[Federal Register Volume 88, Number 128 (Thursday, July 6, 2023)]
[Notices]
[Pages 43149-43152]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-14201]


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NATIONAL CREDIT UNION ADMINISTRATION

[NCUA-2023-0072]


Request for Comment Regarding National Credit Union 
Administration Operating Fee Schedule Methodology

AGENCY: National Credit Union Administration (NCUA).

ACTION: Notice and request for comment.

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SUMMARY: The NCUA Board (Board) is requesting comment on changes to the 
methodology it uses to determine how it apportions operating fees 
charged to Federal credit unions (FCUs). The Board uses operating fees 
to fund part of the NCUA's annual budget. In this notice, the Board 
proposes to change the exemption threshold below which Federal Credit 
Unions would not be required to pay the operating fee and proposes to 
establish a process to update the exemption threshold in future years 
based on the credit union system's annual asset growth.

DATES: Comments must be received on or before August 7, 2023.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: https://www.regulations.gov/. 
Follow the instructions for submitting comments for Docket Number NCUA-
2023-0072.
     NCUA website: https://www.ncua.gov/regulation-supervision/rulemakings-proposals-comment. Follow the instructions for submitting 
comments.
     USPS/Hand Delivery/Courier: Address to Melane Conyers-
Ausbrooks, Secretary of the Board, National Credit Union 
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428.
     Public Inspection: You may view all public comments on the 
Federal eRulemaking Portal at https://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. If you are unable to access public 
comments on the internet, you may contact the NCUA for alternative 
access by calling (703) 518-6540 or emailing [email protected].

FOR FURTHER INFORMATION CONTACT: James Holm, Supervisory Budget 
Analyst, Office of the Chief Financial Officer, at (703) 518-6570.

SUPPLEMENTARY INFORMATION:

I. Legal Background

    The NCUA charters, regulates, and insures deposits in FCUs and 
insures deposits in federally insured State-chartered credit unions 
(FISCUs). To cover expenses related to its tasks, the Board adopts a 
biennial budget in the fall of each year. The Federal Credit Union Act 
(FCU Act) provides two primary sources to fund the budget: (1) 
requisitions from the National Credit Union Share Insurance Fund, 
referred to as the overhead transfer rate (OTR); \1\ and (2) operating 
fees charged to FCUs.\2\
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    \1\ See, e.g., 12 U.S.C. 1783(a) (making the Share Insurance 
Fund available ``for such administrative and other expenses incurred 
in carrying out the purpose of [Title II of the FCU Act] as [the 
Board] may determine to be proper.'').
    \2\ 12 U.S.C. 1755(a) (``In accordance with rules prescribed by 
the Board, each [FCU] shall pay to the [NCUA] an annual operating 
fee which may be composed of one or more charges identified as to 
the function or functions for which assessed.'') and 12 U.S.C. 
1766(j)(3). Other sources of income for the operating budget include 
interest income, funds from publication sales, parking fee income, 
and rental income.
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    With regard to the operating fee, the FCU Act requires each FCU to, 
``in accordance with rules prescribed by the Board, . . . pay to the 
[NCUA] an annual operating fee which may be composed of one or more 
charges identified as to the function or functions for which 
assessed.'' \3\ The fee must ``be determined according to a schedule, 
or schedules, or other method determined by the Board to be 
appropriate, which gives due consideration to the expenses of the 
[NCUA] in carrying out its responsibilities under the [FCU Act] and to 
the ability of [FCUs] to pay the fee.'' \4\ The statute requires the 
Board to, among other things, ``determine the periods for

[[Page 43150]]

