62036 Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / Notices 

1 John M. Reich, Director of the Office of Thrift 

Supervision and the leader of the interagency 

EGRPRA program, wrote this Preface. 

FEDERAL FINANCIAL INSTITUTIONS 

EXAMINATION COUNCIL 

Joint Report to Congress, July 31, 

2007; Economic Growth and 

Regulatory Paperwork Reduction Act 

AGENCY: Federal Financial Institutions 

Examination Council. 

ACTION: Notice. 

SUMMARY: Pursuant to section 2222 of 

the Economic Growth and Regulatory 

Paperwork Reduction Act of 1996 

(EGRPRA), the Federal Financial 

Institutions Examination Council 

(FFIEC) is publishing a report entitled 

‘‘Joint Report to Congress, July 31, 2007, 

Economic Growth and Regulatory 

Paperwork Reduction Act’’ prepared by 

its constituent agencies: The Board of 

Governors of the Federal Reserve 

System (Board), the Federal Deposit 

Insurance Corporation (FDIC), the 

National Credit Union Association 

(NCUA), the Office of the Comptroller of 

the Currency (OCC), and the Office of 

Thrift Supervision (OTS) (collectively, 

the Agencies). 

FOR FURTHER INFORMATION CONTACT: 

OCC: Heidi Thomas, Special Counsel, 

Legislative and Regulatory Activities 

Division, (202) 874–5090; or Lee Walzer, 

Counsel, Legislative and Regulatory 

Activities Division, (202) 874–5090, 

Office of the Comptroller of the 

Currency, 250 E Street, SW., 

Washington, DC 20219. 

Board: Patricia A. Robinson, Assistant 

General Counsel, (202) 452–3005; or 

Michael J. O’Rourke, Counsel, (202) 

452–3288; or Alexander Speidel, 

Attorney, (202) 872–7589, Legal 

Division; or John C. Wood, Counsel, 

Division of Consumer and Community 

Affairs, (202) 452–2412; or Kevin H. 

Wilson, Supervisory Financial Analyst, 

Division of Banking Supervision and 

Regulation, (202) 452–2362, Board of 

Governors of the Federal Reserve 

System, 20th Street and Constitution 

Avenue, NW., Washington, DC 20551. 

For users of Telecommunication Device 

for the Deaf (TDD) only, contact (202) 

263–4869. 

FDIC: Steven D. Fritts, Associate 

Director, Division of Supervision and 

Consumer Protection, (202) 898–3723; 

or Ruth R. Amberg, Senior Counsel, 

Legal Division, (202) 898–3736; or 

Susan van den Toorn, Counsel, Legal 

Division, (202) 898–8707, Federal 

Deposit Insurance Corporation, 550 17th 

Street, NW., Washington, DC 20429. 

OTS: Karen Osterloh, Special 

Counsel, Regulations and Legislation 

Division, (202) 906–6639; or Josephine 

Battle, Program Analyst, Operation Risk, 

Supervision Policy, (202) 906–6870, 

Office of Thrift Supervision, 1700 G 

Street, NW., Washington, DC 20552. 

NCUA: Ross P. Kendall, Staff 

Attorney, Office of the General Counsel, 

(703) 518–6562, National Credit Union 

Administration, 1775 Duke Street, 

Alexandria, VA 22314–3428. 

SUPPLEMENTARY INFORMATION: EGRPRA 

requires the FFIEC and the Agencies to 

conduct a decennial review of 

regulations, using notice and comment 

procedures, to identify outdated or 

otherwise unnecessary regulatory 

requirements imposed on insured 

depository institutions. 12 U.S.C. 

3311(a)–(c). The FFIEC and the 

Agencies have completed this review 

and comment process. 

EGRPRA also requires the FFIEC or 

the appropriate agency to publish in the 

Federal Register a summary of 

comments that identifies the significant 

issues raised and comments on these 

issues; and to eliminate unnecessary 

regulations to the extent that such 

action is appropriate. 12 U.S.C. 3311(d). 

The FFIEC also must submit a report to 

Congress that includes a summary of the 

significant issues raised and the relative 

merits of these issues, and an analysis 

of whether the appropriate agency is 

able to address the regulatory burdens 

associated with these issues by 

regulation or whether the burdens must 

be addressed by legislative action. 12 

U.S.C. 3311(e). The attached report 

fulfills these requirements for the 

recently completed review of 

regulations. The text of the Joint Report 

to Congress, July 31, 2007, Economic 

Growth and Regulatory Paperwork 

Reduction Act, follows: 

Preface 1

Prudent regulations are absolutely 

essential to maintain rigorous safety and 

soundness standards for the financial 

services industry, to protect important 

consumer rights, and to assure a levelplaying field in the industry. As a 

regulator, I clearly understand the need 

for well-crafted regulation. 

However, outdated, unnecessary or 

unduly burdensome regulations divert 

precious resources that financial 

institutions might otherwise devote to 

making more loans and providing 

additional services for countless 

individuals, businesses, nonprofit 

organizations, and others in their 

communities. Over the years, Congress 

passed a variety of laws to deal with 

problems that have cropped up and the 

regulators adopted numerous 

regulations to implement those laws. In 

fact, over the past 17 years, the federal 

bank, thrift, and credit union regulators 

have adopted more than 900 rules. 

Accumulated regulation has reached a 

tipping point for many community 

banks and has become an important 

causal factor in recent years in 

accelerating industry consolidation. 

In passing the Economic Growth and 

Regulatory Paperwork Reduction Act of 

1996 (EGRPRA), Congress clearly 

recognized the need to eliminate any 

unnecessary regulatory burden. That is 

why Congress directed the Federal 

Financial Institutions Examination 

Council and its member agencies to 

review all existing regulations and 

eliminate (or recommend statutory 

changes that are needed to eliminate) 

any regulatory requirements that are 

outdated, unnecessary, or unduly 

burdensome. 

As this comprehensive report makes 

clear, the agencies have worked 

diligently to satisfy the requirements of 

EGRPRA. Over a three-year period 

ending December 31, 2006, the agencies 

sought public comment on more than 

130 regulations, carefully analyzed 

those comments (as indicated in this 

report), and proposed changes to their 

regulations to eliminate burden 

wherever possible. 

In addition to obtaining formal, 

written comments on all of our 

regulations, the federal banking agencies 

hosted a total of 16 outreach sessions 

around the country involving more than 

500 participants in an effort to obtain 

direct input from bankers, 

representatives of consumer/community 

groups, and many other interested 

parties on the most pressing regulatory 

burden issues. 

Besides reviewing all of our existing 

regulations in an effort to eliminate 

unnecessary burdens, the federal 

banking agencies worked together to 

minimize burdens resulting from new 

regulations and current policy 

statements as they were being adopted. 

We also reviewed many internal 

policies in an effort to streamline 

existing processes and procedures. 

Finally, we have sought to communicate 

our regulatory requirements, policies 

and procedures more clearly to our 

constituencies to make them easier to 

understand. 

On the legislative front, the federal 

banking agencies worked together, 

preparing and reviewing numerous 

legislative proposals to reduce 

regulatory burden, testifying before 

Congress on several occasions about the 

need for regulatory burden relief, and 

providing technical assistance to the 

staff of the Senate Banking Committee 

and the House Financial Services 

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Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / Notices 62037 

2 In 2006, the State Liaison Committee, which 

represents state bank and credit union regulators, 

was added to the FFIEC as a voting member. 

3Pub. L. 109–351. 

4As noted above, the NCUA developed its own 

categories of regulations and published its notices 

Continued 

Committee on their regulatory relief 

bills. Congress ultimately passed, and 

the President signed into law, the 

Financial Services Regulatory Relief Act 

of 2006. As part of this process, the 

agencies, representatives of the 

industry, and consumer and community 

groups were asked to provide positions 

on the many legislative proposals that 

were submitted to Congress. The 2006 

Act included a number of important 

regulatory relief provisions. 

Financial institutions of all sizes 

suffer under the weight of unnecessary 

regulatory burden, but smaller 

community banks unquestionably bear a 

disproportionate share of the burden 

due to their more limited resources. 

While it is difficult to accurately 

measure the impact regulatory burden 

has played in industry consolidation, 

numerous anecdotal comments from 

bankers across the country as well as 

from investment bankers who arrange 

merger and acquisition transactions 

indicate it has become a significant 

factor. Accordingly, I am deeply 

concerned about the future of our local 

communities and the approximately 

8,000 community banks under $1 

billion in assets that represent 93 

percent of the industry in terms of total 

number of institutions but whose share 

of industry assets has declined to 

approximately 12.5 percent, and whose 

share of industry profits have declined 

to approximately 11.2 percent (as of 

December 31, 2006). 

Community banks play a vital role in 

the economic wellbeing of countless 

individuals, neighborhoods, businesses 

and organizations throughout our 

country, often serving as the economic 

lifeblood of their communities. Many of 

the CEOs of these institutions are 

concerned about their ability to 

profitably compete in the future, unless 

there is a slowdown in the growth of 

new banking regulations. 

Ultimately, a significant amount of 

the costs of regulation are borne by 

consumers, resulting in higher fees and 

interest rates. If financial services are 

going to continue to be affordable, and 

in fact if we are going to be successful 

in bringing more of the unbanked into 

the mainstream, constant vigilance will 

be required to avoid the increasing costs 

resulting from the burden of 

accumulated regulations. 

With every new regulation or policy 

imposed on the industry, I think it is 

important for Congress and the agencies 

to consider the regulatory burden 

aspects and to minimize those burdens 

to the extent possible. I want to take this 

opportunity to thank my colleagues at 

each of the agencies for their active 

support and participation on this 

interagency project. The staffs at each of 

the agencies devoted much time and 

energy to make sure we met not only the 

letter of the EGRPRA law, but the spirit 

as well. We look forward to continuing 

to work with Congress on these 

important issues and continuing to use 

the valuable information about 

regulatory burden issues that was 

shared with the agencies by the many 

participants in the EGRPRA process. 

I. Joint Agency Report 

A. Introduction 

This report describes the actions by 

the Federal Financial Institutions 

Examination Council (FFIEC) and each 

of its member agencies: The Board of 

Governors of the Federal Reserve 

System (the Board), Federal Deposit 

Insurance Corporation (FDIC), National 

Credit Union Administration (NCUA), 

Office of the Comptroller of the 

Currency (OCC), and Office of Thrift 

Supervision (OTS), hereinafter ‘‘the 

Agencies,’’ 2 to fulfill the requirements 

of the Economic Growth and Regulatory 

Paperwork Reduction Act of 1996 

(EGRPRA). Section 2222 of EGRPRA 

requires the Agencies to: 

• Conduct a decennial review of their 

regulations, using notice and comment 

procedures, in order to identify those 

that impose unnecessary regulatory 

burden on insured depository 

institutions; 

• Publish in the Federal Register a 

summary of comments received during 

the review, together with the Agencies’

identification and response to 

significant issues raised by the 

commenters; 

• Eliminate any unnecessary 

regulations, if appropriate; and 

• Submit a report to Congress that 

discusses the issues raised by the 

commenters and makes 

recommendations for legislative action, 

as appropriate. 

The Agencies have completed the first 

decennial review of their regulations. 

This report to Congress includes both 

the Agencies’ comment summary and 

their discussion and analysis of 

significant issues identified during the 

EGRPRA review process. The report also 

describes legislative initiatives that 

would further reduce unnecessary 

regulatory burden on insured depository 

institutions, including, in some cases, 

references to current initiatives being 

considered by Congress. Separately, the 

Agencies have published in the Federal 

Register a summary of comments 

received, together with the Agencies’

identification and response to 

significant issues raised by the 

commenters. Finally, since the 

inception of the EGRPRA review 

process in 2003, the Agencies have 

individually and collectively started a 

number of burden-reducing initiatives. 

This report describes those 

accomplishments. 

Throughout the EGRPRA process, 

NCUA participated in the planning and 

comment solicitation process with the 

federal banking agencies. Because of the 

unique circumstances of federally 

insured credit unions and their 

members, however, NCUA established 

its own regulatory categories and 

publication schedule and published its 

notices separately. NCUA’s notices were 

consistent and comparable with those 

published by the federal banking 

agencies, except on issues unique to 

credit unions. In keeping with this 

separate approach, the discussion of 

NCUA’s regulatory burden reduction 

efforts and analysis of significant issues 

is set out separately in Part II of this 

report. The summary of comments 

received by NCUA is contained in 

Appendix II–B. 

The Agencies’ EGRPRA-mandated 

review coincided with work in the 

109th Congress on regulatory relief 

legislation. Each Agency presented 

testimony to congressional oversight 

committees about priorities for 

regulatory burden relief and described 

the burden-reducing impact of 

legislative proposals that were under 

consideration by Congress. The 

Agencies’ ongoing work on the EGRPRA 

review laid the foundation for them to 

achieve consensus on a variety of 

burden-reducing legislative proposals. A 

number of these proposals were enacted 

as part of the Financial Services 

Regulatory Relief Act of 2006 (FSRRA), 

which was signed into law on October 

13, 2006.3 Appendix I–A of this report 

highlights key burden-reducing 

provisions included in that legislation. 

B. The Federal Banking Agencies’ 

EGRPRA Review Process 

1. Overview of the EGRPRA Review 

Process 

Consistent with the requirements of 

EGRPRA, the federal banking agencies 

first categorized their regulations, and 

then published them for comment at 

regular intervals, asking commenters to 

identify for each of the categories 

regulations that were outdated, 

unnecessary or unduly burdensome.4

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62038 Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / Notices 

separately from the bank regulatory agencies. 

Details relating to its regulatory categories and its 

burden reduction efforts are set out Part II of this 

report. The summary of comments received by 

NCUA is attached as Appendix II–B of this report. 

5 68 FR 35589. 

The 131 regulations were divided into 

12 categories, listed below 

alphabetically: 

• Applications and Reporting 

• Banking Operations 

• Capital 

• Community Reinvestment Act 

• Consumer Protection 

• Directors, Officers and Employees 

• International Operations 

• Money Laundering 

• Powers and Activities 

• Rules of Procedure 

• Safety and Soundness 

• Securities 

Semiannually, the federal banking 

agencies published different categories 

of regulations. The first Federal Register 

notice was published on June 16, 2003. 

It sought comment on the agencies’

overall regulatory review plan as well as 

the following initial three categories of 

regulations for comment: Applications 

and Reporting; Powers and Activities; 

and International Operations.5 The 

federal banking agencies requested 

public comment about the proposed 

categories of regulation, the placement 

of the rules within each category and 

the agencies’ overall plan for reviewing 

all of their regulations. 

The federal banking agencies adjusted 

the proposed publication schedule due 

to concerns raised that the consumer 

regulation category encompassed so 

many different regulations that it would 

prove too burdensome to respond 

adequately within the comment period 

timeframe. As a result, the agencies 

divided that category into two notices 

with smaller groups of regulations for 

review and comment. 

There were a total of six Federal 

Register notices, each issued at 

approximately six-month intervals with 

comment periods of 90 days. In 

response to these comment requests, the 

agencies received more than 850 letters 

from bankers, consumer and community 

groups, trade associations and other 

interested parties. 

There were numerous 

recommendations to reduce regulatory 

burden or otherwise improve existing 

regulations. Each recommendation was 

carefully reviewed and analyzed by the 

staffs of the appropriate federal banking 

agency or agencies to determine 

whether proposals to change specific 

regulations were appropriate. 

To further promote public input, the 

federal banking agencies also cosponsored 10 outreach sessions for 

bankers, as well as 3 outreach sessions 

for consumer and community groups, in 

cities around the country. The agencies 

then sponsored three joint banker and 

consumer/community group focus 

meetings in an effort to develop greater 

consensus among the parties on 

legislative proposals to reduce 

regulatory burden. (Please refer to 

Appendix I–B for a more complete 

discussion of the federal banking 

agencies’ EGRPRA review process as 

well as a table indicating the timing and 

categories of regulations that were 

published for comment as part of the 

EGRPRA process.) 

2. Significant Issues Arising From the 

EGRPRA Review and the Federal 

Banking Agencies’ Responses 

Section 2222 of EGRPRA requires a 

summary of the significant issues raised 

by the public comments and the 

Agencies’ responses and comments on 

the merits of such issues and analysis of 

whether the Agencies are able to 

address the issues by regulation or 

whether legislation is required. Several 

significant issues received substantial 

federal banking agency support and 

were successfully included in the 

FSRRA during the 109th Congress. 

Below is a summary of the significant 

issues and relevant comments received 

by the federal banking agencies together 

with the banking agencies’

recommendations. 

a. Bank Secrecy Act/Currency 

Transaction Report 

Issues: 

(1) Should the $10,000 Currency 

Transaction Report (CTR) threshold be 

increased to some higher level? 

(2) Can the CTR forms be simplified 

to require less information on each 

form? 

(3) Should the existing CTR 

exemption process be revised to make it 

less burdensome on the industry, such 

as by adopting a ‘‘seasoned customer’’

exemption? 

Context: The $10,000 threshold for 

filing CTRs has not changed since the 

requirement was first established by the 

Department of the Treasury some 30 

years ago. Financial institutions are 

required to report currency transactions 

in excess of $10,000. These reports are 

filed pursuant to requirements 

implemented in rules issued by the 

Department of the Treasury and are filed 

with the Internal Revenue Service. In 

addition to the appropriate federal 

supervisory agency for the financial 

institution (including the Board, FDIC, 

OCC, and OTS), the Financial Crimes 

Enforcement Network (FinCEN), Federal 

Bureau of Investigation (FBI), and other 

federal law enforcement agencies use 

CTR data. The FBI and other law 

enforcement bodies have stated that 

CTR requirements serve as an 

impediment to criminal attempts to 

legitimize the proceeds of a crime. 

Moreover, they serve as a key source of 

information about the physical transfer 

of currency, at the point of the 

transaction. 

Comments: Many of the written and 

oral comments received during the 

EGRPRA process reflected widespread 

concern that the reports’ effectiveness 

had become degraded over time, 

because ever-larger numbers of 

transactions met or surpassed the 

threshold, resulting in growing numbers 

of CTR filings. Many commenters and 

participants in the outreach meetings 

expressed concern that, with the 

increased number of CTR filings, the 

federal banking and law enforcement 

agencies were not able to make effective 

use of the information being provided. 

Commenters noted that the low 

threshold for CTR filings created more 

regulatory burden for banks. One 

commenter noted that certain policies 

such as requiring banks to continue 

filing for exempt status for transactions 

between themselves were unnecessary. 

Several commenters raised concerns 

about the burdens associated generally 

with the CTR process and the utility of 

the information that depository 

institutions must provide. To ease some 

of this burden, commenters urged the 

adoption of a broader ‘‘seasoned 

customer’’ exemption, as well as other 

reforms in the CTR process. The federal 

banking agencies received several 

comments about the difficulties of 

obtaining a CTR exemption under 

current procedures. Some bankers 

contended that it was easier for a bank 

to file a Suspicious Activity Report 

(SAR) than to undertake the 

determination that a customer qualified 

for an exemption from the CTR filing 

requirement. One commenter suggested 

that the Agencies grant exemptions 

through a one-time filing (and eliminate 

the yearly filing requirement). 

Although the federal banking agencies 

received extensive comments on the 

burdens associated with the CTR filing 

process, there were no concrete 

suggestions as to what types of 

information were unnecessary in the 

context of a CTR filing. One commenter 

suggested that lowering the threshold 

would reduce duplicative paperwork 

burden, while another noted that the 

process of requesting an exemption from 

CTR reporting was too complicated. 

Another commenter suggested replacing 

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Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / Notices 62039 

6See ‘‘Bank Secrecy Act: Opportunities Exist for 

FinCEN and the Banking Regulators to Further 

Strengthen the Framework for Consistent BSA 

Oversight,’’ Report to the Committee on Banking, 

Housing and Urban Affairs, U.S. Senate, U.S. 

Government Accountability Office, at pages 19–20 

(April 2006). 

7See Interagency Statement on Enforcement of 

Bank Secrecy Act/Anti-Money Laundering 

Requirements, July 19, 2007. 

8The FFIEC BSA/AML Examination Manual was 

issued in 2005 and revised in 2006; further 

revisions are underway for issuance in August 

2007. 

daily CTR filings with monthly cash 

transaction reporting. 

Current Initiatives: Congress recently 

enacted legislation that requires the 

Government Accountability Office 

(GAO) to conduct a study of the CTR 

process. Section 1001 of the FSRRA 

requires the Comptroller General of the 

United States to conduct a study and 

submit a report to Congress within 15 

months of enactment of the legislation 

on the volume of CTRs filed. The 

FSRRA also requires the Comptroller 

General to evaluate, on the basis of 

actual filing data, patterns of CTRs filed 

by depository institutions of various 

sizes and locations. The study, which 

will cover a period of three calendar 

years before the legislation was enacted, 

will identify whether, and the extent to 

which, CTR filing rules are burdensome 

and can or should be modified to reduce 

burden without harming the usefulness 

of such filing rules to federal, state, and 

local anti-terrorism, law enforcement, 

and regulatory operations. 

The study will examine the: 

1. Extent to which financial 

institutions are taking advantage of the 

exemption system available; 

2. Types of depository institutions 

using the exemption system, and the 

extent to which the exemption system is 

used; 

3. Difficulties that limit the 

willingness or ability of depository 

institutions to reduce their CTR 

reporting burden by taking advantage of 

the exemption system; 

4. Extent to which bank examination 

problems have limited the use of the 

exemption system; 

5. Ways to improve the use of the 

exemption system, including making 

the exemption system mandatory so as 

to reduce the volume of CTRs 

unnecessarily filed; 

6. Usefulness of CTR for law 

enforcement, in light of advances in 

information technology; 

7. Impact that various changes in the 

exemption system would have on the 

usefulness of CTR; and 

8. Changes that could be made to the 

exemption system without affecting the 

usefulness of CTR. 

The study is to contain 

recommendations, if appropriate, for 

changes in the exemption system that 

would reflect a reduction in 

unnecessary costs to depository 

institutions, assuming a reasonably full 

implementation of the exemption 

system, without reducing the usefulness 

of the CTR filing system to antiterrorism, law enforcement, and 

regulatory operations. 

The GAO produced a report in April 

2006 that looked at Bank Secrecy Act 

(BSA) enforcement and made three 

recommendations to improve 

coordination among FinCEN and the 

federal banking agencies: 

1. As emerging risks in the money 

laundering and terrorist financing area 

are identified, the federal banking 

agencies and FinCEN should work 

together to ensure that these are 

effectively communicated to both 

examiners and the industry through 

updates of the interagency examination 

manual and other guidance, as 

appropriate; 

2. To supplement the analysis of 

shared data on BSA violations, FinCEN 

and the federal banking agencies should 

periodically meet to review the analyses 

and determine whether additional 

guidance to examiners is needed; and 

3. In light of the different terminology 

the federal banking agencies use to 

classify BSA noncompliance, FinCEN 

and the federal banking agencies should 

jointly assess the feasibility of 

developing a uniform classification 

system for BSA violations.6

The federal banking agencies have 

undertaken several initiatives that 

address the GAO’s recommendations to 

improve coordination among the 

agencies and FinCEN regarding BSA 

enforcement, including the measures 

outlined below. 

Under the auspices of the FFIEC BSA/ 

Anti-Money Laundering (AML) Working 

Group, the federal banking agencies, 

FinCEN, and the Conference of State 

Bank Supervisors (CSBS) continue to 

meet monthly to address all facets 

related to BSA/AML policy, 

examination consistency, training, and 

issues associated with BSA compliance. 

Under the auspices of their General 

Counsels, the federal banking agencies 

have developed and published an 

Interagency Statement on Enforcement 

of BSA/AML Requirements to help 

ensure consistency among the agencies 

in BSA enforcement activities.7 The 

federal banking agencies and FinCEN 

also work together to issue appropriate 

guidance to financial institutions on 

how to meet BSA/AML compliance 

requirements. One example of a joint 

product is the FFIEC BSA/AML 

Examination Manual that was issued to 

ensure consistency in BSA/AML 

examinations by providing a uniform set 

of examination procedures. The manual 

is a compilation of existing regulatory 

requirements, supervisory expectations, 

and sound practices in the BSA/AML 

area. The manual provides substantial 

guidance to institutions in establishing 

and administering their BSA/AML 

programs and is updated to incorporate 

emerging risks in the money laundering 

and terrorist financing area, as deemed 

appropriate by the federal banking 

agencies in consultation with FinCEN.8

In addition, the federal banking agencies 

have individually and jointly held 

frequent outreach sessions for the 

industry to discuss such guidance and 

emerging issues. 

Finally, as part of the legislative 

process leading up to the enactment of 

the FSRRA, Congress considered, but 

did not enact, other statutory proposals 

for CTR relief. The current Congress also 

is continuing to consider such 

initiatives and a bill to provide for a 

seasoned customer exemption from CTR 

filing (H.R. 323, the Seasoned Customer 

CTR Exemption Act of 2007) passed the 

House of Representatives on January 23, 

2007. This is similar to a provision 

passed by the House in 2006. 

The federal banking agencies continue 

to work with FinCEN, as the 

administrator of the BSA, to effectively 

oversee anti-money laundering 

compliance and ensure the safety and 

soundness of the financial institutions 

they regulate and to find ways to 

achieve these goals while eliminating 

unnecessary regulation. Recently, 

Secretary of the Treasury Paulson 

announced a Treasury initiative to 

administer the BSA in a more efficient 

and effective manner. The federal 

banking agencies will continue their 

close coordination with FinCEN to 

improve its communications with the 

industry. Moreover, the agencies will 

continue to work with Congress to 

analyze proposed legislative changes 

and provide recommendations and 

comments as requested. 

Recommendation: The Board, FDIC, 

OCC, and OTS appreciate the comments 

received concerning the CTR exemption 

process. The federal banking agencies 

believe that any changes must be 

carefully balanced with the critical 

needs of law enforcement for necessary 

information to combat money 

laundering, terrorist financing, and 

other financial crimes. Any changes to 

the exemption process must not 

jeopardize or detract from law 

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62040 Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / Notices 

9The FBI has advised that to dramatically alter 

currency transaction reporting requirements—

without careful, independent study—could be 

devastating and a significant setback to 

investigative and intelligence efforts relative to both 

the global war on terrorism and traditional criminal 

activities. Statement of Michael Morehart Section 

Chief, Terrorist Financing Operations, 

Counterterrorism Division, Federal Bureau of 

Investigation, before the Senate Committee on 

Banking, Housing and Urban Affairs, April 4, 2006; 

see also, Statement of Kevin Delli-Colli, Deputy 

Assistant Director, Financial & Trade Investigations 

Division, Office of Investigations, U.S. Immigration 

and Customs Enforcement, Department of 

Homeland Security, before the Senate Committee 

on Banking, Housing and Urban Affairs, April 4, 

2006. 

10For example, in 2007 FinCEN issued tips for 

SAR form preparation and filing that addressed a 

variety of issues, including what constitutes 

supporting documentation for a SAR. See ‘‘SAR 

Activity Review, Trends, Tips & Issues,’’ Issue 11, 

May 2007. 

11See footnote 6, pages 50–59. 

12See the prepared remarks of Robert W. Werner, 

Director, FinCEN, before the American Bankers 

Association/American Bar Association Money 

Laundering Enforcement Conference, October 9, 

2006, available on FinCEN’s Web site (http:// 

www.fincen.gov/werner_statement_10092006.html. 

13Pub. L. No. 107–56, October 26, 2001. 

14See generally 31 CFR 103.121. 

enforcement’s mission.9 The federal 

banking agencies further believe that, in 

light of the attention and study given to 

this issue by Congress and in other 

forums, it would be premature to adopt 

changes in this area before the reports 

and recommendations are complete. 

Therefore, the agencies are not 

recommending any changes at this time 

but may do so once the GAO finalizes 

its report. 

b. Anti-Money Laundering/Suspicious 

Activity Report 

Issue: Should the federal banking 

agencies, together with FinCEN, revise 

or adopt policies relating to SARs to 

help reduce the number of defensive 

SARs that are being filed? 

Context: Financial institutions must 

report known or suspected criminal 

activity, at specified dollar thresholds, 

or transactions over $5,000 that they 

suspect involve money laundering or 

attempts to evade the BSA. SARs play 

an important role in combating money 

laundering and other financial crimes. 

Comments: Many commenters stated 

that SAR filing requirements were 

burdensome and costly. Some 

commenters complained that they filed 

numerous SARs and rarely, if ever, 

heard back from law enforcement. They 

questioned whether they were simply 

filing these forms into a ‘‘black hole.’’

One commenter noted that SAR filings 

make CTR filings redundant. 

Commenters complained both in writing 

and during the EGRPRA bankers’

outreach meetings that the filing of 

SARs and the development of an 

effective SAR monitoring system add to 

compliance costs for banks and imposed 

a significant regulatory burden on them. 

Current Initiatives: The federal 

banking agencies, in cooperation with 

FinCEN, seek to pursue effective SAR 

policies that contribute to efforts to 

track money laundering transactions 

while minimizing burden on regulated 

institutions that must file such reports. 

The federal banking agencies believe it 

is important to provide clear guidance 

to financial institutions on all SAR 

filing issues and will continue to work 

with FinCEN to do so.10 In considering 

what further changes to make to SAR 

policies, it is important to closely 

coordinate with law enforcement so as 

not to undermine efforts to combat 

money laundering and curtail other 

illicit financial transactions. 

As noted in the GAO’s 2006 report on 

BSA oversight by the federal banking 

agencies, all of the Agencies have 

implemented extensive BSA/AML 

training for examiners, including joint 

training through the FFIEC.11 The 

federal banking agencies have also 

stepped up their hiring of examiners to 

meet the need for greater BSA/AML 

compliance. The extensive training 

federal banking agencies have 

implemented has resulted in greater 

examiner expertise on BSA/AML 

matters. 

In addition, the Department of the 

Treasury Inspector General directed 

FinCEN to undertake a SAR data quality 

review, which FinCEN subsequently 

shared with the federal banking 

agencies. The federal banking agencies 

indicated at the time that they found the 

analysis of the SAR filings to be useful 

in enabling financial institutions to 

address relevant problems or issues. 

FinCEN has publicly indicated that 

there is no evidence to suggest that the 

SAR filings include significant numbers 

of ‘‘defensively filed’’ SARs; rather, 

reviews show useful and properly filed 

reports.12

Recommendation: The federal 

banking agencies, along with FinCEN, 

seek to pursue effective SAR policies 

that contribute to efforts to track 

suspicious transactions while 

minimizing burden on regulated 

institutions that are required to file such 

reports. It is important to provide clear 

guidance to financial institutions on all 

SAR filing issues and to continue to 

work with FinCEN to do so. In 

considering what further changes to 

make to SAR policies, the Agencies 

believe that it is important to coordinate 

closely with law enforcement so as not 

to undermine efforts to combat money 

laundering and curtail other illicit 

financial transactions. 

c. Patriot Act 

Issues: 

(1) Can the federal banking agencies 

provide greater guidance as to the types 

of identification that are acceptable 

under a bank’s Customer Identification 

Program (CIP)? 

(2) Can the recordkeeping 

requirements under the Uniting and 

Strengthening America by Providing 

Appropriate Tools Required to Intercept 

and Obstruct Terrorism Act of 200113

(PATRIOT Act) be revised to reduce 

burden? 

Context: Department of the Treasury 

and federal banking agency regulations 

require depository institutions to obtain 

identification information from 

customers as a condition to opening/ 

maintaining account relationships.14

The regulation requires every depository 

institution to have a written CIP. The 

CIP must include risk-based procedures 

to enable the depository institution to 

form a reasonable belief that it knows 

the true identity of each customer. With 

respect to individuals, the regulation 

requires institutions to obtain, at a 

minimum, the name, date of birth, and 

address of the prospective customer, as 

well as an identification number, such 

as a tax identification number (for a U.S. 

person) or, in the case of a non-U.S. 

person, a tax ID number, passport 

number and country of issuance, alien 

registration number, or the number and 

country of any other identification 

number evidencing nationality or 

residence and containing a photograph 

of the individual or similar safeguard. 

For entities such as a corporation, the 

institution must also obtain a principal 

place of business, local office, or other 

physical location from the business 

applicant. The CIP must also contain 

procedures for verifying that the 

customer does not appear on a 

designated government list of terrorists 

or terrorist organizations. However, to 

date, the government has not designated 

such a list for purposes of CIP 

compliance. 

The CIP regulations further require 

institutions to verify the identity of 

customers within a ‘‘reasonable time’’

after an account is opened. Institutions 

may conduct such verification through 

documents, non-documentary methods, 

or some combination of the two. An 

institution’s CIP likewise must address 

situations where the institution is 

unable to verify a customer’s identity. 

Comments: During the EGRPRA 

process, the federal banking agencies 

received extensive comments 

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concerning the CIP under the PATRIOT 

Act. Many commenters noted the 

burden that the requirements impose on 

institutions and asserted that these 

requirements can cause inconvenience, 

even for long-time customers of a 

financial institution. Commenters had a 

number of suggestions for improved 

guidance, including: (1) Amending the 

definition of ‘‘established customer’’ to 

clarify that it refers to a customer from 

whom the bank has already obtained the 

information required by 31 CFR 

103.121(b)(2)(i); (2) providing greater 

clarity about the types of identification 

that are acceptable; and (3) amending 

the definition of ‘‘non-U.S. persons’’ to 

refer only to foreign citizens who are not 

U.S. resident aliens. 

The purpose of the CIP requirements 

is to aid in addressing both money 

laundering and terrorist financing. It can 

be crucial to have good records about 

the identity of customers in order to 

help prosecute cases involving money 

laundering or terrorist financing. 

Existing rules already contain detailed 

guidance about the types of 

identification that can be used to satisfy 

the requirements of the PATRIOT Act. 

In addition, the CIP does not apply to 

existing customers of the financial 

institution provided that the financial 

institution has a reasonable belief that it 

knows the true identity of the person. 

With respect to recordkeeping 

requirements, the regulations issued 

pursuant to section 326 of the PATRIOT 

Act require institutions to keep records 

of their efforts to verify the identity of 

customers for five years after the 

account is closed. Many institutions 

commented during the EGRPRA process 

that this recordkeeping requirement was 

burdensome. 

Current Initiatives: The federal 

banking agencies have worked in close 

collaboration with FinCEN in an effort 

to ensure that the requirements imposed 

by the PATRIOT Act are appropriate 

and necessary, and the agencies will 

continue to work with FinCEN to 

enhance the effectiveness of the Act’s 

requirements while looking for ways to 

reduce the burden on financial 

institutions. For example, the federal 

banking agencies together with 

securities and futures industry 

regulators have worked to provide 

additional guidance on the application 

of the CIP rule. This guidance, in the 

form of frequently asked questions, has 

been updated as necessary to respond to 

industry questions and can be found on 

FinCEN’s Web site (http:// 

www.fincen.gov/faqsfinalciprule.pdf). 

The guidance that applies to depository 

institutions is also incorporated into the 

FFIEC BSA/AML Examination Manual. 

Recommendation: While the federal 

banking agencies jointly issued the 

regulations at 31 CFR 103.121 with the 

Department of the Treasury, the 

agencies cannot unilaterally revise the 

regulation. While the agencies regularly 

discuss PATRIOT Act issues with their 

counterparts in FinCEN and the 

Department of the Treasury, the 

authority to amend many of the 

recordkeeping rules required under the 

PATRIOT Act is solely within the 

jurisdiction of the Department of the 

Treasury. Nonetheless, the comments 

will be a helpful contribution to the 

discussion of the issues. 

d. Interest on Demand Deposits 

(Regulation Q) and NOW Account 

Eligibility 

Issues: 

(1) Should the prohibition against 

payment of interest on demand deposits 

be eliminated? 

(2) Should the NOW account 

eligibility rules be liberalized? 

Context: The prohibition against 

payment of interest on demand deposits 

is a statutory prohibition and an 

amendment enacted by Congress would 

be necessary to repeal the prohibition. 

Section 19(i) of the Federal Reserve Act 

provides that no bank that is a member 

of the Federal Reserve System may, 

directly or indirectly, by any device 

whatsoever pay any interest on any 

demand deposit. Similar statutory 

provisions apply to non-member banks 

and to thrift institutions. The Board’s 

Regulation Q implements section 19(i) 

and specifies what constitutes ‘‘interest’’

for purposes of section 19(i). As a 

practical matter, the effect of section 

19(i) is to prevent corporations and forprofit entities from holding interestbearing checking accounts. This is 

because federal law separately permits 

individuals and non-profit organizations 

to have interest-bearing checking 

accounts, known as ‘‘negotiable order of 

withdrawal,’’ or NOW, accounts. (See 12 

U.S.C. 1832.) 

Comments: Several commenters 

suggested that the prohibition against 

the payment of interest on demand 

deposits be eliminated. One commenter 

stated that, if the statutory prohibition 

against payment of interest on demand 

deposits were repealed, the Board 

should allow a two-year phase-in 

period, during which depository 

institutions could offer MMDAs (savings 

deposits) with the capacity to make up 

to 24 preauthorized or automatic 

transfers per month to another 

transaction account. 

Current Initiatives: For the past 

several years, Congress has considered, 

but not enacted, legislation that would 

repeal the prohibition in section 19(i) 

against the payment of interest on 

demand deposits. Some of this 

legislation also would have made 

certain changes with respect to NOW 

accounts. 

Recommendation: The federal 

banking agencies support legislation 

that would repeal the prohibition 

against payment of interest on demand 

deposits in section 19(i) and related 

statutes. Such legislation would allow 

corporate and for-profit entities, 

including small businesses, to have the 

extra earning potential of interestbearing checking accounts and would 

eliminate a restriction that currently 

distorts the pricing of checking accounts 

and associated bank services. The 

federal banking agencies, however, do 

not have a joint position at this time on 

whether to expand NOW account 

eligibility and, as such, are making no 

joint recommendation with respect to 

this issue. We will continue to work 

with Congress on these important 

matters. 

e. Home Mortgage Disclosure Act 

(Regulation C) 

Issues: 

(1) Should the tests for coverage of 

financial institutions be changed to 

exempt more institutions from the 

reporting requirements of the Home 

Mortgage Disclosure Act (HMDA)? If so, 

how? 

(2) Should revisions be made to the 

data that are required to be reported 

under HMDA, such as revising the 

reporting requirements for higher-priced 

loans? 

Context: The purpose of HMDA is to 

provide the public with mortgage 

lending data to help determine whether 

financial institutions are serving the 

housing needs of their communities, 

assist public officials in distributing 

public sector investment so as to attract 

private investment to areas where it is 

needed, and to assist in identifying 

possible discriminatory lending patterns 

and enforcing antidiscrimination 

statutes. HMDA requires banks, savings 

associations and credit unions that 

make ‘‘federally related mortgage 

loans,’’ as defined by the Board, to 

report data about their mortgage lending 

if they have total assets that exceed an 

asset threshold that is now set by statute 

(indexed for inflation in 2007 at $36 

million) and a home or branch office in 

a metropolitan statistical area. Board 

Regulation C, which implements 

HMDA, clarifies that these institutions 

are subject to HMDA reporting for a 

given year if, in the preceding calendar 

year, they made at least one ‘‘federally 

related mortgage loan,’’ which is 

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62042 Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / Notices 

15See Part II of this report for a discussion of 

comments submitted by credit unions to NCUA on 

this topic. 

16See 69 FR 70925, December 8, 2004. 

defined to be a home purchase loan or 

refinancing of a home purchase loan (1) 

made by an institution that is federally 

insured or regulated or (2) insured, 

guaranteed, or supplemented by a 

federal agency or (3) intended for sale to 

Fannie Mae or Freddie Mac. Each 

federal banking agency enforces the 

requirements of HMDA with respect to 

the institutions for which such agency 

is the primary federal supervisor. 

Comments: Commenters have 

suggested revising the coverage tests for 

HMDA reporting requirements so that 

fewer institutions are subject to 

reporting, such as by raising the 

statutory asset test or exempting 

institutions that make only a de minimis 

number of mortgage loans in a year. 

Commenters asserted these changes 

could be made within the framework of 

HMDA, which provides the Board 

authority to make exceptions to the 

statute’s requirements in certain 

circumstances. Moreover, the Board 

could also recommend that Congress 

consider making changes in the 

coverage tests that are not now 

authorized under HMDA. 

Current Initiatives: With respect to 

whether revisions should be made to the 

data reporting requirements under 

HMDA, such as revising the reporting 

requirements for higher-priced loans, 

the Board completed a multi-year 

review of Regulation C in 2002. As part 

of this process, the Board considered 

numerous comments from the public on 

additional data to be reported under 

HMDA relating to the pricing of loans 

and ways to improve and streamline the 

data collection and reporting 

requirements of Regulation C. As a 

result of the review, the Board made 

several changes to HMDA reporting 

requirements, including adding 

reporting requirements for higher-priced 

loans. In determining whether to add 

each new data requirement, the Board 

carefully weighed what data would be 

most beneficial in improving HMDA 

analysis against the operational/ 

compliance costs to industry in 

collecting the data. The revisions to 

Regulation C became effective on 

January 1, 2004. 

Recommendation: Any expansion of 

the coverage tests that results in fewer 

institutions subject to HMDA reporting 

requirements would warrant a careful 

analysis that would include weighing 

the benefits of reduced reporting for 

institutions against the loss of HMDA 

data. The more financial institutions 

that are exempted from HMDA data 

reporting requirements, the more 

difficult it would be for the federal 

banking agencies, other government 

officials and interested parties to 

monitor and analyze aggregate trends in 

mortgage lending, and compare the 

mortgage lending of particular 

institutions to the mortgage lending of 

all other lenders in a given geographic 

area or product market. It would also be 

more difficult for supervisors to identify 

institutions, loan products, or 

geographic markets that show 

disparities in the disposition of loan 

applicants by race, ethnicity or other 

characteristics and that require further 

investigation under the fair lending 

laws. 

It has been two years since 

institutions began reporting and 

disclosing data relating to the new 

reporting items. With so few years of 

reporting data available, it is too early 

to assess the effectiveness of the new 

data items and consider how the 

reporting requirements could be 

changed. Any changes would have to 

take into account both the burden on 

financial institutions and the benefits of 

the new data to policymakers and the 

public. The Board and other federal 

banking agencies will, however, 

carefully consider these issues after 

more experience has been gained with 

the new reporting requirements. Several 

statutory changes to HMDA reporting 

were considered by Congress as part of 

its consideration of the FSRRA, 

including proposals to expand the 

HMDA exemptions. While the federal 

banking agencies took differing 

positions on these proposals, all of the 

agencies recognize that any statutory 

changes to HMDA reporting must be 

carefully balanced to ensure that 

consumer protection and access to 

HMDA data for appropriate consumer 

purposes are not diminished. 

f. Truth in Lending Act (Regulation Z) 

Issues: 

(1) Should the consumer disclosures 

required under the Truth in Lending Act 

(TILA), as well as those required under 

the Real Estate Settlement Procedures 

Act of 1974 (RESPA), be simplified in 

an effort to make them more 

understandable? 

(2) Should the statutory right of 

rescission be eliminated for all homesecured lending or for certain 

transactions (such as refinancings with 

new creditors where no new money is 

provided or refinancings involving 

‘‘sophisticated borrowers’’)? 

Alternatively, should consumers be able 

to more freely waive their three-day 

right of rescission for home-secured 

lending? 

Consumer Loan Disclosures 

Context: Ensuring that consumer 

disclosures, including those in mortgage 

transactions covered by TILA and 

RESPA, are effective and 

understandable is important in carrying 

out the purposes of the statutes. The 

volume of paperwork in such 

transactions has increased greatly due in 

part to reasons other than the required 

disclosures, such as liability-protection 

concerns of lenders. Nevertheless, it is 

essential to review the disclosure 

requirements periodically to consider 

whether disclosures are achieving their 

intended purposes. The Board’s 

Regulation Z implements TILA, and 

each Agency enforces the requirements 

of TILA with respect to the institutions 

for which such agency is the primary 

federal supervisor.15

Comments: Regulation Z was one of 

the most heavily commented-upon 

regulations during the EGRPRA review 

process. A general comment from many 

industry commenters was that 

consumers are frustrated and confused 

by the volume and complexity of 

documents involved in obtaining a loan 

(especially a mortgage loan), including 

the TILA and RESPA disclosures. Some 

commenters acknowledged that the 

increased volume and complexity of 

loan documents also stemmed from 

lenders’ attempts to address liability 

concerns. Many commenters requested 

that the required loan disclosures be 

provided in a manner that would 

facilitate consumer understanding of the 

loan terms. (For a more complete 

summary of the comments received, see 

the discussion of comments received for 

TILA/Regulation Z in Appendix I–C of 

this report.) 

Current Initiatives: The Board is 

conducting a multi-stage review of 

Regulation Z, which implements TILA. 

In 2004, the Board issued an advance 

notice of proposed rulemaking (ANPR) 

requesting public comment on all 

aspects of the regulation’s provisions 

affecting open-end (revolving) credit 

accounts, other than home-secured 

accounts, including ways to simplify, 

reduce or improve the disclosures 

provided under TILA.16 The next stage 

of the review is expected to be a review 

of the disclosures for mortgage loan 

transactions (both open-end and closedend) as well as other closed-end credit, 

such as automobile loans. The multistage review will consider revisions to 

the disclosures required under TILA to 

ensure that disclosures are provided to 

consumers on a timely basis and in a 

form that is readily understandable. 

Recommendation: The federal 

banking agencies have all testified 

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17Pub. L. 107–204, July 30, 2002. 

18 15 U.S.C. 7262. 

before Congress on the need to simplify 

and streamline consumer loan 

disclosures. Among other things, the 

Board’s review will consider ways to 

address concerns about information 

overload, which can adversely affect 

how meaningful disclosures are to 

consumers. The Board will use 

extensive consumer testing to determine 

what information is useful to consumers 

to address concerns about information 

overload. After the Board’s review and 

regulatory changes are in place, the 

agencies will consider what, if any, 

legislative changes may be necessary. 

Revisions to the Right of Rescission 

Context: Under TILA, consumers 

generally have three days after closing 

to rescind a loan secured by a principal 

residence. Among other things, the right 

of rescission does not apply to a loan to 

purchase or build a principal residence 

or a consolidation or refinancing with 

the same lender that already holds the 

mortgage on the residence and in which 

no new advances are being made to the 

consumer. The statute authorizes the 

Board to permit consumers to waive this 

right, but only to meet bona fide 

personal financial emergencies (see 15 

U.S.C. 1635(d); 12 CFR 226.15(e) and 

226.23(e)). 

The right of rescission is intended to 

provide consumers a meaningful 

opportunity to fully review the 

documents given to them at a loan 

closing and determine if they want to 

put their home at risk under the 

repayment terms described in the 

documents. Thus, substantial revision to 

the statutory three-day right of 

rescission, either through allowing 

waivers more freely or exempting the 

requirement for some or all homesecured loans, would require careful 

study. Currently, consumers are 

presented with a substantial amount of 

documents at closing, and the final cost 

disclosures provided at closing may 

differ materially from earlier cost 

disclosures provided to the consumer. 

Under these circumstances, consumers 

may benefit by having the opportunity 

to review the terms and conditions of 

the loan after the loan closing. The 

three-day right of rescission is 

particularly important, and the ability to 

freely waive that right may potentially 

be more problematic, for loan products 

and borrowers who are more susceptible 

to predatory lending practices. 

The three-day right of rescission plays 

an important role in protecting 

consumers, and this may be the case 

even in refinancings with new creditors 

where no additional funds are 

advanced. Refinancings occur for many 

reasons and may have terms that place 

the consumer’s home more at risk. For 

example, to obtain a lower initial 

monthly payment, a consumer may 

refinance a 30-year fixed-rate, homesecured loan with a loan that has an 

adjustable rate, that provides for 

interest-only payments or a balloon 

payment, or that has a longer loan term. 

Depending on the consumer’s 

circumstances, these changes may place 

the consumer’s home more at risk or 

otherwise be less favorable to the 

consumer. If their refinancing is with a 

new creditor, consumers can use the 

three-day rescission period to review 

the terms of these loans. Therefore, even 

in a refinancing with no new funds 

advanced, the right to rescind a 

transaction with a new creditor can be 

important to consumers. Issues 

concerning the right of rescission will 

be considered in the course of the 

Regulation Z review discussed above. 

Comments: Many industry 

commenters contended that the right of 

rescission was an unnecessary and 

burdensome requirement, and they 

suggested either eliminating the right of 

rescission or allowing consumers to 

waive the right more freely than under 

the current rule (which requires a bona 

fide personal emergency). 

Representatives of consumer and 

community groups called the right of 

rescission one of the most important 

consumer protections and urged the 

regulators not to weaken or eliminate 

that right. 

Recommendation: The Board will 

consider issues concerning the right of 

rescission in the course of the 

Regulation Z review discussed above. In 

addition, in 2006 Congress considered 

regulatory burden relief proposals and 

ultimately enacted the FSRRA. At that 

time, suggestions were made to include 

amendments to TILA that would expand 

the circumstances under which a 

consumer could waive the three-day 

right of rescission. All of the federal 

banking agencies opposed or expressed 

concern about waiving this important 

consumer protection right without 

adequate safeguards to ensure that 

consumers are protected from the 

abuses that may occur from expanding 

the waiver authority. 

g. Regulation O 

Issue: While the FSRRA eliminated 

certain Regulation O reporting 

requirements, several commenters also 

asked whether the insider lending limits 

should be increased to parallel those 

permitted under some state laws. 

Context: Sections 22(g) and 22(h) of 

the Federal Reserve Act impose various 

restrictions on extensions of credit by a 

member bank to its insiders. By statute, 

these restrictions also apply to 

nonmember state banks and savings 

associations. The Board’s Regulation O 

implements sections 22(g) and 22(h) of 

the Federal Reserve Act for member 

banks. Regulation O governs any 

extension of credit by a member bank to 

an executive officer, director, or 

principal shareholder of (1) the member 

bank, (2) a holding company of which 

the member bank is a subsidiary, or (3) 

any other subsidiary of that holding 

company. Regulation O also applies to 

any extension of credit by a member 

bank to a company controlled by such 

a person and a political or campaign 

committee that benefits or is controlled 

by such a person. Each federal banking 

agency enforces the requirements of 

Regulation O with respect to the 

institutions for which such agency is the 

primary federal supervisor. 

Section 22(g) of the Federal Reserve 

Act specifically prohibits a member 

bank from making extensions of credit 

to an executive officer of the bank (other 

than certain mortgage loans and 

educational loans) that exceed ‘‘an 

amount prescribed in a regulation of the 

member bank’s appropriate federal 

banking agency.’’ Regulation O 

currently limits the amount of such 

‘‘other purpose’’ loans to $100,000. 

Comments: A number of industry 

commenters requested a review of 

Regulation O reporting and threshold 

requirements because they view them as 

overly burdensome and somewhat 

ambiguous, with outdated dollar 

amounts that need updating to reflect 

today’s economy. 

Recommendation: The federal 

banking agencies currently have the 

statutory authority to raise the limit on 

‘‘other purpose’’ loans for institutions 

under their supervision if the federal 

banking agencies were to determine that 

such action was consistent with safety 

and soundness. In this regard, the Board 

plans to consult with the other agencies 

on a proposal to increase the Regulation 

O limit on other purpose loans as part 

of its upcoming comprehensive review 

of Regulation O. 

h. Corporate Governance/SarbanesOxley Act of 2002 

Issues: 

(1) Should banks that are not publicly 

traded and that have less than $1 billion 

in assets be exempt from the SarbanesOxley Act of 200217 (SOX)? 

