[Federal Register Volume 78, Number 181 (Wednesday, September 18, 2013)]
[Rules and Regulations]
[Pages 57250-57253]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-22729]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

RIN 3133-AE05


Federal Credit Union Ownership of Fixed Assets

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: The NCUA Board (Board) is amending its regulation governing 
federal credit union (FCU) ownership of fixed assets to help FCUs 
better understand and comply with its requirements. The final rule does 
not make any substantive changes to those regulatory requirements. 
Rather, the amendments only clarify the regulation by improving its 
organization, structure, and ease of use.

DATES: This rule is effective November 18, 2013.

FOR FURTHER INFORMATION CONTACT: Pamela Yu, Staff Attorney, Office of 
General Counsel, National Credit Union Administration, 1775 Duke 
Street, Alexandria, Virginia 22314-3428 or telephone (703) 518-6593.

SUPPLEMENTARY INFORMATION:

I. Background and Proposal
II. Final Rule
III. Regulatory Procedures

I. Background and Proposal

A. Background

    The Federal Credit Union Act (FCU Act) authorizes an FCU to 
purchase, hold, and dispose of property necessary or incidental to its 
operations.\1\ NCUA's fixed assets rule interprets and implements this 
provision of the FCU Act.\2\ In general, an FCU may only invest in 
property it intends to use to transact credit union business or in 
property that supports its internal operations or serves its 
members.\3\ NCUA's fixed assets rule: (1) Limits FCU investments in 
fixed assets; (2) establishes occupancy, planning, and disposal 
requirements for acquired and abandoned premises; and (3) prohibits 
certain transactions.\4\
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    \1\ 12 U.S.C. 1757(4).
    \2\ 12 CFR 701.36.
    \3\ 12 CFR 721.3(d).
    \4\ 12 CFR 701.36.
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    For purposes of the rule, fixed assets are premises, furniture, 
fixtures, and equipment, including any office, branch office, 
suboffice, service center, parking lot, facility, real estate where an 
FCU transacts or will transact business, office furnishings, office 
machines, computer hardware and software, automated terminals, and 
heating and cooling equipment.\5\
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    \5\ 12 CFR 701.36(c).
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B. March 2013 Proposal

    Executive Order 13579 provides that independent agencies, including 
NCUA, should consider if they can modify, streamline, expand, or repeal 
existing regulations to make their programs more effective and less 
burdensome. Additionally, the Board has a policy of continually 
reviewing NCUA's regulations to ``update, clarify and simplify existing 
regulations and eliminate redundant and unnecessary provisions.'' \6\ 
To carry out this policy, NCUA identifies one-third of its existing 
regulations for review each year and provides notice of this review so 
the public may comment. In 2012, NCUA reviewed its fixed assets rule as 
part of this process.
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    \6\ NCUA Interpretive Ruling and Policy Statement (IRPS) 87-2, 
as amended by IRPS 03-2, Developing and Reviewing Government 
Regulations.
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    In March 2013, the Board proposed amendments to the fixed assets 
rule to make it easier for FCUs to understand.\7\ NCUA has continually 
received questions about the fixed assets rule, indicating there is 
some confusion about its application. For example, FCUs have asked for 
clarification regarding the waiver process, and the provision that 
requires an FCU to partially occupy unimproved property acquired for 
future expansion. Accordingly, the Board proposed amendments to the 
fixed assets rule to clarify the waiver and partial occupation 
requirements and to improve the rule overall. The proposed amendments 
did not make any substantive changes to the regulatory requirements. 
Rather, they only clarified the rule and improved its overall 
organization, structure, and readability.
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    \7\ 78 FR 17136 (Mar. 20, 2013).
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II. Final Rule

