Organization and Operations of Federal Credit Unions; Truth in Savings

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 701 and 707

Organization and Operations of Federal Credit Unions; Truth in

Savings

AGENCY: National Credit Union Administration.

ACTION: Final rule.

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SUMMARY: The NCUA Board is implementing two provisions of the Economic

Growth and Regulatory Paperwork Reduction Act of 1996. First, the Board

is raising the threshold of credit union board of directors' approval

of loans to officials from $10,000 to $20,000. Second, the Board is

permanently exempting small, nonautomated credit unions from Truth in

Savings compliance.

DATES: This final rule is effective December 27, 1996.

ADDRESSES: National Credit Union Administration, 1775 Duke Street,

Alexandria, Virginia 22314-3428.

FOR FURTHER INFORMATION CONTACT: Sparky Conrey, Staff Attorney, Office

of General Counsel, telephone (703) 518-6540, and Jodee Wuerker,

Compliance Officer, Office of Examination and Insurance, telephone

(703) 518-6360.

SUPPLEMENTARY INFORMATION:

(1) Loans to Officials

On September 30, 1996, the Economic Growth and Regulatory Paperwork

Reduction Act of 1996 (the ``Act'') was enacted. Section 2306 of the

Act amended sections 107(5)(A) (iv) and (v) of the Federal Credit Union

Act, by raising the threshold of loans to officials that require credit

union board of director approval from $10,000 to $20,000. 12 U.S.C.

1757(5)(A) (iv) and (v). These statutory provisions are currently

implemented in section 701.21(d) (1) and (4) of NCUA's Rules and

Regulations. 12 CFR 701.21(d) (1) and (4). The $10,000 amount is

changed to $20,000 in these two sections. All other portions of the

rules regarding loans to officials remain the same.

(2) Truth in Savings

Background

NCUA has previously extended the compliance date three times of

part 707, which implements the Truth in Savings Act (TISA), for certain

small, nonautomated credit unions. Each time, the NCUA Board took into

consideration the limited resources of the exempted credit unions. The

last extension was due to expire on January 1, 1997. 60 FR 57173

(November 14, 1995).

Section 2604(c) of the Act exempts from TISA requirements ``any

nonautomated credit union that was not required to comply with the

[TISA] as of the date of enactment of the [Act], pursuant to the

determination of the [NCUA] Board.'' The NCUA Board has previously

exempted nonautomated and insufficiently automated credit unions with

an asset size of $2 million or less as reported to, or determined by,

NCUA. An exemption had been supported by NCUA, the Department of the

Treasury, and credit union trade associations in Congressional hearings

and other legislative action, citing the hardships that would befall

the small, nonautomated credit unions if TISA compliance became

mandatory. These hardships potentially include: increased mergers of

the affected credit unions into larger credit unions; increased

voluntary liquidations; loss of volunteer support; allocation of credit

union resources from member services to compliance; the expense,

complications, and logistics of automating in order to comply; and loss

of credit union services to members. Subsequently, Congress provided a

TISA exemption for small, nonautomated credit unions.

The NCUA Board is concerned with the continued viability of small

credit unions and the provision of continued financial services to

their members. Ten years ago, credit unions under $2 million in size

made up about two-thirds (10,564) of all federally insured credit

unions. Today, such credit unions number only 3,401, about thirty

percent of federally insured credit unions. In addition, the assets of

today's 3,401 smallest credit unions are .9 percent of total assets in

all credit unions, while credit unions of $2 million or less accounted

for 7.7 percent of total assets ten years ago. The average credit union

today has $28 million in assets, compared to $5 million ten years ago.

Because the Act recognizes the difficulty that small credit unions

face in complying with the many requirements of the TISA, especially

the calculation requirements, statutory relief is provided. It is

important to note that this relief is available to a very small segment

of credit unions. Almost four-fifths of credit unions with $2 million

or less in assets are automated or have in-house data processing. NCUA

has determined that there are about 704 credit unions under $2 million

in assets that report having manual recordkeeping systems. Analogously,

NCUA has also determined that there are about 607 credit unions under

$2 million in assets that have no compensated employees. (These numbers

do not include the approximately 645 non-federally insured credit

unions that do not submit 5300 reports.) The actual number of credit

unions exempt from TISA and part 707 is estimated by NCUA staff to be

fewer than 1,000. Although the statutory exemption is permanent in

nature, NCUA encourages exempted credit unions to continue to comply

with the spirit and intent of TISA by providing full and fair account

disclosures to members. Even with the extension, many small,

nonautomated credit union activities comply with the purposes of TISA:

to enable credit union members and potential members to make informed

decisions about credit union accounts and to make meaningful

comparisons with accounts at other financial institutions.

