[Federal Register Volume 79, Number 41 (Monday, March 3, 2014)]
[Proposed Rules]
[Pages 11714-11717]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-04231]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 710

RIN 3133-AE30


Voluntary Liquidation

AGENCY: National Credit Union Administration (NCUA).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The NCUA Board (Board) proposes to amend its voluntary 
liquidation regulation to reduce administrative burdens on voluntarily 
liquidating federal credit unions (FCUs) and recognize technological 
advances by: Permitting liquidating FCUs to publish required creditor 
notices in either electronic media or newspapers of general 
circulation; increasing the asset-size threshold for requiring multiple 
creditor notices; requiring that preliminary partial distributions to 
members not exceed the insured limit for any member share account; 
specifying when liquidating FCUs must determine member share balances 
for the purposes of distributions; and permitting liquidating FCUs to 
distribute member share payouts either by wire or other electronic 
means or by mail or personal delivery.

[[Page 11715]]


DATES: Comments must be received on or before May 2, 2014.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web site: http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx. Follow the instructions for submitting comments.
     Email: Address to [email protected]. Include ``[Your 
name]--Comments on Proposed Rule 710'' in the email subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for email.
     Mail: Address to Gerard Poliquin, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    Public Inspection: You may view all public comments on NCUA's Web 
site at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as 
submitted, except for those we cannot post for technical reasons. NCUA 
will not edit or remove any identifying or contact information from the 
public comments submitted. You may inspect paper copies of comments in 
NCUA's law library at 1775 Duke Street, Alexandria, Virginia 22314, by 
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, 
call (703) 518-6546 or send an email to [email protected].

FOR FURTHER INFORMATION CONTACT: Ian Marenna, Trial Attorney, Office of 
General Counsel, National Credit Union Administration, 1775 Duke 
Street, Alexandria, Virginia 22314-3428 or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION: 

I. Background
II. The Proposed Rule
III. Regulatory Procedures

I. Background

A. What changes does this proposed rule make?

    NCUA has not made substantive changes to the rule governing 
voluntary liquidations by FCUs since 1993. This proposed amendment to 
Part 710 would modernize the rule by increasing dollar thresholds for 
certain procedural requirements. It also would afford greater 
flexibility to voluntarily liquidating FCUs to use electronic means to 
publish creditor notices and issue member share payments. In addition, 
the proposed amendment would limit any preliminary distributions to 
members to the insured amount of each share account. The proposed 
amendment would also clarify an existing required calculation. 
Specifically, the proposed rule would: (1) Amend Section 710.5 to 
permit voluntarily liquidating FCUs to publish required creditor 
notices in electronic media reasonably calculated to reach the general 
public in the area or areas where the FCUs do business; (2) amend 
Section 710.5 to increase the asset size threshold for requiring 
multiple creditor notices, exempting FCUs with less than $1 million in 
assets from the publication requirement and exempting FCUs with less 
than $50 million in assets from the multiple publication requirement; 
(3) amend Section 710.6 to specify that partial distributions to 
members, which are subject to the Regional Director's approval, must 
not exceed the insured limit of each member's share account; (4) 
further amend Section 710.6 to specify that, in calculating pro rata 
distributions to members, voluntarily liquidating FCUs must determine 
member share balances as of the date the members voted to approve the 
liquidation or the date on which all share drafts cleared, whichever is 
later; and (5) permit voluntarily liquidating FCUs to distribute member 
share payouts either by wire or other electronic means approved by a 
member or by mail or personal delivery.

