[Federal Register Volume 86, Number 10 (Friday, January 15, 2021)]
[Proposed Rules]
[Pages 3876-3879]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28280]


=======================================================================
-----------------------------------------------------------------------

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

RIN 3133-AF20


Overdraft Policy

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

-----------------------------------------------------------------------

[[Page 3877]]

SUMMARY:  The NCUA Board (Board) is issuing a proposed rule to amend 
one of the requirements that a federal credit union (FCU) must adopt as 
a part of their written overdraft policy. Specifically, the proposed 
rule would modify the requirement that an FCU's written overdraft 
policy establish a time limit, not to exceed 45 calendar days, for a 
member to either deposit funds or obtain an approved loan from the FCU 
to cover each overdraft. The proposed rule would remove the 45-day 
limit and replace it with a requirement that the written policy must 
establish a specific time limit that is both reasonable and applicable 
to all members, for a member either to deposit funds or obtain an 
approved loan from the credit union to cover each overdraft. Consistent 
with U.S. generally accepted accounting principles (GAAP), overdraft 
balances should generally be charged off when considered uncollectible. 
The Board believes that this change would improve a requirement that is 
not only overly prescriptive, but could be especially detrimental as 
FCUs take steps to provide their members the flexibility needed to cope 
with the impacts of COVID-19.

DATES: Comments must be received on or before February 16, 2021.

ADDRESSES: You may submit written comments, identified by RIN 3133-
AF20, 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.
     Fax: (703) 518-6319. Include ``[Your Name]--Comments on 
Overdraft Policy'' in the transmittal.
     Mail: Address to Melane Conyers-Ausbrooks, 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 the Federal eRulemaking Portal 
at http://www.regulations.gov as submitted, except for those we cannot 
post for technical reasons. The NCUA will not edit or remove any 
identifying or contact information from the public comments submitted. 
Due to social distancing measures in effect, the usual opportunity to 
inspect paper copies of comments in the NCUA's law library is not 
currently available. After social distancing measures are relaxed, 
visitors may make an appointment to review paper copies by calling 
(703) 518-6540 or emailing [email protected].

FOR FURTHER INFORMATION, CONTACT: Policy and Analysis: Alison Clark, 
Chief Accountant, Office of Examination and Insurance, at (703) 518-
6611; Legal: Gira Bose and Thomas Zells, Staff Attorneys, Office of 
General Counsel, at (703) 518-6540; or by mail at: National Credit 
Union Administration, 1775 Duke Street, Alexandria, Virginia 22314.

SUPPLEMENTARY INFORMATION: 
I. Background
II. Legal Authority
III. Section-by-Section Analysis
IV. Regulatory Procedures

I. Background

    The COVID-19 pandemic has created uncertainty for federally insured 
credit unions (FICUs) and their members. The Board has been working 
with federal and state regulatory agencies, in addition to FICUs, to 
assist FICUs in managing their operations and to facilitate continued 
assistance to credit union members and communities impacted by the 
coronavirus. As part of these ongoing efforts, the Board is proposing 
to modify the maximum time an FCU overdraft policy may allow for a 
member to cure an overdraft. The Board believes that this change would 
help ensure that FCUs have the additional flexibility necessary to 
provide relief to their members in a manner consistent with the NCUA's 
responsibility to maintain the safety and soundness of the credit union 
system.\1\
---------------------------------------------------------------------------

    \1\ Federally insured, state-chartered credit unions (FISCU) are 
not subject to the overdraft policy requirements in 12 CFR 
701.21(c)(3).
---------------------------------------------------------------------------

    The NCUA first permitted FCUs to advance money to a member to cover 
his or her account deficit (overdraft) without having a credit 
application on file in 2000.\2\ The Federal Credit Union Act (FCU Act) 
does not specifically address an FCU's authority to pay or honor a 
debit from a share account that will result in an overdrawn account. 
However, the NCUA's longstanding position has been that an overdraft, 
as a financial accommodation to a member, constitutes a loan or line of 
credit to a member. The Board also believes that the authority to cover 
overdrafts is incidental \3\ to an FCU's authority to accept payment on 
shares.\4\ In particular, under the incidental powers test established 
by the courts \5\ and in the NCUA's regulations in 12 CFR part 721, 
covering overdrafts from such accounts: (1) Is useful in carrying out 
FCU business because it facilitates ongoing maintenance of accounts 
that are temporarily overdrawn; (2) is the functional equivalent and 
indeed directly associated with other deposit account activity; and (3) 
involves risks similar to those FCUs assume in accepting payment on 
shares generally.\6\
---------------------------------------------------------------------------

