Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations 15819

1P.L. 104–208, tit. 12, 110 Stat. 3009 (September

30, 1996).

2 12 U.S.C. 1464, 1467a, respectively.

3HOLA, § 5, previously limited education loans

to 5% of a thrift’s total assets. 12 U.S.C.

1464(c)(3)(A).

bunt program provided pre-harvest

sampling of fields and other measures to

ensure the quality of wheat from the

regulated areas. The use of limited

permits for uninfected wheat further

facilitated the marketing flow of wheat,

thereby enabling the wheat industry

within the regulated areas to be

preserved.

VIII. Summary and Conclusions

The imposition of quarantine and

emergency actions against Karnal bunt

was a necessary, short-run measure

taken to prevent the artificial spread of

the disease to other wheat-producing

areas in the United States. The

establishment of Karnal bunt would

have had serious adverse impact on the

wheat export market, as over half of U.S.

wheat exports are to countries that

maintain restrictions against imports

from countries where Karnal bunt is

known to occur. In the absence of

regulatory action, it is conceivable that

farm income both within and outside

the regulated areas could have been

further jeopardized.

Given the regulatory objective of

disease eradication, the quarantine

measures to control a new disease

outbreak such as Karnal bunt is

necessarily broad due to the lack of

information on the extent of the

outbreak. These actions, enacted after

production and marketing decisions

were in place, undoubtedly had an

adverse impact on growers and other

affected individuals; many were likely

unable to recover unexpected costs. The

loss in market value due to the

quarantine is estimated at $44 million.

The majority of affected individuals and

firms can be classified as ‘‘small’’ based

on criteria established by the Small

Business Administration.

In order to reduce the economic

impact of the quarantine on affected

wheat growers and other individuals,

compensation was provided to mitigate

certain losses and expenses. The

payment of compensation is in

recognition of the fact that while a large

portion of the benefits of regulation

accrue to others outside the regulated

area, the regulatory burden falls

disproportionately on a small segment

of the industry. Indeed, it could be

argued that without compensation, the

regulatory actions would not have been

economically justified, as the costs of

disease control that are borne now could

have a greater weight than benefits that

are received in the future.

Based upon our analysis, we have

concluded that our quarantine measures

were appropriate and justifiable when

compared with the magnitude of the

benefits achieved. Even a 10-percent

reduction in wheat exports would have

a significant effect on wheat sector

income. It is estimated that a 10-percent

decrease in U.S. wheat exports would

cause a decline in wheat sector income

of over $500 million.

As of March 14, 1996, compensation

for the 1995–96 crop year is estimated

at $35 million. While not accounting for

every loss or expense due to the disease

or regulation, compensation for loss in

value lessened the adverse impact on

wheat sector income within the

regulated areas. Remunerations for other

losses are also being developed.

As more information is obtained on

disease prevalence, the number of

regulated acres are reduced and

restrictions for the 1996–97 crop season

are modified to be commensurate with

the level of risk. The impact on those

that are affected by regulation would

also likely be reduced; unlike in 1996,

the 1997 restrictions on wheat planting

are known in advance and can,

therefore, be taken into account when

cropping decisions are made.

Wheat acreage in the regulated areas

is projected to decline from 1995–96

levels, largely due to decreased demand

for U.S. wheat exports. Less than 5

percent of the acres in the regulated

areas is prohibited from planting wheat.

The impact on farm income due to this

prohibition is uncertain, as wheat is

normally rotated with other crops.

Overall, the impact of the Karnal bunt

restrictions on wheat production in the

regulated areas is likely to be small, as

wheat can still be grown on ample,

available land that was not planted with

wheat in 1996.

Done in Washington, DC, this 31st day of

March 1997.

Terry L. Medley,

Administrator, Animal and Plant Health

Inspection Service.

[FR Doc. 97–8544 Filed 3–31–97; 3:19 pm]

BILLING CODE 3410–34–P

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 560

[No. 97–28]

RIN 1550–AB05

Amendments Implementing Economic

Growth and Regulatory Paperwork

Reduction Act

AGENCY: Office of Thrift Supervision,

Treasury.

ACTION: Final rule.

SUMMARY: The Office of Thrift

Supervision (OTS) today is issuing a

final rule implementing provisions of

the Economic Growth and Regulatory

Paperwork Reduction Act of 1996

(EGRPRA). Among other actions,

EGRPRA: expanded and clarified federal

thrifts’ lending and investment

authority; amended the Qualified Thrift

Lender (QTL) test; authorized OTS to

grant anti-tying exceptions conforming

to exceptions granted to banks by the

Board of Governors of the Federal

Reserve System (FRB); and modified

OTS’s oversight authority over bank

holding companies that own savings

associations. Today’s rule implements

these statutory changes in final form

and enables thrifts to take advantage of

the expanded flexibility and burden

reduction afforded by EGRPRA.

EFFECTIVE DATE: April 3, 1997.

FOR FURTHER INFORMATION CONTACT:

William J. Magrini, Senior Project

Manager, (202) 906–5744, Supervision

Policy; Ellen J. Sazzman, Counsel

(Banking and Finance), (202) 906–7133,

or Karen Osterloh, Assistant Chief

Counsel, (202) 906–6639, Regulations

and Legislation Division, Chief

Counsel’s Office. For information about

holding company issues, contact Kevin

A. Corcoran, Assistant Chief Counsel,

(202) 906–6962, Business Transactions

Division, Chief Counsel’s Office, Office

of Thrift Supervision, 1700 G Street,

NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

On September 30, 1996, Congress

enacted the EGRPRA 1 which amended

and clarified thrifts’ lending and

investment powers under sections 5 and

10 of the Home Owners’ Loan Act

(HOLA).2 EGRPRA confirmed that

federal savings associations may engage

in credit card lending without

limitation; enabled federal savings

associations to engage in education

lending without investment

restrictions; 3 increased the 10% of

assets limitation on federal savings

associations’ commercial lending to

20% of assets, provided that amounts in

excess of 10% are used for small

business loans as defined by the OTS

Director; and amended the QTL test to

provide that investments in education,

small business, credit card, and credit

card account loans are includable
15820 Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations

4EGRPRA also permitted savings associations to

substitute the tax code’s ‘‘domestic building and

loan association’’ test for compliance with the

amended QTL test. See Section 2303(e) of EGRPRA.