B. Why is the Board proposing this rule?

    The Board is proposing this amendment to update the rule and 
provide relief from unnecessary regulatory burden. The proposed 
increase in asset-size thresholds recognizes both inflation and the 
current definition of small credit unions. The proposed rule also 
reflects the increased use of electronic and Internet communications, 
as well as electronic payment methods, by permitting voluntarily 
liquidating FCUs to use these methods to notify potential creditors and 
pay out member share accounts.
    This proposed rule furthers the goals of ensuring an orderly 
liquidation process and the prompt payment of member shares by making 
voluntary liquidation less cumbersome and avoiding losses to the 
National Credit Union Share Insurance Fund that might ultimately be 
incurred if the subject FCU is involuntarily liquidated. The proposed 
rule also aims to reduce risk to the Fund by specifying that 
preliminary partial distributions to members must not exceed the 
insured limit of each member's share account. This limitation is 
proposed to guard against the problems that could arise if NCUA must 
convert a voluntary liquidation to an involuntary liquidation based on 
insolvency. If a voluntarily liquidating FCU discovers during the 
process that it is insolvent, then NCUA may place the credit union into 
involuntary liquidation. This finding could stem from conditions such 
as unanticipated creditor claims or difficulty in converting remaining 
assets to enough cash to pay all shares and liabilities. In this 
scenario, the procedures and priorities under Part 709 would apply, and 
general creditors would have preference over uninsured shareholders to 
the extent that they are uninsured. By limiting these interim 
distributions to each member's insured balance, the proposed rule would 
keep Part 709's priorities intact in case the credit union must enter 
involuntary liquidation. If the credit union remains solvent throughout 
the liquidation, then every member would receive the full balance at 
the end of the process, along with any available liquidating dividend.
    Generally, the proposed rule is designed to reduce the burden on 
small credit unions by raising certain thresholds for procedural 
requirements. It also reduces the burden on FCUs generally by affording 
more flexibility in implementing voluntary liquidations and clarifying 
an existing requirement.

II. The Proposed Rule

A. Section 710.5(a)(1)

    Under the proposed rule, FCUs would be allowed to publish the 
required creditor notice(s) in electronic media. With this update, 
voluntarily liquidating FCUs will have greater flexibility in notifying 
potential creditors, thereby increasing the efficiency of the process 
and decreasing the costs associated with publishing notices in 
newspapers.
    Also, the proposed rule increases the asset-size threshold for 
requiring multiple creditor notices from FCUs with assets equal to or 
greater than $5 million to FCUs with assets equal to or greater than 
$50 million. The $50 million threshold is proposed to align with NCUA's 
definition of small credit unions. Thus, the amendment seeks to reduce 
the burden on small credit unions with respect to the publication 
requirements.

B. Section 710.5(a)(2)

    The amendment to this provision would increase the asset-size 
threshold applicable to publication requirements. Under this amendment, 
FCUs with assets equal to or greater than $1 million but less than $50 
million would be

[[Page 11716]]

required to publish just one notice, though FCUs could choose to 
publish more notices. This amendment retains the tiered structure of 
the publication requirement while increasing the dollar amounts to 
reflect inflation, growth in credit union assets, and NCUA's definition 
of small credit unions.

C. Section 710.5(a)(3)

    This amendment also reflects an increase in thresholds applicable 
to the publication requirement. Specifically, this amendment exempts 
FCUs with assets under $1 million from the publication requirement. 
This increase from the current $500,000 threshold implemented in 1993 
reflects inflation, growth in credit union assets over the past 20 
years, and the Board's experience that smaller credit unions generally 
have a far less complex business model with a limited number of 
creditors.

D. Section 710.6(a)

    This amendment limits approved partial distributions to the extent 
of share insurance for each member's share account. Under this 
limitation, a voluntarily liquidating FCU could only pay member share 
accounts up to the applicable share insurance limit during an interim 
distribution. This limitation, which would only apply to approved 
partial distributions and would only apply to large share accounts, 
would not diminish an affected member's ability to receive the 
remainder of the account once the liquidation is completed. If the FCU 
remains solvent, each member would receive the full account balance in 
the final distribution, along with any liquidating dividend.

E. Section 710.6(b)

    This amendment clarifies the existing requirement to compute pro 
rata distributions to members by specifying that a voluntarily 
liquidating FCU would determine the member share balances as of the day 
that the members voted to approve liquidation, or the day on which all 
share drafts cleared, whichever is later. This addition is intended to 
avoid uncertainty in the computation, as share balances may change 
during the liquidation process.

F. Section 710.6(c)

    Under this amendment, a voluntarily liquidating FCU would be 
permitted to distribute member share account payments by wire or other 
means that a member agrees to accept. This change, taking advantage of 
advanced technology, would increase the efficiency of the process by 
reducing the number of checks that an FCU must draw and deliver while 
decreasing the amount of time that the members wait to receive their 
funds.