A. Summary of the Public Comments on the March 2013 Proposal

    NCUA received 9 comments on the proposed rule: 2 from credit union 
trade associations, 6 from state credit union leagues, and 1 from an 
FCU. All of the commenters supported the proposal and indicated the 
amendments make the fixed assets rule easier to understand. 
Specifically, commenters noted that the plain language revisions and 
structural reorganization improve the readability of the rule and the 
newly added definitions enhance clarity and flexibility. Commenters 
also expressed support for the revised waiver provisions, noting the 
revisions improve consistency within the regulation and allow FCUs to 
better understand the waiver process. Several commenters, however, 
offered suggestions for substantive changes to the regulatory 
requirements in the current rule.
    For example, a number of commenters urged the Board to consider 
increasing or eliminating the current 5 percent aggregate limit on 
fixed assets. One commenter asserted that computers, automated 
terminals, and other equipment should no longer be treated as fixed 
assets subject to the 5 percent cap. Several commenters suggested the 
current requirement to fully occupy premises acquired for future 
expansion should be eliminated from the rule. Also, one commenter asked 
that the Board revise and extend the time frames for partially 
occupying improved premises and unimproved premises acquired for future 
expansion, which

[[Page 57251]]

under the current rule are three years and six years, respectively.
    These comments are beyond the scope and intent of the March 2013 
proposal, which only reorganized and clarified the current regulatory 
requirements for FCU ownership of fixed assets but did not 
substantively change them. The Board, however, may take these comments 
into consideration if it considers making substantive changes to NCUA's 
fixed assets rule in the future.
    The March 2013 proposal did not propose changes to the current 
process for obtaining fixed assets waivers, but it requested public 
comment on ways to make the agency's overall waiver process more 
consistent and user friendly. Several commenters suggested NCUA's 
current waiver process is overly subjective and provides too much 
discretion to Regional Directors. Commenters also suggested that 
minimum criteria for evaluating waiver requests should be outlined in 
the rule text or in guidance. One commenter suggested that all waiver 
requests should be deemed approved if the Regional Director does not 
provide a response within a certain timeframe. Another commenter, 
however, stated that NCUA should respond to every waiver request and 
suggested that the automatic approval provision in the current rule 
should be eliminated.\8\ Several commenters suggested that the rule 
should be modified to make available blanket waivers or expedited 
waivers. Finally, a number of commenters urged the Board to add a 
framework for waiver appeals.
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    \8\ 12 CFR 701.36(a)(2)(iv).
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    The Board appreciates this feedback on waivers, especially as NCUA 
continues to consider ways to improve and clarify its overall waiver 
process. The Board notes that NCUA's National Supervision Policy Manual 
(NSPM) includes a chapter on waivers to enhance consistency in waiver 
processing. The NSPM contains standardized templates for response 
letters for fixed assets waiver requests and provides guidance on the 
information that would typically be addressed in the response, 
including specific reasons for denying a waiver.\9\ NCUA will continue 
to take steps to improve the waiver process. FCUs are encouraged to 
contact their examiners and Regional Offices for guidance and 
assistance prior to submitting a fixed assets waiver application. 
Regional Directors will make a determination on complete waiver 
applications as expeditiously as possible. Based on safety and 
soundness considerations, however, Regional Offices may ask FCUs to 
submit additional information beyond that described in the rule text. 
Regional Directors will inform FCUs, in writing, of any additional 
documentation needed to complete their waiver applications. The Board 
clarifies that for FCUs with $10 billion or more in assets, the term 
``Regional Office'' means the Office of National Examinations and 
Supervision (ONES) and the term ``Regional Director'' means the 
Director of ONES.\10\
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    \9\ See, e.g., NSPM, Appendix 6-A-6F.
    \10\ 12 CFR 700.2.
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    Additionally, the Board emphasizes that any waiver of the 5 percent 
aggregate limit on fixed assets is considered a one-time event. An FCU 
with an approved waiver will be required to submit a new waiver request 
and supporting documentation for any future investment in fixed assets 
which exceeds an additional one percent of its shares and retained 
earnings over the amount approved. As a point of clarification, 
multiple purchases of fixed assets can be made within this one percent. 
Moreover, NCUA's granting of a waiver does not permit the FCU to 
operate indefinitely under an approved higher fixed asset threshold. 
The waiver will cease once the FCU's investments in fixed assets falls 
below the regulatory 5 percent limit.