5 12 U.S.C. 1464(q).

6 61 FR 60179 (November 27, 1996).

7See 12 U.S.C. 1467a(m).

8EGRPRA, section 2303(b), amending HOLA

§ 5(c), to be codified at 12 U.S.C. 1464(c)(1)(T).

9Black’s Law Dictionary 367 (6th ed. 1990).

10 12 U.S.C. 1464(c)(6)(B).

11 12 CFR 560.31(c), as added 61 FR 50951, 50974

(September 30, 1996).

without limit for purposes of satisfying

the QTL test.4

EGRPRA also authorized the OTS

Director to issue regulations granting

exceptions to anti-tying provisions in

section 5(q) of the HOLA,5 provided the

exceptions are consistent with the

HOLA and conform to exceptions

granted by the FRB to banks. Finally,

EGRPRA eliminated OTS supervision of

holding companies that control both a

bank and a savings association and that

are registered as bank holding

companies with the FRB.

On November 27, 1996, OTS issued

an interim final rule enabling thrifts to

take immediate advantage of the

expanded flexibility and burden

reduction afforded by EGRPRA.6 The

interim final rule included definitions

of credit card, credit card account, small

business, and small business loans.

These definitions enabled thrifts to

apply the newly modified QTL test and

to exercise new investment authorities.

OTS also streamlined its regulations by

removing certain unnecessary QTL

provisions from the Code of Federal

Regulations, and added a new

regulatory anti-tying exception that

conformed to the FRB’s safe harbor for

combined balance accounts. OTS

requested comment on any issues raised

by the newly implemented regulations.

II. Summary of Comments and

Description of the Final Rule

A. General Discussion of the Comments

The public comment period on the

interim final rule closed on January 27,

1997. Nine commenters, including five

financial institution trade associations

and four federal savings associations,

responded to the request for comment.

Commenters generally supported OTS’s

efforts to implement expeditiously

EGRPRA’s new provisions. Several

commenters suggested that OTS modify

some provisions, including adopting a

safe harbor for loans to small

businesses. Specific comments

addressing various sections are

discussed where appropriate in the

section by section analysis below.

B. Section-by-Section Analysis

Section 560.3—Definitions of Credit

Card and Credit Card Account

Section 2303(g) of EGRPRA requires

the OTS Director to issue regulations

defining the term ‘‘credit card’’ in order

to enable thrifts to apply the newly

modified QTL test.7 This modified QTL

test permits loans ‘‘made through credit

cards or credit card accounts’’ to be

counted as qualified thrift investments

(QTI) without restriction. The definition

of ‘‘credit card’’ and ‘‘credit card

account’’ also provides federal thrifts

with guidance in exercising their

authority to ‘‘invest in, sell, or otherwise

deal in * * * loans made through credit

cards or credit card accounts’’ under

section 5(c) of the HOLA. As revised by

section 2303(b) of EGRPRA, section 5(c)

authorizes federal thrifts to engage in

credit card lending without any

percentage of assets investment

limitation.8 Commenters generally

agreed that it was appropriate for OTS

to consistently define ‘‘credit card’’ and

‘‘credit card account’’ for both section

5(c) and section 10(m) of the HOLA.

Credit card. OTS based the regulatory

definition of ‘‘credit card’’ on the plain

language definition of ‘‘credit card’’ in

Black’s Law Dictionary.9 Four

commenters addressed the substance of

this definition. Two commenters

supported the use of the Black’s Law

Dictionary definition. These

commenters asserted that this definition

is easy to understand and consistent

with EGRPRA’s goal of providing thrifts

greater investment flexibility. Two other

commenters suggested that OTS employ

the similar, but not identical, definition

of ‘‘credit card’’ in the FRB’s Truth in

Lending Regulation at 12 CFR Part 226

(Regulation Z). Regulation Z defines

credit card as ‘‘any card, plate, coupon

book, or other single credit device that

may be used from time to time to obtain

credit.’’ 12 CFR 226.2(a)(15). These

commenters noted that the banking

industry is familiar with Regulation Z

and that uniform regulations would

reduce the complexity of Federal

regulation of the banking industry.

To enhance uniformity and

consistency among the federal banking

agencies, the OTS has adopted the

definition of ‘‘credit card’’ in Regulation

Z for purposes of the final EGRPRA

amendments.

Credit Card Account. The interim rule

defined ‘‘credit card account’’ as a credit

account established in conjunction with

the issuance of, or the extension of

credit through, a credit card. The term

includes loans made to consolidate

credit card debt, including credit card

debt held by other lenders, and

participation certificates, securities and

similar instruments secured by credit

card receivables.

Two commenters supported including

investments in loan pools that issue

securities backed by credit card loans in

the definition. These commenters noted

that HOLA specifies that ‘‘any reference

to a loan [herein] * * * includes an

interest in such loan * * *’’ 10 and,

thus, implicitly includes securities

backed by credit card accounts and

receivables. One commenter argued that

the inclusion of securities backed by

credit card loans is beyond

congressional intent because such debt

instruments are essentially securities

rather than loans.