which the fee shall be assessed and the date or dates for the payment 
of the fee or increments thereof.'' \5\
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    \3\ 12 U.S.C. 1755(a).
    \4\ 12 U.S.C. 1755(b).
    \5\ Id.
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    Accordingly, the FCU Act imposes three requirements on the Board 
related to assessing an operating fee on FCUs: (1) the fee must be 
assessed according to a schedule or schedules, or other method that the 
Board determines to be appropriate, which gives due consideration to 
NCUA's responsibilities in carrying out the FCU Act and the ability of 
FCUs to pay the fee; (2) the Board must determine the period for which 
the fee will be assessed and the due date for payment; and (3) the 
Board must deposit collected fees into the Treasury to defray the 
Board's expenses in carrying out the FCU Act. Once collected, operating 
fees, ``may be expended by the Board to defray the expenses incurred in 
carrying out the provisions of [the FCU Act,] including the examination 
and supervision of [FCUs].'' \6\
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    \6\ 12 U.S.C. 1755(d).
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    The NCUA's regulations govern certain of the operating fee 
processes.\7\ The regulation establishes: (i) the basis for charging 
operating fees; (ii) a notice process; (iii) rules for new charters, 
conversions, mergers, and liquidations; and (iv) administrative fees 
and interest for late payment, among other principles and processes.\8\ 
Certain aspects of and adjustments to the operating fee process, such 
as changes to which FCUs are exempt from operating fees or the 
multipliers used to determine fees applicable to FCUs that fall within 
designated asset tiers, are usually not published in the Federal 
Register. Instead, in November 2015, the Board delegated authority to 
the NCUA's Chief Financial Officer to administer the Board-approved 
operating fee methodology and to set the operating fees as calculated 
per the approved methodology during each annual budget cycle beginning 
with 2016. Although it is not required to do so under the 
Administrative Procedure Act,\9\ in January 2016, the Board published 
its methodology in the Federal Register and requested public comment on 
the same.\10\ The Board provided notice of several revisions to the 
operating fee in July 2020 and adopted a final operating fee rule in 
December 2020.
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    \7\ 12 CFR 701.6.
    \8\ Id.
    \9\ 5 U.S.C. 551 et seq.
    \10\ 81 FR 4674 (Jan. 27, 2016).
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    The Board first proposed its operating fee methodology in 1979, 
after Congress passed the Financial Institutions Regulatory and 
Interest Rate Control Act of 1978.\11\ This legislation permitted the 
Board to consolidate previously separate chartering, supervision, and 
examination fees into a single operating fee, charged ``in accordance 
with schedules, and for time periods, as determined by the Board, in an 
amount necessary to offset the expenses of the Administration at a rate 
consistent with a credit union's ability to pay.'' \12\ In combination 
with a proposed change to section 701.6 of the NCUA's regulations in 
1979, the Board proposed an initial fee schedule in the Federal 
Register, including rates for 12 asset tiers.\13\ It later published a 
final rule in the Federal Register, which included a finalized fee 
schedule for 1979.\14\
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    \11\ 44 FR 11785 (Mar. 2, 1979).
    \12\ Id. at 11786.
    \13\ Id. at 11787.
    \14\ 44 FR 27379 (May 10, 1979).
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    On four additional occasions prior to the July 2020 notice, the 
Board had requested comments on potential changes to the operating fee 
schedule through a Federal Register notice, independent of any changes 
to 12 CFR 701.6. First, in 1990, the Board provided notice to the 
public that it was considering consolidating the operating fee schedule 
from 14 asset tiers to two asset tiers, retaining an exemption for FCUs 
with total assets of less than $50,000, and implementing a $100 minimum 
fee.\15\ Second, in 1992, the Board requested comments on a plan to 
limit operating fees to the first $1 billion of each FCU's assets.\16\ 
Third, in 1995, the Board requested comments on a plan to restructure 
the operating fee schedule for natural person FCUs and to exempt FCUs 
with assets of $500,000 or less based on concern about small FCUs' 
ability to pay the fees.\17\ The Board also requested comments on 
imposing a minimum fee of $100 on all natural person FCUs with assets 
over $500,000 but less than or equal to $750,000.\18\
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    \15\ 55 FR 29857 (July 23, 1990).
    \16\ 57 FR 34152 (Aug. 3, 1992).
    \17\ 60 FR 32925 (June 26, 1995).
    \18\ Id.
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    In 2016, the Board published an updated methodology in detail in 
the Federal Register and solicited comment. The Board made no changes 
in response to comments on the methodology published in 2016 and 
delegated authority to the NCUA Chief Financial Officer to apply the 
published methodology. In 2020, the Board adopted three revisions to 
the methodology: (1) including the budget for capital projects within 
the total annual budget subject to the OTR; (2) including projected 
miscellaneous revenues within the total annual budget subject to the 
OTR; and (3) for purposes of determining the annual adjustment to the 
rate tier thresholds, comparing the average of total system assets 
reported in Call Reports for the four quarters available at the time 
the Board approves the budget to the average of total system assets in 
Call Reports for the four quarters of the respective previous years. 
Since that time, the Chief Financial Officer has applied the published 
operating fee methodology and explained its application in the NCUA's 
annual budget documents.
    In general, the Board has not used Federal Register notices in 
connection with annual adjustments to the asset tiers and rates of the 
operating fee schedule. Instead, the Board has opted to adopt such 
changes at its open meetings. As recently as 2012, for example, the 
Board increased the asset threshold used to exempt FCUs from operating 
fees from $500,000 to $1 million at an open meeting, without requesting 
advance comment in the Federal Register.\19\ While the Board has varied 
its practice with respect to operating fee schedule changes, it has 
done so within the FCU Act's broad directive that the operating fee 
schedule should be as ``determined by the Board to be appropriate,'' 
subject to its consideration of its expenses and the ability of FCUs to 
pay.\20\ In addition, the NCUA's regulation on operating fee processes 
includes a standing invitation for written comments from FCUs on 
existing operating fee schedules.\21\ Each year the Board also invites 
comments on the draft NCUA budget, which includes a detailed 
explanation of how the operating fee is calculated and how changes to 
the operating fee rates are determined based on application of the 
published methodology.
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    \19\ Board Action Memorandum on 2013 Operating Fee (Nov. 15, 
2012).
    \20\ 12 U.S.C. 1755(b).
    \21\ 12 CFR 701.6(c).
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II. Methodology for Determining the Aggregate Operating Fee Amount