(2) Should banks that comply with 

part 363 of the FDIC’s rules be exempt 

from section 404 of SOX?18

(3) Should the exemption for 

compliance with the external 

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62044 Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / Notices 

19The auditor independence provisions of part 

363, which dated back to 1993 and envisioned 

auditor compliance with the SEC’s independence 

requirements as they might change from time to 

time, did not constitute a new mandate for 

nonpublic institutions with $500 million or more in 

total assets. 

independent audit and internal control 

requirements of 12 CFR 363 be raised 

from $500 million to $1 billion? 

Context: SOX was enacted to improve 

corporate governance and financial 

management of public companies in 

order to better protect investors and 

restore investor confidence in such 

companies. Section 404 of SOX applies 

directly to public companies only, 

including insured depository 

institutions and their parent holding 

companies that are public companies, 

and indirectly to institutions that are 

subsidiaries of holding companies that 

are public companies. Section 404 of 

SOX does not apply to institutions that 

are not ‘‘publicly traded,’’ such as 

nonpublic companies or subsidiaries of 

nonpublic companies. Section 404 of 

SOX requires the management and 

external auditors of all public 

companies to assess the effectiveness of 

internal controls over the company’s 

financial reporting. 

Part 363 of the FDIC’s regulations 

establishes annual audit and reporting 

requirements for all insured depository 

institutions with $500 million or more 

in total assets. Part 363 requires all 

insured depository institutions with 

$500 million or more to have an annual 

audit of their financial statements 

conducted by an independent public 

accountant (external auditor). Part 363 

also requires that the management and 

external auditors of institutions with $1 

billion or more in total assets attest to 

internal controls over financial 

reporting. To be considered 

‘‘independent,’’ Guideline 14 to part 

363, which was adopted by the FDIC in 

1993, states that the external auditor 

‘‘should be in compliance with the 

[American Institute of Certified Public 

Accountants’] Code of Professional 

Conduct and meet the independence 

requirements and interpretations of the 

[Securities and Exchange Commission] 

and its staff.’’ Title II of SOX imposed 

additional auditor independence 

requirements on external auditors of 

public companies, which the Securities 

and Exchange Commission (SEC) has 

implemented through rulemaking. Thus, 

the external auditors of nonpublic 

institutions that are subject to part 363 

are expected to comply with SOX’s 

auditor independence requirements and 

the SEC’s implementing rules. 

Comments: Some commenters 

focused on the increased burden and 

costs imposed on public companies by 

SOX, particularly publicly traded 

community banks. Several commenters 

recommended requiring such banks to 

comply only with part 363 and not with 

SOX section 404. Other commenters 

were concerned about the burden 

placed on banks to comply with the 

auditor independence requirements in 

SOX under the FDIC’s rules for those 

banks that are not publicly traded and 

have less than $1 billion in assets. These 

commenters believed that such 

requirements make it difficult for banks 

in small communities to find 

professionals to help comply with the 

requirements. 

Current Initiatives: On March 5, 2003, 

the FDIC issued Financial Institution 

Letter (FIL) 17–2003 to provide 

guidance to institutions about selected 

provisions of SOX, including the actions 

the FDIC encourages institutions to take 

to ensure sound corporate governance. 

On May 6, 2003, the Board, OCC, and 

OTS collectively issued similar 

guidance entitled ‘‘Statement on 

Application of Recent Corporate 

Governance Initiatives to Non-Public 

Banking Organizations.’’ None of the 

federal banking agencies established any 

new mandates for nonpublic 

institutions as a result of SOX.19 In the 

2003 guidance, the federal banking 

agencies encouraged nonpublic 

institutions to follow the sound 

corporate governance practices that the 

Agencies have long endorsed. In 

addition, the federal banking agencies 

encouraged all nonpublic institutions to 

periodically review their policies and 

procedures relating to corporate 

governance and auditing matters. These 

reviews should ensure that policies and 

procedures are consistent with 

applicable law, regulations, and 

supervisory guidance and appropriate to 

the institution’s size, operations, and 

resources. 

Recommendations: 

Banks That Are Not Publicly Traded 

and Have Less Than $1 Billion in 

Assets. As discussed above, SOX 

generally does not apply to banks of any 

size that are not publicly traded or 

owned by a publicly traded company. 

Because SOX did not impose any new 

mandates on nonpublic institutions that 

have less than $1 billion in assets, the 

federal banking agencies do not believe 

any action on this matter is necessary. 

Relationship between Part 363 of the 

FDIC’s Rules and Section 404 of SOX. 

The SEC rules implementing the section 

404 requirements took effect at year-end 

2004 for ‘‘accelerated filers,’’ i.e., 

generally, public companies whose 

common equity has an aggregate market 

value of at least $75 million, but these 

rules will not take effect until 2007 for 

public companies that are ‘‘nonaccelerated filers.’’ Section 404 does not 

explicitly authorize the SEC to exempt 

any public companies from its internal 

control requirements. 

Section 36 of the FDI Act, which was 

enacted more than 10 years before SOX, 

imposes annual audit and reporting 

requirements on certain insured 

depository institutions. These 

requirements, as implemented by part 

363 of the FDIC’s regulations, include 

assessments of the effectiveness of 

internal control over financial reporting 

by management and external auditors. 

Section 36 of the FDI Act authorizes the 

FDIC to set the size threshold at which 

institutions become subject to the audit 

and reporting requirements of section 

36, provided the threshold is not less 

than $150 million in assets. In 

November 2005, the FDIC, after 

consulting with the other federal 

banking agencies, amended part 363 to 

require internal control assessments by 

management and external auditors only 

of insured depository institutions, both 

public and nonpublic, with $1 billion or 

more in total assets. 

Part 363 applies to insured depository 

institutions, but section 404 applies to 

public companies, which, in most cases, 

is the parent holding company of a 

depository institution rather than the 

depository institution itself. If certain 

conditions are met, part 363 permits an 

institution to satisfy the requirement for 

internal control assessments by 

management and external auditors at 

the holding company level. However, 

when satisfied at the holding company 

level, part 363 provides that the internal 

control assessments need only cover 

‘‘the relevant activities and operations 

of those subsidiary institutions within 

the scope’’ of the regulation, such as 

those subsidiary depository institutions 

with $1 billion or more in total assets. 

In contrast, internal control assessments 

performed under section 404 must cover 

the entire consolidated organization, 

including any insured depository 

institution subsidiaries with less than 

$1 billion in total assets and 

subsidiaries that are not depository 

institutions. 

The FDIC and the other federal 

banking agencies have no authority to 

exempt institutions that comply with 

the internal control requirements of part 

363 from the internal control 

requirements of section 404, which the 

SEC administers. Legislation that 

amends section 404 would be needed to 

create such an exemption (unless the 

SEC were to determine that it had the 

authority to do so). Moreover, in 

considering whether or how to craft 

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such an exemption, one would need to 

recognize and take into account the fact 

that part 363 internal control 

assessments by management and 

external auditors are required to be 

performed only by insured depository 

institutions and not on a consolidated 

basis at the parent holding company 

level. In connection with consideration 

of proposals to be included in the 

FSRRA, one proposal would have 

exempted financial institutions with 

assets of less than $1 billion from 

section 404 if subject to section 36 of the 

FDI Act. The federal banking agencies 

had differing views on the advisability 

of such an amendment and will 

continue to work with Congress to look 

for ways to reduce burden while 

ensuring that adequate internal control 

requirements are in place. 

Furthermore, because insured 

institutions with less than $1 billion in 

total assets that are public companies, or 

subsidiaries of public companies, are 

not subject to the part 363 internal 

control requirements, such institutions 

would not benefit from an exemption 

from the section 404 internal control 

requirements that would apply to 

institutions that comply with the part 

363 internal control requirements. 

Asset Threshold for the External 

Independent Audit and Internal Control 

Requirements of 12 CFR 363. Part 363 

of the FDIC’s regulations, which 

implements the annual audit and 

reporting requirements of section 36 of 

the FDI Act, requires each insured 

depository institution with $500 million 

or more in total assets to have an annual 

audit of its financial statements by an 

independent public accountant 

(external auditor). Section 36 and part 

363 also require assessments of the 

effectiveness of internal control over 

financial reporting by an institution’s 

management and external auditor. In 

November 2005, the FDIC’s Board of 

Directors amended part 363 to raise the 

asset size threshold for these internal 

control assessments from $500 million 

to $1 billion. 

In developing its proposal to amend 

the asset size threshold for internal 

control assessments to $1 billion in 

2005, the FDIC, in consultation with the 

other federal banking agencies, 

considered whether the threshold 

should also be increased for the audited 

financial statement requirement in part 

363. The longstanding policy of each of 

the federal banking agencies has been to 

encourage all insured depository 

institutions, regardless of size or charter, 

to have an annual audit of their 

financial statements performed by an 

independent public accountant. When 

auditing financial statements, the 

institution’s external auditor must 

obtain an understanding of internal 

control, including assessing control risk, 

and must report certain matters 

regarding internal control to the 

institution’s audit committee. The FDIC 

and other agencies concluded that 

raising the asset size threshold for 

audited financial statements under part 

363 would not be consistent with the 

objective of section 36, such as early 

identification of needed improvements 

in financial management. In this regard, 

the FDIC decided that relieving 

institutions with between $500 million 

and $1 billion in total assets from the 

internal control assessment requirement 

of part 363 while retaining the financial 

statement audit requirement for all 

insured institutions with $500 million 

or more in assets would continue to 

accomplish the objective of section 36 

in an appropriate manner. 

Therefore, the FDIC does not 

currently plan to raise the asset size 

threshold for the financial statement 

audit requirement in part 363 from $500 

million to $1 billion. 

i. Flood Insurance 

Issues: Should the flood insurance 

requirements be reduced to cover fewer 

loans such as by increasing the smallloan exemption threshold (currently 

$5,000), or exempting loans on certain 

properties without residences such as 

properties with only barns, storage 

sheds, or dilapidated, non-residence 

structures? 

Context: Under the National Flood 

Insurance Act, as amended, federally 

regulated lenders may not make, 

increase, extend, or renew any loan 

secured by a building or mobile home 

located or to be located in a special 

flood hazard area in which flood 

insurance is available under the Act 

unless the building or mobile home and 

any personal property securing the loan 

is covered by adequate flood insurance 

for the term of the loan. These 

requirements do not apply to property 

securing any loan with an original 

principal balance of $5,000 or less and 

a repayment term of one year or less. 

Comments: During the EGRPRA 

process, a number of commenters 

suggested that the statutory exception 

for requiring flood insurance for small 

loans be raised from its current level of 

$5,000. Commenters also asserted that 

flood insurance should not be required 

for certain types of properties such as 

properties with barns, storage sheds or 

dilapidated structures. 

Current Initiatives: Congress has been 

working on legislation to reform the 

National Flood Insurance Program 

(NFIP) to address the weaknesses in the 

program that became more apparent 

from hurricane disasters that severely 

impacted the United States in the last 

few years. HR 4973 passed the House of 

Representatives during the 109th 

Congress and was under consideration 

by the Senate when the 109th Congress 

adjourned. This bill would have: 

• Increased penalties for 

noncompliance with flood insurance 

requirements, 

• Increased the maximum coverage 

limits, 

• Allowed for greater premium 

increases, 

• Increased the Federal Emergency 

Management Agency’s (FEMA) 

borrowing authority, and 

• Directed FEMA to establish an 

ongoing program to review, update, and 

maintain flood maps and elevation 

standards. 

This legislation has been reintroduced in the 110th Congress. 

Recommendation: The federal 

banking agencies believe that Congress 

should consider the suggested changes 

to the flood insurance requirements as 

part of the continuing efforts of 

Congress to comprehensively reform the 

NFIP to address several critical issues. 

The agencies will continue to work with 

Congress as appropriate to review and 

provide comments on legislative 

proposals to amend the NFIP. 

j. Expedited Funds Availability 

(Regulation CC) 

Issues: 

(1) Should the general availability 

schedules for local and nonlocal checks 

be reviewed to determine if they are still 

appropriate? 

(2) Should the maximum hold period 

for some items that currently receive 

next-day availability, particularly 

official bank checks and government 

checks, be extended to prevent fraud? 

(3) Should the parameters of the large 

deposit, new account, and reasonable 

cause exceptions be adjusted? 

Context: Under the Expedited Funds 

Availability Act (EFA Act) as 

implemented by the Board’s Regulation 

CC, a bank generally must make an 

amount deposited by check available for 

withdrawal on the first, second, or fifth 

business day after deposit, depending 

on the characteristics of the deposit. 

Under the next-day availability 

provision, deposits by cashier’s checks, 

teller’s checks, and certified checks 

(collectively, official bank checks) and 

by U.S. Postal Service (USPS) money 

orders, Treasury checks, and other types 

of checks drawn on units of federal or 

state government (collectively, 

government checks) typically are 

entitled to next-day availability if 

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deposited in the payee’s account by the 

payee in person to a bank employee. If 

a check is not subject to the next-day 

availability provision, its general 

availability is determined under the 

availability schedule for local and 

nonlocal checks. Local checks typically 

are entitled to availability no later than 

the second business day after deposit 

and nonlocal checks typically are 

entitled to availability no later than the 

fifth business day after deposit. The 

next-day availability schedule and the 

local/nonlocal schedule (collectively, 

the generally applicable availability 

schedule) thus establish the maximum 

time that banks generally may wait 

before making a deposit available for 

withdrawal (the generally applicable 

hold period). 

Banks may choose to give faster 

availability than the generally 

applicable availability schedule 

requires. They may also withhold 

availability for checks for an additional 

reasonable period beyond the generally 

applicable hold period by invoking 

what commonly is called an exception 

hold. The six reasons for invoking an 

exception hold, which are specified in 

detail in the EFA Act and Regulation 

CC, are that the account is new, the 

aggregate amount of a deposit by one or 

more checks on any one banking day 

exceeds $5,000, the bank has reasonable 

cause to doubt that it can collect the 

check, the account to which the deposit 

is made has been repeatedly overdrawn, 

the check in question previously was 

returned unpaid, or emergency 

conditions exist. Each federal banking 

agency enforces the requirements of 

EFA Act and Regulation CC with respect 

to the institutions for which such 

agency is the primary federal 

supervisor. 

Comments: Many commenters 

addressed issues concerned with the 

EFA Act and Regulation CC. The most 

frequent comment related to increases 

in fraud associated with items for which 

banks must give next-day or second-day 

funds availability, particularly official 

bank checks, postal money orders, and 

other items drawn on governmental 

units. Many of these commenters 

suggested increasing the maximum hold 

time for these items to provide more 

time for notice to be given to a bank of 

the fraud. Other commenters discussed 

increasing the hold time for other 

deposits, the need to streamline the 

disclosures given to customers, and 

other miscellaneous comments. 

Current Initiatives: As check clearing 

times improve, the EFA Act requires the 

Board, by regulation, to reduce the 

maximum hold periods that apply to 

local checks, nonlocal checks, and 

checks deposited at nonproprietary 

ATMs to the period of time that it 

reasonably takes a depository bank to 

learn of the nonpayment of most items 

in each of those categories. The Check 

Clearing for the 21st Century Act (Check 

21 Act) specifically requires the Board 

to conduct a study to assess the impact 

of the Check 21 Act on the use of 

electronics in the check clearing 

process, check clearing and funds 

availability times, check-related losses, 

and the appropriateness of the existing 

availability schedules. The results of the 

Board’s study are discussed in the 

Board’s April 2007 report to Congress. 

The Board found that check collection 

and return times have not improved 

enough to warrant the Board changing 

the existing availability schedules by 

rule at this time. The Board also 

provided Congress with information 

relating to banks’ actual funds 

availability practices, check-related 

losses, and the amount limits set forth 

in the EFA Act. The information in the 

Board’s report should assist Congress in 

determining the appropriateness of any 

statutory changes to the EFA Act at this 

time. 

With respect to extending the 

maximum hold period for some items 

that currently receive next-day 

availability, the EFA Act specifically 

requires next-day availability for the 

items listed in the next-day availability 

schedule, including official bank checks 

and government checks, when the 

specified statutory criteria for next-day 

availability are met. Although the EFA 

Act authorizes the Board to shorten the 

availability times for local and nonlocal 

checks and checks deposited at 

nonproprietary ATMs, the EFA Act does 

not specifically give the Board the 

authority to lengthen (or shorten) the 

maximum generally applicable hold 

periods for items subject to the next-day 

availability schedule. In addition, by the 

terms of the EFA Act, the reasonable 

cause to doubt collectibility exception 

for placing an exception hold on a check 

may not be invoked simply because the 

check is of a particular class. 

Recommendation: Although the 

Board may suspend the application of 

any provision of the EFA Act for a class 

of checks to prevent fraud losses, such 

a suspension is limited to 45 business 

days and requires both a finding by the 

Board that suspension of the EFA Act’s 

requirements is necessary to diminish 

the fraud and a report to Congress 

concerning the reasons and evidence 

supporting the Board’s action. In light of 

these considerations and limitations, the 

ongoing relief sought by commenters 

would require a statutory change. The 

federal banking agencies, however, are 

taking actions to respond to the increase 

in the number of fraudulent official 

checks. 

Information in the Board’s report 

indicates that, although check-related 

losses sustained by banks have risen 

somewhat in the last decade, checks 

that receive next-day availability are 

associated with only around 10 percent 

of those losses and thus are not the 

source of most bank check-related 

losses. The other information in the 

Board’s report should assist policy 

makers in determining whether 

statutory adjustments to the next-day 

availability provisions would be 

appropriate. 

With respect to adjusting the 

parameters of the large deposit, new 

account, and reasonable cause 

exceptions, it should be noted that these 

parameters are specified by the EFA 

Act, and adjusting them therefore would 

require a statutory change. Streamlining 

and simplifying the requirements under 

the EFA Act was an issue that was 

raised when Congress considered 

regulatory burden proposals during its 

work last year on the FSRRA. The 

Board’s report of its most recent check 

collection study includes, among other 

things, an assessment of both the time 

periods and dollar thresholds that apply 

to the safeguard exceptions, including 

but not limited to the large deposit and 

new account exceptions. The results of 

that study should assist policy makers 

in determining the appropriateness of 

adjusting the current parameters of the 

exception holds and provide guidance 

to the federal banking agencies to 

determine whether to recommend 

legislative changes to eliminate 

unnecessary burden that may be 

imposed by statutory requirements. 

k. Powers and Activities 

Issues: 

(1) Should existing consumer and 

commercial lending limits for savings 

associations be increased? 

(2) Should bank holding companies 

that are not financial holding companies 

be able to conduct a broad scope of 

insurance agency activities directly or 

through a nonbanking subsidiary? 

(3) Should the Federal banking 

agencies issue a joint rule to clarify 

interest rate exportation guidelines? 

Consumer and Commercial Lending 

Limits for Savings Associations 

Context: The Home Owner’s Loan Act 

(HOLA) currently subjects a Federal 

savings association to a 35 percent of 

assets limitation for secured consumer 

loans while imposing no statutory limit 

on the amount of unsecured credit card 

lending. This limit exists even though 

the proceeds of the loan may be used for 

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20See Testimony of Governor Donald L. Kohn 

before the Committee on Banking, Housing, and 

Urban Affairs, dated March 1, 2006. 

21See 12 CFR 701.21(c)(7)). See 12 U.S.C. 85 

(national banks); 1463(g) (federal and state thrifts); 

1831d (state banks); 1785(g) (federal and state credit 

unions but see discussion above concerning federal 

credit union usury limits). 

22See 12 CFR 7.4001, 7.4006, Interpretive Letter 

954, February 2003. 

23See, e.g., Marquette National Bank of 

Minneapolis v. First of Omaha Service Corp., 439 

U.S. 299 (1978); Smiley v. Citibank (South Dakota), 

N.A., 517 U.S. 735 (1996). 

24See 12 CFR 560.110. 

25See 70 FR 60019. 

26See Greenwood Trust Co. v. Commonwealth of 

Mass., 971 F. 2d 818 (1st Cir. 1992). 

the exact same purpose. With respect to 

commercial loans, HOLA currently caps 

aggregate commercial loans other than 

small business loans at 10 percent of a 

savings association’s assets, and permits 

commercial lending, including small 

business lending, up to 20 percent of 

assets. 

Comments: During the EGRPRA 

review process, several commenters 

urged OTS to increase consumer and 

commercial lending limits. One asserted 

that savings associations are developing 

business strategies that require more 

flexible consumer loan limits. Another 

commenter suggested that small 

business lending limits be increased to 

20 percent of assets to help increase 

small business access to credit and 

expand the amount of loans made to 

small and medium-sized businesses. 

Current Initiatives: When Congress 

was working on the FSRRA last year, 

there were some amendments that OTS 

strongly supported that would have 

amended HOLA to ease the consumer 

and commercial limits for savings 

associations. OTS will suggest these 

amendments again when Congress 

considers new regulatory burden relief 

initiatives. 

Recommendation: OTS is committed 

to continuing to work with Congress 

next year on easing consumer and 

commercial lending limits for savings 

associations. 

Insurance Agency Activities 

Context: Sections 4(c)(8) and (k) of the 

Bank Holding Company Act (BHC Act), 

as amended by the Gramm-Leach-Bliley 

Act of 1999 (GLBA), do not permit the 

Board to expand the list of nonbanking 

activities that are permissible for bank 

holding companies that have not 

qualified to be a ‘‘financial holding 

company’’ beyond those activities that 

the Board determined, by regulation or 

order, were ‘‘closely related to banking’’

as of November 11, 1999. As a result, a 

bank holding company that does not 

elect to become a financial holding 

company is permitted to engage only in 

those nonbanking activities that the 

Board had determined were permissible 

under section 4(c)(8) as of that date. 

Prior to the enactment of the GLBA, 

bank holding companies were permitted 

under section 4(c)(8)to engage in general 

insurance brokerage activities only in a 

‘‘place of 5,000.’’ A similar place of 

5,000 limit applies to the general 

insurance brokerage activities of 

national banks and their subsidiaries. 

The GLBA amended the law to allow 

subsidiaries of bank holding companies 

that qualify as financial holding 

companies and financial subsidiaries of 

national banks that qualify to have 

financial subsidiaries to engage in 

general insurance agency activities 

without the place of 5,000 requirement. 

Comments: Several commenters, 

including industry trade associations, 

supported allowing a bank holding 

company to conduct an expanded scope 

of insurance agency activities directly or 

through a nonbanking subsidiary. 

Current Initiatives: When Congress 

was considering proposals to be 

included in the FSRRA, legislation was 

suggested, but was not enacted, that 

would have allowed all bank holding 

companies to provide insurance as agent 

without the place of 5,000 requirement 

or would have amended the BHC Act to 

permit the Board to expand permissible 

activities for bank holding companies. 

The Board reiterated its support of these 

proposals in testimony on regulatory 

relief in March 2006.20 In addition, 

legislation was suggested that would 

have permitted national banks to engage 

in a full range of insurance agency 

activities without the place of 5,000 

restriction. The OCC expressed its 

support for making this change for 

national banks. 

Recommendation: The Board is 

statutorily prevented from authorizing 

bank holding companies that are not 

financial holding companies to engage 

in a full range of insurance agency 

activities without the place of 5,000 

requirement. Currently, bank holding 

companies that do not become a 

financial holding company may engage 

only in very limited insurance sales 

activities (primarily involving creditrelated insurance) outside such small 

places. Similar restrictions apply to 

national banks, and national banks 

cannot engage in a full range of 

insurance agency activities without the 

place of 5,000 restriction except through 

a financial subsidiary. As noted above, 

the Board and the OCC support certain 

changes to the current restrictions on 

the insurance agency activities of bank 

holding companies and national banks, 

respectively. The federal banking 

agencies will work with Congress on 

these issues to support appropriate 

burden relief for the industry from the 

current restrictions on these agency 

activities. 

‘‘Exportation’’ of Interest Rates 

Context: Federal statutes permit the 

‘‘exportation’’ of interest rates and fees 

for federally insured depository 

institutions and their operating 

subsidiaries from any state in which the 

institution is located, except federal 

credit unions, which are subject to a 

federal usury ceiling.21 While the 

applicable federal laws are substantially 

similar, the federal banking agencies 

have implemented or interpreted these 

provisions, or are considering doing so, 

through different avenues. 

Comments: One commenter 

recommended that the federal banking 

agencies clarify that financial 

institutions could use their home state 

interest rates regardless of the contacts 

(or lack thereof) between the home state 

and the loan. The commenter indicated 

that the federal banking agencies should 

further clarify the factors that need to be 

considered when the rate of a state other 

than the home state is used. The 

commenter said that the federal banking 

agencies should issue a new joint rule 

to clarify these issues. According to the 

commenter, the federal banking 

agencies also should review their 

interpretations concerning what 

constitutes ‘‘interest’’ under the export 

doctrine, to ensure consistency. 

Initiatives: The OCC has issued 

regulations and interpretations that 

apply to national banks and their 

operating subsidiaries.22 In addition, 

there are Supreme Court decisions 

dealing with national banks’

exportations of rates and fees.23 OTS 

similarly has issued regulations in this 

area for federal and state thrifts.24 In 

March 2005, the FDIC held a hearing on 

a proposal that includes a request to 

codify the FDIC’s interpretations of the 

interest rates charged by state banks in 

interstate lending transactions. In 

October 2005, the FDIC issued a 

proposed rule that includes a proposed 

codification.25 Federal court decisions 

have also addressed the ability of state 

banks to ‘‘export’’ interest rates under 

12 U.S.C. 1831d.26

Recommendation: In light of the 

actions taken or already under 

consideration by the federal banking 

agencies in this area, they do not believe 

joint rulemaking on this subject is 

needed. 

l. Capital 

Issue: Should the federal banking 

agencies permit an opt-out for highly 

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27 12 CFR 35; 12 CFR 207 (Regulation G); 12 CFR 

346; 12 CFR 533. 

capitalized community banks from the 

proposed revisions to Basel I to allow 

them to continue to use existing capital 

rules? 

Context: On September 25, 2006, the 

Board, FDIC, OTS, and OCC issued a 

notice of proposed rulemaking (NPR) for 

the advanced approaches of the Basel II 

capital framework. The Basel II capital 

framework is designed to ensure that 

capital regulations appropriately 

address existing and emerging risks; the 

agencies recognize that the current Basel 

I framework no longer does so with 

respect to the largest, most sophisticated 

banks. Although the advanced 

approaches of the Basel II capital 

framework are quite complex, only a 

relatively small number of the largest 

and most internationally active banks, 

savings associations, and bank holding 

companies (banking organizations) will 

be required to apply the framework. 

The federal banking agencies also 

issued a proposed revision to Basel I in 

December 2006, which is commonly 

known as Basel IA. The primary goal of 

this initiative was to increase the risk 

sensitivity of the existing capital rules 

without unduly increasing regulatory 

burden. The Basel IA proposal provided 

that, except for those banking 

organizations that may be required to 

apply the Basel II capital framework, 

banking organizations would have the 

option of adopting the proposed Basel 

IA revisions or continuing to determine 

capital under the existing risk-based 

capital rule. The regulators reserved the 

authority under the proposed rules to 

mandate a particular framework for a 

particular institution, depending on the 

risk profile and activities of a particular 

institution. 

Comments: During the EGRPRA 

process, the federal banking agencies 

received relatively few comments 

concerning capital issues, as the Federal 

Register notice advised that comments 

concerning capital would be gathered 

and considered in connection with the 

capital rulemaking process. 

Nevertheless, among those who did 

comment, there was some concern that 

banking regulators’ efforts to revise 

capital rules could prove to be overly 

burdensome for smaller banks and 

difficult to implement. Some of those 

commenters proposed that highly 

capitalized community banks be 

allowed to opt out from the proposed 

revisions to Basel I and continue to use 

the existing Basel I risk-based capital 

framework. Commenters to the Basel IA 

and Basel II proposals urged the 

agencies to adopt the Basel II so-called 

‘‘standardized’’ approach. The 

standardized approach is, in part, a set 

of modifications to the Basel I 

framework that modestly enhances 

overall risk sensitivity. On July 20, 

2007, the agencies issued a press release 

stating their intention to issue a 

proposed rule that would provide those 

banking organizations not required to 

adopt the Basel II framework an option 

to adopt a Basel II-based standardized 

approach. The press release noted that 

this new proposal would replace the 

Basel IA option. 

Recommendation: The agencies have 

stated their intention to make the 

standardized proposal optional. Banking 

organizations in most cases would have 

the option of selecting the regulatory 

capital framework—the existing Basel I 

rules or the standardized approach or 

the Basel II advanced approaches. Thus, 

the federal banking agencies believe that 

potential revisions to the Basel I capital 

rules do not create undue regulatory 

burden for most banking organizations, 

including highly capitalized community 

banks. 

m. Community Reinvestment Act 

‘‘Sunshine Rules’’

Issue: Should the Community 

Reinvestment Act (CRA) Sunshine rules 

be repealed? 

Context: Section 711 of the GLBA 

added a new section 48 to the Federal 

Deposit Insurance Act (12 U.S.C. 

1831y), entitled ‘‘CRA Sunshine 

Requirements,’’ which has been 

implemented by regulations adopted by 

each federal banking agency.27 This 

section requires nongovernmental 

entities or persons, depository 

institutions, and affiliates of depository 

institutions that are parties to certain 

agreements that are in fulfillment of the 

CRA to make the agreements available 

to the public and the appropriate agency 

and to file annual reports concerning 

the agreements with the appropriate 

agency. The types of agreements that 

could be covered by the statute include: 

• Written agreements providing for 

cash payments, grants, or other 

consideration (except loans) with an 

aggregate value in excess of $10,000 in 

a calendar year; or 

• Loans to one or more individuals or 

entities (whether or not parties to the 

agreement) that have an aggregate 

principal amount of more than $50,000 

in any calendar year. 

Comments: During the EGRPRA 

review process, both bankers and 

community advocates supported repeal 

of these requirements. Bankers generally 

commented that the burden of 

compliance outweighs any benefit of the 

reporting requirements. Community 

advocates expressed concern about the 

government’s monitoring the amount of 

funding they receive as a result of bank 

efforts to fulfill CRA obligations. 

Recommendation: All of the federal 

banking agencies supported repeal of 

these statutory requirements last year 

when Congress was considering 

regulatory burden relief proposals to 

include in the FSRRA. This change 

would reduce regulatory burden on 

depository institutions, 

nongovernmental entities (such as 

consumer groups) and other parties to 

covered agreements as well as the 

agencies. 

n. Equal Credit Opportunity Act 

(Regulation B) 

Issues: 

(1) Should the federal banking 

agencies provide additional guidance on 

fair lending issues, such as when two 

individuals demonstrate sufficient 

evidence that they are applying jointly 

for credit so the creditor may require the 

signature of both individuals? 

(2) Should the requirements for 

‘‘adverse action’’ notices under the 

Equal Credit Opportunity Act (ECOA) 

be changed to make it easier to 

determine the circumstances in which 

an adverse action notice is required? 

(3) Should the Board’s Regulation B 

be amended to eliminate requirements 

that institutions collect data on 

applicants’ race, ethnicity, and gender, 

leaving HMDA as the only requirement 

for collection of similar data? 

Alternatively, should Regulation B be 

amended so that, if a consumer opts not 

to provide information on race, 

ethnicity, and gender, the lender is not 

required to collect the information on 

the basis of visual observation or 

surname? 

Context: The primary federal fair 

lending statute, ECOA, is implemented 

through the Board’s Regulation B. The 

Board’s Official Staff Commentary to 

Regulation B provides additional 

guidance. Each federal banking agency 

enforces the requirements of ECOA with 

respect to the creditors for which such 

agency is the primary federal 

supervisor. The Board completed a 

comprehensive review of Regulation B 

and the Commentary in 2003. The 

federal banking agencies also have 

worked together to provide guidance on 

fair lending issues, particularly 

examiner guidance on conducting 

compliance and fair lending 

examinations at the institutions the 

agencies supervise. The federal banking 

agencies address matters involving more 

fact specific fair lending issues on a 

case-by-case basis. 

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Guidance on Fair Lending Issues. 

Regulation B provides that a creditor 

may not require a signature of a loan 

applicant’s spouse or other individual if 

that applicant qualifies independently 

for the credit. This restriction, however, 

does not apply to applications that are 

filed jointly by two or more individuals. 

The regulation states that a creditor may 

not deem the submission of a joint 

financial statement as evidence of intent 

to apply jointly. Thus, the issue arises 

as to what constitutes evidence of intent 

to apply for joint credit. The Board 

addressed the issue involving the 

ambiguity of when there is evidence of 

intent to apply for credit as joint 

applicants in its 2003 review of 

Regulation B. The Board adopted an 

amendment to the Commentary to 

provide additional guidance on how a 

consumer can establish intent to apply 

jointly for credit. Since that time, Board 

staff has responded on a case-by-case 

basis to requests for clarification of ways 

consumers can establish intent to apply 

jointly for credit, which appears to have 

adequately clarified the matter. 

‘‘Adverse Action’’ Notice 

Requirements. Financial institutions 

must provide an adverse action notice to 

an applicant if a credit application is 

denied. The determination of when a 

credit application exists—as opposed to 

a general credit inquiry or evaluation—

and under what circumstances it is 

considered to have been denied, has 

been the subject of questions. In the 

comprehensive review of Regulation B, 

discussed in the response to the 

preceding issue, the Board amended the 

Official Staff Commentary to Regulation 

B to provide additional guidance on the 

circumstances under which a general 

credit inquiry or a prequalification 

request can be considered an 

application for purposes of Regulation 

B. The additional guidance included 

new examples of when communications 

with consumers are considered 

applications. In the review of Regulation 

B, the Board also considered adopting a 

bright-line test for deciding whether an 

application exists. After carefully 

considering the benefits and drawbacks 

of a bright-line test, the Board decided 

at the time not to adopt such a test. 

While a bright-line test might provide 

clarity in some situations, it also would 

risk including as applications some 

situations that should not be included 

(for example, credit counseling in which 

a consumer’s credit report is obtained). 

A bright-line test might also exclude 

some situations that should be covered 

because lenders might inform 

consumers that they do not qualify for 

credit even when consumers have not 

submitted a formal application. 

Information on Applicants’ Race, 

Ethnicity, and Gender for Regulation B 

and HMDA. Regulation B requires some 

collection of data that is not required 

under HMDA, including data on age and 

marital status. Thus, if all Regulation B 

monitoring requirements were 

eliminated, the age and marital status 

data would no longer be available to 

monitor lenders’ compliance with fair 

lending law provisions that prohibit 

discrimination based on age or marital 

status. In addition, some lenders that are 

covered by Regulation B are not covered 

by HMDA; therefore, if the suggested 

change were adopted, no applicant data 

would be available for such lenders for 

the purpose of monitoring fair lending 

compliance. 

In addition, if lenders were not 

required to note applicant information 

in cases where the applicant does not 

provide such information, the data 

available for monitoring fair lending 

compliance might be significantly 

incomplete, causing problems for fair 

lending enforcement. 

Recommendation: For the reasons 

summarized above, generally the federal 

banking agencies have not supported 

changing ECOA in the manner 

discussed above. 

o. Electronic Fund Transfer Act 

(Regulation E) 

Issues: 

(1) Should the Regulation E limits on 

consumer liability for unauthorized 

electronic fund transfers be increased? 

(2) Can the requirement for periodic 

statements be eliminated in some cases 

(e.g., where the consumer has online 

access to account information), or can 

the required frequency of periodic 

statements be reduced in some cases 

(such as where there is no electronic 

fund transfer activity)? 

Context: The Electronic Fund Transfer 

Act (EFTA) is implemented through the 

Board’s Regulation E. Each Agency 

enforces the requirements of the EFTA 

with respect to the institutions for 

which such agency is the primary 

federal supervisor. 

Increasing Regulation E Limits on 

Consumer Liability for Unauthorized 

Electronic Fund Transfers. The limits on 

consumer liability specified in the 

Board’s Regulation E are required by 

and set forth in the EFTA. When the 

EFTA was enacted, Congress made a 

determination that placing strict limits 

on consumer liability for unauthorized 

transfers would serve as an incentive for 

financial institutions to develop more 

secure electronic fund transfer systems, 

as well as protect consumers from 

serious losses. Nevertheless, the EFTA 

gives consumers an incentive to guard 

their debit cards and personal 

identification numbers (PINs), because 

the consumer may be liable for a share 

of an unauthorized transaction. 

Comments: Some commenters 

suggested tightening the rules on 

consumer liability to include a 

negligence standard under which a 

consumer who violated the standard 

may have greater liability for the loss or 

theft. Another commenter 

recommended generally increasing the 

consumer’s liability from $50 to $250. 

Consumer group commenters suggested 

that institutions should not be permitted 

to place the burden of proof on a 

consumer regarding a claim of an 

unauthorized transfer and should be 

required to reimburse the consumer 

unless the institution can prove that the 

transfer was authorized. 

Recommendation: Given Congress’s 

goal of providing adequate incentives to 

both consumers and financial 

institutions to reduce risks, before 

increasing the limits on consumer 

liability serious consideration should be 

given to whether a higher limit would 

be appropriate or achieve the goal of 

relieving unnecessary burden. When the 

FSRRA was being considered in 2006, 

some proposed increasing the consumer 

liability under Regulation E from $50 to 

$500 for unauthorized transfers 

resulting from writing a PIN on a card 

or keeping the PIN in the same location 

as the card. The federal banking 

agencies generally did not support this 

amendment. 

Periodic Statement Requirements. The 

Board has issued a number of proposals 

and interim rules under Regulation E 

over the past several years for the 

purpose of facilitating, and providing 

standards for, the use of electronic 

disclosures (including electronic 

periodic statements). In 2000, the 

Electronic Signatures in Global and 

National Commerce Act (E-Sign Act) 

was enacted to authorize the use of 

electronic records (including electronic 

consumer disclosures) with consumers’

consent. Both the E-Sign Act and the 

Board’s rules already provide for online 

periodic statements; therefore, paper 

statements are no longer required. Thus, 

it may not be necessary to completely 

eliminate the periodic statement 

requirement to reduce regulatory burden 

and the use of paper. In addition, in 

August 2006, the Board issued a final 

rule clarifying the application of 

Regulation E to payroll card accounts. 

The final rule grants flexibility to 

financial institutions in providing 

account information to payroll card 

users. Under the rule, institutions are 

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28 66 FR 37602, July 19, 2001. 

29 69 FR 5729, February 6, 2004. 

30 69 FR 51155, August 18, 2004. 

31 69 FR 51611, August 20, 2004. 

not required to provide periodic paper 

statements for payroll card accounts if 

the institution makes account 

information available by telephone and 

electronically, and upon the consumer’s 

request, in writing. 

On the frequency of periodic 

statements, Regulation E permits 

quarterly statements (in place of 

monthly) where there is no electronic 

fund transfer activity (or no electronic 

fund transfer activity except for direct 

deposits). However, some consumers 

may need periodic statements even 

where there is no electronic fund 

transfer activity. For example, the 

consumer may have expected an 

electronic deposit to an account and 

may not know until receiving the 

statement that it failed to occur. 

Comments: Commenters suggested 

that, in the case of consumers who have 

online or telephone access to monitor 

their accounts and transactions daily, 

the requirement for a monthly or 

quarterly periodic account statement is 

unnecessary. A commenter contended 

that the requirement to provide periodic 

statements quarterly for accounts with 

electronic access but no activity is 

unduly burdensome and suggested that 

the agencies amend the rule to allow for 

semiannual or annual statements in 

such cases. 

Recommendation: The federal 

banking agencies believe that additional 

study would be necessary before making 

any recommendations for legislative 

changes or pursuing additional 

regulatory changes with respect to the 

frequency of periodic statements. 

p. Truth in Savings Act (Regulation DD) 

Issue: Should Truth in Savings Act 

(TISA) disclosures be revised to 

streamline, simplify, and improve the 

effectiveness of the disclosures, and to 

make them more understandable for 

consumers? 

Context: The Board’s Regulation DD 

implements TISA. However, each 

federal banking agency enforces the 

requirements of TISA with respect to 

the institutions for which such agency 

is the primary federal supervisor. The 

current Board policy provides that the 

Board must conduct a periodic review 

of its regulations, including Regulation 

DD, to update and, where appropriate, 

streamline them. 

Comments: Many industry 

commenters asserted that their 

customers pay little attention to the 

TISA disclosures and, thus, the 

disclosure requirements impose 

unnecessary and burdensome costs on 

the industry. A consumer group 

suggested that the TISA disclosures 

should be required to be made available 

on financial institutions’ Web sites. 

Recommendation: The Board will 

consider suggestions for improving 

TISA disclosures during the next 

periodic review of Regulation DD. As a 

result, the federal banking agencies will 

wait until such review is completed 

before making any recommendations on 

this issue. 

C. Other Joint Agency Initiatives 

For many years, the Agencies have 

had programs in place to periodically 

review their regulations in an effort to 

eliminate any outdated or unnecessary 

regulations and to otherwise amend 

their regulations to better meet the 

Agencies’ objectives, while minimizing 

regulatory burden. From previous 

reviews and as part of the EGRPRA 

review, certain issues were deemed 

‘‘significant’’ in terms of being viewed 

by the industry as being particularly 

burdensome. 

Pursuant to the Riegle Community 

Development and Regulatory 

Improvement Act of 1994 (CDRI), the 

federal banking agencies conducted a 

systematic review of their regulations 

and written policies to improve 

efficiency, reduce unnecessary costs and 

eliminate inconsistencies and outmoded 

and duplicative requirements. CDRI also 

directed the federal banking agencies to 

work jointly to make uniform all 

regulations and guidelines 

implementing common statutory or 

supervisory policies. As a result of the 

CDRI review that was completed in 

1996, the federal banking agencies 

either jointly or individually rescinded 

or revised many rules and regulations. 

The federal banking agencies also have 

continued to incorporate the principles 

of CDRI into their regulatory policy 

development and periodically report 

these accomplishments to Congress. 

Subsequently, the EGRPRA statute 

modified numerous regulatory 

requirements and procedures affecting 

the Agencies, financial institutions and 

consumers. The law: 

• Streamlined application and notice 

requirements in a number of areas, such 

as nonbanking acquisitions by wellmanaged and well-capitalized bank 

holding companies; 

• Allowed a 60-day period (with a 30- 

day extension) for FDIC consideration of 

completed applications from a state 

bank or its subsidiary to engage in an 

activity that is not permissible for a 

national bank; 

• Directed each federal banking 

agency to coordinate examinations and 

consult with each other to resolve 

inconsistencies in recommendations to 

be given to an institution, and to 

consider appointing an examiner-incharge to ensure the consultation takes 

place; 

• Provided in cases of coordinated 

examinations of institutions with statechartered subsidiaries, that the lead 

agency could be the state chartering 

agency; 

• Required reports from all banking 

regulators on actions taken to eliminate 

duplicative or inconsistent accounting 

or reporting requirements in statements 

or reports from regulated institutions. 

Certain significant burden reduction 

initiatives were already underway 

outside of the EGRPRA review process 

and are detailed below. 

1. Community Reinvestment Act 

Interagency Rulemaking 

When revised CRA rules were 

published in 1995, the federal banking 

agencies committed to undertake a 

comprehensive review of the regulations 

to ascertain whether the performancebased evaluation standards established 

by the revised rules had, among other 

things, minimized compliance burden. 

In July 2001, the federal banking 

agencies published a joint ANPR 

seeking comment to determine whether, 

and to what extent, the regulations 

should be amended to eliminate 

unnecessary burden as well as other 

issues.28 In February 2004, after a 

review of the comments received on the 

ANPR, the federal banking agencies 

issued a joint NPR proposing changes to 

the regulations to reduce undue 

regulatory burden by changing the 

definitions of a ‘‘small bank’’ and a 

‘‘small savings association’’ (which may 

qualify for a streamlined CRA 

evaluation) and to address abusive 

lending practices.29

On August 18, 2004, OTS published 

a final rule raising the small savings 

association asset threshold from $250 

million to $1 billion (without 

consideration of holding company 

affiliation).30 Also in August 2004, the 

FDIC published a proposed rule to raise 

the CRA small bank threshold to $1 

billion without consideration of holding 

company affiliation and add a 

community development test for 

institutions between $250 million and 

$1 billion in assets.31 In March 2005, the 

FDIC, the OCC, and the Board published 

a joint NPR (the March 2005 proposal) 

to (1) raise the small bank asset 

threshold to $1 billion, (2) eliminate 

data collection and reporting of small 

business, small farm, and community 

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32 70 FR 12148, March 11, 2005. 

33 70 FR 44256, August 2, 2005. 

34 70 FR 68450, November 19, 2005. 

35 71 FR 12424, March 10, 2006. 

36 70 FR 10023, March 2, 2005. 

37 71 FR 18614, April 12, 2006. 

38 71 FR 18807, April 12, 2006. 

39 71 FR 52375, September 5, 2006. 

development loans, (3) rationalize the 

performance tests to allow for more 

flexibility in meeting CRA goals, and (4) 

add a community development test for 

institutions between $250 million and 

$1 billion in assets.32 The proposal also 

provided an annual inflation adjustment 

for these thresholds. In response to the 

NPR, a combined total of 10,000 

comments were received on the March 

2005 proposal. 

After considering comments, the 

Board, FDIC, and OCC adopted a joint 

final rule on August 2, 2005.33 The 

changes took effect September 1, 2005. 

The final rule sought to balance the 

need to provide meaningful regulatory 

relief to small banks and the need to 

preserve and encourage meaningful 

community development activities by 

those banks. The final rule raised the 

small bank threshold to $1 billion 

without consideration of holding 

company affiliation. These banks are no 

longer required to collect and report 

CRA loan data, responding to 

community bank concerns about 

unnecessary burden. The new rule also 

added an intermediate small bank 

examination process for banks with 

$250 million to $1 billion in assets. 

Under the new rule, these dollar 

thresholds are adjusted annually for 

inflation. The staff of the three agencies 

issued questions and answers for 

comment in November 2005 to address 

revisions to the regulations.34 After 

review of the comments, in March 2006, 

the staff of the Board, FDIC, and OCC 

issued final questions and answers.35

OTS issued a final rule effective April 

1, 2005, providing additional flexibility 

to each savings association evaluated 

under the large retail institution test to 

determine the combination of lending, 

service and investment it will use to 

meet the credit needs of its local 

community(ies), consistent with safe 

and sound operations.36 The final rule 

allows savings associations to select any 

combination of weights assigned to 

lending, service and investment, as long 

as the weights total 100 percent and 

lending receives no less than a 50 

percent weight. 

In an April 12, 2006, final rule, OTS 

revised the definition of ‘‘community 

development,’’ making its definition 

consistent with that of the other 

agencies.37 On that same date, OTS also 

issued a notice soliciting comments on 

proposed questions and answers 

guidance related to the final rule.38 OTS 

finalized the proposed questions and 

answers on September 5, 2006.39

On November 24, 2006, OTS issued 

an NPR to revise its rule implementing 

CRA for interagency uniformity. The 

NPR was issued to solicit comment on 

whether OTS should revise its CRA rule 

to align with the CRA rules of other 

federal banking agencies. The proposal 

would eliminate alternative weights, 

add an intermediate small savings 

association examination for savings 

associates with assets between $250 

million and $1 billion, adjust the asset 

thresholds annually for inflation, and 

incorporate a provision on 

discriminatory or other illegal practices. 

The comment period closed on January 

23, 2007. OTS adopted a final rule on 

March 22, 2007, with an effective date 

for the rule of July 1, 2007. 

2. Call Report Modernization 

The FFIEC Central Data Repository 

(CDR) was successfully implemented on 

October 1, 2005. The CDR is designed to 

consolidate the collection, validation 

and publication of quarterly bank 

financial reports. All national, state 

member, and state non-member banks, 

including FDIC-insured state savings 

banks, were enrolled in the CDR and 

started using the CDR to file their 

financial reports via the Internet 

beginning with the third quarter of 

2005. The CDR employs new technology 

that uses the eXtensible Business 

Reporting Language (XBRL) data 

standard to streamline the collection, 

validation, and publication of Call 

Report data. Over 7,900 financial 

institutions used the CDR to file their 

financial reports for the fourth quarter of 

2006 via the Internet. The initial quality 

of the data was much higher than in 

previous quarters, which speeded the 

availability of the data to regulatory 

financial analysts and ultimately the 

public, thereby fulfilling one of the 

overarching goals of the CDR project. 

Higher data integrity, accuracy, and 

consistency will help to increase the 

efficiency with which the data can be 

collected, analyzed, and released to the 

public. 

3. BSA/AML Compliance Outreach to 

the Banking Industry 

The Agencies have conducted 

significant outreach to the banking 

industry in the area of BSA/AML 

compliance, with the goal of enhancing 

the clarity and consistency of regulatory 

requirements and supervisory 

expectations. In addition to engaging in 

dialogue with supervised banking 

organizations through the examination 

process, the Agencies have conducted 

outreach through various channels, such 

as conferences and training events 

sponsored by the Agencies or by trade 

associations. For example, in September 

2006, the Agencies (in coordination 

with FinCEN and OFAC) hosted a series 

of conference calls to discuss the 

changes to the FFIEC BSA/AML 

Examination Manual and to provide 

financial institutions with the 

opportunity to raise questions. 

Approximately 10,500 financial 

institution personnel participated in 

these calls. 

4. Regulatory Relief for Banks and 

Customers in the Hurricane Disaster 

Areas 

The FFIEC established a special 

FFIEC Interagency Katrina Working 

Group to facilitate the coordination, 

communication, and response to 

financial institution supervisory issues 

arising in the aftermath of Hurricanes 

Katrina and Rita. State supervisors on 

the FFIEC State Liaison Committee also 

were invited to participate. Interagency 

efforts to help New Orleans and the Gulf 

region recover from the hurricane 

devastation included guidance on the 

establishment of temporary branches 

and branch- and employee-sharing 

arrangements. Efforts also included 

guidance on published responses to 

interagency frequently asked questions 

on additional topics including the CRA, 

BSA, and various operational issues, 

including regulatory reporting 

requirements. Agencies created Web 

sites with Hurricane Katrina and Rita 

disaster-related links, including FFIEC 

issuances for financial institutions, their 

customers, and employees who were 

impacted by the disasters. Other links 

provided were to disaster recovery and 

assistance agencies and trade 

associations with information for 

victims. In addition, telephone 

‘‘hotlines’’ were set up and information 

provided regarding financial institution 

locations, contact information, and 

general disaster assistance information. 

By relaxing certain documentation, 

notification and reporting requirements, 

the Agencies helped the affected 

institutions to continue operating 

during the days, weeks, and months 

following the disaster. For example, the 

Agencies immediately issued joint 

guidance asking insured depository 

institutions to consider all reasonable 

and prudent steps to assist customers’

cash and financial needs in areas 

affected by the hurricane. Among the 

actions the Agencies encouraged 

institutions to consider were: 

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40H.R. 3505, 109th Congress, section 617 (2006). 

