The Rural Housing Service (RHS) offers a variety of programs to build or improve housing and essential community facilities in rural areas. RHS offers loans, grants, and loan guarantees for single and multifamily housing, childcare centers, fire and police stations, hospitals, libraries, nursing homes, schools, first responder vehicles and equipment, and housing for farm laborers. RHS also provides technical assistance loans and grants in partnership with non-profit organizations, Indian tribes, state and Federal government agencies, and local communities.

The Title V of the Housing Act of 1949 (Act) authorized USDA to make housing loans to farmers to enable them to provide habitable dwellings for themselves or their tenants, lessees, sharecroppers, and laborers. USDA then expanded opportunities in rural areas, making housing loans and grants to rural residents through the Single-Family Housing (SFH) and Multi-Family Housing (MFH) Programs.

RHS operates the MFH direct loan and grant programs by providing direct loans or grants to affordable multi-family rental housing for low income, elderly, disabled individuals and families, or domestic farm workers in eligible rural areas. The programs are covered by the 7 CFR part 3560, Direct Multi-Family Housing Loans and Grants and are: (1) Section 515, Rural Rental Housing loans, which finances multi-family units in rural areas; (2) Section 514 and 516 Farm Labor Housing loans and grants, which finances farm labor housing; or (3) Section 521, Rental Assistance, which finances project-based tenant rent subsidy.

As required by the Agency under the 7 CFR part 3560, borrowers are required to purchase and maintain property insurance on all buildings included as security for an Agency loan, to avoid a non-monetary loan default. Regulations require borrowers to provide fidelity coverage, liability insurance and various other insurance coverage to protect against losses or damages.

Currently, 7 CFR part 3560 consists of outdated insurance requirements. The coverage amounts and deductible limits were established in the interim rule (69 FR 69031-69176) that was published November 26, 2004. The changes proposed by this regulatory action will update insurance coverage and deductible requirements to current dollar values. The agency intends to align RD insurance coverages and deductible limits with affordable housing industry standards. The intent of this proposed rule is to improve the customer experience with updated and understandable insurance requirements.

The insurance premiums, including those for hazard/property insurance required by the Agency, are increasing due to changes in the insurance industry, such as the increasing of insurance rates in part due to increase catastrophic events. Our stakeholders will benefit from these proposed changes through lower insurance premiums and more flexibility in choices of coverage and deductibles. The current low deductible limits result in higher premiums. This proposed rule will allow higher deductible limits and will provide flexibility to the owner to select a deductible that can lower the premium costs.

When a disaster has occurred and the coverage was less than the industry standard of 80% of replacement cost value, the Agency has seen the loss of needed multifamily housing properties. Due to insufficient coverage amounts, the property was not able to be rebuilt and the communities in need of affordable housing have lost housing units. This proposed rule intends to assist stakeholders by providing the financial capacity to build-back needed affordable housing units. Our rural communities will benefit and be able to maintain affordable housing units.

This proposed rule is expected to result in a stronger, more resilient portfolio of properties, improved oversight of critical areas and will reduce portfolio financial risk with more consistent coverage amounts and deductible limits. This proposed rule will create a more streamlined and positive customer experience with RHS MFH programs.

RHS proposes to amend 7 CFR 3560.4, 3560.62, and 3560.105 to implement changes related to insurance requirements for the MFH Direct Housing Loans and Grants program.

The proposed changes are highlighted as follows:

(1) In § 3560.4(b), the Agency is removing the reference to 7 CFR part 1806, subpart B—National Flood Insurance. The flood insurance requirement for the covered programs is required in § 3560.105.

(2) In § 3560.62(d), the Agency is updating the current format to be more reader friendly and adding changes that would require Worker's Compensation insurance and business income insurance. The Worker's Compensation insurance requirement would implement current Agency policy. The business income insurance requirement would provide protection and financial relief to borrowers who suffer income loss due to damage or destruction at their rental property.

(3) The Agency proposes to update the insurance coverages and deductible requirements for the MFH Direct Loan and Farm Labor Housing programs to current dollars. The Agency's research for the proposed updates include a review of data from other federal housing agencies such as Housing and Urban Development (HUD) and Freddie Mac, coupled with state agencies and private sector affordable housing data. This data is used by the Agency as an indicator of industry standards for the insurance requirements.

Adding Worker's Compensation insurance and Business Income insurance requirements, would be consistent with housing industry standards. This change would also be consistent with the proposed change for 7 CFR 3560.62(d).

In § 3560.105, the Agency is making the following changes:

(i) Update language in paragraph (b)(1) to state that insurance is required, on or prior to loan or grant closing rather than prior to loan approval. Also, update language to clarify when insurance is required if there is interim financing or the Agency is providing multiple loan advances.

(ii) Update paragraph (b)(4) to state that the Agency must be named as loss co-payee or mortgagee, regardless of lien position, which provides consistency with Agency subordination agreement documents.

(iii) Update paragraph (c)(4) to state that insurance is required on or prior to loan or grant closing rather than prior to loan approval. This is consistent with the proposed change to § 3560.105(b)(1).

(iv) Include windstorm coverage in the general types of coverage as noted in hazard insurance in paragraph (f)(1)(i). And add a caveat to (f)(2)(i) that Windstorm Coverage is an other type of insurance the Agency may require when it is specifically excluded from the All-Risk policy. This is consistent with current hazard (or property) insurance industry standard.

(v) Update paragraph (f)(1)(iii) to include the amount of coverage requirement to provide consistency with current Agency policy.

(vi) Add paragraph (f)(1)(v) to include business income loss insurance in the list of minimum property insurance that borrowers must acquire. This change is consistent with the proposed change for 7 CFR part 3560.62(d).

(vii) Update paragraph (f)(3) from a depreciated replacement value or unpaid loan balance, to a “not less than a percentage of insurable replacement cost value,” which is a percentage that is consistent with affordable housing industry standards for the minimum property insurance coverage.

(viii) Remove paragraph (f)(3)(ii) because its intent is duplicative of paragraph (f)(3)(i). And paragraph (f)(3)(iii) will be redesignated to the new paragraph (f)(3)(ii) and revise the minimum flood insurance coverage to the lesser of, not less than a percentage of insurable replacement cost value, or maximum amount of insurance available under the National Flood Insurance Act, which is consistent with affordable housing industry standards.

(ix) Update the language in paragraph (f)(4) to consolidate the relevant content of this paragraph and remove the sub-bullet content that references depreciated replacement value which is no longer relevant.

(x) Update the language in paragraph (f)(7) by adding an additional option for insurance settlement claims to be placed in an other supervised account.

(xi) Update the language in paragraph(f)(9)(i)(A) and (B) and adding a paragraph (f)(9)(i)(C) to the hazard/property insurance deductible limits to a “not to exceed” amount that is based on the coverage amount, instead of the current deductible calculation formula. The current Agency limitations on the deductible limit contributes to rising premium costs for the project. This change will allow for larger deductible limits which in turn, will make the project's insurance premiums more affordable.

(xii) Update the language in paragraph (f)(9)(iii) regarding the deductible amount of windstorm coverage to have the same deductible limits as hazard/property insurance, which will create consistency among deductibles and in turn, makes it easier for the borrower to be in compliance with insurance requirements.

(xiii) Update the language in paragraph (f)(9)(iv) regarding the earthquake deductible limit to allow deductibles that do not exceed 20 percent of the coverage amount. This will increase the deductible limit and align the deductible with affordable housing industry standards.

(xiv) Add new paragraph (f)(11) to include policy requirements for cancellation, standard form of Non-Contribution Mortgage Clause, and loss payee.

(xv) Revise language in paragraph (h)(2)(ii) by removing the fidelity coverage deductible chart and replacing it with a new deductible limit based on a “not to exceed amount.” Also, revising the fidelity coverage amount to a specific percentage of proposed annual rental income with a minimum limit, instead of the Agency's current policy of a formula based calculation. This change will simplify the coverage calcuation, align the coverage amount and deductible limit with affordable housing industry standard, create consistency among insurance deductibles, and in turn make it easier for the borrower to be in compliance with insurance requirements.

(xvi) Update to the definition of worker's compensation insurance based on industry standards will be added and becomes paragraph (i). The current paragraph (i) (Taxes) will become paragraph (j).

Title V the Housing Act of 1949 (42 U.S.C. 1480 et. seq.), as amended, authorizes the Secretary of the Department of Agriculture to promulgate rules and regulations as deemed necessary to carry out the purpose of that title, as implemented under 7 CFR part 3560.

These loans and grants are subject to the provisions of Executive Order 12372, which requires intergovernmental consultation with state and local officials. RHS conducts intergovernmental consultations for each loan and grants in accordance with 2 CFR part 415, subpart C.

This proposed rule has been determined to be non-significant and, therefore, was not reviewed by the Office of Management and Budget (OMB) under Executive Order 12866.

This proposed rule has been reviewed under Executive Order 12988. In accordance with this proposed rule: (1) Unless otherwise specifically provided, all state and local laws that conflict with this rulemaking will be preempted; (2) no retroactive effect will be given to this rulemaking except as specifically prescribed in the rulemaking; and (3) administrative proceedings of the National Appeals Division of the Department of Agriculture (7 CFR part 11) must be exhausted before suing in court that challenges action taken under this rulemaking.

The policies contained in this proposed rule do not have any substantial direct effect on 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. This proposed rule does not impose substantial direct compliance costs on State and local Governments; therefore, consultation with States is not required.

This Executive order imposes requirements on RHS in the development of regulatory policies that have tribal implications or preempt tribal laws. RHS has determined that the proposed rule does not have a substantial direct effect on one or more Indian tribe(s) or on either the relationship or the distribution of powers and responsibilities between the Federal Government and Indian tribes. Thus, this proposed rule is not subject to the requirements of Executive Order 13175. If tribal leaders are interested in consulting with RHS on this rulemaking, they are encouraged to contact USDA's Office of Tribal Relations or RD's Tribal Coordinator at: AIAN@usda.gov to request such a consultation.

This document has been reviewed in accordance with 7 CFR part 1970, subpart A, “Environmental Policies.” RHS determined that this action does not constitute a major Federal action significantly affecting the quality of the environment. In accordance with the National Environmental Policy Act of 1969, Public Law 91-190, an Environmental Impact Statement is not required.

This proposed rule has been reviewed with regards to the requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612). The undersigned has determined and certified by signature on this document that this proposed rule will not have a significant economic impact on a substantial number of small entities since this rulemaking action does not involve a new or expanded program nor does it require any more action on the part of a small business than required of a large entity.

Title II of the UMRA, Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on state, local, and tribal governments and on the private sector. Under section 202 of the UMRA, Federal agencies generally must prepare a written statement, including cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to state, local, or tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. When such a statement is needed for a rule, section 205 of the UMRA generally requires a Federal Agency to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective, or least burdensome alternative that achieves the objectives of the rule.

This proposed rule contains no Federal mandates (under the regulatory provisions of title II of the UMRA) for State, local, and tribal Governments or for the private sector. Therefore, this rulemaking is not subject to the requirements of sections 202 and 205 of the UMRA.

The information collection requirements contained in this regulation have been approved by OMB and have been assigned OMB control number 0575-0189. This proposed rule contains no new reporting and recordkeeping requirements that would require approval under the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35).

RHS is committed to complying with the E-Government Act by promoting the use of the internet and other information technologies to provide increased opportunities for citizen access to government information, services, and other purposes.

Rural Development has reviewed this proposed rule in accordance with USDA Regulation 4300-4, Civil Rights Impact Analysis, to identify any major civil rights impacts the proposed rule might have on program participants on the basis of age, race, color, national origin, sex, or disability. After review and analysis of the proposed rule and available data, it has been determined that implementation of the rulemaking will not adversely or disproportionately impact very low, low- and moderate-income populations, minority populations, women, Indian tribes, or persons with disability by virtue of their race, color, national origin, sex, age, disability, or marital or familial status. No major civil rights impact is likely to result from this proposed rule.

The programs affected by this regulation is listed in the Assistance Listing Catalog (formerly Catalog of Federal Domestic Assistance) under numbers 10.405 and, 10.415.

In accordance with Federal civil rights laws and U.S. Department of Agriculture (USDA) civil rights regulations and policies, the USDA, its Mission Areas, agencies, staff offices, employees, and institutions participating in or administering USDA programs are prohibited from discriminating based on race, color, national origin, religion, sex, gender identity (including gender expression), sexual orientation, disability, age, marital status, family/parental status, income derived from a public assistance program, political beliefs, or reprisal or retaliation for prior civil rights activity, in any program or activity conducted or funded by USDA (not all bases apply to all programs). Remedies and complaint filing deadlines vary by program or incident.

Program information may be made available in languages other than English. Persons with disabilities who require alternative means of communication to obtain program information ( e.g., Braille, large print, audiotape, American Sign Language) should contact the responsible Mission Area, agency, or staff office; or the Federal Relay Service at 711.

To file a program discrimination complaint, a complainant should complete a Form AD-3027, USDA Program Discrimination Complaint Form, which can be obtained online at, www.usda.gov/sites/default/files/documents/ad-3027.pdf from any USDA office, by calling (866) 632-9992, or by writing a letter addressed to USDA. The letter must contain the complainant's name, address, telephone number, and a written description of the alleged discriminatory action in sufficient detail to inform the Assistant Secretary for Civil Rights (ASCR) about the nature and date of an alleged civil rights violation. The completed AD-3027 form or letter must be submitted to USDA by: from any USDA office, by calling (866) 632-9992, or by writing a letter addressed to USDA. The letter must contain the complainant's name, address, telephone number, and a written description of the alleged discriminatory action in sufficient detail to inform the Assistant Secretary for Civil Rights (ASCR) about the nature and date of an alleged civil rights violation. The completed AD-3027 form or letter must be submitted to USDA by:

(1) Mail: U.S. Department of Agriculture, Office of the Assistant Secretary for Civil Rights, 1400 Independence Avenue SW, Washington, DC 20250-9410; or

(2) Fax: (833) 256-1665 or (202) 690-7442; or

(3) Email: Program.Intake@usda.gov .

USDA is an equal opportunity provider, employer, and lender.

For the reasons set forth in the preamble, RHS proposes to amend 7 CFR part 3560 as follows:

The revisions and additions read as follows:

The NCUA is an independent Federal agency that insures funds maintained in accounts of members or those otherwise eligible to maintain insured accounts (member accounts) at FICUs, protects the members who own credit unions, and charters and regulates Federal credit unions (FCUs). The NCUA protects the safety and soundness of the credit union system by identifying, monitoring, and reducing risks to the National Credit Union Share Insurance Fund (Share Insurance Fund). Backed by the full faith and credit of the United States, the Share Insurance Fund provides Federal share insurance to millions of account holders in all FCUs and the majority of state-chartered credit unions.

Under the Federal Credit Union Act (FCU Act), the NCUA is responsible for paying share insurance to any member, or to any person with funds lawfully held in a member account, in the event of a FICU's failure up to the standard maximum share insurance amount (SMSIA), which is currently set at $250,000. 1 The FCU Act states the determination of the net amount of share insurance paid “shall be in accordance with such regulations as the Board may prescribe” and requires that, “in determining the amount payable to any member, there shall be added together all accounts in the credit union maintained by that member for that member's own benefit, either in the member's own name or in the names of others.”  2 However, the FCU Act also specifically authorizes the Board to “define, with such classifications and exceptions as it may prescribe, the extent of the share insurance coverage provided for member accounts, including member accounts in the name of a minor, in trust, or in joint tenancy.”  3

The NCUA has implemented these requirements by issuing regulations recognizing particular categories of accounts, such as single ownership accounts, joint ownership accounts, revocable trust accounts, and irrevocable trust accounts. 4 If an account meets the requirements for a particular category, the account is insured up to the $250,000 limit separately from shares held by the member in a different account category at the same FICU. For example, provided all requirements are met, shares in the single ownership category will be separately insured from shares in the joint ownership category held by the same member at the same FICU.

The NCUA's share insurance categories have been defined through both statute and regulation. Certain categories, such as the accounts held by government depositors  5 and certain retirement accounts, including individual retirement accounts, have been expressly defined by Congress. 6 Other categories, such as joint accounts  7 and corporate accounts, 8 have been based on statutory interpretation and recognized through regulations issued in 12 CFR part 745 pursuant to the NCUA's rulemaking authority. In addition to defining the insurance categories, the share insurance regulations in part 745 provide the criteria used to determine insurance coverage for shares in each category.

It is also worth noting that the FCU Act provides a definition of the term “member account.” The NCUA insures “member accounts” at all FICUs. 9 Importantly, the term “member account” is not limited to those persons enumerated in the credit union's field of membership who have become members. It also permits certain nonmembers, such as other nonmember credit unions, nonmember public units and political subdivisions, and, in the case of low-income designated credit unions, deposits of nonmembers generally. In other words, the NCUA provides share insurance coverage to members and those otherwise eligible to maintain insured accounts at FICUs.

As discussed in more detail below, the proposed amendments reflect the Board's aim to: (1) provide FICUs, FICU employees, and those with member accounts at FICUs, with a rule that is easier to understand; (2) provide parity with changes adopted by the FDIC in January 2022; and (3) facilitate the prompt payment of share insurance in accordance with the FCU Act, among other objectives.

The Board has issued this proposed rule pursuant to its authority under the FCU Act. Under the FCU Act, the NCUA is the chartering and supervisory authority for FCUs and the Federal supervisory authority for FICUs. 10 The FCU Act grants the NCUA a broad mandate to issue regulations governing both FCUs and FICUs. 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 FCU Act. 11 Section 207 of the FCU Act is a specific grant of authority over share insurance coverage, conservatorships, and liquidations. 12 Section 209 of the FCU Act is a plenary grant of regulatory authority to the NCUA to issue rules and regulations necessary or appropriate to carry out its role as share insurer for all FICUs. 13 Accordingly, the FCU Act grants the Board broad rulemaking authority to ensure that the credit union industry and the Share Insurance Fund remain safe and sound.