    \2\ 65 FR 15224 (Mar. 22, 2000).
    \3\ 12 U.S.C. 1757(17).
    \4\ 12 U.S.C. 1757(6).
    \5\ Nations Bank of N. Carolina v. Variable Annuity Life Ins. 
Co., 513 U.S. 251 (1995).
    \6\ See Overdraft Practices, Office of the Comptroller of the 
Currency, Interpretive Letter #1082 (May 17, 2007), available at 
https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2007/int1082.pdf.
---------------------------------------------------------------------------

    When providing FCUs with this authority in 2000, the NCUA adopted a 
regulatory requirement that, in order for an FCU to advance money to a 
member to cover an account deficit without having a credit application 
from the borrower on file, the FCU must have a written overdraft policy 
that meets certain requirements. One of these requirements is that the 
FCU's written policy must establish a time limit not to exceed 45 
calendar days for a member either to deposit funds or obtain an 
approved loan from the FCU to cover each overdraft. As described more 
fully in section III, the Board believes that this policy is overly 
prescriptive and potentially harmful to both FCUs and their members. 
The Board is especially concerned that the requirement has and will 
continue to prevent FCUs from taking appropriate steps to provide their 
members the flexibility needed to cope with the impact of COVID-19. As 
such, the Board proposes removing the prescriptive 45-day limit and 
instead requiring that an FCU's written policy must establish a 
specific time limit that is both reasonable and applicable to all 
members for a member to cure their overdraft by either depositing funds 
or obtaining an approved loan. Consistent with U.S. GAAP, overdraft 
balances should generally be charged off when considered uncollectible. 
The Board is also proposing to add a reference to Regulation E,\7\ 
which implements the Electronic Fund Transfer Act and governs certain 
overdraft services.
---------------------------------------------------------------------------

    \7\ 12 CFR part 1005.
---------------------------------------------------------------------------

II. Legal Authority

    The Board is issuing this proposed rule pursuant to its authority 
under the FCU Act.\8\ The FCU Act grants the Board a broad mandate to 
issue regulations governing both FCUs and, more generally, all FICUs. 
For example, section 120 of the FCU Act is a general grant of 
regulatory authority and authorizes the Board to prescribe rules and 
regulations for the administration of the Act.\9\ Section 209 of the 
FCU Act is a plenary grant of regulatory authority to issue rules and 
regulations necessary or appropriate to carry out its role as share

[[Page 3878]]

insurer for all FICUs.\10\ Other provisions of the Act confer specific 
rulemaking authority to address prescribed issues or circumstances.\11\ 
Accordingly, the FCU Act grants the Board broad rulemaking authority to 
ensure that the credit union industry and the National Credit Union 
Share Insurance Fund (NCUSIF) remain safe and sound.
---------------------------------------------------------------------------

    \8\ 12 U.S.C. 1751 et seq.
    \9\ 12 U.S.C. 1766(a).
    \10\ 12 U.S.C. 1789.
    \11\ An example of a provision of the FCU Act that provides the 
Board with specific rulemaking authority is section 207 (12 U.S.C. 
1787), which is a specific grant of authority over share insurance 
coverage, conservatorships, and liquidations.
---------------------------------------------------------------------------

