit Union means a credit union that may be, or has 
agreed to be, examined by NCUA, with a current low-income designation 
pursuant to Sec.  701.34(a)(1) or Sec.  741.204 of this chapter or, in 
the case of a non-federally insured, state-chartered credit union, a 
low-income designation from a state regulator, made under appropriate 
state standards with the concurrence of NCUA. Services to low-income 
members must include, at a minimum, offering share accounts and loans.
    Technical Assistance Grant means an award of money from the Fund to 
a Participating Credit Union that does not have to be repaid.


Sec.  705.3  Eligibility requirements.

    To be eligible to receive a CDRLF award, in the form of either a 
loan or a technical assistance grant, a Qualifying Credit Union must, 
within the timeframes specified in any Notice of Funding Opportunity:
    (a) Complete and submit an Application; and
    (b) Meet the underwriting standards established by NCUA, including 
those pertaining to financial viability, as set forth in the 
Application and any related materials developed by NCUA.


Sec.  705.4  Permissible uses of loan funds.

    NCUA may make loans from the Fund to Participating Credit Unions 
for various uses. The following is a non-exhaustive list of permissible 
uses or projects:
    (a) Development of new products or services for members, including 
new or expanded share draft or credit card programs;
    (b) Partnership arrangements with community-based service 
organizations or government agencies;
    (c) Loan programs, including, but not limited to, microbusiness 
loans, payday loan alternatives, education loans, and real estate 
loans;
    (d) Acquisition, expansion, or improvement of office space or 
equipment, including branch facilities, ATMs, and electronic banking 
facilities; and
    (e) Operational programs such as security or disaster recovery.


Sec.  705.5  Terms and conditions.

    (a) NCUA may make loans, in such amounts and subject to such terms 
and conditions as it may determine, from the Fund to Participating 
Credit Unions.
    (b) Funding Limits. Loans may be granted in amounts up to $300,000 
in the aggregate, depending on the creditworthiness of the Qualifying 
Credit Union, its financial need, and its demonstrated capability to 
provide financial and related services to its members. NCUA may, 
however, make loans that exceed $300,000 in certain circumstances. NCUA 
will include in the related Notice of Funding Opportunity the 
particular criteria used to evaluate an Application for a loan that 
exceeds $300,000.
    (c) Recording of a loan. At the discretion of NCUA, a loan will be

[[Page 67589]]

recorded by a Participating Credit Union as either a note payable or a 
nonmember deposit.
    (d) Interest rate. The rate of interest on loans is governed by the 
CDRLF Loan Interest Rate Policy, which can be found on NCUA's Web site 
or by contacting NCUA's Office of Small Credit Union Initiatives. The 
specific interest rate for a particular funding will be announced in 
the related Notice of Funding Opportunity. The Board will announce 
changes, if any, to the CDRLF Loan Interest Rate Policy and those 
changes will apply to loans made under future Notices of Funding 
Opportunities.
    (e) Repayment and maturity. (1) Awards made available through 
loans, whether recorded as a note payable or nonmember deposit, must be 
repaid to NCUA. All loans will be scheduled for repayment consistent 
with sound business practices and the objectives of the Program, but in 
no case will the term exceed five years.
    (2) Interest payments will be required semiannually beginning six 
months after the initial distribution of a loan.
    (3) NCUA may allow flexible repayment of loan principal. Details 
and specific provisions will be addressed in the Notice of Funding 
Opportunity and other program materials.
    (f) Acceleration. The terms of each loan agreement will provide for 
the immediate acceleration of the unpaid balance for breach or default 
in performance by the Participating Credit Union of the terms or 
conditions of the loan. Default and breach include misrepresentation; 
failure to make interest or principal payments when due; failure to 
file required reports; insolvency of the Participating Credit Union; 
and, if required by NCUA, failure to maintain adequate matching funds 
for the duration of the loan. Other specific causes of default and 
breach will be identified in the loan documents between the 
Participating Credit Union and NCUA. The unpaid balance will also be 
accelerated and immediately due if any part of the loan funds are 
improperly used or if uninvested loan proceeds remain unused for an 
unreasonable or unjustified period of time.
    (g) Matching requirements. At its discretion, NCUA may require a 
Participating Credit Union to develop and implement a plan to match all 
or a portion of the funds represented by loan proceeds. Such 
requirement will be based on the financial condition of the 
Participating Credit Union, which will be evaluated under criteria 
contained in the related Notice of Funding Opportunity. Matching funds 
must be from non-governmental member or nonmember share deposits. 
Participating Credit Unions required to provide matching funds are 
subject to the following general provisions and any other conditions in 
the related Notice of Funding Opportunity and agreements between the 
Participating Credit Union and NCUA:
    (1) Loan monies made available generally must be matched by the 
Participating Credit Union in an amount equal to the loan amount. Any 
loan monies matched by nonmember share deposits are not subject to the 
20% limitation on nonmember deposits under Sec.  701.32 of this 
chapter. Participating Credit Unions must maintain the increase in the 
total amount of share deposits for the duration of the loan. Once the 
loan is repaid, nonmember share deposits accepted to meet the matching 
requirement are subject to Sec.  701.32 of this chapter.
    (2) Upon approval of its loan application, and before it meets its 
matching, if required, a Participating Credit Union may receive the 
entire loan commitment in a single payment. If, at NCUA's discretion, 
any funds are withheld, the remainder of the funds committed will be 
available to the Participating Credit Union only after it has 
documented that it has met the match requirement.
    (3) Failure of a Participating Credit Union to generate the 
required match within the time specified in the loan documents may 
result in the reduction of the loan proportionate to the amount of 
match actually generated. Payment of any additional funds initially 
approved may be limited as appropriate to reflect the revised amount of 
the loan approved. Any funds already advanced to the Participating 
Credit Union in excess of the revised amount of loan approval must be 
repaid immediately to NCUA. Failure to repay such funds to NCUA upon 
demand may result in the default of the entire loan.
    (h) Other terms and conditions. Other terms and conditions 
pertaining to loans, including but not necessarily limited to duration, 
repayment obligations, and covenants, will be specified in the related 
Notice of Funding Opportunity or applicable loan documents to be signed 
by the Participating Credit Union.


