Federal Register / Vol. 65, No. 77 / Thursday, April 20, 2000 / Rules and Regulations 21129

ranchers, or aquatic producers. Two

FCS banks, an association, and the Farm

Credit Council (Council) requested relief

from § 613.3030(a)(3), which allows

System lenders to finance non-farm

rural homes only in towns or villages

with populations not exceeding 2,500

inhabitants. Changing population

patterns since Congress set this limit

almost 30 years ago make it increasingly

difficult for the System to meet the

credit needs of homebuyers in rural

areas. Because this restriction is

statutory, however, we cannot grant the

commenters’ request.

Three Farm Credit banks and the

Council asked us to repeal

§ 613.3030(c). Under this provision, FCS

banks and associations can extend

credit to eligible rural homeowners only

for the purposes of buying, building,

remodeling, repairing or improving

rural homes, or refinancing the existing

indebtedness on such homes. The

commenters want us to remove this

restriction so eligible non-farm rural

homeowners can borrow against the

equity in their homes and use the loan

proceeds for any purpose. We

thoroughly addressed this issue when

we developed § 613.3030 during an

extensive rulemaking that ended in

1997. See 62 FR 4429, Jan. 30, 1997. We

are not inclined to change our policy at

this time.

C. Similar Entities

A Farm Credit bank requested

changes to § 613.3300, which governs

FCS participation in loans that nonSystem lenders make to similar entities.

Under sections 3.1(11)(B) and 4.18A of

the Act, similar entities are parties that

are ineligible to borrow directly from

System banks and associations but

derive most of their income from, or

have most of their assets invested in, the

same activities as eligible borrowers.

The bank wants us to revise the rule

so the FCS can make loans directly to

similar entities. We cannot grant this

request because sections 3.1(11)(B) and

4.18A of the Act do not authorize Farm

Credit banks and associations to lend

directly to similar entities. These

statutory provisions specify that System

institutions may only participate in

credits that non-System lenders extend

to similar entities. Further, sections

3.1(11)(B)(i)(bb) and 4.18A(b)(2) of the

Act limit System participation in similar

entity loans to less than 50 percent of

the principal.

D. First Lien Requirement

Three Farm Credit banks, one

association, and the Council asked us to

repeal a provision in § 614.4200(b)(1)

that requires Farm Credit banks, Federal

land credit associations, and

agricultural credit associations to secure

their long-term mortgage loans with a

first lien on the borrower’s real estate.

Section 1.7(a)(1) of the Act expressly

requires FCS long-term mortgage

lenders to take a first lien on the

borrower’s property in a rural area as

security for the loan. Thus, this

regulation cannot be repealed.

Additionally, failure to secure a longterm mortgage loan with a first lien on

the security property may be an unsafe

and unsound practice. However, longterm mortgage lenders may still take

additional collateral without a first lien,

as an abundance of caution.

E. Borrower Stock for Loan Sales Within

the FCS

Currently, § 614.4335(c)(1)(i) allows

borrowers whose loans are sold within

the FCS to decide whether to hold

voting stock in the association that

bought or sold their loans. Two Farm

Credit banks, two associations, and the

Council requested a revision that would

allow System institutions involved in

the transactions, rather than the

borrower, to make this choice. We

believe it is the right of a stockholder to

elect whether to hold stock in a selling

or purchasing FCS institution. This

shareholder right is a basic tenant of

FCS cooperative principles and this

provision ensures that farmers,

ranchers, and aquatic producers have

the right to participate in the affairs of

the FCS association of their choice

when their loans are sold within the

System.

F. Attribution Rules for Lending Limit

Calculations

Two Farm Credit banks, one

association, and the Council asked us to

revise the attribution rules for

calculating lending limits. These

commenters claim that the current

regulation, § 614.4359, is confusing. The

FCA is fully committed to the plain

language goals of the National

Performance Review. Therefore, we plan

to rewrite these regulations so they are

easier to understand and apply.

However, we do not plan to make

substantive changes to the attribution

rules at this time. We believe they

protect the safety and soundness of

System banks and associations by

limiting their exposure to risk from any

one borrower or a group of related

borrowers. Additionally, our existing

regulation is consistent with the

approach of other Federal bank

regulatory agencies.

G. Flood Insurance

Two Farm Credit banks asked us to

exempt certain farm and ranch

outbuildings and commercial

agribusiness firms from flood insurance

requirements. The National Flood

Insurance Reform Act of 1994 (1994

Reform Act) requires flood insurance for

all buildings that secure loans made by

the FCS, commercial banks, credit

unions, and savings associations if those

buildings are in areas that the Federal

Emergency Management Agency deems

to be in special flood hazard areas. The

1994 Reform Act offers no flexibility for

the FCA to make regulatory exclusions

for farm and ranch outbuildings, or

commercial agribusiness firms.