OTS and its predecessor agency have

long authorized federal savings

associations to make a loan secured by

an assignment of loans to the extent that

the thrift may make or purchase the

underlying loans.11 Thus, the final rule

continues to provide that loans made

through credit cards and credit card

accounts encompass investments in

loan pools that issue securities backed

by credit card loans.

Two commenters agreed with OTS’s

inclusion of credit card debt

consolidation loans in the definition of

‘‘credit card account.’’ These

commenters argued that such loans are,

in economic substance, credit card

loans. One commenter requested OTS to

clarify that consolidation loans include

other consumer debt such as personal or

automobile loans. Another commenter

argued against the inclusion of credit

card debt consolidation loans, asserting

that credit card debt consolidation

loans, in essence, are consumer

installment loans that may include noncredit card debt.

OTS believes that, in enacting

EGRPRA, Congress intended to give

thrifts the flexibility for innovation with

respect to the terms and conditions of

particular credit card products.

Accordingly, OTS believes that a broad

definition of credit card account within

the limits of safety and soundness is

consistent with congressional intent of

EGRPRA and HOLA. Additionally, OTS

does not consider loans that are used to

consolidate other consumer debt such as

personal or automobile loans to be

credit card debt consolidation loans and

would object to a thrift’s treatment of

loans consolidating both credit card and

non-credit card related debt as a credit

card account loan. Accordingly, the

definition of credit card account is

unchanged in the final rule.

OTS reiterates that § 560.30 of OTS’s

regulations, which implements the

statutory credit card authority, permits
Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations 15821

12 12 CFR 560.30, n. 5, 61 FR 50951, 50973

(September 30, 1996).

13Federal thrifts have long been authorized to

make loans secured by business or agricultural real

estate in amounts up to 400% of capital, 12 U.S.C.

1464(c)(2)(B). Prior to EGRPRA, federal thrifts could

only make additional secured and unsecured loans

to businesses and farms in amounts up to 10% of

total assets. 12 U.S.C. 1464(c)(2)(A).

14The SBA Reauthorization Act of 1994, 15

U.S.C. 632(a)(2)(C), provides that unless specifically

authorized by statute, no federal agency may

prescribe a size standard for categorizing a business

concern as a small business unless such size

standard is made subject to public notice and

comment, makes certain size determinations, and is

approved by the SBA Administrator. OTS solicited

comment regarding whether EGRPRA § 2303(g)

constitutes a specific authorization within the

meaning of 15 U.S.C. 632(a)(2)(C). Commenters

addressing this issue believed that EGRPRA gave

OTS authorization to define ‘‘small business’’ for

purposes of the HOLA. Section 2303(g) of EGRPRA

requires the Director to ‘‘issue such regulations as

may be necessary to define the term ‘small

business’ ’’ for the purposes of the QTL

requirements at section 10(m) of the HOLA.

Similarly, under section 5(c)(2)(A) of the HOLA, as

amended by section 2303(c) of EGRPRA, savings

associations are authorized to invest in ‘‘small

business loans, as that term is defined by the

Director.’’ OTS believes that these statutes

constitute specific authorizations to define ‘‘small

business’’ within the meaning of 15 U.S.C.

632(a)(2)(C).

15 12 CFR 563e.42(b)(1)(iv). Small business loans

for purposes of the CRA regulations, however, are

defined by reference to the Thrift Financial Report,

which is based on the amount of the loan. See 12

CFR 563e.12(t).

16 12 CFR 202.9(a)(3).

federal thrifts to engage in the full range

of credit card operations authorized by

HOLA. Under this regulation, however,

OTS reserves the right to establish

investment limits on a case-by-case

basis if an institution’s concentration in

credit-card-related loans presents a

safety and soundness concern.12 As with

any expansion of a line of business,

institutions that expand their credit card

lending pursuant to today’s rule must

do so in a safe and sound manner.

Institutions planning any significant

increase in these types of loans should

prepare thorough business plans,

acquire the necessary personnel and

expertise, and establish adequate

systems to identify and control risks

associated with these products. OTS

will monitor these lending activities,

utilizing off-site surveillance and the

on-site examination process.

Section 560.3—Definitions of Small

Business and Small Business Loans

Section 2303(g) of EGRPRA requires

the OTS Director to issue regulations

defining ‘‘small business’’ for the

purposes of the newly modified QTL

test, which permits savings association

to count small business loans as QTI

without restriction under section 10(m)

of the HOLA. Section 2303(c) of

EGRPRA also directs the OTS Director

to define ‘‘small business loans’’ in

connection with the newly amended

section 5(c) of the HOLA, which

expands federal thrifts’ commercial

lending authority from 10% to 20% of

assets, provided the amount in excess of

10% of assets is used solely for small

business loans.13

To promote a harmonious

interpretation of the statute, the interim

final regulation defined ‘‘small

business’’ and ‘‘small business loan’’

once for purposes of both HOLA

provisions. OTS tied these regulatory

definitions to the eligibility criteria

established by the Small Business

Administration (SBA) under section 3(a)

of the Small Business Act, 15 U.S.C.

632(a), as implemented by SBA’s

regulations at 13 CFR Part 121. OTS

specifically solicited comment whether

these SBA standards were the most

appropriate basis for the definitions of

small business or small business loans

under the HOLA. The OTS also solicited

comment on whether the agency should,

for the sake of simplicity, include in its

definition a de minimis safe harbor

based on annual sales or some other

criteria.14

Of the seven commenters addressing

the small business definitions, four

supported the use of SBA’s regulatory

definitions (either alone or in

combination with a de minimis safe

harbor). These commenters indicated

that most lenders and small businesses

are familiar with SBA’s size eligibility

standards, and asserted that the use of

SBA’s standards would promote

regulatory uniformity among the

agencies and would reduce regulatory

compliance burdens.