• Waiving ATM fees for customers 

and non-customers; 

• Increasing ATM daily cash 

withdrawal limits; 

• Easing restrictions on cashing outof-state and non-customer checks; 

• Waiving overdraft fees as a result of 

paycheck interruption; 

• Waiving early withdrawal penalties 

on time deposits; 

• Waiving availability restrictions on 

insurance checks; 

• Allowing customers to defer or skip 

some loan payments; 

• Waiving late fees for credit cards 

and other loans due to interruption of 

mail and/or billing statements, or the 

customer’s inability to access funds; 

• Easing credit card limits and credit 

terms on new loans; 

• Delaying delinquency notices to 

credit bureaus; and 

• Encouraging institutions to use nondocumentary customer verification 

methods for customers that are not able 

to provide standard identification 

documents. 

Finally, the federal banking agencies 

issued examiner guidance and a 

subsequent reminder making it clear 

that an institution retains flexibility in 

its workout or restructuring 

arrangements with customers in the 

disaster areas. 

5. Reducing Examination Frequency 

On April 10, 2007, the federal banking 

agencies jointly issued and requested 

comment on their respective interim 

rules to implement section 605 of the 

FSRRA (see Appendix I–A) enacted on 

October 13, 2006, and a subsequent 

conforming amendment enacted on 

January 11, 2007. (See 72 FR 17798, 

April 10, 2007.) The changes to the law 

made by this legislation give the 

agencies the discretion to conduct onsite examinations, on 18-month cycles 

rather than annual cycles, of highly 

rated insured depository institutions 

that have less than $500 million in total 

assets. Prior law allowed 18-month 

examination cycles only for such 

qualifying insured depository 

institutions with less than $250 million 

in total assets. In addition to reducing 

the burden on small, well-capitalized, 

and well-managed insured depository 

institutions, the changes to the law 

allow the federal banking agencies to 

better focus their supervisory resources 

on those institutions that may present 

issues of supervisory concern. The 

agencies’ interim rules became effective 

on April 10, 2007, and the comment 

period closed on May 10, 2007. 

6. Examination Programs 

The Agencies have worked together to 

implement programs that improved 

regulatory risk-assessment capabilities 

and streamlined examinations and other 

supervisory functions. For example, as 

early as 1998, the FDIC, the Board, and 

CSBS worked together to develop and 

implement examination software 

applications that integrated information 

from various automated systems to 

assist in the preparation of an 

automated examination report. This 

cooperation promoted consistency 

among the Agencies and reduced 

regulatory burden on state-chartered 

banks. The same Agencies also formed 

a steering committee to better 

coordinate risk-focused examination 

procedures. The Agencies continue to 

work together to improve upon these 

examination tools. Since 1994, the 

Agencies have used a common core 

report of examination to promote 

interagency consistency and reduce 

regulatory burden. 

7. Privacy Notices 

Section 728 of the FSRRA requires 

that the Board, OCC, FDIC, OTS, NCUA, 

FTC, SEC, and Commodity Futures 

Trading Commission (CFTC) publish a 

proposed model privacy notice that is 

clear and comprehensive for public 

comment within 180 days of enactment. 

Section 728 of the FSRRA provides that 

the model notice will provide a safe 

harbor for the financial institutions that 

use it. Further, financial institutions 

may, at their option, use the model 

notice to satisfy the privacy notice 

requirements of the GLBA. The Board, 

OCC, FDIC, OTS, NCUA, FTC, SEC, and 

CFTC have developed a proposed model 

notice, which was published for public 

comment in March 2007 (earlier than 

required by the 180-day deadline) (72 

FR 14940). 

Efforts to simplify privacy notices 

have been underway for some time. In 

2003, the Board, OCC, FDIC, OTS, 

NCUA, FTC, SEC, and CFTC published 

an ANPR in which they sought 

comment on simplifying privacy 

notices. After reviewing the comments 

received from the ANPR, the Board, 

OCC, FDIC, NCUA, FTC, and SEC 

engaged experts in plain language 

disclosures and consumer testing to 

assist them in developing a simple and 

comprehensible notice. That notice is 

now the one being proposed by the 

Board, OCC, FDIC, OTS, NCUA, FTC, 

SEC, and CFTC to fulfill the 

requirements of section 728 of the 

FSRRA. 

In addition, during the consideration 

of amendments to be included in the 

FSRRA, Congress considered a proposal 

that would, subject to certain 

conditions, allow a financial institution 

to avoid having to provide an annual 

privacy notice to consumers, if the 

financial institution (1) did not disclose 

nonpublic personal information in a 

manner that would be subject to a 

consumer’s right to opt out under 

applicable laws and (2) had not changed 

its privacy policies and procedures from 

the policies and procedures stated in the 

last notice that was provided to 

consumers. The annual notice, when 

required, must provide information 

about the institution’s policies and 

procedures with respect to disclosing 

nonpublic personal information about 

consumers consistent with the 

customer’s right to opt out of such 

disclosures under applicable statutes 

and regulations. The federal banking 

agencies generally supported this 

amendment. While this amendment was 

not included in the FSRRA as enacted, 

it was included in the House-passed 

version of this bill 40 and may be again 

considered by Congress in the future. 

D. Individual Agency Efforts To Reduce 

Regulatory Burden 

During the EGRPRA process, the 

federal banking agencies individually 

undertook efforts to reduce regulatory 

burden on institutions that they 

supervise and regulate. These initiatives 

took many forms, ranging from 

regulatory changes, streamlining of 

supervisory processes, and revisions of 

agency handbooks. Together, these 

efforts contributed significantly to the 

central goal of EGRPRA: Elimination of 

unnecessary regulatory burden on 

financial institutions. 

1. The Board of Governors of the Federal 

Reserve System 

During the EGRPRA review period, 

the Board has undertaken a number of 

initiatives to reduce unnecessary 

regulatory burden on the financial 

organizations it regulates and 

supervises. Such initiatives included 

revisions of various aspects of the 

Board’s supervisory, regulatory, 

monetary policy, payments, and 

consumer protection rules, procedures, 

and guidance. In connection with its 

regulations and supervisory processes, 

the Board will continue to identify 

appropriate regulatory and supervisory 

revisions to reduce unnecessary burden 

while ensuring the safety and soundness 

of institutions, protecting the integrity 

of the financial payment systems, and 

safeguarding consumer protections. 

a. Supervisory Initiatives. In 2006, the 

Board approved a final rule that 

expands the definition of a small bank 

holding company (small BHC) under the 

Board’s Small Bank Holding Company 

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41 12 CFR 223. 

42 12 U.S.C. 371c, 371c–1. 

Policy Statement (Policy Statement) and 

the Board’s risk-based and leverage 

capital guidelines for BHCs (Capital 

Guidelines). The Board revised its 

Policy Statement to raise the small BHC 

asset size threshold from $150 million 

to $500 million and to amend the 

qualitative criteria for determining 

eligibility as a small BHC for the 

purposes of the Policy Statement and 

the Capital Guidelines. Additionally, 

the Board revised its regulatory 

financial reporting requirements so that 

qualifying small BHCs will only be 

required to file parent-only financial 

data on a semiannual basis (FR Y–9SP). 

These changes significantly increased 

the number of bank holding companies 

that are exempt from the Board’s 

consolidated capital rules and that may 

benefit from more streamlined reporting 

requirements. The amendments to the 

threshold and the qualitative criteria 

reflect changes in the industry since the 

initial issuance of the policy statement 

in 1980. 

In addition, the Board revised its 

guidance to examiners on the format of 

examination reports for community 

banking organizations in order to better 

focus examination findings on matters 

of risk and importance to the bank’s 

overall financial condition. The Board 

designed the revisions to improve 

communications with bank management 

and boards of directors and to minimize 

burden on banking organizations. The 

revisions require the incorporation of 

findings of specialty examinations into 

the safety and soundness conclusions to 

provide a more comprehensive 

assessment. 

To further enhance its risk-focused 

supervision program, the Board 

implemented revised procedures for the 

supervision of bank holding companies 

with total consolidated assets of $5 

billion or less. The revisions to the bank 

holding company supervision 

procedures promote more effective use 

of targeted on-site reviews to fulfill the 

requirements, when necessary, for the 

full scope inspections of holding 

companies with total consolidated 

assets between $1 billion and $5 billion. 

Additionally, the revisions to the 

supervisory procedures promote a 

flexible approach to supervising bank 

holding companies and are designed to 

enhance the overall effectiveness and 

efficiency of the System’s supervisory 

efforts for these institutions. 

The Board also worked to revise the 

principles and goals initially adopted by 

the Nationwide State Federal 

Supervisory Agreement (Agreement) 

governing how state and federal banking 

agencies coordinate the supervision of 

interstate banks. This revised 

Agreement reinforces the longstanding 

commitment of federal and state 

agencies to provide efficient, effective, 

and seamless oversight of state banks of 

all sizes, including those institutions 

that operate in more than one state. 

Additional objectives of the Agreement 

are to ensure that supervision is flexible 

and risk-focused and minimizes 

regulatory burden and cost for covered 

institutions. Recommended supervisory 

practices also address aspects of the 

ongoing and rapid transition of the 

banking industry that have presented 

challenges (such as continued 

consolidation and engagement in more 

complex or specialized activities in 

order to remain competitive). 

In an effort to better align the 

supervisory rating system for bank 

holding companies, including financial 

holding companies, with the Board’s 

current supervisory practices, the Board 

implemented a revised BHC rating 

system that: 

• Emphasizes risk management, 

• Introduces a more comprehensive 

and adaptable framework for analyzing 

and rating financial factors, and 

• Provides a framework for assessing 

and rating the potential impact of the 

parent holding company and its nondepository subsidiaries on the 

subsidiary depository institution(s). 

Given that the revised rating system is 

consistent with current supervisory 

practices, the revisions are generally not 

expected to have an effect on the 

conduct of inspections, nor add to the 

supervisory burden of supervised 

institutions. Rather, the revised rating 

system will better communicate the 

supervisory findings of examination 

staff to both supervised institutions and 

the Board’s staff. 

b. Transactions with Affiliates. In 

2002, the Board adopted in final form 

Regulation W41 to implement, in a 

comprehensive fashion, the restrictions 

imposed by sections 23A and 23B of the 

Federal Reserve Act.42 These sections, 

which impose limits and conditions on 

lending and certain other transactions 

between a bank and its affiliates, are a 

key component of the supervisory 

framework for all banks. The Board’s 

purpose in adopting a regulation that, 

for the first time, comprehensively 

implemented these restrictions was, 

among other things, to simplify the 

interpretation and application of 

sections 23A and 23B by banking 

organizations, allow banking 

organizations to publicly comment on 

Board and staff interpretations of 

sections 23A and 23B, and minimize 

burden on banking organizations. 

c. Regulation Y: Bank Holding 

Companies and Financial Holding 

Companies. The Board has made 

significant revisions to Regulation Y 

since the passage of EGRPRA that have 

substantially reduced regulatory burden 

on bank holding companies and 

significantly reduced processing times 

for applications/notices filed under 

Regulation Y. For example, in 1997, the 

Board adopted comprehensive 

amendments to its Regulation Y that 

significantly reduced regulatory burden 

by streamlining the application/notice 

process and operating restrictions on 

bank holding companies. The revisions 

included a streamlined and expedited 

review process for bank acquisition 

proposals by well-run bank holding 

companies and implemented changes 

enacted by EGRPRA that eliminated 

certain notice and approval 

requirements and reduced other 

requirements for nonbanking proposals 

by such companies. In addition, the 

Board expanded the list of permissible 

nonbanking activities and removed a 

number of restrictions on such 

activities. The revisions also amended 

the tying restrictions and included 

many other changes to Regulation Y to 

eliminate unnecessary regulatory 

burden. 

In 2001, the Board also revised 

Regulation Y to implement changes 

enacted by the GLBA, which further 

significantly reduced regulatory burden 

on the nonbanking activity proposals of 

bank holding companies who elect 

financial holding company status. These 

revisions: 

• Provided an expeditious approach 

to the election process to become a 

financial holding company, 

• Identified the expanded types of 

nonbanking activities that are 

permissible for financial holding 

companies, and 

• Provided a post-notice procedure 

for engaging in such activities. 

During that year, the Board also 

adopted revisions to Regulation Y 

implementing the new authority for 

financial holding companies to engage 

in merchant banking activities and 

permitting financial holding companies 

to act as a ‘‘finder’’ in bringing together 

buyers and sellers for transactions that 

the parties themselves negotiate and 

consummate. 

In 2003, the Board again amended 

Regulation Y to expand the types of 

commodity derivative activities 

permissible for all bank holding 

companies. In particular, these 

amendments permitted bank holding 

companies to (1) take and make delivery 

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43 12 CFR part 211. 

44 In 2002, the Board issued (and has since 

revised) application forms (collectively known as 

the FR K–2) to be used by FBOs when seeking 

regulatory authorizations under Regulation K. 

These replaced and significantly enhanced an 

informal set of staff questions to which FBOs 

routinely responded when seeking such 

authorizations. The Board also modified (and has 

since revised) the FR K–1, consisting of forms to be 

used by U.S. banking organizations seeking 

authorization to conduct or expand foreign 

operations, to reflect the enhancements to 

Regulation K. 

of title to the commodities underlying 

commodity derivative contracts on an 

instantaneous, pass-through basis and 

(2) enter into certain commodity 

derivative contracts that do not require 

cash settlement or specifically provide 

for assignment, termination or offset 

prior to delivery. Also in 2003, the 

Board adopted a final rule that 

expanded the ability of all bank holding 

companies to process, store and 

transmit non-financial data in 

connection with their financial data 

processing, storage and transmission 

activities. 

Since 2003, the Board also has issued 

orders permitting various financial 

holding companies to engage in 

physical commodity trading activities 

on a limited basis as an activity that is 

complementary to the company’s 

financial commodity derivative 

activities. 

Since the Board’s revisions to 

Regulation Y in 1997 to streamline 

processing of nonbanking notices and 

since 2001 to implement the GLBA, 

there has been a dramatic decline in the 

number of nonbanking proposals that 

require Federal Reserve System 

approval. Therefore, there has been a 

substantial reduction of regulatory 

burden on bank holding companies 

engaged in nonbanking activities. 

The Board is in the process of 

identifying additional revisions to 

Regulation Y that would clarify 

regulatory requirements and reduce 

regulatory burden for bank holding 

companies and financial holding 

companies where appropriate. In 2007, 

the Board expects to issue an NPR to 

solicit comments on those proposed 

revisions. 

d. International Banking Initiatives. 

Since 1997, the Board has made a 

number of enhancements to Regulation 

K 43 governing foreign operations of U.S. 

banking organizations and the U.S. 

operations of foreign banking 

organizations (FBOs) to reduce 

regulatory burden, streamline the 

authorization process, and improve 

agency transparency. 

(1) Comprehensive Amendments to 

Regulation K. In October 2001, 

following a rulemaking initiated in 

1997, the Board approved 

comprehensive revisions to Regulation 

K, expanding the range of activities that 

U.S. banking organizations may conduct 

overseas and reducing associated 

processing times and filing 

requirements. For example, with respect 

to establishing foreign branches, an 

application requirement was replaced 

with a prior notice obligation, and the 

prior notice period was reduced from 45 

days to 30 days or, in some instances, 

12 days. General consent limits for 

investments in foreign subsidiaries or 

joint ventures were changed from an 

absolute dollar figure to a percentage of 

the investor’s capital, with higher 

percentages authorized for wellcapitalized and well-managed investors. 

The prior notice period applicable to 

foreign investments also was reduced 

from 45 days to 30 days. The scope of 

permissible nonbanking activities 

abroad was expanded, including in the 

areas of securities underwriting, 

dealing, and trading. In addition, the 

Board implemented statutory provisions 

authorizing member banks, with Board 

approval, to invest up to 20 percent of 

their capital and surplus in Edge and 

agreement corporations and the factors 

to be considered when making 

determinations on those requests. 

The revisions to Regulation K also 

streamlined the application procedures 

applicable to FBOs seeking to expand 

operations in the United States. With 

respect to the establishment of some 

U.S. offices by FBOs, the Board replaced 

an application requirement with a 45- 

day prior notice obligation; other office 

proposals became subject to general 

consent procedures. The Board also 

liberalized the provisions governing the 

qualification of FBOs for exemptions 

from the nonbanking provisions of the 

Bank Holding Company Act and 

implemented provisions of the RiegleNeal Interstate Banking and Branching 

Efficiency Act of 1994 addressing 

changes in home state of FBOs.44

(2) International Lending Supervision. 

In January 2003, the Board amended 

Regulation K to eliminate the 

requirements as to the particular 

accounting method to be followed in 

accounting for fees on international 

loans and require instead that 

institutions follow GAAP in accounting 

for such fees. 

e. Communication with Industry. The 

Federal Reserve strives to be as 

transparent as possible in 

communicating regulatory requirements 

and supervisory expectations to the 

institutions it supervises. In addition to 

making regulatory changes and policyrelated or supervisory issuances 

available on the Board’s public Web 

site, there is active and ongoing 

communication regarding regulatory 

requirements and supervisory 

expectations between supervisory staff 

at all Federal Reserve banks and the 

institutions in their Districts. Board 

members and senior management also 

participate regularly in meetings with 

bankers to provide insight regarding 

Federal Reserve regulatory and 

supervisory initiatives. 

The Federal Reserve also hosts and 

participates in various outreach efforts. 

Its wide-ranging efforts include sessions 

directed to supervision staff, formal 

seminars and dialogues with industry 

representatives, and informal meetings 

on focused issues designed to foster 

two-way dialogue with the industry to 

help ensure that open channels of 

communication remain efficient and 

effective. 

f. Payments, Reserves, and Discount 

Window Initiatives 

(1) Discount Window Lending 

(Regulation A) 

(a) Y2K Special Liquidity Facility. To 

address the possibility that depository 

institutions and their customers would 

experience unexpected credit and 

liquidity needs over the century date 

change period, the Board revised its 

Regulation A to implement a special 

limited-time discount window lending 

program. Under this Y2K special 

liquidity facility, Federal Reserve Banks 

offered credit at a rate 150 basis points 

above the Federal Open Market 

Committee’s targeted federal funds rate 

to eligible institutions to accommodate 

liquidity needs during the century date 

change period. The facility was 

available from October 1, 1999, to April 

7, 2000, and was intended to reduce 

potential market strains during that 

period and any attendant difficulties for 

depository institutions. 

(b) Redesign of Discount Window 

Lending Program. Effective January 9, 

2003, the Board also revised Regulation 

A to improve the operation of the 

discount window. Among other 

changes, the revisions replaced the 

existing adjustment credit program, 

which provided short-term credit at a 

below-market rate but only if the 

borrower had exhausted other funding 

sources and used the funds within 

prescribed limitations. The new primary 

credit program makes short-term credit 

available to generally sound institutions 

at an above-market rate, but with little 

or no administrative burden or use 

restrictions on the borrower. In addition 

to providing improved transparency and 

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reduced administrative burden to the 

discount window process, the revisions 

also reorganized and streamlined the 

regulatory language to make it easier to 

understand. 

(2) Check Collection (Regulation CC) 

(a) Y2K Extension of Time for MergerRelated Reprogramming. The Board’s 

Regulation CC allows merging 

depository institutions one year to 

combine their automation systems for 

check collection and funds availability 

purposes under Regulation CC. In the 

late 1990s, the Board recognized that 

depository institutions were dedicating 

significant automation resources to 

addressing Y2K computer problems and 

may have been challenged to make and 

test other programming changes, 

including those that needed to comply 

with Regulation CC’s merger transition 

provisions, without jeopardizing their 

Y2K programming efforts. Therefore, the 

Board amended Regulation CC to allow 

depository institutions that 

consummated a merger on or after July 

1, 1998, and before March 1, 2000, 

greater time to implement software 

changes related to the merger. 

(b) Implementation of the Check 21 

Act. Effective October 28, 2004, the 

Board adopted amendments to 

Regulation CC to implement the Check 

21 Act, a law that was based on a Board 

proposal to Congress and that the Board 

strongly supported. Electronic 

collection of checks often is faster and 

more efficient than collecting checks in 

paper form. However, prior to the Check 

21 Act, banks’ use of electronic check 

collection was impeded by the fact that 

paying banks, by law, could require 

presentment of original checks. The 

Check 21 Act and the Board’s 

implementing amendments authorized a 

new negotiable instrument, known as a 

substitute check, which is a special 

copy of the original check that, when 

properly prepared, is the legal 

equivalent of the original check. The 

Check 21 Act facilitated the ability of 

banks to send check-related information 

electronically for most of the check 

collection process because a bank that 

has the electronic check file now is able 

to provide a legally equivalent 

substitute check when and where an 

original check is needed. When it 

implemented the Check 21 Act, the 

Board made other clarifying changes to 

Regulation CC to make it easier for 

depository institutions to understand 

and comply with the regulation. 

(c) Remotely Created Checks. 

‘‘Remotely created checks’’ typically are 

created when the holder of a checking 

account authorizes a payee, such as a 

telemarketer, to draw a check on that 

account but does not actually sign the 

check. In place of the signature of the 

account-holder, the remotely created 

check generally bears a statement that 

the customer authorized the check or 

bears the customer’s printed or typed 

name. State laws vary with respect to 

whether or not the bank that holds the 

account from which a check is paid (the 

paying bank) has a warranty claim back 

against the bank of first deposit (the 

depositary bank) if the paying bank’s 

customer reports that a remotely created 

check is unauthorized. Effective July 1, 

2006, the Board amended Regulation CC 

to provide such a warranty claim for the 

paying bank. This amendment reduces 

the likelihood that paying banks 

ultimately will bear financial losses due 

to fraudulent remotely created checks 

and places responsibility for those 

checks on the bank whose customer 

deposited the check and who, therefore, 

is in the best position to detect and 

present the fraud. 

(3) Location of Federal Reserve 

Accounts (Regulations D and I). 

Statutory changes in the mid-1990s, 

such as the Riegle-Neal Interstate 

Banking and Branching Efficiency Act, 

eliminated many barriers to interstate 

banking. Consequently, the number of 

depository institutions that operated 

branches in more than one Federal 

Reserve District increased. On January 

2, 1998, the Federal Reserve Banks 

implemented a new account structure to 

provide a single Federal Reserve 

account for each domestic depository 

institution. 

Specifically, to provide increased 

flexibility to depository institutions in 

managing their operations in diverse 

geographic locations, the Board revised 

Regulations D and I to allow depository 

institutions with offices in multiple 

Federal Reserve districts to be able to 

request a determination from the Board 

that the institution is deemed to be 

located in a district other than the 

district of its charter location for 

purposes of reserve account location 

(Regulation D) and Federal Reserve 

membership (Regulation I). The 

amendments set out criteria that the 

Board would use in making such a 

determination, including the business 

needs of the bank; the location of the 

bank’s head office; the location of the 

bulk of the bank’s business; and the 

location that would allow the bank, the 

Board, and the Reserve Banks to 

perform their functions most efficiently 

and effectively. 

g. Consumer Regulatory Initiatives 

(1) Electronic Fund Transfers 

(Regulation E) 

(a) Error Resolution. Regulation E 

requires financial institutions to 

investigate and resolve consumer claims 

of error within prescribed time periods. 

In general, an institution must either 

resolve the claim within 10 business 

days or provisionally recredit the 

consumer’s account within that time 

and finally resolve the claim within 45 

calendar days. In 1998, the Board 

amended Regulation E to extend these 

deadlines from 10 business days to 20 

business days and from 45 calendar 

days to 90 calendar days in the case of 

new accounts, recognizing the higher 

fraud risk for new accounts and 

consequently institutions’ need for more 

time to investigate error claims. 

(b) Electronic Check Conversion. In 

2001, the Board issued amendments to 

the Official Staff Commentary to 

Regulation E relating to electronic check 

conversion. In electronic check 

conversion transactions, a payee uses a 

consumer’s check to initiate a one-time 

automated clearing house (ACH) debit 

to the consumer’s account, by capturing 

the routing, account, and check 

numbers from the magnetic ink 

character recognition (MICR) line on the 

check. The payee may be a merchant at 

point-of-sale (POS) or a bill payee 

receiving the check via a lockbox. The 

amendments provide that electronic 

check conversion transactions are 

covered by Regulation E and afford 

guidance on how particular regulatory 

requirements apply to such transactions. 

By providing clarification and guidance, 

the Board sought to facilitate greater use 

of electronic check conversion, which 

can provide benefits to consumers, 

creditors and other payees, and 

depository institutions. 

In 2006, the Board issued further 

amendments dealing with electronic 

check conversion, both to the 

Commentary and to Regulation E itself, 

to provide further clarification and 

guidance. One of these amendments 

permits payees to obtain a consumer’s 

authorization to use information from 

the check to initiate an electronic fund 

transfer or to process the transaction as 

a check, easing compliance for payees. 

(c) Stop-Payment Procedures. In the 

2006 amendments, the Board also 

revised the Commentary to facilitate 

compliance with the Regulation E’s 

requirements regarding stopping 

payment of recurring debits to a 

consumer’s account. The revision 

permits an institution to use a third 

party (such as a debit card network) to 

stop payment, if the institution does not 

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itself have the capability to block the 

debit from being posted to the account. 

(d) Notice of Variable-Amount 

Transfers. Regulation E provides that if 

a recurring debit from a consumer’s 

account will vary in amount from the 

previous transfer, or from the 

preauthorized amount, the designated 

payee or the consumer’s financial 

institution must give the consumer the 

option to receive written notice of the 

amount and scheduled date of the debit 

10 days in advance. In the 2006 

amendments, the Board revised the 

Commentary to exempt recurring 

transfers to an account of the consumer 

at another institution from this 

requirement, provided the amount of 

the transfer falls within a specified 

range that reasonably could be 

anticipated by the consumer. This 

revision should help eliminate 

unnecessary notices and provide cost 

savings in the case of transfers of 

interest on a certificate of deposit held 

at one institution to the consumer’s 

account at another institution. 

(e) Fee Disclosures at Automated 

Teller Machines. If a consumer uses an 

automated teller machine (ATM) 

operated by an institution other than the 

one holding the consumer’s account, 

Regulation E requires the ATM operator 

to disclose any transaction fee imposed 

by the operator. In the 2006 

amendments, the Board revised the 

regulation and the Commentary to 

clarify that the fee notice may state 

either that a fee ‘‘will’’ be imposed, or 

that a fee ‘‘may’’ be imposed (unless the 

fee will be imposed in all cases). This 

clarification addresses issues raised by a 

number of institutions that had been 

charged with noncompliance by 

claimants asserting that the regulation 

required use of the term ‘‘will,’’ even on 

ATMs where a fee is not imposed in all 

cases. 

(f) Payroll Cards. In 2006, the Board 

adopted an amendment to Regulation E 

relating to payroll card accounts. The 

amendment provides that payroll card 

accounts (established to provide salary, 

wages, or other employee compensation 

on a recurring basis) are covered by 

Regulation E, and also provides that 

periodic statements need not be sent to 

payroll card holders if account 

information is available through certain 

other means (including electronically). 

By clarifying coverage of payroll card 

accounts and also granting relief from 

the periodic statement requirement, the 

amendment may facilitate the use of 

such accounts and thereby reduce costs 

for employers, as well as providing 

unbanked employees a convenient way 

to receive their pay. 

(g) Receipts. In 2007, the Board 

adopted an amendment to Regulation E 

to create an exception for transactions of 

$15 or less from Regulation E’s 

requirement that receipts be made 

available to consumers for transactions 

initiated at an electronic terminal. The 

amendment was intended to allow debit 

card transactions by a consumer in retail 

environments where making receipts 

available may not be practical or cost 

effective. 

(2) Truth in Lending (Regulation Z). 

As noted above, the Board is 

undertaking a comprehensive review of 

Regulation Z. As part of that review, the 

Board intends to consider ways to 

reduce unnecessary regulatory burden 

consistent with the purposes and 

requirements of TILA. In 2007, the 

Board issued a proposed amendment to 

Regulation Z to improve the 

effectiveness of the disclosures that 

consumers receive in connection with 

credit card accounts and other revolving 

credit plans by ensuring that 

information is provided in a timely 

manner and in an understandable form. 

The Board sought comment on the 

elimination of the requirement to 

disclose the ‘‘effective’’ or ‘‘historical’’

annual percentage rate, among other 

proposals that could reduce regulatory 

burden on institutions. (The effective 

annual percentage rate reflects the cost 

of interest and certain other finance 

charges imposed during the statement 

period.) 

(a) Credit Card Fees. Regulation Z 

requires credit card issuers to disclose 

‘‘finance charges’’ (fees that are imposed 

as an incident to or a condition of the 

extension of credit), as well as ‘‘other 

charges’’ (fees that are not finance 

charges but that are significant charges 

that may be imposed as part of the 

credit card plan). In 2003, the Board 

revised the Official Staff Commentary to 

Regulation Z to address the status of two 

types of fees charged on credit card 

accounts as to which the credit card 

industry had sought guidance—a fee 

imposed when a consumer requests that 

a payment be expedited, and a fee 

imposed when a consumer requests 

expedited delivery of a credit card. The 

Commentary revisions provided that 

both types of fees constitute neither 

finance charges nor other charges (and 

therefore are not subject to the 

disclosure requirements of Regulation 

Z). The revisions reduce regulatory 

burden by relieving card issuers of 

disclosure requirements (for example, in 

disclosures provided at account opening 

and on periodic statements) that might 

otherwise have applied. 

(b) Issuance of Credit Cards. 

Regulation Z provides that, in general, 

credit cards may be issued only in 

response to a request or application, 

except that a card issued as a renewal 

or substitute for an existing card may be 

issued automatically. Further, generally 

only one renewal or substitute card may 

be issued to replace one existing card 

(the ‘‘one-for-one’’ rule). The 2003 

Commentary revisions provided an 

exception to the one-for-one rule, 

whereby a card issuer may replace an 

existing credit card with more than one 

renewal or substitute card, if (1) the 

replacement cards access only the same 

account of the existing card, (2) all cards 

issued on the account are governed by 

the same terms and conditions, and (3) 

the consumer’s total potential liability 

for unauthorized credit card use with 

respect to the account does not increase. 

These changes accommodated 

developments in the credit card 

industry in which some card issuers are 

able to issue a supplemental card, 

sometimes in different sizes and formats 

from the existing card, along with the 

regular card replacing the existing card, 

which may enhance consumer 

convenience. The changes could reduce 

costs by not requiring card issuers to 

first obtain a request from a consumer 

before issuing the supplemental card, 

while also including terms to protect 

customers. 

(3) Consumer Compliance 

Examination. The Board has adopted a 

consumer compliance risk-focused 

supervision program designed to ensure 

that all its supervised organizations 

comply with consumer protection laws 

and regulations. The program is 

founded on the expectation that each 

state member bank and bank holding 

company will appropriately manage its 

own consumer compliance risk as an 

integral part of the organization’s 

corporate-wide risk management 

function. The adequacy of an 

organization’s consumer compliance 

risk management program is evaluated 

in the context of the inherent risk to the 

organization and its customers. 

Accordingly, smaller and less complex 

organizations with a lower risk profile, 

deemed to have an adequate compliance 

risk management program, require less 

supervisory scrutiny. 

The risk-focused supervisory program 

directs resources to organizations, and 

to activities within those organizations, 

commensurate with the level of risk to 

both the organization and the consumer. 

It provides for the efficient and effective 

deployment of resources including 

examiner time, by allowing Reserve 

Banks to tailor supervisory activities to 

the size, structure, complexity, and risk 

of the organization. This supervisory 

approach reduces regulatory burden on 

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institutions and results in more efficient 

use of examiner time and resources. 

(4) Proposed Amendments to 

Consumer Financial Services and Fair 

Lending Regulations (Regulations B, E, 

M, Z, and DD). In 2007, the Board 

issued proposed amendments to five 

consumer financial services and fair 

lending regulations (Regulations B, E, 

M, Z, and DD) to clarify the 

requirements for providing consumer 

disclosures in electronic form. The 

proposed amendment would withdraw 

provisions that could impose undue 

regulatory burden on electronic banking 

and commerce. 

2. Federal Deposit Insurance 

Corporation 

On an ongoing basis, the FDIC is 

aware of regulatory burden and 

addresses such issues where 

appropriate. When areas of the country 

experience natural disasters and other 

misfortunes, the FDIC issues financial 

institution letters to provide regulatory 

relief to those institutions affected by 

such events and to thereby facilitate 

recovery in the communities. For 

example, a FIL may be issued asking 

financial institutions in those areas to 

extend repayment terms, restructure 

existing loans where appropriate, and 

provide that the FDIC would consider 

regulatory relief from certain filing and 

publishing requirements for financial 

institutions in the affected areas. 

a. FDIC’s Deposit Insurance Rules. 

Bankers and consumers have suggested 

that the FDIC should simplify the 

insurance rules to make them easier for 

bankers to understand and for 

depositors to qualify for increased 

coverage by placing funds in different 

rights and capacities. In recent years, 

the FDIC has adopted several regulatory 

changes in a concerted effort to simplify 

the rules for deposit insurance coverage. 

The Federal Deposit Insurance Reform 

Act of 2005 (Reform Act), which the 

President signed into law on February 8, 

2006, provides for numerous 

enhancements of the federal deposit 

insurance system, including an increase 

in the maximum amount of deposit 

insurance coverage for certain 

retirement accounts from $100,000 to 

$250,000. In addition, the new law 

establishes a method for considering an 

increase in the insurance limits on all 

deposit accounts (including retirement 

accounts) every five years starting in 

2011 and based, in part, on inflation. 

Although the Reform Act increased 

the maximum insurance limit for certain 

retirement accounts to $250,000, 

Congress decided against increasing the 

insurance limit for all other deposit 

accounts. Thus, the basic insurance 

limit for all deposit accounts remains at 

$100,000. However, as noted above, the 

insurance limit for all deposit accounts 

may be increased every five years based 

on inflation beginning in 2011. 

(1) Specific Deposit Insurance Rule 

Changes 

(a) Deposit Insurance Regulations; 

Inflation Index; Certain Retirement 

Accounts and Employee Benefit Plan 

Accounts. The FDIC amended its 

deposit insurance regulations to 

implement applicable revisions to the 

Federal Deposit Insurance Act (FDI Act) 

made by the Reform Act and the Federal 

Deposit Insurance Reform Conforming 

Amendments Act of 2005. The interim 

rule, which became effective on April 1, 

2006, provides for the following: 

• Consideration of inflation 

adjustments to increase the current 

standard maximum deposit insurance 

amount of $100,000 on a five-year cycle 

beginning in 2010; 

• Increase in the deposit insurance 

limit for certain retirement accounts 

from $100,000 to $250,000, also subject 

to inflation adjustments; and 

• Per-participant insurance coverage 

to employee benefit plan accounts, even 

if the depository institution at which the 

deposits are placed is not authorized to 

accept employee benefit plan deposits. 

The changes to the deposit insurance 

rules implemented by this rulemaking 

will benefit depositors by increasing 

coverage for retirement accounts and 

removing a limitation on the availability 

of pass-through insurance coverage for 

employee benefit plan accounts. Section 

330.14 is amended to reflect that passthrough coverage for employee benefit 

plan accounts no longer hinges on the 

capital level of the depository 

institution where such deposits are 

placed. Under the former law, passthrough coverage for employee benefit 

plan deposits was not available if the 

deposits were placed with an institution 

not permitted to accept brokered 

deposits. Under section 29 of the FDI 

Act (12 U.S.C. 1831f), only institutions 

that meet prescribed capital 

requirements may accept brokered 

deposits. The Reform Act takes a 

different approach. It prohibits insured 

institutions that are not ‘‘well 

capitalized’’ or ‘‘adequately capitalized’’

from accepting employee benefit plan 

deposits. But, under the Reform Act, 

employee benefit plan deposits accepted 

by any insured depository institution, 

even those prohibited from accepting 

such deposits, are nonetheless eligible 

for pass-through deposit insurance 

coverage. This change in the deposit 

insurance rules will apply to all 

employee benefit plan deposits, 

including employee benefit plan 

deposits placed before the effective date 

of the interim rule, irrespective of 

whether such deposits would have been 

eligible for pass-through coverage under 

the former statute and rules. The other 

requirements in section 330.14 of the 

FDIC’s rules on the eligibility of 

employee benefit plan deposits for passthrough insurance coverage continue to 

apply. 

(b) Deposit Insurance Coverage 

Regulations: Living Trust Accounts. 

Effective April 1, 2004, the FDIC 

amended its regulations to clarify and 

simplify the deposit insurance coverage 

rules for living trust accounts. The 

amended rules provide coverage up to 

$100,000 per qualifying beneficiary 

who, as of the date of an insured 

depository institution failure, would 

become the owner of the living trust 

assets upon the account owner’s death. 

The FDIC undertook this rulemaking 

because of the confusion among bankers 

and the public about the insurance 

coverage of these accounts. Prior to the 

amended rulemaking, the amount of 

insurance coverage for a living trust 

account could only be determined after 

the trust document has been reviewed to 

determine whether there are any 

defeating contingencies. Consequently, 

in response to questions about coverage 

of living trust accounts, the FDIC could 

only advise depositors that the owners 

of living trust accounts seek advice from 

the attorney who prepared the trust 

document. This process was 

burdensome to both consumers, 

bankers, and other financial service 

providers. Also, when a depository 

institution fails the FDIC must review 

each living trust to determine whether 

the beneficiaries’ interests are subject to 

defeating contingencies. This often is a 

time-consuming process, sometimes 

resulting in a significant delay in 

making deposit insurance payments to 

living trust account owners. 

(c) Deposit Insurance Certified 

Statements. The FDIC modernized and 

simplified its deposit insurance 

assessment regulations governing 

certified statements, to provide 

regulatory burden relief to insured 

depository institutions. Under the final 

rule, insured institutions will obtain 

their certified statements on the Internet 

via the FDIC’s transaction-based ebusiness Web site, FDICconnect. The 

FDIC provides e-mail notification each 

quarter to let depository institutions 

know when their quarterly certified 

statement invoices are available on 

FDICconnect. An institution that lacks 

Internet access may request from the 

FDIC a one-year renewable exemption 

from the use of FDICconnect, during 

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which it will continue to receive 

quarterly certified statement invoices by 

mail. Correct certified statements will 

no longer be signed by insured 

institutions or returned to the FDIC, and 

the semiannual certified statement 

process will be synchronized with the 

quarterly invoice process. If an insured 

institution agrees with its quarterly 

certified statement invoice, it will 

simply pay the assessed amount and 

retain the invoice in its own files. If it 

disagrees with the quarterly certified 

statement invoice, it will either amend 

its report of condition or similar report 

(to correct data errors) or amend its 

quarterly certified statement invoice (to 

correct calculation errors). The FDIC 

will automatically treat either as the 

insured institution’s request for revision 

of its assessment computation, 

eliminating the requirement of a 

separate filing. With these amendments, 

the time and effort required to comply 

with the certified statement process will 

be reduced. 

(d) Certification of Assumption of 

Deposits and Notification of Changes of 

Insured Status. The FDIC adopted a 

final rule that became effective on 

March 23, 2006, clarifying and 

simplifying the procedures to be used 

when all of the deposit liabilities of an 

insured depository institution have been 

assumed by another insured depository 

institution or institutions. The final rule 

clarifies the deposit insurance 

certification filing responsibilities for 

assumed and assuming institutions and 

eliminates the need for orders 

terminating deposit insurance in certain 

instances. Finally, the rule would 

provide more specificity concerning 

how notice is given to depositors when 

an insured depository institution 

voluntarily terminates its insured status 

without the assumption of all of its 

deposits by an insured institution. The 

revisions make the insurance 

termination process easier for insured 

depository institutions and more 

efficient for the FDIC. 

(e) Funds Merger. The FDIC merged 

the Bank Insurance Fund (BIF) and the 

Savings Association Insurance Fund 

(SAIF) to form the Deposit Insurance 

Fund, effective March 31, 2006. This 

action was pursuant to the provisions in 

the Reform Act. The FDIC amended its 

regulations to reflect the funds merger. 

(f) One-Time Assessment Credit. The 

FDIC amended its regulations to 

implement a one-time assessment credit 

pursuant to the provisions in the Reform 

Act. The final rule was published on 

October 18, 2006. The rule implements 

the one-time assessment credit; 

establishes the aggregate one-time 

assessment credit at approximately $4.7 

billion to be divided among eligible 

depository institutions; and defines 

eligible insured depository institution as 

an insured depository institution that 

was in existence on December 31, 1996, 

and paid a deposit insurance assessment 

prior to that date or is a successor to 

such an institution. The rule allows 

institutions to use their assessment 

credits to offset deposit insurance 

assessments to the maximum extent 

allowed by law. 

(g) Educational and Outreach Efforts 

for Deposit Insurance Rules. In addition 

to simplifying and clarifying the deposit 

insurance rules, the FDIC engages in a 

wide range of educational and outreach 

initiatives intended to inform bankers 

and depositors on the rules for deposit 

insurance coverage. Examples of these 

efforts include: 

• FDIC Web site (http:// 

www.fdic.gov), which offers extensive 

information for bankers and consumers 

on FDIC deposit insurance coverage, 

including publications and newsletters, 

videos on deposit insurance coverage, 

and an interactive electronic calculator 

that bankers and consumers can use to 

determine the maximum insurance 

coverage for their deposit accounts at an 

insured institution 

• FDIC Call Center, which is staffed 

by deposit insurance specialists who 

answer banker and consumer questions 

about deposit insurance coverage and 

other banking issues 

• Customer Assistance Online Form, 

where bankers and consumers can 

obtain written responses to questions 

about FDIC deposit insurance coverage 

• Deposit Insurance Seminars for 

bankers, which include telephone 

seminars and traditional training 

seminars on the deposit insurance rules 

(h) Advertisement of Membership/ 

Logo. The final rule on the FDIC’s 

advertising logo was published on 

November 13, 2006, and becomes 

effective November 13, 2007. The rule 

replaces the separate signs used by BIF 

and SAIF members with a new sign, or 

insurance logo, to be used by all insured 

depository institutions. The new rule 

consolidates the exceptions to the 

official advertising statement 

requirements from 20 to 10 by requiring 

the statement only in advertisements 

that either promote deposit products 

and services or promote non-specific 

banking products and services. 

(2) Applications, Reporting, and 

Corporate Powers; Filing Procedures, 

Corporate Powers, International 

Banking, Management Official 

Interlocks, Golden Parachute, and 

Indemnification Payments. The FDIC 

adopted a final rule amending its 

procedures relating to filings, mutual to 

stock conversions, international 

banking, management official interlocks 

and golden parachute payments. The 

changes are mostly technical in nature 

or clarify previous FDIC positions; 

nevertheless, the revisions make the 

applications process more transparent to 

the public. The FDIC’s regulations at 12 

CFR 303 generally describe the 

procedures to be followed by both the 

FDIC and applicants with respect to 

applications and notices required to be 

filed by statute or regulation. On 

December 27, 2002, the FDIC issued in 

final form a revised part 303 to reflect 

a recent internal reorganization at the 

FDIC and to remove internal delegations 

of authority from the regulation. The 

regulation was revised to clarify terms 

and to establish 30 days as a reasonable 

time in which to review any response 

submitted by an institution or 

institution-affiliated party. The FDIC 

also added a provision setting forth its 

authority to waive any non-statutorily 

required provision for good cause and to 

the extent permitted by statute. The 

revised rule clarifies when a change in 

control notice is required and may be 

consummated. Finally, the FDIC 

adopted a technical correction to section 

303.244, creating a cross-reference to 

section 359.4(a)(4) of this chapter 

regarding golden parachutes and 

severance plan payments to make clear 

the responsibilities of an applicant 

seeking approval of filings. 

(3) Annual Independent Audits and 

Reporting Requirements. The 

Corporation amended 12 CFR 363 of its 

regulations by raising the asset size 

threshold from $500 million to $1 

billion from requirements relating to 

internal control assessments and reports 

by management and external auditors. 

The amendment also relieves covered 

institutions with total assets of less than 

$1 billion from having outside directors 

on the audit committee from being 

independent of management. The 

amendment does not relieve public 

covered institutions from their 

obligation to comply with applicable 

provisions of the SOX Act and the SEC’s 

implementing rules. The revisions 

became effective on December 31, 2005. 

(4) International Banking. The FDIC 

conducted a comprehensive review of 

its International Banking Rules. The 

revised rules, which became effective 

July 1, 2005, amend 12 CFR 303, 325, 

and 327 relating to international 

banking; and revise part 347, subparts A 

and B. The rules were reorganized and 

clarified to reduce regulatory burden. 

The revised rule expanded the 

availability of general consent for 

foreign branching and investments by 

insured state nonmember banks abroad 

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and addressed intrastate and interstate 

relocations for ‘‘grandfathered 

branches.’’ In addition, the ‘‘fixed’’

percentage asset pledge requirement for 

existing insured U.S. branches of foreign 

banks (‘‘grandfathered branches’’) was 

replaced by a risk-focused asset pledge 

requirement. 

(5) Extension of Corporate Powers. 

Effective October 18, 2005, the FDIC 

amended its interpretive rule, 12 CFR 

333.101(b), which states that insured 

state nonmember banks not exercising 

trust powers may offer self-directed 

traditional Individual Retirement 

Accounts (IRA) and Keogh Plan 

accounts without the prior written 

consent. Since 1985, Congress has 

introduced new accounts with taxincentive features comparable to these 

plans. Accordingly, the interpretive 

ruling was expanded to expressly 

include Coverdell Education Savings 

Accounts, Roth IRAs, Health Savings 

Accounts, and other similar accounts. 

(6) Other Accomplishments and 

Initiatives. FDICconnect is a secure 

Internet site developed by the FDIC to 

facilitate business and exchange 

information between the FDIC and 

FDIC-insured institutions. FDICconnect 

provides a secure e-business transaction 

channel that supports implementation 

of the Government Paperwork 

Elimination Act, which requires 

agencies to provide online consumer 

and business alternatives for paperbased processes. The national rollout of 

FDICconnect began on December 8, 

2003. FDICconnect supports 

examination file exchange, electronic 

distribution of ‘‘Special Alerts,’’

electronic submission of deposit 

insurance invoices, and electronic filing 

of certain applications and notices. 

FDICconnect reduces regulatory burden 

by providing a more efficient means for 

insured institutions to interact with the 

FDIC and various states. Twenty 

business transactions are available 

through FDICconnect, and as of March 

2006, there were 8,263 FDIC-insured 

institutions registered with 

FDICconnect. 

Beginning July 2007, enhancements to 

the system enable financial institutions 

to securely exchange electronic preexamination and examination files with 

the FDIC and/or their state banking 

regulator. The use of the system should 

relieve examination burden on 

institutions by allowing FDIC staff to 

complete a significant portion of the 

examination process off-site. 

(7) Risk-Focused Examinations. The 

FDIC has improved examination 

efficiency and reduced burden on the 

banks it supervises by raising the 

threshold for well-rated, wellcapitalized banks qualifying for 

streamlined Maximum Efficiency, RiskFocused, Institution Targeted (MERIT) 

examinations from $250 million to $1 

billion, implementing more risk-focused 

compliance and trust examinations, and 

streamlining information technology 

(IT) examinations for institutions that 

pose the least technology risk. The 

MERIT program, originally 

implemented in April 2002, was 

applicable to banks with assets under 

$250 million. During a MERIT 

examination, the examiners use 

procedures that focus on determining 

the adequacy of the institution’s internal 

controls system and the effectiveness of 

its risk management program and 

processes. The program provides an 

opportunity for the FDIC to redirect 

examination resources to institutions 

that pose higher risk. 

(a) Relationship Manager Program. On 

October 1, 2005, the Corporation 

implemented the Relationship Manager 

Program for all FDIC-supervised 

institutions. The program, which was 

piloted in 390 institutions during 2004, 

is designed to strengthen 

communication between bankers and 

the FDIC, as well as improve the 

coordination, continuity, and 

effectiveness of regulatory supervision. 

Each FDIC-supervised institution was 

assigned a relationship manager, who 

serves as a local point of contact over an 

extended period, and will often 

participate in or lead examinations for 

his or her assigned institution. The 

program will allow for flexibility in 

conducting examination activities at 

various times during the 12- or 18- 

month examination cycle based on risk 

or staffing considerations. 

(b) IT Examinations. The FDIC has 

updated its risk-focused IT examination 

procedures for FDIC-supervised 

financial institutions under its new 

Information Technology Risk 

Management Program (IT–RMP). IT–

RMP procedures were issued to 

examiners on August 15, 2005. The new 

procedures focus on the financial 

institution’s information security 

program and risk-management practices 

for securing information assets. The 

program integrates with the 

Relationship Manager Program by 

embedding the IT examination within 

the Risk Management Report of 

Examination for all FDIC-supervised 

financial institutions, regardless of size, 

technical complexity, or prior 

examination rating. 

(c) Compliance Examinations. 

Compliance examination procedures 

were first revised in July, 2003, and 

have been updated periodically since 

then to make the compliance 

examination process more efficient and 

allow examiners to focus their 

examination efforts on compliance areas 

with the highest risk to both consumers 

and financial institutions. 

(8) Community Reinvestment Act. 

During EGRPRA Outreach meetings, 

bankers suggested that the FDIC expand 

what qualifies for CRA credit under the 

service test, such as community service 

activities and provide additional 

guidance to banks about ways to meet 

both the service and investment tests. In 

response, the FDIC made it easier for 

banks to assist low and moderate 

income individuals, and obtain CRA 

credit for doing so, by developing 

MoneySmart, a financial literacy 

curriculum. The FDIC provides the 

MoneySmart program, which is 

available in six languages and a version 

for the visually impaired, free to all 

insured institutions. The FDIC also 

published its Community Development 

Investment Guide, which is designed to 

assist banks considering community 

development investments to navigate 

the complex laws and regulations that 

may apply. 

(9) Redesign of Financial Institution 

Letters. The industry suggested that 

regulators should try to make their 

publications, such as FILs, more concise 

and descriptive, so that readers can 

immediately determine if the guidance 

or recommendations applies to their 

bank. In response, the FDIC redesigned 

the format for its FILs. The new format 

is designed to promote the quick 

identification of key issues and to 

expedite the delivery of the information 

to the appropriate party. Additionally, 

the FDIC is moving toward an allelectronic distribution of FILs to 

eliminate unwanted paper and to better 

facilitate the distribution of FILs within 

each bank. 

(10) Bank Secrecy Act/Anti-Money 

Laundering Outreach. In an effort to 

enhance bank personnel’s 

understanding of the regulatory 

requirements associated with the BSA, 

the FDIC conducts or participates in 

numerous BSA outreach events during 

the year. During these events the FDIC 

discusses outstanding BSA/AML 

guidance and current regulations as well 

as BSA examination requirements 

outlined in the FFIEC BSA/AML 

Examination Manual. In September 

2006, the FDIC hosted, along with the 

other federal banking agencies, FinCEN 

and the Office of Foreign Assets Control, 

a series of conference calls to discuss 

the changes to the FFIEC BSA/AML 

Examination Manual. Approximately 

10,500 bank personnel participated in 

this three-day event. 

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45See 72 FR 36550, July 3, 2007. 

46See 72 FR 31441, June 7, 2007. 

47An eligible national bank is one that is well 

capitalized under the OCC’s rules and has a 

composite rating of ‘‘1’’ or ‘‘2’’ under the Uniform 

Financial Institutions Rating System with at least a 

rating of ‘‘2’’ for asset quality and for management. 

See 12 CFR 32.2(i). 

48See 67 FR 34992, May 17, 2002. 49See 69 FR 1, January 2, 2004. 