The Board is seeking comment on proposed amendments to its regulations governing share insurance coverage for funds held in member accounts at FICUs in connection with trusts. 14 The proposed amendments are intended to: (1) provide FICUs, FICU employees, and those with member accounts at FICUs with a rule for trust account coverage that is easier to understand; (2) provide parity with changes adopted by the FDIC in January 2022;  15 and (3) facilitate the prompt payment of share insurance in accordance with the FCU Act, among other objectives. Accomplishing these objectives also would further the NCUA's mission in other respects, as discussed in greater detail below.

The share insurance trust rules have evolved over time and can be difficult to apply in some circumstances. The proposed amendments would clarify for FICUs, their employees, their accountholders, and other interested parties the insurance rules and limits for trust accounts. The proposal both reduces the number of rules governing coverage for trust accounts and establishes a straightforward calculation to determine coverage. The proposed amendments are intended to alleviate some of the confusion that FICUs, their employees, and their accountholders may experience with respect to insurance coverage and limits.

Under the current regulations, there are distinct and separate sets of rules applicable to shares of revocable trusts as opposed to irrevocable trusts. Each set of rules has its own criteria for coverage and methods by which coverage is calculated. Despite the NCUA's efforts to simplify the revocable trust rules in 2008, the consistently high volume of complex inquiries about trust accounts over an extended period suggests continued confusion about insurance limits. 16 NCUA share insurance specialists have answered over 13,000 calls with questions since the fourth quarter of 2019 alone. 17 It is estimated that over 50 percent of these inquiries, which do not include those received through email or submitted through mycreditunion.gov, pertain to share insurance coverage for trust accounts (revocable or irrevocable). To help clarify insurance limits, the proposed amendments would further simplify insurance coverage of trust accounts (revocable and irrevocable) by harmonizing the coverage criteria for revocable and irrevocable trust accounts and by establishing a simplified formula for calculating coverage that would apply to these funds deposited at FICUs. The NCUA proposes using the calculation the NCUA first adopted in 2008 for revocable trust accounts with five or fewer beneficiaries. This formula is straightforward and is already generally familiar to FICUs and their members. 18 The current formulas for revocable trust accounts with more than five beneficiaries and irrevocable trust accounts would be eliminated.

Adoption of the proposed changes would also align with changes the FDIC adopted in January 2022, which are set to take effect on April 1, 2024. 19 As it stressed in its 2021 final rule addressing the share insurance coverage of joint ownership accounts, the Board believes it is important to maintain parity between the nation's two Federal deposit/share insurance programs, which are backed by the full faith and credit of the United States. 20 The Board believes it is important that members of the public who use trust accounts receive the same protection whether the accounts are maintained at FICUs or other federally insured institutions.

The FCU Act requires the NCUA to pay accountholders “as soon as possible” after a FICU liquidation. 21 However, the insurance determination and subsequent payment for many trust accounts can be delayed when NCUA staff must review complex trust agreements and apply various rules for determining share insurance coverage. The proposed amendments are intended to facilitate more timely share insurance determinations for trust accounts by reducing the time needed to review trust agreements and determine coverage. These amendments should promote the NCUA's ability to pay insurance proceeds to accountholders more quickly following the liquidation of a FICU, enabling accountholders to meet their financial needs and obligations.

The proposed changes will also facilitate the liquidation of failed FICUs. The NCUA is routinely required to make share insurance determinations in connection with FICU liquidations. In many of these instances, however, share insurance coverage for certain trust accounts is based upon information that is not maintained in the FICU's account records. As a result, NCUA staff work with accountholders to obtain trust documentation following a FICU's liquidation to complete share insurance determinations. The difficulties associated with completing such a determination are exacerbated by the substantial growth in the use of formal trusts in recent decades. The proposed amendments could reduce the time spent reviewing such information, thereby reducing potential delays in the completion of share insurance determinations and payments.

The NCUA first adopted regulations governing share insurance coverage in 1971. 22 Over the years, share insurance coverage has evolved to reflect both the NCUA's experience and changes in the credit union industry. While the regulations addressing irrevocable trusts have undergone minimal change, the regulations addressing revocable trusts have seen numerous changes, largely aimed at providing increased flexibility and simplifying coverage. Of note, in 2004 the NCUA amended the revocable trust rules, pointing to continued confusion about the coverage for revocable trust deposits and the need for parity with then recent FDIC amendments. 23 Specifically, the NCUA eliminated the defeating contingency provisions of the rules, with the result that coverage would be based on the interests of qualifying beneficiaries, irrespective of any defeating contingencies in the trust agreement. 24 This more closely aligned coverage for formal revocable trust accounts with payable-on-death accounts. Importantly, and of relevance to this proposal, defeating contingency provisions were not eliminated for irrevocable trusts and remain relevant for calculating share insurance coverage under the irrevocable trust provisions. 25 At the same time, the NCUA also eliminated the requirement to name the beneficiaries of a formal revocable trust in the FICU's account records. 26 The NCUA recognized that a grantor may elect to change the beneficiaries or their interests at any time before his or her death and that requiring a FICU to maintain a current record of this information is impractical and unnecessarily burdensome.

More recently, the NCUA's experience and adoption of similar revisions by the FDIC suggested that further changes to the trust rules were necessary. Specifically, in 2008, the NCUA simplified the rules in several respects. 27 First, it eliminated the kinship requirement for revocable trust beneficiaries, instead allowing any natural person, charitable organization, or non-profit to qualify for per-beneficiary coverage. Second, a simplified calculation was established if a revocable trust named five or fewer beneficiaries; coverage would be determined without regard to the allocation of interests among the beneficiaries. This eliminated the need to discern and consider beneficial interests in many cases.

A different insurance calculation applied to revocable trusts with more than five beneficiaries. At that time, the SMSIA was $100,000, and thus, if more than five beneficiaries were named in a revocable trust, coverage would be the greater of (1) $500,000; or (2) the aggregate amount of all beneficiaries' interests in the trust(s), limited to $100,000 per beneficiary. When the SMSIA was increased to $250,000, a similar adjustment was made from $100,000 to $250,000 for the calculation of per beneficiary coverage.

The NCUA recognizes two different insurance categories for funds held in connection with trusts at FICUs: (1) revocable trusts and (2) irrevocable trusts. The current rules for determining insurance coverage for shares in each of these categories are described below. Additionally, share insurance coverage is always limited to FICU members and those otherwise eligible to maintain insured accounts at the FICU. The NCUA's longstanding position has been that, for revocable trust accounts, all grantors (sometimes described as settlors) of the trust must be members of the FICU or otherwise eligible to maintain an insured account. 28 For irrevocable trust accounts, the NCUA has maintained the position that either all grantors/settlors or all beneficiaries of the trust must be members of the FICU or otherwise eligible to maintain an insured account. 29 As described in greater detail in section II.E., the NCUA appreciates commenter feedback as to whether these positions should be revisited.

The revocable trust category applies to funds for which the member has evidenced an intention that the funds shall belong to one or more beneficiaries upon his/her/their death. This category includes funds held in connection with formal revocable trusts—that is, revocable trusts established through a written trust agreement. It also includes funds that are not subject to a formal trust agreement, where the FICU makes payment to the beneficiaries identified in the FICU's records upon the member's death, based on account titling and applicable state law. The NCUA refers to these types of accounts, including Totten trust accounts, payable-on-death accounts, and similar accounts, as “informal revocable trusts.” Funds associated with formal and informal revocable trusts are aggregated for the purposes of the share insurance rules; thus, funds that will pass from the same grantor to beneficiaries are aggregated and insured up to the SMSIA, currently $250,000, per beneficiary, regardless of whether the transfer would be accomplished through a written revocable trust or an informal revocable trust. 30

Under the current revocable trust rules, beneficiaries with insurable interests are limited to natural persons, charitable organizations, and non-profit entities recognized as such under the Internal Revenue Code of 1986. 31 If a named beneficiary does not satisfy this requirement, funds held in trust for that beneficiary are treated as single ownership funds of the grantor and aggregated with any other single ownership accounts the grantor maintains at the same FICU. 32

Certain requirements also must be satisfied for an account to be insured in the revocable trust category. The required intention that the funds shall belong to the beneficiaries upon the grantor's death must be manifested in the “title” of the account or elsewhere in the account records of the credit union using commonly accepted terms such as “in trust for,” “as trustee for,” “payable-on-death to,” or any acronym for these terms. 33 For the purposes of this requirement, a FICU's electronic account records are included. For example, a FICU's electronic account records could identify the account as a revocable trust account through coding or a similar mechanism. In addition, the beneficiaries of informal trusts ( i.e., payable-on-death accounts) must be named in the FICU's account records. 34 The requirement to name beneficiaries in the FICU's account records does not apply to formal revocable trusts; the NCUA generally obtains information on beneficiaries of such trusts from accountholders following a FICU's liquidation. Therefore, if a member's account funds exceed $250,000 at a liquidated FICU, this will result in a hold being placed on the member's funds in excess of the SMSIA until the NCUA can review the ownership documents and trust agreement to verify the beneficiary rules are satisfied, thereby delaying insurance determinations and full insurance payments to some insured accountholders.

The calculation of share insurance coverage for revocable trust accounts depends upon the number of unique beneficiaries named by a member accountholder. 35 If five or fewer beneficiaries have been named, the member accountholder is insured in an amount up to the total number of named beneficiaries multiplied by the SMSIA, and the specific allocation of interests among the beneficiaries is not considered. 36 If more than five beneficiaries have been named, the member accountholder is insured up to the greater of: (1) five times the SMSIA; or (2) the total of the interests of each beneficiary, with each such interest limited to the SMSIA. 37 For the purposes of this calculation, a life estate interest is valued at the SMSIA. 38

Where a revocable trust account is jointly owned, the interests of each account owner are separately insured up to the SMSIA per beneficiary. 39 However, if the co-owners are the only beneficiaries of the trust, the account is instead insured under the NCUA's joint account rule. 40

The current revocable trust rule also contains a provision that was intended to reduce confusion and the potential for a decrease in share insurance coverage in the case of the death of a grantor. Specifically, if a revocable trust becomes irrevocable due to the death of the grantor, the trust account may continue to be insured under the revocable trust rules. 41 Absent this provision, the irrevocable trust rules would apply following the grantor's death, as the revocable trust becomes irrevocable at that time, which could result in a reduction in coverage. 42

Accounts maintaining funds held by an irrevocable trust that has been established either by written agreement or by statute are insured in the irrevocable trust share insurance category. Calculating coverage in this category requires a determination of whether beneficiaries' interests in the trust are contingent or non-contingent. 43 Non-contingent interests are interests that may be determined without evaluation of any contingencies, except for those covered by the present worth and life expectancy tables and the rules for their use set forth in the Internal Revenue Service (IRS) Federal Estate Tax Regulations. 44 Funds held for non-contingent trust interests are insured up to the SMSIA for each such beneficiary. 45 Funds held for contingent trust interests are aggregated and insured up to the SMSIA in total. 46

The irrevocable trust rules do not apply to funds held for a grantor's retained interest in an irrevocable trust. 47 Such funds are aggregated with the grantor's other single ownership funds for the purposes of applying the share insurance limit.

As noted, the rules governing share insurance coverage for trust accounts have been simplified on several occasions. However, these rules are still frequently misunderstood and can present some implementation challenges. The trust rules can require overly detailed, time-consuming, and resource-intensive reviews of trust documentation to obtain the information necessary to calculate share insurance coverage. This information is often not found in a FICU's records and must be obtained from members after a FICU's liquidation. Revision of the share insurance coverage rules for trust accounts along the lines proposed would reduce the amount of information that must be provided for trust accounts, as well as the complexity of the NCUA's review. This revision should enable the NCUA to complete share insurance determinations more rapidly if a FICU with a large number of trust accounts is liquidated. Delays in the payment of share insurance can be consequential for accountholders and the proposal would help to mitigate those delays.

Several factors contribute to the challenges of making insurance determinations for trust accounts. First, there are two different sets of rules governing share insurance coverage for trust accounts. Understanding the coverage for a particular account requires a threshold inquiry to determine which set of rules to apply—the revocable trust rules or the irrevocable trust rules. This requires review of the trust agreement to determine the type of trust (revocable or irrevocable), and the inquiry may be complicated by innovations in state trust law that are intended to increase the flexibility and utility of trusts. In some cases, this threshold inquiry is also complicated by the provision of the revocable trust rules that allows for continued coverage under the revocable trust rules where a trust becomes irrevocable upon the grantor's death. The result of an irrevocable trust deposit being insured under the revocable trust rules has proven confusing for both accountholders and FICUs.

Second, even after determining which set of rules applies to a particular account, it may be challenging to apply the rules. For example, the revocable trust rules include unique titling requirements and beneficiary requirements. These rules also provide for two separate calculations to determine insurance coverage, depending in part upon whether there are five or fewer trust beneficiaries or at least six beneficiaries. In addition, for revocable trusts that provide benefits to multiple generations of potential beneficiaries, the NCUA needs to evaluate the trust agreement to determine whether a beneficiary is a primary beneficiary (immediately entitled to funds when a grantor dies), contingent beneficiary, or remainder beneficiary. Only eligible primary beneficiaries and remainder beneficiaries are considered in calculating NCUA share insurance coverage. The irrevocable trust rules may require detailed review of trust agreements to determine whether beneficiaries' interests are contingent and may also require actuarial or present value calculations. These types of requirements complicate the determination of insurance coverage for trust deposits, have proven confusing for accountholders, and extend the time needed to complete a share insurance determination and insurance payment.

Third, the complexity and variety of account holders' trust arrangements adds to the difficulty of determining share insurance coverage. For example, trust interests are sometimes defined through numerous conditions and formulas, and a careful analysis of these provisions may be necessary to calculate share insurance coverage under the current rules. Arrangements involving multiple trusts where the same beneficiaries are named by the same grantor(s) in different trusts add to the difficulty of applying the trust rules. The NCUA believes simplification of the share insurance rules presents an opportunity to more closely align the coverage provided for different types of trust funds. For example, the revocable trust rules generally provide for a greater amount of coverage than the irrevocable trust rules. This outcome occurs because contingent interests for irrevocable trusts are aggregated and insured up to the SMSIA rather than up to the SMSIA per beneficiary, while contingencies are not considered and therefore do not limit coverage in the same manner for revocable trusts.

Finally, as previously noted, adoption of the proposed changes would align with changes the FDIC adopted in January 2022, which are set to take effect on April 1, 2024. The Board believes it is important to maintain parity between the nation's two Federal deposit/share insurance programs. It is imperative that members of the public who use trust accounts for the transfer of ownership of assets better understand the rules governing such accounts and receive the same protection, whether the accounts are maintained at FICUs or other federally insured institutions.

The NCUA is proposing to amend the rules governing share insurance coverage for funds held in trust accounts at FICUs. Generally, the proposed amendments would: (1) merge the revocable and irrevocable trust categories into one category; (2) apply a simpler, common calculation method to determine insurance coverage for funds held by revocable and irrevocable trusts; and (3) eliminate certain requirements found in the current rules for revocable and irrevocable trusts.

As discussed above, the NCUA historically has insured revocable trust funds and irrevocable trust funds held at FICUs under two separate insurance categories. The NCUA's experience has been that this bifurcation often confuses FICUs and their members, as it requires a threshold inquiry to determine which set of rules to apply to a trust account. Moreover, all trust funds deposited at a FICU must be categorized before the aggregation of trust funds deposited within each category can be completed. The NCUA believes funds held in connection with revocable and irrevocable trusts are sufficiently similar, for the purposes of share insurance coverage, to warrant the merger of these two categories into one category. Under the NCUA's current rules, share insurance coverage is provided because the trustee maintains the funds for the benefit of the beneficiaries. This is true regardless of whether the trust is revocable or irrevocable. Merger of the revocable and irrevocable trust categories would better conform share insurance coverage to the substance—rather than the legal form—of the trust arrangement. This underlying principle of the share insurance rules is particularly important in the context of trusts, as state law often provides flexibility to structure arrangements in different ways to accomplish a given purpose. 48

FICU members may have a variety of reasons for selecting a particular legal arrangement, but that decision should not significantly affect share insurance coverage. Importantly, the proposed merger of the revocable trust and irrevocable trust categories into one category for share insurance purposes would not affect the application or operation of state trust law; this would only affect the determination of share insurance coverage for these types of trust funds in the event of a FICU's liquidation.

Accordingly, the NCUA is proposing to amend § 745.4 of its regulations, which currently applies only to revocable trust accounts, to establish a new “trust accounts” category that would include both revocable and irrevocable trust funds deposited at a FICU. The proposed rule defines the funds that would be included in this category as follows: (1) informal revocable trust funds, such as payable-on-death accounts, in-trust-for accounts, and Totten trust accounts; (2) formal revocable trust funds, defined to mean funds held pursuant to a written revocable trust agreement under which funds pass to one or more beneficiaries upon the grantor's death; and (3) irrevocable trust funds, meaning funds held pursuant to an irrevocable trust established by written agreement or by statute.

In addition, the merger of the revocable trust and irrevocable trust categories eliminates the need for §§ 745.4(h) through (i) of the current revocable trust rules, which provide that the revocable trust rules may continue to apply to an account where a formal revocable trust becomes irrevocable due to the death of one or more of the trust's grantors. These provisions were intended to benefit accountholders, who sometimes were unaware that a trust owner's death could trigger a significant decrease in insurance coverage as a revocable trust becomes irrevocable.

However, in the NCUA's experience, this rule has proven complex in part because it results in some irrevocable trusts being insured per the revocable trust rules, while other irrevocable trusts are insured under the irrevocable trust rules. 49 As a result, an accountholder could know a trust was irrevocable but not know which share insurance rules to apply. The proposed rule would insure funds of formal and informal revocable trusts and irrevocable trusts according to a common set of rules, eliminating the need for these provisions (§§ 745.4(h) through (i)) and simplifying coverage for accountholders. Accordingly, the death of a formal revocable trust owner would not result in a decrease in share insurance coverage for the trust. Coverage for irrevocable and formal revocable trusts would fall under the same category and share insurance coverage would remain the same, even after the expiration of the six-month grace period following the death of an account owner. 50

Informal revocable trust accounts would also be insured under this same trust account category but are highly unlikely to result in the creation of an irrevocable trust account upon an owner or co-owner's death. As is the case under the existing share insurance regulations, when a co-owner of an informal revocable trust account dies, share insurance coverage for the deceased owner's interest in the account will cease after the expiration of the 6-month grace period allowed for the death of share account owners. After the expiration of the 6-month grace period, share insurance coverage will be calculated as if the deceased co-owner did not exist and the deceased co-owner's name did not remain on the account. This treatment of the account will be based upon the fact that all funds in the account will be owned by one person ( i.e., the surviving co-owner).