Three other commenters contended

that thrifts are unfamiliar with SBA’s

size eligibility standards. These

commenters also asserted that the SBA

definitions are too complex to apply in

day-to-day commercial lending

decisions since the SBA’s criteria

require knowledge of the borrower’s

precise line of business, as categorized

and subcategorized by SBA’s

regulations. For some businesses, SBA’s

regulations rely on a firm’s number of

employees. For other businesses, the

SBA definitions are based on the

company’s asset size or annual receipts.

These commenters contended that the

application of SBA definitions would

require thrifts to gather additional data

unrelated to lending decisions, and to

make time-consuming determinations of

SBA industrial classifications. They

concluded that the use of the SBA

definitions would impose additional

burdens on thrifts’ commercial lending

activities, and would limit thrifts’

incentive to pursue small business

lending, contrary to the spirit of

EGRPRA.

Six of the seven commenters

suggested that OTS adopt a safe harbor

in place of or as an alternative to the

SBA definitions. These commenters

reasoned that a safe harbor threshold

would provide additional flexibility in

qualifying businesses as eligible for

small business loan categorization. The

commenters suggested a variety of safe

harbor standards, expressed in terms of

annual receipts, number of employees,

and/or loan amount of a business

borrower.

One commenter noted that savings

associations are required to report the

aggregate number of loans made to

businesses with gross annual revenues

of $1 million or less pursuant to the

OTS’s Community Reinvestment Act

(CRA) regulations.15 This commenter

also asserted that FRB Regulation B,16

which implements the Women’s

Business Ownership Act of 1988, also

uses the $1 million annual receipts

standard to determine whether a

business constitutes a small business.

For consistency, the commenter

suggested that OTS adopt the same

standard. A second commenter, a bank

trade association, did not support the

safe harbor, but also recommended that

if OTS decided to establish a threshold,

it should use the $1 million sales

standard to be consistent with the CRA

and FRB regulations.

A third commenter preferred a safe

harbor of $20 million in annual sales.

This commenter represented that this

amount was within the range of dollar

amounts that SBA currently uses in its

definitions. The commenter also

observed that small businesses with $20

million or less in annual sales typically

employed fewer employees and

borrowed smaller amounts.

Two commenters suggested that OTS

adopt a safe harbor based on annual

receipts or the number of employees of

a business. In other words, if a business

has $5 million or less in annual receipts

or 500 or fewer employees, it should

automatically be deemed a small

business regardless of its line of

business. These commenters indicated

that these thresholds were predominant

among the myriad business types

included in SBA regulations.

Finally, one commenter suggested

that OTS define small business loans as

business loans of $1 million or less that

are made to borrowers that do not have

more than 1,000 employees at the time

such loans were made. This commenter

explained that large and medium sized

businesses are unlikely to negotiate
15822 Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations

17 12 CFR 563e.12(t). The CRA regulations of the

other federal banking agencies contain the same

definition.

18FDICIA § 122, 12 USC 1817 note, requires the

federal banking agencies to collect annually from

insured institutions information on small business

and small farm lending as the agencies may need

to assess the availability of credit to these sectors

of the economy. The Bank Call Report contains the

same $1 million loan threshold for bank reporting

purposes.

19Pursuant to TFR instructions, loans to small

farms are considered to be farm loans with ‘‘original

amounts’’ of $500,000 or less.

20 ‘‘Information on Depository Credit for Small

Businesses and Small Farms’’ (October 1996) p. 1.

FDICIA § 477, 12 USC 251, requires the FRB to

collect and publish annually information on the

availability of credit to small businesses and small

farms.

21OTS may reevaluate this threshold after thrifts

have had some experience with its application.

22See 13 CFR 121.104, which defines ‘‘annual

receipts’’ for SBA purposes.

23For a more complete discussion of EGRPRA’s

amendments to the QTL test as well as the federal

thrifts’ branching authority, refer to the preamble to

the interim final rule, 61 FR 60179–60180.

24 12 U.S.C. 4803.

loans of $1 million or less and described

the 1,000-employee level as the most

representative level of employment in

SBA regulations.

After reviewing these comments, OTS

has determined to adopt alternative

standards for determining when an

extension of credit qualifies as a ‘‘small

business loan’’ for purposes of thrifts’

small business lending authority and

the QTL test. OTS believes that this

alternative approach will afford thrifts

maximum flexibility to participate in

small business lending activities

consistent with safety and soundness.

First, OTS will continue to tie its

definition of ‘‘small business’’ to the

eligibility criteria established by SBA

and implemented by SBA’s regulations

at 13 CFR Part 121. A loan to a business

qualifying as a ‘‘small business’’ under

SBA’s regulations will qualify as a

‘‘small business loan’’ for purposes of

HOLA § 5(c) lending authority and as a

‘‘loan to a small business’’ for purposes

of the QTL test at HOLA § 10(m). For

lenders and small businesses familiar

with SBA’s size eligibility standards,

this alternative will provide a wellestablished mechanism for thrifts to

expand their small business lending. By

relying on SBA’s definition, OTS also

will promote regulatory uniformity

among the agencies and will lessen the

regulatory compliance burden on the

small business community.

As an alternative mechanism, OTS is

adopting a safe harbor threshold based

on loan amount. Under the final rule, a

loan of $1 million or less will generally

be deemed a small business loan (or a

loan to a small business) for purposes of

thrifts’ small business lending authority

and the QTL test. This safe harbor

provides thrifts with a simple, easy to

apply, mechanism for qualifying loans

as small business loans. This standard

should enhance small business lending

without adding an unnecessary layer of

complexity to day-to-day commercial

lending.