3. The Office of the Comptroller of the 

Currency 

The OCC regularly reviews its 

regulations to identify opportunities to 

streamline regulations or regulatory 

processes, while ensuring that the goals 

of protecting safety and soundness, 

maintaining the integrity of bank 

operations, and safeguarding the 

interests of consumers are met. In the 

mid-1990s, pursuant to its 

comprehensive ‘‘Regulation Review’’

project, the OCC looked carefully at 

every regulation in its rulebook with 

that goal in mind. As a result of that 

project, the OCC made significant, 

substantive revisions to virtually every 

one of its regulations. 

More recently in connection with the 

OCC’s review of its regulations required 

by EGRPRA, the OCC identified further 

revisions that could be made to its rules. 

Based on this review, the OCC has 

developed a proposal that would update 

and streamline a number of the OCC’s 

rules to reduce regulatory burden, as 

well as to make technical, clarifying, 

and conforming changes to certain rules. 

Summarized below is the OCC’s recent 

regulatory burden relief proposal, as 

well as other actions that the OCC has 

taken in recent years to ease 

unnecessary regulatory burden on 

national banks. 

a. Recent Significant Regulatory Burden 

Relief Initiative. 

On July 3, 2007, the OCC published 

an NPR 45 soliciting public comment on 

proposed amendments to the OCC’s 

regulations developed in connection 

with its EGRPRA review. The comment 

period expires on September 4, 2007. 

Some of these proposed changes would 

relieve burden by eliminating or 

streamlining existing requirements or 

procedures. Others would enhance 

national banks’ flexibility in conducting 

authorized activities, either by revising 

provisions currently contained in 

regulations or by codifying, and, thus, 

making generally applicable, 

determinations made on a case-by-case 

basis. A third category of proposed 

changes would eliminate uncertainty by 

harmonizing a particular rule with other 

OCC regulations or with the rules of 

another agency. A fourth category 

would cover technical revisions that 

update the OCC’s rules to reflect 

changes in the law, including the 

recently enacted FSRRA, or in other 

regulations. 

b. Enhancing National Banks’ Flexibility 

Consistent With Safety and Soundness 

(1) Lending Limits Pilot Program. On 

June 7, 2007, the OCC published an 

interim final rule with request for 

comment to amend the OCC’s regulation 

at 12 CFR 32.7.46 This regulation 

governs the pilot program providing 

eligible national banks 47 with the 

authority to apply special lending limits 

with respect to loans to one borrower in 

the case of 1–4 family residential real 

estate loans, small business loans, and 

small farm loans or extensions of credit. 

This special lending authority is subject 

to certain conditions that ensure that 

lending under higher limits is consistent 

with safety and soundness. The 

comment period closed on July 9, 2007. 

The interim final rule makes two 

changes to the current program. First, 

the program as initially adopted in 

September 2001 provided for an 

expiration date. The expiration date has 

been extended over the years to 

September 11, 2007. The interim final 

rule deletes the expiration date thereby 

making the program permanent. Second, 

the interim final rule eliminates one of 

the restrictions that applied to such 

lending. Other restrictions and caps 

based on the bank’s capital and surplus, 

however, continue to apply. Eligible 

national banks will continue to be 

subject to caps on the special lending 

authority that apply both to an 

individual borrower and to the aggregate 

amount that a bank may lend under the 

program. The OCC’s supervisory 

experience with the program has been 

positive from a safety and soundness 

perspective. Moreover, national banks 

participating in the program indicate 

that the special lending limits allows 

them to better serve their customers and 

communities. 

(2) Electronic Banking Rule. 

Regulatory burden results when 

regulations do not keep up with the 

changing ways in which banks do 

business. The OCC also has updated its 

rules and processes to reflect the effects 

of technological advances on the 

business of banking. In 2002, the OCC 

published a final rule entitled 

‘‘Electronic Activities.’’ 48 This rule 

clarified and expanded the types of 

electronic activities that national banks 

are permitted to conduct and placed all 

of its related rules together in one 

section of the Code of Federal 

Regulations (CFR) for ease of reference. 

The regulation incorporated specific 

precedent addressing the ability of 

national banks to act as ‘‘finders’’ via 

electronic means, such as the Internet. 

It also codified the standards that the 

OCC applies to determine whether 

electronic banking activities are part of, 

or incidental to, the business of banking 

and thus permissible under federal law. 

The final rule also clarified that a 

proposed activity comprising separate 

permissible interrelated activities also 

would be permissible. 

The rule permitted national banks to 

acquire or develop excess capacity in 

good faith for banking purposes, and 

allowed banks to sell such capacity so 

long as it was legitimately acquired or 

developed for its banking business. It 

codified national bank authority to act 

as a digital certification authority and 

extended that authority to certify 

attributes going beyond identity, for 

which verification is part of, or 

incidental to, the business of banking. 

And it codified previous OCC 

interpretations confirming that a 

national bank may collect, process, 

transcribe, analyze, and store banking, 

financial and economic data for itself 

and its customers as part of the business 

of banking. Finally, the regulation 

clarified where an electronic bank is 

deemed to be ‘‘located’’ for purposes of 

national banking law. 

c. Streamlining the OCC’s Regulatory 

Processes 

(1) Electronic Filings: e-Corp. The 

OCC has made effective use of 

technology to reduce the burden on 

national banks from the administrative 

processes necessary to obtain OCC 

approvals or file required notices. The 

OCC designed a new Web-based filing 

system, e-Corp, to facilitate such filings. 

The system, launched in 2003, enables 

national banks to complete, sign, and 

submit applications electronically to the 

OCC. Originally limited to four classes 

of filings, the OCC recently adopted a 

final rule that allows national banks, at 

their option, to make any class of 

licensing filings electronically.49 E-Corp 

has reduced costs and regulatory burden 

for national banks by simplifying the 

filing of applications and notices and by 

providing easy, online access to much of 

the information that national banks 

need to complete such documents. 

(2) Streamlined Assessments 

Computation. In 2006, the OCC issued 

a final rule streamlining the process 

national banks use to compute their 

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50See 71 FR 42017, July 25, 2006. 

semiannual assessments.50 The rule 

took effect on August 24, 2006. The 

revised regulation provides that the 

OCC, rather than the bank, calculates 

the assessment amount. The new 

procedures eliminated a cumbersome 

process for reviewing and correcting 

miscalculations. 

(3) Streamlined Procedures for 

Community Development Investments. 

In 2003, the OCC amended its 

community development investment 

regulation at 12 CFR 24. (See 68 FR 

48771, August 15, 2003.) The final rule 

provided for a streamlined, after-the-fact 

notice process for eligible banks making 

investments permissible under the 

authority of 12 U.S.C. 24 (Eleventh). The 

OCC undertook this step to make the 

filing process less burdensome on 

national banks, while ensuring that the 

OCC continued to receive information it 

needs for supervisory purposes. 

(4) Streamlined Procedures for 

Federal Branches and Agencies. On 

December 19, 2003, the OCC published 

a final rule revising its international 

banking regulations. (See 68 FR 70691, 

December 19, 2003.) Consistent with the 

procedures available for domestic 

national banks, the final rule permitted 

federal branches and agencies of foreign 

banks in the United States to make 

additional regulatory filings through an 

after-the-fact notice, rather than a more 

detailed application, and streamlined 

review times for filings and 

applications. In addition, the final rule 

provided that foreign banks would 

operate under a single license, as is the 

case for domestic national banks, rather 

than having to obtain separate licenses 

for each federal branch or agency that a 

foreign bank operates in the United 

States; this latter change greatly 

simplifies the regulatory filing process 

for such offices of foreign banks. 

d. Explaining Regulatory 

Requirements. The OCC’s primary 

vehicle for explaining regulatory 

requirements to national banks is 

through our ongoing supervisory 

activities. All supervisory offices have 

frequent contact with the management 

and boards of the banks in their 

portfolios, allowing the OCC to inform 

banks of regulatory changes and 

requirements on an individual basis. 

Timely and detailed OCC issuances 

explaining regulatory changes are 

distributed to all national banks, and are 

available for reference on our public 

Web site. Additionally, on a quarterly 

basis, the OCC provides all national 

banks with a comprehensive list and 

brief summary of issuances from the 

prior quarter. Bankers find this quarterly 

summary a valuable tool for ensuring 

that they are aware of new and changing 

regulatory requirements. 

The OCC also sponsors extensive 

outreach forums for providing guidance 

to bankers on regulations, examination 

practices, and initiatives. These events 

range from small group meetings to 

larger regional sessions; the Comptroller 

himself is the primary speaker at many 

such sessions. The OCC supplements its 

outreach efforts by offering a variety of 

banker education seminars on topics 

including our risk assessment process, 

credit risk management, compliance risk 

management, and issues of particular 

interest to new national bank directors. 

e. Risk-Based Supervision. The OCC 

employs a risk-based approach to 

supervision that distinguishes between 

large/mid-size banks and community 

banks to reflect the generally less 

complex activities of smaller 

institutions. Regardless of size and 

complexity, the primary focus is an 

evaluation of the bank’s risk 

management system to determine its 

ability to identify, measure, monitor, 

and control risks. This evaluation is 

accomplished through an assessment of 

the bank’s policies, processes, 

personnel, and control systems that 

tailors examination activities to the key 

characteristics of each bank, including 

products and services offered, volume of 

activities, markets in which it competes, 

and the board’s and management’s 

tolerance for risk. 

4. The Office of Thrift Supervision 

a. Application and Reporting 

Requirements. Based on comments 

received through the EGRPRA 

interagency review process, OTS issued 

an interim final rule in August 2005 to 

reduce the regulatory burden on savings 

associations by updating and revising 

various application and reporting 

requirements. These revisions included 

exempting certain highly rated savings 

associations from branch and home 

office application requirements and 

eliminating some application and notice 

requirements for branch relocations and 

agency offices. OTS also conformed the 

various application publication 

requirements and public comment 

periods to the extent permissible under 

statutory requirements. This final rule 

revised the agency’s procedures for 

formal and informal meetings as well as 

eliminated a number of OTS rules that 

no longer served a useful regulatory 

purpose. 

Specifically, the final rule: 

• Modified the branch office and 

agency office application and notice 

requirements, 

• Harmonized publication and public 

comment procedures for various 

applications and notices, and 

• Revised the meeting procedures. 

OTS also amended 12 CFR 528.4 to 

require displays of the equal housing 

logotype and legend only in 

advertisements for housing related 

loans. The equal housing lender 

logotype did not provide relevant 

information to individuals shopping for 

loans unrelated to housing. As a result, 

the former rule imposed an unnecessary 

burden on savings institutions who 

must provide the information, and on 

consumers who must process this 

information in addition to the volume of 

other data that they receive in 

connection with consumer and 

commercial loan applications. OTS also 

noted this rule change promotes 

consistency with related rules issued by 

the other banking agencies, which 

require the display of the equal housing 

lender logotype and legend only with 

respect to advertisements for housingrelated loans. 

In addition to the burden-reducing 

changes discussed above, the final rule 

eliminated the following regulations: 

• 12 CFR 545.74. This rule imposed 

various requirements on securities 

brokerage activities of service 

corporations. The requirements were 

obsolete, conflicted with the current law 

and guidance, and were confusing to the 

industry. 

• 12 CFR 563.181. This rule required 

mutual savings associations to report 

changes in control. It implemented 

section 407 of the National Housing Act, 

which was repealed in 1989. 

• 12 CFR 563.183. This rule required 

savings associations and savings and 

loan holding companies to report 

changes of chief executive officers and 

directors that occur with stated time 

periods before or after a change of 

control. This rule implemented 12 

U.S.C. 1817(j)(12), which requires 

notices under more limited 

circumstances. OTS will rely on the 

more limited statutory requirements. 

• 12 CFR 567.13. This rule addressed 

capital maintenance agreements and 

was obsolete in light of other statutory 

and regulatory protections. 

b. Transactions With Affiliates. In 

December 2002 and October 2003, OTS 

issued final rules revising its existing 

rules implementing section 11 of the 

HOLA which applies sections 23A and 

23B of the Reserve Act to savings 

associations. These final rules revised 

OTS’s existing rules to incorporate 

applicable provisions of the Board’s 

Regulation W to savings associations. 

Among other things, OTS’s transactions 

with affiliates (TWA) rules conform the 

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definition of ‘‘affiliate’’ to more closely 

correspond to the Regulation W 

definition thus making application more 

uniform among the federal regulators. 

This change generally reduced the scope 

of entities that would be deemed thrift 

affiliates. Historically, OTS also had 

incorporated certain presumptions of 

control from part 574 into the 

definition. By amending its TWA rules, 

OTS eased regulatory burden by issuing 

a set of rules that tend to be less 

restrictive than the agency’s historical 

standards. 

c. Examination Efficiencies and 

Electronic Initiatives. Recognizing that 

on-site examinations represent the 

single biggest area of regulatory burden 

on the industry, OTS continues to 

undertake initiatives to reduce the 

burden of the supervisory and 

examination process. 

(1) Comprehensive Exams. OTS has 

reduced regulatory burden through the 

comprehensive examination process. 

This comprehensive approach has 

improved the examination process by 

combining the safety and soundness and 

compliance functions. Instead of having 

two separate examination teams, now 

OTS has one exam team on site at one 

time during the year to perform safety 

and soundness and compliance review. 

The comprehensive exam process 

produces one exam report and a more 

comprehensive assessment of an 

institution’s risk profile. 

(2) Risk-Focused Exams. OTS also has 

a risk-focused examination approach 

that contemplates that the management 

review should generally be the focus of 

the examination on noncomplex thrifts 

that have a modest risk profile and 

sustained performance within industry 

norms. OTS examiners have the 

flexibility to tailor the depth of review 

depending on the level of risk and 

complexity of each of the CAMELS and 

compliance components. 

(3) Electronic Communication. OTS is 

continuing to improve its electronic 

communication channels to make 

electronic transmission of examination 

data even more effective. These 

improvements include installation of 

virtual private network software on the 

examiners’ notebook computers to 

enable them to securely access OTS 

systems and data over high-speed, 

broadband connections from a savings 

association or other locations. 

(4) Electronic Preliminary 

Examination Response Kit. OTS also 

converted the Preliminary Examination 

Response Kit documents to electronic 

forms that may be completed by the 

association and returned electronically 

for examiners to use in performing 

examinations. The files may be 

provided to OTS through a Secure 

Messaging Center or on a compact disc. 

To facilitate the timely transmission of 

sensitive data and information, OTS 

designed the Secure Messaging Center 

to meet industry standards for secure 

electronic data exchange. 

(5) Off-Site Exam Work. Through 

expanded use of electronic information, 

OTS envisions even greater 

opportunities to use high-speed access 

from savings associations or remote 

locations to reduce the burden on staff 

and facilities and ultimately reduce the 

amount of on-site time during 

examinations. 

d. Directors’ Responsibility Guide and 

the Directors’ Guide to Management 

Reports. In 2006, OTS issued updated 

versions of the Directors’ Responsibility 

Guide and the Directors’ Guide to 

Management Reports to highlight OTS’s 

supervisory expectations for a strong, 

consistent approach towards sound 

corporate governance practices, as well 

as the importance of strong, 

independent boards of directors. 

The updated Directors’ Guide adds a 

new section on statutory and regulatory 

responsibility and clarifies the issue of 

blurred lines of responsibility between 

the board and management. This is an 

area where the industry had raised 

questions and OTS determined that 

additional clarity would reduce 

uncertainty and regulatory burden. 

There is also a chart on the applicability 

of selected SOX requirements. The 

streamlined, restructured Guide to 

Management Reports consolidates some 

existing reports and adds additional red 

flags to monitor internal controls and 

financial performance. 

e. Thrift Financial Report. OTS is a 

member of the interagency FFIEC 

Reports Task Force that works to help 

ensure reporting uniformity among the 

agencies. Nevertheless, differences 

between the Thrift Financial Report 

(TFR) and the Call Report remain. These 

differences relate to the housing and 

mortgage focus of the thrift industry and 

the fact that OTS uses TFR data as input 

for its interest rate risk model used to 

measure and monitor interest rate risk. 

OTS continues to study the feasibility of 

adopting the Call Report, perhaps with 

certain additional reports that would 

allow OTS to monitor interest rate risk 

and mortgage loan changes and trends. 

f. Ongoing Efforts to Communicate. 

Ongoing outreach efforts outside of the 

exam process are also essential to 

improving communications. OTS 

regularly sponsors ‘‘town meetings’’ at 

which our regional directors discuss 

pressing issues and solicit input from 

thrift managers. 

(1) Agency Web Site. In an effort to 

further relieve compliance burdens, 

OTS makes information available to all 

through the agency Web site. Savings 

associations can find comprehensive 

contact information for all program 

areas in addition to the following: 

• Relevant statutes and CFRs 

• Guidance 

• Proposed and final rules 

• Public comments 

• Handbooks 

• TFR/Call Report data and instructions 

• Expanded List of Permissible 

Activities 

• Industry trends and analysis 

g. Savings and Loan Holding 

Companies. 

OTS has a well-established program 

for discharging its statutory 

responsibilities with respect to savings 

and loan holding companies. The 

holding companies that OTS regulates 

range from non-complex shell 

companies to very large, internationally 

active conglomerates. OTS’s seamless 

supervision at all levels of an 

organization—at the bank level as well 

as at savings and loan holding 

companies—ensures a comprehensive 

supervisory regime with minimal 

regulatory overlap. Any company that 

owns or controls a savings association 

(other than a bank holding company) is 

subject to OTS supervision up to and 

including the top-tier parent company. 

OTS has top-tier holding company 

supervisory responsibility over groups 

that contain both financial and 

industrial lines of business. Household 

names like General Electric, AIG, 

American Express, and GMAC are all 

thrift holding companies and subject to 

consolidated supervision by OTS. Many 

of these groups are also subject to the 

European Union Financial 

Conglomerates Directive. OTS has 

worked hard over the past several years 

to improve and enhance its coordination 

and communication with the global 

supervisory community—and this 

remains a priority for the organization. 

E. Conclusion 

EGRPRA served as an impetus for all 

of the Agencies to review their 

regulations in-depth and to work 

collaboratively on a number of 

regulatory burden reduction matters, to 

develop a consensus on desirable 

legislative reforms, and to work together 

with Congress to pass legislation that 

will help reduce the level of burden on 

financial institutions. 

The Agencies benefited from the 

synergy created by Congress’s 

consideration of regulatory burden relief 

legislation for the banking industry. 

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51For those provisions affecting mainly credit 

unions, please refer to the NCUA report in Part II. 

52 12 U.S.C. 375a. 

53 12 U.S.C. 1972(2). 

54 12 U.S.C. 1817(a). 

55 12 U.S.C. 1828(c). 

56 12 U.S.C. 1820(d). 

57 In addition to the size criteria, an institution is 

eligible for the extended examination cycle if it is 

well capitalized, has not undergone a recent change 

in control, is not subject to a formal enforcement 

proceeding, and has been assigned a management 

and a composite rating of ‘‘1’’ or ‘‘2’’ under the 

Uniform Financial Institutions Rating System at its 

most recent examination. 

Therefore, the EGRPRA process allowed 

the federal banking agencies to identify 

other specific proposals for which there 

was broad support among the Agencies 

and to refine those proposals that were 

already being considered by the 

Agencies (such as development of 

model privacy notices). This process 

also provided the opportunity to review 

proposals with the industry, consumer 

groups, and other interested parties. 

While the FSRRA was an important 

step in addressing regulatory burden, 

the Agencies believe it is important for 

Congress to continue to look for ways to 

reduce any unnecessary regulatory 

burdens on banking organizations. As 

noted in this report, each agency 

developed or supported a number of 

legislative burden reducing proposals 

that ultimately were not included in the 

FSRRA. Congress may find these 

proposals a useful starting point in 

considering additional regulatory relief 

measures in the future. 

Appendix I–A: The Financial Services 

Regulatory Relief Act of 2006 

The Senate Banking, Housing, and 

Urban Affairs Committee (Senate 

Banking Committee) and the House 

Financial Services Committee have 

worked for several years to craft 

appropriate regulatory burden reduction 

legislation. Agency principals and other 

senior level officials of the Agencies 

testified before these committees on 

seven different occasions over the last 

four years. At those hearings, agency 

representatives testified regarding a 

wide variety of regulatory burden 

reduction legislative proposals, many of 

which were incorporated into the 

FSRRA. In addition, upon request, 

agency representatives offered technical 

assistance to congressional staff in 

connection with the development of 

that Act, which was enacted on October 

13, 2006. 

Among the items included in the 

FSRRA that will reduce the regulatory 

burden on financial institutions are the 

following: 51

1. Provides for joint rules to be issued 

to implement the bank ‘‘broker’’

exceptions adopted as part of the GLBA. 

Section 101 of the FSRRA requires that 

the SEC and the Board, in consultation 

with the OCC, FDIC and OTS, adopt a 

single set of rules to implement the 

‘‘broker’’ exceptions for banks in section 

3(a)(4)(B) of the Securities Exchange Act 

of 1934. In December 2006, the Board 

and the SEC jointly requested comment 

on a proposed single set of rules to 

implement these exceptions. See 71 FR 

77522, December 26, 2006. 

2. Reduces reporting requirements 

currently imposed on banks and their 

executive officers and principal 

shareholders related to lending by banks 

to insiders. Section 601 of the FSRRA 

amended section 22(g) of the Federal 

Reserve Act 52 and section 106(b)(2) of 

the Bank Holding Company Act 

Amendments of 1970 53 to eliminate 

several reporting requirements currently 

imposed on federally insured banks and 

savings associations, their executive 

officers, and principal shareholders. 

The Agencies determined that these 

particular reports did not contribute 

significantly to the monitoring of insider 

lending or the prevention of insider 

abuse. Identifying and reviewing insider 

lending will continue to be conducted 

as part of the normal examination and 

supervision process, and the 

amendments will not alter the 

restrictions on insider loans or limit the 

authority of the Agencies to take 

enforcement action against a bank or its 

insiders for violations of those 

restrictions. 

3. Streamlines Consolidated Reports 

of Condition by requiring that the 

federal banking agencies periodically 

review the information and schedules 

required to be filed by insured 

depository institutions. Section 604 of 

the FSRRA amended section 7(a) of the 

FDI Act 54 to require that, within one 

year after enactment of the FSRRA and 

at least once every five years thereafter, 

each federal banking agency, in 

consultation with the other agencies, 

shall routinely review both the burdens 

and benefits associated with Call Report 

information requirements so as to 

reduce any unnecessary burden. 

4. Streamlines merger application 

requirements and exempts certain 

merger transactions from competitive 

factors review and post-approval 

waiting periods. Section 606 of the 

FSRRA amended section 18(c) of the 

FDI Act 55 (the Bank Merger Act) to 

eliminate the requirement that each 

federal banking agency request a 

competitive factors report from the other 

three federal banking agencies as well as 

from the Attorney General in connection 

with the bank mergers. Instead, the 

amendment allows the agency 

reviewing the Bank Merger Act 

application to request a report only from 

the Attorney General and to provide a 

copy of this request to the FDIC as 

insurer. 

This section also modifies the Bank 

Merger Act to exempt certain merger 

transactions between an insured 

depository institution and one or more 

of its affiliates from both the 

competitive factor review process and 

the post-approval waiting period. This 

type of merger generally is considered to 

have no material effect on competition. 

5. Provides an inflation adjustment for 

the small depository institution 

exception under the Depository 

Institution Management Interlocks Act. 

Section 610 of the FSRRA amended 

section 203(1) of the Depository 

Institution Management Interlocks Act 

which prohibits depository 

organizations from having interlocking 

management officials, if the 

organizations are located or have an 

affiliate located in the same 

Metropolitan Statistical Area, Primary 

Metropolitan Statistical Area, or 

Consolidated Metropolitan Statistical 

Area. Prior to the FSRRA, this 

prohibition did not apply to depository 

organizations with total assets of less 

than $20 million. The Agencies 

proposed that this total asset threshold 

for the MSA exception be raised to $100 

million. The FSRRA raised the 

threshold to $50 million. 

6. Authorizes the Board to pay 

interest on reserves. Section 201 of the 

FSRRA gives the Board express 

authority, effective October 1, 2011, to 

pay interest on all types of balances 

(including required reserves, 

supplemental reserves and contractual 

clearing balances) held by or for 

depository institutions at the Federal 

Reserve Banks. 

7. Increases flexibility for the Board to 

establish reserve requirements. Effective 

October 1, 2011, section 202 of the 

FSRRA gives the Board the discretion to 

set reserve requirements for transaction 

accounts below the ranges established 

in the Monetary Control Act of 1980. 

8. Enhances examination flexibility. 

Section 605 of the FSRRA and related 

legislation amended section 10(d) of the 

FDI Act 56 to permit insured depository 

institutions that have up to $500 million 

in total assets, and that meet certain 

other criteria, to qualify for an 18-month 

(rather than 12-month) on-site 

examination cycle.57 These legislative 

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58 12 U.S.C. 60. 

59 12 U.S.C. 1464(u)(2)(A). 

60 12 U.S.C. 1842 and 1863. 

61 12 U.S.C. 1820(h). 

62As discussed in Part II, NCUA prepared 

comparable categories of its rules affecting credit 

unions. 

changes will potentially permit more 

well-capitalized and well-run small 

institutions to qualify for less-frequent 

examinations. 

9. Provides for the simplification of 

dividend calculations for national 

banks. Section 302 amended section 

5199 of the Revised Statutes of the 

United States 58 to simplify dividend 

calculations for national banks and 

provide more flexibility to a national 

bank to pay dividends as deemed 

appropriate by its board of directors. 

Previously, the payment of dividends 

was subject to a complex formula. 

10. Repeals the loans-to-one borrower 

limitations for savings associations in 

section 5(u)(2)(A) of the Home Owners’

Loan Act.59 Section 404 eliminated the 

loans-to-one borrower provision that 

restricts loans by savings associations to 

develop domestic residential housing 

units to a $500,000 per unit for each 

single-family dwelling unit, while 

retaining the overall limitation for a 

residential development of the lesser of 

$30 million or 30 percent of the 

unimpaired capital and unimpaired 

surplus. 

11. Allows savings associations to 

invest in bank service companies under 

the Bank Service Company Act 60 and 

expands the locations at which a bank 

service company may provide services 

that are permissible for each of its 

investing members. 

12. Amends federal law to facilitate 

and coordinate the supervision of state 

banks operating across state lines by the 

bank’s home and host state bank 

supervisors. For example, section 711 of 

the FSRRA amends section 10(h) of the 

FDI Act 61 to provide for a host state 

bank supervisor to exercise its 

supervisory and examination authority 

in accordance with any cooperative 

agreement between the host state and 

home state bank supervisors. 

13. Authorizes member banks to use 

pass-through reserve accounts. Section 

603 of the FSRRA permitted member 

banks to count as reserves deposits in 

other banks that are passed through by 

those banks to the Board as required 

reserve balances, rather than requiring a 

member bank to maintain its reserves 

either in an account at a Federal Reserve 

Bank or as vault cash. 

14. Amends the Securities Exchange 

Act of 1934 and the Investment 

Advisors Act of 1940 to remove the 

duplicative oversight burden and to 

provide savings associations with the 

same exemptions from registration and 

reporting requirements currently 

provided to banks. 

Appendix I–B: Methodology of the 

Agencies’ EGRPRA Review Process 

This interagency review formally 

began in 2003, under the leadership of 

then-FDIC Vice Chairman (now OTS 

Director) John Reich, whom FFIEC 

asked to chair this effort. The three-year 

process included a review of almost all 

of the Agencies’ 131 regulations in an 

effort to reduce regulatory burden, 

where appropriate, or to recommend 

statutory changes to reduce burden 

when the Agencies lack authority to do 

so unilaterally. 

Under Mr. Reich’s leadership, the 

Agencies established an interagency 

EGRPRA Task Force consisting of 

senior-level representatives from each of 

the Agencies. In accordance with 

statutory requirements, the federal 

banking agencies have categorized and 

divided their regulations into 12 

categories by type.62

The statute requires that the Agencies 

publish one or more categories of the 

regulations for public comment on a 

periodic basis. The requests for 

comment should ask commenters to 

identify regulations that are outdated, 

unnecessary or unduly burdensome. 

The EGRPRA Task Force 

recommended, and the Agencies agreed, 

to put one or more categories out for 

public comment every six months, with 

90-day comment periods, for the 

remainder of the review period that 

ended in September 2006. The Agencies 

decided that spreading out comments 

over three years would provide 

sufficient time for the industry, 

consumer groups, the public and other 

interested parties to provide more 

meaningful comments on our 

regulations, and for the Agencies to 

carefully consider all recommendations. 

The table below indicates which 

categories of regulations were published 

in each of the six Federal Register 

notices, as well as the dates they were 

issued: 

Federal Register Notice Sought comment on: Issue date 

First ................................ The Agencies’ overall regulatory review plan, as well as the following initial three categories of regulations for comment: Applications and Reporting; Powers and Activities; and International Operations. (See 68 FR 35589.) 06/16/2003 

Second ........................... The lending-related consumer protection regulations, which included Truth-in-Lending (Regulation 

Z), Equal Credit Opportunity Act (ECOA), Home Mortgage Disclosure Act (HMDA), Fair Housing, 

Consumer Leasing, Flood Insurance and Unfair and Deceptive Acts and Practices. (See 69 FR 

2852.) 

01/20/2004 

Third ............................... The consumer protection regulations that relate primarily to deposit accounts/relationships. (See 69 

FR 43347.) 

07/20/2004 

Fourth ............................. The regulations related to anti-money laundering, safety and soundness, and securities. (See 70 FR 

5571.) 

02/03/2005 

Fifth ................................ The regulations related to banking operations; directors, officers and employees; and rules of procedure. (See 70 FR 46779.) 08/11/2005 

Sixth ............................... The Agencies’ Prompt Corrective Action regulations as well as the rules relating to the disclosure 

and reporting of CRA-related agreements. (See 71 FR 287.) Since the Agencies had recently 

sought public comment of the burdens associated with their general capital and CRA rules, the 

Agencies did not seek further burden reduction comments on those rules 

01/04/2006 

The Agencies readily recognized that 

consumer and public insight into 

regulatory burden issues would be 

critical to the success of their effort. 

Consequently, the regulatory agencies 

tried to make it as convenient as 

possible for all interested parties to 

receive information about the EGRPRA 

project and to comment on what they 

thought were the most critical 

regulatory burden issues. 

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EGRPRA Web Site 

The Agencies established an EGRPRA 

Web site (http://www.egrpra.gov). The 

Web site provides an overview of the 

EGRPRA review process, a description 

of the Agencies’ action plan, 

information about our banker and 

consumer outreach sessions, and a 

summary of the top regulatory burden 

issues cited by bankers and consumer 

groups. The Web site also includes 

direct links to the actual text of each 

regulation and a button for relaying 

comments. Comments submitted 

through the Web site were automatically 

transmitted to each of the Agencies. 

Comments were then posted on the 

EGRPRA Web site for everyone to see. 

The Web site proved to be a popular 

source for information about the 

EGRPRA project, with thousands of 

‘‘hits’’ being reported every month. 

While written comments were 

important to the Agencies’ efforts to 

reduce regulatory burden, the Agencies 

believed that it was also important to 

have face-to-face meetings with bankers 

and consumer/community group 

representatives so that they would have 

an opportunity to directly communicate 

their views to the regulators on the 

issues that most concern them. 

Outreach Meetings 

The federal banking agencies decided 

to sponsor a total of 10 banker outreach 

meetings in different cities around the 

country to heighten industry awareness 

of the EGRPRA project. The meetings 

provided an opportunity for the 

Agencies to listen to bankers’ regulatory 

burden concerns, explore comments and 

suggestions, and identify possible 

solutions. 

More than 500 bankers (mostly CEOs) 

and representatives from the American 

Bankers Association, America’s 

Community Bankers, Independent 

Community Bankers of America, the 

Conference of State Bank Supervisors 

(CSBS), as well as representatives from 

numerous state trade associations 

participated in the meetings. In 

addition, more than 70 representatives 

from the Agencies, CSBS, and the state 

regulatory agencies participated. The 

Agencies believe that the banker 

outreach meetings were useful and 

productive. Summaries of the issues 

raised during those meetings were 

posted on the EGRPRA Web site. 

The Agencies also co-sponsored three 

outreach meetings specifically for 

consumer and community groups. 

Representatives from a number of 

consumer and community groups 

participated in the meetings along with 

representatives from the Agencies and 

CSBS. Those meetings produced many 

suggestions and provided a useful 

perspective on the effectiveness of many 

existing regulations. 

Finally, the Agencies sponsored three 

joint banker and consumer/community 

group focus group meetings in an effort 

to develop greater consensus among the 

parties on legislative proposals to 

reduce regulatory burden. 

The Agencies found these outreach 

and focus group meetings to be 

extremely helpful in identifying the 

most burdensome regulations for the 

industry, discussing possible solutions 

and understanding the concerns of 

consumer and community groups about 

changing certain provisions of the 

current law and regulations. 

Appendix I–C: Summary of Comments, 

by Federal Register Notice Release and 

by Subject Matter for the Federal 

Banking Agencies 

I. Federal Register Notice Release No. 

1: Applications and Reporting, Powers 

and Activities, and International 

Operations 

(Note: The notice also requested comment on 

the overall EGRPRA process.) 

A. General Comments 

1. Regulatory Burden. The federal 

banking agencies received general 

comments on regulatory burden through 

the Federal Register notice process as 

well as during the various Bankers 

Outreach meetings. 

One commenter was appreciative of 

recent efforts to reduce the regulatory 

requirements on small institutions and 

encouraged regulators to continue 

reviewing regulations and making 

exceptions for smaller institutions. 

Another industry group commenter was 

concerned that small institutions are 

still disproportionately burdened 

because they cannot afford to hire more 

employees to comply with the volume 

of regulation. The same commenter 

complained that credit unions do not 

have to pay the taxes that small 

institutions pay. 

Most bankers asserted that, while the 

compliance burden is particularly 

taxing on small institutions, reducing 

regulatory burden would assist banks of 

all sizes in refocusing on their core 

mission: Meeting the financial needs of 

the public while providing value to 

stakeholders at all levels. 

Many other commenters were 

concerned with the increased burden 

associated with the consumer 

regulations, SARS/CTR filings, BSA 

compliance, and PATRIOT Act, some of 

which is not exclusively related to 

banking. 

2. Examination Burden. During the 

outreach meetings, bankers asked the 

federal banking agencies to better 

coordinate examinations, particularly at 

banks that are regulated by multiple 

agencies, such as the State, Board, and 

FDIC. They explained that the burden is 

especially difficult for management and 

directors of affiliated institutions 

because examiners seem to be in one or 

more of the institutions all of the time 

conducting different types of exams. 

They complained that preparing preexam packages and responding to 

examiner questions is time consuming 

for management. On the other hand, 

they applauded the exams where the 

state and federal regulators worked 

together. Bankers also suggested that 

regulators use the findings of the safety 

and soundness examination to 

determine the need for, and scope of, 

specialty area examinations. 

One commenter suggested that the 

federal banking agencies adopt a riskbased or two-tiered approach based on 

an institution’s size and complexity of 

operations. While another industry 

commenter complained about the 

amount of examination time spent when 

the institution and the examiners 

struggle to interpret complex 

compliance rules. 

3. Continuous Regulation Review. A 

few commenters encouraged the federal 

banking agencies to use sunset 

provisions to regularly review the need 

for regulations. One commenter cited 

the newly proposed identity theft 

regulations as an example of a 

regulation that needs to be reevaluated 

on a regular basis. 

Another commenter requested that 

the FDIC lead an effort to bring together 

regulators, bankers, legislators, and 

consumers to review all consumer 

regulations to streamline the disclosure 

process, so that consumers receive 

disclosures that are meaningful and 

concise. More specifically, the 

commenter recommended: 

• Implementing burden reduction 

recommendations that are rule changes 

and do not require legislative action to 

implement needed changes faster. 

• Improving guidance from the 

Agencies so that it is clear and 

consistent. 

B. Powers and Activities 

1. Activities of Insured State Banks. 

Part 362 of the FDIC rules and 

regulations implement section 24 of the 

FDI Act that restrict and prohibit 

insured state banks and their 

subsidiaries from engaging in activities 

and investments that are not permissible 

for national banks and their 

subsidiaries. Some of the commenters 

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questioned the need for FDIC review of 

subsidiary activities that are not 

permissible for a national bank, terming 

the requirement unclear. 

2. Bank Holding Companies and 

Financial Holding Companies. Two 

industry trade association commenters 

urged the Board to revise its Small Bank 

Holding Company Policy Statement in 

Regulation Y to increase the asset-size 

cap from $150 million to $500 million 

or $1 billion for purposes of defining a 

‘‘small bank holding company.’’ One 

commenter also encouraged the Board 

to revise the Statement to increase the 

debt-to-equity ratio from 1:1 to 3:1 as 

the threshold for dividend payment 

restrictions, because purchasers of small 

banks frequently need to borrow all or 

a substantial portion of the purchase 

price. 

A commenter also urged the Board to 

revise Regulation Y to remove 

restrictions on the activities of a 

subsidiary of a subsidiary bank of a 

bank holding company (BHC). The 

commenter noted that these restrictions 

have created competitive inequities, in 

some cases, by preventing subsidiaries 

of state member banks with a BHC from 

engaging in activities in which 

subsidiaries of state nonmember banks 

may engage under relevant state law, 

including activities approved by the 

FDIC for state nonmember banks and 

their subsidiaries. 

Several commenters, including 

industry trade associations, stated that a 

BHC that is not a financial holding 

company (FHC) should be authorized to 

conduct an expanded scope of 

insurance agency activities directly or 

through a nonbanking subsidiary, rather 

than indirectly through a subsidiary 

bank that is authorized under state law 

to engage in such activities. Two 

commenters contended that BHCs that 

are well managed and well capitalized 

and that have satisfactory CRA 

performance records should be allowed 

to engage in the broader range of 

activities permitted for FHCs, including 

securities and insurance underwriting, 

even if the BHCs have chosen not to 

become FHCs. They also stated that 

such BHCs should be permitted to file 

post-notices for proposals to engage in 

permissible nonbanking activities to the 

same extent that FHCs can file postnotices. 

In addition, one commenter urged the 

Board to amend the FHC rules in 

Regulation Y that relate to organizing, 

sponsoring and managing mutual funds 

(12 CFR 225.86(b)(3)) to remove the 

requirement that a FHC reduce its 

ownership in a fund to less than 25 

percent of the fund’s equity within one 

year of sponsoring the fund. The 

commenter asserted that such restriction 

was unduly burdensome, because it was 

not mandated by the GLBA and 

appeared to result unnecessarily in 

more limited authority for an FHC’s 

domestic mutual fund activities than 

what currently is authorized under the 

Board’s Regulation K for mutual fund 

activities conducted abroad. 

An industry trade association 

commenter also stated that the statutory 

cross-marketing prohibitions on 

subsidiary depository institutions of an 

FHC should be revised to apply only 

with respect to cross marketing of 

products and services of a company in 

which the FHC holds a controlling 

interest of more than 25 percent. 

3. State Member Banks. To help ease 

burden on state member banks with 

excess capital, a commenter requested 

that the Board eliminate the restriction 

in Regulation H on dividend payments 

(12 CFR 208.5) for well-capitalized 

banks that will remain well capitalized 

following payment of the dividends. 

Another commenter asserted that the 

branching and investment authority for 

state member banks should not be 

limited to what is permissible for a 

national bank. 

4. Community Development 

Corporations, Community Development 

Projects, and Other Public Welfare 

Investments. One commenter suggested 

that the OCC should reduce the burden 

of the self-certification requirement for 

public welfare investments, either by 

waiving the requirement for wellmanaged national banks with an 

Outstanding CRA performance rating, 

by creating a de minimis level below 

which no certification is required, or by 

establishing a like-kind investment 

exception similar to that found in 12 

CFR 5. 

Also, the commenter stated that 

federal savings associations should be 

able to invest in community 

development entities to the same extent 

as national banks. Under current law, 

savings associations may only make 

such investments through a service 

corporation. Because many savings 

associations do not have service 

corporations, this limits their ability to 

serve low- and moderate-income 

communities. 

Another commenter stated that the 

Board should update its regulatory 

interpretation on community welfare 

investments (12 CFR 225.127) to 

reference the quantitative limits on 

those investments that would not 

require prior Federal Reserve System 

(FRS) approval in terms of a percentage 

of the BHC’s consolidated Tier 1 and 

Tier 2 capital plus the balance of the 

allowance for loan and lease losses 

excluded from Tier 2 capital. Currently, 

the interpretation provides that a BHC, 

directly or indirectly, may make 

community welfare investments up to 5 

percent of the BHC’s consolidated 

‘‘capital stock and surplus’’ without FRS 

approval. 

5. Financial Subsidiaries. Several 

commenters proposed removing certain 

limits on financial subsidiaries of banks, 

such as: 

• The requirement that each of the 

100 largest banks must maintain a topthree debt rating in order to hold a 

financial subsidiary. 

• The prohibition on insurance 

underwriting and real estate 

development activities in a financial 

subsidiary. 

• The requirements that financial 

subsidiaries not be treated as ordinary 

subsidiaries for capital, 23A/23B, and 

anti-tying purposes. 

6. OCC Lending Limits. One 

commenter urged the OCC to include 

agricultural loans in the categories of 

loans eligible for higher lending limits 

under an OCC pilot program allowing 

eligible national banks to take advantage 

of higher lending limits for small 

business loans and residential real 

estate loans. The commenter further 

urged that the $500,000 cap contained 

in the CRA regulation and Call Report 

instructions not apply in such cases. 

7. Debt Cancellation Contracts and 

Debt Suspension Agreements. One 

commenter proposed that the OCC make 

permanent the temporary suspension of 

rules regarding banks offering a periodic 

payment option and associated 

disclosures to Debt Collection Contracts 

(DCCs) and Debt Suspension 

Agreements (DSAs) sold by unaffiliated, 

nonexclusive third parties in connection 

with closed-end consumer loans. The 

same commenter stated that the OCC 

should extend the exception to all 

consumer loans, other than real estate 

loans, regardless of how such loans are 

sold. 

One commenter stated that the OCC 

should retain its regulations concerning 

DCCs and DSAs. 

8. Investment. One commenter 

proposed that the OCC revise 12 CFR 

1.3(h) to permit a national bank to 

purchase (without OCC approval) for its 

own account shares of an investment 

company or other entity, provided that 

(1) the portfolio of assets of the 

investment company or other entity 

consists exclusively of assets that a 

national bank may purchase and sell for 

its own account and (2) the bank’s 

holdings of such shares do not exceed 

the limits set forth in section 1.4(e) of 

the regulations. The commenter 

likewise proposed expanding the 

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definition of investment company in 12 

CFR 1.1(c) to include entities that are 

exempt under section 3(c)(1) of the 

Investment Company Act. 

One commenter proposed amending 

the Investment Adviser’s Act to exclude 

savings associations from the definition 

of investment adviser. 

9. Dividend Payment. A commenter 

proposed that, for national banks with a 

single shareholder, dividends payable in 

property other than cash should not 

require the prior approval of the OCC 

under 12 CFR 5.66, if the property is 

dividended at fair market value, the 

dividend does not exceed the limits set 

out in 12 U.S.C. 60, and the dividend 

comprises an ‘‘insubstantial amount’’

(less than 1 percent) of the bank’s 

capital and surplus. 

10. Branching. One commenter 

proposed that 12 U.S.C. 36(g)(1) and 

1828(d)(4)(A) should be revised to allow 

national banks to engage in de novo 

interstate branching to the same extent 

as savings associations. They also 

recommended elimination of the states’

authority to prohibit an out-of-state 

bank or BHC from acquiring an in-state 

bank that has not existed for at least five 

years. Another commenter proposed 

that the FDIC thoroughly examine the 

procedures for a bank to close a branch 

and notify its customers, and determine 

whether there are ways to make the 

process less onerous. 

11. Real Estate Lending. One 

commenter suggested an amendment to 

12 U.S.C. 1464(c)(2)(B)(i) to increase the 

statutory limit for loans secured by 

nonresidential real property and/or that 

OTS establish practical guidelines for 

non-residential real property lending at 

levels exceeding 400 percent of capital. 

Another commenter suggested 

elimination of the $500,000 per unit 

purchase price limit contained in 

section 1464(u)(2) of the HOLA. 

Another commenter suggested that the 

other real estate owned standards be 

amended to provide greater flexibility to 

banks, including allowing them to lease 

a property when they cannot dispose of 

it rapidly. 

12. Fiduciary Powers. One commenter 

stated that the SEC’s final rule to 

implement the safe harbors for 

traditional trust activities and other 

services performed by financial 

institutions should apply to savings 

banks and savings associations and 

should not impose unnecessary burdens 

on community banks engaged in 

fiduciary activities. 

13. Scope of Investment Advisers Act. 

One commenter stated that the 

Investment Advisers Act of 1940 and its 

regulations burden savings associations 

unfairly, because savings associations 

and savings banks are not exempt from 

the definition of investment adviser. 

The commenter proposed amending the 

Investment Advisers Act to exclude 

savings associations from the definition 

of investment adviser. 

14. Application of Interest Rate 

Exportation Doctrine to Banks with 

Multi-State Branches. Two commenters 

expressed concerns about agency 

guidance on interest rate exportation. 

The commenter noted that the guidance 

varied between OTS, OCC, and FDIC, 

and that its application could vary by 

transaction. The commenter 

recommended that the Agencies clarify 

that banks could use their home state 

interest rates regardless of the contacts 

(or lack thereof) between the home state 

and the loan. The Agencies should 

further clarify the factors that the 

institution needs to consider when they 

use the rate of a state other than the 

home state. The commenter said that the 

Agencies should issue a new joint rule 

to clarify these issues. The federal 

banking agencies also should review 

their interpretations concerning what 

constitutes ‘‘interest’’ under the export 

doctrine, to ensure consistency. 

15. Consumer Lending Limits for 

Savings Associations. One commenter, 

without recommending a particular 

change, noted that savings associations 

are developing business strategies that 

require more flexible consumer loan 

limits. The commenter urged OTS to 

review HOLA to see whether the agency 

could provide additional flexibility 

without amending the statute. 

16. Savings Association Business 

Lending Authority. One commenter 

suggested that federal savings 

associations be permitted to fully engage 

in small business lending and that the 

lending limit on other business loans be 

increased to 20 percent of assets. 

Expanding the business lending 

authority of federal savings associations 

would help to increase small business 

access to credit and expand the amount 

of loans made to small and mediumsized businesses. 

17. Bank Service Company Act. One 

commenter proposed amending both the 

Bank Service Company Act and HOLA 

to provide parallel investment authority 

for banks and savings associations to 

participate in both bank service 

companies and savings association 

service corporations. 

18. Eliminate Loan-to-One Borrower 

Residential Housing Exception. A 

commenter asserted that the $30 

million/30 percent of all capital limits 

on residential lending for federal 

savings associations is sufficient to 

prevent concentrated lending to one 

housing developer and the per-unit cap 

($500,000) is excessive. The commenter 

stated that OTS should either eliminate 

the per-unit cap or index it to inflation. 

C. Applications and Reporting 

Commenters recommended changes 

to ease regulatory burden relief in the 

applications and reporting area. 

1. Applications (generally). Some 

commenters suggested general changes 

in the applications area, including both 

legislative and regulatory changes. 

These changes included: 

• Providing expedited application/ 

notification requirements for wellcapitalized and well-managed banks 

with satisfactory CRA performance 

record ratings. 

• Expediting application review and 

processing time, including by delegating 

certain applications to regional offices. 

• Allowing electronic applications 

filing. 

• Publishing a list of approved or 

denied activities. 

• Handling routine applications, such 

as branch applications, as after-the-fact 

notice filings. 

• Exempting well-capitalized savings 

associations from dividend notice 

requirements. 

• Eliminating the requirement that a 

BHC receive prior FRS approval to 

acquire additional shares of a subsidiary 

BHC (such as when a BHC’s ESOP that 

is a registered BHC wants to purchase 

additional shares of the BHC). 

• Converting applications (such as 

new branch applications) to after-the 

fact notices. 

Some of the other changes that 

industry commenters suggested to 

improve the applications process 

included: 

• Making publication requirements 

for different applications consistent. 

• Terminating current requirements 

for applicants/notificants to publish 

announcements of their regulatory 

filings in newspapers, because few 

people read the newspaper notices, such 

publications are expensive, and 

publication delays can lengthen 

processing times. 

• Changing the Board’s ex parte 

contact policy regarding protested 

applications to be consistent with the 

other Agencies’ policies on protested 

applications. 

• Allowing institutions to incorporate 

by reference previously filed 

documentation, with updates or 

certification of continued accuracy. 

• Recognizing the distinction 

between internal restructuring and 

acquisition of a non-affiliated entity, 

with lesser information requirements for 

the former. 

• Reconsidering the positions of the 

OCC and the Board that commonly 

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advised mutual funds or other 

investment funds are considered ‘‘acting 

in concert,’’ and thereby subject to 

Change in Control (CIC) notice 

requirements, whenever a fund family 

collectively acquires 10 percent or more 

of a bank or bank holding company. In 

addition, a fund’s ownership of shares 

should not be attributed to the 

investment advisor (or its parent 

organization) for purposes of the CIC 

regulations. 

2. Bank Merger Act Applications. 

Many industry commenters suggested 

that the Agencies make their merger 

reviews more consistent with reviews 

by the Department of Justice or ask 

Congress to provide the Agencies with 

sole authority to conduct competitive 

analysis of bank mergers. In addition, 

credit union deposits should be 

included in the anti-competitive 

analysis of mergers because credit 

unions are active competitors with 

banks. Case-by-case analysis of such 

deposits imposes burdens on the 

applicant. Credit unions are full 

competitors with banks. 

In addition, another industry 

commenter recommended the following 

suggestions to ease the burden 

associated with the Bank Merger Act 

(BMA): 

• Applying BMA streamlined filing 

procedures and timeframes to mergers 

between qualified banks and their 

affiliates. 

• Clarifying that transfers of 

‘‘substantially all’’ assets would not be 

subject to the BMA if the transfer does 

not materially impact the institution. 

• Establishing a BMA de minimus 

exception for affiliate transfers of 

deposit liabilities. 

3. OCC Business Combination Rule. 

One commenter noted that the OCC’s 

business combinations rule (12 CFR 

5.34) permits nonbank subsidiaries to 

merge into national banks, but the 

FDIC’s regulations require the filing of 

an application with the FDIC and 

require the publication of notice and an 

opportunity for public comment on 

such transactions. The commenter said 

that the FDIC should eliminate the 

notice and opportunity for comment 

requirements as unnecessary when the 

merging entity is a wholly owned bank 

operating subsidiary. Alternatively, the 

FDIC should be able to waive these 

requirements on a case-by-case basis. 

4. Savings and Loan Holding 

Company Applications. One commenter 

suggested that OTS revise the 

publication requirements for Form H(e) 

applications to conform to those 

included in the BMA. The same 

commenter suggested that OTS revise 

the requirements of Items 110.20(d) and 

220.30 of the Form H(e) application to 

request a list limited to those affiliated 

persons (as defined in 12 CFR 561.5) 

who are officers participating in major 

policy making functions of the applicant 

(especially where the applicant’s stock 

is publicly held and no shareholder 

owns or controls more than 10 percent 

of the outstanding shares of stock). 