III. The Proposed Rule

    Section 701.21(c)(3) of the NCUA's regulations provides that an FCU 
can advance money to a member to cover his or her account deficit 
without having a credit application on file if the credit union had a 
written overdraft policy. Specifically, Sec.  701.21(c)(3) requires 
that an FCU's written overdraft policy must: (1) Set a cap on the total 
dollar amount of all overdrafts the credit union will honor consistent 
with the credit union's ability to absorb losses; (2) establish a time 
limit not to exceed 45 calendar days for a member either to deposit 
funds or obtain an approved loan from the credit union to cover each 
overdraft; (3) limit the dollar amount of overdrafts the credit union 
will honor per member; and (4) establish the fee and interest rate, if 
any, the credit union will charge members for honoring overdrafts.
    As previously noted, the Board is concerned that the requirement 
that an FCU's overdraft policy establish a time limit not to exceed 45 
calendar days for a member to cure their overdraft is unnecessarily 
prescriptive during normal times, but has been and will continue to be 
especially detrimental as FCUs and their members face challenges 
imposed by COVID-19. The Board believes it is imperative that FCUs have 
the flexibility to work with their members to take positive and 
proactive actions that can manage or mitigate adverse impacts on 
members while maintaining safe-and-sound operations. As such, the Board 
proposes amending Sec.  701.21(c)(3) to remove the prescriptive 45-day 
limit for curing an overdraft and replacing it with a requirement that 
an FCU's written overdraft policy must establish a specific time limit 
that is both reasonable and applicable to all members for a member to 
either deposit funds or obtain an approved loan from the FCU to cover 
each overdraft. Consistent with U. S. GAAP, overdraft balances should 
generally be charged off when considered uncollectible.
    This change would also remedy a discrepancy between the current 45-
day limit imposed on FCUs for curing an overdraft and NCUA-adopted 
interagency guidance on overdraft protection programs that suggests a 
maximum of 60 days before an overdraft is charged-off.\12\ The Board 
emphasizes that the recommended maximum of 60 days for charging off an 
overdraft in the interagency guidance is a suggestion derived from 
general safety and soundness considerations and U.S. GAAP for generally 
charging off overdraft balances when they are considered 
uncollectible.\13\ The Board expects that FCUs will exercise their 
good, professional judgment when working with members and determining 
when overdraft balances are deemed uncollectible. This professional 
judgment is especially important as FCUs help their members deal with 
the impacts of COVID-19.
---------------------------------------------------------------------------

    \12\ In February 2005, the NCUA, along with the Federal Reserve 
Board, Federal Deposit Insurance Corporation, and Office of the 
Comptroller of the Currency, published guidance on overdraft 
protection programs in response to concerns about aspects of the 
growing marketing, disclosure, and implementation of overdraft 
services. 70 FR 9127 (February 24, 2005) (Joint Guidance) 
(``[O]verdraft balances should generally be charged off when 
considered uncollectible, but no later than 60 days from the date 
first overdrawn.''), available at https://www.ncua.gov/files/letters-credit-unions/LCU2005-03Encl.pdf.
    \13\ Overdraft balances should be charged off against the 
allowance for loan and lease losses or allowance for credit losses, 
if applicable. Any payments received after the account is charged 
off, up to the amount charged off against the allowance should be 
reported as a recovery.
---------------------------------------------------------------------------

    The Board is also proposing to amend Sec.  701.21(c)(3) to add a 
cross-reference to Regulation E. Regulation E sets forth other 
requirements applicable to certain overdraft services and was amended 
in 2009, after the adoption of Sec.  701.21(c)(3).\14\ This addition 
would not impose any new or additional requirements on FCUs, nor would 
this rule supersede, or relieve FCUs from complying with, any 
provisions of Regulation E.
---------------------------------------------------------------------------

    \14\ 12 CFR part 1005.
---------------------------------------------------------------------------

    The Board requests comment on all aspects of this proposed rule. 
Because of the targeted nature of the proposed amendments to this 
existing regulation, the Board believes that a 30-day comment period 
provides adequate opportunity for public participation.\15\
---------------------------------------------------------------------------

    \15\ See NCUA Interpretive Ruling and Policy Statement (IRPS) 
87-2, as amended by IRPS 03-2 and IRPS 15-1. 80 FR 57512 (Sept. 24, 
2015), available at https://www.ncua.gov/files/publications/irps/IRPS1987-2.pdf.
---------------------------------------------------------------------------

    In addition to offering your comments on any aspect of this 
proposed rule, please provide your input on the following questions:
     1. What specific difficulties or adverse outcomes you have 
encountered as a result of the 45-day time limit in 12 CFR 701.21 
during COVID-19?
     2. Has your credit union made any changes to its overdraft 
program to mitigate the impact of the pandemic on members, such as 
reducing or eliminating overdraft or insufficient funds fees? Please 
share any and all overdraft relief you are currently providing to your 
members.
     3. With regard to overdraft programs in general, what 
additional relief do commenters feel would be appropriate for the NCUA 
and/or credit unions to extend to members utilizing overdraft products 
during COVID-19? Are there any other potential changes to the overdraft 
provisions in 12 CFR 701.21 that could be beneficial for credit union 
members?