Sec.  705.6  Application and award processes.

    (a) Notice of Funding Opportunity. NCUA will publish a Notice of 
Funding Opportunity in the Federal Register, on applicable government 
Web sites, and its own Web site. The Notice of Funding Opportunity will 
describe the loan and technical assistance grant programs for the 
period in which funds are available. It also will announce special 
initiatives, the amount of funds available, funding priorities, 
permissible uses of funds, funding limits, deadlines, and other 
pertinent details. The Notice of Funding Opportunity will also advise 
potential applicants on how to obtain an Application and related 
materials. NCUA may supplement the information contained in the Notice 
of Funding Opportunity through such other media as it determines 
appropriate, including Letters to Credit Unions, direct notices to 
Qualifying Credit Unions, and announcements on its Web site.
    (b) Application requirements. A Qualifying Credit Union must 
demonstrate a sound financial position and ability to manage its day-
to-day business affairs. It also must show that its planned use of 
proceeds is consistent with the purpose of the Program, the 
requirements of this Part, and the related Notice of Funding 
Opportunity. The related Notice of Funding Opportunity may include 
additional details and requirements.
    (1) Applications to participate and qualify for a loan or technical 
assistance grant under the Program may be obtained from the National 
Credit Union Administration as outlined in the related Notice of 
Funding Opportunity.
    (2) With respect to loans, NCUA will also require a Qualifying 
Credit Union to develop and submit a narrative describing how the 
Qualifying Credit Union intends to use the money obtained from the Fund 
to enhance the products or services it provides to its membership and 
how those enhanced products or services support the membership and 
community served by the Qualifying Credit Union.
    (3) In addition to those items required in this section, a 
Qualifying Credit Union that is a non-federally insured state-chartered 
credit union must also include the following:
    (i) A copy of its most recent external audit report;
    (ii) Proof of deposit and surety bond insurance which states the 
maximum insurance levels permitted by the policies;
    (iii) A balance sheet, an income and expense statement, and a 
schedule of delinquent loans, for each of the four most recent quarter-
ends;
    (iv) Documentation of the credit union's status as a low-income 
credit union by the appropriate state supervisory agency consistent 
with NCUA Rules and Regulations at Sec. Sec.  701.34(a) and 741.204(b); 
and
    (v) An agreement to be subject to examination by NCUA.