Similarly, another commenter urged 

OTS to streamline its Form H(e) 

application process if the thrift is highly 

rated and well managed. This 

commenter urged OTS to streamline the 

requirements of Item 110.40 where the 

application is for an internal 

reorganization. Likewise, OTS should 

limit or eliminate the requirements of 

Item 210.20 when the applicant is well 

known; the information is readily 

available to OTS in other reported 

materials, and in situations involving an 

internal reorganization. The commenter 

also proposed that OTS eliminate Item 

210.50 when the applicant is well 

known to OTS. 

This commenter also proposed that 

OTS revise Item 410.10(c) to request 

information only on those management 

officials the board has designated as 

participants in major policy making 

functions. Similarly, OTS should 

eliminate the requirements of Item 

410.20 for those transactions involving 

holding companies whose directors are 

elected by shareholders, if the shares of 

the company’s stock are publicly held 

and widely traded. 

For corporate reorganizations, OTS 

should streamline the requirements of 

Item 510.10. One specific suggestion 

was to eliminate the requirements of 

Item 510(a)(1) in transactions involving 

an applicant familiar to OTS, in 

corporate reorganizations, and for 

savings associations operating in 

relatively small geographic areas. 

Similarly, OTS should streamline the 

requirements of Item 620.10 for 

corporate reorganizations. Finally, this 

commenter recommended that OTS 

limit Items 720.10 and 720.30 to a 

request for those locations affected by 

the transaction, where the transaction 

involves a large savings association and/ 

or an applicant that is well known to 

OTS. 

Commenters encouraged OTS to 

consider several other changes to their 

rules including: 

• Eliminating the requirement for 

formal meetings/hearings on 

applications when a commenter asks for 

one. 

• Placing additional controls on the 

30-day notice period for well-managed, 

well-capitalized thrifts to avoid the 

notice becoming a de facto application 

process without any set deadline and 

clarifying the conditions upon which 

such notice will become an application. 

• Amending its mutual holding 

company regulations and guidance and 

its mutual-to-stock conversion 

regulations. 

• Allowing an application/notice 

waiver process for transactions 

reviewed by another regulator. 

• Changing the Change-in-Control 

regulations to be consistent with the 

other Agencies. 

5. Reports (generally). Other 

comments more specifically applied to 

the reporting area. The general 

comments about reporting requirements 

included the following suggestions: 

• Apply the materiality threshold for 

reporting purposes consistently across 

different regulatory reports. 

• Clarify why certain data is 

collected. 

• Revise the Summary of Deposits 

report instructions and definitions to 

reflect the types of branches that have 

come into use since emergence of 

interstate banking. 

6. Report Inconsistencies. Several 

industry commenters would like to see 

more consistency between Call Report 

schedules and FRY–9C schedules. They 

offered the following additional steps to 

reduce regulatory burden: 

• Permit banks to submit one form 

and require Agencies to share the data 

since the two reports are practically 

identical and are compared to each 

other for discrepancies. 

• Reconcile inconsistencies between 

the two reports to eliminate the burden 

of formatting and calculating the same 

financial data for different reports. For 

example, there are inconsistencies in 

the Income Statement, Interest 

Sensitivity data on various schedules, 

Past Due & Nonaccruals, and various 

memoranda items. There are also 

inconsistencies between the data 

definitions of the Call Report and FR–

2416. 

• Classify all overdrafts with the 

appropriate loan category on Schedule C 

or classify them as ‘‘all other loans.’’

Currently both reports require 

classification of overdrafts as ‘‘planned’’

or ‘‘unplanned.’’ This is not a 

distinction that member banks make in 

their internal and external reporting. In 

addition, regulatory reports require that 

unplanned overdrafts be reported as 

other loans, except when made to a 

depository institution, a foreign 

government or an official institution, in 

which case they are classified on the 

respective line. 

7. Call Reports. Commenter 

suggestions related specifically to Call 

Reports included: 

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• Removing items that are 

unnecessary for supervision. 

• Modifying reported items to 

conform to banks’ internal reporting 

systems. 

• Reducing penalties for 

noncompliance, which currently are 

excessive. 

• Eliminating the requirement that 

three bank directors sign because Call 

Reports are electronically submitted. 

• Reducing the level of detail in 

loans, securities, and deposits 

schedules. 

• Reconsidering the requirement for 

disclosure of tax-exempt income in 

Income Statement memoranda items 

and re-pricing for complex bank 

organizations because of their limited 

usefulness. 

• Reconsidering the relevance of 

requiring disclosure details on Schedule 

RC–O, as current level of FDIC 

assessments is zero. 

• Providing real time access to the 

electronic Call Report filing system. 

• Including on the Call Report all 

items necessary for supervision of peer 

group analysis. 

• Not diminishing data reporting 

requirements for Call Reports. 

8. FRY Reports. Commenter 

suggestions related specifically to the 

Board’s FRY Reports included: 

• FRY–8: Requiring a signature by 

one officer of the BHC, rather than 

signatures by an officer of each 

subsidiary bank. 

• FRY–9C and –9LP: Eliminating or 

decreasing the frequency of filing, or 

decreasing the level of detail that is 

required (as in FRY–11). 

D. International Operations 

The majority of comments on the 

category of international operations 

regulations concerned the Board’s 

Regulation K, as described below. A 

commenter also stated that OTS should 

relax its rules that prohibit thrifts from 

owning less than 100 percent of a 

foreign operating subsidiary. 

Commenters questioned the 

limitations set forth in section 211.8(b) 

of Regulation K (12 CFR 211.8(b)) on 

direct investments by member banks. 

That section, which implements section 

25 of the Federal Reserve Act (12 U.S.C. 

601), authorizes only investments in (1) 

foreign banks, (2) domestic or foreign 

holding companies for foreign banks, 

and (3) foreign organizations formed for 

the some purpose of performing 

nominee, fiduciary, or other banking 

services incidental to the activities of a 

foreign branch or foreign bank affiliate 

of the member bank. In contrast, section 

211.8(c) of Regulation K (12 CFR 

211.8(c)), which implements section 

25A of the Federal Reserve Act (12 

U.S.C. 611 et seq.) and section 4(c)(13) 

of the Bank Holding Company Act (12 

U.S.C. 1843(c)(13)), authorizes a greater 

range of [foreign] investments for bank 

holding companies and Edge and 

agreements corporations. The 

commenters asserted that no valid 

purpose is served by limiting member 

bank’s foreign investments and 

suggested that member banks be 

permitted to make the full range of 

investments permitted to bank holding 

companies and Edge and agreement 

corporations. 

Commenters also suggested that the 

regulators should permit member banks 

that are well capitalized and well 

managed and that have satisfactory CRA 

performance ratings and existing 

overseas operations to establish foreign 

branches using the same approval 

process that is available for domestic 

branches and nonbanking operations 

using the same process available for 

domestic nonbanking activities. Finally, 

one commenter requested that Edge 

corporations be permitted to accept 

domestic deposits from domestic 

customers, provided the majority of the 

depositor’s deposits were Edgepermissible. 

II. Federal Register Notice Releases 

No. 2 and 3: Consumer Protection 

Lending-Related Rules and Other 

Consumer Protection Rules: Account/ 

Deposit Relationships and 

Miscellaneous Consumer Rules 

A. Flood Insurance 

1. General. An overwhelming number 

of commenters stated that customers 

often do not understand why flood 

insurance is required and that the 

federal government—not the bank—

imposes the requirement. Commenters 

said that the government should do a 

better job of educating consumers about 

the reasons and requirements of flood 

hazard insurance. Moreover, the 

Agencies should streamline and 

simplify flood insurance requirements 

to make them more understandable. 

One commenter, representing a state 

bankers’ association, stated that many of 

its members questioned why the 

banking industry had to police the 

borrowers’ choices. Another commenter 

asked why the burden of the flood 

insurance regulation is on financial 

institutions rather than on the insurance 

industry. 

One commenter asked whether the 

$5,000 value threshold for triggering 

flood insurance coverage could be 

increased. Another commenter urged 

more guidance on a specific period in 

which the notice should be given. 

One commenter suggested that 

responsibility should be shifted away 

from financial institutions for the 

constant monitoring of whether 

borrowers continue to maintain flood 

insurance on the property. Although the 

commenter agreed that the loan should 

not be made without flood insurance, 

requiring the financial institution to 

constantly review whether flood 

insurance is up to date is a burdensome 

task. The bank must constantly review 

files and in many cases force-place 

insurance on the borrower. The 

institution should be able to rely on the 

NFIP (the insurer) to inform the 

financial institution that the borrower 

has dropped coverage rather than the 

institution having to monitor the files 

internally. 

Another commenter expressed 

concern about 12 CFR 22.9, Notice of 

special flood hazards and availability of 

federal disaster relief assistance. The 

commenter noted that when a bank 

makes, increases, extends, or renews a 

loan secured by a building or a mobile 

home located or to be located in a 

special flood hazard area, the bank must 

mail or deliver a written notice to the 

borrower and servicer in all cases. The 

commenter said that, if this same loan 

is renewed before the expiration of the 

initial flood zone determination, there 

should be no need to provide another 

notice to the consumer. 

One commenter recommended that 

the Agencies provide more guidance on 

flood insurance. In particular, the 

commenter said that consumers should 

have easier access to flood zone 

information and the ability to determine 

if the information is current. The 

Agencies should streamline flood 

insurance requirements so the lender 

can easily identify the appropriate 

amount of coverage. 

2. Simplification of Process. One 

commenter suggested a simplified 

disclosure concerning flood insurance 

that would read as follows: ‘‘Is the 

property you want to purchase in a 

flood plain? YES or NO—If NO, go to 

next question; if YES see below. The 

estimate given by a local agent for flood 

insurance coverage on the property is 

$lll per year. You are required to 

provide proof of flood insurance 

coverage through an agent of your 

choosing by loan closing. If you want to 

know the identity of the agent that gave 

this estimate, please ask your lender.’’

Another commenter asked for 

additional clarification or interpretation 

of the flood insurance regulations 

through a ‘‘Q and A’’ format. The 

commenter noted that, in the past year 

their external auditors informed them 

that they needed to compare the flood 

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zone listed on the insurance policy to 

the zone listed on the determination to 

ensure they are the same. The external 

auditors directed the institution to 

request that the flood zone on the 

insurance policy be changed if it were 

not the same as the zone listed on the 

determination. The commenter 

contended that this requirement is not 

part of the regulation, but a new 

unwritten interpretation. That 

constitutes a burden on the financial 

institution. Because the institution 

cannot force an agent to make the 

change, the only thing the institution 

can do is document the file accordingly. 

3. Opt-Outs. One commenter stated 

that flood insurance requirements 

should consider the value of the land 

even if the land is located in a flood 

zone. If the value of the land exceeds 

the amount of the loan, the borrower 

should be able to opt out of purchasing 

flood insurance. Also, currently if the 

loan is on vacant land in a flood zone, 

the institution must advise the 

customer. This commenter stated that 

this requirement should be eliminated 

since vacant land cannot be insured. 

Because of the regulators’ strong stance 

on this requirement, institutions are at 

a competitive disadvantage with nonregulated mortgage companies. The 

commenter asserted that the financial 

institution’s customers would also 

benefit from this requested change. 

4. Loan Closings. A few commenters 

noted that when borrowers use a 

property located in a special flood 

hazard area as security on a loan, 

lenders must provide notice to the 

borrowers within a ‘‘reasonable period 

of time’’ prior to closing. This notice 

advises borrowers that the property is in 

a flood plain and requires flood 

insurance under the NFIP prior to 

closing the loan. The commenter further 

noted that, while a reasonable period of 

time is not expressly defined, the NFIP 

guidelines and agency examiners 

specify 10 days as a ‘‘reasonable 

period.’’ The timeframe protects the 

customer from losing their loan 

commitment while they shop for 

adequate, affordable insurance coverage. 

The reasonable period of time was not, 

however, intended to delay closing if 

the borrowers have purchased adequate 

coverage. Currently, there are examiners 

in the field instructing banks to wait a 

minimum of 5 to 10 days from the time 

they provide notice to the borrower 

until closing, even if the borrower has 

insurance coverage in place before the 

time period has expired. Clarification is 

needed in this area for both creditors 

and examiners. 

One commenter suggested that the 

Agencies expand the Flood 

Determination form to include questions 

about collateral for the loan, such as, 

building only, contents only, or both, 

and if available at the time of the 

determination, questions about the loan 

amounts related to these items or the 

collateral value assigned to each. The 

service provider should then estimate 

the amount of insurance coverage 

required, based upon the current 

requirements, and place an estimate on 

the Flood Determination form. 

5. Flood Insurance in Unincorporated 

Areas. One commenter noted the 

difficulty in complying with flood 

insurance requirements in 

unincorporated areas, since flood 

insurance is available only in 

incorporated areas. Flood hazard 

determinations are required though on 

all parcels of land which have a 

‘‘structure’’ as defined in the regulation. 

That includes a grain bin or even an old 

barn that is beginning to fall over. 

Because flood insurance is unavailable 

for these unincorporated areas, it seems 

very wasteful of time, money and effort 

to require the flood hazard 

determination. Even if flood insurance 

were available however, it would seem 

wasteful to require a flood insurance 

determination on a dilapidated building 

which adds no economic value to the 

property. The commenter requested a 

review of the regulations and 

consideration of the issue of flood 

determinations on all structures, 

particularly in areas where flood 

insurance is unavailable. Another 

commenter noted that its bank is in a 

hill area where flood areas are clearly 

defined. The commenter noted that it 

has the responsibility to obtain flood 

insurance where needed, but that a 

detailed disclosure is still required even 

though the property is on top of a hill. 

6. Special Flood Hazard Areas. 

Several commenters noted that notices 

are required for Special Flood Hazard 

Areas (SFHA). Lenders must provide 

this notice on loan originations as well 

as refinances. During a refinance, it is 

unduly burdensome for a lender to be 

required to give the notice within a 

reasonable time (ten days prior to 

closing) when the borrower is already 

aware that the property is located in a 

SFHA because they have an active flood 

policy in effect. 

One commenter said that most 

appraisals disclose the flood status, and 

stated that a separate form is 

unnecessary given that the appraisal 

makes note of the information. 

Requiring a standard form is redundant 

and adds additional costs, either 

directly by the bank or indirectly 

through the appraisal. 

7. Applicability to Certain Types of 

Property/Structures. In urging the 

regulators to simplify the flood 

insurance regulations, one commenter 

noted that the regulators said that the 

definition of ‘‘permanently affixed’’

meant that utilities were hooked to the 

mobile home. However, the commenter 

had interpreted ‘‘permanently affixed’’

as wired down or set on a foundation. 

As a result of the misunderstanding, the 

bank almost received a fine. 

Another commenter urged 

modification of flood insurance to allow 

for exemptions for farm buildings like 

storage sheds, hay barns, and other 

nonresidential buildings. 

Two commenters suggested that 

investors purchasing commercial 

property can determine themselves 

whether they need flood insurance. 

Several commenters stated that they 

would also like to see the Agencies 

reconsider the requirement for 

insurance on a structure in a flood zone 

when the value of the land alone used 

as collateral supports the extension of 

credit. It should be the consumer’s 

choice in that situation to purchase the 

insurance, just as it is when the 

consumer owns the collateral outright. 

Another commenter questioned why a 

borrower has to purchase flood 

insurance for a structure that is not 

considered as collateral for loan 

repayment. It is an additional burden to 

the financial institution to require the 

borrower to get the insurance, wait the 

10 days after notifying the borrower of 

the requirement, and then close the 

transaction. 

Another commenter further asked that 

the flood insurance regulation provide 

guidance on how to address buildings 

that the borrower intends to tear down. 

The commenter noted that it had had 

situations in which the borrower 

purchased property that was in a flood 

zone, and, within one week of the loan, 

the property was torn down. It is 

burdensome for the borrower to go 

through the time and expense of 

obtaining flood insurance for temporary 

situations such as this; however, the 

regulation provides no exceptions. The 

commenter acknowledged that, under 

the NFIP guidelines, insurance would 

not be required if the building had no 

value and this is reflected in the 

appraisal. In the borrower’s example, 

however, the building had value. The 

commenter recommended an exception 

for buildings that will be torn down 

within an allotted timeframe from the 

closing date of the loan. 

The commenter also requested that 

the regulation clarify what is acceptable 

coverage for condominiums when a 

Residential Condominium Building 

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Association Policy (RCBAP) is in place. 

The FEMA handbook ‘‘Mandatory 

Purchase of Flood Insurance 

Guidelines’’ outlines that a unit owner 

can acquire supplemental building 

coverage that will apply only to that 

part of a loss that exceeds 80 percent of 

replacement cost of the RCBAP. The 

commenter asked the Agencies to clarify 

that the financial institution need only 

to confirm that the RCBAP is for at least 

80 percent replacement cost rather than 

100 percent replacement cost. 

8. Flood Insurance Maps. One 

commenter expressed concern that 

FEMA flood maps are often years out of 

date, and that the maps are not regularly 

adjusted. Moreover, in cases where the 

institution attempts to update the map, 

there are often long paperwork delays. 

Another commenter noted that it is 

often difficult for bankers to assess 

whether a particular property is located 

in a flood hazard zone because flood 

maps are not easily accessible and are 

not always current. Even once a 

property has been identified as subject 

to flood insurance requirements, the 

regulations make it difficult to 

determine the proper amount, and 

customers do not understand the 

relationship between property value, 

loan amount and flood insurance level. 

Once flood insurance is in place, it can 

be difficult and costly to ensure that the 

coverage is kept current and at proper 

levels. As a result, many institutions 

rely on third-party vendors to assist in 

this process, but that adds costs to the 

loan. A commenter noted that the 

process for flood map amendment or 

revision is tedious for the consumer. 

9. Force Placement. A few 

commenters noted that the financial 

institution is unable to force place a 

small amount of additional insurance on 

existing policy holders even if there is 

insufficient coverage on the property. 

Instead, the institution must work with 

the agent in trying to get the additional 

coverage placed, which the commenter 

contended cannot always be 

accomplished in a timely manner. The 

commenter suggested that the regulators 

amend the Mortgage Portfolio Protection 

Program rules to allow institutions to 

force place the additional coverage. 

10. Appraisals. One commenter noted 

that its regulator says that if a current 

appraisal is not available, the bank must 

rely on the most recent hazard 

insurance policy to determine the value 

of the dwelling for purposes of 

calculating the required amount of flood 

insurance. This is not in the regulation. 

The commenter urged that the 

regulation provide guidance as to how 

old an appraisal can be before it is 

outdated. The regulation requires that 

the lender track flood insurance to 

ensure that proper coverage remains in 

place, therefore causing the commenter 

to review the flood insurance at least 

once a year at its renewal, and 

sometimes more often if the loan is 

modified or renewed. The commenter 

found that it is constantly recalculating 

the required amount of flood insurance 

because the hazard insurance increases 

every year due to automatic inflationary 

increases. The commenter complained 

that the institution continuously must 

require many of its customers to 

increase their flood insurance every 

year. This is an unanticipated expense 

to a borrower and can cause difficulty 

in the relationship, not to mention the 

administrative cost to the institution. 

The commenter proposed that the flood 

insurance should not have to be 

increased above the original required 

amount, unless the loan amount 

increases. 

The commenter further noted that its 

regulator allows its institution to 

combine the building and contents 

coverage when determining the proper 

amount of flood insurance for a 

commercial property loan that is 

secured by both. However, if the loan is 

secured by the building only, the 

institution can refer to the building 

coverage only. The commenter said that 

such a policy is inconsistent, especially 

since the regulation provides guidance 

on how to determine building coverage; 

the building should be determined 

independently of the contents on a loan 

that contains both as collateral. 

The commenter also stated that the 

initial notification prior to the loan 

closing is all that is reasonably needed 

and that regulators should eliminate the 

notification at the time of renewal, 

extension, or increase in the loan 

amount. The borrower is informed prior 

to closing that the property securing the 

loan is in a flood zone and flood 

insurance must be obtained. Because the 

institution must track this flood 

insurance, the borrower will be 

informed via a separate notice, should 

their insurance expire, that they have 45 

days to obtain coverage or insurance 

will be force placed. As a commercial 

lender, the commenter crosscollateralizes loans to a business and 

renews the loans on an annual basis. 

Since these actions do not necessarily 

have the same maturity date, the 

borrower is continuously being sent 

notices that the property is in a flood 

zone. According to the commenter, 

borrowers think this is somewhat of a 

nuisance, and it is an administrative 

burden for financial institutions. 

11. Miscellaneous. One commenter 

noted that, when a loan is new and 

secured by property in a flood zone, or 

property in a flood zone is added to an 

existing loan, there is no 30-day waiting 

period for flood insurance. However, the 

commenter found that this is not the 

case when the flood insurance is up for 

renewal and the premium is paid 30 

days late. In cases such as this, the 

customer does have a 30-day grace 

period regardless of whether they have 

a loan. The commenter urged regulators 

to eliminate the 30-day grace period on 

delinquent policy renewals. 

B. Truth in Lending Act/Regulation Z 

Regulation Z was one of the 

regulations that received the most 

comments during the EGRPRA process. 

A general comment from many financial 

institution industry commenters was 

that consumers are frustrated and 

confused by the volume and complexity 

of documents involved in obtaining a 

loan (especially a mortgage loan), 

including the TILA disclosures as well 

as the RESPA disclosures. Industry 

commenters requested that the 

disclosures be written in a manner to 

facilitate consumer understanding. 

Many comments from both industry and 

consumer group commenters were also 

received on specific issues concerning 

Regulation Z. 

1. Rescission. Industry commenters 

called the right of rescission one of the 

most burdensome requirements, and 

many suggested either eliminating the 

right to rescind or allowing consumers 

to waive the right more freely than 

under the current rule (which requires 

a bona fide personal financial 

emergency). Other industry suggestions 

included: 

• Exempting regularly examined 

institutions from the rescission 

requirements (or allowing free consumer 

waivers for such institutions). 

• Exempting transactions where the 

initial request for a loan comes from the 

consumer (rather than from a 

solicitation by the lender). 

• Exempting refinancings (at least 

where no new money is extended). 

• Exempting bridge loans. 

• Exempting loans to ‘‘sophisticated 

borrowers’’ (for example, those with 

income over $200,000 or assets over 

$1,000,000), or freely allowing waiver in 

such cases. 

• Dropping the requirement to delay 

disbursement of loan proceeds. 

• Shortening the rescission deadline 

(such as, 11 a.m. on the next business 

day). 

Industry commenters provided the 

following to support their suggestions: 

• Consumers rarely exercise their 

right to rescind. 

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• Many consumers dislike having to 

wait three business days to receive the 

loan proceeds. 

• Because consumers can review the 

early TILA disclosures given within 

three days after the loan application, 

consumers have ample opportunity to 

understand the transaction and 

therefore do not need the right to 

rescind later. 

A few commenters said that a bank 

(even without the requirement) would 

work with a consumer who had a 

change of heart within several days after 

the mortgage closing. Arguments in 

support of dropping the delay-ofdisbursement rule included that the rule 

is not statutory; that lenders, closing 

agents, consumers and others all incur 

extra effort and expense by not being 

able to finalize the transaction on the 

day of closing (including, for 

consumers, extra interest); and that if 

rescission should occur after 

disbursement has been made, the 

transaction can be unwound without 

great difficulty. 

Consumer groups argued that the right 

of rescission is critical for consumers 

and must be maintained. They noted 

that the fact consumers rarely rescind 

suggests that the rule is not burdensome 

for lenders. Whether or not consumers 

rescind, they assert that the option to 

rescind provides incentive for lenders to 

comply with TILA. They also noted that 

consumers need time after closing to 

review the loan documents, including 

required regulatory disclosures, because 

loan terms often change at closing. 

Consumer representatives believed 

that rules allowing consumers to waive 

the right of rescission should remain 

narrow and that the rule allowing 

waivers for bona fide personal financial 

emergencies works well. These 

commenters are concerned that such 

consumers may be unduly pressured to 

waive their right to rescind, or that they 

may too freely request a waiver because 

they are in need of the loan proceeds 

(especially in the case of low-income 

consumers). Consumer groups opposed 

the industry suggestion to exempt some 

refinancings because much abusive 

lending involves refinancings. However, 

one consumer group comment asserted 

that burden could be reduced by 

dropping the delay-of-disbursement 

rule. 

2. Mortgage Loan Rules (generally). 

Industry commenters suggested that the 

RESPA disclosures, required under 

regulations issued by the Department of 

Housing and Urban Development, and 

the TILA disclosures should be 

consolidated into a single disclosure 

scheme, and generally, that one set of 

disclosures should apply to mortgage 

loan transactions, as opposed to 

multiple rules from various regulators. 

Commenters pointed to the large 

regulatory burden imposed because of 

the voluminous documents required at 

mortgage loan closings. 

Consumer group commenters agreed 

with lenders that TILA and RESPA 

disclosures should be integrated. These 

commenters also suggested that lenders 

should provide consumers with 

accurate disclosures at the time of 

application, instead of estimates. In 

addition, consumer group commenters 

also stated that the method for 

calculating the finance charge for 

mortgage loans should include all costs. 

3. Home Ownership Equity Protection 

Act Rules. With regard to the special 

rules under the Home Ownership and 

Equity Protection Act of 1994 (HOEPA), 

industry commenters asserted that the 

disclosures required under HOEPA are 

redundant and unnecessary, and that 

determining HOEPA coverage is 

difficult. They suggested using only the 

rate spread test, and not the fee test. 

Other suggestions included: 

• Using the same rate spread test as 

for the Home Mortgage Disclosure Act 

(HMDA) disclosures. 

• Making the HOEPA period for 

providing disclosures (three business 

days prior to consummation of the 

mortgage transaction) coincide with the 

TILA rescission period. 

• Excluding credit life insurance 

premiums from the fee test for HOEPA 

coverage. 

In support of the last suggestion, 

commenters stated that some consumers 

may want credit life insurance, yet 

lenders will not provide it so as to avoid 

HOEPA coverage. A commenter stated 

that the requirement for making HOEPA 

disclosures three business days before 

closing poses problems for both the 

bank and the consumer, because if the 

consumer decides at the last minute to 

change a term (such as, purchase credit 

life insurance and finance the 

premium), new disclosures and an 

additional three-day waiting period are 

required. 

Consumer group commenters urged 

that because abusive lending continues 

to increase, regulators should keep the 

HOEPA rules in place. 

4. Home Equity Line of Credit Rules. 

With regard to the special Regulation Z 

rules for home equity lines of credit 

(HELOCs), industry commenters 

suggested eliminating the requirement 

to provide the Board-prescribed home 

equity brochure, arguing that the 

brochure is unnecessary now that 

HELOCs are common and consumers 

are familiar with them. Another 

industry suggestion was that lenders be 

allowed a choice as to when to provide 

HELOC disclosures: Either at the time of 

receipt of the application or within 

three days of that date, for consistency 

with RESPA’s good faith estimate and 

TILA’s early disclosure requirements. 

The consumer representatives suggested 

that disclosures for HELOCs should be 

the same as disclosures for closed-end 

mortgage loans. 

5. Adjustable-Rate Mortgage 

Disclosures. Consumer groups, 

commenting on the special applicationstage disclosures for adjustable-rate 

mortgage (ARM) loans, stated that the 

disclosures should be loan-specific, as 

the technology now exists to provide 

such information. These commenters 

also advocated greater penalties for 

lenders that do not comply. 

6. Finance Charge and Annual 

Percentage Rate Issues. Industry 

commenters asserted that it is difficult 

to determine which costs must be 

included or excluded in calculating the 

finance charge and annual percentage 

rate (APR), especially with regard to 

third-party fees, and that these 

calculations should be simplified. 

Commenters stated that consumers do 

not understand, are confused by, and 

are not interested in the APR, and that 

disclosure of the interest rate, loan term, 

monthly payment, and closing costs 

should be sufficient. One commenter 

suggested that the tolerances for finance 

charge should be increased to reflect 

inflation, and perhaps stated as a 

percentage of the loan balance. Another 

commenter suggested that APRs should 

reflect (1) the fact that mortgage loans 

are paid off after 7 to 10 years on 

average (rather than 30), and (2) the 

probability that, for a variable-rate loan, 

the initial low rate will rise over time. 

7. Credit Card and Other Open-End 

Credit Issues. Industry commenters also 

addressed the rules for credit cards. 

Some institutions asserted that 

consumers can use rules for resolving 

billing errors to ‘‘game the system,’’

subjecting banks to fraud. These 

commenters argued that penalties 

should be imposed on consumers who 

make frivolous or fraudulent claims. 

Other industry commenters suggested 

that provisions of Regulation Z 

governing credit card disputes should 

be made consistent with the rules for 

debit cards under Regulation E and the 

Electronic Fund Transfer Act. They also 

noted that they need more time to 

investigate billing errors. Commenters 

also suggested that card issuers be 

allowed to issue additional credit cards 

for an existing account even when the 

consumer’s existing credit card is not 

replaced or renewed. 

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Consumer representatives suggested 

that open-end credit account disclosures 

be revised to illustrate the effect of 

making only the minimum payments. 

They suggested that the disclosure 

tables provided with credit card 

solicitations and applications (the 

‘‘Schumer box’’) also be provided with 

account-opening disclosures. They also 

suggested that consumers be permitted 

to provide oral notice of a billing error 

(rather than written notice, as under the 

current rule). 

8. Advertising Rules. Industry 

commenters stated that the TILA rules 

regarding credit advertising are not 

clear, and that it is difficult to determine 

what may or must be included in an 

advertisement. Commenters also 

suggested providing exceptions for radio 

and television advertisements, similar to 

those under Regulation DD and the 

Truth in Savings Act. 

9. Miscellaneous. Other industry 

comments included: 

• Harmonizing the requirements for 

closed-end credit disclosures with those 

for open-end credit. 

• Simplifying Regulation Z 

terminology. 

• Providing greater flexibility in 

Regulation Z restitution requirements. 

In addition, a few commenters 

opposed the Board’s proposal for a 

single standard for ‘‘clear and 

conspicuous’’ for Regulations B, E, M, Z, 

and DD, arguing that the changes would 

cause problems and expenses and that 

the existing standards in each regulation 

are sufficient. 

Other consumer group comments 

included: 

• Keeping TILA/Regulation Z 

requirements intact. 

• Adjusting the statutory damage caps 

for inflation (which would adjust the 

$1,000 cap to $5,350). 

• Adjusting the jurisdictional cap 

($25,000) for inflation (because many 

moderately priced automobile loans are 

now exempt). 

• Maintaining the tolerance levels for 

error without any adjustments because 

technology permits lenders to make 

increasingly accurate calculations. 

• Covering ‘‘bounce protection 

programs’’ under Regulation Z, or 

prohibit such programs altogether. 

C. Home Mortgage Disclosure Act 

Regulation C 

Regulation C was another subject of 

very heavy comment from financial 

institutions. Numerous commenters 

stated that collecting HMDA-mandated 

information was their most burdensome 

regulatory requirement. Commenters 

also added that compliance costs 

millions of dollars for paperwork with 

no meaningful results. Some 

commenters called for the outright 

repeal of HMDA or to have its 

requirements seriously modified. In 

addition, many commenters questioned 

the utility of the information collected. 

Other general comments received 

from industry commenters included: 

• Recent amendments to Regulation C 

have resulted in a large increase in 

burden and cost, without a cost-benefit 

analysis of the additional data requested 

by consumer activists. 

• The original burden-reduction 

purpose of the HMDA review was lost, 

and Agencies should issue guidance to 

the media and public on the proper 

interpretation of HMDA data. 

• Lending institutions were 

concerned that the HMDA data may be 

unfairly interpreted; for example, 

denials to minority applicants may 

appear high if a lender has an aggressive 

outreach program that generates many 

applications, or is in a rural area with 

few minorities. 

Consumer group commenters argued 

that the recent Regulation C 

amendments significantly enhanced 

HMDA data collection and will provide 

critical information and, thus, should be 

given time to take effect. These 

commenters contended that insufficient 

time has passed to permit fair 

consideration of the benefits and 

burdens of the changes. 

Many comments from both industry 

and consumer group commenters were 

also received on the following specific 

issues concerning Regulation C. 

1. Institutions Subject to Regulation. 

A major issue for industry commenters 

was coverage of depository institutions 

under HMDA. Many suggested that the 

asset threshold for the exemption 

should be increased from its current 

level (at the time of the solicitation of 

comment) of $33 million, with some 

suggesting a coverage threshold of at 

least $250 million and others suggesting 

$500 million or $1 billion. One 

commenter stated that some bank 

holding companies maintain a number 

of bank charters in order to stay under 

the reporting threshold. Others 

suggested changing to a coverage test 

based on mortgage loan activity, such as 

exempting depository institutions with 

fewer than 100 loan originations 

annually. Another suggestion was to 

apply a tiered approach, where only 

larger institutions would be required to 

collect data on the rate spread, HOEPA 

status, and manufactured housing 

status. Some industry commenters 

stated that it was unfair to cover 

depository institutions in rural areas 

and that the percentage of the 

institution’s loans in the metropolitan 

statistical area should determine 

coverage or a population threshold 

should be used. 

Consumer groups opposed increasing 

the threshold for HMDA exemptions, 

and supported increased coverage, 

including covering lenders with assets 

under $33 million and lenders in rural 

areas. They asserted that many 

‘‘problem lenders’’ are small lenders, 

and broader coverage would provide a 

better picture of the entire mortgage 

market. They also suggested lowering 

the thresholds to cover more nondepository lenders (specifically, by 

removing the 10 percent threshold, and 

lowering the $25 million threshold to 

$10 million) to address depository 

institutions’ complaints about a level 

playing field. Consumer groups also 

advocated including all HMDAreportable loans in calculating coverage 

under these thresholds. 

2. Types of Loans Reported. Industry 

commenters asserted that the new 

definition of refinancing in Regulation C 

is overly broad, and would require 

reporting of small business and farm 

loan refinancings. Commenters believed 

that such loans should not be covered 

and would distort HMDA data. Also, 

commenters pointed to compliance 

difficulties because such loans are 

generally not handled in consumer 

lending departments (where most 

HMDA-reportable loans are handled). In 

addition, commenters argued that 

reporting of such loans would impose 

more burden on the Agencies, which 

will have to sort the data to make them 

usable. Commenters also asked for 

clarification on whether small business 

loans that will now be reportable under 

HMDA should still be reported under 

the Community Reinvestment Act 

(CRA). Some commenters suggested that 

business-purpose loans generally 

(including loans on multifamily and/or 

rental property), as well as withdrawn 

loan applications, should not be 

reportable. On the other hand, other 

industry commenters suggested that all 

residential or home-equity lending 

should be reported, arguing that 

determining the underlying loan 

purpose is difficult and that this change 

would reduce reporting errors. 

3. Data Reported. Industry 

commenters argued that the volume of 

data required is excessive and 

burdensome, and that the value of the 

data has been overestimated and should 

be reconsidered. A few commenters 

suggested that unnecessary data fields 

be removed and that the focus be on 

fields that are truly meaningful or that 

regulators use market share to determine 

whether a lender is fulfilling its 

obligations. Industry commenters also 

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stated that certain information is 

difficult to determine, such as the 

definition of refinancing, rate spread 

(the difference between APR and a 

Treasury-bond-based index), HOEPA 

status (whether or not a loan is subject 

to HOEPA), and property location 

(especially in rural areas). Commenters 

asked for a consistent rule for 

determining loan amount for both 

HELOCs and closed-end home 

improvement loans. A few commenters 

argued that the definition of ‘‘home 

improvement loan’’ is too broad. 

Many commenters stated that the 

rules for determining HOEPA status and 

rate spread are too complex. Suggestions 

included revising the HMDA trigger for 

reporting the rate spread to be 

consistent with the rate trigger used to 

determine coverage under HOEPA. 

Commenters also stated that reporting 

the APR instead of the rate spread 

would be simpler, more accurate, and 

more meaningful. Several commenters 

also suggested that MSAs needed to be 

readjusted or redefined for HMDA 

purposes. 

In addition, some commenters 

suggested that the Board reconsider its 

recent changes to the categories for race 

and ethnicity data. Commenters stated 

that determining when to use multiple 

categories is difficult when reporting 

race and ethnicity data by visual 

observation (and noted that asking the 

questions may be offensive to 

applicants). They asserted that the 

government is perpetuating racial 

categorizations and suggested that, in 

telephone applications, lenders should 

be allowed to send the applicants a form 

requesting race and ethnicity, rather 

than asking for the information during 

the telephone conversation. Also, a 

commenter suggested that no penalty 

should apply if the lender inadvertently 

collects the monitoring data in a 

situation where such data are not 

required. 

Consumer groups believed that 

institutions should report more data 

under HMDA, and that the new items 

should include pricing information on 

all loans, critical loan terms (such as the 

existence of prepayment penalties), and 

key underwriting variables (such as, 

credit scores, loan-to-value, debt-toincome ratios). They believed 

institutions should report property 

location, even for rural areas and 

metropolitan areas where the institution 

does not have offices. They also asserted 

that institutions should report 

monitoring information for purchased 

loans. 

D. Equal Credit Opportunity Act/ 

Regulation B and Fair Housing Act 

Regulation B also received hundreds 

of comments from industry commenters. 

General comments from industry 

commenters included: 

• The Agencies should provide more 

guidance on fair lending because 

settlements in fair lending cases are too 

vague to provide guidance. 

• The Agencies should work with 

lenders to provide them with more 

flexibility and choice in complying with 

Regulation B. 

• The regulation should not apply to 

business credit. 

Consumer representatives said that 

Regulation B should not be streamlined 

or weakened. 

1. Evidence of Intent to Apply Jointly. 

Many industry comments on Regulation 

B focused on provisions, adopted by the 

Board in a recent regulatory review, 

regarding joint applications. Financial 

institutions contended that the new 

rules regarding how creditors must 

evidence the intent of the parties to 

apply jointly are problematic, 

particularly for business and 

agricultural loans, and for telephone 

and Internet applications. A commenter 

stated that the new rules almost require 

all parties and their spouses to come in 

to the bank’s office to complete 

applications. The commenters also 

noted issues with respect to the proper 

use of Fannie Mae and Freddie Mac 

forms (including some conflicting 

guidance from different agencies on 

whether use of these forms would be 

sufficient to show intent to apply 

jointly). Some commenters argued that 

both borrowers’ signatures on the note 

should be sufficient evidence of the 

party’s intent to apply jointly, or that 

completion of the application form as a 

joint application should be sufficient 

evidence of such intent. In addition, 

some suggested that in business and 

farm lending where there is an ongoing 

relationship between the borrower and 

the lender, providing evidence of intent 

to apply jointly at the outset of the 

relationship should suffice. 

2. Data on Race and Ethnicity. In 

regard to Regulation B, some 

commenters suggested eliminating the 

collection of monitoring information on 

the race, ethnicity, and gender of 

applicants for loans to purchase or 

refinance a principal dwelling. 

Commenters stated that, if consumers 

do not wish to provide the information, 

the lender should not have to guess race 

and ethnicity. Commenters also argued 

that sufficient information is collected 

under HMDA and therefore should not 

be separately required under Regulation 

B. One commenter contended that the 

Regulation B data collection 

requirement poses problems for banks 

not subject to HMDA, because they may 

use HMDA loan application forms, yet 

the data collection rules under 

Regulation B differ from those under 

HMDA. Other commenters suggested 

that this information should be 

collected on all loans (or on all realestate secured loans) or on none. 

Consumer representatives also 

addressed the collection of monitoring 

information. They urged that lenders be 

required, or allowed voluntarily, to 

collect and report information on the 

demographics of small business 

borrowers, asserting that lending to 

businesses in low- to moderate-income 

areas has stagnated. 

3. Interaction with the PATRIOT Act. 

Commenters also addressed the 

interaction between Regulation B and 

the PATRIOT Act, such as, the 

Regulation B prohibition on obtaining 

information on gender and race or 

national origin and the PATRIOT Act 

requirement to maintain sufficient 

information to identify a customer. 

Commenters asked for more guidance 

on whether or not a copy of the 

borrower’s photo identification may be 

kept in a loan file, and suggested that 

the prohibition against retaining copies 

of drivers’ licenses in loan 

documentation should be dropped. 

4. Adverse Action Notices. Many 

commenters criticized the adverse 

action notice requirements of Regulation 

B, and stated that consumers do not like 

receiving adverse action notices. 

Commenters argued that lenders need 

more flexibility in dealing with loan 

applicants (such as, a bank may wish to 

offer a customer an alternative to the 

loan originally applied for, but this may 

trigger an adverse action notice 

requirement). A few commenters 

suggested that the Agencies redefine the 

Regulation B definition of 

‘‘application.’’ A complaint in this area 

was that it is difficult to know when an 

application has been made for purposes 

of Regulation B, because the distinction 

between an inquiry and an application 

is not clearly defined. Commenters 

recommended that an easily understood 

rule should be developed on when an 

adverse action notice is required (such 

as, it may be difficult to determine 

whether an application is incomplete, or 

has been withdrawn). Another comment 

was that the number of reasons to 

include on the adverse action notice is 

a problem. One commenter stated that 

the Agencies should better coordinate 

the adverse action notice requirements 

of Regulation B with those of the Fair 

Credit Reporting Act. 

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63No comments were received on the OTS UDAP 

regulation. 

5. Miscellaneous. Other suggested 

changes concerning ECOA or Regulation 

B included: 

• Repealing the ECOA and Fair 

Housing Act logo and poster display 

requirements. 

• Allowing consideration for 

ownership of a cell phone when 

determining creditworthiness. 

• Amending the regulation to clarify 

whether the institution must provide 

the consumer with information from an 

automatic underwriting when used 

instead of an appraisal report. 

• Abolishing the requirement to 

provide a loan applicant with a notice 

of the right to receive an appraisal as 

unnecessary. 

• Relaxing the rules for special 

purpose credit programs. 

• Easing Regulation B restrictions to 

allow the offering of special accounts for 

seniors. 

• Replacing ECOA, Fair Housing Act, 

and other fair lending legislation with a 

single antidiscrimination act. 

E. Consumer Leasing Act/Regulation M 

A few industry commenters addressed 

Regulation M issues. Comments 

included suggestions that the Agencies 

update jurisdictional limits and 

statutory damages, and amend 

Regulation M to eliminate new 

disclosures for month-to-month 

renewals of leases, and instead require 

disclosures only when a lease is 

extended at least 12 months beyond its 

original term. This would avoid 

covering, for example, a lease extension 

while the consumer and lessor work out 

terms for a buyout of the vehicle. 

Consumer group commenters did not 

comment on Regulation M issues. 

F. Unfair or Deceptive Acts or Practices 

(UDAP)/Credit Practices Rule/ 

Regulation AA and OTS UDAP 

Regulation 63

Industry commenters offered a few 

suggestions regarding Regulation AA, 

including: 

• Non-purchase-money, nonpossessory security interests in 

household goods should be allowed in 

some cases. 

• First-lien mortgages should be 

exempt from the cosigner notice 

requirements (because such loans 

involve low risk, and the cosigners in 

these transactions are usually aware of 

the terms and thus do not need notice). 

Regarding UDAP issues more 

generally, industry commenters stated 

that, if supervisory agencies pursue 

enforcement actions in this area, the 

Agencies should release information 

about the actions to provide guidance to 

the industry. 

Consumer groups commented 

generally that current UDAP protections 

should not be weakened. They also 

argued that current agency UDAP 

guidance overemphasizes disclosures 

rather than substantive protections 

against abuse. Consumer group 

commenters suggested that the Agencies 

address the following practices in the 

UDAP rules: 

• Equity stripping (such as, exorbitant 

fees, loan flipping, packing and 

financing of ancillary products). 

• Practices that make borrowers 

vulnerable to foreclosure (such as 

subprime prepayment penalties, balloon 

payments and negative amortization in 

subprime loans, and mandatory 

arbitration clauses). 

• Practices that exploit vulnerable 

populations (such as, steering borrowers 

toward subprime products targeting 

particular ethnic groups, the elderly, 

and/or low-to-moderate income persons 

and neighborhoods). 

Commenters also suggested that the 

Agencies address payday lending and 

bounce protection under UDAP rules. 

Consumer comments on Regulation 

AA specifically included the suggestion 

that the Board adopt the Federal Trade 

Commission’s ‘‘Holder Rule’’ to make it 

applicable to banks. (The Holder Rule 

requires that a consumer credit sale 

contract contain language prominently 

stating that any holder of the contract is 

subject to any claims and defenses that 

the consumer could assert against the 

seller of the goods or services that are 

the subject of the contract.) 

G. Interagency Privacy Rule and 

Information Security Guidelines 

The majority of these comment letters 

addressed the interagency rules, which 

are substantively identical, regarding 

the privacy of customer information (12 

CFR 40, 216, 332, and 573) (Privacy 

Rule). Many of the letters were 

substantively similar form letters and 

some letters were submitted by multiple 

individuals associated with a single 

depository institution. A few of the 

letters also addressed the interagency 

guidelines regarding safeguarding of 

customer information (12 CFR 30, 

Appendix B; 208, Appendix D–2; 364, 

Appendix B; 570, Appendix B; and 225, 

Appendix F) (501(b) Guidelines), which 

also are substantively identical. The 

Privacy Rule and 501(b) Guidelines 

implement Title V of the GLBA. 

The most frequent comment, by far, 

on the Privacy Rule was that the annual 

notice requirement was unnecessary 

because it was confusing for consumers 

and/or unduly burdensome for 

depository institutions. Many 

commenters suggested alternative 

follow-up notice requirements that were 

more limited in scope than the present 

rule. The most frequently suggested 

alternative was that no follow-up notice 

should be required unless and until a 

depository institution’s policy changes. 

Another suggestion was that the 

Agencies require annual notices only for 

those depository institutions that share 

in a manner that triggers the consumer’s 

right to opt out. 

Many commenters expressed general 

concern that the privacy notices are too 

detailed and legalistic, which impedes 

consumers’ ability to understand such 

notices. Some of these commenters 

suggested specific alternative 

approaches. Some commenters also 

suggested that the banking agencies 

should develop a model form that 

depository institutions could use as a 

compliance safe harbor, although 

commenters differed on whether use of 

such a form should be required or 

voluntary. 

Some commenters opined that there 

should be a uniform national standard 

for privacy notices because the federal 

rule, when combined with additional 

state requirements that vary from state 

to state, created compliance difficulties 

for depository institutions. 

Commenters opined generally that the 

501(b) Guidelines were unnecessary 

and/or overly burdensome. Some of 

these commenters thought that the 

flexibility of the Guidelines made it 

difficult for depository institutions to 

determine what would constitute 

compliance and suggested that the 

Agencies provide clarification in this 

regard. In addition, some commenters 

expressed concern that different 

examiners held depository institutions 

to different compliance standards and 

suggested that the Agencies promote 

more consistent compliance 

examinations. 

H. Section 109 of the Interstate Banking 

and Branching Efficiency Act of 1994, 

Prohibition Against Deposit Production 

Offices 

Only two comments were received on 

the regulations that prohibit a bank from 

establishing or acquiring branches 

outside of its home state primarily for 

the purpose of deposit production 

pursuant to section 109. One industry 

trade association cited the statute’s 

requirement that the Agencies not 

impose any additional paperwork 

collection or regulatory burden when 

enforcing the provision and stated that 

the Agencies have complied with the 

statute’s intent. Another industry trade 

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association supported the regulatory 

requirements and did not recommend 

any regulatory changes but 

recommended a statutory change that 

would increase the threshold for 

measuring compliance. Instead of a 

covered bank currently needing to have 

a loan-to-deposit ratio in states into 

which it branches that equals one-half 

(50 percent) of the state bank’s overall 

loan-to-deposit ratio, the industry trade 

association wants a covered bank to 

have a ratio that equals 80 percent of the 

state ratio. 

I. Electronic Fund Transfer Act/ 

Regulation E 

1. Products Subject to Regulation. An 

industry commenter suggested that, 

among stored value products, 

Regulation E should apply only to 

products that have the characteristics of 

traditional deposit accounts, and not to 

those that do not represent account 

ownership at a depository institution 

but that instead are designed to be 

treated like cash. In contrast, consumer 

groups suggested applying Regulation E 

to payroll cards (arguing that payroll 

cards may be forced on employees, yet 

lack protections), and to other stored 

value cards. Consumer group 

commenters also stated that consumers 

are confused by differences in 

protection among debit cards, payroll 

cards, and other stored-value cards. One 

commenter stated that the Electronic 

Funds Transfer Act (EFTA) should be 

revised to ensure that all consumer 

payment mechanisms have the 

maximum level of consumer 

protections. 

2. Error Resolution Rules. A number 

of industry commenters addressed the 

error resolution rules of Regulation E. 

Commenters suggested that the 

Agencies make Regulation E rules 

consistent with rules of the National 

Automated Clearing House Association 

(NACHA). For example, under the 

NACHA rules the consumer has 60 days 

from the date of posting the transaction, 

while under Regulation E the consumer 

has 60 days after they have been 

provided with a periodic statement. 

Other suggestions were that the time for 

a consumer to give notice of error be 

reduced from 60 days to 30 days, and 

that the time for the bank to resolve the 

error (or provisionally recredit the 

consumer’s account) be increased from 

10 business days to 20 business days. 

Commenters also suggested that the 

difference between the time for 

institutions to resolve errors under 

Regulation E, and the time for 

merchants to respond to the institution, 

be reduced (to lessen the possibility of 

the merchant responding after the 

institution has made a provision credit 

final). In addition, commenters asserted 

that the bank should not be required to 

act unless the consumer puts the error 

claim in writing. 

A bank stated that its cost per dispute 

is approximately $32, and that the 

mandated time periods for error 

resolution, notice requirements, and 

research requirements are very 

burdensome. Another commenter called 

the error resolution provisions the most 

misunderstood in the regulation, and 

asked for additional clarification or 

examples. Another comment was that 

the error resolution procedures are 

confusing, since they vary depending 

upon whether the transaction in 

question occurred in a new account. 

Further, according to the comment, the 

Regulation E definition of ‘‘new 

account’’ does not match the definition 

of the term in Regulation CC; the 

definitions should be made consistent. 

Another commenter asserted that the 

bank is prohibited from collecting any 

dispute fee from the consumer, even if 

it is found after investigation that no 

error occurred. 

3. Consumer Liability for 

Unauthorized Transactions. Industry 

commenters criticized the Regulation E 

limits on consumer liability for 

unauthorized electronic fund transfers 

and urged the Agencies to increase the 

limits and shorten the timeframes for 

consumers to report loss or theft. It was 

argued that the existing limits were 

appropriate when electronic transfers 

were a new technology, but unfair today 

when consumers are familiar with the 

need to protect their PIN, and where 

24/7 access to account information is 

available to allow consumers to detect 

suspicious activity. 

Thus, commenters suggested that the 

rules on consumer liability should 

incorporate a negligence standard, such 

that if the consumer’s negligence leads 

to unauthorized transactions, the 

consumer’s liability increases. 

Commenters urged that in cases in 

which the consumer writes the PIN on 

the debit card (or keeps the PIN and 

card in the same location), or if the 

financial institution can otherwise 

substantiate consumer negligence, the 

consumer’s liability should be increased 

to $500. Another commenter 

recommended that the consumer’s basic 

level of liability, currently $50, be 

increased to $250, and that the 

consumer be required to report the loss 

within five business days from the 

bank’s receipt of the first unauthorized 

transaction. A commenter suggested 

adopting a comparative negligence 

standard consistent with check law 

under the Uniform Commercial Code. 