Definition of Nonautomated

The NCUA Board has decided to implement the Act's exemption for

nonautomated credit unions by

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amending the coverage provisions of paragraph 707.1(c) and by adding a

new Comment 707.1(c)-3 to Appendix C, Official Staff Interpretations.

No application is necessary in order to obtain the exemption. However,

as required by the Act, NCUA does determine a credit union's legibility

for the exemption. Credit unions may contact the appropriate Regional

Office to verify their use of the exemption.

By the term ``nonautomated status'' NCUA means those credit unions

without adequate and sufficient in-house or vendor-provided computer or

data processing capacity and capability to establish, operate and

maintain a share and loan software program able to timely and

accurately process all member transactions on all member accounts at

the credit union. Thus, some exempted credit unions do have some

computer capacity, such as a word processor or a computer with

insufficient memory and power capabilities to operate a complete, up-

to-date share and loan software program. Since these credit unions are

not sufficiently automated for Truth in Savings purposes, it is the

determination of the NCUA Board that such credit unions are entitled to

the Act's exemption. NCUA generally has used the year-end NCUA Form

5300 report to determine the requisite nonautomation status and asset

size for those credit unions filing Form 5300 reports that have been

eligible for the previous TISA compliance date extensions. Credit

unions which do not file Form 5300 reports are currently permitted to

prove nonautomation status and asset size by other means, such as

verified self-certifications, certifications by appropriate state

supervisory authorities, and other equivalent forms of proof. In the

future, NCUA will use a combination of these methods to determine

eligibility for the TISA exemption.

Operation of Exemption

The Act authorizes the NCUA Board to determine the extent and

operation of the TISA exemption. All credit unions that were exempt

from TISA regulation as a result of the prior NCUA compliance date

extensions as of September 30, 1996, are exempt. These are credit

unions with $2 million or less in assets, after subtracting any

nonmember deposits, that are nonautomated as determined by the NCUA

Board. If any of these credit unions grow to have more than $2 million

in assets as of December 31 of any year, the NCUA Board will require

such credit unions to comply with TISA and part 707 on January 1 one

year after the December 31st (in other words, the credit union will

have at least one year to prepare for compliance). Similarly, if a

credit union becomes sufficiently automated to operate a complete share

and loan system, such credit union will be entitled to the same

compliance phase-in period. For example, if a credit union grows to

over $2 million in assets on December 31, 1997 (or if it becomes

sufficiently automated on December 31, 1997), it must begin compliance

with TISA and part 707 on January 1, 1999. The NCUA Board believes that

a previously exempt small credit union will need time to draft account

disclosures, install TISA compliance software into its share and loan

system, test its share and loan system, and make other decisions

regarding its automation. By granting at least one full year before the

previously exempt credit union must comply with TISA, the Board

believes that it is allowing sufficient time for such a credit union to

ease into TISA compliance. Also, if a new credit union is chartered

with less than $2 million in assets, it will be eligible for the

exemption until it no longer meets exemption eligibility criteria.

(3) Regulatory Procedures

Regulatory Flexibility Act

The Regulatory Flexibility Act requires NCUA to prepare an analysis

to describe any significant economic impact a regulation may have on a

substantial number of small credit unions (primarily those under $1

million in assets). This rule will not have a significant economic

impact on a substantial number of small credit unions and therefore a

regulatory flexibility analysis is not required.

Paperwork Reduction Act

NCUA has determined that the amendments do not increase paperwork

requirements under the Paperwork Reduction Act of 1995 and regulations

of the Office of Management and Budget (OMB). 60 FR 44978 (August 29,

1995).

Executive Order 12612

Executive Order 12612 requires NCUA to consider the effect of its

actions on state interests. This regulation makes no significant

changes with respect to state credit unions since a temporary exemption

is being made permanent. Therefore the rule will not materially affect

state interests.

