Requirements for Insurance

SUMMARY: The proposed rule would amend the existing NCUA Regulation

regarding the filing of Financial and Statistical Reports, Form 5300

(the ``5300 Report'') by adding a provision to allow the NCUA to

directly assess federally-insured credit unions for the actual cost of

repeated incidents of filing inaccurate or late 5300 Reports.

DATES: Comments must be received on or before April 5, 1996.

ADDRESSES: Comments should be directed to Becky Baker, Secretary of the

Board. Mail or hand-deliver comments to: National Credit Union

Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. Fax

comments to (703) 518-6319. Post comments on NCUA's electronic bulletin

board by dialing (703) 518-6480. Please send comments by one method

only.

FOR FURTHER INFORMATION CONTACT:

Herbert S. Yolles, Director, Division of Risk Management, (703) 518-

6363, or Jeffrey Mooney, Staff Attorney, (703) 518-6563, at the above

address.

SUPPLEMENTARY INFORMATION: Section 741.6 of NCUA Regulations, 12 CFR

Sec. 741.6, requires that federally-insured credit unions with assets

in excess of $50 million file a quarterly 5300 Report (or ``call

report'') with NCUA and that all federally-insured credit unions file

semiannually. Each quarter, a significant number of these reports are

submitted late or inaccurately. As a result, NCUA is required to

undertake review and collection efforts that include: identifying those

federally-insured credit unions that have not submitted their call

reports; correcting errors; sending notices to federally-insured credit

unions advising them of errors contained in their 5300 Report; asking

federally-insured credit unions why they have not submitted a 5300

Report; requiring federally-insured credit unions to submit amended

call reports or additional information; and as necessary in some cases,

making personal contact with federally-insured credit unions through

telephone calls and/or on-site visits to correct the errors or simply

to obtain the 5300 Report. NCUA regional offices have indicated that

each year an additional 4,000 hours are spent by federal examiners

attempting to correct or obtain late call reports.

Sections 120 of the Federal Credit Union Act provides the NCUA

Board general rulemaking authority to ``prescribe rules and regulations

for the administration of this chapter,'' and, under Section 209 of the

Federal Credit Union Act to, ``prescribe such regulations as it may

deem necessary or appropriate to carry out the provisions of this

title.'' 12 U.S.C. 1766 and 1789. All federally-insured credit unions

are required to file call reports with the NCUA. 12 U.S.C. 1782(a)(2)

and 12 CFR 741.6. The Board has determined that the cost of correcting

or obtaining repeatedly inaccurate or late reports from federally-

insured credit unions should be charged to the federally-insured credit

unions responsible rather than borne as a shared costs by the vast

majority of federally-insured credit unions which routinely comply with

the filing requirement. As a result, the Board proposes to assess the

agency's actual costs to federally-insured credit unions that cause

this unnecessary expense.

The costs will be calculated using the staff time and costs of

identifying federally-insured credit unions that have not filed their

5300 Report or corrected inaccurate information. NCUA will multiply the

actual NCUA staff time expended to obtain or correct the 5300 Report by

the average hourly compensation rate for field staff rate to determine

the assessed amount.

Prior to assessing costs for a late call report, the appropriate

NCUA regional office will notify the federally-insured credit union in

writing that their call report is late, that the federally-insured

credit union has in at least one of the three reporting periods prior

to the subject call report also filed their report late, and that the

NCUA will assess costs on the federally-insured credit union if the

report is not promptly received. The regional office will also inform

the federally-insured credit union of the potential costs associated

with processing the late submission.

The report is deemed inaccurate if it: (1) Contains a substantive

error requiring the federally-insured credit union to submit an amended

5300 Report or (2) when substantive errors are found during the 5300

Report editing process that require correction and verification by the

federally-insured credit union, and (3) the federally-insured credit

union has, at least twice during four continuous reporting periods to

include the report at issue, produced a 5300 Report with substantive

errors that require the region's direct efforts to correct. A 5300

Report can also be considered inaccurate if numerous nonsubstantive

errors affect the integrity of the submitted data and correction is

required in at least two of the past four reporting periods to include

the period at issue. A substantive error is one where a correction

would result in changing any amount reported in the 5300 Report by one

or more percent or $5,000, whichever is less.