The NCUA is proposing to use one streamlined calculation to determine the amount of share insurance coverage for funds of both revocable and irrevocable trusts. This method is already used by the NCUA to calculate coverage for revocable trusts that have five or fewer beneficiaries, and it is an aspect of the rules that is generally well-understood by FICUs and their members. The proposed rule would provide that a grantor's trust funds are insured in an amount up to the SMSIA (currently $250,000) multiplied by the number of trust beneficiaries, not to exceed five beneficiaries. The NCUA would presume that, for share insurance purposes, the trust provides for equal treatment of beneficiaries such that specific allocation of the funds to the respective beneficiaries will not be relevant, consistent with the NCUA's current treatment of revocable trusts with five or fewer beneficiaries. This would, in effect, limit coverage for a grantor's trust funds at each FICU to a total of $1,250,000; in other words, maximum coverage would be equivalent to $250,000 per beneficiary for up to five beneficiaries. In determining share insurance coverage, the NCUA would continue to consider only beneficiaries who are expected to receive the funds held by the trust in a member account at the FICU; the NCUA would not consider beneficiaries who are expected to receive only non-deposit assets of the trust.

The NCUA is proposing to calculate coverage in this manner, in part, based on its experience with the revocable trust rules after the modifications to these rules in 2008. 51 The NCUA has found that the share insurance calculation method for revocable trusts with five or fewer beneficiaries has been the most straightforward and is easy for FICUs and the public to understand. This calculation provides for insurance in an amount up to the total number of unique grantor-beneficiary trust relationships ( i.e., the number of grantors, multiplied by the total number of beneficiaries, multiplied by the SMSIA). 52 In addition to being simpler, this calculation has proven beneficial in liquidations, as it leads to more prompt share insurance determinations and quicker access to insured funds for accountholders. Accordingly, the NCUA proposes to calculate share insurance coverage for trust accounts based on the simpler calculation currently used for revocable trusts with five or fewer beneficiaries.

The streamlined calculation that would be used to determine coverage for revocable trust funds and irrevocable trust funds includes a limit on the total amount of share insurance coverage for all of an accountholder's funds in the trust category at the same FICU. The proposed rule would provide coverage for trust funds at each FICU up to a total of $1,250,000 per grantor; in other words, each grantor's insurance limit would be $250,000 per beneficiary up to a maximum of five beneficiaries. The level of five beneficiaries is an important threshold in the current revocable trust rules, as it defines whether a grantor's coverage is determined using the simpler calculation of the number of beneficiaries multiplied by the SMSIA or the more complex calculation involving the consideration of the amount of each beneficiary's specific interest (which applies when there are six or more beneficiaries). The trust rules currently limit coverage by tying coverage to the specific interests of each beneficiary of an irrevocable trust or of each beneficiary of a revocable trust with more than five beneficiaries. The proposed rule's $1,250,000 per-grantor, per-FICU limit is more straightforward and balances the objectives of simplifying the trust rules, promoting timely payment of share insurance, facilitating liquidations, ensuring consistency with the FCU Act, and limiting risk to the Share Insurance Fund. The proposed rule would also provide parity between the NCUA's regulations and those adopted by the FDIC in early 2022. 53

The NCUA anticipates that limiting coverage to $1,250,000 per grantor, per FICU, for trust funds would not have a substantial effect on accountholders, as most trust accounts in past FICU liquidations have had balances well below this level. The NCUA lacks sufficient information, however, to project the exact effects of the proposed limit on current accountholders and requests that commenters provide information that might be helpful in this regard.

Under the proposed rule, to determine the level of insurance coverage that would apply to funds held in trust accounts, accountholders would still need to identify the grantors and the eligible beneficiaries of the trust. The level of coverage that applies to trust accounts would no longer be affected by the specific allocation of trust funds to each of the beneficiaries of the trust or by contingencies outlined in the trust agreement. Instead, the proposed rule would provide that a grantor's trust funds are insured up to a total of $1,250,000 per grantor, or an amount up to the SMSIA multiplied by the number of eligible beneficiaries, with a limit of no more than five beneficiaries.

The proposed rule also provides for the aggregation of funds held in revocable and irrevocable trust accounts for the purposes of applying the share insurance limit. Under the current rules, funds held in informal revocable trust accounts and formal revocable trust accounts are aggregated for this purpose. 54 The proposed rule would aggregate a grantor's informal and formal revocable trust accounts, as well as irrevocable trust accounts. For example, all informal revocable trusts, formal revocable trusts, and irrevocable trusts held for the same grantor at the same FICU would be aggregated, and the grantor's insurance limit would be determined by how many eligible and unique beneficiaries were identified among all of their trust accounts. 55 The share insurance coverage provided in the “trust accounts” category would remain separate from the coverage provided for other funds held in a different right and capacity at the same FICU. However, some accountholders who currently maintain both revocable trust and irrevocable trust deposits at the same FICU may have funds in excess of the insurance limit if these separate categories are combined. The NCUA lacks data on accountholders' trust arrangements that would allow it to estimate the number of accountholders who might be affected in this manner. The agency does not believe this would impact a substantial number of accountholders but requests that commenters provide information that might be helpful in this regard.

Currently, the revocable trust rules provide that eligible beneficiaries include natural persons, charitable organizations, and non-profit entities recognized as such under the Internal Revenue Code of 1986, 56 while the irrevocable trust rules do not establish criteria for beneficiaries. The NCUA believes that a single definition should be used to determine whether an entity is an eligible beneficiary for all trust funds and proposes to use the current revocable trust rule's definition. The NCUA believes that this single definition will result in a change in share insurance coverage only in very rare cases.

The proposed rule also would exclude from the calculation of share insurance coverage beneficiaries who only would obtain an interest in a trust if one or more named beneficiaries are deceased (often referred to as contingent beneficiaries). In this respect, the proposed rule would codify existing practice to include only primary, unique beneficiaries in the share insurance calculation. 57 This would not represent a substantive change in coverage. Consistent with treatment under the current trust rules, naming a chain of contingent beneficiaries that would obtain trust interests only in the event of a beneficiary's death would not increase share insurance coverage.

Finally, the proposed rule would codify an interpretation of the trust rules where an informal revocable trust designates the depositor's formal trust as its beneficiary. A formal trust generally does not meet the definition of an eligible beneficiary for share insurance purposes, but the NCUA has treated such accounts as revocable trust accounts under the trust rules, insuring the account as if it were titled in the name of the formal trust. 58

The current trust rules provide that, in some instances, funds corresponding to specific beneficiaries are aggregated with a grantor's single ownership deposits at the same FICU for the purposes of the share insurance calculation. These instances include a grantor's retained interest in an irrevocable trust  59 and interests of beneficiaries who do not satisfy the definition of “beneficiary.”  60 This adds complexity to the share insurance calculation, as a detailed review of a trust agreement may be required to value such interests so they may be aggregated with a grantor's other funds. To implement the streamlined calculation for funds held in trust accounts, the NCUA is proposing to eliminate these provisions. Under the proposed rule, the grantor and other beneficiaries who do not satisfy the definition of “eligible beneficiary” would not be included for the purposes of the share insurance calculation. 61 Importantly, this would not in any way limit a grantor's ability to establish such trust interests under state law. These interests simply would not factor into the calculation of share insurance coverage.

Trusts often contain provisions for the establishment of one or more new trusts upon the grantor's death, and the proposed rule also would clarify share insurance coverage in these situations. Specifically, if a trust agreement provides that trust funds will pass into one or more new trusts upon the death of the grantor (or grantors), the future trust (or trusts) would not be treated as beneficiaries for the purposes of the calculation. The future trust(s) instead would be considered mechanisms for distributing trust funds, and the natural persons or organizations that receive the trust funds through the future trusts would be considered the beneficiaries for the purposes of the share insurance calculation. This clarification is consistent with the NCUA's current interpretations and would not represent a substantive change in share insurance coverage.

Consistent with the current revocable trust rules, the proposed rule would continue to require the beneficiaries of an informal revocable trust to be specifically named in the account records of the FICU. 62 The NCUA does not believe this requirement imposes a burden on FICUs, as informal revocable trusts by their nature require the FICU to be able to identify the individuals or entities to which funds would be paid upon the accountholder's death.

The proposed rule also would state that, unless otherwise specified in a FICU's account records, funds held in an account for a trust established by multiple grantors are presumed to be owned in equal shares. This presumption is consistent with the current revocable trust rules. 63

The proposed rule would exclude from coverage under § 745.4 certain trust funds that are covered by other sections of the share insurance regulations. For example, employee benefit plan accounts are insured pursuant to current § 745.9-2. In addition, if the co-owners of an informal or formal revocable trust are the trust's sole beneficiaries, funds held in connection with the trust would be treated as a joint ownership account under § 745.8. In each of these cases, the NCUA is not proposing to change the current rule.

Finally, the NCUA is proposing to remove the appendix to part 745, which provides examples of share insurance coverage. The NCUA plans to update its Your Insured Funds brochure to reflect any amendments made to part 745. 64 The Board believes an updated brochure and other updated resources available on mycreditunion.gov will provide a more consumer friendly and easier-to-update avenue for providing examples of share insurance coverage.

The NCUA is also proposing to remove references to the appendix in the heading of part 745 and § 745.0, § 745.2, and § 745.13. This would mean that provision of the appendix would no longer satisfy the notification to members/shareholders requirement in § 745.13. Instead, FICUs would have to make available either the rules in part 745 of the NCUA's regulations or the Your Insured Funds brochure.

The proposed simplification of the calculation for insurance coverage for funds held in trust accounts also would permit the elimination of current § 745.2(d) of the regulations addressing the valuation of trust interests. As discussed further below, the description of non-contingent interests in §§ 745.2(d)(1) and (2) would no longer be relevant to trust accounts under the proposed rule. Additionally, § 745.2(d)(3) regarding the deemed pro rata contribution of settlors to a trust would be replaced by proposed § 745.4(b)(4), which would presume equal allocation. Section 745.2(d)(4) defining a “trust interest” would be replaced by the proposed definition of “irrevocable trust” in § 745.4(a)(3).

Regarding non-contingent interests, the NCUA is also proposing to move the current description of a non-contingent interest in § 745.2(d)(1) to the definitions section of part 745. The new definition of “non-contingent interest” in § 745.1 would remain substantively the same but would now only be relevant to evaluating participants' non-contingent interests in shares of an employee benefit plan under § 745.9-2(a). The proposed definition of “non-contingent interest” would add language to include any present worth or life expectancy tables that the IRS may adopt that are similar to those set forth in § 20.2031-7 of the Federal Estate Tax Regulations (26 CFR 20.2031-7). This is not intended to be a substantive change but is instead intended to provide flexibility should the IRS make any changes. As part of this change, the NCUA is also proposing to make non-substantive changes to § 745.1 to improve readability. Additionally, the NCUA proposes to remove the reference to § 745.2 in current § 745.9-2.

Finally, the NCUA is proposing to redesignate current § 745.9-2 as § 745.9 to reflect the elimination of current § 745.9-1 governing irrevocable trust accounts. The reference in § 745.9-2(a) to § 745.2 would also be removed to reflect the elimination of the description of a non-contingent interest in current § 745.2(d) and adoption of a definition of “non-contingent interest” in proposed § 745.1.

To assist commenters, the NCUA is providing examples demonstrating how the proposed rule would apply to determine share insurance coverage for funds held in trust accounts. These examples are not intended to be all-inclusive; they merely address a few possible scenarios involving funds held in trust accounts. The NCUA expects that for most accountholders, insurance coverage would not change under the proposed rule. The examples here specifically highlight a few instances where coverage could be reduced to ensure that commenters are aware of them.

In addition, all examples involve members or those otherwise entitled to maintain insured accounts at the FICU. It is worth reiterating that share insurance coverage is only available to FICU members and those otherwise entitled to maintain insured accounts. For revocable trust accounts, all grantors must be members of the FICU or otherwise eligible to maintain an insured account to receive share insurance coverage. In the case of an irrevocable trust account, all grantors or all beneficiaries must be members of the FICU or otherwise eligible to maintain an insured account to receive share insurance coverage. Where a revocable trust account has become irrevocable because of the death of a grantor, the deceased grantor's membership will continue to satisfy their membership requirement as long as the trust account continues to be maintained at the FICU.

Member A establishes a payable-on-death account at a FICU. Member A has designated three beneficiaries for this account—B, C, and D—who will receive the funds upon member A's death and listed all three on a form provided to the FICU. The only other share account that member A maintains at the same FICU is a share draft account with no designated beneficiaries. What is the maximum amount of share insurance coverage for member A's shares at the FICU?

Under the proposed rule, member A's payable-on-death account represents an informal revocable trust and would be insured in the trust accounts category. The maximum coverage for this account would be equal to the SMSIA (currently $250,000) multiplied by the number of grantors (in this case one because member A established the account) multiplied by the number of beneficiaries, up to a maximum of five (here three, the number of beneficiaries is less than five). Member A's payable-on-death account would be insured for up to ($250,000) times (1) times (3) = $750,000.

The coverage for member A's payable-on-death account is separate from the coverage provided for member A's share draft account, which would be insured in the single ownership category because she has not named any beneficiaries for that account. The single ownership share draft account would be insured up to the SMSIA, $250,000. Member A's total insurance coverage for shares at the FICU would be $750,000 + $250,000 = $1,000,000. Notably, this level of coverage is the same as that provided by the current share insurance rules.

Members E and F jointly establish a payable-on-death account at a FICU. Members E and F have designated three beneficiaries for this account—G, H, and I—who will receive the funds after both members E and F are deceased. They list these beneficiaries on a form provided to the FICU. Members E and F also jointly establish an account titled in the name of the “E and F Living Trust” at the same FICU. Members E and F are the grantors of the living trust, a formal revocable trust that includes the same three beneficiaries, G, H, and I. The grantors, members E and F, do not maintain any other share accounts at this same FICU. What is the maximum amount of share insurance coverage for members E and F's shares?

Under the proposed rule, members E and F's payable-on-death account represents an informal revocable trust and would be insured in the trust accounts category. Members E and F's living trust account constitutes a formal revocable trust and would also be insured in the trust accounts category. To the extent the funds in these accounts would pass from the same grantor (E or F) to beneficiaries (G, H, and I), the funds would be aggregated for the purpose of applying the share insurance limit. As under the current rules, it would be irrelevant that the grantors' shares are divided between the payable-on-death account and the living trust account.

The maximum coverage for members E and F's shares would be equal to the SMSIA ($250,000) multiplied by the number of grantors (two, because members E and F are the grantors with respect to both accounts) multiplied by the number of unique beneficiaries, up to a maximum of five (here three, the number of beneficiaries, is less than five). Therefore, the coverage for E and F's trust accounts would be: ($250,000) times (2) times (3) = $1,500,000. This level of coverage is the same as that provided by the current share insurance rules.

Members J and K jointly establish a payable-on-death account at a FICU. Members J and K have designated three beneficiaries for this account—L, M, and N—who will receive the funds after both J and K are deceased. They list these beneficiaries on a form provided to the FICU. At the same FICU, member J establishes a payable-on-death account and designates member K as the beneficiary upon J's death. What is the maximum amount of coverage for members J and K's shares?

Under the proposed rule, both accounts would be insured under the trust account category. To the extent these shares would pass from the same grantor (J or K) to beneficiaries (such as L, M, and N), they would be aggregated for the purpose of applying the share insurance limit. For example, member K identified three beneficiaries (L, M, and N), and therefore, member K's insurance limit is $750,000 (or 1 times 3 times SMSIA). Member K would be fully insured as long as one-half interest of the co-owned trust account was $750,000 or less, which is the same level of coverage provided under current rules. In this example, member J's situation differs from member K's because J has a second trust account, but the insurance calculation remains the same. Specifically, member J has two trust accounts and identified four unique beneficiaries (L, M, N, and K); therefore, member J's insurance limit is $1,000,000 (or 1 times 4 times SMSIA). Member J would remain fully insured as long as J's trust shares—equal to one-half of the co-owned trust account plus J's personal trust account—total no more than $1,000,000. This methodology and level of coverage is the same as that provided by the current share insurance rules.

Member O establishes a share account at a FICU titled the “O Living Trust.” Member O is the grantor of this living trust, a formal revocable trust that includes three beneficiaries—P, Q, and R. The grantor, member O, also establishes an irrevocable trust for the benefit of the same three beneficiaries. The trustee of the irrevocable trust maintains a share account at the same FICU as the living trust account, titled in the name of the irrevocable trust. Neither member O nor the trustee maintains other share accounts at the same FICU. What is the insurance coverage for these accounts?

Under the proposed rule, the living trust account is a formal revocable trust and would be insured in the trust accounts category. The account containing the funds from the irrevocable trust account would also be insured in the trust accounts category. To the extent these shares would pass from the same grantor (member O) to beneficiaries (P, Q, or R), they would be aggregated for the purposes of applying the share insurance limit. It would be irrelevant that the shares are divided between the living trust account and the irrevocable trust account. The maximum coverage for these shares would be equal to the SMSIA ($250,000) multiplied by the number of grantors (one, because member O is the grantor with respect to both accounts) multiplied by the number of beneficiaries, up to a maximum of five (here three, the number of beneficiaries, is less than five). Therefore, the maximum coverage for the shares in the trust accounts would be: ($250,000) times (1) times (3) = $750,000.

This is one of the isolated instances where the proposed rule may provide a reduced amount of coverage as a result of the aggregation of revocable and irrevocable trust accounts, depending on the structure of the trust agreement. Under the current rules, member O would be insured for up to $750,000 for revocable trust shares and separately insured for up to $750,000 for irrevocable trust shares (assuming non-contingent beneficial interests), resulting in $1,500,000 in total coverage. If that were the case, current coverage would exceed that provided by the proposed rule. However, the terms of irrevocable trusts sometimes lead to less coverage than expected. It is often the case that irrevocable trust accounts are only insured up to $250,000 under the current rules due to contingencies in the trust agreement, but determining this with certainty often requires careful consideration of the trust agreement's contingency provisions. Under the current rule, if contingencies existed, current coverage would exceed that provided by the proposed rule, as member O would be insured up to $1,000,000; $750,000 for the revocable trust and $250,000 for the irrevocable trust. In the NCUA's view, one of the key benefits of the proposed rule versus the current rule would be greater clarity and predictability in share insurance coverage because whether contingencies exist would no longer be a factor that could affect share insurance.