    The Board adopts an annual budget in the fall of each year, which 
includes an operating budget for the costs of day-to-day operations 
such as employee compensation, travel and training expenses, support 
purchased through contracts, and other miscellaneous administrative 
expenses. The annual budget also includes a capital budget for the 
estimated spending on critical projects, such as for computer hardware 
and software, and for investments in agency-owned real property and 
equipment. The annual budget provides

[[Page 43151]]

the resources required to execute the goals and objectives as outlined 
in the NCUA's strategic plan.\22\
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    \22\ Additional information on the NCUA budget may be found at: 
http://www.ncua.gov/About/Pages/budget-strategic-planning/supplementary-materials.aspx.
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    Adjustments to the Budget. When calculating the aggregate annual 
operating fee requirements, the Board adds together the operating 
budget and capital budget to determine the total annual budget required 
for the agency's operations and investments.\23\ The Board then 
subtracts from the total annual budget its estimate for miscellaneous 
revenues that the agency will collect during the year, such as rent 
collected from other Federal agencies that share NCUA facilities and 
parking fee revenues. The NCUA owns a share of the parking garage 
underneath the complex of buildings that includes the agency's Central 
Office, and the NCUA receives its share of the revenue collected from 
fees charged to those who park in the garage.
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    \23\ The NCUA Board considers a separate budget for 
administrative activities related solely to the NCUA's insurance 
program, which are financed directly from the National Credit Union 
Share Insurance Fund. In addition, the operations of the Central 
Liquidity Facility are considered by the Central Liquidity Facility 
Board, which is an instrumentality of the United States within the 
NCUA and managed by the Board, and has a separate budget funded from 
its own resources.
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    Overhead Transfer Rate: As discussed previously, the FCU Act 
authorizes the NCUA to expend funds from the National Credit Union 
Share Insurance Fund for administrative and other expenses related to 
Federal share insurance.\24\ The transfer from the National Credit 
Union Share Insurance Fund covers the expenses associated with 
insurance-related functions of the NCUA's operations. The OTR is one of 
the funding sources for the budget, but the OTR does not affect the 
amount of the annual budget. The Board approves the annual budget 
separately and without regard to the OTR. The OTR is applied to actual 
expenses incurred each month, and the OTR share of monthly expenses is 
transferred from the National Credit Union Share Insurance Fund to the 
NCUA's Operating Fund. The estimated annual OTR is subtracted from the 
total annual budget, net of miscellaneous revenues, to determine the 
portion of the annual budget financed by the operating fee.
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    \24\ 12 U.S.C. 1783(a).
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    Interest Income and Other Adjustments: The Board reduces the 
portion of the annual budget financed by the operating fee by its 
estimate of interest income and by other adjustments in order to 
compute the net level of collections required to finance the agency's 
programs. Interest income reduces the required operating fees by 
providing an additional source of funds to cover regulatory (i.e., non-
insurance) related aspects of operating the NCUA. The NCUA collects 
interest income by investing balances of operating fee collections in 
short-term Treasury securities because the collected funds are not 
immediately required to pay expenses. Other adjustments made by the 
Board include an estimate of prior-years' operating fee collections 
that are unlikely to be spent and that therefore reduce the need for 
new operating fee collections.
    Operating Fee Requirements. The result of adjusting the total 
annual budget by the OTR share, interest income, and other adjustments 
is the net budget subject to the operating fee and payable by both 
natural person and corporate FCUs. The natural person FCU operating 
fees are determined by deducting the corporate FCU operating fees from 
the total budget operating fee requirements.
    The corporate credit union fee schedule was established in 1979 and 
has changed little over the years. Corporate FCUs hold assets of 
natural person credit unions, which are already assessed under the 
natural person operating fees for those members that are FCUs. 
Assessing corporate FCUs at the same rate would, effectively, assess 
the same assets twice for natural person FCU members of corporate FCUs. 
Raising operating fee assessments for corporate FCUs would result in 
higher expenses for corporate FCUs. Corporate FCUs would need to pass 
the higher expenses to natural person credit unions in the form of 
higher fees and lower investment yields. The corporate FCU operating 
fee schedule is a method of charging corporate FCUs a supervisory fee 
to defray costs and is now published annually in the budget.