OTS believes that a threshold loan

amount would be an appropriate safe

harbor. OTS already uses a $1 million

loan amount to define small business

loan for purposes of its CRA

regulations.17 OTS also relies on a $1

million loan threshold for purposes of

reporting small business loans to

Congress pursuant to requirements of

the Federal Deposit Insurance

Corporation Improvement Act

(FDICIA).18 OTS’s Thrift Financial

Report (TFR) currently requires thrifts to

annually report ‘‘Loans to Small

Businesses and Small Farms’’ described

in the TFR instructions as business

loans in the amount of $1 million or

less.19 Furthermore, as noted by at least

one commenter, large and medium sized

businesses are unlikely to negotiate

loans of $1 million or less. Indeed, a

recently issued FRB report states that

‘‘[s]urvey data indicates a high

correlation between loan size and

borrower size, and most small loans

likely are to small businesses.’’ 20

Accordingly, the final rule defines

small business loans and loans to small

businesses, in part, by cross-reference to

the TFR instructions. The use of these

loan thresholds is consistent with OTS

regulatory and reporting requirements

and, additionally, does not pose any

threat to safety and soundness.21

The final rule defines small business

loans and loans to small businesses to

include a loan (including a group of

loans to one borrower) that meets the

original amount restrictions and other

criteria for loans to small businesses and

small farms under the TFR. Savings

associations must combine and report

multiple loans to one borrower on an

aggregate basis, rather than as separate

loans in determining whether the loans

fall within the threshold. Accordingly,

multiple loans made by a savings

association to the same borrower would

not qualify as small business loans or

loans to small businesses, if the

aggregated loans would exceed the TFR

threshold amounts.

OTS determined not to base the safe

harbor threshold on annual receipts or

sales. Unlike loan amount, which

information is readily available to

thrifts, the concept of annual receipts or

sales may require some careful and

potentially complex determinations

with regard to the amount and timing of

income.22 OTS also determined not to

base the safe harbor threshold on

employee level. Unlike loan amount,

thrifts do not necessarily obtain data

regarding employee level as part of the

typical loan underwriting process. Nor

is this information readily available to

thrifts. Employee levels are also subject

to greater fluctuation and more difficult

to substantiate than loan amount.

OTS believes that the alternative

mechanisms for qualifying borrowers for

small business loans will provide thrifts

with the flexibility needed to pursue

small business lending. This approach

should also increase available credit to

small businesses by creating incentives

for thrifts to expand small business

lending in a safe and sound manner.

Sections 563.50, 563.51, 563.52—

Revisions to the QTL Test

Section 2303 (e) and (g) of EGRPRA

substantially amended the QTL test. As

a result of these statutory reforms,

savings associations can now engage in

substantial small business, agricultural,

credit card, educational, and other

consumer lending and remain in QTL

compliance.23

The interim final rule did not codify

the statutory amendments in OTS

regulations. Instead, OTS removed all

QTL provisions from its regulations and

chose to rely directly on section 10(m)

of the HOLA to govern this area. OTS

believed that HOLA’s detailed QTL

requirements, combined with relevant

handbook guidance and the new

regulatory definitions discussed above,

provide adequate direction to the thrift

industry and OTS examination staff

with respect to QTL compliance. This

approach is consistent with OTS’s effort

to streamline its regulations and remove

duplicative requirements pursuant to

section 303 of the Community

Development and Regulatory

Improvement Act of 1994 (CDRIA).24

No commenter addressed this issue.

Accordingly, OTS is adopting its final

rule without change.

Section 563.36—Tying Restrictions

Section 5(q) of the HOLA prohibits a

savings association from, inter alia,

varying the price charged for a product

or service (the tying product) based on

whether the customer obtains an

additional product or service (the tied

product) offered by the association or its

service corporation or affiliate, unless

the additional product or service is a

loan, discount, deposit or trust service

(‘‘traditional bank products’’). The Bank

Holding Company Act Amendments of

1970 (BHCA Amendments) contain a

similar anti-tying provision applicable
Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations 15823

25 12 U.S.C. 1972.

26For a more detailed discussion of the three FRB

exemptions and the OTS decision not to promulgate

similar regulatory exemptions, see 61 FR 60181–82.

27 12 CFR 225.7(b)(1) (1996).

28 12 CFR 225.7(b)(2) (1996).

29 12 CFR 225.7(b)(3) (1996).

30 12 CFR 225.7(b)(4) (1996).

31The exception authority granted to OTS by

amended HOLA § 5(q) is indirectly applicable to

savings and loan holding companies and affiliates,

because HOLA § 10(n) provides that, in connection

with transactions involving the products or services

of a savings and loan holding company or affiliate

and those of an affiliated savings association, § 5(q)

shall apply to savings and loan holding companies

and their affiliates in the same manner as if they

were savings associations.

32 12 CFR 225.7(c)(1)(1996).

33 61 FR 47242 (September 6, 1996).

34 62 FR 9290, 9323 (February 28, 1997).

35 12 CFR 225.7(a)(1996). Other aspects of the

FRB’s new rule need not be discussed here because

they concern practices not prohibited for savings

associations and their affiliates.

to banks and authorizes the FRB to grant

exemptions by regulation or order from

such provisions.25 Prior to EGRPRA, the

HOLA did not grant exemptive

authority to OTS.

Section 2216 of EGRPRA amended

section 5(q) of the HOLA to authorize

the OTS Director to issue regulations or

orders permitting exceptions to the antitying prohibitions. These exceptions

must not be contrary to the purposes of

section 5(q) of the HOLA, and must

conform to exceptions granted by the

FRB to banks under the BCHA

Amendments.

