Federal Register / Vol. 69, No. 207 / Wednesday, October 27, 2004 / Rules and Regulations 62561

bank warranties set forth in and subject 

to the terms of § 229.34 of this chapter 

as if the electronic item were a check 

subject to that section. 

(iii) Warranties and indemnity for 

returned checks that are electronic 

items that are not representations of 

substitute checks.

(A) If the returned check is an 

electronic item that is not a 

representation of a substitute check, the 

Reserve Bank warrants to the bank to 

which it sends the returned check that—

(1) The electronic image portion of the 

item accurately represents all of the 

information on the front and back of the 

original check as of the time that the 

original check was truncated; the 

information portion of the item contains 

a record of all MICR-line information 

required for a substitute check under 

§ 229.2(aaa) of this chapter; and the item 

conforms with the technical standards 

for an electronic item set forth in an 

operating circular; and 

(2) No person will receive a transfer, 

presentment, or return of, or otherwise 

be charged for, the electronic item, the 

original item, or a paper or electronic 

representation of the original item such 

that the person will be asked to make 

payment based on an item it already has 

paid. 

(B) If the returned check is an 

electronic item that is not a 

representation of a substitute check—

(1) Except as provided in paragraph 

(e)(1)(iii)(B)(2) of this section, the 

Reserve Bank agrees to indemnify the 

bank to which it sends the returned 

check (the recipient bank) for the 

amount of any losses that the bank 

incurs under subpart D of part 229 of 

this chapter for an indemnity that the 

bank was required to make under 

subpart D of part 229 of this chapter in 

connection with a substitute check later 

created from the returned check. 

(2) A Reserve Bank shall not be liable 

under paragraph (e)(1)(iii)(B)(1) of this 

section for any amount that the 

recipient bank pays under subpart D of 

part 229 of this chapter that is 

attributable to the lack of good faith or 

failure to exercise ordinary care of the 

recipient bank or a person that handled 

the item, in any form, after the recipient 

bank. 

(2) A Reserve Bank shall not have or 

assume any other liability to any person 

except—

(i) As provided in paragraph (e)(1) of 

this section; 

(ii) For the Reserve Bank’s own lack 

of good faith or failure to exercise 

ordinary care as provided in subpart C 

of part 229 of this chapter; or 

(iii) As provided in subpart D of part 

229 of this chapter. 

(f) * * * 

(3) Any warranty or indemnity made 

by the Reserve Bank under paragraph (e) 

of this section or part 229 of this 

chapter,

* * * * *

§ 210.13 [Amended]

■ 9. In § 210.13, remove the word 

‘‘party’’ wherever it appears and add the 

word ‘‘person’’ in its place, and remove 

the citation ‘‘§ 210.9(a)(5)’’ and add the 

citation ‘‘§ 210.9(b)(5)’’ in its place.

By order of the Board of Governors of the 

Federal Reserve System, October 22, 2004. 

Robert deV. Frierson, 

Deputy Secretary of the Board.

[FR Doc. 04–24049 Filed 10–26–04; 8:45 am] 

BILLING CODE 6210–01–P

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Part 701 

Change in Official or Senior Executive 

Officer in Credit Unions That Are 

Newly Chartered or Are in Troubled 

Condition

AGENCY: National Credit Union 

Administration (NCUA).

ACTION: Final rule.

SUMMARY: NCUA is amending its rule 

concerning the requirement that 

federally-insured credit unions that are 

newly chartered or troubled file notice 

with NCUA before adding or replacing 

a board or committee member or 

employing or changing the duties of a 

senior executive officer. The 

amendments clarify the relationship 

between the prior notice provision and 

the commencement of service provision, 

so as to eliminate any potential 

confusion. In addition, the amendments 

reorganize the requirements in the 

current rule to make it easier to 

understand.

DATES: This rule is effective on 

November 26, 2004.

FOR FURTHER INFORMATION CONTACT: Ross 

P. Kendall, Staff Attorney, Division of 

Operations, Office of General Counsel, 

at telephone: (703) 518–6562.

