Civil Money Penalties

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of Federal Housing Enterprise Oversight

12 CFR Part 1780

RIN 2550-AA06

Civil Money Penalties

AGENCY: Office of Federal Housing Enterprise Oversight, HUD.

ACTION: Final rule.

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SUMMARY: OFHEO is issuing this final rule to adjust each civil money

penalty within its jurisdiction to account for inflation. This action

is necessary to implement the Federal Civil Penalties Inflation

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

Act of 1996.

DATES: This final rule is effective December 31, 1997.

FOR FURTHER INFORMATION CONTACT: Danielle Arigoni, Research Assistant,

Office of Policy Analysis, or Marvin L. Shaw, Senior Counsel, Office of

General Counsel, 1700 G Street, NW, 4th Floor, Washington, DC 20552,

telephone (202) 414-3800 (not a toll-free number). The telephone number

for the Telecommunications Device for the Deaf is (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

The Office of Federal Housing Enterprise Oversight (OFHEO) was

established by Title XIII of the Housing and Community Development Act

of 1992, Pub. L. 102-550, known as the Federal Housing Enterprises

Financial Safety and Soundness Act of 1992 (1992 Act). OFHEO is an

independent office within the U.S. Department of Housing and Urban

Development (HUD) with responsibility for ensuring that the Federal

National Mortgage Association (Fannie Mae) and the Federal Home Loan

Mortgage Corporation (Freddie Mac) (collectively, the Enterprises) are

adequately capitalized and operating in a safe and sound manner. The

1992 Act authorizes OFHEO's Director (Director) to impose a civil money

penalty for violations by an Enterprise or its executive officers or

directors of any statute or regulation under OFHEO's jurisdiction.\1\

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\1\ See 1992 Act, section 1376 (12 U.S.C. 4636).

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Fannie Mae and Freddie Mac are Government-sponsored enterprises

that provide liquidity to and stability in the secondary market for

residential

[[Page 68153]]

mortgages.\2\ The Enterprises also increase the availability of

mortgage credit benefiting low- and moderate-income families and areas

that are underserved by lending institutions. The Enterprises engage in

two principal businesses: investing in residential mortgages and

guaranteeing residential mortgage securities.

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\2\ See 1992 Act, secitons 1331-38 (12 U.S.C. 4561-67, 4562

note).

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II. Debt Collection Improvement Act of 1996

In order to preserve the remedial impact of civil money penalties

and foster compliance with the law, the Federal Civil Penalties

Inflation Adjustment Act of 1990,\3\ as amended by the Debt Collection

Improvement Act of 1996 \4\ (the Debt Collection Improvement Act),

requires Federal agencies to make an initial inflationary adjustment

for all applicable civil money penalties and to make further

adjustments of these penalty amounts at least once every 4 years. The

Debt Collection Improvement Act further stipulates that any resulting

increases in a civil money penalty due to the calculated inflation

adjustments (i) should apply only to violations that occur after

October 23, 1996--the Act's effective date--and (ii) should not exceed

10 percent of the penalty indicated.

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\3\ Pub. L. 101-410, 28 U.S.C. 2461 note.

\4\ Pub. L. 104-134, seciton 31001(s), 110 Stat. 1321-358

(codified as amended at 28 U.S.C. 2461 note).

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Under the Debt Collection Improvement Act, the inflation adjustment

for each applicable civil money penalty is determined by increasing the

maximum civil money penalty amount per violation by the cost-of-living

adjustment. The ``cost-of-living'' adjustment is defined by the statute

as the amount 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 year in which the amount of such civil penalty

was last set or adjusted pursuant to law, divided by the earlier CPI

value. Any calculated increase under this adjustment is subject to a

specific rounding formula \5\ set forth in the Debt Collection

Improvement Act.