When the interim rule was issued, the

FRB had promulgated four regulatory

exceptions. For the reasons discussed in

the interim rule, the OTS determined

that there was no need to issue

regulatory exceptions comparable to

three of these exceptions.26 These

included FRB exceptions permitting: (1)

a bank holding company, bank, or

nonbank subsidiary to vary the

consideration charged for a traditional

bank product on the condition or

requirement that a customer also obtain

a traditional bank product from an

affiliate; 27 (2) a bank holding company,

bank or nonbank subsidiary to vary the

consideration charged for securities

brokerage services on the condition or

requirement that a customer also obtain

a traditional bank product from that

bank holding company or bank or

nonbank subsidiary, or from any

affiliate of such company; 28 and (3) a

bank holding company or nonbank

subsidiary to vary the consideration for

any extension of credit, lease or sale of

property of any kind, or service, on the

condition or requirement that the

customer obtain some additional credit,

property or service from itself or a

nonbank affiliate.29 Four commenters

addressed the three FRB exemptions.

All agreed that comparable OTS

exceptions were unnecessary. The final

rule is unchanged on this point.

The fourth FRB exception permits

banks to vary the consideration for any

product or package of products based on

a customer’s maintenance of a combined

minimum balance in certain products

specified by the bank varying the

consideration (defined as ‘‘eligible

products’’), if (i) that bank offers

deposits, and all such deposits are

eligible products, and (ii) balances in

deposits count at least as much as nondeposit products toward the minimum

balance.30

This regulatory exception permits

banks to offer discounts to customers

maintaining a combined minimum

balance in deposit and non-deposit

accounts, including brokerage and

mutual fund accounts. As such, this

regulatory ‘‘safe harbor’’ authorizes

tying arrangements that, absent an

exception, would be prohibited for

savings associations, because the tied

products would not necessarily be

traditional bank products. In addition,

savings and loan holding companies or

affiliates are prohibited from offering

such arrangements where one of the

products involved is a savings

association product (other than a

traditional bank product).

The interim final rule included a

comparable ‘‘safe harbor’’ exception for

savings associations, savings and loan

holding companies, and affiliates.31 OTS

concluded that this exception was not

contrary to the purposes of section 5(q)

of the HOLA because it did not present

the anti-competitive effects that the

HOLA’s anti-tying provisions were

intended to eliminate. Rather, the safe

harbor enabled savings associations and

their affiliates to offer a greater variety

of banking products and services to

their customers, and could enhance

competition in the market place. This

exception also ensured parity between

savings associations and banks by

enabling these institutions to offer a

comparable range of products and

services and, thus, enhanced

competition among financial

institutions consistent with the

purposes of section 5(q) and the BHCA

Amendments.

The OTS anti-tying exception at 12

CFR 563.36 conforms to the FRB’s ‘‘safe

harbor’’ for combined balance

discounts. This safe harbor permits

savings associations and their affiliates

to offer discounts to customers

maintaining certain combined minimum

balance accounts. OTS also indicated

that it may permit other exceptions

under section 5(q) on a case-by-case

basis upon determination that the

exception is not contrary to the

purposes of section 5(q), conforms to an

exception granted by the FRB, and is

consistent with safe and sound

practices.

Three commenters supported OTS’s

adoption of this safe harbor exception.

These commenters also agreed with

OTS’s decision to permit other

exceptions on a case-by-case basis.

Commenters believed that this flexible

approach could expand the variety of

products offered to customers in a

rapidly changing marketplace and

would enable thrifts to take full

advantage of their holding company

structure.

OTS’s interim final rule did not

require that all products offered

pursuant to the safe harbor must be

separately available for purchase.

Although this condition applied to the

FRB safe harbor,32 the FRB had

proposed to eliminate the condition in

a proposed rule issued September 6,

1996.33 OTS indicated it would

reexamine this issue if the FRB’s final

rule did not eliminate the condition.

At least one commenter, a bank trade

association, criticized the safe harbor for

combined minimum balance accounts

because it did not require that all

products be offered separately for sale,

contrary to the FRB safe harbor. Another

commenter contended that there was no

need for all items in a combined balance

to be separately offered because there

may be a rational economic need to offer

certain products and services in a

package form and that not offering each

product separately does not necessarily

raise anticompetitive issues.

In its final rule issued on February 28,

1997, the FRB in fact eliminated the

separate availability requirement for

combined balance discounts.34

Accordingly the OTS is adopting the

antitying safe harbor in its interim rule

without change.

In the interim rule, OTS also solicited

comment as to whether the agency

should adopt regulatory amendments

parallel to additional revisions proposed

by the FRB. The FRB had proposed to

rescind the provision in its regulation

that extended the tying prohibitions to

bank holding companies and their

nonbank affiliates,35 and had proposed

that bank holding companies and their

nonbank affiliates could engage in tying

practices other than discounting, such

as conditioning the availability of a
15824 Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations

36 The FRB noted that any tying arrangements

permitted under these changes would be subject to

the general provisions of the antitrust laws.

37 62 FR at 9312–9315, 9323. 38 12 U.S.C. 1841 et seq.

product on the purchase of another

product.36

OTS requested comment on whether

savings and loan holding companies

and their non-bank affiliates should also

be completely exempted from the tying

restrictions. As noted above, the

provision of law applying the tying

restriction to savings and loan holding

companies is statutory, not regulatory

(as is the case for bank holding

companies). Thus, OTS also requested

comment on whether it would have

legal authority to grant a complete

exemption from section 10(n) of the

HOLA.

Several commenters addressed this

issue. Commenters generally agreed that

OTS does not have authority to

eliminate entirely restrictions on tying

by savings and loan holding companies,

because OTS does not have authority to

grant exemptions from section 10(n) of

the HOLA. However, none of the

commenters disputed that OTS has

authority to grant exceptions to savings

associations pursuant to OTS’s authority

under section 5(q) of the HOLA to

savings and loan holding companies.

