[Federal Register Volume 88, Number 246 (Tuesday, December 26, 2023)]
[Notices]
[Pages 88975-88978]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-28303]


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NATIONAL CREDIT UNION ADMINISTRATION


National Credit Union Administration Operating Fee Schedule 
Methodology

AGENCY: National Credit Union Administration (NCUA).

ACTION: Notice.

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SUMMARY: The NCUA Board (Board) is amending its methodology for 
computing the annual operating fees it charges to federal credit unions 
(FCUs). First, for purposes of calculating the annual operating fee, 
the Board will increase the current asset exemption threshold from $1 
million to $2 million. Second, the Board will adjust the asset 
exemption threshold annually in future years by the computed rate of 
aggregate asset growth at FCUs. Third, in response to comments from the 
public, as part of future reviews of the Operating Fee Schedule 
methodology the Board plans to analyze options to adjust the 
distribution of operating fee costs.

DATES: This methodology is effective on January 25, 2024.

FOR FURTHER INFORMATION CONTACT: James Holm, Supervisory Budget 
Analyst, Office of the Chief Financial Officer, at (703) 518-6570.

SUPPLEMENTARY INFORMATION: 

I. Introduction
II. Summary of the Proposed Changes to the Operating Fee Schedule 
Methodology and Public Comments
III. Summary of the Operating Fee Schedule Methodology

I. Introduction

    At its June 2023 meeting, the Board issued a notice requesting 
public comment about amendments to its methodology for computing the 
annual operating fee charged to FCUs.\1\ For purposes of calculating 
the annual operating fee, the Board requested views from the public 
about: (1) increasing the asset threshold used to determine which FCUs 
are exempt from paying an operating fee from $1 million to $2 million; 
(2) updating the exemption threshold in future years based on annual 
asset growth at FCUs; and (3) whether and how the Board should modify 
the current three-tier Operating Fee Schedule to distribute the 
operating fee cost burden more equitably across FCUs subject to paying 
it.
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    \1\ 88 FR 43149 (July 6, 2023).
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    Currently, FCUs reporting average assets of $1,000,000 or less 
during the preceding four calendar quarters are exempt from paying an 
operating fee because the Board determined that such credit unions do 
not have the ability to pay the fee. The $1,000,000 average asset 
exemption level has been in place since 2012 and has not been adjusted 
since that time. In the intervening 11 years, average assets across 
FCUs have approximately doubled. To account for this growth in the size 
of the credit union system, the Board proposed raising the average 
asset exemption level for FCUs to $2,000,000 and to adjust the 
exemption threshold annually in future years by the computed rate of 
asset growth among FCUs.

A. Background on the NCUA Annual Budget and Fees Paid by FCUs

    The NCUA charters, regulates, and insures deposits in FCUs and 
insures

[[Page 88976]]