III. Regulatory Procedures

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a regulation may have on a 
substantial number of small entities.\1\ For purposes of this analysis, 
NCUA considers small credit unions to be those having under $50 million 
in assets.\2\ This proposed rule has no significant economic impact on 
FCUs as going concerns because it solely addresses procedures for 
voluntary liquidation. Also, the proposed rule increases certain dollar 
thresholds and affords greater flexibility to all FCUs engaging in 
voluntary liquidation. Accordingly, NCUA certifies the rule will not 
have a significant economic impact on a substantial number of small 
credit unions.
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    \1\ 5 U.S.C. 603(a).
    \2\ Interpretive Ruling and Policy Statement 03-2, 68 FR 31949 
(May 29, 2003), as amended by Interpretive Ruling and Policy 
Statement 13-1, 78 FR 4032 (Jan. 18, 2013).
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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.\3\ 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. 
This proposed rule does not impose or expand upon any existing 
reporting or recordkeeping requirements. This proposed rule will not 
create new paperwork burdens or modify any existing paperwork burdens.
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    \3\ 44 U.S.C. 3507(d).
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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. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. This rule will not have a substantial direct 
effect on the states, on the connection between the national government 
and the states, or on the distribution of power and responsibilities 
among the various levels of government. NCUA has determined that this 
rule does not constitute a policy that has federalism implications for 
purposes of the executive order.

D. Assessment of Federal Regulations and Policies on Families

    NCUA has determined that this rule will not affect family well-
being within the meaning of Section 654 of the Treasury and General 
Government Appropriations Act, 1999.\4\
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    \4\ Public Law 105-277, 112 Stat. 2681 (1998).
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List of Subjects in 12 CFR Part 710

    Voluntary Liquidation.

    By the National Credit Union Administration Board on February 
20, 2014.
Gerard Poliquin,
Secretary of the Board.

    For the reasons discussed above, NCUA proposes to amend 12 CFR Part 
710 as follows:

PART 710--VOLUNTARY LIQUIDATION

0
1. The authority citation for part 710 continues to read as follows:

    Authority:  12 U.S.C. 1766(a), 1786, and 1787.

0
2. In Sec.  710.5, revise paragraphs (a)(1) and (a)(2) and in paragraph 
(a)(3) remove ``$500,000'' and add in its place ``$1 million''.
    The revisions read as follows:


Sec.  710.5  Notice of liquidation to creditors.

    (a) * * *
    (1) Federal credit unions with assets equal to or greater than $50 
million as of the month end prior to the liquidation date shall publish 
the notice once a week in each of three successive weeks, in a 
newspaper of general circulation in each county in which the Federal 
credit union maintains an office or branch for the transaction of 
business on the liquidation date, or through any alternative 
publication through an electronic medium that is reasonably calculated 
to reach the general public in the relevant area or areas. The first 
notice shall be published within seven days of the liquidation date.
    (2) Federal credit unions with assets equal to or greater than $1 
million but less than $50 million as of the month end prior to the 
liquidation date shall publish the notice described in Sec.  
710.5(a)(1) of this section at least once. The notice shall be 
published within seven days of the liquidation date.
* * * * *
0
3. In Sec.  710.6, revise paragraphs (a), (b), and (c) to read as 
follows:


Sec.  710.6  Distribution of assets.

    (a) With the approval of the regional director, a partial pro rata 
distribution of

[[Page 11717]]

the Federal credit union's assets may be made to its members from cash 
funds available on authorization by the board of directors or 
liquidating agent. Payment of a partial distribution may exclude member 
accounts of less than $25.00 and must not exceed the insured amount of 
any account, as determined under part 745 of this chapter.
    (b) After all assets of the Federal credit union have been 
converted to cash or found to be worthless and all loans and debts 
owing to it have been collected or found to be uncollectible and all 
obligations of the Federal credit union have been paid, with the 
exception of shares due its members, the books shall be closed and the 
pro rata distribution to the members shall be computed. The computation 
shall be based on the total amount in each share account as of the 
liquidation date or the date on which all share drafts have cleared, 
whichever is later.
    (c) Payments must be made to members promptly after the pro rata 
distribution has been computed. The Federal credit union may mail a 
check to a member at his or her last known address, deliver the check 
personally to the member, or make the payment by wire or any other 
electronic means approved by a member.
* * * * *
[FR Doc. 2014-04231 Filed 2-28-14; 8:45 am]
BILLING CODE 7535-01-P