Furthermore, we joined with five other

Federal bank regulatory agencies to

ensure that the same flood insurance

rules apply to commercial banks,

savings associations, credit unions, and

the FCS. Therefore, we are unable to

repeal § 614.4920(b) because it is a

statutory requirement.

III. Future Efforts to Reduce

Unnecessary Regulatory Burdens on

FCS Institutions

We will address all remaining

regulatory burden issues that System

institutions raised during the comment

period in separate regulatory projects.

The comments indicate that some

System institutions may need guidance

about how some regulations mentioned

in Part II of this statement apply in

certain situations. We hope to clarify

these regulations in the future. When we

complete our efforts, the regulatory

burdens on the System will be reduced.

However, we will maintain those

regulations that are necessary to

implement the Act and are critical for

the safety and soundness of the System.

Our approach will enable the FCS to

continue to provide much needed credit

to America’s farmers, ranchers, aquatic

producers, their cooperatives and other

rural residents.

Dated: April 13, 2000.

Vivian Portis,

Secretary, Farm Credit Administration Board.

[FR Doc. 00–9850 Filed 4–19–00; 8:45 am]

BILLING CODE 6705–01–P

NATIONAL CREDIT UNION

ADMINISTRATION

12 CFR Part 701

Organization and Operations of

Federal Credit Unions

AGENCY: National Credit Union

Administration (NCUA).

21130 Federal Register / Vol. 65, No. 77 / Thursday, April 20, 2000 / Rules and Regulations

ACTION: Final rule.

SUMMARY: NCUA is amending its rule

pertaining to secondary capital accounts

for low-income designated credit unions

to conform it to the recently issued

prompt corrective action rule (PCA).

Under PCA, NCUA has discretionary

authority, under certain circumstances,

to prohibit a credit union from paying

principal, dividends or interest on the

credit union’s secondary capital

accounts established after August 7,

2000.

DATES: This rule is effective August 7,

2000.

ADDRESSES: National Credit Union

Administration, 1775 Duke Street,

Alexandria, Virginia 22314–3428.

FOR FURTHER INFORMATION CONTACT:

Frank S. Kressman, Staff Attorney,

Division of Operations, Office of

General Counsel, at the above address or

telephone: (703) 518–6540.

SUPPLEMENTARY INFORMATION: Federal

credit unions that serve predominantly

low-income members may be designated

by NCUA as low-income credit unions

(LICUs). LICUs play an important role in

providing financial services to lowincome individuals and communities

for whom these services are often

unavailable. LICUs often find it

difficult, however, to accumulate capital

due to the limited resources of their

members. To enhance LICUs’ ability to

build capital, § 701.34 of NCUA’s

regulations permits LICUs to offer

uninsured secondary capital accounts to

nonnatural person members and

nonmembers. 12 CFR § 701.34.

Section 701.34 provides that funds in

the secondary capital account must be

available to cover operating losses

realized by the credit union that exceed

its net available reserves and undivided

earnings. It also provides that, to the

extent secondary capital account funds

are used to cover operating losses, the

credit union cannot replenish those

funds under any circumstances.

In 1998, Congress amended the

Federal Credit Union Act to establish

minimum capital standards for

federally-insured credit unions. NCUA

was required to adopt, by regulation, a

PCA system to restore the capital level

of credit unions that become

inadequately capitalized. The NCUA

Board has established, among other

things, a comprehensive framework of

mandatory and discretionary

supervisory actions indexed to defined

net worth categories. 65 FR 8559

(February 18, 2000).

Within that framework, PCA

distinguishes ‘‘new’’ credit unions,

those that have been in operation less

than 10 years and have $10 million or

less in assets, from other credit unions.

12 U.S.C. 1790d(o)(4). New credit

unions are subject to an alternative

system of PCA with net worth categories

that differ from those applicable to other

credit unions. 12 U.S.C. 1790d(b)(2)(A).

A credit union, other than a new

credit union, that has a net worth ratio

of less than 2% is categorized as

‘‘critically undercapitalized’’. Section

702.204(b)(11) of the PCA rules permits

NCUA to take discretionary action

against critically undercapitalized credit

unions. Specifically, it provides that:

Beginning 60 days after the effective date

of classification of a credit union as

‘‘critically undercapitalized,’’ [NCUA has the

discretion to] prohibit payments of principal,

dividends or interest on the credit union’s

uninsured secondary capital accounts

established after August 7, 2000, except that

unpaid dividends or interest shall continue

to accrue under the terms of the account to

the extent permitted by law * * *.