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\5\ The statute's rounding rules require that an increase be

rounded to the nearest multiple as follows: $10 in the case of

penalties less than or equal to $100; $100 in the case of penalties

greater than $100 but less than or equal to $1,000; $1,000 in the

case of penalties greater than $1,000 but less than or equal to

$10,000; $5,000 in the case of penalties greater than $10,000 but

less than or equal to $100,000; $10,000 in the case of penalties

greater than $100,000 but less than or equal to $200,000; and

$25,000 in the case of penalties greater than $200,000.

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III. OFHEO'S Civil Money Penalties Affected by the Inflation

Adjustment

The following example illustrates how the methodology outlined in

the Debt Collection Improvement Act applies to civil money penalties

assessed by OFHEO. Under section 1376 of the 1992 Act, OFHEO may impose

a daily penalty not to exceed $1,000,000 on either Enterprise or any

executive officer or director of an Enterprise for certain violations.

The first step in determining the inflation adjustment is to calculate

and apply the percentage by which the CPI for all Urban Consumers (CPI-

U) has changed over the period beginning in the year in which the

existing civil money penalty amounts were last statutorily defined

(section 1376 was adopted in 1992, and no adjustments have been made

since) and ending in the calendar year preceding the adjustment. Given

that the current year is 1997, the end of the period is the preceding

year, 1996. The corresponding CPI-U values for the months of June in

1992 and 1996 are 419.9 and 469.5, respectively. Dividing the

difference between the two values by the base year (1992) value yields

a percentage increase of 11.8, which is multiplied by the existing

civil money penalty amount of $1,000,000 to yield an increase of

$118,000.

The second step is to apply the rounding rules in the Debt

Collection Improvement Act which state that, where the increase is

greater than $100,000 but less than or equal to $200,000, the increase

shall be rounded to the nearest multiple of $10,000. As a result, the

increase is rounded up to $120,000. When added to the original civil

money penalty, the adjustment yields a new maximum civil money penalty

of $1,120,000.

Finally, the Debt Collection Improvement Act provides that any

adjustment for inflation of a civil money penalty shall not exceed 10

percent of the existing amount. In this case, the maximum penalty

amount is $100,000. As such, the final increase is adjusted to meet the

10 percent increase limit, since the $120,000 increase resulting from

the calculations exceeds the amount allowed by the Debt Collection

Improvement Act. A final civil money penalty amount is reached by

adding the equivalent of 10 percent of the statutorily defined penalty

($100,000) to the existing civil money penalty amount ($1,000,000),

yielding a figure of $1,100,000. This is the figure which is associated

with the violations previously penalized by a maximum $1,000,000 fine.

This adjustment process has been applied to all of OFHEO's statutory

civil money penalty limits to determine the maximum amounts as listed

in the 1992 Act.

Based on these considerations, OFHEO has decided to amend chapter

XVII of Title 12 of the Code of Federal Regulations by adding subpart

E, titled ``Civil Money Penalties,'' to Part 1780 to reflect the

inflation adjustments mandated by the Debt Collection Improvement Act.

IV. Effective Date

OFHEO finds good cause to make this rule effective upon publication

of this document in the Federal Register under the Administrative

Procedure Act (APA). 5 U.S.C. 553(d). This final rule does not impose

any additional responsibilities on any entity. Instead, it simply

adjusts the civil penalties as directed by the Debt Collection

Improvement Act.

OFHEO also finds for good cause that notice and an opportunity to

comment on this document are unnecessary under the APA. 5 U.S.C. 553.

This rulemaking conforms with and is consistent with the statutory

authority set forth in the Debt Collection Improvement Act, with no

issues of policy discretion. Consequently, because the opportunity for

notice and comment is unnecessary, OFHEO is issuing these requirements

as a final rule.

V. Regulatory Impact Statements

Executive Order 12612, Federalism

Executive Order 12612 requires that Executive departments and

agencies identify regulatory actions that have significant federalism

implications. A regulation has federalism implications if it has

substantial direct effects on the States, on the relationship or

distribution of power between the Federal Government and the States, or

on the distribution of power and responsibilities among various levels

of government. OFHEO has determined that this regulation has no

federalism implications that warrant the preparation of a Federalism

Assessment in accordance with Executive Order 12612.