SUPPLEMENTARY INFORMATION:

Background 

On June 24, 2004, the NCUA Board 

requested comment on proposed 

changes to § 701.14 of its regulations, 

clarifying the procedures that newly 

chartered or troubled federally-insured 

credit unions must follow to obtain 

NCUA approval before adding or 

replacing board or committee members 

or changing the duties of a senior 

executive officer. 69 FR 39871 (July 1, 

2004). The proposed amendments 

clarify the relationship between the 

prior notice provision and the 

commencement of service provision in 

the current rule to eliminate confusion 

and reorganize the requirements to 

make the rule easier to understand. 

NCUA received comments regarding 

the proposed changes from two federal 

credit unions, two national credit union 

trade associations, one state credit 

union trade association and one state 

credit union supervisory association, for 

a total of six comments. 

Summary of Comments 

The comments were generally 

favorable and supportive of the 

amendments, and all but one 

commenter supported the efforts to 

clarify and reorganize the provisions of 

the rule. Two commenters supported 

the proposal as published without 

recommending any changes. 

One commenter recommended that 

the revised rule include a specific 

reference to the role of the state 

supervisory authority (SSA) in cases 

involving state-chartered credit unions. 

The rule, however, implements 

authority in the Federal Credit Union 

Act specifically authorizing the NCUA 

to review and approve of the service of 

certain senior credit union officials and 

employees of federally-insured credit 

unions, including credit unions that are 

state-chartered. 12 U.S.C. 1790a. While 

the NCUA is the decision maker in these 

cases, the current rule does require a 

state-chartered, federally-insured credit 

union to provide a copy of the NCUA 

notice to its SSA. 12 CFR 701.14(d)(1). 

In addition, the Board notes that another 

provision of our regulations also 

requires NCUA to consult with the 

appropriate SSA and provide it with 

notice concerning NCUA’s decision. 12 

CFR 741.205. The Board has not 

adopted this recommendation to 

otherwise reference the role of SSAs. 

Another commenter suggested that 

the rule provide that a request for 

approval of an official’s or employee’s 

service to be deemed complete unless 

the regional office specifically requires 

additional information within ten days 

of its receipt of the request.

The current rule provides that the 

appropriate NCUA regional office will 

notify the credit union within ten days 

of its receipt of the request for approval 

either that the request is complete or 

that additional information is required 

and the Board is not aware of any 

instances of problems with the current 

procedure. The final rule retains this 

provision. The rule already calls for the 

62562 Federal Register / Vol. 69, No. 207 / Wednesday, October 27, 2004 / Rules and Regulations 

regional office to advise the credit union 

about whether the request is complete 

and providing an automatic 

determination that an application is 

deemed complete within ten days could 

create confusion with the provision in 

the rule providing for automatic 

approval if a Regional Director fails to 

issue a written decision within thirty 

days. In addition, the suggested revision 

could, in fact, delay processing. A 

regional office may determine that it 

wants to provide an applicant with an 

opportunity to supplement a submission 

after performing an initial review. A 

credit union will generally be willing to 

provide additional information if it is 

able since failure to do so would likely 

result in the disapproval of its request. 

One commenter suggested that NCUA 

exclude service by employees from 

coverage of the rule. This commenter 

contends that selection and oversight of 

employees should be the exclusive 

province of the board of directors, 

absent some indication that the board 

has behaved unethically or is 

responsible for the credit union’s 

unhealthy financial condition. The 

authority in the FCU Act for this rule 

specifically addresses senior executive 

employees as well as board and 

committee members. 12 U.S.C. 1790a(a). 

Senior executives are directly involved 

in and are responsible for the day-to-day 

operation of a credit union, and the 

Board believes their competence is as 

critical as that of the elected officers and 

board members. Accordingly, the Board 

has not adopted this recommended 

change. 

One commenter noted its opposition 

to the proposal, contending that the 

current rule permits an officer or senior 

executive employee to commence 

service on an interim basis until such 

time as the credit union is notified in 

writing of NCUA’s determination to 

disapprove such service. The 

commenter has mistakenly 

characterized the current rule, which 

only permits such interim service if 

NCUA grants a waiver from the 

otherwise mandatory thirty-day notice. 

The proposed amendments preserve the 

ability of a credit union to seek a waiver 

from the advance notice requirements in 

those cases in which the circumstances 

may warrant service to begin 

immediately. The final rule clarifies any 

ambiguity in the current rule between 

the operation of the prior notice and 

commencement of service provisions in 

the rule. The final rule retains the 

waiver provisions that provide 

sufficient flexibility where 

circumstances warrant immediate 

service yet permits the regional offices 

to conduct the review contemplated by 

the Federal Credit Union Act. 