B. Summary of the Final Rule

    The Board is adopting the March 2013 proposed rule as final without 
change except for one minor modification. In short, the final rule: (1) 
Amends the regulatory text using logical organization, shorter 
sentences, active voice, and plain, everyday words; (2) adds an 
introductory section to define the scope of the regulation; (3) 
reorganizes the existing definitions to the beginning of the rule; (4) 
clarifies the meaning of ``unimproved land or unimproved real 
property'' and ``partially occupy'' by adding definitions of these 
terms to the regulation; and (5) clarifies the processes for obtaining 
waivers.
    As noted, the final rule makes one minor modification from the 
proposed. One commenter suggested that the proposed definition of 
``unimproved land or unimproved real property'' should be simplified in 
the final rule. Under the proposal, that term was defined as: (1) Raw 
land or land without development, significant buildings, structures, or 
site preparation; (2) land that has never had improvements; (3) land 
that was improved at one time but has functionally reverted to its 
unimproved state; or (4) land that has been improved, but the 
improvements serve no purpose for the federal credit union's planned 
use of the property and are of little value relative to the 
project.\11\ This commenter suggested that the clause ``and are of 
little value relative to the project'' should be removed because the 
language is redundant and ambiguous. The Board agrees this clause is 
superfluous and that its removal does not change the substantive 
meaning of the definition. The final rule is modified accordingly. The 
Board emphasizes, however, that NCUA will consider improved land as 
unimproved for purposes of the fixed assets rule if the improvements, 
even if functionally and intrinsically valuable, serve no purpose for 
the FCU's planned use of the property.\12\
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    \11\ 78 FR 17136, 17139 (Mar. 20, 2013) (Emphasis added).
    \12\ Id. at 17137.
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    The Board reiterates that the while the definitions of the terms 
``unimproved land or unimproved real property'' and ``partially 
occupy'' are not expressly defined in the current rule, the new 
definitions reflect NCUA's current interpretation of them. The addition 
of these definitions clarifies the partial occupancy provisions, but 
does not impose any new regulatory requirements.

III. Regulatory Procedures

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a rule may have on a 
substantial number of small entities (primarily those under fifty 
million dollars in assets). This final rule improves the fixed assets 
regulation to help FCUs understand its requirements. The final rule 
does not make any substantive changes to the regulatory requirements. 
Rather, the changes are intended to improve the rule's organization, 
structure, and ease of use. NCUA has determined and certifies that this 
final rule will not have a significant economic impact on a substantial 
number of small credit unions.

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency by rule creates a new paperwork burden on regulated 
entities or modifies an existing burden.\13\ For purposes of the PRA, a 
paperwork burden may take the form of either a reporting or a 
recordkeeping requirement, both referred to as information collections. 
As noted above, the final rule makes the regulation

[[Page 57252]]

easier to understand, but does not impose new paperwork burdens.
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    \13\ 44 U.S.C. 3507(d); 5 CFR part 1320.
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C. Executive Order 13132

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

D. Assessment of Federal Regulations and Policies on Families

    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.\14\
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    \14\ Public Law 105-277, 112 Stat. 2681 (1998).
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E. Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 \15\ 
(SBREFA) provides generally for congressional review of agency rules. A 
reporting requirement is triggered in instances where NCUA issues a 
final rule as defined by Section 551 of the Administrative Procedure 
Act.\16\ NCUA does not believe this final rule is a ``major rule'' 
within the meaning of the relevant sections of SBREFA because it merely 
makes the regulation easier to understand. NCUA has submitted the rule 
to the Office of Management and Budget for its determination in that 
regard.
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    \15\ Public Law 104-121, 110 Stat. 857 (1996).
    \16\ 5 U.S.C. 551.
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List of Subjects in 12 CFR Part 701

    Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board, on September 
12, 2013.
Gerard Poliquin,
Secretary of the Board.

    For the reasons stated above, the National Credit Union 
Administration amends 12 CFR part 701 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), 1757, 1765, 1766, 1781, 1782, 
1787, 1789; Title V, Pub. L. 109-351, 120 Stat. 1966.


