**NATIONAL CREDIT UNION ADMINISTRATION**

**12 CFR Parts 745 and 747**

**Share Insurance Appeals; Clarification of Enforcement Authority of the
NCUA Board**

**AGENCY:** National Credit Union Administration (NCUA).

**ACTION:** Final rule.

**SUMMARY:** NCUA is issuing a final rule to implement amendments to the
Federal Credit Union Act (FCU Act) made by the Financial Services
Regulatory Relief Act of 2006 (Reg Relief Act) enacted by Congress on
October 13, 2006. This final rule amends NCUA's regulations to assure
they are consistent with the statutory changes made by the Reg Relief
Act. The final rule adopts the amendments as stated in the interim final
rule issued in November 2006. It clarifies: that an appeal from a final
NCUA Board decision regarding share insurance coverage shall be to the
appropriate Federal District Court; that the NCUA Board may terminate
the share insurance of any insured credit union for violation of any
condition imposed by the Board in connection with any action on any
application, notice, or other request by the credit union or an
institution-affiliated party; and that Orders of Suspension, Prohibition
and Removal issued by the NCUA Board remain effective against
institution-affiliated parties regardless of whether they remain
institution-affiliated parties at the time the Order is considered or
issued.

**DATES:** The interim rule is adopted as final April 9, 2007.

**FOR FURTHER INFORMATION CONTACT:** John K. Ianno, Senior Trial
Attorney, Office of General Counsel, at the above address or telephone:
(703) 518-6540.

**SUPPLEMENTARY INFORMATION:** NCUA issued the interim rule published in
the **Federal Register** on November 22, 2006. (71 FR 67439).

**A. Overview of Comments Received**

NCUA received three comment letters regarding the interim final rule.
Two were from national credit union trade associations and a third was
from a state credit union league.

In general, each of the commenters agreed with the proposed changes. Two
letters requested that NCUA provide examples or issue guidelines to
explain the circumstances under which the NCUA Board might undertake
formal administrative action in order to terminate the insured status of
a credit union. The Board does not believe it would be helpful to try
and enumerate the various situations when it might conclude that it is
necessary to institute a formal administrative action against a
particular credit union. Experience indicates that each case tends to be
fact specific. There are many variables that influence a decision on
what an appropriate course of action would be to correct a specific
problem. Generally the Board will begin a formal administrative action
such as termination of insurance only after it has exhausted other
informal attempts to correct problems that have been identified. These
less formal mechanisms include but are not limited to: (1) action items
contained in a document of resolution; (2) letters of understanding and
agreement; (3) preliminary warning letters; and (4) cease and desist
orders.

One commenter asked that the NCUA Board clarify the effective date of
the change in venue for insurance appeals. The Board notes that when
enacting the Reg Relief Act Congress did not indicate what venue would
be appropriate for pending insurance appeals. Neither the text of the
statute nor its legislative history clearly indicates whether petitions
for review that were pending in the Courts of Appeal before the Act's
passage should be reviewed in the District Courts under the new
provision or remain in the Courts of Appeal under the old. Because there
is no statutory provision that would allow a Court of Appeals to
transfer a pending insurance appeal filed prior to the October 13, 2006
enactment of the statute, the Board believes that such cases should
remain in the Court of Appeals. Venue for appeals of NCUA Board
insurance determinations filed on or after that date shall be filed in
the appropriate U.S. district court.

**B. Insurance Appeals**

The Reg Relief Act amended section 207(d) of the FCU Act, which
addresses the resolutions of disputes relating to any claim for
insurance coverage.

12 U.S.C. § 1787(d). The final rule amends the provision in NCUA's
regulations, 12 CFR § 745.203(c), that sets forth the appropriate venue
for seeking judicial review of a final determination by the Board
relating to a claim for insurance coverage.

The current regulation provides for judicial review by the United States
Court of Appeals for the District of Columbia or the court of appeals
for the Federal circuit where the credit union's principal place of
business is located. The final rule revises the regulation to reflect
the statutory change that a final agency determination by the Board on a
claim for insurance coverage is reviewable by the United States district
court for the Federal judicial district where the principle place of
business of the credit union is located.

**C. Expansion of Enforcement Authority**

The Reg Relief Act amended three provisions of Section 206 of the FCU
Act, 12 U.S.C. § 1786, to broaden the NCUA Board's authority to take
enforcement actions for violations of conditions imposed in any action
on any application, notice, or other request by a credit union or an
institution-affiliated party. Such violations can serve as a basis for
cease and desist orders, removal and prohibition orders, and civil money
penalties. Previously such enforcement actions could only be taken upon
a violation of conditions imposed in \"the granting of any application
or other request by the credit union\". The amendments to Sections 747.1
and 202 of NCUA's Regulations conform the language of the regulation to
that of the FCU Act as amended.

**D. Clarification of Suspension, Prohibition and Removal Authority**

The Reg Relief Act amended Section 206(i)(1) of the FCU Act, 12 U.S.C. §
1786(i)(1) to clarify the NCUA Board's authority to issue Orders against
institution-affiliated parties regardless of whether they remain
institution-affiliated parties of a credit union when the Order is
considered or issued. The new statutory language makes clear that the
NCUA Board has the authority to issue the Order even if the subject is
no longer affiliated with the institution. The amendments to Sections
747.303 and 304 of NCUA's Regulations conform the language of the
regulation to that of the FCU Act as amended.