Final Rule 

In view of the comments, NCUA is 

adopting the proposed amendments as a 

final rule without change. 

Regulatory Procedures 

Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

requires NCUA to prepare an analysis to 

describe any significant economic 

impact any proposed regulation may 

have on a substantial number of small 

entities. NCUA considers credit unions 

having less than ten million dollars in 

assets to be small for purposes of RFA. 

Interpretive Ruling and Policy 

Statement (IRPS) 87–2 as amended by 

IRPS 03–2. The amendment clarifies the 

relationship between the waiver of prior 

notice provision and the temporary 

service provision, so as to eliminate any 

potential confusion. The NCUA has 

determined and certifies that this 

amendment will not have a significant 

economic impact on a substantial 

number of small credit unions. 

Accordingly, the NCUA has determined 

that a Regulatory Flexibility Analysis is 

not required. 

Paperwork Reduction Act 

NCUA has determined that this 

amendment would not increase 

paperwork requirements under the 

Paperwork Reduction Act of 1995 and 

regulations of the Office of Management 

and Budget (OMB). NCUA currently has 

OMB clearance for § 701.14’s collection 

requirements (OMB No. 3133–0121). 

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 amendment will apply to all 

federally-insured credit unions. NCUA 

has determined that the amendment 

will not have a substantial direct effect 

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 amendment 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 

NCUA has determined that this 

amendment will not affect family wellbeing 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) 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 Procedure Act. 5 U.S.C. 

551. The Office of Management and 

Budget has determined that this rule is 

not a major rule for purposes of the 

Small Business Regulatory Enforcement 

Fairness Act of 1996.

List of Subjects in 12 CFR Part 701 

Credit unions, Senior executive 

officials.

By the National Credit Union 

Administration Board on October 21, 2004. 

Mary Rupp, 

Secretary of the Board.

■ Accordingly, the National Credit 

Union Administration amends 12 CFR 

part 701 as follows:

PART 701—ORGANIZATION AND 

OPERATIONS 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, 1789.

■ 2. Amend § 701.14 by removing 

paragraphs (c), (d) and (e), adding new 

paragraphs (c) and (d), and redesignating 

paragraph (f) as paragraph (e) to read as 

follows:

§ 701.14 Change in official or senior 

executive officer in credit unions that are 

newly chartered or in troubled condition.

* * * * *

(c) Procedures for Notice of Proposed 

Change in Official or Senior Executive 

Officer—(1) Prior Notice Requirement.

An insured credit union must give 

NCUA written notice at least 30 days 

before the effective date of any addition 

or replacement of a member of the board 

of directors or committee member or the 

employment or change in 

responsibilities of any individual to a 

position of senior executive officer if: 

Federal Register / Vol. 69, No. 207 / Wednesday, October 27, 2004 / Rules and Regulations 62563

(i) The credit union has been 

chartered for less than two years; or 

(ii) The credit union meets the 

definition of troubled condition in 

paragraph (b)(3) or (4) of this section. 

(2) Waiver of Prior Notice—(i) Waiver 

requests. Parties may petition the 

appropriate Regional Director for a 

waiver of the prior notice required 

under this section. Waiver may be 

granted if it is found that delay could 

harm the credit union or the public 

interest. 

(ii) Automatic waiver. In the case of 

the election of a new member of the 

board of directors or credit committee 

member at a meeting of the members of 

a federally insured credit union, the 

prior 30-day notice is automatically 

waived and the individual may 

immediately begin serving, provided 

that a complete notice is filed with the 

appropriate Regional Director within 48 

hours of the election. If NCUA 

disapproves a director or credit 

committee member, the board of 

directors of the credit union may 

appoint its own alternate, to serve until 

the next annual meeting, contingent on 

NCUA approval. 

(iii) Effect on disapproval authority. A 

waiver does not affect the authority of 

NCUA to issue a Notice of Disapproval 

within 30 days of the waiver or within 

30 days of any subsequent required 

notice. 