Member S establishes a share account at a FICU titled in the name of the “S Living Trust.” This trust is a revocable trust naming seven beneficiaries—T, U, V, W, X, Y, and Z. The grantor, member S, does not maintain any other shares at the same FICU. What is the coverage for this account?

Under the proposed rule, the living trust is a formal revocable trust and would be insured in the trust accounts category. The maximum coverage for this account would be equal to the SMSIA ($250,000) multiplied by the number of grantors (one, because member S is the sole grantor) multiplied by the number of beneficiaries, up to a maximum of five. Here the number of named beneficiaries (seven) exceeds the maximum (five), so insurance is calculated using the maximum (five). Coverage for the account would be: ($250,000) times (1) times (5) = $1,250,000.

This is another limited instance where the proposed rule may provide for less coverage than the current rule. Under the current rule, because more than five beneficiaries are named, the account is insured up to the greater of the following: (1) five times the SMSIA; or (2) the total of the interests of each beneficiary, with each such interest limited to the SMSIA. Determining coverage requires review of the trust agreement to ascertain each beneficiary's interest. Each such insurable interest is limited to the SMSIA, and the total of all these interests is compared with $1,250,000 (five times the SMSIA). The current rule provides coverage in the greater of these two amounts. The result would fall into a range from $1,250,000 to $1,750,000, depending on the precise allocation of trust interests among the beneficiaries. 65 In the NCUA's view, one of the key benefits of the proposed rule versus the current rule would be greater clarity and predictability in share insurance coverage because a single formula would be used to determine maximum coverage, and this formula would not depend upon the specific allocation of funds among beneficiaries.

The NCUA is requesting comment on all aspects of the proposed rule. Comment is specifically invited with respect to the following questions:

• Would the proposed amendments to the share insurance rules make insurance coverage for trust accounts easier to understand for FICUs and the public?

• The NCUA believes that accountholders generally would have the information necessary to readily calculate share insurance coverage for their trust accounts under the proposed rule, allowing them to better understand insurance coverage for their trust accounts. Are there instances where an accountholder would not likely have the necessary information?

• Are there any other types of trusts not described in this proposal whose funds maintained in FICU accounts would be affected by the proposed rule if adopted? What types of trusts are those, and how would they be impacted?

• While the NCUA has substantial experience regarding trust arrangements, the NCUA does not possess sufficiently detailed information on accountholders' existing trust arrangements to allow the NCUA to project the proposed rule's effects on current accountholders. Are there any other sources of empirical information the NCUA should consider that may be helpful in understanding the effects of the proposed rule? The NCUA also encourages commenters to provide such information, if possible.

• Grandfathering of the share insurance rules would result in significantly greater complexity for the period during which two sets of rules could apply to accounts—especially in conducting liquidations. Therefore, the NCUA is not inclined to consider allowing grandfathering but prefers to rely on a delayed implementation date to allow stakeholders to make necessary adjustments because of the new rules. However, the NCUA recognizes there are instances, such as trusts holding share certificates or other account relationships, which may not be easily restructured without adverse consequences to the accountholder. Are there fact patterns where grandfathering the current rules may be appropriate? Would grandfathering be appropriate with respect to the proposed rule's coverage limit of $1,250,000 per FICU for an accountholder's funds held in trust accounts?

• Are the examples provided clear and understandable? Are there other common trust scenarios that would benefit from an example being provided?

• Historically, the NCUA has maintained the position that the membership requirement for a revocable trust account is satisfied when all grantors (sometimes described as settlors) of the trust are members of the FICU or otherwise eligible to maintain an insured account. For an irrevocable trust account, the NCUA has said that the membership requirement is satisfied if either all the grantors/settlors or all the beneficiaries of the trust are members of the FICU or otherwise eligible to maintain an insured account. Are there alternatives the NCUA should consider for fulfilling the membership requirement for share insurance coverage of revocable and irrevocable trust accounts? Should informal revocable trust accounts that are established with a right of survivorship be treated akin to joint accounts with member and nonmember co-owners who own the account with a right of survivorship?  66 Should a trustee who deposits funds at a FICU pursuant to a revocable or irrevocable trust they administer be considered to be maintaining a member account, providing share insurance coverage to eligible beneficiaries?

• Are there any other amendments to the share insurance rules applicable to trusts that the NCUA should consider?

The NCUA's regulations governing share insurance coverage include specific rules on accounts maintained at FICUs by mortgage servicers. 67 These rules are intended to be easy to understand and apply in determining the amount of share insurance coverage for a mortgage servicer's account. The NCUA generally strives to maintain parity with FDIC's regulations in furtherance of this aim.

The NCUA is proposing an amendment to its rules governing insurance coverage for accounts maintained at FICUs by mortgage servicers that consist of mortgagors' principal and interest payments. The proposed rule would mirror a change made by the FDIC in early 2022, 68 scheduled to become effective in April 2024, intended to address a servicing arrangement that is not addressed in the current rules. Specifically, some servicing arrangements may permit or require servicers to advance their own funds to the lenders when mortgagors are delinquent in making principal and interest payments, and servicers might commingle such advances in the mortgage servicing account (MSA) with principal and interest payments collected directly from mortgagors. The FDIC reasoned that the factors that motivated the FDIC to establish its current rules for mortgage servicing accounts, which the NCUA also adopted and are further described below, weigh in favor of treating funds advanced by a mortgage servicer in order to satisfy mortgagors' principal and interest obligations to the lender as if such funds were collected directly from borrowers. The FDIC also noted that it seeks to avoid uncertainty concerning the extent of deposit insurance coverage for such accounts. The NCUA concurs with the importance of avoiding uncertainty regarding the extent of insurance coverage and believes that an important aspect of avoiding uncertainty is maintaining parity between the share insurance and deposit insurance regimes.

The NCUA's rules governing coverage for MSAs were last amended in 2008 and corresponded to changes made by the FDIC. More specifically, in 2008 the FDIC recognized that securitization methods and vehicles for mortgages had become more complex, exacerbating the difficulty of determining the ownership of deposits consisting of principal and interest payments by mortgagors and extending the time required to make a deposit insurance determination for deposits of a mortgage servicer in the event of an insured depository institution's (IDI's) failure. 69 The FDIC expressed concern that a lengthy insurance determination could lead to continuous withdrawal of deposits of principal and interest payments from IDIs and unnecessarily reduce a funding source for such institutions. The FDIC therefore amended its rules to provide coverage to lenders based on each mortgagor's payments of principal and interest into the MSA, up to the standard maximum deposit insurance amount (SMDIA) (currently $250,000) per mortgagor. The FDIC did not amend the rule for coverage of tax and insurance payments, which continued to be insured to each mortgagor on a pass-through basis and aggregated with any other deposits maintained by each mortgagor at the same IDI in the same right and capacity. The NCUA agreed that this treatment of principal and interest payments provided greater and fairer coverage for credit union members and decided to take the same approach in its share insurance rules. 70

Importantly, the 2008 amendments to the rules for MSAs did not provide for the fact that servicers may be required to advance their own funds to make payments of principal and interest on behalf of delinquent borrowers to the lenders. However, in its recent rulemaking the FDIC identified that this is required of mortgage servicers in some instances. For example, the FDIC noted that some IDIs identified challenges to implementing certain recordkeeping requirements with respect to MSA deposit balances because of the way in which servicer advances are administered and accounted. 71

The NCUA's and the FDIC's rules currently in effect provide coverage for principal and interest funds only to the extent “paid into the account by the mortgagors”; they do not provide coverage for funds paid into the account from other sources, such as the servicer's own operating funds, even if those funds satisfy mortgagors' principal and interest payments. As a result, advances are not provided the same level of coverage as other deposits in an MSA consisting of principal and interest payments directly from the borrower, which are insured up to the SMSIA/SMDIA for each borrower. Instead, the advances are aggregated and insured to the servicer as corporate funds for a total of $250,000. In adopting changes to its rule in early 2022, the FDIC expressed concern that this inconsistent treatment of principal and interest amounts could result in financial instability during times of stress, and could further complicate the insurance determination process, a result that is inconsistent with their policy objective. The NCUA shares these concerns and believes it is important that parity is maintained between the insurance regimes.

The NCUA is proposing to amend the rules governing coverage for funds in MSAs to provide parity with the FDIC's regulation and provide consistent share insurance treatment for all MSA balances held to satisfy principal and interest obligations to a lender, regardless of whether those funds are paid into the account by borrowers, or paid into the account by another party (such as the servicer) to satisfy a periodic obligation to remit principal and interest due to the lender. Under the proposed rule, accounts maintained by a mortgage servicer in an agency, custodial, or fiduciary capacity, which consist of payments of principal and interest, would be insured for the cumulative balance paid into the account to satisfy principal and interest obligations to the lender, whether paid directly by the borrower or by another party, up to the limit of the SMSIA per mortgagor. Mortgage servicers' advances of principal and interest funds on behalf of delinquent borrowers would therefore be insured up to the SMSIA per mortgagor, consistent with the coverage rules for payments of principal and interest collected directly from borrowers.

The composition of an MSA attributable to principal and interest payments would also include collections by a servicer, such as foreclosure proceeds, that are used to satisfy a borrower's principal and interest obligation to the lender. In some cases, foreclosure proceeds may not be paid directly by a mortgagor. The current rule does not address whether foreclosure collections represent payments of principal and interest by a mortgagor. Under the proposed rule, foreclosure proceeds used to satisfy a borrower's principal and interest obligation would be insured up to the limit of the SMSIA per mortgagor.

The proposed rule would make no change to the share insurance coverage provided for MSAs comprised of payments from mortgagors of taxes and insurance premiums. Such aggregate escrow accounts are held separately from the principal and interest MSAs, and the funds therein are held for the mortgagors until such time as tax and insurance payments are disbursed by the servicer on the borrower's behalf. Under the proposed rule, such funds would continue to be insured based on the ownership interest of each mortgagor in the account and aggregated with other funds maintained by the mortgagor at the same FICU in the same capacity and right.

The NCUA is requesting comment on all aspects of the proposed rule. Comment is specifically invited with respect to the following questions:

• Would the proposed amendments to the rules governing coverage for MSAs adequately address servicers' practices with respect to these accounts, as described above? Are there any other funds representing principal and interest that are commingled with borrowers' payments that the NCUA should consider in the share insurance calculation, consistent with its policy objectives?

• Would share insurance coverage of servicer principal and interest advances help to promote financial stability in the financial system? If the NCUA does not amend the rule as proposed, how would mortgage servicers react if their FICU, or the credit union industry as a whole, appears stressed? How would funding arrangements or deposit relationships change?

• Are there any alternatives to the proposed rule that would better achieve the NCUA's policy objectives in connection with this rulemaking? Are there any other amendments to the share insurance rules applicable to MSAs that the NCUA should consider?

• If the NCUA opts to issue a final rule adopting the proposed change is there any reason to delay its effective date, as is being contemplated for the proposed changes to trust accounts? Or should the NCUA make the change effective as soon as possible?

The NCUA's regulations governing share insurance coverage include general principles applicable in determining insurance of accounts. 72 Among these general principles are provisions addressing recordkeeping. 73 The NCUA intends for these provisions to clearly articulate the records the agency will look to in order to evaluate insurance coverage. As discussed in more detail below, over time it has become apparent that the recordkeeping provisions do not clearly address all situations and may be especially unclear as to accounts maintained by an agent, custodian, fiduciary, or other party on behalf of a member or beneficial owner eligible to maintain an insured account at a FICU. To better address these situations, the NCUA proposes to amend the recordkeeping requirements as discussed below.

Section 745.2(c) of the NCUA's regulations addresses general recordkeeping requirements. Other recordkeeping requirements applicable to specific account types are addressed as needed in the relevant sections of part 745. Current § 745.2(c)(1) provides that, as a general matter, the account records of the FICU shall be conclusive as to the existence of any relationship pursuant to which the funds in the account are deposited and on which a claim for insurance coverage is founded. Examples would be trustee, agent, custodian, or executor. No claim for insurance based on such a relationship will be recognized in the absence of such disclosure.

Section 745.2(c)(2) provides that, if the account records of a FICU disclose the existence of a relationship which may provide a basis for additional insurance, as required under § 745.2(c)(1), the details of the relationship and the interest of other parties in the account must be ascertainable either from the records of the FICU or the records of the member maintained in good faith and in the regular course of business. It is this provision that has raised questions regarding accounts maintained by an agent, fiduciary, or similar party. Specifically, the NCUA has received several questions regarding whether records maintained by an agent, fiduciary, or similar third party on behalf of the member or beneficial owner eligible to maintain an insured account would qualify as the “records of the member.” Due to the frequency with which these agent or fiduciary arrangements will involve a party other than the FICU or member maintaining records on the FICU's or member's behalf, the NCUA is proposing to add language explicitly clarifying that such records, when maintained in good faith and in the regular course of business, can be looked to when evaluating the details of the relationship and the interest of other parties in the account at the FICU.

Section 745.3(a)(2) of the NCUA's regulations provides that when an account is held by an agent or nominee, funds owned by a principal and deposited in one or more accounts in the name or names of agents or nominees shall be added to any individual account of the principal and insured up to the SMSIA in the aggregate. The NCUA will also generally look to the principal or beneficial owner for satisfying the membership requirement or other eligibility to maintain an insured account at the FICU. As such, records maintained by an agent or nominee on behalf of the member principal or beneficial owner may not clearly be considered “records of the member” for the purpose of ascertaining their interests in the account under current § 745.2(c)(2).

The NCUA's Office of General Counsel has previously issued a legal opinion stating that where an agent or custodian “has an agreement with the beneficial owner/member to maintain custody of the beneficial owner/member's records, [the] NCUA would consider those records to be `records of the member' within the meaning of 12 CFR 745(c)(2).”  74 However, the NCUA acknowledges that it would be beneficial for the regulation to more clearly address this situation to allow the details of the relationship and the interests of other parties in the account to be ascertainable either from the account records of the FICU or from records maintained, in good faith and in the regular course of business, by the member or by some person or entity that has undertaken to maintain such records for the member. Such a change would provide much greater clarity, particularly in the event of multi-tiered fiduciary relationships, and would more closely compare to language previously adopted by the FDIC. 75 Importantly, the NCUA retains discretion to determine when records are maintained on behalf of a member, in good faith and in the regular course of business. Ultimately, the NCUA must be able to establish ownership interests in the account by following the chain of records maintained by parties at each level of the relationship from the account records maintained at the FICU.

Additionally, § 745.2(c)(3) of the current regulations provides that the account records of a FICU in connection with a trust account shall disclose the name of both the settlor (grantor) and the trustee of the trust and shall contain an account signature card executed by the trustee. This requirement goes beyond the recordkeeping requirements of § 745.2(c)(1) through (2) and poses an unnecessary burden on FICUs and their members. Further, the FDIC previously eliminated a similar requirement. 76 To eliminate unnecessary recordkeeping complexity and provide parity with FDIC, the NCUA is proposing to eliminate current § 745.2(c)(3).

Section 745.2(c)(4) states that the interests of the co-owners of a joint account shall be deemed equal, unless otherwise stated on the insured credit union's records in the case of a tenancy in common. The NCUA is not proposing any substantive amendments to this provision but is proposing to move it to § 745.2(c)(3) given the proposed elimination of the current requirement in that section.

Finally, § 745.14(a)(2) notes that interest on lawyers' trust accounts (IOLTAs) and other similar escrow accounts are subject to the recordkeeping requirements of § 745.2(c)(1) and (2). In doing so, § 745.14(a)(2) provides an example of how the details of the relationship between the attorney or escrow agent and their clients and principals must be ascertainable from the records of the FICU or from records maintained, in good faith and in the regular course of business, by the member attorney or member escrow agent administering the account. The NCUA proposes to amend this description to conform to the change to § 745.2(c)(2) to explicitly state that the records detailing the relationship and the interest of other parties in the account must be maintained, in good faith and in the regular course of business, by (1) the FICU or (2) the member attorney or member escrow agent, or a person or entity acting on their behalf.

The NCUA is requesting comment on all aspects of the proposed rule. Comment is specifically invited with respect to the following questions:

• Would the proposed amendments to the recordkeeping requirements in part 745 provide adequate clarity for FICUs, members, and other relevant third parties as to the records the NCUA will look to in evaluating the details of account relationships and the interests of other parties in accounts maintained at FICUs?

• Are there any alternatives to the proposed rule that would better achieve the NCUA's policy objectives in connection with this rulemaking?

• Are there any other amendments to the recordkeeping requirements applicable to the share insurance rules that the NCUA should consider? For example, should the NCUA consider adopting a definition of “account records” similar to the definition the FDIC has provided for “deposit account records” in its regulations governing deposit insurance coverage?  77 Or, similarly, should the NCUA adopt specific provisions addressing multi-tiered fiduciary relationships like the FDIC has done?  78

• Relatedly, the FDIC has adopted regulations to facilitate prompt payment of FDIC-insured deposits when large IDIs fail. 79 The FDIC's recordkeeping for timely deposit insurance determination regulations require each IDI that has two million or more deposit accounts to (1) configure its information technology system to be capable of calculating the insured and uninsured amount in each deposit account by ownership right and capacity, which would be used by the FDIC to make deposit insurance determinations in the event of the institution's failure, and (2) maintain complete and accurate information needed by the FDIC to determine deposit insurance coverage with respect to each deposit account, except as otherwise provided. These requirements are intended to facilitate the FDIC's prompt payment of deposit insurance after the failure of covered IDIs. By law, the FDIC must pay deposit insurance “as soon as possible” after an IDI fails while also resolving the IDI in the manner least costly to the Deposit Insurance Fund. 80 Similarly, the FCU Act requires the NCUA to pay accountholders “as soon as possible” after a FICU liquidation. 81 Should the NCUA consider adopting similar requirements for FICUs? If so, would a lower threshold, such as 500,000 or 1 million member accounts, be more appropriate?