# REGULATORY PROCEDURES

## Regulatory Flexibility Act

The Regulatory Flexibility Act requires NCUA to prepare an analysis to
describe any significant economic impact a rule may have on a
substantial number of small credit unions, defined as those under ten
million dollars in assets. This rule clarifies NCUA's enforcement
authority and identifies the appropriate venue for appeals of final
share insurance determinations. It does not impose any additional
regulatory burden. The interim final amendments 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 interim final rule would not increase
paperwork requirements under the Paperwork Reduction Act of 1995 and
regulations of the Office of Management and Budget. 44 U.S.C. § 3501 [et
seq]{.underline}.; 5 CFR part 1320.

## Executive Order 13132

Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. In
adherence to fundamental federalism principles, NCUA, an independent
regulatory agency as defined in 44 U.S.C. § 3502(5), voluntarily
complies with the executive order. The final rule will not have
substantial direct effects on the states, on the connection between the
national government and the states, or on the distribution of power and
responsibilities among the various levels of government. NCUA has
determined that this rule does not constitute a policy that has
federalism implications for purposes of the executive order.

## The Treasury and General Government Appropriations Act, 1999 -- Assessment of Federal Regulations and Policies on Families

The NCUA has determined that this final rule will not affect family
well-being within the meaning of section 654 of the Treasury and General
Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat. 2681
(1998).

## Small Business Regulatory Enforcement Fairness Act

The Small Business Regulatory Enforcement Fairness Act of 1996, Pub. L.
104-121 (SBREFA), 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 APA. 5 U.S.C. §
551. NCUA has requested a SBREFA determination from the Office of
Management and Budget, which is pending. As required by SBREFA, NCUA
will file the appropriate reports with Congress and the General
Accounting Office so that the final rule may be reviewed.

# List of Subjects 

**12 CFR part 745**

Credit Unions, Share Insurance.

**12 CFR part 747**

Administrative practice and procedure, Bank deposit insurance, Claims,
Credit unions, Equal access to justice, Investigations, Lawyers,
Penalties.

Accordingly, NCUA adopts as final the interim rule amending 12 CFR parts
745 and 747.

By the National Credit Union Administration Board on March 1, 2007.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Mary F. Rupp

Secretary of the Board

**PART 745 \-- Share Insurance and Appendix**

1\. The authority citation for part 745 is revised to read as follows:

**Authority:** 12 U.S.C. §§ 1752(5), 1757, 1765, 1766, 1781, 1782, 1787,
1789; Title V, Pub. L. 109-351; 120 Stat. 1966.

§ 745.203 \[Amended\]

2\. Section 745.203(c) is amended by removing "Court of Appeals for the
District of Columbia or the court of appeals for the Federal judicial
circuit," and adding in its place "district court for the Federal
judicial district."

**PART 747 -- Administrative Actions, Adjudicative Hearings, Rules of
Practice and Procedure, and Investigations**

3\. The authority citation for part 747 is revised to read as follows:

**Authority:** 12 U.S.C. §§ 1766, 1782, 1784, 1785, 1786, 1787, 1790a,
1790d; 42 U.S.C. 4012a; Pub. L. 101-410; Pub. L. 104-134; Pub. L.
109-351;120 Stat. 1966.

§ 747.1 \[Amended\]

4\. Section 747.1(c)(3) is amended by removing "the grant of an
application or request," and adding in its place "any action on any
application, notice, or other request by the credit union or
institution-affiliated party,".

§ 747.202 \[Amended\]

5\. Section 747.202(c) is amended by removing "any application or
request of the credit union," and adding in its place "any action on any
application, notice, or other request by the credit union or
institution-affiliated party,".

6\. Section 747.303 is revised to read as follows:

**§ 747.303 Notice of suspension or prohibition.**

Whenever an institution-affiliated party of an insured credit union is
charged in any state, Federal or territorial information or indictment
or complaint with the commission of or participation in a crime
involving dishonesty or breach of trust, which crime is punishable by
imprisonment for a term exceeding one year under state or Federal law,
the NCUA Board may, if continued service or participation by the
concerned party may pose a threat to the interests of any credit union's
members or may threaten to impair public confidence in any credit union,
by written notice served upon such party, suspend him or her from
office, or prohibit him or her from further participation in any manner
in the affairs of any credit union, or both. A copy of the notice of
suspension or prohibition shall also be served upon the credit union of
which the subject of the order is, or most recently was, an
institution-affiliated party.

7\. Section 747.304 is revised to read as follows:

**§ 747.304 Removal or permanent prohibition.**

\(a\) In the event that a judgment of conviction or an agreement to
enter a pretrial diversion or other similar program is entered against
the institution-affiliated party, and at such time as the judgment, if
any, is not subject to further appellate review, the NCUA Board may, if
continued service or participation by such party may pose a threat to
the interests of any credit union's members or may threaten to impair
public confidence in any credit union, issue and serve upon the
individual an order removing him or her from office or prohibiting him
or her from further participation in any manner in the conduct of the
affairs of any credit union except with the consent of the NCUA Board. A
copy of such order will also be served upon the credit union of which
the subject of the order is, or most recently was, an
institution-affiliated party.

\(b\) The NCUA Board may issue such order with respect to an individual
who is an institution-affiliated party at a credit union at the time of
the offense without regard to whether such individual is an
institution-affiliated party at any credit union at the time the order
is considered or issued by the Board or whether the credit union at
which the individual was an institution-affiliated party at the time of
the offense remains in existence at the time the order is considered or
issued by the board.

\(c\) A finding of not guilty or other disposition of the charge will
not preclude the Board from thereafter instituting proceedings, pursuant
to the provisions of section 206(g) of the Act (12 U.S.C. § 1786(g)) and
subpart A of this part, to remove such director, committee member,
officer, or other person from office or to prohibit his or her further
participation in the affairs of the credit union.