(3) Filing procedures—(i) Where to 

file. Notices will be filed with the 

appropriate Regional Director or, in the 

case of a corporate credit union, with 

the Director of the Office of Corporate 

Credit Unions. All references to 

Regional Director will, for corporate 

credit unions, mean the Director of 

Office of Corporate Credit Unions. Statechartered federally insured credit 

unions will also file a copy of the notice 

with their state supervisor. 

(ii) Contents. The notice must contain 

information about the competence, 

experience, character, or integrity of the 

individual on whose behalf the notice is 

submitted. The Regional Director or his 

or her designee may require additional 

information. The information submitted 

must include the identity, personal 

history, business background, and 

experience of the individual, including 

material business activities and 

affiliations during the past five years, 

and a description of any material 

pending legal or administrative 

proceedings in which the individual is 

a party and any criminal indictment or 

conviction of the individual by a state 

or federal court. Each individual on 

whose behalf the notice is filed must 

attest to the validity of the information 

filed. At the option of the individual, 

the information may be forwarded to the 

Regional Director by the individual; 

however, in such cases, the credit union 

must file a notice to that effect. 

(iii) Processing. 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 the 

credit union takes 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. 

(d) Commencement of Service. A 

proposed director, committee member, 

or senior executive officer may begin 

service after the end of the 30-day 

period or any other additional period as 

provided under paragraph (c)(3)(iii) of 

this section, unless the NCUA 

disapproves the notice before the end of 

the period.

* * * * *

[FR Doc. 04–24002 Filed 10–26–04; 8:45 am] 

BILLING CODE 7535–01–P

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Part 723 

Member Business Loans

AGENCY: National Credit Union 

Administration (NCUA).

ACTION: Final rule.

SUMMARY: NCUA is amending the 

collateral and security requirements of 

its member business loans (MBL) rule to 

enable credit unions subject to the rule 

to participate more fully in Small 

Business Administration (SBA) 

guaranteed loan programs.

DATES: This final rule is effective 

November 26, 2004.

FOR FURTHER INFORMATION CONTACT:

Frank Kressman, Staff Attorney, Office 

of General Counsel, at (703) 518–6540.

SUPPLEMENTARY INFORMATION: 

A. Background 

In 2003, NCUA amended its MBL rule 

and other rules related to business 

lending to enhance credit unions’ ability 

to meet their members’ business loans 

needs. 68 FR 56537 (October 1, 2003). 

In addition to comments on those 

amendments, NCUA received other 

suggestions on how it could improve the 

MBL rule. Among the most significant 

of these, commenters suggested NCUA 

amend the MBL rule ‘‘so that it could be 

better aligned with lending programs 

offered by the Small Business 

Administration,’’ such as the SBA’s 

Basic 7(a) Loan Program. Id. at 56538. 

While NCUA recognized the merits of 

this suggestion, NCUA could not 

include it in the final rulemaking 

because it addressed issues outside the 

scope of the rulemaking. The 

Administrative Procedure Act generally 

prohibits Federal Government agencies 

from adopting rules without affording 

the opportunity for public comment. 5 

U.S.C. 553. NCUA noted in the final 

rule, however, that it would review this 

suggestion to determine if it would be 

appropriate to act on it in a subsequent 

rulemaking. 

As a result of that review, NCUA 

issued a proposed amendment to its 

MBL rule in June 2004 to permit credit 

unions to make SBA guaranteed loans 

under SBA’s less restrictive lending 

requirements instead of under the more 

restrictive MBL rule’s lending 

requirements. 69 FR 39873 (July 1, 

2004). NCUA reviewed the SBA’s loan 

programs in which credit unions can 

participate and determined they provide 

reasonable criteria for credit union 

participation and compliance within the 

bounds of safety and soundness. 

Additionally, these SBA programs are 

ideally suited to the mission of many 

credit unions to satisfy their members’

business loans needs. 

NCUA noted in the proposal that it 

recognizes NCUA’s collateral and 

security requirements for MBLs, 

including construction and 

development loans, are generally more 

restrictive than those of the SBA’s 

guaranteed loan programs and could 

hamper a credit union’s ability to 

participate fully in SBA loan programs. 

As a result, the MBL rule’s collateral 

and security requirements could prevent 

a credit union from making a particular 

loan that it could otherwise make under 

SBA’s requirements. NCUA issued the 

proposal to provide relief from these 

more restrictive requirements and to