The FRB, in its final rule, adopted its

proposal to rescind that agency’s

regulatory extension of the tying

prohibitions to bank holding companies

and their nonbank affiliates.37 Pursuant

to section 10(n) of the HOLA, OTS does

not presently appear to have the

authority to except savings and loan

holding companies and their affiliates

entirely from all tying restrictions.

Because OTS cannot completely except

savings associations and their affiliates

from tying prohibitions, OTS cannot

adopt an exception precisely

conforming to the FRB’s elimination of

regulatory restrictions on tying by bank

holding companies. Nevertheless, the

effects of OTS’s inability to grant

exceptions from section 10(n) are

limited for two reasons. First, as

previously noted, the section 10(n)

restrictions do not apply unless the

tying arrangement involves a savings

association. Second, the exceptions

promulgated under new section 5(q)(6)

apply to savings and loan holding

companies (and affiliates) as if they

were savings associations.

As a final matter, one commenter

noted that OTS has published no

policies or guidance concerning the

tying restrictions applicable to savings

associations and their holding

companies. This commenter

recommended that OTS issue such a

policy statement or guidance. This

commenter suggested that the guidance

should reflect OTS’s position that

section 5(q) permits the arrangements

addressed in the first three FRB

exceptions set forth at 12 CFR 225.7,

and should contain examples of

permissible practices under these

exceptions. This commenter also

suggested that FRB orders on tying

arrangements could be used by thrifts as

guidance.

OTS will consider these suggestions,

particularly if thrifts indicate a need for

such assistance after implementation of

this final rule. In light of the differences

between anti-tying statutes applicable to

savings associations and banks, OTS

does not believe it appropriate to adopt

automatically orders issued by the FRB.

Sections 574.1, 574.2, 574.3, 575.2,

583.20, 584.2a—Regulation of Holding

Companies

Section 2203 of EGRPRA eliminated

OTS supervision of holding companies

that control both a bank and a thrift, and

are registered as a bank holding

company with the FRB under the BHCA

of 1956.38 Accordingly, the interim final

rule included: (1) revisions to OTS

acquisition of control and holding

company regulations to conform to

EGRPRA’s amendments to the Savings

and Loan Holding Company Act; (2) an

exception to the acquisition of control

regulations clarifying that when a

person acquires control of a bank

holding company and the person is

required to file a change of control

notice with the FRB, no change of

control notice is required to be filed

with OTS; and (3) minor revisions to the

Mutual Holding Company regulations to

reflect the OTS position that section

2203 of EGRPRA does not affect its

authority to regulate mutual holding

companies, including mutual holding

companies that have acquired a bank.

The one commenter addressing the

issue concurred with OTS’s

implementation of EGRPRA.

Accordingly, OTS adopts the described

modifications without change.

III. Administrative Procedure Act

OTS has determined that the 30-day

delay of effectiveness provisions of the

Administrative Procedure Act (APA), 5

U.S.C. 553, may be waived in this

rulemaking. Section 553(d) of the APA

permits waiver of the 30 day delayed

effective date requirement for, inter alia,

good cause or where a rule relieves a

restriction. OTS finds that good cause

exists because the rule is substantially

identical to the interim final rule that

has been in effect since November 1996.

The rule relieves various lending,

investment, and tying restrictions for

thrifts and merely conforms OTS

regulations to EGRPRA’s statutory

changes. Accordingly, the final rule will

be immediately effective upon

publication in the Federal Register.

IV. Executive Order 12866

OTS has determined that this final

rule does not constitute a ‘‘significant

regulatory action’’ for the purposes of

Executive Order 12866.

V. Regulatory Flexibility Act

Because no notice of proposed

rulemaking is required for this rule, the

provisions of the Regulatory Flexibility

Act (5 U.S.C. 601 et seq. do not apply.

The final rule does not impose any

additional burdens or requirements

upon small entities and reduces burdens

on all savings associations. The

regulatory amendments implement

statutory changes to the HOLA that

relieve various lending, investment, and

tying restrictions on thrifts and

otherwise conform OTS regulations to

EGRPRA.

VI. Unfunded Mandates Act of 1995

OTS has determined that the

requirements of this final rule will not

result in expenditures by State, local,

and tribal governments, or by the

private sector, of more than $100

million in any one year. Accordingly, a

budgetary impact statement is not

required under section 202 of the

Unfunded Mandates Act of 1995, Pub.

L. 104–4, 109 Stat. 48 (1995).

VII. Effective Date

Section 302 of the Riegle Community

Development and Regulatory

Improvement Act of 1994 (CDRIA), 12

U.S.C. 4802, requires that new

regulations and amendments to

regulations that impose additional

reporting, disclosures, or other new

requirements take effect on the first date

of the calendar quarter following

publication of the rule unless, among

other things, the agency determines, for

good cause, that the regulations should

become effective on a day other than the

first day of the next quarter. OTS

believes that CDRIA does not apply to

this final rule because it imposes no

new burden on thrifts. For these

reasons, OTS has determined that an

immediate effective date is appropriate

for this final rule.

List of Subjects 12 CFR Part 560

Consumer protection, Investments,

Manufactured homes, Mortgages,

Reporting and recordkeeping
Federal Register / Vol. 62, No. 64 / Thursday, April 3, 1997 / Rules and Regulations 15825

requirements, Savings associations,

Securities.

Accordingly, the Office of Thrift

Supervision hereby amends title 12,

chapter V of the Code of Federal

Regulations by adopting as final the

interim rule published at 61 FR 60179

(November 27, 1996), with the following

changes.