III. Methodology for Determining the Operating Fee Schedule

    The Board delegated authority to the Chief Financial Officer to 
administer the methodology approved by the Board for calculating the 
operating fees charged to natural person FCUs and to set the operating 
fee schedule as calculated per the approved methodology, beginning in 
2016. After determining the operating fee requirements for natural 
person FCUs, the Chief Financial Officer creates the natural person FCU 
operating fee schedule for the upcoming year. The FCU operating fee 
schedule is published annually in the budget.
    The current fee schedule for natural person FCUs uses three asset 
tiers. A different assessment rate is applied to each tier, and the 
threshold for each tier is adjusted annually to reflect growth of the 
credit union system. Currently, FCUs with $1 million or less in assets 
pay no operating fee.
    There are two steps used to determine adjustments to the operating 
fee schedule for the upcoming year: (1) updating the prior-year asset 
tier thresholds using the computed rate of natural person FCU asset 
growth; and (2) updating the prior-year assessment rates for each asset 
tier by determining the average assessment rate adjustment.
    Updating prior year asset levels. The first step in determining the 
new operating fee schedule is to adjust the threshold for each asset 
tier from the prior year by comparing the average of total system 
assets reported in Call Reports for the four quarters available at the 
time the Board approves the budget to the average of total system 
assets in Call Reports for the four quarters of the respective previous 
years. The tier thresholds are adjusted annually in this manner to 
preserve the same relative relationship of the scale to the applicable 
asset base.
    Updating the prior year's assessment rates. After updating the 
prior-year asset tier thresholds, the next step is to project operating 
fees using the updated asset tier thresholds and the prior-year 
assessment rates charged for each tier. The percentage difference 
between the projected operating fee collections using the prior-year 
assessment rates and the total operating fee collections required to 
support the budget is the average rate adjustment.
    The average rate adjustment is used to amend the prior-year's 
assessment rates for each asset tier either upwards or downwards. If 
the projected amount of operating fees is less than the required 
budgeted amount, then the assessment rates for each asset tier are 
adjusted upwards. If the projected amount is more than the required 
budgeted amount, the assessment rates for each asset tier are adjusted 
downwards.
    The resulting new operating fee schedule and due date are 
communicated through a Letter to Federal Credit Unions and posted 
online to NCUA.gov within 30 days of Board approval of the annual 
budget. The Board also makes available on the NCUA website an online 
operating fee calculator for FCUs to estimate their individual 
operating fees for the upcoming year. No later than March of each year, 
natural person FCUs with assets greater than $1 million will receive an 
invoice for their operating fee. Operating fees are based on the 
average of the assets reported for the

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previous four quarters available when the Board approves the budget. 
The NCUA combines operating fee and capitalization deposit adjustments 
into a single invoice normally due in April. As required by the FCU 
Act, the NCUA will deposit the collected fees in the United States 
Treasury.\25\
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    \25\ 12 U.S.C. 1755(d); https://www.ncua.gov/files/agenda-items/AG20191212Item1b.pdf, pages 57 to 64.
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IV. Change to Operating Fee Methodology and Request for Comment

    The Board seeks comment on a change to the exemption level below 
which FCUs are not charged an operating fee and invites comment on 
other aspects of the operating fee methodology, as described below.