Another suggestion was that the limits 

on consumer liability for unauthorized 

electronic fund transfers be adjusted 

annually for inflation. Regarding 

signature-based debit card transactions, 

it was suggested that merchants that 

accept such transactions without 

verifying the consumer’s signature (or 

even in all cases, whether or not the 

merchant verifies the signature) should 

be held accountable. 

A commenter suggested that the same 

rules should apply to credit card, ATM, 

and debit card transactions, because it is 

confusing to consumers as well as bank 

employees when different sets of rules 

apply depending upon the type of 

transaction. 

Consumer group commenters 

suggested that institutions should not be 

permitted to place the burden of proof 

on a consumer regarding a claim of an 

unauthorized transfer; rather, the 

institution should reimburse the 

consumer unless the institution can 

prove that the transfer was authorized. 

4. Automated Teller Machine Fee 

Disclosures. An industry commenter 

stated that the requirement to provide 

notice of an automated teller machine 

(ATM) fee both by posting the notice at 

the ATM, and by providing the notice 

on the ATM screen (or on a paper notice 

issued by the ATM), involved useless 

duplication. 

5. Change in Terms Notices. Many 

commenters suggested that the 

requirement to give notice of a change 

in account terms or conditions should 

be changed from 21 days in advance of 

the change to 30 days in advance, to 

make the notification timeframe 

consistent with Regulation DD and 

simplify compliance. An alternative 

suggested by one commenter was to 

conform the Regulation DD time period 

to that under Regulation E. 

6. Account-Opening Disclosures. A 

commenter stated that providing 

disclosures simply because the account 

could have an electronic transfer is 

expensive when many accounts do not 

have such activity. 

7. Periodic Statements. Commenters 

suggested that, in the case of consumers 

who have online or telephone access to 

monitor their accounts and transactions 

daily, the requirement for a monthly or 

quarterly periodic account statement is 

unnecessary. A commenter contended 

that the requirement to provide periodic 

statements quarterly for accounts with 

electronic access but no activity is 

unduly burdensome, and suggested that 

the Agencies amend the rule to allow for 

semiannual or annual statements in 

such cases. 

8. Disclosures (generally). A 

commenter stated that required EFT 

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disclosures are too lengthy and are 

likely not read by consumers. 

9. Issuance of Debit Cards. A 

commenter generally supported the 

Board’s current proposed amendment to 

the Regulation E staff commentary that 

would clarify that institutions may issue 

multiple debit cards as a renewal or 

substitute for an existing single card if 

the card issuer complies with certain 

validation requirements set forth in the 

regulation. 

10. Telephone Authorization for 

Recurring Debits. A commenter 

generally supported the Board’s 

proposed amendment to the Regulation 

E staff commentary that would 

withdraw a comment that states that a 

tape-recorded telephone conversation 

does not constitute written 

authorization for purposes of the 

requirement that preauthorized 

recurring electronic debits to a 

consumer’s account be authorized by 

the consumer only in writing. However, 

the commenter recommended that the 

Board specifically confirm that such a 

tape-recorded authorization would 

satisfy the requirements of the 

Electronic Signatures in Global and 

National Commerce Act (E-Sign Act) 

(and thereby comply with Regulation E), 

as opposed to merely withdrawing the 

comment and not addressing the 

interpretation of the E-Sign Act. 

11. Notice of Variable-Amount 

Recurring Debits. A commenter 

generally supported the Board’s 

proposed amendment to the Regulation 

E staff commentary that would provide 

that a financial institution need not give 

a consumer the option of receiving an 

advance notice of the amount and 

scheduled date of a variable-amount 

preauthorized recurring electronic 

transfer from the consumer’s account to 

another account held by the consumer, 

even if the other account is held at 

another financial institution. 

J. Truth in Savings Act /Regulation DD 

A general industry comment was that 

compliance with Regulation DD can be 

time-consuming and costly, and 

therefore many banks have eliminated 

various accounts and combined 

statements, doing a disservice to 

consumers. It was also stated that when 

Regulation DD was promulgated, few 

consumers had complained about 

inability to comparison shop using 

simple interest rate information. 

1. ‘‘Level Playing Field.’’ A few 

commenters suggested that credit 

unions should be required to provide 

disclosures similar to those of 

Regulation DD in order to enable 

consumers to make an informed 

decision. 

2. Disclosures (generally). A 

commenter stated that required Truth in 

Savings Act (TISA) disclosures are too 

lengthy and are likely not read by 

consumers. Another commenter 

suggested that the disclosures be 

simplified, shortened, and written in a 

‘‘plain English’’ format. Another 

commenter recommended that 

examiners cite only substantive 

violations; the commenter stated that 

using the term ‘‘Personal Money 

Market’’ in the initial disclosure and the 

term ‘‘Money Market’’ in the periodic 

statement was cited as a violation but 

should not have been. Many 

commenters asserted that their 

customers pay little attention to the 

TISA disclosures. These commenters 

argued that there is a cost for developing 

the programs and procedures to produce 

the disclosures, but if consumers are not 

paying attention to the disclosures, then 

the regulatory requirement is needless. 

The commenters recommended that the 

banking Agencies conduct a study 

involving all interested parties, 

including banks, consumers, and 

software providers, to determine 

whether the TISA disclosures are truly 

serving their purpose and to streamline, 

simplify, and improve the effectiveness 

of the disclosures. 

A commenter suggested that the 

disclosure requirements be the same for 

both paper and electronic forms, to 

simplify the regulatory framework and 

ease compliance burdens. 

A consumer group commented that 

the regulation should require TISA 

disclosures to be made available on 

financial institutions’ Web sites. 

3. Change in Terms Notices. 

Commenters suggested that the 

requirement to provide a notice of 

change in terms 30 days in advance of 

the effective date of the change be 

revised to provide for a shorter period 

of advance notice. It was noted that, 

when interest rates change, a shorter 

period better reflects the changing 

market. 

4. Renewals of Certificates of Deposit. 

A few commenters addressed the 

requirement to provide disclosures 

before renewals of certificates of deposit 

(CDs). One commenter noted that TISA 

disclosures are provided at the time of 

initial purchase of the CD and argued 

that, if the CD will be renewed on the 

same terms, no further disclosure 

should be required. The comments also 

noted that if the terms will change at 

renewal, disclosure of the changes 

would already have been provided 

under the change-in-terms notice 

requirements. Another commenter 

suggested simplifying the notices by 

eliminating the different requirements 

for varying maturities of automatically 

renewable CDs, as well as between 

automatically renewable CDs and not 

automatically renewable CDs (calling for 

one standard notice that would include 

the date the existing account matures 

and a statement that the consumer 

should contact the institution to obtain 

further information). 

5. Advertising Requirements. A 

commenter requested clarification that 

electronic billboards are included in the 

exempt category of ‘‘outdoor media’’

and that voice response units are 

included in the exempt category of 

‘‘telephone response machines.’’ The 

commenter stated that, during 

examinations, the media in question are 

not consistently treated as exempt from 

the advertising requirements. Another 

commenter suggested that the Agencies 

simplify the advertising rules, especially 

for banks that are subject to the Federal 

Trade Commission Act that prohibits 

unfair and deceptive practices in 

advertising. 

6. ‘‘Bounce Protection’’ Amendments. 

A few commenters addressed the 

proposed amendments to Regulation DD 

regarding bounce protection programs. 

These commenters expressed opposition 

to the proposals, in particular those 

relating to disclosing aggregated 

overdraft fees on periodic statements 

and to advertising specific fees and 

terms of overdraft services. One of these 

commenters stated that the aggregated 

fees proposal would be costly to 

implement and an unnecessary 

disclosure for consumers; and that the 

advertising proposal would be difficult 

to comply with because there are 

numerous and ever-changing reasons 

why an institution may refuse to pay an 

overdraft (which would have to be 

disclosed by institutions promoting 

overdraft services). Another of these 

commenters recommended that, if the 

Board adopts the proposals, the Board 

should allow the industry adequate time 

to make system and personnel changes 

necessary to comply. Another 

commenter stated that the costs and 

burdens of implementing the new rules, 

if adopted, would lead many 

community banks to discontinue 

offering this product, doing a disservice 

to consumers. 

7. Record Retention Requirements. A 

commenter suggested that institutions 

that are examined more frequently than 

once every two years be required to 

retain records of compliance for one 

examination cycle (rather than for two 

years, as currently required). 

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K. Consumer Protection in Sales of 

Insurance 

A number of industry commenters 

addressed the interagency regulations 

on consumer protection in insurance 

sales, implementing section 47 of the 

Federal Deposit Insurance Act enacted 

as part of the GLBA. Commenters raised 

issues related to the disclosure 

requirements of the regulations. 

Consumer group commenters did not 

comment on the regulations on 

consumer protection in insurance sales. 

1. Types of Insurance and Annuities 

Covered by Disclosure Requirements. 

One of the suggestions most frequently 

expressed by commenters was that the 

Agencies should exclude from 

disclosure insurance products that do 

not involve investment features or 

investment risk from the disclosure that 

there is investment risk associated with 

the product, including possible loss of 

value. For example, commenters argued 

that fixed-rate annuities guarantee the 

return to the policyholder, and that the 

Agencies should exclude such annuities 

from the investment risk disclosure. 

Commenters also focused on the 

disclosure that an insurance product is 

not a deposit and is not insured by the 

FDIC or any other government agency. 

They contended that the disclosure 

requirement should apply only to 

insurance products that are similar to a 

deposit product because of the fact that 

consumers might confuse such 

insurance products with an FDICinsured deposit. They argued that the 

disclosure requirement should not 

apply to types of insurance such as 

credit life, property and casualty, crop, 

flood, and term life insurance, where, 

because such insurance products are not 

similar to a deposit product, there is no 

likelihood of confusion. Commenters 

suggested that making the disclosure for 

insurance products such as credit life 

insurance in fact confuses consumers 

(rather than alleviates confusion), and 

therefore requires institution personnel 

to spend time explaining the disclosure 

to consumers. 

2. Duplicative Disclosure 

Requirements. Commenters noted that 

credit life insurance is subject to a 

disclosure requirement under section 47 

of the FDIA—the fact that the institution 

may not condition an extension of credit 

upon the purchase of an insurance 

product or annuity from the 

institution—and also to a similar 

disclosure provision under the Truth in 

Lending Act. The former disclosure is 

made at application and the latter at 

loan closing. Commenters suggested that 

a single disclosure at loan closing 

should be sufficient. Commenters also 

stated that some state laws require 

similar disclosures. One commenter 

asserted that, therefore, a consumer in 

such a state must sign four times to 

purchase credit insurance (twice for 

federal disclosures, once for the state 

disclosure, and once on the insurance 

company’s form). Commenters argued 

that consumers are confused by the 

multiplicity of disclosures that have no 

real meaning for the average consumer. 

3. Procedures for Providing 

Disclosures. Commenters addressed the 

fact that the regulations require the 

disclosures both orally and in writing, 

and suggested that a single method 

should suffice (for example, written 

disclosures should be sufficient, except 

for telephone sales, in which case oral 

disclosures should be sufficient). 

Commenters also noted the requirement 

to obtain the consumer’s written 

acknowledgment that they received 

disclosures arguing it is burdensome 

and unnecessary. One commenter also 

suggested that an oral acknowledgment 

should suffice in the case of a telephone 

sale (the regulations, in that 

circumstance, require that the 

institution both obtain an oral 

acknowledgment on the telephone, and 

make reasonable efforts to obtain a 

written acknowledgment). 

L. Advertisement of Membership 

(Deposit Insurance)—12 CFR Part 328 

Several comments were received. Two 

commenters had no recommendations 

for changes. One of these commenters, 

an industry trade association, noted it 

had received few questions or 

complaints about part 328 since it was 

revised in 1989. The second commenter, 

also an industry trade association, said 

banks generally do not find the 

regulation burdensome as long as it is 

reasonably interpreted and not strictly 

construed—such as, allowing banks to 

take deposits at a customer service desk 

or a branch manager’s desk without 

having to display the official bank sign. 

Some commenters recommended 

changing part 328. One commenter 

favored simplifying the exceptions to 

the official advertising statement 

requirement to say that it applies only 

when advertising deposits. Another 

commenter recommended eliminating 

the exception to official advertising 

statement requirement for radio and 

television ads that do not exceed 30 

seconds. Several commenters from an 

industry trade association questioned 

the need for the official sign, and one 

commenter of that industry trade 

association thought requiring the official 

advertising statement on bank 

merchandise was excessive. One 

commenter thought that not every teller 

window required an official sign, saying 

that posting the official sign on the front 

door or in the lobby should be 

sufficient. Finally, one commenter 

asked for clarification when the official 

advertising statement is required, saying 

that the FDIC should not require the 

official advertising statement on 

promotional items. 

M. Deposit Insurance Coverage—12 CFR 

Part 330 

One commenter suggested simplifying 

the rules for the various types of 

accounts, particularly when combining 

accounts to maximize coverage limits. 

Commenters noted the difficulty in 

explaining the rules to customers. A 

number of commenters mentioned that 

the EDIE educational program was very 

helpful and some commenters asked 

that it be sent to every financial 

institution and branch location to assist 

employees in responding to customer 

questions. Most commenters also 

suggested raising, or not lowering, the 

deposit insurance limits. Some 

commenters who favored raising the 

limit suggested the limits be indexed for 

inflation. In addition, commenters 

suggested the following: 

• Merge the BIF and SAIF. 

• Assess growth related premiums on 

rapidly growing institutions, but not 

small de novo institutions. 

• Give FDIC the flexibility to manage 

the insurance fund and spread 

recapitalization over a reasonable 

period. 

Commenters also suggested that a 

rebate system be established, that the 

need to ‘‘structure’’ deposits be 

eliminated, and that assessment forms 

are unnecessary. 

N. Deposit Insurance Regulations 

Many other commenters supported 

legislation that would merge the BIF 

and SAIF fund and allow every 

institution that benefits from deposit 

insurance to pay something when they 

enter the system. The commenters 

suggested that the Agencies factor into 

the risk-based assessment other factors 

such as, number of interstate locations, 

types of products offered, and exam 

ratings. Another commenter suggested 

that new entities that open with FDIC 

coverage, such as American Express, but 

have not paid into the fund, should pay 

a substantial fee. 

One commenter felt the purpose of 

the fees, to prevent dilution of the SAIF 

and to ensure payment of FICO bonds, 

no longer exists so the fees are moot. 

One commenter stated that deposit 

insurance coverage rules need 

simplifying and streamlining. The same 

commenter additionally recommended 

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that FDIC distribute information to 

every branch office of every bank and 

otherwise disseminate tools more 

broadly so that consumers understand 

how to expand coverage. 

O. Notification of Changes of Insured 

Status—12 CFR Part 307 

The one commenter, a trade 

association, stated that no bank or 

savings association has ever raised a 

regulatory burden concern about the 

requirements and therefore, the 

commenter had no recommendations for 

change. 

P. OTS Advertising Regulation and 

Tying Restriction Exception 

There were no comments on either 

OTS regulation. (12 CFR 563.27 and 12 

CFR 563.33) 

III. Federal Register Release No. 4—

Anti-Money Laundering, Safety and 

Soundness and Securities Regulations 

A. Anti-Money Laundering 

1. Bank Secrecy Act and Money 

Laundering. The Agencies received over 

125 comments discussing various issues 

pertaining to compliance with the BSA 

and other AML legal requirements. In 

addition to the written comments 

received, issues associated with BSA 

compliance ranked among the most 

burdensome requirements identified by 

bankers during the nationwide outreach 

meetings that the federal banking 

agencies conducted during the EGRPRA 

process. Whether in written comments 

submitted in response to the Federal 

Register notice, or in oral comments 

delivered at the outreach meetings, 

bankers expressed deep concern over 

the costs in time, money, and staffing 

associated with complying with the 

BSA and, particularly, whether such 

efforts are useful and cost effective. 

a. Currency Transaction Report 

Thresholds. In comments submitted to 

the Federal Register, as well as in the 

various Bankers Outreach Meetings, 

commenters were unanimous in 

supporting changes to the currency 

transaction report (CTR) requirements. 

With the exception of one commenter, 

all were unanimous that the current 

threshold of $10,000 for filing CTRs 

needs to be increased. The suggested 

numbers for a new threshold ranged 

from $15,000 to $50,000, with most 

commenters urging a new threshold of 

$20,000 or $25,000. The reasons given 

for the need to increase the threshold 

varied among the commenters. A 

number of commenters noted that the 

$10,000 threshold had been established 

over three decades ago and that there 

was a need to adjust the threshold for 

inflation. A majority of the commenters 

discussed how burdensome the CTR 

requirements were, both because of the 

low reporting threshold and because of 

the belief that law enforcement did 

little, if anything, with the CTRs that 

banks file. One commenter noted that 

the low threshold ‘‘clutters the system’’

with CTRs that do not have enough 

value to justify the cost of filing, data 

entry, storage and retrieval. Raising the 

threshold, some commenters believed, 

would be more efficient for both law 

enforcement and the banks. A couple of 

commenters suggested reviewing/ 

adjusting thresholds annually to allow 

for inflation, and to enable government 

to make changes based on resources and 

law enforcement needs. 

One commenter suggested that 

lowering the CTR threshold to $5,000 

would reduce duplicative paperwork 

burden. This commenter contended that 

lowering the threshold would avoid 

double filing of paperwork, because 

banks must file CTRs on aggregated 

transactions that meet the threshold of 

$10,000 and SARs on the individual 

deposits making up the total. The 

commenter asserted that most SARs are 

required to be filed because a customer 

has structured deposits that trigger the 

$10,000 threshold and, if the threshold 

is lowered to $5,000, the commenter 

suggested that only a CTR would be 

required for these same transactions. 

Another commenter took a different 

view and noted that excessive SARs for 

‘‘structured’’ transactions are being 

required because the current $10,000 

threshold is too low. This commenter 

suggested raising the CTR threshold to 

$25,000. 

One commenter noted that 

exemptions from CTR reporting are too 

complicated and it is easier for a bank 

to file a CTR than undertake the 

determination that a customer qualifies 

for an exemption. The commenter 

recommended that the federal banking 

agencies tell FinCEN that CTR 

exemption rules need to be amended to 

allow exemption designations for all 

non-listed businesses other than 

businesses designated by FinCEN as 

increased risk, without regard to 

transaction history, and exemptions 

should be done through a one-time 

filing. 

Another commenter proposed 

eliminating the one-year CTR exemption 

waiting period. This commenter stated 

that since the PATRIOT Act already 

requires upfront information to enable 

institutions to identify customers, it is 

duplicative and burdensome to not 

allow CTR exemptions until a year has 

passed. On a related note, another 

commenter said that it would be better 

for there to be no CTR reporting until a 

customer was deemed suspicious by the 

depository institution, or until the 

government told the institution to begin 

such reporting. Yet, another commenter 

suggested eliminating the annual 

recertification requirement for exempt 

customers. Another commenter stated 

that it had not made use of a so-called 

Phase II exemption due to the time and 

personnel needed to monitor and 

document activity over a 12-month 

period to ensure that customers qualify 

for the exemption. This commenter said 

that the only requirement should be to 

eliminate the exemption when a 

customer’s attributes no longer qualify 

for the exemption. Three commenters 

said that the biennial filing of exempt 

accounts is unnecessary because banks 

review the exemptions annually. 

Another commenter proposed that the 

period for establishing a relationship for 

purposes of an exemption be reduced 

from 12 months to 3 to 6 months. 

One commenter suggested replacing 

daily CTRs with monthly cash 

transaction reporting. The commenter 

suggested that a report for any customer 

with cash transactions of over $50,000 

would help government focus on the 

riskiest customers. Another suggested 

statutory changes to eliminate the CTR 

form. The commenter suggested that the 

form is difficult to fill out and that it 

would be easier for banks to give 

monthly reports of all deposit accounts 

that had aggregate cash in/cash out of 

$10,000 for the month containing 

account name, account number, 

taxpayer ID number, account address, 

and total cash in and cash out. This 

approach, said the commenter, would 

eliminate ‘‘thousands of hours’’ spent 

preparing individual CTRs for everyday 

deposits/withdrawals. It would also 

eliminate the need to file SARs for 

amounts just under $10,000. 

One commenter noted that the 

exemption system for CTRs does not 

work well for community banks, 

because it is not cost effective for small 

institutions that do not file a lot of CTRs 

and fear regulatory action if the 

exemption is used incorrectly. The 

commenter recommended that the 

agencies work with FinCEN to allow 

institutions to more quickly exempt 

business customers. Another commenter 

urged easing exemption requirements 

for existing customers as a way of 

reducing burden on banks. 

b. Suspicious Activity Reports. SARs 

were the subject of much of the same 

criticism that CTRs received—

commenters suggested they are 

burdensome, are not followed up on, 

and are not cost effective. Many 

commenters stressed the need for 

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clearer, more consistent SAR guidance. 

One commenter urged the banking 

agencies to create a consistent policy on 

SARs together with FinCEN and DOJ. 

Another commenter suggested that 

further guidance is needed. The 

commenter asked how far back does one 

need to research the account once 

suspicious activity is found; the 

commenter suggested 1 to 3 months. 

Another commenter said ‘‘we need an 

FBI agent on staff to interpret SAR 

rules.’’ Several commenters noted how 

time consuming it could be for a 

financial institution to file a SAR. One 

commenter noted that the FBI 

investigated only one SAR filed by the 

bank and then did not pursue it, adding 

‘‘it seems there needs to be a loss to the 

bank of 100K before the FBI will 

investigate.’’

Another commenter noted (see above) 

that the current $10,000 threshold for 

CTRs leads to SARs being filed for 

structured transactions just under that 

amount; these SARs constitute, 

according to the commenter, almost 50 

percent of all the SARs filed and drive 

up the costs of the system that stores/ 

processes all the data. 

Many commenters noted that the 

increased volume of SARs is degrading 

their effectiveness. Commenters 

suggested that agencies should work 

with FinCEN to provide detailed 

guidance on when SARs should be filed 

and what documentation banks need to 

maintain. One commenter noted that 

banks currently need to ‘‘over comply’’

with SARs requirements and that there 

is no consistency from agency to agency. 

Several commenters contended that 

little or nothing is done with SARs once 

they are submitted. 

Several commenters suggested raising 

the threshold for filing SARs, with one 

commenter stating that the threshold 

amount should be raised to $100,000. 

Another commenter suggested that the 

threshold be tied to inflation. In the case 

of SARs, the threshold should be 

$10,000 when a suspect is known and 

$50,000 when no suspect has been 

identified. Another commenter 

suggested that the threshold for ‘‘money 

laundering SARs’’ be raised from $5,000 

to a higher amount. 

Many commenters said that unclear 

requirements from the agencies 

regarding SARs have led them to file socalled ‘‘defensive SARs.’’ One 

commenter noted that banks do this to 

protect themselves against examiner 

criticism. Moreover, a commenter noted 

SAR filings make CTR filings 

redundant. 

One commenter noted that it does not 

make sense that a person identified as 

a money launderer can move from bank 

to bank. The commenter recommended 

developing a ‘‘watch list’’ of such 

individuals. 

One commenter said that clearer 

guidance is needed on when filing is 

necessary. Specifically, the commenter 

suggested eliminating the requirement 

that a bank must file a SAR every 90 

days after the first SAR is filed. Another 

commenter noted that the beginning of 

the 30-day period for SAR reporting is 

unclear and that banks should be given 

ample time to examine the activity or 

maintain a process for the investigation 

of facts; the 30-day period should begin 

with a bank determination that 

suspicious activity has occurred and 

that a SAR is needed. 

c. Customer Identification Program. 

Many commenters noted the burden 

that the customer identification program 

(CIP) currently imposes on banks, and 

the inconvenience that it creates for 

long-time customers. One commenter 

noted that ‘‘in our town, we gawk when 

strangers come in.’’ This commenter 

suggested a BSA exemption for banks 

under $100 million in assets in 

communities with a population of less 

than 25,000. 

Another commenter suggested that 

the current definition of ‘‘established 

customer’’ be amended to make clear 

that it is a customer from whom the 

bank has already obtained the 

information required by 31 CFR 

103.121(b)(2)(i). In addition, this 

commenter suggested amending existing 

31 CFR 103.29 to replace references to 

‘‘deposit account holder’’ and ‘‘person 

who has a deposit account’’ with 

‘‘established customer.’’ The result 

would be definitions of ‘‘customer’’ as 

defined in CIP regulations and 

‘‘established customer’’ (one whose 

basic information has been obtained). 

One commenter noted that the 

frequently asked questions (FAQs) 

developed for CIPs were helpful. 

Additional questions and answers 

should be developed as the need arises. 

This commenter also indicated that 

FAQs directed at community banks 

would be helpful as well. Another 

commenter stated that current 

regulations fail to distinguish between 

relationships with individual versus 

institutional customers. The commenter 

suggested creating distinctions between 

such customers. 

Three commenters suggested adding 

more clarification about what types of 

identification are acceptable. Another 

commenter made the same point but 

added that the confusion relates in 

particular to customers like the Amish 

and the extent of identification needed. 

The commenter noted that community 

banks have had to close accounts and 

not open new ones because of 

identification issues. The commenter 

indicated this has impacted elderly and 

foreign customers in particular and has 

given rise to an underground network of 

financial services. 

One commenter said that the 

definition of ‘‘non-U.S. persons’’ under 

the CIP should be limited to foreign 

citizens who are not U.S. resident 

aliens. The current definition, according 

to the commenter, is too broad and 

makes providing services to immigrant 

markets very problematic. The 

commenter added that the burden of 

verifying customer information is 

greater than any benefit. 

One commenter noted that some BSA 

requirements are duplicative. 

Specifically, the commenter pointed out 

that BSA requirements for 

recordkeeping with respect to signature 

authority duplicates PATRIOT Act CIP 

requirements. The commenter noted 

that 31 CFR 103.34 (b)(1) requires that 

the bank retain each signature card for 

deposit or share accounts and notations 

of specific identifying information while 

section 103.121(b)(2)(ii) requires similar 

identity verification and documentation. 

It would make sense to eliminate 

section 103.34(b)(1) in light of the 

overlap. The commenter pointed out 

other redundancies, this one between 31 

CFR 103.34(b)(11) (requiring a record of 

each name, address and taxpayer 

identification number for purchasers of 

certificates of deposit (CDs)) and 31 CFR 

103.121(b)(2)(i) (requiring the name, 

date of birth, address, and identification 

number of each customer). Although 

section 103.34(b)(11) also requires 

additional records related to the CD 

issued, according to the commenter, the 

identifying information of the customer 

is redundant and should be deleted. 

One commenter recommended 

requiring business type/occupation 

documentation at the time of account 

opening. According to the commenter, 

this information already is included in 

CTRs but not for CIPs. The commenter 

suggested that having this information 

available up front would enable the 

government to narrow searches and 

focus efforts on particular types of 

businesses or occupations. 

One commenter suggested that the 

Department of the Treasury should 

review the requirement to obtain and 

perform verification of a business’

Employer Identification Number (EIN) 

as part of the CIP. The commenter 

proposed that the Department of the 

Treasury enable financial institutions to 

obtain and verify a government-issued 

identification instead of the EIN. The 

commenter further proposed that the 

Department of the Treasury review the 

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requirement to obtain a physical street 

address for all applicants under the CIP. 

The commenter noted many customers 

use postboxes to protect their privacy 

but the post office nevertheless registers 

it as a physical address. Finally, this 

commenter suggested eliminating the 

record retention requirement imposed 

by the CIP. The commenter argued that 

the need to maintain name, physical 

address, date of birth and taxpayer 

identification number on the account for 

five years after the account is closed 

creates a significant burden for financial 

institutions. The commenter proposed 

that the Department of the Treasury 

consolidate the record retention 

requirements in the CIP and require that 

financial institutions maintain the 

information for five years from the date 

that the account is opened. Another 

commenter suggested that records be 

maintained no more than two years after 

an account is closed. 

Another commenter said that it 

understood the importance of the CIP 

but suggested that the renewal 

requirement for the reliance safe harbor 

be eliminated. The safe harbor should 

authorize reliance on an affiliated 

financial institution without regard to 

documenting a formal reliance 

certificate. Yet another commenter 

questioned whether the current 

exception for existing customers 

provides much relief and asked what 

constitutes ‘‘reasonable belief’’ that the 

financial institution knows the identity 

of the customer. 

One commenter suggested 

clarification on the discrepancies that 

exist between the requirement to 

maintain sufficient information to 

identify a customer under section 326 of 

the PATRIOT Act and Regulation B’s 

prohibition on maintaining information 

on the gender/race of a borrower. 

2. Increased Regulatory Burden. There 

was broad consensus among the 

commenters that the agencies’

regulatory policy with regard to BSA 

and the PATRIOT Act needs to be 

clarified. Many commenters expressed 

their concern about the perceived 

‘‘raising of the bar’’ concerning BSA 

programs and policies. Many of these 

commenters noted that the perception of 

raising the bar causes banks to file 

reports in cases where it should not be 

necessary. Two commenters pointed out 

what they called the ‘‘disconnect’’

between what agency officials are saying 

about BSA policy in Washington versus 

what examiners are saying. A 

commenter asserted that examiners 

should be looking to help, not punish, 

bankers seeking to comply with BSA. 

One commenter suggested that there be 

regional committees made up of bankers 

and regulators to formulate effective 

means to monitor BSA. Another 

commenter noted that the level of 

documentation required under AML 

regulations is too burdensome. This 

commenter noted that the level of 

documentation required for small 

accounts that occasionally cash checks 

is time consuming. Another commenter 

proposed, in light of complicated BSA 

compliance, that there be an agency 

person located in the bank full time, 

rather than getting after-the-fact 

interpretations. Another commenter 

noted the growing responsibility being 

placed on banks without sufficient 

support from the agencies. On a related 

matter, a number of commenters noted 

that agency interpretations of BSA 

requirements are ‘‘unpredictable,’’ with 

four commenters noting that the 

agencies seem to issue different 

interpretations, making compliance 

difficult. 

One commenter noted that regulations 

are created with little direction on how 

to comply, and with too little time 

between the final rule and 

implementation. In the view of this 

commenter, three to six months is not 

sufficient, seeing that customers need to 

be notified, disclosures need to be 

rewritten, and forms changed. 

Moreover, state laws (especially BSA 

and privacy) conflict with federal laws 

too frequently. This commenter 

suggested keeping state and federal 

regulations consistent, reduce record 

keeping requirements to match exam 

periods, raise the threshold for 

reporting, increase the time between a 

final rule and implementation, provide 

definitive answers, provide better 

guidance, and provide a tax credit equal 

to the cost of regulatory burden. 

One commenter noted that, since 

1999, the banking industry has had to 

manage the implementation of new 

rules or changes to old rules roughly 

every 1.5 weeks, with BSA rules 

constituting a significant part of the 

burden. One commenter called for 

specific guidance from regulators 

regarding the identification of high-risk 

customers. The same commenter 

suggested that the agencies issue clear 

guidance with respect to what is needed 

in the narrative section of SARs. Some 

commenters suggested that the agencies 

try to issue uniform guidance—one 

specifically called for all BSA 

regulations being joint regulations. One 

commenter pointed to the 2005 

interagency guidelines issued for Money 

Service Business accounts as the type of 

joint guidance for which agencies 

should be striving. 

a. Money Services Businesses. 

Regulatory requirements on this issue 

drew a lot of criticism, with many 

commenters calling for a reduction in 

the due diligence requirements with 

respect to Money Services Businesses 

(MSBs). One commenter noted that 

banks have become the ‘‘unofficial 

regulator’’ of MSBs. The commenter 

noted that many banks have been forced 

to close such accounts and that 

examiners are giving the message that 

they do not like to see banks working 

with such businesses. The commenter 

said that the reporting burden should be 

on the MSBs, rather than on the banks. 

One commenter noted that it is not a 

bank’s responsibility to determine if an 

MSB has registered with FinCEN. One 

commenter proposed that the threshold 

for the check casher category be 

expanded to reduce burden on 

independent grocery stores, especially 

those with limited check cashing 

services as an adjunct to their business; 

such stores, the commenter said, should 

not need a full compliance program but 

rather should just have to comply with 

CTR and SAR reporting. Another 

commenter made a similar 

observation—that large commercial 

check cashers and payday lenders may 

pose a risk that smaller ‘‘mom and pop’’

shops do not. Another commenter said 

that the type of account monitoring that 

is necessary and expectations of 

examiners need to be clearly defined. 

Commenters noted the need for 

regulations setting forth in a clear 

manner what is considered high- versus 

low-risk MSB activity. One commenter 

noted that the cost of monitoring money 

service businesses is ‘‘prohibitive.’’

Moreover, noted this commenter, 

discontinuing business with such 

businesses ultimately hurts the wider 

community. One commenter said that 

examiners need to have a better 

understanding of existing guidance on 

MSBs. One commenter contended that 

bank responsibility for monitoring such 

businesses is creating a new class of 

unbanked businesses, with banks 

having to close such accounts because 

the regulatory risks and costs are too 

high. If banks are to accept such 

accounts again, the agencies need to 

reduce regulatory requirements. 

Another commenter suggested that the 

emphasis should be on wire transfer 

departments, and not on small 

businesses; the commenter added that if 

MSB work is so important, the 

government should do it directly, rather 

than through the banks. 

One commenter suggested that a 

clearer definition of ‘‘check casher’’ is 

needed. Currently, a person becomes a 

check casher for cashing checks in 

excess of $1,000 per day. The 

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commenter noted that, on occasion, a 

business inadvertently exceeds the 

limit, and questioned whether such a 

business would be deemed a MSB 

forever. The commenter suggested that 

businesses be able to file a statement 

saying that exceeding the limit was 

inadvertent and would not happen 

again. Likewise, the definition of check 

casher needs to be revised so that an 

employer who cashes employees’

paychecks is not considered a check 

casher under the regulations. 

One commenter noted that MSBs play 

an important role in providing services 

to persons who may not have traditional 

banking relationships. The commenter 

said that banks need regulators’ help to 

recognize unidentified MSBs. Another 

commenter asserted that recent 

guidelines do not provide sufficient 

relief of costs, burden, and exposure 

stemming from continued business with 

MSBs and that the institution is closing 

out many such accounts. 

One commenter asked whether 

private ATM owners are considered 

MSBs under existing regulations and 

urged that the matter be clarified. 

Another commenter said that businesses 

should be notified by the state when 

they apply/renew business licenses that 

they may qualify as an MSB if they meet 

certain criteria. 

b. Correspondent Accounts/Shell 

Banks. Commenters’ comments 

included: 

• The safe harbor requires 

certification to open an account and 

recertification every three years. The 

recertification process is costly and 

burdensome and banks are duplicating 

this effort. 

• FinCEN should maintain a central 

depository where foreign banks could 

submit their certification and U.S. banks 

could access it directly through FinCEN. 

• The recertification requirement for 

shell banks should be eliminated or, 

alternatively, the period for 

recertifications should be extended to 

five years. Additionally, the shell bank 

certification process is burdensome and 

time consuming and getting 

recertifications from existing customers 

is very burdensome. The definition of 

correspondent account should be 

clarified, because the current definition 

is extremely broad and covers virtually 

every relationship that is, or could be 

expected to be, ongoing. 

• Banks and broker-dealers spend 

millions to comply with requirements 

that they obtain ownership and other 

information from each foreign bank with 

which they do business and to confirm 

that the foreign bank has a physical 

presence in a jurisdiction. There is no 

evidence that this helps detect terrorist 

financing or money laundering. 

Agencies should review the need to 

continue these practices and adjust the 

regulations accordingly. 

• The costs/burden/regulatory risk 

associated with foreign correspondent 

banking had led it to terminate four out 

of five relationships that it had with 

foreign correspondent banks. Increased 

due diligence requirements have turned 

the bank into a de facto regulator of 

foreign institutions. The loss of trade 

financing, payment transfers, etc. could 

have a negative impact on the economy. 

• Correspondent banking 

relationships are being reduced or 

eliminated because of BSA demands, 

yet these relationships are at the height 

of many banking relationships and the 

banks in question know their Latin 

American correspondent institutions 

well. 

c. Sales of Monetary Instruments. 

Commenters proposed that record 

retention requirements for selling 

monetary instruments between $3000 

and $10,000 in currency be revised so 

that only banks that engage in such 

transactions with persons who are not 

‘‘established customers’’ would have to 

comply with the record keeping 

requirements. 

d. Office of Foreign Assets Control 

Compliance. Commenters proposed that 

there be a bank safe harbor for Office of 

Foreign Assets Control (OFAC) 

compliance. They also requested 

clarification of institutions’ obligations 

regarding automated clearing house 

transactions and about how often they 

should check their customer base 

against the OFAC list. 

e. Politically Exposed Persons. 

Commenters indicated that the 

Department of the Treasury should 

provide a more detailed definition of the 

term ‘‘Politically Exposed Person,’’ or 

PEP. They noted that the PATRIOT Act 

requires enhanced scrutiny of private 

banking accounts of current and former 

senior foreign political figures, thereby 

requiring financial institutions to 

identify such individuals but also their 

family, businesses, close associates, and 

others. The commenters stated that it 

was not possible for banks to undertake 

such detailed investigations, that the 

Department of the Treasury should 

provide a definition of ‘‘senior foreign 

political figures,’’ and what constitutes 

a relationship in terms of these 

requirements. Another commenter said 

that examiners had indicated that 

enhanced scrutiny is applied to any 

account/transaction involving PEP, 

regardless of risk, and recommends 

clarifying whether the same level of 

monitoring is expected for PEPs 

associated with low-risk lines of 

businesses and products. 

Finally, commenters indicated that 

there are no definitive sources for banks 

to consult regarding accounts of senior 

foreign political figures/their families/ 

close associates. Moreover, once 

someone is deemed a PEP, the 

regulations do not provide a way to 

change the designation. 

B. Safety and Soundness 

1. Corporate Practices. Some 

commenters recommended that all the 

Agencies review their operations in the 

following areas: 

• Conduct a study of exam reports to 

evaluate whether examiners are 

appropriately distinguishing 

management from board obligations in 

their exam findings, conclusions, and 

recommendations. 

• Review existing regulations that 

examiners rely on to support their 

prescriptions that directors undertake 

more managerial-type responsibilities. 

• Incorporate additional detailed 

guidance in examiner training on 

distinct and different roles of bank 

management and the board. 

2. Appraisal Standards for Federally 

Related Transactions. Most comments 

focused on the threshold to obtain an 

appraisal stating that the $250,000 

threshold, which has been the same 

since implementation of the regulation 

in the early 1990s, is out of date and 

burdensome. One commenter remarked 

that in 1992, the government-sponsored 

entity conforming loan limit was 

$202,300, and now it stands at $333,701 

(at the time of the comment), yet the de 

minimus amount for the appraisal rule 

is still $250,000. Some suggested that 

the threshold be raised from $250,000 to 

$500,000. Others suggested raising the 

threshold to a higher level to account for 

inflation and increased cost of housing, 

land, and real estate in general. 

Other comments questioned the 

necessity to require an appraisal by a 

licensed or certified real estate 

appraiser. One commenter indicated 

that bank staff can do an adequate job 

of assessing property valuation. Another 

commenter indicated that a banker 

should be able to use the County 

Assessor’s value on loans up to 

$500,000 without requiring a formal 

appraisal. Another commenter 

suggested that assessed values should be 

permitted as acceptable valuation for 

some loans since assessed values 

typically are more conservative than 

full-market-value appraisals. One 

banker indicated that it cost $30 to do 

an appraisal via the Internet (using 

databases) and $250 to hire an appraiser 

to visit the property. Yet, in his 

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experience, the Internet information was 

just as reliable. Another questioned the 

need for appraisals when the 

transactions are between a bank and a 

governmental sponsored entity. Some 

felt that appraisal standards are too 

stringent for residential transactions that 

are sold into the secondary market, 

particularly given the market discipline 

imposed by such transactions. 

3. Frequency of Safety and Soundness 

Examinations. Some commenters stated 

that on-site examinations are a 

tremendous time commitment and 

result in significant disruption to the 

bank and suggested the Agencies should 

use a risk-based approach when 

determining examination frequency that 

results in less frequent on-site 

examinations for well-managed, wellcapitalized institutions. Commenters 

believed that regulators could satisfy the 

annual examination requirement with a 

less burdensome, off-site examination 

process that uses information already 

supplied through existing reporting 

requirements. Other commenters 

suggested lengthening the examination 

cycle to 18 to 24 months for banks that 

have historically exhibited sound 

banking practices. Commenters 

recommended that the various 

regulatory bodies review interim data, 

conduct informal management reviews, 

and use discretion to expedite a review 

cycle when there is more than average 

risk. 

4. Lending Limits. One commenter 

remarked that the lending limit for 

national banks is 15 percent of capital 

and surplus, while Kansas’s statechartered banks have enjoyed a general 

lending limit of 25 percent of capital 

and surplus for almost eight years. 

Many of their national bank competitors 

would like to see the federal law 

changed for national banks as well. 

Another commenter recommended that 

lending limits be revised upward to 

state law permissible lending limits. 

Several commenters remarked that 

Regulation O limits on inadvertent 

overdrafts should be increased from the 

current level of $1,000. 

5. Real Estate Lending Standards. 

There was no recommendation for 

changing the real estate lending 

standards regulation; however, there 

were a few comments that suggested 

modifying the interagency guidelines 

that are attached to the regulation. The 

commenters remarked that the method 

of risk calculation does not 

appropriately measure risk of potential 

loss. Commenters also stated that the 

supervisory loan-to-value guidelines 

hamper the ability of small community 

banks to compete in the marketplace. 

6. Security Devices and Procedures. 

No comments received. 

7. Standards for Safety and 

Soundness. Commenters stated that the 

Agencies’ rules on safeguarding 

customer information were unnecessary 

in light of community bank practices 

and the rules add cost and burden to 

their operations. Most commenters 

believed the information technology 

requirements are excessive compared to 

the level of technology available. Some 

commenters recommended that the 

Agencies provide risk assessment 

models to assist in identifying and 

quantifying possible threats. Some 

commenters stated that overseeing 

service providers is burdensome and 

that the Agencies should provide a 

model form or checklist. Others asserted 

that the Agencies should clarify 

expectations about information security 

requirements regarding non-affiliated 

third parties and provide examples on 

the types of third parties covered and 

not covered by the guidelines. Most 

commenters wanted to receive 

additional guidance on best practices for 

compliance with the guidelines. Some 

commenters remarked that examination 

practices are too burdensome and need 

to be adjusted to the size and 

sophistication of each institution. 

Others expressed their uncertainty 

about examination results after 

incurring significant expenses. One 

commenter stated that the cost for the 

security review alone totaled $2,000. 

8. Transactions With Affiliates. The 

sole commenter stated that the 

requirement to prove affiliate 

arrangements are on terms and under 

circumstances ‘‘that are substantially 

the same as those prevailing at the time 

for comparable transactions with or 

involving other non-affiliated 

companies’’ is extremely burdensome. 

The commenter remarked that it is 

difficult to find cases in which identical 

services are offered by third parties and 

stated that while the rule attempts to 

provide relief in such cases, in practice, 

it offers little relief. The commenter 

asserted that 12 U.S.C. 371c–1(a)(1)(b) 

permits the institution, in the 

alternative, to prove that it, in good 

faith, would pay a non-affiliated third 

party an equivalent fee for similar 

services. However, in order to respond 

to an inquiry concerning an institution’s 

reliance on a 12 U.S.C. 371c–1(a)(1)(b), 

a substantial amount of supporting 

documentation on the fees and services 

would be necessary to prove that the 

fees are not excessive. The commenter 

believes that there should be an 

exception to the comparable transaction 

requirement, or alternatively, a reduced 

burden of proof required if both the 

parent and the financial institution 

subsidiary are rated as financially 

sound, and the bank is CAMELS ‘‘1’’ or 

‘‘2’’ rated. If there is minimal risk to the 

FDIC insurance fund (as would be the 

case for a sound company), the terms of 

the affiliate transactions should be 

irrelevant. Alternatively, the commenter 

suggested that regulators should relieve 

institutions of the comparable 

transaction requirement if the total fees 

paid to the affiliate do not exceed the 

amount that could be paid to the 

affiliate in dividends. 

9. Safety and Soundness—Board 

a. Extensions of Credit by Federal 

Reserve Banks. No comments received. 

b. Limitations on Interbank Liabilities. 

No comments received. 

10. Safety and Soundness—FDIC 

a. Annual Independent Audits and 

Reporting Requirements. Several 

commenters noted that the exemption 

from the external independent audit and 

internal control requirements in 12 CFR 

part 363 for depository institutions with 

less than $500 million in assets was 

adequate. Because of consolidation, 

together with the application of the 

public company auditing standard to 

banks, the exemption needs to be 

increased to $1 billion to reduce the 

burden on smaller institutions. 

One commenter recommended 

eliminating the current requirement in 

part 363 for annual reports by 

management and external auditors on 

the effectiveness of internal control over 

financial reporting for those insured 

depository institutions with $500 

million to $1 billion in assets that are 

not public companies. 

b. Unsafe and Unsound Banking 

Practices (standby letters of credit, 

brokered deposits). No comments 

received. 

11. Safety and Soundness—OCC 

a. Other Real Estate Owned. No 

comments received. 

12. Safety and Soundness—OTS 

a. Audits of Savings Associations and 

Savings Association Holding 

Companies. Refer to above comment 

under FDIC heading. 

b. Financial Management Policies. No 

comments received. 

c. Lending and Investments—

Additional Safety and Soundness 

Limitations. A commenter wrote that 

OTS should eliminate the credit 

enhancement requirement on mortgage 

and home equity loans that exceed a 90 

percent loan-to-value (LTV) ratio as it 

creates a competitive disadvantage. The 

commenter pointed out that the cost of 

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credit enhancement drives qualified 

customers to nonbanking lenders that 

do not have such requirements and can 

offer lower-cost products. The 

commenter remarked that OTS should 

eliminate the recordkeeping and 

reporting requirements for loans that 

exceed certain LTV limits because they 

are burdensome and increase overhead 

costs, which affects loan pricing. The 

commenter explained that the tracking 

and reporting requirement is difficult 

because the association captures the 

information at the account or customer 

level, and the regulation requires 

comparison of loans across systems, and 

aggregation of loans based on collateral. 

The commenter further remarked that 

OTS could adequately address any 

safety and soundness concerns created 

by high LTV loans through underwriting 

policies that ensure that borrowers have 

the capacity to service such loans. 

C. Securities 

The federal banking agencies received 

several comments concerning how the 

Agencies can reduce regulatory burden 

with respect to securities regulations. 

Many of the comments received 

addressed perceived regulatory 

difficulties associated with complying 

with the requirements of the SOX. 

1. Regulatory Compliance. One 

commenter said that penalties governing 

violations of the securities laws need to 

be significantly relaxed, adding that 

offenders should have to contribute to 

the community from which they took 

rather than be jailed. 

2. Reporting Requirements under the 

Securities Exchange Act of 1934 (34 

Act). The letters contained several 

comments concerning the increased 

burden that commenters felt SOX had 

imposed on public companies, but 

especially for community banks. 

Commenters urged the federal banking 

agencies to work with the SEC to 

minimize the reporting burden for 

community banks. These commenters 

stated that making institutions that are 

not publicly traded and are less than $1 

billion in assets comply with 

independent audit and independent 

audit committee requirements is very 

burdensome and that finding outside 

professionals to help comply with these 

requirements, especially in small 

communities, can be impossible. This 

commenter noted that it is difficult to 

attract and retain outside directors for 

audit committees in view of the risks 

involved. The threshold should be 

raised to $1 billion for compliance with 

such requirements. 

Some commenters expressed concern 

about the cost of section 404 compliance 

(internal control reports). They said that 

the effort and expense of additional 

certifications, documentation, and 

testing requirements are not 

commensurate with the operational 

risks. One commenter noted in 

particular that community banks lack 

the internal resources to meet the Public 

Company Accounting Oversight Board’s 

attestation standard. Banks face much 

higher consulting costs, and increases in 

their auditing fees, as well as legal 

compliance costs. 

Other commenters noted that the time 

spent on section 404 compliance 

detracts from other matters, such as 

daily operations, long-term 

performance, and strategic planning. 

One commenter said that section 404 

compliance requirements had forced 

banks to abandon regular risk audits in 

favor of concentrating on section 404 

compliance. 

Several commenters suggested 

following the requirements of the FDIC’s 

part 363 instead of having to comply 

with section 404. The requirement of a 

separate audit of internal controls has 

created unnecessary burden; instead, a 

thorough review of how management 

reaches its conclusions about internal 

controls would be as effective, but less 

burdensome, than the required audit. 

The independent audit, commenters 

argued, duplicates work done through a 

company’s internal audit function and 

senior management. Some commenters 

suggested that the FDIC and the other 

agencies work with the SEC to explore 

how to streamline the audit and 

attestation process. 

One commenter urged scaling back 

the standards to a reasonable level of 

inquiry that allows an auditor to opine 

on the conclusions reached by 

management. In the opinion of the 

commenter, there are other protections 

in place to safeguard the investing 

public and that make the section 404 

burdens ‘‘inappropriate.’’ If the SEC 

does not extend a full exemption to 

depository institutions, they should 

revise section 404 to provide for a 

partial exemption for those institutions 

exempt from the part 363 

requirements—either by changing the 

regulations or through a change in the 

law. 

a. Acceleration of Filing Deadlines. 

One commenter noted that, since the 

passage of SOX, the SEC has accelerated 

the filing deadlines for periodic reports 

on Forms 10–Q and 10–K, current 

reports on Form 8–K, and insider 

beneficial ownership reports under 

section 16 of the 34 Act. The commenter 

noted that smaller public community 

banks do not have employees dedicated 

solely to filing these reports. The twobusiness-day deadline for section 16 

reports is especially difficult, because 

the reports have to be gathered from 

principal shareholders, directors, and 

executive officers. The four-businessday filing requirement for Form 8–K 

creates difficulties. To ease the burden 

on small banks, the SEC should change 

the deadline for insured depository 

institutions to 10 calendar days for 

filing current reports on Form 8–K and 

section 16 beneficial ownership reports. 

The SEC likewise should freeze 

current deadlines for periodic reports 

rather than implement the final step in 

the acceleration schedule that would 

require annual reports to be filed within 

60 days and interim reports within 35 

days. 

b. Thrift Securities Issues. One 

commenter said that OTS should move 

the requirement in 12 CFR 563.5 that 

savings association certificates must 

include a statement about the lack of 

FDIC insurance to a place where it is 

adjacent to relevant material and can be 

more easily found. The commenter 

specifically suggested moving the 

section-to-section 552.6–3, which 

discusses the certificates for savings 

associations generally. In addition, OTS 

should delete the notice requirements in 

sections 563g.4(c) and 563g.12, because 

it should not be necessary to report the 

results of an offering 30 days after the 

first sale, every six months during the 

offering, and then again 30 days after 

the last sale. 