IV. Regulatory Procedures

A. 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 (44 U.S.C. 3507(d)). For 
purposes of the PRA, a paperwork burden may take the form of a 
reporting, recordkeeping, or a third-party disclosure requirement, 
referred to as an information collection. The NCUA may not conduct or 
sponsor, and the respondent is not required to respond to, an 
information collection unless it displays a valid OMB control number.
    The proposed rule would modify the requirements of an FCU's written 
overdraft policy by removing the 45-day overdraft limit requirement and 
replacing it with a requirement that the policy establish a specific 
time limit that is, reasonable, applicable to all members, and 
consistent with U.S. GAAP. The information collection requirement of 
this part to retain and maintain a written overdraft policy is 
currently covered by OMB control number 3133-0092. The rule would not 
result in a change in burden, and there are no new information 
collection requirements associated with the rule.

B. Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. The 
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.
    This proposed rule would not have substantial direct effects on the 
states,

[[Page 3879]]

on the relationship between the national government and the states, or 
on the distribution of power and responsibilities among the various 
levels of government. The NCUA has therefore determined that this 
proposed rule does not constitute a policy that has federalism 
implications for purposes of the executive order.

C. Assessment of Federal Regulations and Policies on Families

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

D. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires that when 
an agency issues a proposed rule or a final rule pursuant to the APA 
\16\ or another law, the agency must prepare a regulatory flexibility 
analysis that meets the requirements of the RFA and publish such 
analysis in the Federal Register.\17\ Specifically, the RFA requires 
agencies to describe the impact of a rulemaking on small entities by 
providing a regulatory impact analysis. For purposes of the RFA, the 
Board considers credit unions with assets less than $100 million to be 
small entities.\18\ The proposed rule would relieve some of the 
restrictiveness of a requirement applicable to all FCUs to maintain 
requirements in policies relating to member overdrafts. The proposed 
rule would not require any FCUs to change their current policies or 
impose new burdens. Therefore, the Board certifies that this proposed 
rule would not have a significant economic effect on a substantial 
number of small entities.
---------------------------------------------------------------------------

    \16\ 5 U.S.C. 553(b).
    \17\ 5 U.S.C. 603, 604.
    \18\ NCUA IRPS 15-1. 80 FR 57512 (Sept. 24, 2015).
---------------------------------------------------------------------------

List of Subjects in 12 CFR Part 701

    Credit, Credit unions, Reporting and recordkeeping requirements.

    By the NCUA Board on December 17, 2020.
Melane Conyers-Ausbrooks,
Secretary of the Board.
    For the reasons discussed in the preamble, the Board proposes to 
amend part 701 of chapter VII of title 12 of the Code of Federal 
Regulations to read 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, 1785, 1786, 1787, 1788, 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.

0
2. Amend Sec.  701.21 by revising paragraph (c)(3) to read as follows:


Sec.  701.21   Loans to Members and lines of credit to members.

* * * * *
    (c) * * *
    (3) Credit applications and overdrafts. Consistent with policies 
established by the board of directors, the credit committee or loan 
officer shall ensure that a credit application is kept on file for each 
borrower supporting the decision to make a loan or establish a line of 
credit. A credit union may advance money to a member to cover an 
account deficit without having a credit application from the borrower 
on file if the credit union has a written overdraft policy. The policy 
must: Set a cap on the total dollar amount of all overdrafts the credit 
union will honor consistent with the credit union's ability to absorb 
losses; establish a specific time limit that is reasonable and 
universally applicable for a member either to deposit funds or obtain 
an approved loan from the credit union to cover each overdraft; limit 
the dollar amount of overdrafts the credit union will honor per member; 
and establish the fee and interest rate, if any, the credit union will 
charge members for honoring overdrafts. Consistent with U.S. GAAP, 
overdraft balances should generally be charged off when considered 
uncollectible. In addition, overdraft services covered by Regulation E, 
12 CFR part 1005, are subject to applicable requirements set forth in 
that regulation.
* * * * *
[FR Doc. 2020-28280 Filed 1-14-21; 8:45 am]
BILLING CODE 7535-01-P