1. Threshold for Exemption From Paying an Operating Fee

    Currently, FCUs reporting average assets of $1,000,000 or less 
during the preceding four calendar quarters are exempt from paying an 
operating fee, because the Board considered and determined that such 
credit unions do not have the ability to pay the fee. The $1,000,000 
average asset exemption level has been in place since 2012 and has not 
been adjusted since that time. In the intervening 11 years, average 
assets across FCUs have approximately doubled. To account for this 
growth in the size of the credit union system, the Board is proposing 
to raise the average asset exemption level for FCUs to $2,000,000 and 
to adjust the exemption threshold annually in future years by the 
computed rate of asset growth in the credit union system. This 
inflationary adjustment would be included in the operating fee 
calculation presented in the annual draft NCUA budget published by the 
Chief Financial Officer pursuant to 12 U.S.C. 1789(b). The NCUA would 
adjust the exemption threshold by the percentage by which average 
quarterly assets reported for the credit union system for the most-
current four quarters have increased compared to the previous four 
quarters, using the Call report data available at the time the NCUA 
budget is published. For example, when the Board approved the 2023-2024 
operating budget in December 2022, the average credit union system 
assets for the four most-current quarters (i.e., the third and fourth 
quarters of 2021 and the first two quarters of 2022) were 8.5 percent 
higher than the previous four quarters (i.e., the third and fourth 
quarter of 2020 and the first two quarters of 2021). This increase in 
assets can be expressed as an inflation multiplier (1.085 in the 
example given) and applied to the exemption threshold to determine the 
adjusted level.
    The Board believes that this change would appropriately maintain 
its current policy of exempting the smallest natural person credit 
unions from paying the operating fee based on those institutions' 
inability to pay such a fee.

2. Other Aspects of the Operating Fee Methodology

    The Board has not substantially modified the current three-tier 
operating fee schedule since 1993. The current operating fee schedule 
is regressive; that is, credit unions with a larger amount of total 
assets pay a lower marginal rate on those assets above the threshold 
levels for the lower tiers. Given growth and consolidation in the 
credit union system, the Board is interested in whether such an 
approach is an equitable method for allocating the operating fee. There 
is a potentially wide range of approaches for assessing the operating 
fee. For example, the Board could adopt a single, flat-rate operating 
fee for all credit unions with total assets that exceed a standard 
exemption threshold. Overall, a flat-rate operating fee would shift 
fees away from relatively smaller credit unions to relatively larger 
ones, making the operating fee schedule less regressive. The Board 
could also make the operating fee schedule less regressive by 
increasing the rates for the second and third tiers on the schedule. 
Alternatively, adjusting the rates upward for the first and second 
tiers of the current operating fee would create a more regressive 
schedule. The Board is interested in receiving public comments on 
whether or how it should consider modifying the operating fee schedule 
and what specific aspects and conditions of the credit union system it 
should evaluate when making such decisions.
    The Board is also interested in specific suggestions that would 
increase the equitable distribution of the operating fee across FCUs. 
Because the operating fee methodology allocates the non-OTR portion of 
the NCUA budget to all FCUs subject to it, changes to the methodology 
do not lower total operating fee collections but instead shift the fees 
to those FCUs required to pay it. The Board is interested in 
understanding how any proposals to change the methodology can be 
justified as fair and equitable not only for those FCUs whose operating 
fee would decrease, but also for those FCUs whose operating fees would 
increase and therefore bear a greater fee burden compared to the 
current methodology.

    Authority: 12 U.S.C. 1755.

    By the National Credit Union Administration Board on June 29, 
2023.
Melane Conyers-Ausbrooks,
Secretary of the Board.
[FR Doc. 2023-14201 Filed 7-5-23; 8:45 am]
BILLING CODE 7535-01-P