One commenter suggested that the 

Board, the FDIC, and the OCC conform 

their rules to those issued by OTS and 

permit quarterly, rather than monthly, 

statements be sent for transactions in 

cash management sweep accounts. The 

commenter noted that most investment 

companies provide statements on a 

quarterly basis to customers. 

c. Confirmation of Securities 

Transactions. One commenter suggested 

extending the confirmation period so 

that it could be given to customers as 

late as one to two days after completion 

of the transaction. The Agencies should 

raise the general exemption from 200 to 

at least 500 securities transactions for 

customers over a three-year period, 

exclusive of government securities 

transactions. 

d. Recordkeeping/Confirmation of 

Securities Transactions. One commenter 

suggested revising 12 CFR 12.7(a)(4) 

because quarterly reports for personal 

securities transactions does not meet the 

intended purposes. The commenter 

contended that the regulation relies on 

employee disclosure of accounts and 

requires a great deal of effort for a 

process that tracks only those 

transactions that the employee chooses 

to reveal. The administration of the 

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quarterly process involves tracking 

statements, updating quarterly forms, 

identifying new employees quarterly to 

add to the list, identifying terminated 

employees for removal from the list, and 

then tracking the return of the forms. 

This is a great deal of effort to expend 

on a process that tracks only those 

transactions that the employee chooses 

to reveal. The burden far outweighs the 

benefit according to this commenter. 

IV. Federal Register Notice No. 5—

Banking Operations, Directors, Officers 

and Employees and Rules of Procedure 

A. Banking Operations 

1. Funds Availability/Regulation CC. 

Many commenters addressed the 

provisions of Regulation CC (12 CFR 

229) that relate to funds availability. 

a. General Comments. Several 

commenters provided general views on 

Regulation CC as a whole. One 

commenter indicated that the 

commentary to Regulation CC provides 

extremely helpful examples on how to 

implement the regulation and suggested 

that the Board do a comparable 

commentary for its Regulation D. 

However, other commenters expressed 

concern that Regulation CC is too 

complex and difficult, mainly because 

of the number of criteria that a bank 

must consider to determine the 

maximum hold period for a particular 

deposit. Another commenter expressed 

concern that the complexity of the 

regulations increased banks’ legal and 

compliance risks. Still others indicated 

that the time periods provided in the 

availability schedule generally are too 

long in light of what they perceived as 

faster clearing times permitted by 

electronic collection of checks. 

Other commenters mentioned that 

aside from the need to lengthen hold 

periods for official bank checks and 

government checks (an issue discussed 

below) that the generally applicable 

hold periods should remain unchanged. 

Some of these commenters argued that 

only a small percentage of checks are 

being cleared more expeditiously as a 

result of the Check 21 Act, and that 

there has not yet been the industry-wide 

improvement in collection and return 

times that would be necessary to 

warrant shortening hold periods. Some 

of these commenters argued that 

shortening hold periods at this time 

would increase the fraud-related risks of 

banks that do not clear checks 

electronically. 

b. Comments Relating to Fraud 

Associated with Next-Day Availability 

Items. The most frequent comment 

related to increases in fraud associated 

with items for which banks must give 

next-day funds availability, particularly 

official bank checks, postal money 

orders, and other items drawn on units 

of government. Most commenters that 

identified this issue suggested 

increasing the generally applicable 

maximum hold time for these items to 

increase the likelihood that the 

depositary bank would learn of the 

fraud before it was required to make the 

funds deposited by the fraudulent item 

available for withdrawal. Some 

commenters questioned who benefits 

from expedited availability for official 

bank checks and government checks 

and suggested that permissible hold 

periods for those items could be 

lengthened without unduly burdening 

anyone. 

In addition, some commenters 

suggested that, at a minimum, the Board 

should adopt an interim rule extending 

availability for fraud-prone items while 

it figured out how to address the 

problem permanently. Other 

commenters suggested that banks were 

placing extended holds on official bank 

checks and government checks with the 

regulators’ knowledge and tacit 

approval, even though doing so violated 

the EFA Act and Regulation CC. 

Commenters also expressed concern 

that the industry, rather than the bank 

regulators, was taking the lead to 

address the problems associated with 

fraud involving next-day availability 

items. 

According to one commenter, 

Treasury checks and USPS money 

orders presented the biggest fraud risks 

associated with next-day availability 

items because the Department of the 

Treasury and the USPS, respectively, by 

statute have longer periods of time than 

do banks to decide whether or not to a 

return an item unpaid. The commenter 

suggested that new accounts were 

particularly vulnerable to fraudulent 

Treasury checks and USPS money 

orders because banks cannot delay the 

availability of the first $5,000 deposited 

into a new account by such items and 

because the bank has less familiarity 

with the depositor. In addition, this 

commenter suggested that the 

Department of the Treasury and USPS 

should lose their right of return if they 

did not pay or return an item within 

seven days. This commenter also asked 

that the Board revise Regulation CC to 

provide that an account is new for six 

months, as opposed to 30 days in the 

existing rule. 

Another commenter indicated that, 

although many depositary banks that 

receive next-day availability items 

attempt to verify the validity of those 

items, purported issuing institutions are 

increasingly reluctant to confirm 

whether they issued a particular check. 

This commenter suggested that the 

banking agencies should issue guidance 

that identifies ways in which banks can 

reduce the risk of loss associated with 

fraud related to such checks. The 

commenter suggested that any such 

guidance should request that all 

depository institutions cooperate in 

addressing this common problem. 

Most commenters that addressed the 

issue of official bank check and 

government check fraud advocated a 

regulatory change in response to what 

they perceived to be a widespread 

problem. However, other commenters 

noted that they applied the same 

availability policy for all but a few 

checks (presumably by giving faster 

availability than the law requires for 

many items) yet had not experienced 

heightened fraud-related problems 

because of that practice. 

c. Comments on the Scope and 

Application of Exception Holds. Several 

commenters advocated changes in the 

scope of the exception holds that banks 

may apply to large check deposits, to 

deposits made in new accounts by 

official bank checks and government 

checks, and to checks that the 

depositary banks has reasonable cause 

to doubt it cannot collect from the 

paying bank. Commenters opined that 

these changes would simplify 

application of these exception holds and 

better protect banks. 

Under the large deposit exception, up 

to the first $5,000 of an aggregate 

deposit by check(s) on a single banking 

day is subject to the general availability 

schedule but the bank may place an 

additional reasonable hold on the 

amount exceeding $5,000. Similarly, 

under the new account exception, the 

bank must make up to $5,000 deposited 

to a new account on any one banking 

day by official bank check(s) or 

government check(s) available according 

to the generally applicable availability 

schedule but may delay the availability 

of the amount exceeding $5,000 until 

the ninth business day after deposit. 

Two commenters suggested that the 

large deposit exception and the largedeposit provision of the new account 

exception should allow banks to 

withhold the entire amount of the 

relevant large-dollar check deposit. 

Because the depository bank usually 

will not learn whether a check is 

fraudulent for several days after the 

deposit, these commenters thought that 

the requirements to make the first 

$5,000 available left banks vulnerable to 

fraud, particularly with respect to new 

depositors. 

Another commenter suggested that 

applying the same hold period for the 

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entire deposit amount also would 

reduce customer confusion. In some 

cases, a commenter noted, the EFA Act 

and Regulation CC allow a bank to place 

a longer hold on a large deposit in an 

established account than it can place on 

a large deposit by official bank check or 

government check in a new account. 

The commenter questioned the logic of 

this result. 

Under Regulation CC, a bank can 

delay availability of the entire amount 

of a check that it reasonably believes is 

uncollectible. However, a bank cannot 

place an exception hold on a check for 

reasonable cause to doubt collectibility 

based merely on the fact that a check is 

of a particular class. In that regard, some 

commenters suggested that banks 

should be able to delay availability 

based on the class to which a check 

belongs. These commenters indicated 

that banks were experiencing increasing 

losses due to credit card checks as a 

class because a paying bank typically 

returns a credit card check if charging 

the consumer’s credit card for the 

amount of the check would exceed the 

consumer’s credit limit. They suggested 

that banks should be able to delay 

availability on the basis that a check is 

a credit card check or, alternatively, that 

credit card checks should be excluded 

from the check definition and exempted 

from Regulation CC’s funds availability 

provisions on that basis. 

d. Comments Relating to Notice 

Requirements and Model Notices. 

Several comments addressed the notices 

that Regulation CC requires. One 

commenter suggested that banks should 

not be required to provide notice to 

depositors of changes that improve 

availability times. Another commenter 

suggested that the model notice for 

exception holds is confusing because it 

lists all the reasons and contains check 

boxes for each reason. This commenter 

encouraged the Board to revise the 

exception hold notice to make it more 

meaningful to consumers. 

e. Comments Relating to Reallocating 

Liability for Remotely Created Checks. 

Generally, if a paying bank wants to 

return a check due to an unauthorized 

drawer’s signature, it must do so by 

midnight of the next day after it receives 

presentment of the check. If it misses 

this deadline, the paying bank generally 

becomes accountable for the check. One 

commenter noted that the Board had 

proposed a rule that would amend 

Regulation CC to reallocate liability to 

the depositary bank when a paying 

bank’s customer disputes a check that 

was remotely created by someone else. 

This commenter urged the Board to 

adopt a final rule reallocating liability as 

soon as possible and thought that such 

a rule should apply to checks drawn on 

all types of accounts, preempt 

inconsistent state laws, include specific 

loss recovery procedures for handling 

consumer claims concerning remotely 

created checks, and provide an effective 

date six months from publication. This 

commenter stated that remotely created 

checks were operationally more 

analogous to ACH transactions than to 

other checks. On that basis, the 

commenter thought that banks should 

have a 60-day right of return before 

becoming accountable for remotely 

created checks and also should have the 

ability, when recrediting a consumer for 

an unauthorized remotely created 

check, to delay availability of the 

recredit if the account is new or the 

bank suspects fraud (similar to the 

exception safeguards applicable to 

recredit claims for electronic funds 

transfers). 

f. Miscellaneous Comments. 

Miscellaneous comments included 

discussion of the treatment of prepaid 

consumer products. A commenter 

indicated that prepaid consumer card 

products should not be considered 

‘‘deposits’’ for purposes of Regulation D 

and therefore should not be included as 

‘‘accounts’’ that are subject to the 

availability provisions of Regulation CC. 

Prepaid card products, the commenter 

noted, typically are activated and 

available for use promptly after the 

consumer receives them and that 

usually there is little or no delay when 

value is added to an existing, activated 

card. The commenter further expressed 

the concern that application of the 

availability provisions of Regulation CC 

to prepaid card products would be 

complex and costly for banks and likely 

would confuse consumers—consumers 

who would not experience delays in 

access to their funds but nonetheless 

would receive funds availability 

disclosures. 

2. Reserve Requirements/Regulation 

D. Many comment letters suggested 

changes to Regulation D (Reserve 

Requirements of Depository Institutions, 

12 CFR 204). The most frequent 

suggestions were to remove the 

limitations on the number of convenient 

withdrawals and transfers per month 

that may be made from a savings 

deposit, and to allow for-profit entities 

to hold interest-bearing NOW account 

checking accounts. Other suggestions 

included creating a regulatory 

commentary, changing reporting 

practices, and clarifying existing 

regulatory text. 

a. Remove Limitations on Savings 

Deposit Withdrawals and Transfers. 

Several commenters suggested that the 

Board eliminate the regulatory 

restrictions on the number of certain 

kinds of transfers and withdrawals that 

may be made each month from a savings 

deposit. Some commenters suggested 

that the Board do away with all 

limitations; others suggested that the 

Board eliminate the restrictions on 

preauthorized or automatic transfers 

that may be made from savings deposits 

that are linked to transaction accounts 

in a ‘‘sweep account’’ arrangement, or at 

least increase the number of such 

transfers to a higher number, such as 24 

per month (i.e., one every business day). 

b. Expand Negotiable Order of 

Withdrawal (NOW) Account Eligibility. 

Three commenters suggested removing 

restrictions on eligibility to maintain 

NOW accounts so that corporate and 

for-profit entities may maintain them. 

NOW accounts are interest-bearing 

checking accounts. NOW accounts 

function like demand deposits. 

‘‘Demand deposits,’’ however, are 

subject to the Regulation Q prohibition 

against payment of interest (see 

Regulation Q, infra), while NOW 

accounts are not. NOW accounts are 

specifically authorized by 12 U.S.C. 

1832. Section 1832 limits the types of 

depositors that are eligible to hold NOW 

accounts to individuals, non-profit 

entities, and governmental units. 

c. Incorporate Board or Staff 

Interpretations and Opinions into 

Regulation or Commentary. Several 

commenters stated that numerous staff 

opinions and interpretations relating to 

Regulation D issues, some dating back 

many years, are not available on the 

Board’s Web site or in the Board’s 

regulatory publications. These 

commenters suggested that these 

opinions and interpretations be 

collected and incorporated into an 

official or staff commentary to 

Regulation D. 

d. Miscellaneous Suggestions. Several 

other commenters made miscellaneous 

suggestions for amendments to 

Regulation D. One commenter suggested 

including U.S. banks’ foreign branch 

deposits in the Regulation D definition 

of deposit so that such deposits would 

receive deposit priority over other 

general obligations of such banks in the 

event of bank liquidation. Another 

commenter suggested that the Board 

should not impose reserve requirements 

on the liabilities of subsidiaries of 

parent depository institutions when the 

parent holds only a recently acquired 

and relatively insignificant interest in 

the subsidiary. 

One commenter stated that Regulation 

D and Regulation Q appeared 

unnecessarily duplicative of similar 

FDIC regulations (for example, 12 CFR 

329, Interest on Deposits) and suggested 

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that the Agencies promulgate joint 

regulations on these subjects. 

In addition, a commenter suggested 

clarifying the regulatory text of the 

Regulation D definition of savings 

deposit, citing the definition’s difficulty 

to read and interpret. This commenter 

also suggested extending the period of 

time over which a depository 

institution’s average transaction 

accounts should be computed so as to 

reduce ‘‘spikes’’ in reserves when 

transaction accounts rise suddenly and 

also suggested that there should be 

reduced regulatory reporting for 

depository institutions that regularly 

meet reserve requirements by holding 

vault cash. 

Finally, one commenter suggested 

that the Board amend the Regulation D 

definition of deposit to exclude all 

prepaid card products. 

3. Prohibition against Payment of 

Interest on Demand Deposits/ 

Regulation Q. Several commenters 

addressed the Board’s Regulation Q 

(Prohibition against Payment of Interest 

on Demand Deposits, 12 CFR 217). Of 

these, the majority suggested that the 

Board authorize the payment of interest 

on demand deposits or eliminate the 

prohibition outright. The other 

comments suggested expanding the 

eligibility to hold NOW accounts in 

order to allow corporations and other 

for-profit entities to hold interestbearing checking accounts. One 

commenter expressed support for 

Regulation Q in its current state and 

recommended that it not be repealed. 

a. Eliminate Prohibition against 

Payment of Interest on Demand 

Deposits. Several commenters suggested 

that the Board eliminate the prohibition 

in Regulation Q against the payment of 

interest on demand deposits. One 

commenter stated that, if the statutory 

prohibition against payment of interest 

on demand deposits were repealed, the 

Board should allow a two-year phase-in 

period during which depository 

institutions could offer MMDAs (savings 

deposits) with the capacity to make up 

to 24 preauthorized or automatic 

transfers per month to a linked 

transaction account. 

4. Reimbursement for Providing 

Financial Records/Regulation S. Two 

comment letters addressed the 

provisions of Regulation S (12 CFR part 

219), which relate to a financial 

institution’s right to reimbursement for 

certain record requests by government 

authorities. 

One commenter stated that the rule 

contained too many exceptions to the 

general reimbursement requirement and 

suggested that the rule require the 

government to always reimburse the 

institution unless the institution itself is 

a target of the investigation to which the 

request relates. Another commenter 

stated that the Board should review and 

update the fee schedule for 

reimbursements more regularly. 

5. Collection of Checks and Other 

Items by Board and Funds Transfers 

through Fedwire (Regulation J). No 

comments received. 

6. Assessments. The one commenter, 

a state association, polled its members 

and submitted the following summary 

of the comments it received: Many 

members believe the current risk-based 

system recognizes the efforts of sound 

management and encourages banks to 

maintain a high rating. Some members 

expressed strong sentiment that the two 

insurance funds be merged, and that 

every institution that benefits from the 

deposit insurance should have to pay 

something when they enter the system. 

One member suggested that other risk 

factors such as the number of interstate 

locations, types of products offered, and 

exam ratings should be factored into the 

risk-based fee assessment. 

7. Assessments of Fees upon Entrance 

to or Exit from the Bank Insurance Fund 

or Savings Association Insurance Fund. 

Two comments were received. One 

commenter supports legislation that 

would merge the BIF and SAIF funds. 

The other commenter believes new 

entities that open with FDIC coverage, 

but have not paid into the fund, should 

pay a substantial entry fee. 

8. Determination of Economically 

Depressed Regions. No comments 

received. 

B. Directors, Officers, and Employees 

1. Regulation O. Generally, most 

commenters requested a review of 

Regulation O reporting requirements 

and quantitative thresholds, because 

they view them as overly burdensome 

and somewhat ambiguous, with 

outdated dollar amounts that need 

updating to reflect today’s economy. 

One industry recommendation for 

relieving some of the burden without 

creating more risk to the industry was 

to ease lending limits and reporting 

requirements for banks with composite 

ratings of ‘‘1’’ or ‘‘2’’ and management 

ratings of not lower that ‘‘2.’’ Another 

recommendation by community banks 

was to add a Regulation O summary 

chart to capture the limitations on loans 

to various types of insiders in an easy 

to grasp, comprehensive way, with cross 

references to Regulation W. Another 

idea was to review Regulation O 

interpretive letters issued over the years 

and convert them into a commentary 

comparable to the Regulation CC 

commentary. 

2. Management Interlocks. Several 

commenters asserted that the 

exemptions in the Board’s Regulation L 

that would allow otherwise prohibited 

persons to serve in a management 

position should be drafted in a clearer 

manner. Most of these commenters also 

noted that the management interlocks 

restriction is especially challenging for 

small community banks, particularly in 

rural areas. 

One commenter said that OTS is the 

only federal banking agency that takes 

the position that the Depository 

Institutions Management Interlocks Act 

applies to trust-only institutions. The 

commenter urged OTS to reevaluate its 

position. 

3. Board Composition Requirements. 

Several commenters requested that OTS 

amend its regulation to permit a 

majority of directors of a savings 

association to be officers or employees 

of the association as long as the holding 

company owns at least 60 percent of any 

class of voting shares of the association. 

C. Rules of Procedure 

1. Uniform Rules of Practice and 

Procedure. One comment was received 

from a trade association that noted that 

since the Rules of Practice and 

Procedure were updated within the past 

five years, its members suggested no 

significant burden reductions. 

The Agencies did not receive any 

other comments on the individual 

agency rules of procedures. 

V. Federal Register Notice No. 6—

Prompt Corrective Action, Capital and 

Community Reinvestment Act—Related 

Agreements 

A. Capital 

The Agencies requested EGRPRArelated comments on capital regulations 

as part of a broader joint ANPR seeking 

comment on proposed risk-based capital 

guidelines that was published in the 

Federal Register on October 20, 2005. 

(See 70 FR 61068, October 20, 2005.) 

Few of the comments received 

addressed burden reduction per se, 

although a number of the comments did 

address ways in which capital 

regulations, and proposed revisions 

thereto, could contribute to, or ease, 

financial institutions’ regulatory burden. 

Several comments fit into this category. 

1. Opt-Out for Highly Capitalized 

Banks. Several commenters supported 

the Agencies adopting an opt-out 

provision as part of a revised Basel I that 

would give highly capitalized 

community banks the option to 

continue using the existing risk-based 

capital rules and avoid the regulatory 

burden of more complex risk-based 

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64See 71 FR 287, January 4, 2007. 

65See 66 FR 37602, July 19, 2001 (Joint Advance 

Notice of Proposed Rulemaking); 69 FR 5729, 

February 6, 2004 (Joint Notice of Proposed 

Rulemaking); 69 FR 51611, August 20, 2004 (FDIC 

Notice of Proposed Rulemaking); 69 FR 56175, 

September 20, 2004 (FDIC extension of comment 

period for proposed rule); 69 FR 68257, November 

24, 2004 (OTS Notice of Proposed Rulemaking); and 

70 FR 12148, March 11, 2005 (OCC, the Board, and 

FDIC Notice of Proposed Rulemaking). 

66See 69 FR 51155, August 18, 2004 (OTS Final 

Rule); 70 FR 10023, March 2, 2005 (OTS Final 

Rule); and 70 FR 44256, August 2, 2005 (OCC, the 

Board, and FDIC Final Rule). 

rules. One commenter noted that for 

such banks, computing risk-based 

capital minimums and ratios using the 

Basel IA formula could present 

significant regulatory burden without 

any corresponding benefit. The same 

commenter suggested that the opt-out be 

limited to banks with less than $5 

billion in assets that have a capital-toasset ratio of 7 percent or higher. 

2. Number of Risk-Weight Categories. 

Several commenters said that the 

revisions to the risk categories should 

not add additional categories that would 

create undue regulatory burden for 

banks. 

3. Same Rules for All Institutions. 

Two commenters noted, with some 

concern, that the banking agencies tend 

to develop one size fits all rules, 

regardless of the number of staff 

available, or lack thereof, to comply 

with the rules, as well as the cost to 

comply, as a percentage of assets. The 

commenter requested that regulations 

relate to the true risk that an 

institution’s size and location pose to 

the banking industry. One of these 

commenters urged that the federal 

banking agencies not set a single 

standard for banks, noting that it could 

result in significant regulatory burden 

for some of the less complex banks in 

the country. 

4. General Burden. Several 

commenters expressed concern that 

Basel IA could lead to increased 

regulatory burden for banks not 

adopting the more advanced Basel II 

approach. One commenter expressed 

concern that international banks could 

face increased burden since the 

proposed Basel IA rule changes could 

impose additional and duplicative 

burdens on their U.S. bank subsidiaries. 

The commenter noted that many U.S. 

subsidiaries of international banks do 

not collect data that Basel IA would 

require. This commenter urged 

simplification and flexibility in the 

standards for Basel IA to reduce or 

eliminate the need to change existing 

data systems to meet requirements. A 

second commenter expressed concern 

that the proposed capital rules likewise 

could require banks to develop new data 

gathering systems that they do not 

currently have, increasing burden on 

them. 

Another commenter urged the 

Agencies to give all non-Basel II 

institutions the option of using either 

the existing Basel I framework or the 

proposed Basel IA standard. This 

commenter urged regulators not to 

require institutions to calculate a capital 

charge under Basel IA. 

5. Calculation for Disallowed Deferred 

Tax Assets in Calculating Risk-Based 

Capital Ratio. One commenter 

recommended that the Agencies review 

Call Report instructions and the 

calculation for disallowed deferred tax 

assets in calculating risk-based capital 

ratios. The commenter urged that, for 

small banks (under $150 million in 

assets), regulators should eliminate the 

calculation and simplify the 

instructions. Outsourcing the 

calculations, according to the 

commenter, is not cost-effective for 

community banks. Since many such 

banks already hold 12 percent or more 

risk-based capital, the results of the 

calculation are insignificant to the 

overall capital calculations of these 

banks. The commenter stated that there 

must be an easier, more cost-effective 

way of calculating these numbers. 

B. Community Reinvestment 

The banking agencies’ regulations 

implementing the Community 

Reinvestment Act (CRA) were not 

included in the sixth EGRPRA request 

for comment along with the agencies’

other regulations falling within the 

broader EGRPRA category of 

Community Reinvestment (i.e., the CRA 

Sunshine regulations, discussed under 

B.3 below).64 During the past two years, 

the agencies solicited comment, 

separately from the EGRPRA process, on 

burden reduction measures for their 

CRA regulations and received 

voluminous comments in response.65

The banking agencies have adopted 

final rules revising the CRA regulations, 

mindful of the comments related to 

burden reduction.66 The banking 

agencies felt it appropriate to include a 

summary of the comments to the CRA 

rules in this report on regulatory 

burden, however, because the regulatory 

burden imposed by community 

reinvestment rules was one of the 

foremost topics raised by commenters to 

the CRA rules, at the EGRPRA outreach 

meetings as well as in written comments 

submitted in response to the EGRPRA 

requests for comment. The following 

summarizes those comments, divided 

into those comments received by the 

Board, FDIC, and OCC in response to 

their joint notice requesting comment, 

and those received in response to the 

separate OTS request for comment. 

1. CRA Proposed Interagency 

Rulemaking. Together the federal 

banking agencies received over 10,000 

public comments from consumer and 

community organizations, banks and 

industry trade associations, academics, 

federal and state government 

representatives, and individuals on the 

Agencies’ proposal to reduce undue 

regulatory burden by extending 

eligibility for streamlined lending 

evaluations and the exemption from 

data reporting to banks under $1 billion 

without regard to holding company 

affiliation. 

a. Increase in Size Threshold for 

Small Banks from $250 million to $1 

billion. Most banks were supportive of 

changing the threshold for small 

institutions. Community organizations 

opposed the proposal stating that an 

increase would cause banks to reduce 

their investments and services in lowand moderate-income areas and result 

in a reduction in the public data 

available. Some community 

organizations criticized the proposal to 

adjust the asset threshold annually for 

small and intermediate small banks 

based on changes to the Consumer Price 

Index (CPI), while most banks 

supported tying the small and 

intermediate small bank thresholds to 

changes in the CPI. 

b. Community Development Test for 

Intermediate Small Banks. Many banks 

opposed the creation of separate new 

standards and suggested institutions 

with less than $500 million in assets be 

evaluated under the streamlined small 

bank lending test. Most community 

organizations supported the 

requirement for a bank to engage in all 

three activities to earn a satisfactory 

rating on the Community Development 

Test (CDT) and asserted that the primary 

consideration should be the institution’s 

responsiveness to community needs. 

Many banks and industry trade 

associations commented favorably on 

the flexibility that the CDT offered and 

some large banks requested that the CDT 

be made available to banks with assets 

of $1 billion or more. A number of 

banks and trade associations supported 

raising the threshold without creating a 

tier of intermediate small banks (ISBs) 

that would be subject to the CDT. A few 

banks stated that the regulatory burden 

reduction would not be realized if banks 

continue to collect information under 

the proposed CDT. A number of 

community organizations supported the 

evaluation of ISBs under a CDT and a 

streamlined lending test. 

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c. Community Development 

Definition. Banks and community 

organizations generally supported 

expanding the definition to make bank 

activities eligible for community 

development consideration in a larger 

number of rural areas. Comments were 

received on defining ‘‘rural’’ using 

existing government definitions (Office 

of Management and Budget and Census 

Bureau) and community organizations 

offered a variety of suggestions. Banks 

favored revising the definition to 

include activities in a designated 

disaster area; some community 

organizations opposed the revision. 

Banks expressed concerns about many 

banks having few or no eligible tracts in 

their assessment areas, increasing 

pressure to make community 

development investments outside of 

their assessment areas. Banks asked that 

any rule distinguishing ‘‘underserved’’

rural areas be simple. Some expressed 

concern that using the CDFI Fund’s 

criteria for distressed areas would be 

complicated and cause uncertainty, but 

some indicated the criteria were 

appropriate. Many banks suggested that 

an area be eligible regardless of its 

income if targeted by a government 

agency for redevelopment. Community 

banks expressed a strong preference that 

a bank’s support for meeting community 

needs such as education be considered 

as ‘‘community development’’ in rural 

communities of all kinds, not just 

‘‘underserved’’ or ‘‘low- or moderateincome’’ communities. Community 

organizations disagreed that all rural 

areas should be eligible, but agreed that 

more rural areas should be eligible than 

are now. Many requested that the 

Agencies consider both expanding the 

standard for classifying rural tracts as 

low- or moderate-income and adopting 

criteria such as the distress criteria of 

the CDFI Fund to identify additional 

eligible tracts. At the same time, 

community organizations generally 

sought to keep the proportion of eligible 

rural tracts in rough parity with the 

proportion of eligible urban tracts. 

d. Effect of Certain Credit Practices on 

CRA Evaluations. Most community 

organizations strongly supported the 

proposal and recommended that the 

provision be expanded to include 

evidence of discriminatory or other 

illegal credit practices by any affiliate of 

a bank. Some banks and industry trade 

associations opposed the standard as 

unnecessary because other legal 

remedies are available to address 

discriminatory or other illegal credit 

practices and opposed extending the 

‘‘illegal credit practices’’ standard to 

loans by an affiliate that are considered 

in a bank’s lending performance. A few 

large banks were concerned that their 

CRA performance would be adversely 

affected by technical violations of law. 

2. CRA Proposed Rulemaking—OTS. 

OTS received an overwhelming number 

of comments on the CRA NPR issued in 

2004. Most comments were from 

financial institutions and their trade 

associations (Financial Institution 

Comments) or from consumer and 

community members and organizations 

(for example, civil rights organizations, 

Community Development Corporations, 

Community Development Financial 

Institutions, community developers, 

housing authorities, and individuals) 

(Consumer Comments). Other 

commenters included members of 

Congress, other federal government 

agencies, and state and local 

government agencies and organizations. 

The Financial Institution Comments 

strongly supported raising the asset 

threshold and eliminating the holding 

company test. Most of these commenters 

expressly supported raising the asset 

threshold beyond the level in the 

proposed rule. Most suggested 

thresholds ranging from $1 billion to $2 

billion. Many commenters argued that 

raising the asset threshold would reduce 

regulatory burden and allow community 

banks to focus their resources on 

economic development and meeting 

credit demands of the community, 

rather than compliance burdens. They 

also asserted that raising the asset 

threshold was necessary to reflect 

consolidation in the bank and thrift 

industries. Other commenters noted that 

raising the asset threshold to $1 billion 

would have only a small effect on the 

amount of total industry assets under 

the large institution test but would 

provide substantial additional relief by 

reducing the compliance burden on 

more than 500 additional institutions. 

The consumer comments strongly 

opposed raising the asset threshold and 

urged the banking agencies to withdraw 

the proposed rule. Most of the 

comments focused on the proposed 

raising of the asset threshold to $500 

million but did not specifically mention 

the proposed elimination of the holding 

company test. Many consumer 

comments argued that raising the asset 

threshold would eliminate the 

investment and service parts of the CRA 

examination for many institutions, 

would reduce the rigor of CRA 

examinations, and would lead to less 

access to banking services and capital 

for underserved communities. In 

particular, these commenters argued 

that Low Income Housing Tax Credits 

and Individual Development Accounts 

would suffer, diminishing the 

effectiveness of the Administration’s 

housing and community development 

programs. The commenters observed 

that this would be contrary to the 

statutory obligation on financial 

institutions to affirmatively serve credit 

and deposit needs on a continuing basis. 

Commenters also noted that the change 

would disproportionately affect rural 

communities and small cities where 

smaller institutions have a significant 

market share. Other consumer 

comments emphasized the need for 

rural banks and other depository 

institutions to serve the investment and 

deposit needs of all the communities in 

which they are chartered and from 

which they take deposits. 

Comments from members of Congress 

were mixed. One commenter supported 

raising the asset threshold to $1 billion. 

It stated that such a move would not 

have a significant impact on the total 

amount of assets nor the total number of 

institutions covered by the large 

institution examination, but would 

provide relief to many additional 

institutions. Other commenters opposed 

raising the asset threshold. OTS 

received other letters from members of 

the U.S. Senate that generally echoed 

the consumer comments discussed 

above. 

3. Disclosure and Reporting of 

Community Reinvestment Act—Related 

Agreements (CRA Sunshine Act)—12 

CFR part 35; 12 CFR 207 (Regulation G); 

12 CFR part 346; 12 CFR part 533. The 

Agencies received several written 

comments on the CRA Sunshine Act 

requirements and comments were made 

at several of the Agencies’ outreach 

meetings. One commenter representing 

an industry trade association believes 

that the implementing regulations do 

hold the regulatory burden on 

community organizations and financial 

institutions to a minimum, consistent 

with the requirements of the statute. 

Another commenter representing a 

financial institution stated that the 

regulation has not affected its level of 

CRA activity; however, the additional 

disclosure and reporting has increased 

the time, effort and cost to comply. In 

addition, the commenter remarked that 

the benefits of disclosing the 

information have yet to be publicly 

communicated and believes the 

regulation should be repealed. Yet 

another commenter representing 

financial institutions stated that 

Congress should repeal the Act because 

it does not further the purposes of the 

CRA and imposes significant 

paperwork, regulatory and cost burdens 

on banks that far outweigh any benefits. 

This commenter believes the law does 

not further the interests of communities; 

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instead, it wastes resources that could 

be better deployed to serving the 

affordable credit and financial services 

needs of communities. Short of repeal of 

the law, the commenter urges the 

Agencies to completely overhaul the 

implementing regulations. 

Other comments from bankers, 

consumer groups, and outreach meeting 

participants were also supportive of 

repealing the provisions of the Act. In 

the interim, commenters suggested that 

the Agencies take steps to reduce 

unnecessary burden. Commenters also 

suggested the Agencies clarify that only 

those agreements that would have a 

material impact on a bank’s CRA rating 

should be disclosed, so long as 

community groups’ First Amendment or 

other constitutionally protected rights 

were preserved. 

Commenters also stated that the 

theory the provisions were based on 

were flawed and disclosures filed have 

not exposed any pattern of improper 

payments by banks to community 

groups and that allegations that 

community groups have succeeded in 

using CRA mainly as a vehicle for 

funding their organizations are baseless. 

Instead, commenters contended that the 

CRA Sunshine Act has imposed an 

additional and unnecessary burden on 

both banks and nonprofits and that 

confusion as to the circumstances and 

contacts that trigger disclosure remain. 

Commenters argue that repeal would 

facilitate the flow of capital to affordable 

housing, small business, and 

community development financing for 

low- and moderate-income people and 

communities. In addition, a commenter 

recommends: 

• Exempting all CRA contacts that 

arise in the context and purpose of 

ordinary CRA business dealings, absent 

any coercive aspect. 

• Allowing disclosure should only be 

triggered by comments or testimony 

made in conjunction with CRA-related 

agreements during a CRA examination 

or a deposit facility application process. 

• Revising the material impact 

standard and make it, not CRA contact, 

the trigger for requiring disclosure 

under the proposed rule. 

• Providing a reporting exemption for 

non-negotiating parties of a CRA 

agreement. 

Appendix I–D: Economic Growth and 

Regulatory Paperwork Reduction Act 

12 U.S.C.A. 3311 

United States Code Annotated 

Title 12. Banks and Banking 

Chapter 34. Federal Financial 

Institutions Examination Council 

Section 3311. Required review of 

regulations 

(a) In general 

Not less frequently than once every 10 

years, the Council and each appropriate 

federal banking agency represented on 

the Council shall conduct a review of all 

regulations prescribed by the Council or 

by any such appropriate federal banking 

agency, respectively, in order to identify 

outdated or otherwise unnecessary 

regulatory requirements imposed on 

insured depository institutions. 

(b) Process 

In conducting the review under 

subsection (a) of this section, the 

Council or the appropriate federal 

banking agency shall—

(1) categorize the regulations 

described in subsection (a) of this 

section by type (such as consumer 

regulations, safety and soundness 

regulations, or such other designations 

as determined by the Council, or the 

appropriate federal banking agency); 

and 

(2) at regular intervals, provide notice 

and solicit public comment on a 

particular category or categories of 

regulations, requesting commentators to 

identify areas of the regulations that are 

outdated, unnecessary, or unduly 

burdensome. 

(c) Complete review 

The Council or the appropriate federal 

banking agency shall ensure that the 

notice and comment period described in 

subsection (b)(2) of this section is 

conducted with respect to all 

regulations described in subsection (a) 

of this section not less frequently than 

once every 10 years. 

(d) Regulatory response 

The Council or the appropriate federal 

banking agency shall—

(1) publish in the Federal Register a 

summary of the comments received 

under this section, identifying 

significant issues raised and providing 

comment on such issues; and 

(2) eliminate unnecessary regulations 

to the extent that such action is 

appropriate. 

(e) Report to Congress 

Not later than 30 days after carrying 

out subsection (d)(1) of this section, the 

Council shall submit to the Congress a 

report, which shall include—

(1) a summary of any significant 

issues raised by public comments 

received by the Council and the 

appropriate federal banking agencies 

under this section and the relative 

merits of such issues; and 

(2) an analysis of whether the 

appropriate federal banking agency 

involved is able to address the 

regulatory burdens associated with such 

issues by regulation, or whether such 

burdens must be addressed by 

legislative action. 

CREDIT(S) 

(Pub. L. No. 104–208, Div. A, Title II, 

Section 2222, September 30, 1996, 110 

Stat. 3009–414.) 

II. NCUA Report 

A. Introduction 

The National Credit Union 

Administration (NCUA), an 

independent regulatory agency within 

the executive branch, oversees the 

nation’s system of federal credit unions 

(FCU) and provides federal share 

insurance for all federally insured credit 

unions. Throughout the Economic 

Growth and Regulatory Paperwork 

Reduction Act (EGRPRA) process, 

NCUA participated in the planning and 

comment solicitation process with the 

other Federal Financial Institutions 

Examination Council (FFIEC) agencies. 

Because of the unique circumstances of 

federally insured credit unions and their 

members, however, NCUA issued its 

notices separately from the other FFIEC 

agencies. NCUA’s notices were 

consistent and comparable with those 

published by the other FFIEC agencies, 

except on issues unique to credit 

unions. As required by EGRPRA, the 

NCUA invited public review and 

comment on any aspect of its 

regulations that are outdated, 

unnecessary, or unduly burdensome. 

Accordingly, this NCUA report, 

provided separately from that of the 

other FFIEC agencies, summarizes the 

comments NCUA received. The NCUA 

report also identifies and discusses the 

significant issues raised by commenters. 

The regulatory review required by 

EGRPRA has provided a significant 

opportunity for the public and NCUA to 

step back and review groups of related 

regulations and identify possibilities for 

streamlining. The EGRPRA review’s 

overall focus on the ‘‘forest’’ of 

regulations offers a new perspective in 

identifying opportunities to reduce 

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67Credit unions are also subject to regulations 

issued by other nonbanking agencies, such as rules 

issued by the Department of Housing and Urban 

Development (under Real Estate Settlement 

Procedures Act of 1974) and by the Department of 

the Treasury (under the BSA including rules 

required by the PATRIOT Act). The rules of these 

other agencies are beyond the scope of NCUA’s 

EGRPRA review and NCUA’s jurisdiction. NCUA 

intends, however, to alert the relevant agencies 

about comments it has received raising significant 

issues regarding these related rules. 

68 Interpretive Ruling and Policy Statement (IRPS) 

87–2, 52 FR 35231 (September 8, 1987), as amended 

by IRPS 03–2, 68 FR 32127 (May 29, 2003). 

regulatory burden. Of course, reducing 

regulatory burden must be consistent 

with ensuring the continued safety and 

soundness of federally insured credit 

unions and appropriate consumer 

protections. 

EGRPRA also recognizes that burden 

reduction must be consistent with 

NCUA’s statutory mandates, many of 

which currently require implementing 

regulations. In response to the review 

process, commenters highlighted certain 

areas in which legislative changes might 

be appropriate. In this respect, the 

NCUA has carefully considered the 

relationship among burden reduction, 

regulatory requirements and statutory 

mandates.67 Section V of this NCUA 

report describes the statutory changes 

affecting credit unions in the Financial 

Services Regulatory Relief Act of 2006 

(FSRRA), enacted by Congress in 

October 2006. 

Finally, NCUA has, independent of 

EGRPRA, developed and implemented 

its own regulatory review process. Since 

1987, a formally adopted NCUA policy 

requires review of NCUA regulations at 

least once every three years with a view 

toward eliminating, simplifying, or 

otherwise easing the regulatory 

burden.68 The review includes an 

internal review and solicitation of 

public comments concerning many of 

the same aspects that EGRPRA also 

involves. Considered together, these two 

processes enable NCUA to conduct an 

ongoing, comprehensive review of its 

rules and regulations with a view 

toward improving regulatory structure, 

systems, and efficiency. 

B. NCUA Methodology 

As required by EGRPRA, NCUA first 

categorized its regulations by type, such 

as ‘‘consumer regulations’’ or ‘‘safety 

and soundness’’ regulations. NCUA 

categorized its regulations into 10 broad 

categories. A listing of the regulations 

by category is attached as Appendix II–

A of this report. Next, the FFIEC 

agencies provided notice and solicited 

comment from the public on one or 

more of these regulatory categories. 

Notices were published in the Federal 

Register for a 90-day comment period. 

A summary of the comments received 

by NCUA, including the Federal 

Register citation, is attached as 

Appendix II–B of this report; a summary 

of the comments received by the other 

FFIEC agencies is in Appendix I–C. 

1. Outreach. Through numerous 

programs and policies, NCUA conducts 

outreach to credit unions and the public 

and provides opportunities for 

individuals, groups and institutions 

affected by or interested in credit unions 

to communicate with the agency. These 

include programs such as Access Across 

America, in which NCUA principals 

travel the country and solicit input, 

ideas, and policy suggestions from 

credit unions and their members on a 

wide range of topics. The agency also 

has a national ombudsman who 

investigates complaints relating to 

regulatory issues and recommends 

solutions on matters that cannot be 

resolved at the operational (regional) 

level. The agency has an active Web 

site, with comprehensive contact 

information for all program offices. The 

Web site also discloses travel schedules 

for NCUA’s board members, who travel 

extensively throughout the country to 

speak and listen to concerns of credit 

unions and their members. In view of 

these programs, NCUA did not 

participate in the banker or consumer 

outreach meetings the FDIC held at 

various locations during 2004 and 2005. 

C. Significant Issues Raised 

NCUA received a total of 41 

comments in response to its 6 notices. 

Some of the comments addressed rules 

administered by the Federal Reserve 

Board affecting all depository 

institutions, including credit unions, 

and those comments were forwarded to 

the Federal Reserve Board for 

consideration. With respect to matters 

exclusively relating to credit unions, the 

most significant issues raised and the 

agency’s response follows, including 

NCUA’s evaluation of the merits of 

suggested rule changes as well as a 

description of any action the agency has 

taken. 

1. Anti-Money Laundering. The area 

of Bank Secrecy Act compliance has 

grown in significance in recent years, 

along with concerns about personal and 

financial privacy among consumers. 

Several commenters sought guidance 

and clarification from NCUA about 

filing Suspicious Activity Reports 

(SARs). In addition to a request for 

additional guidance, several 

commenters recommended raising the 

threshold for filing Currency 

Transaction Reports from the current 

$10,000 trigger, as well as raising the 

monetary instruments trigger and the 

money laundering trigger. One 

commenter sought an outright 

exemption from the filing requirements 

for small credit unions. Two 

commenters recommended merging the 

Office of Foreign Assets Control with 

the Financial Crimes Enforcement 

Network. 

NCUA is not the primary agency with 

responsibility for these rules. 

Nevertheless, NCUA is concerned about 

the need for clearer guidance for credit 

unions in fulfilling their obligations in 

this area. Effective November 27, 2006, 

NCUA issued a final rule modifying 

section 748.1(c) of its rules to clarify the 

reportable activity this section covers, 

identifying important filing procedures 

and highlighting record retention 

requirements. The final rule addresses 

other key aspects of the SAR process, 

including the confidentiality of the 

reports and safe harbor information. The 

rule requires a credit union to inform its 

board of directors promptly of its SAR 

reporting activity. 

While the changes expand the amount 

of information in the rule, they do not 

increase regulatory burden. The changes 

are intended to provide fundamental 

information about the SAR process in a 

single location to facilitate the ability of 

credit unions to access reporting and 

filing requirements quickly. The board 

notification provision formalizes a 

common practice and, together with the 

other proposed changes, provides 

consistency with the SAR regulations 

established by the other FFIEC 

regulators. The changes are not intended 

to and do not eliminate the need for 

credit unions to review the instructions 

accompanying the SAR form and the 

requirements of 31 CFR 103.18, which 

may be necessary to ensure a report is 

accurately and fully completed. 

2. Risk-Based Capital. Several 

comments called for a risk-based 

approach to capital requirements for 

federal credit unions (FCUs). One noted 

that credit unions are unique among 

financial institutions in their regulatory 

capital structure, which makes only 

limited distinctions in the types or 

quality of assets in determining their 

capital position. These commenters 

assert an approach to capital that takes 

into account the various types of assets 

FCUs hold would provide greater 

flexibility and better protection against 

risks to safety and soundness. 

NCUA agrees with these comments 

but notes that a change to the FCU Act 

is required to implement them. In 2005, 

NCUA prepared and submitted to 

Congress a proposal for a risk-based 

capital program coupled with a prompt 

corrective action (PCA) enforcement 

plan. Since that time, NCUA has met 

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with members of Congress and with 

representatives of the Department of the 

Treasury to discuss the proposal and to 

respond to questions or concerns. As of 

year-end 2006, Congress had not 

enacted legislation implementing the 

risk-based capital program. 

In 1998, Congress amended the FCU 

Act to apply PCA requirements to 

federally insured credit unions based on 

net worth levels. A credit union is 

considered: 

• ‘‘Well capitalized’’ if it has a net 

worth ratio of not less than 7 percent, 

• ‘‘Adequately capitalized’’ if it has a 

net worth ratio of not less than 6 

percent, 

• ‘‘Undercapitalized’’ if it has net 

worth below 6 percent, 

• ‘‘Significantly undercapitalized’’ if 

it has a net worth ratio of less than 4 

percent, and 

• ‘‘Critically undercapitalized’’ if it 

has a net worth ratio less than 2 percent. 

A credit union whose capital ratio 

falls below 6 percent is required to 

produce a net worth restoration plan 

and may also be subject to other 

regulatory requirements. A credit union 

that becomes undercapitalized is subject 

to specific restrictions on asset growth 

and the ability to make member 

business loans. In cases involving a 

credit union that is critically 

undercapitalized, the NCUA Board has 

90 days to take action as the Board 

determines, such as conserving, 

liquidating the credit union or other 

appropriate action. 

NCUA and federally insured credit 

unions have had more than seven years 

of experience operating under the 1998 

PCA rules. This experience, as 

supported by the Call Report data, 

indicates the PCA categories set by 

statute are too high. NCUA believes they 

operate to penalize low risk institutions, 

which results in an inefficient use of 

capital. The categories also overshadow 

any risk-based system and limit the 

benefits of behavior modification that 

would otherwise flow from a robust risk 

based PCA requirement. The rules also 

contribute to unwarranted bias against 

credit union charters by establishing a 

‘‘one-size-fits-all’’ effect for federally 

insured credit unions and create 

inequities in treatment for the required 

deposit in the National Credit Union 

Share Insurance Fund (NCUSIF) and 

membership capital in corporate credit 

unions. 

NCUA believes the statutory mandate 

to take prompt corrective action to 

resolve problems at the least long-term 

cost to the NCUSIF is sound public 

policy. Further, this policy is consistent 

with NCUA’s fiduciary responsibility to 

the NCUSIF. However, PCA for credit 

unions does not adequately distinguish 

between low-risk and higher risk 

activities. 

The current PCA system’s high 

leverage requirement (ratio of net worth 

to total assets) coupled with the natural 

tendency for credit unions to manage to 

capital levels well above the PCA 

requirements essentially creates a onesize-fits-all system. This penalizes 

institutions with conservative risk 

profiles. While providing adequate 

protection for the NCUSIF, a welldesigned, risk-based system with a 

lower leverage requirement would more 

closely relate required capital levels 

with the risk profile of the institution 

and allow for better use of capital. 

The current high leverage ratio 

imposes an excessive capital 

requirement on low-risk credit unions. 

With a lower leverage requirement 

working in tandem with a welldesigned, risk-based requirement, credit 

unions would have a greater ability to 

serve members and manage their 

compliance with PCA. By managing the 

composition of the balance sheet, credit 

unions could shift as needed to lower 

risk assets resulting in the need to hold 

less capital. A PCA system comparable 

to that in the banking system would 

provide sufficient protection for 

NCUSIF. Such a system for credit 

unions would also remove charter bias 

and level the playing field by 

eliminating differing capital standards 

unrelated to risk. While credit unions 

cannot raise capital as quickly in some 

cases as other financial institutions, the 

majority of credit unions have a 

relatively conservative risk profile 

(driven by the restrictions of powers 

relative to other institutions and their 

cooperative, member-owned structure) 

and a comparatively low loss history. 

Thus, credit unions should not be 

required to hold excessive levels of 

capital. 

3. Field of Membership and 

Chartering. This subject generated the 

greatest number of comments. The 

following reflects the most significant 

issues. Commenters suggested: 

• Eliminating the requirement that a 

proposed group to be added to an 

existing credit union’s membership 

must be located in ‘‘reasonable 

geographic proximity’’ to a credit 

union’s service facility or alternatively 

permitting a shared ATM or other 

shared facility to meet this requirement. 

In addition, with respect to adding 

groups to an existing charter, 

commenters suggest eliminating the 

requirement that a group (as opposed to 

the credit union) must provide 

documentation about its ability and 

willingness to establish and support a 

credit union of its own. 

• Removing the preference that 

groups with membership in excess of 

3,000 consider forming their own credit 

union rather than joining an existing 

credit union, and clarifying that the 

preference is not applicable in the case 

of voluntary mergers of credit unions. 

• Allowing an FCU that converts to a 

community charter to retain select 

employee groups located outside the 

community. 

• Allowing an FCU to provide check 

cashing and wire transfer services to 

nonmembers. 

The last of these items was addressed, 

with NCUA support, in the FSRRA, and 

FCUs may now provide check cashing 

and wire transfer services to 

nonmembers within their field of 

membership. Full implementation of the 

remaining suggestions would require 

legislative action to change the FCU Act. 

With respect to the first proposal, NCUA 

believes the current geographic 

proximity requirement is appropriate. 

As noted in NCUA’s Chartering and 

Field of Membership Manual (Manual), 

groups served by a credit union must 

have access to a service facility. As 

further clarified in the Manual, the lack 

of availability of other credit union 

service is a factor to be considered in 

this respect. The Manual also describes 

a variety of service facility types, such 

as owned branches (including mobile 

branches) and proprietary ATMs that 

meet this requirement. A shared ATM 

does not qualify as a service facility 

within this meaning. The Manual 

describes circumstances in which a 

shared branch or other shared facility 

will qualify. Overall, as reflected by the 

Manual, NCUA continues to believe 

accessibility to credit union services 

must remain as the primary 

consideration in determining whether a 

proposed group should be included 

within a credit union’s field of 

membership. 

Similarly, NCUA does not support a 

change to the statutory bias in favor of 

groups numbering more than 3,000 

actual and potential members chartering 

their own credit union. NCUA believes 

every group would benefit from having 

its own credit union if it has the 

resources necessary to make the venture 

viable. The Manual provides sufficient 

flexibility for credit unions to accept 

groups over 3,000 where stand-alone 

viability, properly documented, is 

unlikely, and NCUA is not aware of 

undue burden arising from this 

requirement. In mergers, NCUA 

interprets the FCU Act to require a 

similar analysis where a group 

numbering greater than 3,000 is served 

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by a credit union proposing to merge 

with another credit union, except in 

cases where the continuing credit union 

is also providing services to the same 

group. NCUA supports a change to the 

FCU Act to eliminate this requirement 

in the case of mergers. 

NCUA supports the other chartering 

suggestions. The agency perceives little 

or no benefit from requiring a credit 

union that converts from a multiple 

common bond or occupational charter 

to a community charter to exclude 

employee groups currently served by 

the credit union from continued service 

under the community charter. Credit 

unions should not be required to face 

the difficult choice of converting to a 

community basis or maintaining fidelity 

with a group that formed the original 

basis for the charter but which may no 

longer represent an economically viable 

basis for continued operations. NCUA 

notes, in this respect, that many credit 

unions faced with this dilemma have 

elected to surrender their federal charter 

in favor of a state charter. 