deposits in federally insured, state-chartered credit unions (FISCUs) 
that have their shares insured through the National Credit Union Share 
Insurance Fund (Share Insurance Fund). To cover expenses related to the 
NCUA's tasks, the Board adopts an annual budget for each year. The 
Federal Credit Union Act (FCU Act) provides two primary sources to fund 
the budget: (1) requisitions from the Share Insurance Fund, referred to 
as the overhead transfer rate (OTR); \2\ and (2) operating fees charged 
against FCUs.\3\ The Board uses an allocation formula to calculate the 
OTR and determine the amount of the budget that it will requisition 
from the Share Insurance Fund. Remaining amounts needed to fund the 
annual budget are charged to FCUs in the form of operating fees, based 
on each FCU's total assets.\4\
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    \2\ See, e.g., 12 U.S.C. 1783(a) (making the Share Insurance 
Fund available ``for such administrative and other expenses incurred 
in carrying out the purpose of [Title II of the FCU Act] as [the 
Board] may determine to be proper.'').
    \3\ 12 U.S.C. 1755(a) (``In accordance with rules prescribed by 
the Board, each [FCU] shall pay to the [NCUA] an annual operating 
fee which may be composed of one or more charges identified as to 
the function or functions for which assessed.'') and 12 U.S.C. 
1766(j)(3). Other sources of income for the operating budget include 
interest income, funds from publication sales, parking fee income, 
and rental income.
    \4\ 12 CFR 701.6(a).
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    With regard to the operating fee, the FCU Act requires each FCU to, 
``in accordance with rules prescribed by the Board, . . . pay to the 
[NCUA] an annual operating fee which may be composed of one or more 
charges identified as to the function or functions for which 
assessed.'' \5\ The fee must ``be determined according to a schedule, 
or schedules, or other method determined by the Board to be 
appropriate, which gives due consideration to the expenses of the 
[NCUA] in carrying out its responsibilities under the [FCU Act] and to 
the ability of [FCUs] to pay the fee.'' \6\ The statute requires the 
Board to, among other things, ``determine the periods for which the fee 
shall be assessed and the date or dates for the payment of the fee or 
increments thereof.'' \7\
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    \5\ 12 U.S.C. 1755(a).
    \6\ 12 U.S.C. 1755(b).
    \7\ Id.
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    Accordingly, the FCU Act imposes three requirements on the Board 
related to assessing an operating fee on FCUs: (1) the fee must be 
assessed according to a schedule or schedules, or other method that the 
Board determines to be appropriate, which gives due consideration to 
NCUA's responsibilities in carrying out the FCU Act and the ability of 
FCUs to pay the fee; (2) the Board must determine the period for which 
the fee will be assessed and the due date for payment; and (3) the 
Board must deposit collected fees into the Treasury to defray the 
Board's expenses in carrying out the FCU Act. Once collected, operating 
fees ``may be expended by the Board to defray the expenses incurred in 
carrying out the provisions of [the FCU Act,] including the examination 
and supervision of [FCUs].'' \8\ The NCUA's regulations govern certain 
aspects of the operating fee processes.\9\ The regulation establishes: 
(i) the basis for charging operating fees; (ii) a notice process; (iii) 
rules for new charters, conversions, mergers, and liquidations; and 
(iv) administrative fees and interest for late payment, among other 
principles and processes.\10\
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    \8\ 12 U.S.C. 1755(d).
    \9\ 12 CFR 701.6.
    \10\ Id.
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    The Board first proposed its Operating Fee Schedule methodology in 
1979, after Congress passed the Financial Institutions Regulatory and 
Interest Rate Control Act of 1978.\11\ This legislation permitted the 
Board to consolidate previously separate chartering, supervision, and 