Administrative Procedure Act

The amendments and interpretation made to this part are not subject

to the notice and comment provisions of the Administrative Procedure

Act (APA), 5 U.S.C. 551 et seq. The amendments and interpretation

implement new effective statutory requirements. In addition, no major

changes are contemplated, or made, by this action since a temporary

exemption is merely being made permanent. Therefore, the NCUA Board has

determined that, in this case, the APA notice and comment procedures

for these amendments and interpretation are impracticable, unnecessary,

and contrary to the public interest. 5 U.S.C. 553(b)(3)(B).

List of Subjects

12 CFR Part 701

Credit, Credit unions, Reporting and recordkeeping requirements.

12 CFR Part 707

Advertising, Credit unions, Consumer protection, Interest, Interest

rates, Truth in savings.

By the National Credit Union Administration Board on December

19, 1996.

Becky Baker,

Secretary of the Board.

Accordingly, NCUA amends 12 CFR parts 701 and 707 as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

1. The authority citation for part 701 continues to read:

Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a,

1761b, 1766, 1767, 1782, 1784, 1787, 1789 and Public Law 101-73.

Section 701.6 is also authorized by 31 U.S.C. 3717. Section 701.31

is also authorized by 15 U.S.C. 1601, et seq., 42 U.S.C. 1981 and 42

U.S.C. 3601-3610. Section 701.35 is also authorized by 12 U.S.C.

4311-4312.

2. Section 701.21 is amended by revising the first sentence in

paragraph (d)(1) and paragraph (d)(4) is amended by revising the

introductory text to read as follows:

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

* * * * *

(d) Loans and lines of credit to officials

(1) Purpose. Sections 107(5)(A) (iv) and (v) of the Act require the

approval of the board of directors of the Federal credit union in any

case where the aggregate of loans to an official and loans on which the

official serves as endorser or guarantor exceeds $20,000 plus pledged

shares. * * *

* * * * *

(4) Board of Directors' review. The board of directors shall, in

any case, review and approve or deny an application on which an

official is a

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direct obligor, or endorser, cosigner or guarantor if the following

computation produces a total in excess of $20,000:

* * * * *

PART 707--TRUTH IN SAVINGS

3. The authority citation for part 707 continues to read as

follows:

Authority: 12 U.S.C. 4311.

4. Section 707.1 is amended by revising the first sentence of

paragraph (c) to read as follows:

Sec. 707.1 Authority, purpose, coverage, and effect on state laws.

* * * * *

(c) Coverage. This part applies to all credit unions whose accounts

are either insured by, or eligible to be insured by, the National

Credit Union Share Insurance Fund, except for any credit union that has

been designated as a corporate credit union by the National Credit

Union Administration and any credit union that has $2 million or less

in assets, after subtracting any nonmember deposits, and is determined

to be nonautomated by the National Credit Union Administration. * * *

* * * * *

5. Appendix C to part 707 is amended under paragraph 707.1(c), by

adding a new paragraph 3 to read as follows:

Appendix C to Part 707--Official Staff Interpretations

* * * * *

Sec. 707.1 Authority, Purpose, Coverage and Effect on State Laws.

* * * * *

(c) Coverage

* * * * *

3. Nonautomated credit unions. Nonautomated credit unions with an

asset size of $2 million or less, after subtracting any nonmember

deposits, are exempt from TISA and part 707. NCUA defines a

``nonautomated credit union'' as a credit union without sufficient data

processing capability and capacity to establish, operate and maintain a

share and loan software system to timely and accurately process all

account transactions of all members. The nonautomated credit union

exemption is available to all credit unions meeting the asset size and

automation standards of this comment, including newly chartered credit

unions. If any of the credit unions eligible for this exemption grow to

have more than $2 million in assets as of December 31 of any year, the

NCUA Board will require such credit unions to comply with TISA and part

707 on January 1 of one year after such credit union loses its

exemption eligibility. Similarly, if a credit union becomes

sufficiently automated to operate a complete share and loan system,

such credit union will be entitled to the same compliance phase-in

period.

* * * * *

[FR Doc. 96-32748 Filed 12-26-96; 8:45 am]

BILLING CODE 7535-01-P