• If the NCUA opts to issue a final rule adopting the proposed change, is there any reason to delay its effective date, as contemplated for the proposed changes to trust accounts? Or should the NCUA make the change effective as soon as permitted by law?

The Regulatory Flexibility Act (RFA) generally requires that, in connection with a notice of proposed rulemaking, an agency prepare and make available for public comment an initial regulatory flexibility analysis that describes the impact of a proposed rule on small entities. A regulatory flexibility analysis is not required, however, if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities (defined for the purposes of the RFA to include credit unions with assets less than $100 million)  82 and publishes its certification and a short, explanatory statement in the Federal Register together with the rule.

The NCUA fully considered the potential economic impact of the proposed changes during the development of the proposed rule. As noted in the preamble, the proposed rule would simplify the NCUA's current share insurance regulations covering various types of trust accounts. It would also provide more flexibility on the coverage of MSAs. Finally, it would explicitly provide for additional flexibility in what records the NCUA can look to when determining the details of account relationships and various parties' interests in the accounts.

In short, the NCUA believes the principal impact of the proposed rule will be to streamline its administrative procedures for insurance payouts on trust accounts when FICUs fail. While the proposed rule would require FICUs and their members to be familiar with the new trust rules and the coverage limits imposed on trust accounts, the NCUA believes this will not impose any new significant burden on FICUs, may ease some existing requirements, and should reduce the complexity of questions FICUs receive from their members on share insurance coverage. Additionally, FICUs and their members are familiar with the proposed formula as it is already applied to revocable trust accounts with five or fewer beneficiaries. The formula is also simpler to understand and implement than the previous rules governing revocable trust accounts with six or more beneficiaries and irrevocable trusts. The proposed changes to the rule governing coverage of MSAs and the changes to the recordkeeping requirements should only provide greater flexibility for coverage of these accounts and should not cause any new burden on FICUs or their members. Accordingly, the NCUA certifies that it would not have a significant economic impact on a substantial number of small FICUs.

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. 83 For the purposes of the PRA, a paperwork burden may take the form of a reporting, disclosure, or recordkeeping requirement, each 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 currently valid Office of Management and Budget (OMB) control number.

The proposed rule does not contain information collection requirements that require approval by OMB under the PRA. The proposed rule will not create new or modify any existing paperwork burdens. Rather, the proposed rule will simplify the share insurance regulations by merging the revocable and irrevocable trust account categories into one trust account category and applying a simpler, common calculation method to determine insurance coverage for funds held in revocable and irrevocable trust accounts. The proposed rule will also provide consistent share insurance treatment for all MSA balances held to satisfy principal and interest obligations to a lender, regardless of whether those funds are paid into the account by borrowers or paid into the account by another party (such as the servicer) to satisfy a periodic obligation to remit principal and interest due to the lender. Finally, the proposed rule will also explicitly allow the NCUA, when making share insurance determinations, to look to records held in the normal course of business that are maintained by parties other than a FICU and its members on their behalf. As such, no PRA submissions to OMB will be made with respect to this proposed rule. The NCUA invites comments on its PRA determination.

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 principles of the executive order to adhere to fundamental federalism principles. This proposed rule would only impact the NCUA's regulations related to share insurance coverage; it would not affect state law related to trust accounts. The proposed rule would also not alter the NCUA's relationship or division of responsibilities with state regulatory agencies or bodies because the proposed rule would affect the NCUA's Federal share insurance determinations exclusively. This proposal would 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. The NCUA has determined that this proposal does not constitute a policy that has federalism implications for the purposes of the executive order.

The NCUA has determined that this proposed 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). Under this statute, if the agency determines the proposed regulation may negatively affect family well-being, then the agency must provide an adequate rationale for its implementation.

The NCUA has determined that the implementation of this proposed rule would not negatively affect family well-being, but rather would strengthen it. The NCUA believes that any effect would be limited because the change may not affect many accounts, and members or others maintaining those accounts would have time and notice to modify the accounts before the NCUA adopts and implements any final rule on this subject. Overall, the NCUA believes that the proposed rule would not negatively affect family well-being despite this possible effect but welcomes public comment on this issue. If the NCUA ultimately finds that the rule would have a negative effect as the statute describes, it believes the benefits that the preamble describes in simplifying coverage and potentially reducing costs for the NCUA and for FICUs would support implementing the rule.

The Providing Accountability Through Transparency Act of 2023 (5 U.S.C. 553(b)(4)) (Act) requires that a notice of proposed rulemaking include the internet address of a summary of not more than 100 words in length of a proposed rule, in plain language, that shall be posted on the internet website under section 206(d) of the E-Government Act of 2002 (44 U.S.C. 3501 note) (commonly known as regulations.gov ).

In summary, the proposed rule would simplify the share insurance regulations by establishing a “trust accounts” category that would provide for coverage of funds of both revocable trusts and irrevocable trusts deposited at FICUs, provide consistent share insurance treatment for all mortgage servicing account balances held to satisfy principal and interest obligations to a lender, and provide more flexibility for the NCUA to consider various records in determining share insurance coverage in liquidations.

The proposal and the required summary can be found at https://www.regulations.gov.

For the reasons discussed in the preamble, the Board proposes to amend 12 CFR part 745 as follows:

The revisions read as follows:

The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under ADDRESSES . Include “Docket No. FAA-2023-2001; Project Identifier MCAI-2023-00666-T” at the beginning of your comments. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. The FAA will consider all comments received by the closing date and may amend the proposal because of those comments.

Except for Confidential Business Information (CBI) as described in the following paragraph, and other information as described in 14 CFR 11.35, the FAA will post all comments received, without change, to regulations.gov , including any personal information you provide. The agency will also post a report summarizing each substantive verbal contact received about this NPRM.

CBI is commercial or financial information that is both customarily and actually treated as private by its owner. Under the Freedom of Information Act (FOIA) (5 U.S.C. 552), CBI is exempt from public disclosure. If your comments responsive to this NPRM contain commercial or financial information that is customarily treated as private, that you actually treat as private, and that is relevant or responsive to this NPRM, it is important that you clearly designate the submitted comments as CBI. Please mark each page of your submission containing CBI as “PROPIN.” The FAA will treat such marked submissions as confidential under the FOIA, and they will not be placed in the public docket of this NPRM. Submissions containing CBI should be sent to Gabriel Kim, Aviation Safety Engineer, FAA, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; telephone 516-228-7300; email 9-avs-nyaco-cos@faa.gov. Any commentary that the FAA receives which is not specifically designated as CBI will be placed in the public docket for this rulemaking.

The FAA issued AD 2021-20-13, Amendment 39-21751 (86 FR 57033, October 14, 2021) (AD 2021-20-13), for certain Bombardier, Inc., CL-600-2B16 (604 Variant) airplanes. AD 2021-20-13 was prompted by an MCAI originated by Transport Canada, which is the aviation authority for Canada. Transport Canada issued AD CF-2020-54R1, dated December 23, 2020 (Transport Canada AD CF-2020-54R1), to correct an unsafe condition identified as cracking of the MLG shock strut lower pin part number 19146-3. Transport Canada AD CF-2020-54R1 states that friction torque, when the shock strut is under compression loading, causes the pin anti-rotation tangs to become loaded beyond their load carrying capability. According to Transport Canada, this overload condition can result in pin fracture originating at the base of the pin anti-rotation tang and is aggravated by inadequate lubrication.

AD 2021-20-13 requires repetitively lubricating, repetitively inspecting (DVI and NDT inspections for cracking and damage, including fracture of the MLG shock strut lower pin at the pin rotation tang location), and replacing the MLG shock strut lower pin if there is any cracking or damage as a result of the inspections. The FAA issued AD 2021-20-13 to address cracking of the MLG shock strut lower pin. If not addressed, this condition could result in structural failure of one or both MLG.

Since the FAA issued AD 2021-20-13, Transport Canada superseded Transport Canada AD CF-2020-54R1 and issued Transport Canada AD CF-2023-32, dated May 9, 2023 (referred to after this as “the MCAI”). The MCAI states there is a new design solution for this potential failure of the shock strut lower pin, which involves replacing the training arm bushings at the attachment and reassembly of the MLG shock strut assembly to training arm assembly joint with new dynamic joint components. As a result, the MCAI requires this new design as terminating action for the requirements of Transport Canada AD CF-2020-54R1.

Bombardier, Inc. also reduced the range of one group of applicable aircraft from serial numbers 6050 through 6999 to 6050 through 6188. Bombardier, Inc. advises that subsequent aircraft are scheduled to have the new design completed in production. Therefore, the FAA has revised the applicability of this proposed AD accordingly.

You may examine the MCAI in the AD docket at regulations.gov under Docket No. FAA-2023-2001.

The FAA reviewed Bombardier, Inc., service information:

• Service Bulletin 604-32-031, dated December 29, 2022.

• Service Bulletin 605-32-008, dated December 29, 2022.

• Service Bulletin 650-32-005, dated December 29, 2022.

This service information contains procedures for disassembling the left- and right-hand MLG shock strut and trailing arm joint, replacing the trailing arm bushings at the attachment, and re-assembling the joint with new dynamic joint components. These documents are distinct since they apply to different airplane configurations.

This proposed AD would also require the following Bombardier, Inc., service information, which the Director of the Federal Register approved for incorporation by reference as of November 18, 2021 (86 FR 57033, October 14, 2021):

• Service Bulletin 604-32-030, dated June 30, 2020.

• Service Bulletin 605-32-007, dated June 30, 2020.

• Service Bulletin 650-32-004, dated June 30, 2020.

This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

This product has been approved by the aviation authority of another country and is approved for operation in the United States. Pursuant to the FAA's bilateral agreement with this State of Design Authority, it has notified the FAA of the unsafe condition described in the MCAI and service information referenced above. The FAA is issuing this NPRM after determining that unsafe condition described previously is likely to exist or develop on other products of the same type design.

This proposed AD would retain all of the requirements of AD 2021-20-13 until the MLG shock strut assembly to trailing arm assembly joint is modified by accomplishing the actions specified in the service information described previously.

The FAA estimates that this AD, if adopted as proposed, would affect 433 airplanes of U.S. registry.

The FAA estimates the following costs to comply with this proposed AD:

The FAA estimates the following costs to do any necessary on-condition replacement that would be required based on the results of the repetitive inspections. The FAA has no way of determining the number of aircraft that might need this on-condition action:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

The FAA has determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would 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.

For the reasons discussed above, I certify this proposed regulation:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Will not affect intrastate aviation in Alaska, and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of the airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it amends the route structure to maintain the efficient flow of air traffic.

The FAA invites interested persons to participate in this rulemaking by submitting written comments, data, or views. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. To ensure the docket does not contain duplicate comments, commenters should submit only one time if comments are filed electronically, or commenters should send only one copy of written comments if comments are filed in writing.

The FAA will file in the docket all comments it receives, as well as a report summarizing each substantive public contact with FAA personnel concerning this proposed rulemaking. Before acting on this proposal, the FAA will consider all comments it receives on or before the closing date for comments. The FAA will consider comments filed after the comment period has closed if it is possible to do so without incurring expense or delay. The FAA may change this proposal in light of the comments it receives.

Privacy: In accordance with 5 U.S.C. 553(c), DOT solicits comments from the public to better inform its rulemaking process. DOT posts these comments, without edit, including any personal information the commenter provides, to www.regulations.gov, as described in the system of records notice (DOT/ALL-14 FDMS), which can be reviewed at www.dot.gov/privacy.

An electronic copy of this document may be downloaded through the internet at www.regulations.gov. Recently published rulemaking documents can also be accessed through the FAA's web page at www.faa.gov/air_traffic/publications/airspace_amendments/.

You may review the public docket containing the proposal, any comments received and any final disposition in person in the Dockets Operations office (see ADDRESSES section for address, phone number, and hours of operations). An informal docket may also be examined during normal business hours at the office of the Eastern Service Center, Federal Aviation Administration, Room 210, 1701 Columbia Avenue, College Park, GA 30337.

United States Area Navigation routes are published in paragraph 2006 and 6011 of FAA Order JO 7400.11, Airspace Designations and Reporting Points, which is incorporated by reference in 14 CFR 71.1 on an annual basis. This document proposes to amend the current version of that order, FAA Order JO 7400.11H, dated August 11, 2023, and effective September 15, 2023. These updates would be published in the next update to FAA Order JO 7400.11. That order is publicly available as listed in the ADDRESSES section of this document.

FAA Order JO 7400.11H lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

The FAA is proposing an amendment to 14 CFR part 71 to establish RNAV routes T-480, T-482 and T-488, and amend RNAV routes Q-140, T-206, T-258, T-287, T-295, and T-398 in the eastern United States. This action supports NextGen which provides a modern RNAV route structure to improve the efficiency of the NAS. The proposed changes are described below.

Q-140: Q-140 currently extends between WOBED, WA, Waypoint (WP) and the YODAA, NY, WP. The FAA proposes to remove Computer Navigation Fixes (CNF) and replace them with pronounceable WPs. The RUBKI, MI, Fix is being moved 22 feet west of its current position to align with the United States (U.S.)/Canadian border and replaces the CFCTJ, MI, CNF. The RAGIX, NY, Fix is being moved 0.5 nautical miles (NM) east to align with the U.S./Canadian border and replaces the CFDHX, NY, CNF. In addition, the RODDY, NY, WP is being replaced with the TOTHH, NY, Fix due to similar sounding WP names. Additionally, the FAA proposes to remove fixes from the route's legal description for segments that are in Canada, and segments that contain turns of less than one degree. The following are the fixes that the FAA proposes to remove: GETNG, WA, WP; CORDU, ID, Fix; PETIY, MT, WP; CHOTE, MT, Fix; CESNA, WI, WP; WISCN, WI, WP; PEPLA, Canada, WP; SIKBO, Canada, WP; MEDAV, Canada, WP; HANKK, NY, Fix; BEEPS, NY, Fix; EXTOL, NY, Fix; MEMMS, NY, Fix; and KODEY, NY, Fix.

T-206: T-206 currently extends between the ENADE, NC, WP to the ZADEL, NC, WP. The FAA proposes to extend T-206 to the east between the ZADEL WP and the SNOWS, NC, Fix.

T-258: T-258 currently extends between the MINIM, AL, Fix and the GMINI, NC, WP. The FAA proposes to extend T-258 to the northeast between the GMINI WP and the BOUSY, VA, WP. Additionally, the FAA proposes to remove fixes from the route's legal description for segments that contain turns of less than one degree. The following are the fixes that the FAA proposes to remove: CAYAP, AL, Fix; ZIVMU, AL, Fix; DAYVS, AL, WP; HEENA, AL, Fix; KYLEE, AL, Fix; CAMPP, AL, Fix; and LANGA, GA, Fix.

T-287: T-287 currently extends between the DENNN, VA, WP and the TOMYD, MD, WP. The FAA proposes to extend T-287 to the southwest between the GMINI, NC, WP and the DENNN WP; and to the northeast between the TOMYD, MD, WP, and the Kennebunk, ME (ENE), Very High Frequency Omnidirectional Range/Distance Measuring Equipment (VOR/DME). The FAA proposes to move the TOMYD, MD, WP 2.8 NM north of its current location and into the state of Pennsylvania. Moving the TOMYD WP would allow for T-287's alignment with future proposed RNAV routes. The amended route segment of T-287 would overlay a portion of VOR Federal airway V-44 between the PALEO, MD, WP to the WNSTN, NJ, WP; a portion of VOR Federal airway V-139 between MANTA, NJ, Fix to the Kennebunk, ME (ENE), VOR/DME; and a portion of VOR Federal airway V-454 between the SNOWS, NC, Fix to the Lawrenceville, VA (LVL), VOR/Tactical Air Navigation (VORTAC). Additionally, the FAA proposes to remove fixes from the route's legal description for segments that contain turns of less than one degree. The following are the fixes that the FAA proposes to remove: DENNN, VA, WP; CAARY, VA, WP; and WILMY, VA, WP.

T-295: T-295 currently extends between the POORK, VA, Fix and the Presque Isle, ME (PQI), VOR/DME. The FAA proposes to extend T-295 to the southwest between the DUFFI, NC, Fix and the POORK Fix; and between the DOGWD, VA, Fix and the RIPKN, MD, WP to the route; and replace the Wilkes Barre, PA (LVZ) VOR/DME with the WLKES, PA, Fix. Additionally, the FAA proposes to remove the Chester, MA (CTR), VOR/DME from the route's legal description as those segments contain turns of less than one degree.

T-398: T-398 currently extends between the RRORY, TX, WP and the GMINI, NC, WP. The FAA proposes to extend T-398 to the northeast between the GMINI WP and the TAPPA, VA, Fix. The amended route segment of T-398 would overlay a portion of VOR Federal airway V-155 from the Sandhills, NC (SDZ), VORTAC to the MANGE, VA, Fix.

T-480: T-480 is a proposed new route that would extend between the Greensboro, NC (GSO), VORTAC to the ZOLMN, NC, Fix. T-480 would overlay a portion of VOR Federal airway V-266 from the Greensboro VORTAC to the South Boston, MA (SBV), VORTAC; and from the MAZON, VA, Fix to the Wright Brothers, NC (RBX), VOR/DME; and a portion of Colored Federal airway Green 13 (G-13) from the MANTEO, NC (MQI), Nondirectional Radio Beacon (NDB) to the ZOLMN, NC, Fix.

T-482: T-482 is a proposed new route that would extend between the MEYER, NC, Fix to the COUPN, VA, WP. T-482 would overlay a portion of VOR Federal airway V-615 from the MEYER Fix to the DUFFI, NC, Fix.

T-488: T-488 is a proposed new route that would extend between the Tar River, NC (TYI), VORTAC to the RTBRO, NC, Fix. T-488 would overlay a portion of VOR Federal airway V-189 from the Tar River VORTAC to the Wright Brothers, NC (RBX), VOR/DME.

The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore: (1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this proposed rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This proposal will be subject to an environmental analysis in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures” prior to any FAA final regulatory action.