examination fees into a single operating fee, charged ``in accordance 
with schedules, and for time periods, as determined by the Board, in an 
amount necessary to offset the expenses of the Administration at a rate 
consistent with a credit union's ability to pay.'' \12\ In combination 
with a proposed change to Sec.  701.6 of the NCUA's regulations in 
1979, the Board proposed an initial fee schedule in the Federal 
Register, including rates for 12 asset tiers.\13\ It later published a 
final rule in the Federal Register, which included a finalized fee 
schedule for 1979.\14\
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    \11\ 44 FR 11785 (Mar. 2, 1979).
    \12\ Id. at 11786.
    \13\ Id. at 11787.
    \14\ 44 FR 27379 (May 10, 1979).
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    Other aspects of and adjustments to the operating fee process, such 
as changes to which FCUs are exempt from operating fees or the 
multipliers used to determine fees applicable to FCUs that fall within 
designated asset tiers, have not always been published in the Federal 
Register and are not included in the Code of Federal Regulations. 
Instead, in November 2015, the Board delegated authority to the NCUA's 
Chief Financial Officer to administer the Board-approved Operating Fee 
Schedule methodology and to set the operating fees as calculated per 
the approved methodology during each annual budget cycle beginning with 
2016.\15\
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    \15\ See Board Action Memorandum on 2016 operating fee (Nov. 19, 
2015), https://www.ncua.gov/About/Documents/Agenda%20Items/AG20151119Item6a.pdf. Since that time, the operating fee schedule 
has been published in the NCUA's annual budget.
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    Although it is not required to do so under the Administrative 
Procedure Act,\16\ in January 2016, the Board published an updated 
methodology in detail in the Federal Register and solicited 
comment.\17\ The Board made no changes in response to comments on the 
methodology published in 2016.
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    \16\ 5 U.S.C. 551 et seq.
    \17\ 81 FR 4674 (Jan. 27, 2016).
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    The Board provided notice of several revisions to the Operating Fee 
Schedule methodology in July 2020 and revised the methodology 
concurrently with approving a final operating fee rule in December 
2020. The Board adopted three revisions to the methodology: (1) 
including the budget for capital projects within the total annual 
budget subject to the OTR; (2) including projected miscellaneous 
revenues within the total annual budget subject to the OTR; and (3) for 
purposes of determining the annual adjustment to the rate tier 
thresholds, comparing the average of total FCU assets reported in Call 
Reports for the four quarters available at the time the Board approves 
the budget to the average of total FCU assets in Call Reports for the 
four quarters of the respective previous years.
    Since 2020, the Chief Financial Officer has applied the published 
Operating Fee Schedule methodology and explained its application in the 
NCUA's annual budget documents.
    Historically, the Board has not used Federal Register notices in 
connection with annual adjustments to the asset tiers and rates of the 
Operating Fee Schedule. Instead, the Board has opted to adopt such 
changes at its open meetings. As recently as 2012, for example, the 
Board increased the asset threshold used to exempt FCUs from operating 
fees from $500,000 to $1 million at an open meeting, without requesting 
advance comment in the Federal Register.\18\ While the Board has varied 
its practice with respect to Operating Fee Schedule changes, it has 
done so within the FCU Act's broad directive that the Operating Fee 
Schedule should be as ``determined by the Board to be appropriate,'' 
subject to its consideration of its expenses and the ability of FCUs to 
pay.\19\ In addition, the NCUA's regulation on operating fee processes 
includes a standing invitation for written comments from FCUs on 
existing Operating Fee Schedules.\20\