12 CFR 702.204(b)(11).

New credit unions with net worth

ratios of less than 6% are categorized as

‘‘moderately capitalized’’ (3.5%–

5.99%), ‘‘marginally capitalized’’ (2%–

3.49%), ‘‘minimally capitalized’’ (0%–

1.99%) or ‘‘uncapitalized’’ (less than

0%). 12 CFR 702.302(c). Sections

702.304(b) and 702.305(b) of the PCA

rules permit NCUA to take discretionary

actions against new credit unions that

fall within these categories. Specifically,

each provides that:

[T]he NCUA Board may, by directive, take

one or more of the actions prescribed in

§ 702.204(b) [of the PCA rules, including the

prohibition of payments on secondary capital

accounts] if the credit union’s net worth ratio

has not increased consistent with its thenpresent business plan, or the credit union has

failed to undertake any mandatory

supervisory action prescribed in paragraph

(a) of this section.

12 CFR 702.304(b) and 702.305(b).

The below amendments conform the

secondary capital rules to the PCA rules.

Final Rule

The NCUA Board has issued this as a

final rule effective August 7, 2000.

There is a strong public interest in

having secondary capital rules in place

that are consistent with and conform to

the provisions of PCA. As part of the

PCA rulemaking process, notice of and

an opportunity to comment on the

below amendments to the secondary

capital rule were given in compliance

with the Administrative Procedure Act

(5 U.S.C. 551) (APA). 63 FR 57938

(October 29, 1998); 64 FR 27090 (May

18, 1999); 64 FR 44663 (August 17,

1999); 65 FR 8559 (February 18, 2000).

Comments pertaining to these

amendments were incorporated into

PCA. Additionally, these conforming

amendments are being published far in

advance of the 30 days required by

Section 553(d) of the APA (5 U.S.C.

553(d)) as neither PCA nor the

conforming amendments are effective

until August 7, 2000. Accordingly, for

good cause, the Board finds that, with

respect to the conforming amendments,

NCUA has complied with the notice and

public procedure requirements of the

APA. The Board also finds that

additional notice and public procedure

would be duplicative and excessive and,

therefore, under 5 U.S.C. 553(b)(3)(B),

are impracticable, unnecessary, and

contrary to the public interest.

Regulatory Procedures

Regulatory Flexibility Act

The Regulatory Flexibility Act

requires NCUA to prepare an analysis to

describe any significant economic

impact agency rulemaking may have on

a substantial number of small credit

unions. For purposes of this analysis,

credit unions under $1 million in assets

are considered small credit unions. As

of June 30, 1999, there were 1,690 small

credit unions with a total of $807.3

million in assets, having an average size

of $0.5 million. Small credit unions

make up 15.6% of all credit unions, but

only 0.2% of all credit union assets.

It is anticipated that this final rule

will effect relatively few small credit

unions. It will apply only to those credit

unions that establish secondary capital

accounts after August 7, 2000 that then

become classified as critically

undercapitalized or otherwise trigger

potential discretionary action under

PCA. Even then, corrective action will

only be taken where NCUA chooses to

exercise its discretion to do so. NCUA

has determined that this rule will not

have a significant economic impact on

a substantial number of small credit

unions.

Paperwork Reduction Act

NCUA has determined that these

amendments to § 701.34 do not increase

paperwork requirements under the

Paperwork Reduction Act of 1995 and

regulations of the Office of Management

and Budget.

Executive Order 13132

Executive Order 13132 encourages

independent regulatory agencies to

consider the impact of their regulatory

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

Federal Register / Vol. 65, No. 77 / Thursday, April 20, 2000 / Rules and Regulations 21131

with the executive order. This rule will

apply to all federally-insured credit

unions offering secondary capital

accounts pursuant to § 701.34, but it

will not have substantial direct effects

on the states, on the relationship

between the national government and

the states, or on the distribution of

power and responsibilities among the

various levels of government. NCUA has

determined that this rule does not

constitute a policy that has federalism

implications for purposes of the

executive order.

Assessment of Federal Regulations and

Policies on Families

NCUA has determined that this rule

will not affect family well-being within

the meaning of Section 654 of the

Treasury and General Government

Appropriations Act, 1999, Pub. L. 105–

277, 112 Stat. 2681 (1998).

Small Business Regulatory Enforcement

Fairness Act

The Small Business Regulatory

Enforcement Fairness Act of 1996 (Pub.

L. 104–121) provides generally for

congressional review of agency rules. A

reporting requirement is triggered in

instances where NCUA issues a final

rule as defined by Section 551 of the

APA. 5 U.S.C. 551. 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, Reporting and

recordkeeping requirements.