In consideration of the foregoing, the Federal Aviation Administration proposes to amend 14 CFR part 71 as follows:

Excluding the airspace within Canada.

On August 19, 2019, the Commission published an advance notice of proposed rulemaking (ANPR) to develop a rule to address the risk of injury associated with residential gas furnaces and boilers from CO production and leakage. 84 FR 42847. The Commission received 15 comments. The Commission is now proceeding with this proposed rulemaking. 1 The information discussed in this preamble is derived from CPSC the Staff Briefing Package for the NPR, which is available on CPSC's website at: https://www.cpsc.gov/s3fs-public/Notice-of-Proposed-Rulemaking-Safety-Standard-for-Residential-Gas-Furnaces-and-Boilers-COMBINED-PDFS.pdf?VersionId=7BJ3c6EeDF78nHorx2mCEr94XygwgeQV.

This rulemaking falls under the authority of the CPSA, (Consumer Product Safety Act) 15 U.S.C. 2051-2089. Section 7(a) of the CPSA authorizes the Commission to promulgate a mandatory consumer product safety standard that sets forth performance or labeling requirements for a consumer product, if such requirements are reasonably necessary to prevent or reduce an unreasonable risk of injury. 15 U.S.C. 2056(a). Section 9 of the CPSA specifies the procedure that the Commission must follow to issue a consumer product safety standard under section 7 of the CPSA. In accordance with section 9, the Commission commenced this rulemaking by issuing an ANPR.

According to section 9(f)(1) of the CPSA, before promulgating a consumer product safety rule, the Commission must consider, and make appropriate findings to be included in the rule, on the following issues:

(A) The degree and nature of the risk of injury that the rule is designed to eliminate or reduce;

(B) the approximate number of consumer products, or types or classes of product, subject to the rule;

(C) the need of the public for the products subject to the rule and the probable effect the rule will have on utility, cost, or availability of such products; and

(D) the means to achieve the objective of the rule while minimizing adverse effects on competition, manufacturing, and commercial practices consistent with public health and safety.

Under section 9(f)(3) of the CPSA, to issue a final rule, the Commission must find that the rule is “reasonably necessary to eliminate or reduce an unreasonable risk of injury associated with such product” and that issuing the rule is in the public interest. 15 U.S.C. 2058(f)(3)(A) and (B). Additionally, if a voluntary standard addressing the risk of injury has been adopted and implemented, the Commission must find that:

• The voluntary standard is not likely to eliminate or adequately reduce the risk of injury, or

• substantial compliance with the voluntary standard is unlikely.

Central furnaces, boilers, wall furnaces, and floor furnaces fueled by natural gas or propane (gas furnaces and boilers) are used to heat all categories of consumer dwellings. These products burn a mixture of gas and air within the combustion chamber of a heat exchanger. As the mixture of fuel and air is burned, heat is released and transferred through the wall of the heat exchanger to the medium surrounding the heat exchanger and circulated through air ducts (for central furnaces), water pipes throughout the dwelling (for boilers), or directly into the ambient air to provide heat (for wall furnaces and floor furnaces).

Burning the mixture of fuel and air results in the formation of combustion products that are typically composed of oxygen, carbon dioxide, water vapor, and CO. The combustion products are exhausted to the outdoors through a vent system, either vertically through the roof or horizontally through a side wall through the vent pipe. When the mixture of fuel and air is burned completely, the concentration of CO produced should remain relatively low. However, when issues arise with the combustion process (such as fuel-air mixtures that are not optimal), dangerous levels of CO can be produced. The combination of production of dangerous levels of CO during the combustion process and leakage of that CO through the vent system into the living space is a potentially deadly hazard pattern identified by CPSC staff.

In a gas-fired central furnace (Figure 1), air is the medium that surrounds and is heated by the heat exchanger. A large fan is used to force-circulate the heated air across the exterior surfaces of the heat exchanger, through a duct system, and then the heated air exits the duct system through warm air registers typically within the dwelling. The arrow in Figure 1 depicts the vent pipe.

In a gas boiler (Figure 2), water or steam is the medium that surrounds and is heated by the heat exchanger. The heated water or steam is circulated, using a pump to force the fluid through a piping system to radiators typically in each room in the dwelling. Living areas are heated through radiative and conductive heat transfer from the heated water or steam supplied to the radiators to the room. Gas-fired central furnaces and boilers are considered central heating appliances because they provide heat to each room of a dwelling. The arrow in Figure 2 points to the boiler's vent pipe.

In addition to central gas-fired furnaces and boilers, the proposed scope of the NPR also includes gas wall furnaces (Figure 3) and gas floor furnaces (Figure 4). As their names indicate, gas wall furnaces are installed in wall spaces, typically between the wall stud framing members; and floor furnaces are installed in the floor, typically between the floor joist framing members. Wall furnaces and floor furnaces provide localized heating directly to the room in which they are located, and indirectly to adjoining rooms within the dwelling. The combustion products of wall furnaces are vented to the outdoors, either vertically through the roof, or horizontally through a side wall with the vent pipe running along the length of the wall studs between which the unit is installed. The combustion products of a floor furnace are typically vented horizontally through a side wall, with the vent pipe running along the length of the floor joists between which the unit is installed and through an exterior wall.

The notice of intent contained in this document is issued pursuant to the temporary scheduling provisions of 21 U.S.C. 811(h). The Drug Enforcement Administration (DEA) intends to issue a temporary scheduling order  1 (in the form of a temporary amendment) to add the following two substances, including their isomers, esters, ethers, salts, and salts of isomers, esters, and ethers whenever the existence of such isomers, esters, ethers, and salts is possible, to schedule I under the Controlled Substances Act (CSA):

• N -ethyl-2-(2-(4-isopropoxybenzyl)-5-nitro-1 H -benzimidazol-1-yl)ethan-1-amine (commonly known as N -desethyl isotonitazene), and

• 2-(4-ethoxybenzyl)-5-nitro-1-(2-(piperidin-1-yl)ethyl)-1 H -benzimidazole (commonly known as either N -piperidinyl etonitazene or etonitazepipne).

The temporary scheduling order will be published in the Federal Register on or after November 24, 2023.

The CSA provides the Attorney General (as delegated to the Administrator of DEA (Administrator) pursuant to 28 CFR 0.100) with the authority to temporarily place a substance in schedule I of the CSA for two years without regard to the requirements of 21 U.S.C. 811(b), if he finds that such action is necessary to avoid an imminent hazard to the public safety. 21 U.S.C. 811(h)(1). In addition, if proceedings to control a substance are initiated under 21 U.S.C. 811(a)(1) while the substance is temporarily controlled under section 811(h), the Attorney General may extend the temporary scheduling for up to one year. 21 U.S.C. 811(h)(2).

Where the necessary findings are made, a substance may be temporarily scheduled if it is not listed in any other schedule under 21 U.S.C. 812, or if there is no exemption or approval in effect for the substance under section 505 of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. 355. 21 U.S.C. 811(h)(1); 21 CFR part 1308.

The CSA requires the Administrator to notify the Secretary of the Department of Health and Human Services (HHS) of an intent to place a substance in schedule I of the CSA temporarily ( i.e., to issue a temporary scheduling order). 21 U.S.C. 811(h)(4). The Administrator transmitted the required notice to the Assistant Secretary for Health of HHS (Assistant Secretary), 2 by letter dated April 3, 2023, regarding N -desethyl isotonitazene and N -piperidinyl etonitazene. The Assistant Secretary responded to this notice by letter dated May 11, 2023, and advised that based on a review by the Food and Drug Administration (FDA), there are currently no investigational new drug applications (INDs) or approved new drug applications (NDAs) for N -desethyl isotonitazene and N -piperidinyl etonitazene. The Assistant Secretary also stated that HHS had no objection to the temporary placement of these substances in schedule I. N -Desethyl isotonitazene and N -piperidinyl etonitazene currently are not listed in any schedule under the CSA, and no exemptions or approvals under 21 U.S.C. 355 are in effect for these substances.

To find that temporarily placing a substance in schedule I of the CSA is necessary to avoid an imminent hazard to the public safety, the Administrator must consider three of the eight factors set forth in 21 U.S.C. 811(c): the substance's history and current pattern of abuse; the scope, duration, and significance of abuse; and what, if any, risk there is to the public health. 21 U.S.C. 811(h)(3). This consideration includes any information indicating actual abuse, diversion from legitimate channels, and clandestine importation, manufacture, or distribution of these substances. 21 U.S.C. 811(h)(3).

Substances meeting the statutory requirements for temporary scheduling may only be placed in schedule I. 21 U.S.C. 811(h)(1). Substances in schedule I have high potential for abuse, no currently accepted medical use in treatment in the United States, and a lack of accepted safety for use under medical supervision. 21 U.S.C. 812(b)(1).

The continued encounter of novel psychoactive substances (NPS) on the recreational drug market poses a threat to public safety. Following the class-wide scheduling of fentanyl-related substances, there has been an increase in the emergence of synthetic opioids that are not structurally related to fentanyl. Beginning in 2019, a new class of synthetic opioids known as benzimidazole-opioids, commonly referred to as “nitazenes,” emerged on the recreational drug market. This class of substances was first synthesized in the 1950s by CIBA Aktiengesellschaft in Switzerland, and it has a similar pharmacological profile to fentanyl, morphine, and other mu-opioid receptor agonists. Between August 2020 and April 2022, DEA temporarily controlled eight benzimidazole-opioids because they posed a threat to public safety. 87 FR 21556 (Apr. 12, 2022); 85 FR 51342 (Aug. 20, 2020). Recently, additional benzimidazole-opioids have been identified within the rapidly expanding class of “nitazene” compounds on the recreational drug market. N -Desethyl isotonitazene and N -piperidinyl etonitazene are some of the recently encountered “nitazene” synthetic opioids identified on the illicit drug market.

The continued trafficking and identification of benzimidazole-opioids in toxicology cases pose a significant threat to public health and safety. Adverse health effects associated with the misuse and abuse of synthetic opioids have led to devastating consequences including death. Preclinical pharmacology data demonstrate that N -desethyl isotonitazene and N -piperidinyl etonitazene have pharmacological profiles similar to those of the potent benzimidazole-opioids etonitazene and isotonitazene, schedule I opioid substances. N -Desethyl isotonitazene, an active metabolite of isotonitazene, has been positively identified in postmortem cases that involved isotonitazene. N -Piperidinyl etonitazene has been positively identified in at least three toxicology cases. As the United States continues to experience a high number of opioid-involved overdoses and mortalities, the introduction of new designer opioids further exacerbates the current opioid epidemic.

Available data and information for N -desethyl isotonitazene and N -piperidinyl etonitazene, summarized below, indicate that these substances have high potentials for abuse, no currently accepted medical uses in treatment in the United States, and a lack of accepted safety for use under medical supervision. DEA's three-factor analysis is available in its entirety under “Supporting and Related Material” of the public docket for this action at www.regulations.gov under Docket Number DEA-1143.

In the late 1950s, pharmaceutical research laboratories of the Swiss chemical company CIBA Aktiengesellschaft synthesized a group of structurally unique benzimidazole derivatives with analgesic properties; however, the research effort did not produce any medically approved analgesic products. These benzimidazole derivatives include schedule I substances, such as synthetic opioids clonitazene, etonitazene, and isotonitazene.

Since 2019, there has been an emergence of nitazene compounds on the illicit drug market, which have been positively identified in numerous cases of fatal overdose events. In August 2020, isotonitazene was placed in schedule I of the CSA (85 FR 51342). Subsequently, seven additional benzimidazole-opioids  3 have been placed in schedule I of the CSA (87 FR 21556).

Recently, two additional benzimidazole-opioids have emerged on the illicit drug market. Law enforcement officers have encountered N -desethyl isotonitazene and N -piperidinyl etonitazene in several solid forms ( e.g., powder and tablets). These substances are not approved pharmaceutical products and are not approved for medical use anywhere in the world. The Assistant Secretary in a letter to DEA dated May 11, 2023, stated that there are no FDA-approved NDAs or INDs for N -desethyl isotonitazene and N -piperidinyl etonitazene in the United States; hence, there are no legitimate channels for these substances as marketed drug products.

The appearance of benzimidazole-opioids on the illicit drug market is similar to other designer opioid drugs that are trafficked for their psychoactive effects. These substances are likely to be abused in the same manner as schedule I opioids, such as etonitazene, isotonitazene, and heroin.

In 2022, N -desethyl isotonitazene was identified in counterfeit tablets in the United States and United Kingdom. Recent reporting by Center for Forensic Science Research and Education (CFSRE) indicates that in the United States, N -desethyl isotonitazene was identified in counterfeit oxycodone round blue tablets in Florida. 4 Further, in December 2022, N -desethyl isotonitazene was identified in samples called “dope” in the Philadelphia drug supply. N -Desethyl isotonitazene was also co-identified in “dope” samples containing xylazine, fentanyl, para -fluorofentanyl, and designer benzodiazepines ( e.g., flubromazepam and bromazolam).

In 2021, N -piperidinyl etonitazene emerged on the illicit synthetic drug market, as evidenced by its identification in toxicological analysis of biological samples. 5 In addition, there have been encounters of N -piperidinyl etonitazene in Europe. As reported in January 2022 by the European Monitoring Center for Drugs and Drug Addiction (EMCDDA), the European Union Early Warning System Network identified N -piperidinyl etonitazene in Germany in October 2021. As of January 23, 2023, a total of four European countries have reported identifications of N -piperidinyl etonitazene in powder form to the EMCDDA. 6

N -Desethyl isotonitazene and N -piperidinyl etonitazene, similar to etonitazene and isotonitazene (schedule I substances), have been described as potent synthetic opioids, and evidence suggests they are abused for their opioidergic effects. The abuse of these benzimidazole-opioids, similar to other synthetic opioids, has resulted in serious adverse health effects. Between October 2019 and January 2020, N -desethyl isotonitazene was positively identified in 13 postmortem samples and 64 driving-under-the-influence-of-drugs (DUID) cases involving isotonitazene in the United States. Although, N -desethyl isotonitazene has only been identified as a metabolite of isotonitazene in toxicology cases, the pharmacological profile of this substance demonstrates it is a highly potent synthetic opioid similar to etonitazene, isotonitazene, and fentanyl. As such, the identification of this substance as a parent drug in the recreational drug market is worrisome.

Data from law enforcement suggest that N -desethyl isotonitazene and N -piperidinyl etonitazene are being abused in the United States as recreational drugs. 7 Since 2022, there have been three encounters reported to DEA's National Forensic Laboratory Information System (NFLIS)-Drug  8 (Federal, State, and local laboratories) database pertaining to the trafficking, distribution, and abuse of N -desethyl isotonitazene. These three encounters of N -desethyl isotonitazene were reported to NFLIS-Drug from two states: Florida (2) and Kansas (1).

Based on information collected from NFLIS-Drug, N -desethyl isotonitazene was identified in tablet form or as residue. Reporting from CFSRE show that N -desethyl isotonitazene was identified in a counterfeit oxycodone tablet in Florida, 9 suggestive that it might be presented as a substitute for heroin or fentanyl and likely abused in the same manner as either of those substances.

The lack of identification of N -piperidinyl etonitazene in NFLIS-Drug may be due to the rapid appearance of these benzimidazole-opioids and under reporting as forensic laboratories try to secure reference standards for this substance. However, N -piperidinyl etonitazene has been positively identified in toxicology cases in the United States and encountered by law enforcement in Europe.

The population likely to abuse these benzimidazole-opioids appears to be the same as those abusing prescription opioid analgesics, fentanyl, and other synthetic drugs. This is evidenced by the types of other drugs co-identified in biological samples and law enforcement encounters. Because abusers of N -desethyl isotonitazene and N -piperidinyl etonitazene are likely to obtain these substances through unregulated sources, the identity, purity, and quantity of these substances are uncertain and inconsistent, thus posing significant adverse health risks to the end user. The misuse and abuse of opioids have been demonstrated and are well-characterized. According to the most recent data from the National Survey on Drug Use and Health (NSDUH), 10 as of 2021, an estimated 9.2 million people aged 12 years or older misused opioids in the past year, including 8.7 million prescription pain reliever misusers and 1.1 million heroin users. In 2021, an estimated 5.6 million people had an opioid use disorder in the past year, which included 5.0 million people with a prescription pain reliever use disorder and 1.0 million people with heroin use disorder. This population abusing opioids is likely to be at risk of abusing N -desethyl isotonitazene and N -piperidinyl etonitazene. Individuals who initiate ( i.e., use a drug for the first time) use of these benzimidazole-opioids are likely to be at risk of developing substance use disorder, overdose, and/or death, similar to that of other opioid analgesics ( e.g., fentanyl, morphine, etc.). Law enforcement and toxicology reports demonstrate that N -desethyl isotonitazene and N -piperidinyl etonitazene are being illicitly distributed and abused.

The increase in opioid overdose deaths in the United States has been exacerbated recently by the availability of potent synthetic opioids on the illicit drug market. Data obtained from pre-clinical studies demonstrate that N -desethyl isotonitazene and N -piperidinyl etonitazene exhibit pharmacological profiles similar to that of etonitazene, isotonitazene, and other mu-opioid receptor agonists. These two benzimidazole-opioids bind to and act as an agonist at the µ-opioid receptors. It is well established that substances that act as mu-opioid receptor agonists have a high potential for addiction and can induce dose-dependent respiratory depression.