[[Page 67590]]

    (c) Evaluation and selection of Qualifying Credit Unions. NCUA will 
generally evaluate applications submitted by Qualifying Credit Unions 
in accordance with the criteria described in this section. Nothing in 
this section, however, precludes NCUA from considering other criteria 
included in the related Notice of Funding Opportunity that NCUA 
determines to be necessary based on the type of funding initiative, 
economic environment, or other factors or conditions that warrant the 
evaluation of additional or alternative criteria. Generally, NCUA will 
evaluate complete applications to determine if the Qualifying Credit 
Union satisfies the following:
    (1) Financial and Performance. The Qualifying Credit Union must 
exhibit a safe and sound financial condition, including a demonstrated 
ability to perform the requirements associated with the type of award 
being sought and compliance with NCUA's underwriting standards. In this 
respect, NCUA will consider the Qualifying Credit Union's long-term 
financial viability, including absence of indicators suggesting the 
Qualifying Credit Union is a candidate for merger, a purchase and 
assumption transaction, or conservatorship. NCUA will also consider the 
Qualifying Credit Union's compliance with the provisions of any 
previous loan or technical assistance grant received. NCUA may also 
consider information concerning the Qualifying Credit Union to which it 
already has access, including information obtained through the 
examination process and data contained in Call Reports.
    (2) Compatibility. NCUA will evaluate whether the stated objectives 
to be accomplished through the use of the loan or technical assistance 
grant proceeds conform to the broad purposes and rationale underlying 
the Fund. Specifically, NCUA will consider whether the award will 
enable the Qualifying Credit Union to provide basic financial products 
and related services to its members or enhance its capacity to better 
serve its members and the community in which it operates. NCUA will 
also consider whether the use of the financial award will conform to 
any applicable funding priority, special initiative, or special 
instruction announced in the related Notice of Funding Opportunity.
    (3) Feasibility. NCUA will consider the likelihood of the 
Qualifying Credit Union's success in accomplishing its stated 
objectives, based on its Application and the factors NCUA determines 
are relevant.
    (4) Examination Information and Concurrence from Regional Director 
for Qualifying Federal Credit Unions. In evaluating the Qualifying 
Credit Union, NCUA will consider information and statements provided by 
NCUA staff or State Supervisory Authority staff that performed the 
Qualifying Credit Union's most recent examination. NCUA will only 
provide a loan or a technical assistance grant to a Qualifying Credit 
Union with the concurrence of that credit union's supervising Regional 
Director. Examination information for a Qualifying Credit Union that is 
a state-chartered credit union is discussed in Sec.  705.8 of this 
Part.
    (d) Requests for additional information. NCUA will make its funding 
determinations among the several qualified Applications based on its 
discretion and consideration of which best meet the priorities and 
initiatives established and announced by NCUA. During its evaluation 
process, however, NCUA may request a Qualifying Credit Union to provide 
additional clarifying or technical information to support its 
application. NCUA may determine not to provide further consideration of 
any Application failing to provide additional required information.
    (e) Timing. NCUA will announce, in the related Notice of Funding 
Opportunity, the deadline for Qualifying Credit Unions to submit all 
required documentation, including the Application. Failure to submit 
all of the requested information or to submit the information within 
the timeframe specified in the Notice of Funding Opportunity, or in the 
case of requests for additional clarifying or technical information, 
within the time specified by NCUA, may result in rejection of the 
Application without further consideration.
    (f) Notice of Award and Appeals. NCUA will determine whether an 
application meets NCUA's standards established by this Part and the 
related Notice of Funding Opportunity. NCUA will provide written notice 
to a Qualifying Credit Union as to whether or not it has qualified for 
a loan or technical assistance grant under this Part. A Qualifying 
Credit Union whose application has been denied for failure of a 
qualification may appeal that decision to the NCUA Board in accordance 
with the following:
    (1) Within thirty days of its receipt of a notice of non-
qualification, a credit union may appeal the decision to the NCUA 
Board. The scope of the NCUA Board's review is limited to the threshold 
question of qualification and not the issue of whether, among qualified 
applicants, a particular loan or technical assistance grant is funded.
    (2) The foregoing procedure shall apply only with respect to 
Applications received by NCUA during an open period in which funds are 
available and NCUA has called for Applications. Any Application 
submitted by an applicant during a period in which NCUA has not called 
for Applications will be rejected, except for those Applications 
submitted under Sec.  705.7 of this section. Any such rejection shall 
not be subject to appeal or review by the NCUA Board.
    (g) Disbursement. Before NCUA will disburse a loan, the 
Participating Credit Union must sign the loan agreement, promissory 
note, and any other loan related documents. NCUA may, in its 
discretion, choose not to disburse the entire amount of the loan at 
once.


Sec.  705.7  Urgency.

