Organization and Operations of Federal Credit Unions

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

Organization and Operations of Federal Credit Unions

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final Rule.

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SUMMARY: NCUA amends its regulation dealing with newly chartered and

troubled credit unions that requires prior notice of the appointment or

employment of directors and senior officers. The amendment clarifies

when the notice period commences and when the new director or senior

officer may begin service.

Also, for corporate credit unions, the amendment clarifies that the

definition of a ``troubled'' credit union will be based on the

Corporate Risk Information System (CRIS), or on CAMEL for those state-

chartered corporate credit unions in states that do not adopt CRIS.

Finally, the amendment reflects that corporate credit unions should

submit notices of changes in officials or senior management to the

Director of the Office of Corporate Credit Unions.

DATES: This rule is effective June 28, 1999.

FOR FURTHER INFORMATION CONTACT: Margaret E. McPartlin, Trial Attorney,

Litigation Division, Office of General Counsel, telephone: (703) 518-

6566 or David A. Shetler, Corporate Program Specialist, Office of

Corporate Credit Unions, telephone: (703) 518-6646.

SUPPLEMENTARY INFORMATION:

Background

NCUA has a policy of periodically reviewing its regulations to

``update, clarify and simplify existing regulations and eliminate

redundant and unnecessary provisions.'' IRPS 87-2, Developing and

Reviewing Government Regulations. 52 FR 35231 (September 18, 1987). As

part of its regulatory review program, NCUA reviewed Sec. 701.14 of its

regulations, 12 CFR 701.14, to determine whether the language of the

regulation was clear and effective. Section 701.14 of NCUA's

regulations requires that federally insured credit unions that have

been

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chartered less than two years or fall within the regulatory definition

of a ``troubled credit union'' file a notice with NCUA prior to adding

or replacing a member of the board of directors or a committee member,

or employing or changing the responsibilities of an individual to a

position as a senior executive officer. As a result of NCUA review and

questions from credit unions, the Board proposed to clarify the

language contained in Sec. 701.14(d)(1) (63 FR 59742, November 8,

1998).

There has been confusion as to when the Regional Director accepts

the notice of a proposed change in an official or senior officer; how

long the Regional Office has to process the notice; and when the

official or senior officer may commence work. The amendment clarifies

the language in Sec. 701.14(d)(1) to provide that the Regional

Director, within 10 calendar days after receiving the notice package,

will notify the credit union in writing either that the notice package

is complete and ready for processing, or that specified additional

information is needed and must be submitted within 30 calendar days. If

the initial notice is complete, the Regional Director will issue a

decision of approval or disapproval within 30 calendar days of receipt

of the notice. If the initial notice is not complete, the Regional

Director's decision period is tolled for the amount of time taken by

the credit union to provide the requested additional information. If

the requested additional information is not submitted within 30

calendar days, the Regional Director may either disapprove the

individual or review the notice based on the information submitted.

Once a notice is complete, if the Regional Director does not issue a

decision within the required period, the individual is approved.

The NCUA Board has adopted the new CRIS rating system for corporate

credit unions. The amendment clarifies that a CRIS rating of 4 or 5 in

either the Financial Risk or Risk Management composite rating will be

one of the conditions that defines a ``troubled'' federal corporate

credit union. As is the case for all federally insured state credit

unions in the present rule, the rating assigned by the state supervisor

is utilized in determining the definition of a ``troubled'' federally

insured, state-chartered corporate credit union.

Language is added to clarify that a 4 or 5 CAMEL composite rating

by the state supervisor will be a condition that defines a ``troubled''

federally insured, state-chartered corporate credit union in states

that have not adopted the CRIS system. If the state has not adopted

either system, NCUA will determine and apply a CRIS rating using the

corporate credit union's core examination workpapers.

Also, the existing language of Section 701.14 does not indicate

that corporate credit unions should submit notices of changes in

officials or senior management to the Director of the Office of

Corporate Credit Unions (OCCU). Language was added to the final rule to

clarify that corporate credit unions will submit notices to the

Director of OCCU and that the Director of OCCU will act on such

notices.

Summary of Comments

The NCUA Board received four (4) comment letters regarding the

proposal: three from national trade associations and one from a state-

chartered credit union. Of the four (4) commenters, three expressed

general support for the proposed language. The three commenters,

however, did not support the time frames set forth in the latter part

of Sec. 701.14 (d)(1). The proposed time frames would have allowed the

Regional Director or Director of OCCU ten business days to determine

whether a credit union or corporate credit union's notice is complete.

The Regional Director or OCCU Director would then have had an

additional 30 days to approve or disapprove the proposed official or

employee. Two commenters suggested that we allow the Regional Director

or Director of OCCU only five (5) business days to determine whether

the notice is complete and ready for processing. The same two

commenters proposed that the 30 calendar day time frame begin on the

day the agency receives the notice of the proposed action and not from

the date that the RD or OCCU Director deems the notice complete. Both

commenters stated that while the suggested change would limit the

amount of time for agency approval, placement of new management would

be expedited.

The fourth commenter urged NCUA to draft separate rules and

regulations for federally insured state chartered credit unions. The

commenter did not make a general or specific objection to the proposed

language of Sec. 701.14(d)(1).