0
2. Revise Sec.  701.36 to read as follows:


Sec.  701.36  Federal credit union ownership of fixed assets.

    (a) Scope. (1) Section 107(4) of the Federal Credit Union Act (12 
U.S.C. 1757(4)) authorizes a federal credit union to purchase, hold, 
and dispose of property necessary or incidental to its operations. This 
section interprets and implements that provision and it:
    (i) Limits investments in fixed assets;
    (ii) Establishes occupancy, planning, and disposal requirements for 
acquired and abandoned premises; and
    (iii) Prohibits certain transactions.
    (2) This section applies only to federal credit unions.
    (b) Definitions. For purposes of this section:
    Abandoned premises means real property previously used to transact 
credit union business but no longer used for that purpose. It also 
means real property originally acquired for future credit union 
expansion but no longer intended for that purpose.
    Fixed assets means premises and furniture, fixtures, and equipment.
    Furniture, fixtures, and equipment means all office furnishings, 
office machines, computer hardware and software, automated terminals, 
and heating and cooling equipment.
    Immediate family member means a spouse or other family member 
living in the same household.
    Investments in fixed assets means:
    (1) Any investment in improved or unimproved real property which a 
federal credit union is using, or intends to use, as premises;
    (2) Any leasehold improvement on premises;
    (3) The aggregate of all capital and operating lease payments on 
fixed assets, without discounting commitments for future payments to 
present value; or
    (4) Any investment in furniture, fixtures, and equipment.
    Partially occupy means occupation, on a full-time basis, of a 
portion of the premises that is:
    (1) Consistent with the federal credit union's usage plan for the 
premises;
    (2) Significant enough that the federal credit union is deriving 
practical utility from the occupied portion, relative to the scope of 
the usage plan; and
    (3) Sufficient to show that the federal credit union will fully 
occupy the premises within a reasonable time.
    Premises means any office, branch office, suboffice, service 
center, parking lot, other facility, or real estate where the federal 
credit union transacts or will transact business.
    Retained earnings means undivided earnings, regular reserve, 
reserve for contingencies, supplemental reserves, reserve for losses, 
and other appropriations from undivided earnings as designated by the 
federal credit union's management or NCUA.
    Senior management employee means the federal credit union's chief 
executive officer, any assistant chief executive officers, and the 
chief financial officer. For example, these individuals typically hold 
the title of President or Treasurer/Manager, Assistant President, Vice 
President or Assistant Treasurer/Manager, and Comptroller.
    Shares means regular shares, share drafts, share certificates, or 
other savings.
    Unimproved land or unimproved real property means:
    (1) Raw land or land without development, significant buildings, 
structures, or site preparation;
    (2) Land that has never had improvements;
    (3) Land that was improved at one time but has functionally 
reverted to its unimproved state; or
    (4) Land that has been improved, but the improvements serve no 
purpose for the federal credit union's planned use of the property.
    (c) Limits on investment in fixed assets. If a federal credit union 
has $1,000,000 or more in assets, the aggregate of all its investments 
in fixed assets must not exceed five percent of its shares and retained 
earnings. NCUA may waive this aggregate limit.
    (1) To seek a waiver, a federal credit union must submit a written 
request to its Regional Office. The request must:
    (i) Describe the proposed investment;
    (ii) Indicate the approximate aggregate amount of fixed assets the 
federal credit union would hold after the investment (as a percentage 
of shares and retained earnings); and
    (iii) Fully explain why the federal credit union needs the waiver.
    (2) The Regional Director will inform the federal credit union, in 
writing, of the date its request was received and of any additional 
documentation needed.
    (3) Within 45 days of the receipt of the federal credit union's 
waiver request or all necessary documentation, whichever is later, the 
Regional Director will provide the federal credit union a