[[Page 88977]]

Each year the Board also invites comments on the draft NCUA budget, 
which includes a detailed explanation of how the operating fee is 
calculated and how changes to the operating fee rates are determined 
based on application of the published methodology.
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    \18\ Board Action Memorandum on 2013 operating fee (Nov. 15, 
2012).
    \19\ 12 U.S.C. 1755(b).
    \20\ 12 CFR 701.6(c).
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II. Summary of the Proposed Changes to the Operating Fee Schedule 
Methodology and Public Comments

    At its June 2023 meeting, the NCUA Board approved the issuance of a 
notice and request for comment about adjustments to the methodology the 
NCUA uses to determine how it apportions operating fees charged to 
FCUs. The proposal provided for a 60-day comment period, which ended on 
September 5, 2023. The NCUA received five comment letters in response 
to the notice and request for comments. In general, all letters 
received from commenters expressed broad support for the Board's 
proposals. A few of the commenters, however, did raise concerns for the 
NCUA's consideration, which are discussed in more detail in the 
following portion of the preamble.
    Issue: The Board proposed to raise the asset exemption threshold 
level below which FCUs are not charged an operating fee. Currently, 
FCUs reporting average assets of $1 million or less during the 
preceding four calendar quarters are exempt from paying an operating 
fee because the Board determined that such credit unions do not have 
the ability to pay the fee. The $1 million average asset exemption 
level has been in place since 2012 and has not been adjusted since that 
time. In the intervening 11 years, average assets across FCUs have 
approximately doubled. To account for this growth in the size of the 
credit union system, the Board proposed to raise the asset exemption 
level for FCUs to $2 million.
    Comments Received: None of the commenters objected to this change. 
One of the five commenters supported the increase, and one other 
commenter did not take a specific position about the exemption level 
but noted that any change to the exemption should not be offset by 
changes in the amounts transferred from the Share Insurance Fund 
through the OTR. The three remaining commenters supported increasing 
the exemption threshold and urged the Board to consider raising it 
further to $5 million. In addition, two of the remaining three 
commenters recommended the Board reduce the NCUA budget by the amount 
of any revenue that would not be collected from FCUs newly exempt from 
paying the operating fee.
    NCUA Response: In response to the one comment about any increase to 
the exemption threshold level not being offset by an adjustment to the 
OTR, the OTR methodology would not change in response to adjusting the 
exemption threshold. Because the Operating Fee Schedule methodology 
allocates the non-OTR portion of the NCUA budget to all FCUs subject to 
it, changes to the Operating Fee Schedule methodology do not lower 
total operating fee collections.
    With respect to the three comments that urged the Board to raise 
the exemption threshold to $5,000,000, the Board determined not to make 
that change. Such a change is beyond the scope of the proposal. The 
NCUA, however, does plan to evaluate the feasibility and impact of such 
alternate exemption levels in its next cyclical review of the Operating 
Fee Schedule methodology.
    In response to the two comments suggesting that the NCUA Board 
reduce the agency budget by the amount of the operating fee not 
collected from FCUs newly exempt from paying the operating fee, the 
agency does not plan to change its budget formulation processes. The 
NCUA determines the resources it requires to carry out its 
responsibilities for a given year and then, as explained earlier in 
this notice, computes how those costs should be distributed based on 
the Board-approved OTR and Operating Fee Schedule methodologies. 
Changing the operating fee exemption threshold reallocates the share of 
the budget paid by FCUs between those required to pay it and has no 
direct impact on the resources the NCUA Board determines are necessary 
for the NCUA to fulfill its statutory responsibilities.
    Issue: To maintain consistency with the growth of FCU assets 
throughout the credit union system, the Board proposed adjusting the 
exemption threshold annually in future years by the computed rate of 
FCU asset growth. This inflationary adjustment would be included in the 
operating fee calculation presented in the annual draft NCUA budget 
published by the Chief Financial Officer pursuant to 12 U.S.C. 1789(b). 
The NCUA would adjust the exemption threshold by the percentage by 
which average quarterly assets reported for FCUs for the most-current 
four quarters have increased compared to the previous four quarters, 
using the Call Report data available at the time the NCUA budget is 
published. For example, when the Board approved the 2023-2024 operating 
budget in December 2022, the average FCU assets for the four most-
current quarters (i.e., the third and fourth quarters of 2021 and the 
first two quarters of 2022) were 8.5 percent higher than the previous 
four quarters (i.e., the third and fourth quarters of 2020 and the 
first two quarters of 2021). This increase in assets can be expressed 
as an inflation multiplier (1.085 in the example given) and applied to 
the exemption threshold to determine the adjusted level.
    Comments Received: None of the commenters objected to this change. 
Three of the five commenters specifically expressed support for this 
change while two of the five did not comment on the issue. One 
commenter questioned whether the exemption threshold would decrease if 
the annual asset levels in the credit union system fell.
    NCUA Response: In response to the question about the average asset 
exemption threshold decreasing if annual asset levels in the credit 
union system fell, the Board will take this comment under advisement 
and may, in the future, consider whether it is necessary to amend the 
methodology to address this contingency.
    Issue: The Board has not substantially modified the current three-
tier Operating Fee Schedule since 1993. The current Operating Fee 
Schedule is regressive; that is, credit unions with a larger amount of 
total assets pay a lower marginal rate on those assets above the 
threshold levels for the lower tiers. Given growth and consolidation in 
the credit union system, the Board requested views from the public 
about whether such an approach is an equitable method for allocating 
the operating fee.
    Comments Received: None of the commenters offered any specific 
recommendations or views regarding proposed adjustments to the 
operating fee tiers. Three of the five commenters requested that the 
NCUA provide additional information about any proposed fee tier 
adjustments before they would comment on any proposals.
    NCUA Response: The Board will review the current fee structure as 
part of its next cyclical review of the Operating Fee Schedule 
methodology. No changes to the current fee structure will be made as 
part of this final notice.

III. Summary of the Revised Operating Fee Schedule Methodology

    For the reasons discussed, the Board will revise the Operating Fee 
Schedule methodology by raising the threshold at and below which FCUs 
do not pay an operating fee to $2 million and will adjust this 
threshold annually by the aggregate rate of asset growth at FCUs.


[[Page 88978]]


    By the National Credit Union Administration Board.
Melane Conyers-Ausbrooks,
Secretary of the Board.
[FR Doc. 2023-28303 Filed 12-22-23; 8:45 am]
BILLING CODE 7535-01-P.