As previously described, the amendment partially incorporates the

suggestions contained in the comment letters. It allows the Regional

Director 30 calendar days from the date the notice is received to

approve or disapprove the official or senior officer. Within the first

10 calendar days, however, the Regional Director will send written

notification that the notice package is complete and ready for

processing. If the notice is incomplete, the Regional Director will

notify the credit union in writing what additional information is

needed and that the information must be submitted within 30 calendar

days. This will prevent unreasonable delays on the part of the

applicant, considering that pre-approved commencement of temporary

service is permitted by Section 701.14(e) of the regulations. The

Regional Director's 30 day time period from the date of receiving the

notice will be tolled when additional information is requested and the

Regional Director will suspend processing of the notice until the

requested information is submitted. If the requested information is not

received within 30 calendar days, the Regional Director may disapprove

the proposed individual or may review the application based on the

information provided.

Regulatory Procedures

Regulatory Flexibility Act

The Regulatory Flexibility Act requires NCUA to prepare an analysis

to describe any significant economic impact any proposed regulation may

have on a substantial number of small entities (primarily those under

$1 million in assets). The NCUA Board has determined and certifies that

the final rule, if adopted, will not have a significant economic impact

on a substantial number of small credit unions. Accordingly, the Board

has determined that a Regulatory Flexibility Analysis is not required.

Paperwork Reduction Act

NCUA has determined that the final rule does not increase paperwork

requirements under the Paperwork Reduction Act of 1995 and regulations

of the Office of Management and Budget.

Executive Order 12612

Executive Order 12612 requires NCUA to consider the effect of its

actions on state interests. NCUA has determined that the final rule

does not constitute a significant regulatory action for the purposes of

the Executive Order.

Small Business Regulatory Enforcement Fairness Act

The Small Business Regulatory Enforcement Fairness Act of 1996

(Pub. L. 104-121) provides generally for congressional review of agency

rules. A reporting requirement is triggered in instances where NCUA

issues a final rule as defined by Section 551 of the Administrative

Procedures Act. 5 U.S.C. 551. The Office of Management and Budget has

reviewed this rule and has determined that for purposes of the Small

Business Regulatory Enforcement

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Fairness Act of 1996 this is not a major rule.

List of Subjects in 12 CFR Part 701

Credit unions, Senior executive officials.

By the National Credit Union Administration Board on May 19,

1999.

Becky Baker,

Secretary of the Board.

For the reasons set forth in the preamble, 12 CFR part 701 is

amended as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

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

follows:

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

1761b, 1766, 1767, 1782, 1784, 1787, and 1789. 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. 1861 and 42 U.S.C. 3601-3610.

Section 701.35 is also authorized by 42 U.S.C 4311-4312.

2. Section 701.14 is amended as follows.

a. Revise the introductory text of paragraph (b)(3) and add

paragraph (b)(4).

b. Revise paragraph (c)(2).

c. Amend paragraph (d)(1) by adding two new sentences after the

first sentence and by removing the last three sentences and adding five

sentences. The revisions and additions to section 701.14 read as

follows:

Sec. 701.14 Change in official or senior executive officer in credit

unions that are newly chartered or are in troubled condition.

* * * * *

(b) * * *

(3) Except as provided in paragraph (b)(4) of this section for

corporate credit unions, ``troubled condition'' means any insured

credit union that has one or a combination of the following conditions:

* * * * *

(4) In the case of a corporate credit union, ``troubled condition''

means any insured corporate credit union that has one or a combination

of the following conditions:

(i) Has been assigned

(A) A 4 or 5 Corporate Risk Information System (CRIS) rating by

NCUA in either the Financial Risk or Risk Management composites, in the

case of a federal corporate credit union, or

(B) An equivalent 4 or 5 CRIS rating in either the Financial Risk

or Risk Management composites by the state supervisor in the case of a

federally insured, state-chartered corporate credit union in a state

that has adopted the CRIS system, or an equivalent 4 or 5 CAMEL

composite rating by the state supervisor in the case of a federally

insured, state-chartered corporate credit union in a state that uses

the CAMEL system, or

(C) A 4 or 5 CRIS rating in either the Financial Risk or Risk

Management composites by NCUA based on core workpapers received from

the state supervisor in the case of a federally insured, state-

chartered credit union in a state that does not use either the CRIS or

CAMEL system. In this case, the state supervisor will be notified in

writing by the Director of the Office of Corporate Credit Unions that

the corporate credit union has been designated by NCUA as a troubled

institution;

(ii) has been granted assistance as outlined under Sections 116 or

208 of the Federal Credit Union Act.

(c) * * *

(2) The credit union meets the definition of troubled condition as

set forth in paragraph 701.14(b)(3) or (4).

* * * * *

(d) Procedures for notice of proposed change in official or senior

executive officer.

(1) Filing and acceptance. * * * In the case of a corporate credit

union, notice shall be filed with the Director of the Office of

Corporate Credit Unions. Additional references herein to Regional

Director will, for corporate credit unions, mean the Director of the

Office of Corporate Credit Unions. * * * Within ten calendar days after

receiving the notice, the Regional Director will inform the credit

union either that the notice is complete or that additional specified

information is needed and must be submitted within 30 calendar days. If

the initial notice is complete, the Regional Director will issue a

written decision of approval or disapproval to the individual and the

credit union within 30 calendar days of receipt of the notice. If the

initial notice is not complete, the Regional Director will issue a

written decision within 30 calendar days of receipt of the original

notice plus the amount of time taken by the credit union to provide the

requested additional information. If the additional information is not

submitted within 30 calendar days of the Regional Director's request,

the Regional Director may either disapprove the proposed individual or

review the notice based on the information provided. If the credit

union and the individual have submitted all requested information and

the Regional Director has not issued a written decision within the

applicable time period, the individual is approved.

* * * * *

[FR Doc. 99-13308 Filed 5-26-99; 8:45 am]

BILLING CODE 7535-01-U