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written response, either approving or disapproving the request. The 
Regional Director's decision will be based on safety and soundness 
considerations.
    (4) If a waiver is approved, the Regional Director will set an 
alternative limit on the federal credit union's aggregate investments 
in fixed assets, either as a dollar limit or as a percentage of its 
shares and retained earnings. Unless the Regional Director specifies 
otherwise, the federal credit union's future investments in fixed 
assets must not exceed an additional one percent of its shares and 
retained earnings over the amount approved.
    (5) If the Regional Director does not respond in writing within the 
timeframe specified in paragraph (c)(3) of this section, the federal 
credit union may proceed with its proposed investment. However, the 
federal credit union's investment in fixed assets, and any such future 
investments, must not exceed the aggregate limit it requested.
    (d) Premises not currently used to transact credit union business. 
(1) If a federal credit union acquires premises for future expansion 
and does not fully occupy them within one year, it must have a board 
resolution in place by the end of that year with definitive plans for 
full occupation. Premises are fully occupied when the federal credit 
union (or the federal credit union and a credit union service 
organization or a vendor) uses the entire space on a full-time basis. 
Credit union service organizations and vendors must use the space 
primarily to support the federal credit union or to serve the federal 
credit union's members. The federal credit union must make its plans 
for full occupation available to NCUA upon request.
    (2) If a federal credit union acquires premises for future 
expansion, it must partially occupy them within a reasonable period, 
but no later than three years after the date of acquisition. If the 
premises are unimproved land or unimproved real property, however, the 
three-year partial occupation requirement is extended to six years. 
NCUA may waive the partial occupation requirements. To seek a waiver, a 
federal credit union must submit a written request to its Regional 
Office within 30 months after the property is acquired and fully 
explain why it needs the waiver. The Regional Director will provide the 
federal credit union a written response, either approving or 
disapproving the request. The Regional Director's decision will be 
based on safety and soundness considerations.
    (3) A federal credit union must make diligent efforts to dispose of 
abandoned premises and any other real property it does not intend to 
use in transacting business. The federal credit union must seek fair 
market value for the property, and record its efforts to dispose of 
abandoned premises. After premises have been abandoned for four years, 
the federal credit union must publicly advertise the property for sale. 
The federal credit union must complete the sale within five years of 
abandonment, unless NCUA waives this requirement. To seek a waiver, a 
federal credit union must submit a written request to its Regional 
Office and fully explain why it needs the waiver. The Regional Director 
will provide the federal credit union a written response, either 
approving or disapproving the request. The Regional Director's decision 
will be based on safety and soundness considerations.
    (e) Prohibited transactions. (1) A federal credit union must not 
acquire, or lease for one year or longer, premises from any of the 
following, unless NCUA waives this prohibition:
    (i) A member of the federal credit union's board of directors, 
credit committee, supervisory committee, or senior management, or an 
immediate family member of such individual;
    (ii) A corporation in which a member of the federal credit union's 
board of directors, credit committee, supervisory committee, or senior 
management, or an immediate family member of such individual, is an 
officer or director, or has a stock interest of 10 percent or more; or
    (iii) A partnership, limited liability company, or other entity in 
which a member of the federal credit union's board of directors, credit 
committee, supervisory committee, or senior management, or an immediate 
family member of such individual, is a general partner, or a limited 
partner or entity member with an interest of 10 percent or more.
    (2) A federal credit union must not lease for one year or longer 
premises from any of its employees if the employee is directly involved 
in investments in fixed assets, unless the federal credit union's board 
of directors determines the employee's involvement is not a conflict of 
interest.
    (3) All transactions with business associates or family members not 
specifically prohibited by this section must be conducted at arm's 
length and in the interest of the federal credit union.
    (4) To seek a waiver from any of the prohibitions in this paragraph 
(e), a federal credit union must submit a written request to its 
Regional Office and fully explain why it needs the waiver. Within 45 
days of the receipt of the waiver request or all necessary 
documentation, whichever is later, the Regional Director will provide 
the federal credit union a written response, either approving or 
disapproving its request. The Regional Director's decision will be 
based on safety and soundness considerations and a determination as to 
whether a conflict of interest exists.

[FR Doc. 2013-22729 Filed 9-17-13; 8:45 am]
BILLING CODE 7535-01-P