Consistent with any mu-opioid receptor agonist, the potential health and safety risks for users of N -desethyl isotonitazene and N -piperidinyl etonitazene are high. N -Desethyl isotonitazene and N -piperidinyl etonitazene have been positively identified in toxicology cases. The public health risks attendant to the abuse of mu-opioid receptor agonists are well established. These risks include large numbers of drug treatment admissions, emergency department visits, and fatal overdoses. According to the Centers for Disease Control and Prevention (CDC), opioids, mainly synthetic opioids other than methadone, are predominantly responsible for drug overdose deaths in recent years. According to CDC provisional data, synthetic opioid-related overdose deaths in the United States increased from 57,834 in 2020 to 71,238 in 2021. 11 Overdose deaths involving opioids increased from an estimated 70,029 in 2020, to 80,816 in 2021. In 2021, according to Drug Abuse Warning Network (DAWN), preliminary findings indicate 1.03 million drug-related emergency department visits involved opioids (fentanyl, heroin, and other opioid pain medications taken alone or in combination with other opioids and/or other drugs). 12

N -Piperidinyl etonitazene was detected in suspected opioid overdose cases in three patients from New Jersey over a period of three days in July 2021. Of those patients, two reported the use of cocaine; one reported the use of heroin and alprazolam. Similarly, according to a 2021 CFSRE report, N -piperidinyl etonitazene was co-identified with fentanyl in two cases and para -fluorofentanyl in one other case. 13

Between October 2019 and January 2020, N -desethyl isotonitazene, an active metabolite of isotonitazene was identified in numerous toxicology cases involving isotonitazene. In DUID cases, N -desethyl isotonitazene was present in 64 samples containing isotonitazene and was found with isotonitazene in 13 postmortem samples. Although, N -desethyl isotonitazene was only identified as a metabolite of isotonitazene in these cases, the pharmacological profile of this substance demonstrate that it is a highly potent synthetic opioid similar to etonitazene, isotonitazene, and fentanyl. As such, the identification of this substance as a parent drug in the recreational drug market is worrisome.

In accordance with 21 U.S.C. 811(h)(3), based on the available data and information summarized above, the uncontrolled manufacture, distribution, reverse distribution, importation, exportation, conduct of research and chemical analysis, possession, and abuse of N -desethyl isotonitazene and N -piperidinyl etonitazene pose imminent hazards to public safety. DEA is not aware of any currently accepted medical uses for these substances in the United States. A substance meeting the statutory requirements for temporary scheduling, found in 21 U.S.C. 811(h)(1), may only be placed in schedule I. Substances in schedule I must have a high potential for abuse, no currently accepted medical use in treatment in the United States, and a lack of accepted safety for use under medical supervision. Available data and information for N -desethyl isotonitazene and N -piperidinyl etonitazene indicate that these substances meet the three statutory criteria. As required by 21 U.S.C. 811(h)(4), the Administrator transmitted to the Assistant Secretary, via letter dated April 3, 2023, notice of her intent to place N -desethyl isotonitazene and N -piperidinyl etonitazene in schedule I on a temporary basis. HHS had no objection to the temporary placement of these substances in schedule I.

This Notice of Intent provides the 30-day notice pursuant to 21 U.S.C. 811(h)(1) of DEA's intent to issue a temporary scheduling order. In accordance with 21 U.S.C. 811(h)(1) and (3), the Administrator considered available data and information, herein set forth the grounds for her determination that it is necessary to temporarily schedule N -desethyl isotonitazene and N -piperidinyl etonitazene in schedule I of the CSA, and finds that placement of these substances in schedule I is necessary to avoid an imminent hazard to the public safety.

The temporary placement of N -desethyl isotonitazene and N -piperidinyl etonitazene in schedule I of the CSA will take effect pursuant to a temporary scheduling order, which will not be issued before November 24, 2023. Because the Administrator hereby finds this temporary scheduling order necessary to avoid an imminent hazard to the public safety, it will take effect on the date the order is published in the Federal Register and remain in effect for two years, with a possible extension of one year, pending completion of the regular (permanent) scheduling process. 21 U.S.C. 811(h)(1) and (2). The Administrator intends to issue a temporary scheduling order as soon as possible after the expiration of 30 days from the date of publication of this document. Upon the temporary order's publication, N -desethyl isotonitazene and N -piperidinyl etonitazene will then be subject to the CSA's schedule I regulatory controls and to administrative, civil, and criminal sanctions applicable to their manufacture, distribution, reverse distribution, importation, exportation, research, conduct of instructional activities and chemical analysis, and possession.

The CSA sets forth specific criteria for scheduling drugs or other substances. Regular scheduling actions in accordance with 21 U.S.C. 811(a) are subject to formal rulemaking procedures “on the record after opportunity for a hearing” conducted pursuant to the provisions of 5 U.S.C. 556 and 557. 21 U.S.C. 811. The regular scheduling process of formal rulemaking affords interested parties appropriate process and the government any additional relevant information needed to make a determination. Final decisions that conclude the regular scheduling process of formal rulemaking are subject to judicial review. 21 U.S.C. 877. Temporary scheduling orders are not subject to judicial review. 21 U.S.C. 811(h)(6).

The CSA provides for expedited temporary scheduling actions where necessary to avoid an imminent hazard to the public safety. Under 21 U.S.C. 811(h)(1), the Administrator, as delegated by the Attorney General, may, by order, temporarily place substances in schedule I. Such orders may not be issued before the expiration of 30 days from: (1) The publication of a notice in the Federal Register of the intent to issue such order and the grounds upon which such order is to be issued, and (2) the date that notice of the proposed temporary scheduling order is transmitted to the Assistant Secretary, as delegated by the Secretary of HHS. 21 U.S.C. 811(h)(1).

Inasmuch as section 811(h) directs that temporary scheduling actions be issued by order and sets forth the procedures by which such orders are to be issued, including the requirement to publish in the Federal Register a Notice of Intent, the notice-and-comment requirements of section 553 of the Administrative Procedure Act (APA), 5 U.S.C. 553, do not apply to this Notice of Intent. The APA expressly differentiates between orders and rules, as it defines an “order” to mean a “final disposition, whether affirmative, negative, injunctive, or declaratory in form, of an agency in a matter other than rule making.” 5 U.S.C. 551(6) (emphasis added). This contrasts with permanent scheduling actions, which are subject to formal rulemaking procedures done “on the record after opportunity for a hearing,” and final decisions that conclude the scheduling process and are subject to judicial review. 21 U.S.C. 811(a) and 877. The specific language chosen by Congress indicates its intent that DEA issue orders instead of proceeding by rulemaking when temporarily scheduling substances. Given that Congress specifically requires the Administrator (as delegated by the Attorney General) to follow rulemaking procedures for other kinds of scheduling actions, see 21 U.S.C. 811(a), it is noteworthy that, in section 811(h)(1), Congress authorized the issuance of temporary scheduling actions by order rather than by rule.

Even assuming that this Notice of Intent is subject to section 553 of the APA, the Administrator finds that there is good cause to forgo its notice-and-comment requirements, as any further delays in the process for issuing temporary scheduling orders would be impracticable and contrary to the public interest given the manifest urgency to avoid an imminent hazard to the public safety.

Although DEA believes this notice of intent to issue a temporary scheduling order is not subject to the notice-and-comment requirements of section 553 of the APA, DEA notes that in accordance with 21 U.S.C. 811(h)(4), the Administrator took into consideration comments submitted by the Assistant Secretary in response to the notices that DEA transmitted to the Assistant Secretary pursuant to such subsection.

Further, DEA believes that this temporary scheduling action is not a “rule” as defined by 5 U.S.C. 601(2), and, accordingly, is not subject to the requirements of the Regulatory Flexibility Act. The requirements for the preparation of an initial regulatory flexibility analysis in 5 U.S.C. 603(a) are not applicable where, as here, DEA is not required by section 553 of the APA or any other law to publish a general notice of proposed rulemaking. As discussed above, DEA is issuing this notice of intent pursuant to DEA's authority to issue a temporary scheduling order. 21 U.S.C. 811(h)(1). Therefore, in this instance, since DEA believes this temporary scheduling action is not a “rule,” it is not subject to the requirements of the Regulatory Flexibility Act when issuing this temporary action.

In accordance with the principles of Executive Orders (E.O.) 12866 and 13563, this action is not a significant regulatory action. E.O. 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health, and safety effects; distributive impacts; and equity). E.O. 13563 is supplemental to and reaffirms the principles, structures, and definitions governing regulatory review as established in E.O. 12866. E.O. 12866, sec. 3(f), as amended by E.O. 14094, sec. 1(b), provides the definition of a “significant regulatory action,” requiring review by the Office of Management and Budget. Because this is not a rulemaking action, this is not a significant regulatory action as defined in Section 3(f) of E.O. 12866.

This action 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. Therefore, in accordance with E.O. 13132, it is determined that this action does not have sufficient federalism implications to warrant the preparation of a Federalism Assessment.

For the reasons set out above, DEA proposes to amend 21 CFR part 1308 as follows:

Section 106 of the Housing and Urban Development Act of 1968 (12 U.S.C. 1701x) (Section 106) authorizes HUD's Housing Counseling program. Section 106(a)(1)(iii) authorizes HUD to provide or contract with organizations to provide “counseling and advice to tenants and homeowners with respect to property maintenance, financial management and such other matters as may be appropriate to assist them in improving their housing conditions and in meeting the responsibilities of homeownership.” Section 106(a)(2) authorizes HUD to provide counseling directly or to enter into contracts with, or make grants to, and provide other types of assistance to eligible private or public organizations (including grassroots, faith-based, and other community-based organizations) with special competence and knowledge in providing housing counseling to low- and moderate-income families.

On September 28, 2007, HUD published a final rule titled, “Housing Counseling Program,” at 72 FR 55637, which established regulations for HUD's Housing Counseling program, including 24 CFR 214.103(l), which governs requirements for housing counseling facilities, and 24 CFR 214.300, which governs basic requirements for counseling services including the setting and format for their provision. HUD's Housing Counseling program regulations have not been amended since they were established in the 2007 final rule.

Section 214.300(a)(3) requires agencies that provide housing counseling services to provide in-person counseling services at one of the agency's facilities or an alternate location to clients that prefer that format. When this requirement was adopted, housing counseling and education were primarily conducted locally, and the conventional wisdom was that in-person service was the most effective service delivery method. In 2020, due to ongoing public health concerns around the spread of Coronavirus Disease 2019 (COVID-19), a Temporary Partial Waiver of 24 CFR 214.300(a)(3), In-Person Housing Counseling Requirement, was issued and remains in effect through December 31, 2023. The waiver allows housing counseling agencies to utilize alternative methods to conduct housing counseling and education with clients in lieu of meeting in-person. Based on feedback received during meetings with stakeholders such as the Housing Counseling Federal Advisory Committee, HUD has determined that these alternative methods are more practical, cost-effective, and accessible, and have not led to adverse compliance issues or negative financial impacts. When the waiver expires, absent rulemaking to amend HUD's regulations, participating agencies will continue to be required to provide in-person counseling services to clients.

Today, fewer clients choose in-person counseling. Consumer preference has shifted toward alternative, virtual methods of service delivery as clients often view in-person delivery as inconvenient and more burdensome when considering costs like childcare and transportation necessary to attend. 1 Almost two-thirds of research participants in a recent study conducted by HUD chose online education and telephonic counseling over in-person delivery. 2 Even when clients express a preference for in-person services, they initiate those services at a lower rate than do people who prefer and subsequently take up remote services. 3 Increasing virtual methods of delivery can increase accessibility for those who have difficulty accessing in-person services due to linguistic, physical, or other logistical barriers. 4 Moreover, participating agencies that maintain multiple facilities incur greater burdens and costs even as demand for in-person counseling continues to decline.

This proposed rule aims to modernize the current regulations to reflect advances in technology, to align with client engagement preferences, and to preserve consumer protections. The existing regulations also contain guardrails that will continue to mitigate the risk that some participating agencies may want to use virtual tools to expand their geographic scope but be unfamiliar with an area and its resources, thereby failing to provide quality counseling and services. Regulations will continue to require that participating agencies must have functioned for at least a year in the geographical area set forth in the work plan. Further, housing counselors must possess a working knowledge of state and local housing programs available in the community. These provisions ensure that participating agencies demonstrate knowledge and a connection to the community they serve, whether they choose to do so by providing virtual, in-person, or hybrid services.

Currently, 24 CFR 214.300(a)(3) requires, among other things, participating agencies to provide in-person counseling to clients that prefer this format. HUD's proposed rule would allow housing counseling agencies to use alternative communication methods, including virtual meeting tools, in lieu of providing in-person services. Participating agencies that choose not to provide in-person services will be required to refer clients to local providers that provide such services, when requested.

HUD's existing regulations at § 214.103(l) require participating agencies to maintain facilities ( i.e., physical office space) that have a clearly identified office, with space available for the provision of housing counseling services, and provide privacy for in-person counseling. The proposed rule would provide that the participating agencies may maintain one facility and may not provide in-person housing counseling. This would help to reduce the costs of providing in-person housing counseling, but would not modify the existing requirements that participating agencies possess knowledge of the local housing market, establish working relationships with private and public community resources, and have functioned for at least a year in the geographical areas set forth in the participating agencies' work plans, all of which serve to demonstrate the agency maintains a sufficient community base.

A paragraph-by-paragraph summarized explanation and description of the proposed changes to 24 CFR part 214 are outlined immediately below.

HUD proposes to revise the language of paragraph (l), to modernize the requirements for maintaining a facility. HUD's proposed paragraph (l) would provide that a participating agency maintain one or more facilities. All facilities must have an identified, private space available for the provision of counseling services, whether those services are in-person or virtual.

HUD proposes to revise the language of § 214.300(a)(3) to modernize the way housing counseling agencies provide housing counseling services. Rather than requiring that counseling services take place in-person, under this proposal, they could take place at a facility or at an alternate location or could be done via telephone, or via collaborative online software. Paragraph (3) would specify that all housing counseling agencies that do not provide in-person counseling services must refer clients to agencies that provide in-person counseling services upon a client's request.

HUD proposes to add a new § 214.300(a)(4) that provides cross-references emphasizing that all housing counseling agencies must continue to meet requirements for approval as a counseling agency regardless of the setting or format of housing counseling services, including having functioned for at least one year in the geographical area(s) the agency identified in its housing counseling work plan, having sufficient resources to implement that proposed work plan, and being able to demonstrate knowledge of local housing markets and community resources.

Under Executive Order 12866 (Regulatory Planning and Review), a determination must be made whether a regulatory action is significant and, therefore, subject to review by the Office of Management and Budget (OMB) in accordance with the requirements of the order. Executive Order 13563 (Improving Regulations and Regulatory Review) directs executive agencies to analyze regulations that are “outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned. Executive Order 13563 also directs that, where relevant, feasible, and consistent with regulatory objectives, and to the extent permitted by law, agencies are to identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public. Executive Order 14094 entitled “Modernizing Regulatory Review” (hereinafter referred to as the “Modernizing E.O.”) amends section 3(f) of Executive Order 12866 (Regulatory Planning and Review), among other things.

The proposed rule allows counseling agencies to provide services through virtual methods of service delivery and to refer clients who prefer in-person counseling to other agencies that offer that service. HUD is not changing other requirements, for example the requirement that participating agencies demonstrate knowledge and a connection to the community they serve, and comply with state and local laws in each geographic area in which the participating agency operates. This rule was not subject to OMB review. This rule is not a “significant regulatory action” as defined in Section 3(f) of Executive Order 12866, and is not an economically significant regulatory action.

The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. The changes described in this proposed rule would modernize the regulations governing HUD's Housing Counseling Program to allow housing counseling agencies to use alternative communication methods, including virtual meeting tools, in lieu of providing in-person services. Participating agencies that do not provide in-person services would be required to refer clients to local providers that provide such services, when requested. The proposed rule would help reduce the costs of maintaining multiple physical locations, instead shifting emphasis to demonstrating knowledge of the local housing market and community resources and whether a housing counseling agency has established a sufficient community base to operate in the area covered by its work plan. These revisions impose no significant economic impact on a substantial number of small entities. Therefore, the undersigned certifies that this rule will not have a significant impact on a substantial number of small entities.

Notwithstanding HUD's view that this rule will not have a significant effect on a substantial number of small entities, HUD specifically invites comments regarding any less burdensome alternatives to this rule that will meet HUD's objectives as described in the preamble to this rule.

This rule does not direct, provide for assistance or loan and mortgage insurance for, or otherwise govern or regulate real property acquisition, disposition, leasing, rehabilitation, alteration, demolition, or new construction; or establish, revise, or provide for standards for construction or construction materials, manufactured housing, or occupancy. Accordingly, under 24 CFR 50.19(c)(1), this rule is categorically excluded from environmental review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321).

Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either: (i) imposes substantial direct compliance costs on State and local governments and is not required by statute, or (ii) preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. This proposed rule does not have federalism implications and does not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order.

Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) (UMRA) establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and Tribal governments, and on the private sector. This proposed rule will not impose any Federal mandates on any State, local, or Tribal Governments, or on the private sector, within the meaning of the UMRA.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520), an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information, unless the collection displays a currently valid Office of Management and Budget (OMB) control number. The information collection requirements contained in this proposed rule have been approved by OMB under the Paperwork Reduction Act and assigned OMB control numbers 2502-0574 and 2502-0614.

For the reasons stated above, HUD proposes to amend 24 CFR part 214 as follows:

The additions and revisions to read as follows:

A notice of proposed rulemaking and request for comments that appeared in the Federal Register on Tuesday, August 29, 2023 (88 FR 59576) announced that written or electronic comments must be received by October 30, 2023. Due to strong public interest, the due date to receive comments has been extended to Monday, November 13, 2023. The public hearing has not been extended and is still scheduled for November 7, 2023, at 10 a.m. ET. If the number of requests to speak at the hearing exceeds the number that can be accommodated in one day, a second public hearing date for this proposed regulation will be held on November 8, 2023. Requests to speak at the public hearing must be made by email to publichearings@irs.gov and still must be received by October 30, 2023. Persons who wish to present oral comments at the public hearing must submit written or electronic comments and an outline of the topics to be discussed as well as the time to be devoted to each topic, not to exceed ten minutes in total, by October 30, 2023.

In accordance with the Privacy Act of 1974, the Department of the Army is establishing a new system of records titled Army Safety Management Program Records (ASMPR), A0385-1 DAS. This system of records supports the prevention and management of injuries and illnesses due to work-related activities, and reduces its adverse impact on operational readiness. The system maintains records about individuals who suffer work-related injuries or illness caused by an accident, mishap, or hazard during work-related activities while on or off a DoD worksite, where there is a nexus to Army personnel, activities, or facilities/equipment, and/or individuals found to have contributed to the accident, mishap, or hazard.

The Privacy Act permits Federal agencies to exempt eligible records in a system of records from certain provisions of the Act, including the provisions providing individuals with a right to request access to and amendment of their own records and accountings of disclosures of such records. If an agency intends to exempt a particular system of records, it must first go through the rulemaking process pursuant to 5 U.S.C. 553(b)(1)-(3), (c), and (e). This proposed rule explains why an exemption is being claimed for this system of records and invites public comment, which DoD will consider before the issuance of a final rule implementing the exemption.