    On an emergency basis, subject to funds availability, NCUA may 
consider a funding request from a Qualifying Credit Union experiencing 
an unplanned or unexpected expense that the Qualifying Credit Union is 
unable to meet with its own resources. The Qualifying Credit Union must 
demonstrate a compelling need for immediate assistance without which 
its continued operations would be threatened or severely disrupted. 
NCUA, in its discretion, will determine whether the situation 
constitutes an emergency and if the Qualifying Credit Union is required 
to submit any additional information to show why the funds are needed 
on an emergency basis. NCUA will determine and substantiate any reason 
to expedite funding in such case. Requests for loans or technical 
assistance grants under this section will be addressed on an ongoing 
basis and are outside the scope of the related Notice of Funding 
Opportunity. Technical assistance grants and loans provided on this 
basis must still demonstrate a purpose consistent with the goals of the 
Fund. Loans and technical assistance grants made under this section are 
not anticipated to be a regular source of funding for any Qualifying 
Credit Unions.


Sec.  705.8  Qualifying state-chartered credit unions.

    A Qualifying Credit Union that is a state-chartered credit union 
and has submitted an Application to NCUA for participation must obtain 
written concurrence from its respective state regulatory authority 
before NCUA will approve its Application. A Qualifying Credit Union 
that is a state-chartered credit union must also make copies of its 
state examination reports available to

[[Page 67591]]

NCUA and must agree to examination by NCUA.


Sec.  705.9  Reporting and monitoring.

    (a) General. NCUA's policy is to monitor Participating Credit 
Unions to assure that loan and technical assistance grant funds awarded 
under this Part have been used in accordance with their intended 
purposes and to determine whether anticipated outcomes have been 
achieved. Particular emphasis will be placed on reviewing loan funds 
earmarked for programs or initiatives proposed by the Participating 
Credit Union to determine if the funds have been used as represented 
and whether the program or initiative has had the impact anticipated by 
the Participating Credit Union.
    (b) Reporting. A Participating Credit Union must complete and 
submit all required reports, at such times and in such formats as NCUA 
will direct. Such reports must describe how the Participating Credit 
Union has used the loan or technical assistance grant proceeds and the 
results it has obtained, in relation to the programs, policies, or 
initiatives identified by the Participating Credit Union in its 
application. In addition, the Participating Credit Union's board of 
directors must report on the progress of providing needed community 
services to the Participating Credit Union's members once a year, 
either at the annual meeting or in a written report sent to all 
members. The Participating Credit Union must also submit to NCUA the 
written report or a summary of the report given at the annual meeting. 
NCUA may request additional information as it determines appropriate.
    (c) Monitoring. At its discretion, for verification purposes and as 
part of its evaluation of the effectiveness of the loan and technical 
assistance grant programs, NCUA may elect to review information 
concerning Participating Credit Unions to which it already has access, 
including information obtained through the examination process and data 
contained in Call Reports.


Sec.  705.10  Technical assistance grants.

    Technical assistance grants may be funded in such amounts, and in 
accordance with such terms and conditions, as NCUA may establish. In 
general, technical assistance grants are provided on a reimbursement 
basis, to cover expenditures approved in advance by NCUA and supported 
by receipts evidencing payment by the Participating Credit Union.
    (a) Permissible uses of technical assistance grant funds. Section 
705.4(a) and (b) of this part also apply to technical assistance grants 
made under this section. Those sections provide examples and other 
information with respect to the permissible use of CDRLF funds. In 
addition, technical assistance grants generally should enhance and 
support the Participating Credit Union's internal capacity to serve its 
members and better enable it to provide financial services to the 
community in which the Participating Credit Union is located.
    (b) Appeals of technical assistance grant reimbursement denials. 
Pursuant to NCUA Interpretative Ruling and Policy Statement 11-1, any 
Participating Credit Union may appeal a denial of a technical 
assistance grant reimbursement to NCUA's Supervisory Review Committee. 
All appeals of technical assistance grant reimbursements must be 
submitted to the Supervisory Review Committee within 30 days from the 
date of the denial. The decisions of the Supervisory Review Committee 
are final and may not be appealed to the NCUA Board.

PART 741--REQUIREMENTS FOR INSURANCE

0
4. The authority citation for part 741 continues to read as follows:

    Authority: 12 U.S.C. 1757, 1766(a), 1781--1790, and 1790d; 31 
U.S.C. 3717.


Sec.  741.207  [Amended]

0
5. Section 741.207 is amended by removing the citation ``Sec.  705.3'' 
and adding in its place the citation ``Sec.  705.2''.

[FR Doc. 2011-28335 Filed 11-1-11; 8:45 am]
BILLING CODE 7535-01-P