[Federal Register Volume 65, Number 77 (Thursday, April 20, 2000)]
[Rules and Regulations]
[Pages 21129-21131]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9855]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701


Organization and Operations of Federal Credit Unions

AGENCY: National Credit Union Administration (NCUA).

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ACTION: Final rule.

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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 low-income 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, Sec. 701.34 of 
NCUA's regulations permits LICUs to offer uninsured secondary capital 
accounts to nonnatural person members and nonmembers. 12 CFR 
Sec. 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 Sec. 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 
then-present 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 Sec. 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

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with the executive order. This rule will apply to all federally-insured 
credit unions offering secondary capital accounts pursuant to 
Sec. 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:


Sec. 701.34  Designation of low-income status; receipt of secondary 
capital accounts by low-income designated credit unions.

* * * * *
    (b) * * *
    (12) As provided in Sec. 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 Secs. 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 then-present business plan, or the credit union has 
failed to undertake any mandatory supervisory action prescribed in 
Secs. 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 Sec. 701.34 is amended by adding a paragraph to 
immediately precede the signature line to read as follows:

Appendix to Sec. 701.34 [Amended]

* * * * *
    <bullet> The NCUA may prohibit payments of principal, dividends 
or interest on ________ (name of credit union) uninsured secondary 
capital accounts established after August 7, 2000, if ________ (name 
of credit union) has been in operation less than 10 years and has 
$10 million or less in assets and the provisions of 
Sec. 701.34(b)(13) of NCUA's regulations are met, or, if ________ 
(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 
Sec. 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