PART 560—LENDING AND

INVESTMENT

1. The authority citation for part 560

continues to read as follows:

Authority: 12 U.S.C. 1462, 1462a, 1463,

1464, 1467a, 1701j–3, 1828, 3803, 3806; 42

U.S.C. 4106.

2. Section 560.3 is amended by

revising the introductory text and the

definitions for credit card and small

business loans and loans to small

businesses to read as follows:

§ 560.3 Definitions.

For purposes of this part and any

determination under 12 U.S.C.

1467a(m):

* * * * *

Credit card is any card, plate, coupon

book, or other single credit device that

may be used from time to time to obtain

credit.

* * * * *

Small business loans and loans to

small businesses include any loan to a

small business as defined in this

section; or a loan (including a group of

loans to one borrower) that meets the

original amount restrictions and other

criteria for ‘‘loans to small businesses

and small farms’’ as defined in the

instructions for preparation of the Thrift

Financial Report.

Dated: March 24, 1997.

By the Office of Thrift Supervision.

Nicolas P. Retsinas,

Director.

[FR Doc. 97–8011 Filed 4–2–97; 8:45 am]

BILLING CODE 6720–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 71

[Airspace Docket No. 97–ANM–01]

Establishment of Class D and Class E

Airspace; Redmond, OR

AGENCY: Federal Aviation

Administration (FAA), DOT.

ACTION: Final rule.

SUMMARY: This action establishes the

Redmond, Oregon, Class D and Class E4

airspace areas to accommodate the

commissioning of an Airport Traffic

Control Tower (ATCT) at Roberts Field.

Additionally, this rule redesignates

existing Class E2 airspace as part-time to

preclude the concurrent existence of the

different classes of airspace at

Redmond, Oregon, designated as surface

areas.

EFFECTIVE DATE: 0901 UTC, May 22,

1997.

FOR FURTHER INFORMATION CONTACT:

Ted Melland, Operations Branch, ANM–

532.1, Federal Aviation Administration,

Docket No. 97–ANM–01, 1601 Lind

Avenue, SW., Renton, Washington

98055–4056; telephone number: (206)

227–2536.

SUPPLEMENTARY INFORMATION:

History

On January 29, 1997, the FAA

proposed to amend part 71 of the

Federal Aviation Regulations (14 CFR

part 71) to establish Class D and Class

E4 airspace areas at Redmond, Oregon,

to accommodate the commissioning of

an ATCT at Roberts Field. Additionally,

the FAA proposed to redesignate the

existing Class E2 surface area as parttime to preclude the concurrent

existence of different classes of airspace

designated as surface areas (62 FR

4218).

Interested parties were invited to

participate in the rulemaking

proceeding by submitting written

comments on the proposal. No

comments were received.

The coordinates for this airspace

docket are based on North American

Datum 83. Class D and Class E airspace

areas extending upward from the

surface of the earth are published in

paragraph 5000, paragraph 6004, and

paragraph 6002, respectively, of FAA

Order 7400.9D dated September 4, 1996,

and effective September 16, 1996, which

is incorporated by reference in 14 CFR

71.1. The Class D and Class E airspace

listed in this document will be

published subsequently in the Order.

The Rule

This amendment to part 71 of Federal

Aviation Regulations establishes Class D

and Class E4 airspace at Redmond,

Oregon. These areas are designated parttime. Additionally, the existing Class E2

surface area at Redmond, Oregon, is

redesignated as part-time. These areas

will be effective during specific dates

and times established in advance by a

Notice to Airmen. The effective date and

time will thereafter be continuously

published in the Airport/Facility

Directory.

The FAA has determined that this

regulation only involves an established

body of technical regulations for which

frequent and routine amendments are

necessary to keep them operationally

current. It, therefore, (1) is not a

‘‘significant regulatory action’’ under

Executive Order 12866; (2) is not a

‘‘significant rule’’ under DOT

Regulatory Policies and Procedures (44

FR 11034; February 26, 1979); and (3)

does not warrant preparation of a

regulatory evaluation as the anticipated

impact is so minimal. Since this is a

routine matter that will only affect air

traffic procedures and air navigation, it

is certified that this rule will not have

a significant economic impact on a

substantial number of small entities

under the criteria of the Regulatory

Flexibility Act.

List of Subjects in 14 CFR Part 71

Airspace, Incorporation by reference,

Navigation (air).

Adoption of the Amendment

In consideration of the foregoing, the

FAA amends 14 CFR part 71 as follows:

PART 71—[AMENDED]

1. The authority citation for 14 CFR

part 71 continues to read as follows:

Authority: 49 U.S.C. 106(g), 40103, 40113,

40120; E.O. 10854, 24 FR 9565, 3 CFR, 1959–

1963 Comp., p. 389; 14 CFR 11.69.

§ 71.1 [Amended]

2. The incorporation by reference in

14 CFR 71.1 of the Federal Aviation

Administration Order 7400.9D, Airspace

Designations and Reporting Points,

dated September 4, 1996, and effective

September 16, 1996, is amended as

follows:

Paragraph 5000 Class D Airspace

* * * * *

ANM OR D Redmond, OR [New]

Redmond, Roberts Field, OR

(lat. 44°15′14′′ N, long. 121°09′00′′ W)

That airspace extending upward from the

surface to, and including, 5,600 feet MSL

within a 5.1-mile radius of Roberts Field.

This Class D airspace area is effective during

the specific dates and times established in

advance by a Notice to Airmen. The effective

date and time will thereafter be continuously

published in the Airport/Facility Directory.

* * * * *

Paragraph 6004 Class E airspace areas

designated as an extension to a Class D

surface area.

* * * * *

ANM OR E4 Redmond, OR [New]

Redmond, Roberts Field, OR

Deschutes VORTAC

(lat. 44°15′10′′ N, long. 121°18′13′′ W)