If a 5300 Report is inaccurate, the NCUA regional office will

notify the federally-insured credit union in writing accordingly,

describe the substantive errors and suggest steps on how to avoid

committing similar errors, request a response, and advise the

federally-insured credit union that the NCUA will assess costs if the

error(s) are not promptly corrected without further NCUA involvement.

The regional office will also inform the federally-insured credit union

of NCUA's estimate costs associated in obtaining a corrected

submission.

NCUA will assess and recover the costs in the quarter immediately

following the call report's filing date. NCUA examiners will recommend

the assessment of costs to their supervisors by describing the facts

and circumstances surrounding the call report's deficiencies or

lateness. The examiner will itemize the time and expense used resolving

the matter. The examiner will also provide any prior recent history

where the federally-insured credit union has filed late or inaccurate

call reports. The regional

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director will issue the final assessment. The regional director may

decide to waive or abate cots after taking into account the size of a

federally-insured credit union, the gravity of the error, the

federally-insured credit union's efforts in correcting the error or the

promptness in responding to the request for the late call report and

reviewing any submissions from the federally-insured credit union that

sets forth a reasonable basis for waiving or abating the costs. Costs

will not be assessed unless the assessment is based on the same type of

error, repeated numerous errors, or repeated lateness. For example, a

federally-insured credit union may not be assessed costs if in the

first reporting period it files a late 5300 Report and during the

fourth reporting period it files an inaccurate 5300 Report.

A federally-insured credit union may appeal a cost assessment by a

regional director by submitting written reasons why the assessment

should be abated to the NCUA Board within 30 days of receiving the

final assessment from the region. The Board may delegate the authority

to determine appeals. The Board or its designee will review all of the

relevant facts, consult with the regional director involved and any

other appropriate party including the affected federally-insured credit

union and issue a final agency determination. There is no right to a

hearing.

In order to assure uniformity, the regional offices will inform the

Director of the Office of Examination and Insurance of the facts and

circumstances surrounding each assessment of costs during the prior

quarter, including those circumstances that warranted waiver or

abatement.

These costs are not being assessed as part of an administrative

action or civil money penalty as defined by the Federal Credit Union

Act, 12 U.S.C. 1786(k)(2). The costs are assessed to recover the

agency's expenses based upon the amount of additional time and

resources that NCUA must devote to a particular federally-insured

credit union's 5300 Report. NCUA may choose to seek civil money

penalties or take other administrative actions against the federally-

insured credit union for violating the regulatory requirement to file

timely and accurate call report. The purpose of the proposed rule is to

recover the additional costs the NCUA incurs when collecting late and

correcting inaccurate call reports.

The NCUA requests comment on any aspect of this proposal.

Regulatory Procedures

Regulatory Flexibility Act

The NCUA Board has determined and certifies that the proposed

amendment, if adopted, will not have a significant economic impact on a

substantial number of small federally-insured credit unions, primarily

those under $1 million in assets. Accordingly, the NCUA Board has

determined that a Regulatory Flexibility Analysis is not required.

Paperwork Reduction Act

The collection of information requirements contained in this notice

of proposed rulemaking will be submitted to the Office of Management

and Budget (OMB) for review under the Paperwork Reduction Act. Written

comments on the collection of information should be forwarded directly

to the OMB Desk Officer indicated below at the following address: OMB

Reports Management Branch, New Executive Office Building, Room 1020,

Washington, DC 20503. Attn: Milo Sunderhauf. NCUA will publish a notice

in the Federal Register once OMB action is taken on the submitted

request.

The collection of information requirements in this proposed

regulation are found in 12 CFR 741.6 (c)(4)(f), (c)(6) and (c)(7). This

information is required to proposed implementing procedures that will

enable the federally-insured credit union to comply with the

requirements of this section, and to challenge the assessment of costs.

The likely respondents/recordkeepers are federally insured credit

unions.

Estimated number of respondents and/or recordkeepers: 630.

Estimated average annual burden hours per respondent/recordkeeper:

2 hours.

Estimated total annual reporting and recordkeeping burden: 1260

hours.

Start up cost to respondents: $29.76.

Executive Order 12612

The proposed change in Sec. 741.6 will apply to both federal credit

unions and federally-insured, state chartered credit union. The NCUA

Board, pursuant to Executive Order 12612, has determined that the

proposed amendment will not have substantial direct effect on the

states, on the relationship between hat national government and the

states, or on the distribution of power and responsibilities among the

various levels of government. Further, the proposed rule will not

preempt provisions of state law or regulation.

List of Subjects in 12 CFR Part 741

Bank deposit insurance, Credit unions, Reporting and recordkeeping

requirements.

By the National Credit Union Administration Board on January 25,

1966.

Becky Baker,

Secretary of the Board.

Accordingly, NCUA proposes to amend 12 CFR part 741 as follows:

PART 741--REQUIREMENTS FOR INSURANCE

1. The authority citation for part 741 is revised to read as

follows:

Authority: 12 U.S.C. 1757, 1766, and 1781 through 1790.

2. Section 741.6 is amended by adding paragraph (c):

Sec. 741.6 Financial and statistical and other reports.

* * * * *

(c) If NCUA incurs costs due to a federally-insured credit union's

failure to file an accurate or timely Financial and Statistical Report

on Form 5300 (5300 Report), the federally-insured credit union involved

will be assessed those costs if during any of the prior three reporting

periods the federally-insured credit union has also filed its 5300

Reports late, or during any of the prior three reporting periods the

federally-insured credit union has also filed the 5300 Report with

substantive or numerous inaccuracies.

(1) A 5300 Report is considered late if it is postmarked after the

date prescribed in paragraph (a) above.

(2) A 5300 Report is inaccurate if it contains one or more

substantive errors or numerous nonsubstantive errors requiring an

amended report or when substantive errors or numerous nonsubstantive

errors are found during the editing process that require correction and

verification by the federally-insured credit union.

(i) A substantive error exists if correction would result in

changing any amount reported in the 5300 Report by more than one

percent of the correctly reported amount or $5,000, whichever is less.

(3) The appropriate NCUA regional office will provide written

notice to the federally-insured credit union if the federally-insured

credit union will be assessed a fee for late or inaccurate filing under

this section. The NCUA will provide the federally-insured credit union

with the following information:

(i) whether the federally-insured credit union has filed its 5300

Report inaccurately or late;

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(ii) a recent history of the accuracy or timeliness of the

federally-insured credit union's prior 5300 Reports;

(iii) the estimated costs to NCUA as a result of the inaccuracy or

late filing;

(iv) whether the errors, if any, were substantive and why and;

(v) steps that the federally-insured credit union could take to

avoid filing future inaccurate or late 5300 reports.

(vi) request that the federally-insured credit union respond within

30 days with a written proposal that describes how it intends to avoid

submitting another late or inaccurate 5300 Report, seeks a waiver or

abatement of the assessment or states why the federally-insured credit

union's 5300 Reports is not inaccurate or late.

(4) The costs for a late or inaccurate 5300 Report shall be

calculated based on the actual hours expended by NCUA personnel

multiplied by the average hourly cost of the salaries and benefits of

such personnel.

(5) Prior to making a final assessment determination, the NCUA

regional director may waive or abate any costs assessed against a

federally-insured credit union after taking into account the size of

federally-insured credit union that sets forth a reasonable basis for

waiving or abating the costs.

(6) A federally-insured credit union may challenge a final

assessment by submitting written reasons why the assessment should

waived or abated to the NCUA Board within 30 days of receiving the

final assessment from the region. The Board may delegate the authority

to determine an appeal of an assessment. The Board or its designee

shall consider all relevant facts and consult with any relevant parties

prior to making a final agency determination.

[FR Doc. 96-2017 Filed 2-2-96; 8:45 am]

BILLING CODE 7535-01-M