By the National Credit Union

Administration Board on April 13, 2000.

Becky Baker,

Secretary of the Board.

For the reasons set forth above, 12

CFR part 701 is amended 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, and 1789. Section 701.6 is also

authorized by 31 U.S.C. 3717. Section 701.31

is also authorized by 15 U.S.C. 1601 et seq.,

42 U.S.C. 1861 and 42 U.S.C. 3601–3610.

Section 701.35 is also authorized by 42

U.S.C. 4311–4312.

2. Section 701.34 is amended by

adding paragraphs (b)(12) and (b)(13) to

read as follows:

§ 701.34 Designation of low-income

status; receipt of secondary capital

accounts by low-income designated credit

unions.

* * * * *

(b) * * *

(12) As provided in § 702.204(b)(11)

of this chapter, 60 days after the

effective date of a credit union being

classified as ‘‘critically

undercapitalized’’ under NCUA’s

prompt corrective action rules, the

NCUA Board may prohibit payments of

principal, dividends or interest on the

credit union’s uninsured secondary

capital accounts established after

August 7, 2000, except that unpaid

dividends or interest shall continue to

accrue under the terms of the account to

the extent permitted by law.

(13) As provided in §§ 702.304(b) and

702.305(b) of this chapter, the NCUA

Board may prohibit payments of

principal, dividends or interest on the

uninsured secondary capital accounts

established after August 7, 2000 of a

‘‘moderately capitalized’’, ‘‘marginally

capitalized’’, ‘‘minimally capitalized’’ or

‘‘uncapitalized’’ credit union if the

credit union’s net worth ratio has not

increased consistent with its thenpresent business plan, or the credit

union has failed to undertake any

mandatory supervisory action

prescribed in §§ 702.304(a) or 702.305(a)

of this chapter. If NCUA takes this

action, unpaid dividends or interest

shall continue to accrue under the terms

of the account to the extent permitted by

law.

* * * * *

3. The Appendix to § 701.34 is

amended by adding a paragraph to

immediately precede the signature line

to read as follows:

Appendix to § 701.34 [Amended]

* * * * *

• The NCUA may prohibit payments of

principal, dividends or interest on llll

(name of credit union) uninsured secondary

capital accounts established after August 7,

2000, if llll (name of credit union) has

been in operation less than 10 years and has

$10 million or less in assets and the

provisions of § 701.34(b)(13) of NCUA’s

regulations are met, or, if llll (name of

credit union) has been in operation for 10

years or more or has more than $10 million

in assets and the provisions of § 701.34(b)(12)

of NCUA’s regulations are met.

* * * * *

[FR Doc. 00–9855 Filed 4–19–00; 8:45 am]

BILLING CODE 7535–01–P

NATIONAL CREDIT UNION

ADMINISTRATION

12 CFR Part 707

Truth in Savings

AGENCY: National Credit Union

Administration (NCUA).

ACTION: Final rule.

SUMMARY: NCUA is amending its

regulations that implement the Truth in

Savings Act (TISA). This final rule

allows credit unions to deliver periodic

statement disclosures required by

NCUA’s regulations in electronic form if

the member agrees to this form of

delivery.

DATES: This rule is effective May 22,

2000.

ADDRESSES: National Credit Union

Administration, 1775 Duke Street,

Alexandria, VA 22314–3428.

FOR FURTHER INFORMATION CONTACT:

Frank S. Kressman, Staff Attorney,

Division of Operations, Office of

General Counsel, at the above address or

telephone: (703) 518–6540.

SUPPLEMENTARY INFORMATION

A. Background

Part 707 of NCUA’s regulations

implements TISA. 12 CFR part 707. The

purpose of part 707 and TISA is to assist

members in making meaningful

comparisons among accounts offered by

credit unions and other financial

institutions. Part 707 and TISA require,

among other things, disclosure of yields,

fees and other terms concerning share

accounts to members at account

opening, upon request, when changes in

terms occur and in periodic statements.

Many of these disclosures must be

written. Many laws requiring that

information be in writing consider

information in electronic form to be

written. Information produced, stored,

or communicated by computer is also

generally considered to be a writing,

where visual text is involved.

The Board of Governors of the Federal

Reserve System (Federal Reserve) issued

an interim rule amending its Regulation

DD, which implements TISA. That rule

allows depository institutions to deliver

periodic statement disclosures required

by Regulation DD in electronic form if

the consumer agrees to that form of

delivery. 64 FR 49846 (September 14,

1999). In doing so, the Federal Reserve

stated that electronic delivery of these

kinds of disclosures will reduce

paperwork and costs for institutions and

may benefit consumers by allowing

them to receive their periodic account

statements, including required