Executive Order 12866, Regulatory Planning and Review

OFHEO's Acting Director has determined that this final rule does

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

Executive Order 12866.

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Executive Order 12988, Civil Justice Reform

Executive Order 12988 sets forth guidelines to promote the just and

efficient resolution of civil claims and to reduce the risk of

litigation to the Federal Government.

The regulation meets the applicable standards of sections 3(a) and

3(b) of Executive Order 12988.

Paperwork Reduction Act

The Paperwork Reduction Act of 1995, 44 U.S.C. chapter 35, requires

that regulations involving the collection of information receive

clearance from OMB. The regulation contains no such collection of

information requiring OMB approval under the Paperwork Reduction Act.

Consequently, no information has been submitted to OMB for review under

the Paperwork Reduction Act.

Regulatory Flexibility Act

The Regulatory Flexibility Act applies only to rules for which an

agency publishes a general notice of proposed rulemaking pursuant to 5

U.S.C. 553(b) (see 5 U.S.C. 601(2)). Because this action is limited to

the adoption of statutory language, without interpretation, notice and

comment on this final rule is unnecessary pursuant to 5 U.S.C.

553(b)(B). Therefore, the Regulatory Flexibility Act does not apply to

this final rule.

Unfunded Mandates Act of 1995

OFHEO has determined that this final rule will not result in

expenditures by State, local, and tribal governments, or by the private

sector of $100 million or more in any one year. Accordingly, this

rulemaking is not subject to the Unfunded Mandates Act of 1995.

List of Subjects in 12 CFR Part 1780

Administrative practice and procedure, Penalties.

Accordingly, for the reasons set forth in the preamble, OFHEO

amends chapter XVII of Title 12 of the Code of Federal Regulations by

adding Part 1780 to read as follows:

PART 1780--UNIFORM RULES OF PRACTICE AND PROCEDURE

Subpart A--[Reserved]

Subpart B--[Reserved]

Subpart C--[Reserved]

Subpart D--[Reserved]

Subpart E--Civil Money Penalty Inflation Adjustments

Sec.

1780.70 Inflation adjustments.

1780.71 Applicability.

Authority: 12 U.S.C. 4513, 4636; 28 U.S.C. 2461 note.

Subpart A--[Reserved]

Subpart B--[Reserved]

Subpart C--[Reserved]

Subpart D--[Reserved]

Subpart E--Civil Money Penalty Inflation Adjustments

Sec. 1780.70 Inflation adjustments.

The maximum amount of each civil money penalty within OFHEO's

jurisdiction is adjusted in accordance with the Debt Collection

Improvement Act of 1996 (28 U.S.C. 2461 note) as follows:

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Previous New adjusted

U.S. Code citation Description maximum maximum

penalty penalty

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12 U.S.C. 4636(b)(1).......................... First Tier...................... $5,000 $5,500

12 U.S.C. 4636(b)(2).......................... Second Tier (Executive Officer 10,000 11,000

or Director.

12 U.S.C. 4636(b)(2).......................... Second Tier (Enterprise)........ 25,000 27,500

12 U.S.C. 4636(b)(3).......................... Third Tier (Executive Officer or 100,000 110,000

Director).

12 U.S.C. 4636(b)(3).......................... Third Tier (Enterprise)......... 1,000,000 1,100,000

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Sec. 1780.71 Applicability.

The inflation adjustments in Sec. 1780.70 apply to civil money

penalties assessed in accordance with the provisions of 12 U.S.C. 4636

for violations occurring after October 23, 1996.

Dated: December 22, 1997.

Mark A. Kinsey,

Acting Director, Office of Federal Housing Enterprise Oversight.

[FR Doc. 97-33945 Filed 12-30-97; 8:45 am]

BILLING CODE 4220-01-P