The Department of the Army proposes to modify 32 CFR 310.15 to add a new Privacy Act exemption rule for A0385-1 DAS, “Army Safety Management Program Records (ASMPR),” and to exempt portions of this system of records from certain provisions of the Privacy Act because some records may contain investigatory material compiled for law enforcement purposes within the scope of 5 U.S.C. 552a(k)(2), other than material within the scope of subsection (j)(2), which describes certain material related to the enforcement of criminal laws maintained by principal-function criminal law enforcement agencies. The Department of the Army therefore is proposing to claim an exemption from several provisions of the Privacy Act, including various access, amendment, disclosure of accounting, and certain record-keeping and notice requirements, to prevent, among other harms, the identification of actual or potential subjects of investigation and/or sources of investigative information and to avoid frustrating the underlying law enforcement purpose for which the records were collected. Records in this system of records are only exempt from the Privacy Act to the extent the purposes underlying the exemption pertain to the record. A notice of a new system of records for A0385-1 DAS, Army Safety Management Program Records (ASMPR), is also published in this issue of the Federal Register .

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distribute impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. It has been determined that this rulemaking is not a significant regulatory action under these Executive orders.

The Congressional Review Act, 5 U.S.C. 801 et seq., generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. DoD will submit a report containing this rulemaking and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States. A major rule may take effect no earlier than 60 calendar days after Congress receives the rule report or the rule is published in the Federal Register , whichever is later. This rulemaking is not a “major rule” as defined by 5 U.S.C. 804(2).

Section 202(a) of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532(a)) requires agencies to assess anticipated costs and benefits before issuing any rule whose mandates may result in the expenditure by State, local and tribal governments in the aggregate, or by the private sector, in any one year of $100 million in 1995 dollars, updated annually for inflation. This rulemaking will not mandate any requirements for State, local, or tribal governments, nor will it affect private sector costs.

The Assistant to the Secretary of Defense for Privacy, Civil Liberties, and Transparency has certified that this rulemaking is not subject to the Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) because it would not, if promulgated, have a significant economic impact on a substantial number of small entities. This rulemaking is concerned only with the administration of Privacy Act systems of records within the DoD. Therefore, the Regulatory Flexibility Act, as amended, does not require DoD to prepare a regulatory flexibility analysis.

The Paperwork Reduction Act (PRA) (44 U.S.C. 3501 et seq. ) was enacted to minimize the paperwork burden for individuals; small businesses; educational and nonprofit institutions; Federal contractors; State, local and tribal governments; and other persons resulting from the collection of information by or for the Federal Government. The Act requires agencies obtain approval from the Office of Management and Budget before using identical questions to collect information from ten or more persons. This rulemaking does not impose reporting or recordkeeping requirements on the public.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a rule that has federalism implications, imposes substantial direct compliance costs on State and local governments, and is not required by statute, or has federalism implications and preempts State law. This rulemaking will not have a substantial effect on State and local governments.

Executive Order 13175 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct compliance costs on one or more Indian tribes, preempts tribal law, or affects the distribution of power and responsibilities between the Federal Government and Indian tribes. This rulemaking will not have a substantial effect on Indian tribal governments.

Accordingly, the Department of Defense proposes to amend 32 CFR part 310 as follows:

On April 26, 1996, Congress passed the appropriations act for Fiscal Year 1996. Public Law 104-134, 110 Stat. 1321. Through this statute, Congress enacted a series of restrictions applicable to LSC grant recipients' activities. One of the restrictions was section 504(a)(18), which states that grant recipients

On May 19, 1996, the Operations and Regulations Committee of the LSC Board requested LSC staff to prepare an interim rule to implement section 504(a)(18), and in April 1997, LSC promulgated part 1638. Consistent with section 504(a)(18), LSC's rule prohibited a grant recipient from representing an individual who had not sought legal advice from the grant recipient but was advised to seek legal representation or take legal action by the grant recipient. Part 1638 also prohibits grant recipients who have given in-person unsolicited advice to an individual from referring the individual receiving the advice to another LSC grant recipient. Id. Finally, LSC included language in part 1638 stating that providing legal information, including information about the availability of counsel and a grant recipient's intake procedures, are permissible activities. 45 CFR 1638.4(a).

The broad definition of “in-person” may restrict more conduct than Congress intended when it enacted the prohibition on client solicitation. Section 504(a)(18) applies only to “in-person advice.” It does not mention “personal encounters via other means of communication,” which part 1638 does. 45 CFR 1638.2(a). Congress appears to have based section 504(a)(18) on ABA Model Rule 7.3, which generally prohibits “in-person, live telephone, or real-time electronic communications.” Model Rule 7.3 also prohibits solicitation through “written, recorded or electronic communications,” but only when such communications are abusive. Thus, part 1638's inclusion of “a personal letter” in the definition of “in-person” goes beyond the statutory language of section 504(a)(18) and the use of the same term by ABA Model Rule 7.3. The ABA updated Rule 7.3 in 2013. The changes, among other things, added electronic communications and reinforced the distinction between in-person contacts and written contacts (an electronic contact is in the same category as an “in-person” contact only when it is a “real-time electronic contact.”).

The regulation's existing language has caused grantees to question whether they can provide information about the individuals' legal rights and the availability of legal assistance through texts, phone calls, and in-person contacts at court clinics. Over the years, OLA has received multiple inquiries from grant recipients and other stakeholders about what proposed outreach activities are permissible under part 1638. Some of the examples include:

• sending text messages explaining defendants' rights to unrepresented individuals in eviction cases;

• informing individuals of the availability of legal assistance via mailings and text messages; and

• individuals approaching grant recipient attorneys at court-based self-help clinics.

In July 2003, OLA published an advisory opinion answering a question from the Northwest Justice Project (“NJP”). NJP asked whether they could hand out informational brochures to individuals in the courthouse as part of their administration of the Housing Justice Program (“HJP”). The HJP provided same-day advice and representation from volunteer attorneys to LSC-eligible clients in eviction proceedings in court. The previous coordinator of the HJP, a non-LSC-funded organization, contacted prospective clients at the courthouse, advised them of the availability of services, asked if they would like to discuss their case with a lawyer, and represented some the same day. Upon assuming operation of the program, NJP stopped engaging in direct contact and submitted its inquiry to LSC. NJP contacted LSC because it was concerned that the lack of direct client engagement had led to a decline in the usage of HJP services. LSC confirmed that under part 1638, it would be impermissible for NJP to communicate with prospective clients at the courthouse to advise them of the availability of legal services and ask individuals if they wanted to discuss their case with a lawyer and then accept those individuals as clients. EX-2003-1011, June 9, 2003. This advisory opinion remained LSC's position until 2016.

In 2016, OLA received a question from a law professor who was researching methods for increasing the likelihood that individuals living in poverty would engage with the legal system, including by seeking free legal services. The study proposed to test the effectiveness of different types of mailings sent to defendants in debt collection cases. The professor asked OLA whether part 1638 prohibits a grant recipient from representing individuals to whom the grant recipient has mailed information regarding their rights and identifying the types of legal services provided by the grant recipient. AO 2016-001. OLA opined that a mailing from an LSC grant recipient would violate part 1638 if it provided (1) “unsolicited advice” and (2) constituted a “personal letter.” Id. OLA also stated that a mailing that contains only “information regarding legal rights and responsibilities or . . . information regarding the recipient's services and intake procedures” does not constitute “unsolicited advice.” Further, a mailing does not constitute a “personal letter” if the letter provides only generic information that is not tailored to the individual receiving the mailing and it does not include specific facts related to the individual's legal issues. Id. OLA concluded that a mailing that contains unsolicited advice that is not tailored to the individual receiving the mailing is not considered a “personal letter” under § 1638.2(a). Id.

In 2020, OLA issued an advisory opinion about part 1638 that addressed a question involving the permissibility of a grant recipient representing individuals that it had either (1) contacted over the telephone or via text message; or (2) initiated contact with through the grant recipient's ongoing presence in the courthouse. Regarding in-person contact in courthouses, OLA confirmed that part 1638 does not prohibit a grant recipient from initiating contact with individuals if the grant recipient is providing “information regarding legal rights and responsibilities” or providing information about the grant recipient's intake process while “. . . maintain[ing] an ongoing presence in a courthouse to provide advice at the invitation of the court[.]” AO 2020-004. Additionally, part 1638 does not prohibit grant recipients from representing an individual that the grant recipient initiated contact with over the telephone or via text message as long as the communication contains only generic information that is not tailored to the individual or the specific facts of the individual's legal issues. Id.

LSC issued its most recent guidance on part 1638 in 2022. In Program Letter 22-1, LSC advised that grant recipients could send text messages to defendants (tenants) in landlord/tenant cases to notify them that an eviction case has been filed against them; to let them know of any upcoming court appearances; and to inform them of the availability of counsel. Program Letter 22-1. The program letter cited previous guidance from OLA regarding unsolicited advice via text message and mail.

LSC believes regulatory action is justified at this time for two reasons. First, OLA has been applying a nearly thirty-year-old rule concerning communications to new technologies and outreach strategies developed since part 1638 was published. Second, regulatory action is justified because LSC has continued to receive questions from grantees and other stakeholders about whether certain proposed outreach activities are permissible under part 1638. These questions have become more compelling as governments began lifting moratoria on filing evictions and pursuing debt collection cases that they had put into place near the beginning of the COVID-19 pandemic. Rulemaking to make part 1638 more consistent with the language of section 504(a)(18) has become more critical to helping grantees inform people living in poverty who are facing eviction or potentially significant financial consequences about their rights and the availability of attorneys to assist them.

On July 25, 2023, the Operations and Regulations Committee voted to recommend that the Board authorize rulemaking on part 1638. On July 27, 2023, the Board authorized LSC to begin rulemaking. On October 16, 2023, the Committee voted to recommend that the Board authorize publication of this NPRM in the Federal Register for notice and comment. On October 17, 2023, the Board accepted the Committee's recommendation and voted to approve publication of this NPRM.

LSC proposes to make no changes to this section.

LSC proposes to add a definition for the terms communicate and communication that pertains to mailed, emailed, and texted messages, as opposed to merely in-person engagements. With additional technology since the inception of this prohibition, this change will provide greater flexibility and clarity around the methods of communication that are permitted. This is not intended to require recipients to use various methods to reach client-eligible individuals; rather it clarifies which methods are permissible.

LSC also proposes to amend the definition of the term in-person to include virtual engagements such as clinics conducted via Zoom or other videoconferencing software. LSC proposes to make this change to reflect the transition, hastened by the COVID-19 pandemic, to the provision of legal services through virtual means in addition to traditional in-person engagements.

Finally, to account for adding a new definition, LSC proposes to redesignate existing paragraph (b), defining the term unsolicited advice, as paragraph (c).

LSC proposes to edit the text to be active as opposed to passive. For example, “shall not represent” would replace “are prohibited from representing.”

LSC proposes to edit the text to be active as opposed to passive. Additionally, LSC proposes to revise § 1638.4(a) to permit communication and in-person engagement about individuals' legal rights and responsibilities and grantees' intake procedures. LSC believes that the proposed language should be clearer that grantees are permitted to send individuals information about rights and responsibilities that could lend itself to individuals filing complaints, either pro se or with the assistance of counsel. This instance may arise in the context of housing cases; for example, in housing habitability and tenant building purchase cases. A grantee may discover that there is a building with numerous safety issues and communicate with the tenants about the warranty of habitability, their options for getting the landlord to make repairs, including affirmative litigation, and the grantee's intake process. After receiving such legal information, some tenants could conceivably apply for legal assistance to help them pursue legal action to force repairs. This approach is consistent with the text of section 504(a)(18) of LSC's 1996 appropriation statute, which speaks in general terms about prohibited solicitation. It is critical to closing the justice gap that grantees are aware that they can advise their client-eligible communities about issues for which affirmative litigation may be an appropriate solution.

Further, LSC proposes to add paragraphs (c) and (e) to incorporate OLA's interpretations of existing part 1638 and the guidance LSC provided in PL 22-1. Finally, LSC proposes to redesignate existing paragraph (c) as paragraph (d) and to revise new paragraph (d) to replace the phrase “physically or mentally disabled” with the person-first term “living with a physical or mental disability.”

LSC proposes no changes to this section.

For the reasons set forth in the preamble, the Legal Services Corporation proposes to amend 45 CFR part 1638 as follows:

DoD is proposing to revise the DFARS to implement section 856 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2023 (Pub. L. 117-263). Section 856 transferred section 831 of the NDAA for FY 1991 (Pub. L. 101-510; 10 U.S.C. 4901 note) to 10 U.S.C. 4902 and authorized the DoD Mentor-Protégé Program on a permanent basis. Section 856 also extends the term for program participation and removes the term limitation for mentors to incur costs under mentor-protégé agreements entered into after December 23, 2022. Section 856 does not apply to mentor-protégé agreements entered into prior to December 23, 2022.

DoD proposes to modify DFARS subpart 219.71 and DFARS appendix I to implement section 856 of the NDAA for FY 2023, which authorizes on a permanent basis and modifies the DoD Mentor-Protégé Program (the Program). This proposed rule removes all references to “pilot” to acknowledge that the Program is no longer a temporary, pilot program. Removal of the deadline for entering into a mentor-protégé agreement is also proposed, as this deadline is no longer applicable since the program is no longer authorized on a temporary basis. This proposed rule removes the specific dates for mentor reimbursements and credit toward subcontracting goals in its small business subcontracting plan under mentor-protégé agreements entered into after December 23, 2022.

In addition, DoD proposes to implement other changes made by section 856. The dollar threshold for mentor eligibility is proposed to be changed from $100 million to $25 million. The program participation term is proposed to be extended from two years to three years. The proposed rule includes the addition of “manufacturing, test and evaluation” to the list of assistance that a mentor may provide to a protégé under a mentor-protégé agreement and the addition of “manufacturing innovation institutes” to the list of assistance that a mentor firm may obtain for the protégé firm under a mentor-protégé agreement.

This proposed rule amends the clause at DFARS 252.232-7005, Reimbursement of Subcontractor Advance Payments—DoD Pilot Mentor-Protégé Program, to remove the word “Pilot” from the clause title. However, this rule does not impose any new requirements on contracts at or below the SAT, for commercial products including COTS items, or for commercial services. The clause will continue to not apply to acquisitions at or below the SAT, to acquisitions of commercial products including COTS items, and to acquisitions of commercial services.

This proposed rule implements the permanent authorization of and statutory amendments to the DoD Mentor-Protégé Program. The purpose of the program is to provide incentives to DoD contractors to furnish eligible small business concerns with assistance designed to—

(1) Enhance the capabilities of small business concerns to perform as subcontractors and suppliers under DoD contracts and other contracts and subcontracts; and

(2) Increase the participation of small business concerns as subcontractors and suppliers under DoD contracts, other Federal Government contracts, and commercial contracts.

Therefore, this proposed rule, when finalized, will benefit small business concerns that participate in the program by extending the opportunity to enter into DoD Mentor-Protégé agreements and extending the term of the agreements. This proposed rule is also expected to benefit large entities and the Government by expanding the defense industrial base.

Executive Orders (E.O.s) 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). E.O. 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. This is not a significant regulatory action and, therefore, was not subject to review under Section 6(b) of E.O. 12866, Regulatory Planning and Review, as amended.

DoD does not expect this proposed rule, when finalized, to have a significant economic impact on a substantial number of small entities within the meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq., because this proposed rule is only expected to impact a limited number of small entities that become protégés under a DoD mentor-protégé agreement. However, an initial regulatory flexibility analysis has been performed and is summarized as follows:

This proposed rule is necessary to implement section 856 of the National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2023 (Pub. L. 117-263). Section 856 transferred section 831 of the NDAA for FY 1991 (Pub. L. 101-510; 10 U.S.C. 4901 note) to 10 U.S.C. 4902 and authorized the DoD Mentor-Protégé Program on a permanent basis. Section 856 also extends the term for program participation and removes the term limitation for mentors to incur costs under agreements entered into after December 23, 2022.

The objective of this proposed rule is to implement the permanent authorization of the DoD Mentor-Protégé Program and to make other Program changes. The legal basis for the rule is section 856 of the NDAA for FY 2023.

The number of new DoD mentor-protégé agreements entered into in FY 2021 was 50, with a total of 104 active agreements; in FY 2022, 29 new agreements were entered into, with a total of 62 active agreements; and in FY 2023, 25 new agreements were entered into, with a total of 75 active agreements. The average number of new agreements entered into during the last three fiscal years was approximately 35 per year, with an average of 80 total active agreements per fiscal year. DoD estimates 44 new agreements will be entered into in FY 2024, with a total of 81 active agreements in place. As of June 5, 2023, there are 62 unique small entities with active agreements. Since the number of small entities that will enter into new agreements is unknown, DoD cannot provide a more precise estimate of the number of small entities to which this rule will apply.

This proposed rule does not impose any new reporting, recordkeeping, or other compliance requirements for small entities.

This proposed rule does not duplicate, overlap, or conflict with any other Federal rules.

DoD did not identify any significant alternatives to the rule that would accomplish the stated objectives of the statute and that would minimize the significant economic impact of the rule on small entities. DoD does not expect this proposed rule, when finalized, to have a significant economic impact on a substantial number of small entities. Any impact is expected to be beneficial.

DoD invites comments from small business concerns and other interested parties on the expected impact of this rule on small entities.

DoD will also consider comments from small entities concerning the existing regulations in subparts affected by this rule in accordance with 5 U.S.C. 610. Interested parties must submit such comments separately and should cite 5 U.S.C. 610 (DFARS Case 2023-D011), in correspondence.

The Paperwork Reduction Act (44 U.S.C. chapter 35) applies to this proposed rule. However, these changes to the DFARS do not impose additional information collection requirements to the paperwork burden previously approved by the Office of Management and Budget (OMB) under OMB Control Number 0704-0332.

Therefore, 48 CFR parts 219, 232, 252, and Appendix I to Chapter 2 are proposed to be amended as follows:

The revisions and additions read as follows: