Civil Monetary Penalty Inflation Adjustment

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 510

[96-102]

RIN 1550-AB01

Civil Monetary Penalty Inflation Adjustment

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Final rule.

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SUMMARY: Congress, in the Federal Civil Monetary Penalty Inflation

Adjustment Act of 1990, as amended by the Debt Collection Improvement

Act of 1996, required all federal agencies with the statutory authority

to impose civil monetary penalties (CMPs) to regularly evaluate those

CMPs and adjust the maximum CMPs to reflect inflation to ensure that

the CMPs continue to maintain their deterrent value. Consequently, OTS

is issuing this final rule to implement the required adjustments to

each of OTS's CMP statutes.

EFFECTIVE DATE: October 31, 1996.

FOR FURTHER INFORMATION CONTACT: Richard Blanks, Counsel (Banking and

Finance), (202) 906-7037, Chief Counsel's Office, Regulations and

Legislation Division, Office of Thrift Supervision, 1700 G Street, NW.,

Washington, DC 20552.

SUPPLEMENTARY INFORMATION: The Federal Civil Monetary Penalties

Inflation Adjustment Act of 1990 (FCMPIAA) 1 provided for the

regular evaluation of CMPs 2 to ensure that they continued to

maintain their deterrent value and that penalty amounts due the Federal

Government were properly accounted for and collected. Section 31,001(a)

of the Omnibus Consolidated Rescissions and Appropriations Act of 1996

(OCRRA) sets forth the Debt Collection Improvement Act of 1996

(DCIA),3 which was enacted to provide more effective tools for

governmentwide collection of delinquent debt. More specifically,

section 31,001(s)(1) of the OCRRA amended the FCMPIAA by requiring each

agency to make inflationary adjustments to the CMPs found in statutes

that it administers.4 Such adjustments must be made by regulation

published in the Federal Register. The first inflation adjustment is

required by October 23, 1996--180 days after the enactment of the DCIA.

Thereafter, agencies must make inflation adjustments by regulation at

least once every four years. Any increase in a CMP applies only to

violations that occur after the date the increase takes effect.5

These increases in maximum CMPs will not necessarily affect the amount

of any CMP OTS seeks in connection with a particular violation because

OTS calculates particular CMPs on a case-by-case basis based upon a

variety of factors (including the gravity of the violation, whether it

was willful or recurring, and any harm to the depository institution).

Thus, the maximums merely serve as a cap beyond which CMPs may not go.

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\1\ Pub. L. 101-410; 28 U.S.C. 2461 note.

\2\ Under the FCMPIAA, the term CMP means any penalty, fine, or

other sanction that (1) is for a specific monetary amount as

provided by federal law, or has a maximum amount provided for by

federal law; (2) is assessed or enforced by an agency pursuant to

federal law; and (3) is assessed or enforced pursuant to an

administrative proceeding or a civil action in the federal courts.

See 12 U.S.C. 2461 note. All three requirements must be met for a

fine to be defined as a CMP.

\3\ Pub. L. 104-134 (April 26, 1996) (to be codified at 28

U.S.C. 2461 note).

\4\ Some of OTS's CMPs are in a commonly administered statute,

12 U.S.C. 1818. Each agency that administers this statute is making

the identical adjustments.

\5\ We note here that while the CMP statutes of other agencies

frequently provide for a minimum and maximum penalty amount, all of

OTS's CMP statutes provide only for a daily maximum amount and do

not contain daily minimum amounts. Today's rule therefore refers

only to maximum CMPs.

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The statute provides that the inflation adjustment shall be

determined by increasing the maximum CMP for each CMP by a cost-of-

living adjustment. The term ``cost-of-living'' adjustment is defined as

the percentage for each CMP by which the Consumer Price Index (CPI) for

the month of June of the calendar year preceding the adjustment exceeds

the CPI for the month of June of the calendar year in which the amount

of such CMP was last set or adjusted pursuant to law. Any increase

calculated under the statute must be rounded according to rounding

rules set forth in the statute. Agencies do not have discretion in

choosing whether to adjust a maximum CMP, by how much to adjust a

maximum CMP, or the methods used to determine the adjustment.

To help explain the six-step statutorily-mandated inflation

adjustment calculation, we will use the following example. Pursuant to

12 U.S.C. 1818(i), OTS may impose a daily maximum third-tier CMP not to

exceed $1,000,000 for violations of certain banking laws. The first

step in the calculation requires finding the Consumer Price Index for

the All Urban Consumers (CPI-U) for two different time periods.6

The statute requires that the CPI-U for the year preceding the year of

adjustment be used, which here, because the adjustment will occur in

1996, will be the CPI-U for June, 1995, which is 456.7. The CPI-U for

June of the year the CMP was last set by law or adjusted for inflation

also must be determined. Because section 1818(i) was adopted in August,

1989, the CPI-U used is June, 1989, which is 371.7.

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\6\ The Consumer Price Index described herein was obtained from

the Bureau of Labor Statistics of the Department of Labor. There are

several Consumer Price Indices. The statute requires the use of the

CPI-U.

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Second, to calculate the cost of living adjustment or inflation

factor, we divide the CPI-U for June of the preceding year of the

adjustment by the CPI-U for June of the year the CMP was last set by

law or adjusted for inflation. Using our example, the CPI for June,

1995 (456.7) divided by the CPI-U for June, 1989 (371.7) equals 1.23.

Therefore, 1.23 is our inflation factor.

Third, to calculate the raw inflation adjustment, we multiply the

maximum penalty amounts set by law by the inflation factor. In our

example, $1,000,000 multiplied by our inflation factor of 1.23 equals

$1,230,000.

Fourth, we have to round the raw inflation adjustment amounts

according to the rounding rules set forth in the FCMPIAA. Since we

round the increased amount, we calculate the increased amount by

subtracting the original maximum penalty amounts from the raw maximum

inflation adjustments. The increased amount for the maximum penalty in

our example is $1,230,000 minus $1,000,000, which equals $230,000.

According to the rounding rules, if the penalty is greater

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than $200,000, then we round the increase to the nearest multiple of

$25,000. Therefore, the maximum penalty increase for our example, after

application of the rounding rules, is $225,000.

Fifth, we find the inflation adjustment maximum penalty after

rounding by adding the rounded increase to the original maximum penalty

amount set by law to calculate the maximum inflation adjusted penalty

amounts. In our example, $1,000,000 plus $225,000 yields a maximum

inflation adjusted penalty amount of $1,225,000.

Finally, the statute provides that the inflation adjustment of the

maximum penalty amount cannot exceed 10% of the original maximum

penalty amount. Ten percent of the original maximum penalty amount of

$1,000,000 in our example equals $100,000. Because the increase in the

maximum penalty amount cannot exceed 10% of the original maximum

penalty amount, the adjusted maximum penalty amount in our example is

$1,100,000. This is the amount set forth in the regulation.

The six-step calculation just described has been applied to all of

OTS's CMP statutes, and the maximum penalty amount for each statute is

set out in the regulation.

Need for an Immediately Effective Final Rule

Section 553 of the Administrative Procedure Act 7 requires

separate findings for good cause, first, that notice and comment are

impracticable, unnecessary, or contrary to the public interest when an

agency determines to issue a rule without prior notice and comment and

second, when it determines to make a rule effective without a 30-day

delay. Section 302 of the Riegle Community Development and Regulatory

Improvement Act of 1994 8 requires that a regulation that imposes

new requirements take effect on the first day of the quarter following

publication of the final rule. That section provides, however, that an

agency may determine that the rule should take effect earlier upon a

finding of good cause.

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\7\ 5 U.S.C. 553.

\8\ 12 U.S.C. 4802.

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Under the statute, agencies must make the required CMP inflation

adjustments (1) according to the very specific formula set forth in the

statute and (2) by October 23, 1996. Agencies have no discretion either

as the inflation adjustment amount or the timing of the adjustment. Due

to this lack of agency discretion, the OTS believes that notice and

comment are unnecessary. For these same reasons, the OTS believes that

there is good cause to make this rule effective immediately upon

publication.

Executive Order 12866

The Director of the OTS has determined that this final rule does

not constitute a ``significant regulatory action'' for the purposes of

Executive Order 12866.

Unfunded Mandates Act of 1995

Section 202 of the Unfunded Mandates Reform Act of 1995, Public Law

104-4 (Unfunded Mandates Act), requires that an agency prepare a

budgetary impact statement before promulgating a rule that includes a

federal mandate that may result in expenditure by state, local, and

tribal governments, in the aggregate, or by the private sector, of $100

million or more in any one year. If a budgetary impact statement is

required, section 205 of the Unfunded Mandates Act also requires an

agency to identify and consider a reasonable number of regulatory

alternatives before promulgating a rule. OTS has determined that the

rule will not result in expenditures by state, local, or tribal

governments or by the private sector of $100 million or more.

Accordingly, this rulemaking is not subject to section 202 of the

Unfunded Mandates Act.

List of Subjects in 12 CFR Part 510

Administrative practice and procedure, Penalties.

Accordingly, OTS amends title 12, chapter V, part 510 of the Code

of Regulations as set forth below.

PART 510--MISCELLANEOUS ORGANIZATIONAL REGULATIONS

The authority citation for part 510 is revised to read as follows:

Authority: 12 U.S.C. 1462a, 1463, 1464; Pub. L. 101-410, 104

Stat. 890; Pub. L. 104-134, 110 Stat. 1321-358.

2. Section 510.6 is added to read as follows:

Sec. 510.6 Civil money penalty inflation adjustment.

Pursuant to the Federal Civil Monetary Penalties Inflation

Adjustment Act of 1990 (28 U.S.C. 2461 note), as amended by the Debt

Collection Improvement Act of 1996 (Pub. L. 104-134, 110 Stat. 1321-

358), OTS is required to make inflationary adjustments for civil

monetary penalties in statutes that it administers. The following chart

displays those adjustments, as calculated pursuant to the statute:

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New maximum

U.S. Code citation CMP description amount

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12 U.S.C. 1464(v)(4).......... Reports of Condition-- $2,000

1st Tier.

12 U.S.C. 1464(v)(5).......... Reports of Condition-- 22,000

2nd Tier.

12 U.S.C. 1464(v)(6).......... Reports of Condition-- 1,100,000

3rd Tier.

12 U.S.C. 1467(d)............. Refusal to Cooperate 5,500

in Exam.

12 U.S.C. 1467a(i)(3)......... Holding Company Act 5,500

Violation.

12 U.S.C. 1467a(r)(1)......... Late/Inaccurate 2,000

Reports--1st Tier.

12 U.S.C. 1467a(r)(2)......... Late/Inaccurate 22,000

Reports--2nd Tier.

12 U.S.C. 1467a(r)(3)......... Late/Inaccurate 1,100,000

Reports--3rd Tier.

12 U.S.C. 1817(j)(16)(A)...... Change in Control--1st 5,500

Tier.

12 U.S.C. 1817(j)(16)(B)...... Change in Control--2nd 27,500

Tier.

12 U.S.C. 1817(j)(16)(C)...... Change in Control--3rd 1,100,000

Tier.

12 U.S.C. 1818(i)(2)(A)....... Violation of Law or 5,500

Unsafe or Unsound

Practice--1st Tier.

12 U.S.C. 1818(i)(2)(B)....... Violation of Law or 27,500

Unsafe or or Unsound

Practice--2nd Tier.

12 U.S.C. 1818(i)(2)(C)....... Violation of Law or 1,100,000

Unsafe or Unsound

Practice--3rd Tier.

12 U.S.C. 3349(b)............. Appraisals Violation-- 5,500

1st Tier.

12 U.S.C. 3349(b)............. Appraisals Violation-- 27,500

2nd Tier.

12 U.S.C. 3349(b)............. Appraisals Violation-- 1,100,000

3rd Tier.

42 U.S.C. 4012a(f)............ Flood Insurance....... 350/105,000

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[[Page 56120]]

Dated: October 22, 1996.

By the Office of Thrift Supervision.

Nicolas P. Retsinas,

Director.

[FR Doc. 96-27927 Filed 10-30-96; 8:45 am]

BILLING CODE 6720-01-P