4. Member Business Lending. In the 

area of member business lending, 

commenters suggested it would reduce 

regulatory burden if NCUA could: 

• Raise the level below which a 

member business loan does not count 

against the aggregate ceiling for member 

business loans by a single credit union 

from $50,000 to $100,000. 

• Raise or eliminate the aggregate 

member business loan ceiling, which 

currently stands at the lesser of 1.75 

times a credit union’s net worth or 12.25 

percent of its total assets. 

Commenters assert that credit unions 

making member business loans do not 

adversely affect the profitability of other 

financial institutions. Moreover, they 

assert, credit unions frequently provide 

business loans in amounts and 

circumstances that many commercial 

banks will not. These credit union loans 

fulfill credit needs of small businesses 

and sole proprietorships, many of which 

operate on a scale too small to attract 

the interest of commercial banks; in 

many cases, they are not able to afford 

the rates and charges imposed by more 

traditional commercial lenders. 

Changing these restrictions requires 

changing the FCU Act. NCUA concurs 

in the points made by the commenters 

and supports both a change in the 

aggregate limits and an increase in the 

threshold below which a member 

business loan need not be counted 

against the aggregate limits. The agency 

believes FCUs have shown an excellent 

capacity for making prudent lending 

decisions in this area and also that its 

rules provide an adequate regulatory 

framework. 

Another comment made in this area 

was that NCUA should take steps to 

align its member business rules with 

SBA’s lending requirements to facilitate 

FCU participation in various SBA 

guaranteed lending programs. NCUA 

amended its member business lending 

rule in October 2004 specifically to 

accomplish this objective. Results have 

been excellent, with many credit unions 

now availing themselves of the SBA 

guarantee, to the significant benefit of 

both credit unions and small business 

members. Effective January 20, 2006, 

NCUA again amended its member 

business lending rule, this time to 

broaden the definition of construction 

and development loans. 

D. Accomplishments and Burden 

Reduction Efforts 

1. NCUA’s Regulatory Flexibility 

Program. Independent of the EGRPRA 

burden reduction initiative, NCUA 

established a Regulatory Flexibility 

Program (RegFlex) in 2002 to exempt 

qualifying credit unions in whole or in 

part from a series of regulatory 

restrictions. Qualifying credit unions are 

also granted certain additional powers. 

(See 12 CFR 742.) A credit union may 

qualify for RegFlex automatically or by 

application to the appropriate Regional 

Director. To qualify automatically for 

RegFlex, a credit union must have a 

composite CAMEL rating of ‘‘1’’ or ‘‘2’’

for two consecutive examination cycles 

and, as originally conceived, was 

required to achieve a net worth ratio of 

9 percent (200 basis points above the net 

worth ratio to be classified ‘‘well 

capitalized’’) for a single Call Reporting 

period. If a credit union is subject to a 

risk-based net worth (RBNW) 

requirement, however, the credit 

union’s net worth must surpass that 

requirement by 200 basis points. 

A credit union unable to qualify 

automatically for RegFlex may apply to 

the appropriate Regional Director for a 

RegFlex designation if it has a CAMEL 

‘‘3’’ rating or better or meets the net 

worth criterion. A Regional Director has 

the discretion to grant RegFlex relief in 

whole or in part to an eligible credit 

union. A credit union’s RegFlex 

authority can be lost or revoked. A 

credit union that qualified for RegFlex 

automatically is disqualified once it 

fails, as the result of an examination 

(but not a supervision contact), to meet 

either the CAMEL or net worth criteria 

in the rule. (See 12 CFR 742.6.) RegFlex 

authority can be revoked by action of 

the Regional Director for ‘‘substantive 

and documented safety and soundness 

reasons’’ (see 12 CFR 742.2(b)). The 

decision to revoke is appealable to 

NCUA’s Supervisory Review 

Committee, and, thereafter, to the NCUA 

Board. (See 12 CFR 742.7.) RegFlex 

authority ceases when that authority is 

lost or revoked, even if an appeal of a 

revocation is pending. (Id.) Past actions 

taken under that authority are 

‘‘grandfathered,’’ i.e., they will not be 

disturbed or undone. 

From its inception, the RegFlex 

program has given qualifying credit 

unions relief from the following 

regulatory restrictions: 

• Fixed Assets. The maximum limit 

on fixed assets (5 percent of shares and 

retained earnings) (see 12 CFR 

701.36(c)(1)); 

• Nonmember Deposits. The 

maximum limit on nonmember deposits 

(20 percent of total shares or $1.5 

million, whichever is greater) (see 12 

CFR 701.32(b)); 

• Charitable Contributions. 

Conditions on making charitable 

contributions (relating to the charity’s 

location, activities and purpose, and 

whether the contribution is in the credit 

union’s best interest and is reasonable 

relative to its size and condition) (see 12 

CFR 701.25); 

• Discretionary Control of 

Investments. The maximum limit on 

investments over which discretionary 

control can be delegated (100 percent of 

credit union’s net worth) (see 12 CFR 

703.5(b)(1)(ii) and (2)); 

• Zero-Coupon Securities. The 

maximum limit on the maturity length 

of zero-coupon securities (10 years) (see 

12 CFR 703.16(b)); 

• ‘‘Stress Testing’’ of Investments. 

The mandate to ‘‘stress test’’ securities 

holdings to assess the impact of a 300- 

basis-point shift in interest rates (see 12 

CFR 703.12(c)); 

• Purchase of Eligible Obligations. 

Restrictions on the purchase of eligible 

obligations (see 12 CFR 701.23(b)), thus 

expanding the range of loans RegFlex 

credit unions can purchase and hold as 

long as they are loans those credit 

unions would be authorized to make 

(auto, credit card, member business, 

student, and mortgage loans, as well as 

loans of a liquidating credit union up to 

5 percent of the purchasing credit 

union’s unimpaired capital and 

surplus). 

Along with amendments to parts 703 

(investments) and 723 (member 

business loans) in 2003, RegFlex credit 

unions received further relief from the 

following restrictions: 

• Member Business Loans. The 

requirement that principals personally 

guarantee and assume liability for 

member business loans (see 12 CFR 

723); 

• Borrowing Repurchase 

Transactions. The maturity limit on 

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investments purchased with the 

proceeds of a borrowing repurchase 

transaction; (Id.); and 

• Commercial Mortgage-Related 

Securities. The restriction on 

purchasing commercial mortgagerelated securities of issuers other than 

the government sponsored enterprises 

(Id.) 

In 2005, the NCUA Board reassessed 

the RegFlex program to ensure its 

continued availability to credit unions 

least likely to encounter safety and 

soundness problems, thus minimizing 

the risk of loss to the NCUSIF. The 

agency’s experience indicated these 

credit unions consistently maintain a 

high net worth ratio and a high CAMEL 

rating. Accordingly, the NCUA Board 

issued a proposed rule reducing from 9 

percent to 7 percent the minimum net 

worth ratio to qualify for RegFlex, but 

extending from one to six quarters the 

period the minimum net worth must be 

maintained to qualify. That rule was 

finalized in February 2006. 

2. Improvements to NCUA Call Report 

(Form 5300). Like the other federal 

financial institution regulators, NCUA 

requires all federally insured credit 

unions to file periodic reports with the 

agency. (See 12 CFR 741.6.) Effective 

with the reports due for the second 

quarter of 2006, NCUA made significant 

revisions to the form 5300. The revised 

Form NCUA 5300 consolidates 

information, reduces ancillary 

schedules, and is easier to read and use. 

Based on the revisions, the short form 

is no longer needed, and the new design 

provides many benefits for credit 

unions. The Call Report will be 

consistent in form each cycle, which 

should assist smaller credit unions in 

completing the form. The form is now 

shorter—16 pages, compared to 19 pages 

in the previous version. In addition, the 

revised form is designed so small credit 

unions generally will not have to 

complete supporting schedules. Only 

the first 10 pages require input by all 

credit unions. For comparison, the 

previous short form was only 8 pages, 

but the new, easier format will reduce 

the burden. 

The new design also provides 

efficiencies and benefits to NCUA. By 

eliminating the short form, the NCUA 

only has to maintain one 5300 form, one 

set of edits and warnings, and one set 

of Financial Performance Report 

specifications. This will improve 

efficiency and reduce the likelihood of 

introducing errors in the reporting 

system. In addition, the cost of printing 

and mailing will be reduced with the 

distribution of a single form. Both 

internal and external quarterly financial 

trend analysis will be improved, since 

all credit unions will report 

comprehensive quantitative data. 

Further, the shift to one Call Report will 

simplify maintenance of the Financial 

Performance Report and provide 

additional data needed for small credit 

unions to use the expanded Financial 

Performance Report fully. Additionally, 

trend reports from NCUA’s Automated 

Integrated Regulatory Examination 

System (AIRES) will be more consistent 

and detailed for smaller credit unions. 

For example, quarterly detail that is 

currently not provided for real estate 

loans and investments will be available. 

In summary, the consolidation of the 

Call Report and elimination of the Form 

NCUA 5300SF will improve the 

agency’s efficiency, increase the 

accuracy of the information collected, 

and simplify the reporting process for 

credit unions, large and small. 

3. Other Regulatory Burden Reduction 

Efforts. Effective July 3, 2003, NCUA 

amended its investment rule for FCUs. 

(See 12 CFR 703.) The amendments 

clarified and reformatted the rule to 

make it easier to read and locate 

information. The amendments 

expanded FCU investment authority to 

include purchasing equity-linked 

options for certain purposes and 

exempted RegFlex eligible FCUs from 

several investment restrictions. As 

noted previously, NCUA made changes 

in its RegFlex program to conform to the 

revisions to the investment rule. 

Effective October 31, 2003, NCUA 

amended its member business loan 

(MBL) regulations to provide greater 

flexibility to credit unions to meet the 

business loan needs of their members 

within statutory limits and appropriate 

safety and soundness parameters. (See 

12 CFR 723.) Major changes included: 

(1) Reducing construction and 

development loan equity requirements; 

(2) allowing RegFlex credit unions to 

determine whether to require personal 

guarantees by principals; (3) allowing 

well-capitalized credit unions to make 

unsecured MBLs within certain limits; 

(4) providing that purchases of 

nonmember loans and nonmember 

participation interests do not count 

against a credit union’s aggregate MBL 

limit, subject to an application and 

approval process; (5) allowing 100 

percent financing on certain business 

purpose loans secured by vehicles; (6) 

providing that loans to credit unions 

and credit union service organizations 

(CUSOs) are not MBLs for purposes of 

the rule; and (7) simplifying MBL 

documentation requirements. Other 

provisions in the MBL regulation were 

simplified and unnecessary provisions 

were removed. At the same time, NCUA 

amended its PCA rule regarding the risk 

weighting of MBLs and its CUSO rule to 

permit CUSOs to originate business 

loans. 

Effective January 29, 2004, NCUA 

updated and clarified the definitions of 

certain terms used in the loan 

participation rule. (See 12 CFR 701.22.) 

Specifically, the definition of ‘‘credit 

union organization’’ was amended to 

conform to the terms of the CUSO rule. 

Also, the definition of ‘‘financial 

organization’’ was broadened to provide 

FCUs greater flexibility in choosing 

appropriate loan participation partners. 

Also effective January 29, 2004, 

NCUA amended its share insurance 

rules to simplify and clarify them and 

provide parity with the deposit 

insurance rules of the Federal Deposit 

Insurance Corporation (FDIC). (See 12 

CFR 745.) These amendments provided 

continuation of coverage following the 

death of a member and for separate 

coverage after the merger of insured 

credit unions for limited periods of 

time. The amendment also clarified that 

the interests of nonqualifying 

beneficiaries of a revocable trust 

account are treated as the individually 

owned funds of the owner even where 

the owner has not actually opened an 

individual account. Finally, the 

amendment clarified that there is share 

insurance coverage for Coverdell 

Education Savings Accounts, formerly 

known as Education IRAs. 

Effective March 26, 2004, NCUA 

revised its rules concerning maximum 

borrowing authority to permit federally 

insured, state-chartered credit unions 

(FISCUs) to apply for a waiver from the 

maximum borrowing limitation of 50 

percent of paid-in and unimpaired 

capital and surplus (shares and 

undivided earnings, plus net income or 

minus net loss). (See 12 CFR 701 and 

741.) This amendment provided FISCUs 

with more flexibility by allowing them 

to apply for a waiver up to the amount 

permitted under state law. In the same 

rulemaking, NCUA added a provision to 

its regulations to allow an FCU to act as 

surety or guarantor on behalf of its 

members. The final rule established 

certain requirements to ensure FCUs 

and FISCUs, if permitted under state 

law, acting as a surety or guarantor, are 

not exposed to undue risk. 

Effective April 1, 2004, NCUA revised 

its living trust account rules to provide 

insurance coverage of up to $100,000 

per qualifying beneficiary who, as of the 

date of a credit union’s failure, would 

become entitled to the living trust assets 

upon the owner’s death. (See 12 CFR 

745.) The intent of this amendment was 

to provide for share insurance coverage 

for qualifying beneficial interests 

irrespective of defeating contingencies, 

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an issue that had proven to be quite 

complex and confusing to many credit 

unions and their members. The 

amended rule also specifically allowed 

for separate insurance for both a life 

estate and a remainder interest for 

qualifying beneficiaries. This 

configuration is typically used by a 

husband and wife, with the survivor 

receiving a life estate and the remainder 

interest going to specified qualified 

beneficiaries upon the death of the 

survivor. NCUA determined to amend 

its rule to make it consistent with the 

FDIC’s position and determined not to 

require a credit union to maintain 

records disclosing the names of living 

trust beneficiaries and their respective 

trust interests. The FDIC solicited 

comment specifically on this matter and 

concluded that to do so would be 

unnecessary and burdensome. The 

NCUA Board concurred with that 

judgment, recognizing that a grantor 

may elect to change the beneficiaries or 

their interests at any time before death 

and requiring a credit union to maintain 

a current record of this information is 

impractical and unnecessarily 

burdensome. 

The general principles governing 

share insurance coverage in NCUA’s 

regulations, however, still require that 

the records of the credit union disclose 

the basis for any claim of separate 

insurance (see 12 CFR 745.2(c)). This 

obligation may be met if the title of the 

account or other credit union records 

refer to a living trust. The final rule 

makes reference to this requirement, but 

specifically disclaims any requirement 

that the credit union’s records must 

identify beneficiaries or disclose the 

amount or nature of their interest in the 

account. NCUA’s objectives in this rule 

change were to simplify the rule and 

also to conform all types of revocable 

trust arrangements to similar rules on 

calculating insurance coverage. 

Effective July 29, 2004, the NCUA 

amended its regulations governing an 

FCU’s authority to act as trustee or 

custodian to authorize FCUs to serve as 

trustee or custodian for Health Savings 

Accounts (HSAs). (See 12 CFR 721 and 

724.) The NCUA issued the rule as an 

interim final rule so FCUs and their 

members could take advantage of the 

authority granted in the Medicare 

Prescription Drug, Improvement and 

Modernization Act of 2003 (Medicare 

Act). The Medicare Act authorizes the 

establishment of HSAs by individuals 

who obtain a qualifying high deductible 

health plan and specifies that an HSA 

may be established and maintained at 

an FCU. The final rule also amended 

NCUA’s incidental powers regulation to 

include trustee or custodial services for 

HSAs as a pre-approved activity. 

Effective August 30, 2004, NCUA 

amended its Community Development 

Revolving Loan Program (CDRLP) 

regulation to permit student credit 

unions to participate in the program. 

(See 12 CFR 705.) Before this rule 

change, NCUA took the position that, 

although student credit unions are 

designated as low-income credit unions 

for purposes of receiving nonmember 

deposits, they did not qualify to 

participate in the CDRLP because they 

were not specifically involved in the 

stimulation of economic development 

activities and community revitalization. 

NCUA changed its view, recognizing the 

importance of student credit unions and 

their impact on the economic 

development and revitalization of the 

communities they serve. Student credit 

unions not only provide their members 

with valuable financial services 

generally not available but also a unique 

opportunity for financial education. 

NCUA acknowledged that well run 

student credit unions would benefit 

greatly from participation in the CDRLP 

and changed its rule. As a result, these 

credit unions are now better able to 

serve their communities. 

Effective August 2, 2004, NCUA 

issued final revisions to its regulations 

regarding investment in collateralized 

mortgage obligations (CMOs) to 

authorize all FCUs and corporate credit 

unions to invest in exchangeable CMOs 

representing interests in one or more 

stripped mortgage backed securities 

(SMBS), subject to certain safety and 

soundness limitations. (See 12 CFR 

703.) Before that date, NCUA 

regulations prohibited FCUs and certain 

corporate credit unions from investing 

in SMBS and exchangeable CMOs that 

represent interests in one or more 

SMBS. NCUA determined its concern 

about the safety and soundness aspects 

of direct SMBS investment could be 

reconciled for some exchangeable CMOs 

representing interests in one or more 

SMBS, which can be safe investments 

for credit unions. The rule also 

authorized FCUs and corporate credit 

unions to accept exchangeable CMOs as 

assets in a repurchase transaction or as 

collateral on a securities lending 

transaction regardless of whether the 

CMO contains SMBS. 

Effective October 29, 2004, the NCUA 

Board issued final revisions to its fixedasset rule. (See 12 CFR 701.36.) The 

fixed-asset rule governs FCU ownership 

of fixed assets and, among other things, 

limits investment in fixed assets to 5 

percent of a FCU’s shares and retained 

earnings. The amendment clarified and 

reorganized the requirements of the rule 

to make it easier to understand. The 

final rule also eliminates the 

requirement that an FCU, when 

calculating its investment in fixed 

assets, include its investments in any 

entity that holds fixed assets used by the 

FCU and established a timeframe for 

submission of requests for waiver of the 

requirement for partial occupation of 

premises acquired for future expansion. 

Effective November 26, 2004, NCUA 

amended the collateral and security 

requirements of its MBL rule to enable 

credit unions to participate more fully 

in Small Business Administration (SBA) 

guaranteed loan programs. (See 12 CFR 

723.) As noted above, in 2003, NCUA 

had amended its MBL rule and other 

rules related to business lending to 

enhance credit unions’ ability to meet 

members’ business loans needs. In 

addition to comments on those 

amendments, NCUA received other 

suggestions on how it could improve the 

MBL rule. Among the most significant, 

commenters suggested NCUA amend 

the MBL rule ‘‘so that it could be better 

aligned with lending programs offered 

by the Small Business Administration,’’

such as the SBA’s Basic 7(a) Loan 

Program. 

While NCUA recognized the merits of 

this suggestion, NCUA could not 

include it in the final rulemaking 

because it addressed issues outside the 

scope of the rulemaking. The 

Administrative Procedure Act generally 

prohibits federal government agencies 

from adopting rules without affording 

the opportunity for public comment. 

(See 5 U.S.C. 553.) NCUA noted in the 

final rule, however, that it would review 

this suggestion to determine if it would 

be appropriate to act on it in a 

subsequent rulemaking. As a result of 

that review, NCUA issued a proposed 

amendment to its MBL rule in June 2004 

to permit credit unions to make SBA 

guaranteed loans under SBA’s less 

restrictive lending requirements instead 

of under the more restrictive MBL rule’s 

lending requirements. NCUA reviewed 

the SBA’s loan programs in which credit 

unions can participate and determined 

they provide reasonable criteria for 

credit union participation and 

compliance within the bounds of safety 

and soundness. Additionally, these SBA 

programs directed as small businesses 

are ideally suited to the mission of 

many credit unions. 

NCUA noted in the proposal that it 

recognizes NCUA’s collateral and 

security requirements for MBLs, 

including construction and 

development loans, are generally more 

restrictive than those of the SBA’s 

guaranteed loan programs and could 

hamper a credit union’s ability to 

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participate fully in SBA loan programs. 

As a result, the MBL rule’s collateral 

and security requirements could prevent 

a credit union from making a particular 

loan that it could otherwise make under 

SBA’s requirements. NCUA adopted the 

final rule to provide relief from these 

more restrictive requirements and to 

enable credit unions to better serve their 

members’ business loans needs. 

Effective October 21, 2005, NCUA 

amended its rule concerning CUSOs to 

provide that a wholly owned CUSO 

need not obtain its own annual financial 

statement audit from a certified public 

accountant if it is included in the 

annual consolidated audit of the FCU 

that is its parent. (See 12 CFR 712.) The 

amendment reduced regulatory burden 

and conformed the regulation with 

agency practice, which, since 1997, had 

been to view credit unions with wholly 

owned CUSOs in compliance with the 

rule if the parent FCU has obtained an 

annual financial statement audit on a 

consolidated basis. 

Effective January 20, 2006, NCUA 

revised its MBL rule to clarify the 

minimum capital requirements a 

federally insured corporate credit union 

(corporate) must meet to make 

unsecured MBLs to members that are 

not credit unions or corporate credit 

union service organizations. (See 12 

CFR 723.) NCUA also revised the 

definition of a construction or 

development loan (C&D loan) to include 

certain loans to borrowers who already 

own or have rights to property and the 

definition of net worth to be more 

consistent with its definition in the FCU 

Act and NCUA’s PCA regulation. 

Finally, the rule clarified that a state 

may rescind a state MBL rule without 

NCUA’s approval. 

Effective January 22, 2007, NCUA 

revised its rule governing the 

conversion of insured credit unions to 

mutual savings banks or mutual savings 

associations. The final rule improves the 

information available to members and 

the board of directors as they consider 

a possible conversion. The final rule 

includes revised disclosures, revised 

voting procedures, procedures to 

facilitate communications among 

members, and procedures for members 

to provide their comments to directors 

before the credit union board votes on 

a conversion plan. 

The conversion issue has been among 

the most significant and important 

issues confronting the credit union 

industry. As noted in the preamble to 

the proposed rule, published for a 60- 

day comment period in June 2006, the 

conversion from a credit union charter 

to a bank charter is a fundamental shift. 

The decision to convert belongs to the 

members. To make this decision, 

members must be fully informed as to 

the reasons for the conversion and have 

time to consider the advantages and 

disadvantages of conversion. They 

should also have an opportunity to 

communicate their views to the credit 

union’s directors and to communicate 

with other members about the proposed 

conversion. 

The NCUA solicited public comment 

on ways to improve the conversion 

process in each of these areas. The final 

rule, adopted after consideration of all 

public comments, requires a converting 

credit union to give advance public 

notice that the board intends to vote on 

a conversion proposal and establishes 

procedures for members to share their 

views with directors before they adopt 

the proposal; thereafter, the rule 

outlines a procedure for any member to 

share his views about the proposal 

among the membership. The rule also 

clarifies that credit union directors may 

vote in favor of a conversion proposal 

only if they have determined the 

conversion is in the best interests of the 

members and requires the board of 

directors to submit a certification to the 

NCUA of its support for the conversion 

proposal and plan. The rule also 

simplifies the required disclosures and 

includes new requirements for delivery 

of both the disclosures and the ballots 

to the membership. Finally, the rule sets 

out procedures to govern NCUA’s 

review and approval of a conversion 

request and procedures for appeal of the 

decision to the NCUA Board. 

E. Legislative Issues 

1. Financial Services Regulatory 

Relief Act of 2006. Congress enacted the 

FSRRA in October. The EGRPRA 

process served as an impetus to the 

FFIEC agencies to work together in 

considering legislative 

recommendations in connection with 

burden reduction objectives. The new 

law makes several changes to the FCU 

Act, including several new powers for 

FCUs and clarification of NCUA’s 

enforcement authority. The provisions 

affecting FCU powers are summarized 

below. 

a. Check Cashing and Money Transfer 

Services. The new law changes section 

107(5) of the FCU Act, 12 U.S.C. 

1757(5), to allow FCUs to provide check 

cashing and money transfer services to 

all persons described in the field of 

membership and, therefore, eligible to 

become members of the credit union, 

whether or not they have actually joined 

the credit union. This expansion will 

introduce low cost financial services to 

persons of low income and will provide 

a viable alternative for them to the 

frequently expensive, sometimes 

predatory practices to which they are 

often relegated. It will also allow these 

persons to begin to gain confidence in 

more traditional financial organizations, 

which many of them, especially recent 

immigrants, often lack. NCUA believes 

this measure is in furtherance of the 

credit union mission of serving persons 

of modest means in their field of 

membership. 

b. Increase in Loan Maturity Limits. 

The new law makes a change to the FCU 

Act to permit the NCUA Board to 

establish FCU general loan maturity 

limits up to 15 years or longer, 

liberalizing the previous statutory limit 

of 12 years (see 12 U.S.C. 1757(5)). The 

increase, implemented through a 

rulemaking finalized in October, 

provides FCUs with the flexibility to 

make loans for a much wider variety of 

purposes, in accordance with commonly 

accepted market practices. This 

liberalization also permits FCUs to offer 

products and services commonly 

available from other financial 

institutions. 

c. Preservation of Credit Union Net 

Worth in Mergers. The new law amends 

the FCU Act to preserve the net worth 

of credit unions after a merger (see 12 

U.S.C. 1790d(o)(2)(A)). Under the new 

law, a continuing credit union in a 

merger can include pre-merger retained 

earnings of the merging credit union in 

calculating regulatory net worth. The 

change, which will also require a 

change to NCUA’s PCA rules, was 

necessary because a proposed final rule 

by the Financial Accounting Standards 

Board (FASB) would count only the 

retained earnings of the continuing 

credit union toward net worth following 

a merger. The FASB proposal has the 

effect of artificially lowering the postmerger capital ratio for the resulting 

credit union. Without this change, 

voluntary mergers between credit 

unions would have been discouraged. 

While the FSRRA was an important 

step in addressing regulatory burden, 

NCUA believes it is important for 

Congress to continue to look for ways to 

reduce any unnecessary regulatory 

burdens on credit unions. NCUA 

developed or supported a number of 

legislative burden reducing proposals 

that ultimately were not included in the 

FSRRA. Congress may find these 

proposals a useful starting point in 

considering additional regulatory relief 

measures in the future. 

F. Conclusion 

The NCUA fully supports the 

rationale of the EGRPRA legislation. 

That rationale conforms with the 

NCUA’s own independent commitment 

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to review its regulations periodically to 

assure they are effective, necessary, and 

not unduly burdensome. 

Appendix II–A: Subject and Regulation 

Cite, by Category 

Category Subject Regulation cite 

1. Applications and Reporting.Change in official or senior executive officer in credit unions that are 

newly chartered or in troubled condition.

12 CFR 701.14 

Field of membership/chartering .............................................................. 12 CFR 701.1; IRPS 03 

Fees paid by federal credit unions ......................................................... 12 CFR 701.6 

Conversion of insured credit unions to mutual savings banks .............. 12 CFR 708a 

Mergers of federally insured credit unions; voluntary termination or 

conversion of insured status.

12 CFR 708b 

Applications for insurance ...................................................................... 12 CFR 741.0; 741.3; 741.4; 741.6 

Conversion to a state-chartered credit union ......................................... 12 CFR 741.7 

Purchase of assets and assumption of liabilities ................................... 12 CFR 741.8 

2. Powers and Activities: 

a. Lending, Leasing 

and Borrowing.

Loans to members and lines of credit to members ............................... 12 CFR 701.21 

Participation loans .................................................................................. 12 CFR 701.22 

Borrowed funds from natural persons .................................................... 12 CFR 701.38 

Statutory lien ........................................................................................... 12 CFR 701.39 

Leasing ................................................................................................... 12 CFR 714 

Member business loans ......................................................................... 12 CFR 723 

Maximum borrowing ............................................................................... 12 CFR 741.2 

b. Investment and Deposits.Investment and deposit activities ........................................................... 12 CFR 703 

Fixed assets ........................................................................................... 12 CFR 701.36 

Credit union service organizations (CUSOs) ......................................... 12 CFR 712 

Payment on shares by public units and nonmembers ........................... 12 CFR 701.32 

Designation of low-income status; receipt of secondary capital accounts by low-income designated credit unions.12 CFR 701.34 

Share, share draft, and share certificate accounts ................................ 12 CFR 701.35 

Treasury tax and loan depositories; depositories and financial agents 

of the government.

12 CFR 701.37 

Refund of interest ................................................................................... 12 CFR 701.24 

c. Miscellaneous Activities.Incidental powers .................................................................................... 12 CFR 721 

Charitable contributions and donations .................................................. 12 CFR 701.25 

Credit union service contracts ................................................................ 12 CFR 701.26 

Purchase, sale, and pledge of eligible obligations ................................. 12 CFR 701.23 

3. Agency Programs ........... Community Development Revolving Loan Program .............................. 12 CFR 705 

Central liquidity facility ............................................................................ 12 CFR 725 

Designation of low-income status; receipt of secondary capital accounts by low-income designated credit unions.12 CFR 701.34 

Regulatory Flexibility Program ............................................................... 12 CFR 742 

4. Capital ............................ Prompt corrective action ......................................................................... 12 CFR 702 

Adequacy of reserves ............................................................................. 12 CFR 741.3(a) 

5. Consumer Protection ..... Nondiscrimination requirement (Fair Housing) ....................................... 12 CFR 701.31 

Truth in Savings (TIS) ............................................................................ 12 CFR 707 

Loans in areas having special flood hazards ......................................... 12 CFR 760 

Privacy of consumer financial information ............................................. 12 CFR 716 

Share insurance ..................................................................................... 12 CFR 745 

Advertising .............................................................................................. 12 CFR 740 

Disclosure of share insurance ................................................................ 12 CFR 741.10 

Notice of termination of excess insurance coverage ............................. 12 CFR 741.5 

Uninsured membership share ................................................................ 12 CFR 741.9 

6. Corporate Credit Unions Corporate credit unions .......................................................................... 12 CFR 704 

7. Directors, Officers, and 

Employees.

Loans and lines of credit to officials ....................................................... 12 CFR 701.21(d) 

Reimbursement, insurance, and indemnification of officials and employees.12 CFR 701.33 

Retirement benefits for employees ........................................................ 12 CFR 701.19 

Management officials interlock ............................................................... 12 CFR 711 

Fidelity bond and insurance coverage ................................................... 12 CFR 713 

8. Money Laundering ......... Report of crimes or suspected crimes ................................................... 12 CFR 748.1(c) 

Bank Secrecy Act ................................................................................... 12 CFR 748.2 

9. Rules of Procedure ........ Liquidation (involuntary and voluntary) .................................................. 12 CFR 709 and 710 

Uniform rules of practice and procedure ................................................ 12 CFR 747 subpart A 

Local rules of practice and procedure .................................................... 12 CFR 747, subpart B 

10. Safety and Soundness Lending ................................................................................................... 12 CFR 701.21 

Investments ............................................................................................ 12 CFR 703 

Supervisory committee audit .................................................................. 12 CFR 715 

Security programs .................................................................................. 12 CFR 748 

Guidelines for safeguarding member information .................................. 12 CFR 748, Appendix A 

Records preservation program and record retention appendix ............. 12 CFR 749 

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Category Subject Regulation cite 

Appraisals ............................................................................................... 12 CFR 722 

Examination ............................................................................................ 12 CFR 741.1 

Regulations codified elsewhere in NCUA’s regulations as applying to 

federal credit unions that also apply to federally insured state-chartered credit unions.

12 CFR 741, subpart B 

Appendix II–B: Summary of Comments, 

by Category 

I. Applications and Reporting (68 FR 

35589, June 16, 2003) 

A. Field of Membership and Chartering 

Section 701.1; IRPS 03–1 

Seven commenters commented on 

field of membership (FOM) and 

chartering. The commenters were 

generally pleased with the direction 

NCUA has taken with chartering; 

however, six commenters encouraged 

NCUA to do even more in this area. One 

commenter cautioned NCUA to chart a 

prudent course in this area and carefully 

consider the effects of granting larger 

FOMs to FCUs with low penetration in 

their existing FOMs. 

The statutory changes suggested by 

some of the commenters were: 

• Remove the ‘‘reasonable proximity’’

requirement in section 1759(f)(1)(B) of 

the FCU Act. Requiring a physical 

presence does not make sense in this 

century of Internet and remote banking. 

• Remove the preference in the Credit 

Union Membership Access Act 

(CUMAA) for forming new groups over 

adding a group to an existing credit 

union. A few commenters suggested 

eliminating the presumption in CUMAA 

that a group over 3,000 may be able to 

form its own credit union, requiring a 

special analysis and consideration. 

• Clarify that the limitation of 3,000 

does not apply to voluntary mergers of 

healthy FCUs. 

• Eliminate the undefined local 

community test. 

• Allow FCUs to continue to serve 

SEGs after the FCU converts to a 

community charter. Numerous FCUs 

have converted to state charter because 

of this limitation. 

• Leave it to each FCU as to how to 

define ‘‘family’’ and ‘‘household.’’

• State that commercial banks and 

thrifts have no standing to challenge 

NCUA FOM policies that implement the 

FCU Act. 

• Allow FCUs to provide check 

cashing and money transfer services to 

nonmembers. 

The regulatory changes suggested to 

IRPS 03–1 were: 

• The IRPS permits an FCU to add a 

select group if it is in ‘‘reasonable 

proximity’’ to a wholly owned ATM or 

a service facility in which it has some 

ownership interest. Several commenters 

suggested deleting the ‘‘wholly owned’’

requirement for ATMs and the 

ownership requirement for a service 

facility. The commenters noted that the 

wholly owned requirement penalizes 

smaller credit unions and hurts credit 

unions that have joined an ATM 

network in the spirit of cooperation. 

• Eliminate the geographic limitation 

on occupational common bond based on 

employment in a trade, industry, or 

profession (TIP). It is not required in the 

FCU Act, and any safety and soundness 

concerns can be addressed in the 

business plan. 

• TIP should not be limited to single 

common bond credit unions. 

• Eliminate the requirement that a 

credit union expanding to add a group 

must include with its application 

certain documentation from the group. 

The credit union should be allowed to 

provide all the necessary information. 

Most groups do not have the time or the 

expertise to provide the information 

NCUA requires. NCUA should allow an 

FCU to provide and attest to the 

information that is currently required in 

the group’s documentation. 

• Remove the restrictions on 

voluntary mergers. The legislative 

history and recent court decisions 

support the interpretation that the 

limitations on the expansion of multiple 

common bond credit unions do not 

apply to voluntary mergers. 

B. Fees Paid by Federal Credit Unions 

Section 701.6 

Five commenters commented on this 

provision of the regulations. One 

commenter supported NCUA’s efforts to 

decrease costs and urged NCUA to 

continue this effort. Four commenters 

noted that the overhead transfer rate 

(OTR) is directly related to the operating 

fee and urge more transparency in the 

process. Some of the suggestions in 

conjunction with greater transparency 

were that NCUA: Make certain it is 

basing its calculations on accurate 

information; place the procedures for 

calculating the OTR in the regulations; 

and release the OTR analysis to the 

credit union community 60 days prior 

to setting a new OTR. One commenter 

commended NCUA on its efforts to 

accurately calculate the OTR. 

C. Applications for Insurance Sections 

741.0; 741.3; 741.4; 741.6 

One commenter commented on these 

provisions. The commenter suggested 

NCUA digitize the insurance 

application (a digital package of 

electronic forms). The commenter made 

the following suggestions for the Form 

5300 Call Report: (1) Make filing as easy 

as possible (electronic filing with edit 

checks); (2) minimize the changes to the 

Call Report, because this is unduly 

burdensome to small credit unions; and 

(3) improve the instructions. 

D. Change in Officials Section 701.14 

Two commenters commented on this 

provision. One commenter stated the 

regulation is overly burdensome and 

invasive and suggested NCUA review 

and simplify it. The other commenter 

suggested shortening the timeframe for 

the region to determine if the 

application is complete from 10 to 5 

days and shortening the region’s 30-day 

timeframe to approve or disapprove an 

application. The commenter believes 

newly chartered and troubled credit 

unions should be a high priority, and 

that any delay in the process could 

derail the success of the credit union. 

E. Conversion of Insured Credit Union 

to Mutual Savings Bank Part 708a 

Four commenters commented on this 

provision. The commenters supported 

NCUA’s proposed changes to this 

provision. The proposal is intended to 

ensure more accurate disclosure by 

requiring credit unions to provide the 

members with specific information so 

that they have sufficient knowledge to 

make an informed decision. The 

commenters also suggested amending 

the statute so that NCUA can require a 

higher percentage for approval than a 

majority of those voting (see 12 U.S.C. 

1785(b)(2)(B)). The commenters do not 

believe it is right that a small number of 

members could decide the fate of the 

credit union. The suggestions were to 

require that a majority of all members 

vote in favor of the conversion or that 

a minimum of 20 percent of the 

members vote and that a majority of 

those members vote in favor of the 

conversion. (This is the requirement for 

conversion to private insurance.) 

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F. Mergers of Federally Insured Credit 

Unions; Voluntary Termination or 

Conversion of Insured Status Part 708b 

Three commenters commented on this 

process. One commenter suggested 

amending the voting requirements in 

section 708b.203(c), which covers the 

conversion from federal to private 

insurance, from a majority of the 

members that vote, provided 20 percent 

vote, to requiring a majority of all 

members, as is required for termination 

of insurance in section 708b.201(c). This 

would require an amendment to section 

1785(d)(2) of the FCU Act. 

One commenter suggested allowing 

credit unions converting from state to 

federal charter to retain investments 

authorized under state law but not 

authorized under federal law for a 

reasonable period of time instead of 

requiring immediate divestiture. 

One commenter asked NCUA not to 

follow expected guidance from FASB on 

the issue of merging credit unions. The 

guidance is expected to require the 

acquiring credit union in a merger of 

two or more credit unions to treat the 

merger as a purchase rather than a 

pooling of interests. 

G. Conversion to State Chartered Credit 

Union Section 741.7 

One commenter commented on this 

provision. The commenter suggested 

that when an FCU converts to state 

charter it should not be required to 

submit a new request for insurance and 

go through the insurance review 

process. 

II. Powers and Activities 

A. Lending, Leasing, and Borrowing 

1. Loans to Members and Lines of 

Credit to Members Section 701.21. Five 

commenters commented on this 

provision. Three commenters suggested 

amending the FCU Act to give NCUA 

more latitude in adjusting the interest 

rate. One commenter suggested 

simplifying section 701.21(c)(7), the 

regulatory provision governing interest 

rates, by reducing it to one paragraph 

and stating the current rate, effective as 

of a date certain and explaining that the 

rate is periodically revised by NCUA. 

Two commenters suggested revising 

the FCU Act by either eliminating the 

statutory 12-year loan limitation or 

increasing it to 15 years (see 12 U.S.C. 

1757(5)). 

One commenter suggested increasing 

the 20-year limitation on mobile home 

loans and home equity loans (see 12 

CFR 701.21(f)). 

Two commenters suggested amending 

the FCU Act to eliminate the 

requirement for board approval for loans 

to officials over $20,000 and instead 

allow the board to set the limit or, at a 

minimum, raise the amount (see 12 

U.S.C. 1757(5)(A)(5)). 

One commenter suggested that NCUA 

review its regulatory preemption 

provisions to ensure that they are 

consistent with the current case law. 

One commenter suggested moving the 

overdraft policy rules from the lending 

section of the regulations to the share 

section. The commenter is concerned 

that by including them in the lending 

provision this may lend support to the 

position that overdraft policies fall 

within Regulation Z. 

One commenter suggested clarifying 

in the regulations that the board may 

delegate the setting of loan rates and 

terms to credit union management. 

One commenter suggested eliminating 

the provision in section 701.21(g) that 

states that ‘‘no loan shall be secured by 

a residence located outside the United 

States, its territories and possessions, or 

the Commonwealth of Puerto Rico.’’

Credit unions serve facilities that have 

locations throughout the world. Because 

of this provision an FCU cannot assist 

a member trying to buy a home in a 

foreign country. 

2. Loan Participation Section 701.22. 

One commenter commented on this 

section. The commenter suggested 

revising section 701.22(d)(4) by 

removing the requirement that an FCU 

that is not the originating lender get the 

approval of the board of directors or 

investment committee prior to 

disbursement. The commenter believes 

that the rule should allow the board to 

delegate this authority to senior 

management with the board setting the 

parameters. The commenter also 

suggests removing the requirement in 

section 701.22(c)(2) that the originating 

lender retain 10 percent of the face 

amount of the loan. The commenter 

notes that other types of financial 

institutions do not have this limitation. 

This is a statutory requirement and 

would require an amendment to the 

FCU Act (see 12 U.S.C. 1757(5)(E)). 

3. Share, Share Draft, and Share 

Certificate Accounts Section 701.35. 

Two commenters commented on this 

provision. One commenter suggested 

NCUA pursue a statutory change to 

permit credit unions to accept deposits 

as well as shares. One commenter 

suggested a legislative change to delete 

from the FCU Act the requirement that 

‘‘[i]f the par value of a share exceeds $5, 

dividends shall be paid on all funds in 

the regular share account once a full 

share has been purchased.’’ (See 12 

U.S.C. 1763.) 

4. Member Business Loans Part 723. 

Five commenters commented on this 

provision, and all five suggested raising 

the statutory exemption from $50,000 to 

$100,000 with one recommending 

deleting it in its entirety (see 12 U.S.C. 

1757a(c)(B)(iii)). The commenters 

believe this amendment is necessary for 

credit unions to provide better service to 

their members. Two commenters 

suggested eliminating or revising the 

statutory restriction limiting a credit 

union’s business lending to the lesser of 

either 1.75 times net worth or 12.25 

percent of total assets (see 12 U.S.C. 

1757a(a)). The commenters note that 

credit unions’ business lending has no 

effect on the profitability of other 

insured institutions and is filling a 

niche for business loans of modest 

amounts. They suggest that, at a 

minimum, the amount should be raised 

to the amount permitted for thrifts. 

Two commenters supported targeted 

statutory relief, such as for agricultural 

and faith-based loans. 

One commenter suggested additional 

relief in section 701.21 for residential 

mortgage lending when the borrowing is 

basically for personal investment rather 

than for true business enterprise 

purposes. This commenter also 

suggested: Better aligning the MBL 

regulatory requirements with SBA’s 

loan requirements; and providing 

additional flexibility with respect to the 

regulatory loan-to-value limitation for 

MBLs. 

5. Maximum Borrowing Section 

741.2. Two commenters commented on 

this provision. One commenter noted 

that NCUA has a proposed rule out for 

comment removing the borrowing 

limitation of 50 percent of paid-in and 

unimpaired capital and surplus for 

federally insured state-chartered credit 

unions. The commenter noted the 

limitation is statutory for FCUs and that 

the commenter would restrict its 

comments on this issue to the proposed 

rule. The other commenter suggested 

allowing all RegFlex credit unions to 

exceed the limitation or remove it for all 

credit unions. This suggestion would 

require an amendment to section 

1757(9) of the FCU Act. 

6. Leasing Part 714. One commenter 

commented on this section. The 

commenter suggested that NCUA amend 

the rule by eliminating the 25 percent 

residual value requirement in section 

714.4(c). The commenter believes credit 

unions should have the ability to make 

an informed business decision as to 

what the residual value should be for 

each lease. 

B. Investment and Deposits 

1. Designation of Low-Income Status; 

Receipt of Secondary Capital Accounts 

by Low-Income Designated Credit 

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Unions Section 701.34. Four 

commenters commented on this 

provision. Two commenters suggested 

eliminating the 20 percent of total 

shares limit on nonmember deposits in 

low-income credit unions. These 

commenters noted that the limit 

restricts philanthropic and corporate 

investment and that prompt corrective 

action (PCA) already addresses the 

safety and soundness concerns this 

limitation is addressing. One 

commenter suggested eliminating the 

requirement in section 701.34(b)(3) that 

a secondary capital account have a 

minimum maturity of five years. The 

commenter believes this is overly 

restrictive. 

One commenter stated its support for 

secondary capital and encouraged 

NCUA to allow the use of secondary 

capital in all credit unions. 

2. Fixed Assets Section 701.36. Three 

commenters commented on this 

provision. Two commenters suggested 

reviewing section 701.36(d), which 

requires an FCU that purchases property 

for expansion to have a plan to utilize 

the property for its own operation. The 

commenters believe this requirement 

unnecessarily limits an FCU’s future 

expansion options. The commenters 

suggested three years is not a reasonable 

time to require full utilization and 

suggested deleting it and conditioning 

the purchase of the property on an 

ongoing relationship with the sponsor 

or other entity willing to provide longterm leases. 

One commenter objected to the 5 

percent of shares and retained earnings 

limitation on the purchase of fixed 

assets in section 701.36(c). The 

commenter believes this is too limiting 

and that the definition of fixed assets 

should be modified to only include land 

and buildings. In addition, the 

commenter suggested that for FCUs 

applying for a waiver from the 5 percent 

limitation that NCUA not require copies 

of blueprints. This is not a regulatory 

requirement but may be required by 

some regions. The commenter believes 

the waiver process should be simplified. 

3. Investment and Deposit Activity 

Part 703. Three commenters commented 

on this provision. The commenters 

identified the following restricted 

activities as areas for relief: Assetbacked securities, short-term corporate 

commercial paper, corporate notes and 

bonds, non-agency mortgage-backed 

securities, shares and stocks of other 

financial institutions, derivative 

authority in order to hedge interest rate 

risk, utilization of financial futures or 

interest rate risk, securities related to 

small businesses, residual interest in 

CMOs/REMICs, mortgage servicing 

rights, and real estate investment trusts. 

One commenter suggested allowing 

FCUs that have the expertise to engage 

in these activities to do so instead of 

limiting expanded investment options 

to RegFlex credit unions. 

One commenter suggested exempting 

all FCUs and not just RegFlex FCUs 

from the 100 percent limitation in 

section 703.5(b)(ii). This provision 

permits an FCU to delegate 

discretionary control over the purchase 

and sale of its investments to a person 

other than a credit union employee up 

to 100 percent of its net worth. This 

commenter also suggested lifting the 

prohibition on the purchase of an 

investment with the proceeds from a 

borrowing transaction if the purchased 

investment matures after the maturity of 

the borrowing repurchase transaction. 

This provision does not apply to 

RegFlex credit unions. 

One commenter supported legislation 

that would increase the investment 

options for FCUs so that they have the 

same authority that is approved for 

other federally regulated financial 

institutions. This commenter also 

supported exempting FCUs from 

registering with the Securities and 

Exchange Commission as broker/dealers 

when engaging in certain activities. 

Banks are already exempt from this 

requirement. 

4. Credit Union Service Organization 

Part 712. Three commenters commented 

on this provision. Two of the 

commenters supported a statutory 

change to remove the 1 percent 

limitation on investments and loans to 

credit union service organizations 

(CUSOs) or, at a minimum, increase it 

to 3 percent or 5 percent. 

Two commenters suggested that, 

although the list of permissible 

activities in the current regulation is 

broader than prior versions of the rule, 

NCUA should go even further. The 

commenters suggested the rule include 

guidance as to which activities are 

related to the routine activities of an 

FCU and allow FCUs to determine if the 

activity is permissible. The specific 

examples currently in the rule should be 

included as an appendix to the rule and 

for guidance purposes only. 

C. Miscellaneous Activities 

1. Incidental Powers Part 721. Two 

commenters commented on this 

provision. One commenter supported 

legislation to permit FCUs to operate 

full trust departments. The other 

commenter suggested expanding section 

721.3(d) to permit FCUs to lease excess 

space regardless of whether it intends to 

eventually occupy space. This 

restriction prevents FCUs from being 

competitive with banks. 

2. Charitable Contributions Section 

701.25. Three commenters commented 

on this provision. One commenter 

suggested eliminating the rule in its 

entirety because this activity does not 

pose a safety and soundness concern. 

Two commenters suggested eliminating 

the requirement in section 701.25(b) 

that a not-for-profit recipient that is not 

a 501(c)(3) be located in or conduct 

activities in the community in which 

the credit union has a place of business. 

The commenters suggested allowing the 

FCU to select the recipient based on 

location of members. 

3. Purchase, Sale and Pledge of 

Eligible Obligations Section 701.23. One 

commenter commented on this 

provision and suggested a statutory 

change to remove the limitation of 5 

percent of unimpaired surplus and 

capital limitation on the purchase of 

eligible obligations (see 12 U.S.C. 

1757(13)). 

4. FCU Bylaws. Two commenters 

suggested that NCUA include the FCU 

Bylaws in its EGRPRA review. One of 

those commenters also noted that, by 

including some of the standard bylaw 

amendments in the revised 1998 FCU 

Bylaws (FCU Bylaws) and requiring 

NCUA approval to adopt those not 

included in the FCU Bylaws, NCUA had 

reduced regulatory flexibility. It should 

be noted that as part of its 2004 

regulatory review NCUA is seeking 

comment on the FCU Bylaws. 

III. Agency Programs Parts 705, 725, and 

742; Section 701.34 (70 FR 75986, 

December 22, 2005) 

One commenter suggested reducing 

NCUA’s requirement that a credit union 

have 7 percent capital for six 

consecutive quarters to be eligible for 

participation in the agency’s RegFlex 

program. This commenter urged the 

agency to continue to look for ways, 

consistent with safety and soundness 

considerations, to reduce the regulatory 

burden for community development and 

low-income credit unions. One 

commenter recommended NCUA adopt 

the approach followed by the 

Department of the Treasury’s CDFI Fund 

for designating median incomes in 

geographic areas for NCUA’s program of 

designating low-income credit unions. 

The commenter noted that NCUA 

follows this convention in designating 

‘‘underserved areas.’’ This commenter 

also opposed recent changes by NCUA 

to the secondary capital rules, such as 

the requirement to obtain the Regional 

Director’s approval before accepting an 

investment of secondary capital. This 

commenter offered several comments on 

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aspects of the NCUA’s revolving loan 

program rule, including eliminating 

some unnecessary provisions, 

improving the administration of other 

provisions, and either eliminating the 

community needs plan outright or 

making it subject to public review. The 

commenter recommended NCUA 

consider changing the loan program into 

a secondary capital program and 

eliminating as unnecessary and 

burdensome compliance with our nonmember public unit share account rules 

once the loan to NCUA is repaid. 

IV. Capital Part 702; Section 741.3 (70 

FR 75986, December 22, 2005) 

Seven of the eight commenters 

expressed strong support for a riskbased capital approach and advocated 

that NCUA continue to pursue 

necessary changes to the FCU Act to 

enable it to fully implement such a 

program. Six of these also advocated 

implementation of a risk-based capital 

program for corporate credit unions as 

well, and urged NCUA to continue its 

ongoing dialogue with the industry on 

this topic. One commenter noted that 

corporations have relatively more 

conservative investments and less risky 

loan portfolios, which supports the 

argument that a risk-based approach to 

capital is appropriate. One commenter 

noted that credit unions are unique 

among regulated financial institutions 

in their absence of a risk-based capital 

regime. In respect of the prompt 

corrective action rules, one commenter 

recommended that NCUA not require a 

credit union meeting the ‘‘adequately 

capitalized’’ test to undertake corrective 

action; another suggested that corrective 

action not be required where the credit 

union’s capital ratio falls between 4 

percent and 5 percent. One commenter 

noted that implementation of a riskbased net worth program could be 

complicated and expensive for smaller 

credit unions. Another commenter 

noted its support for the current 

accounting treatment allowed for a 

credit union’s investment in the 

NCUSIF. 

V. Consumer Protection 

A. Lending-Related Rules (69 FR 5300, 

February 4, 2004) 

Note: Includes certain Federal Reserve 

Board (FRB) rules that affect credit unions. 

Commenters did not offer suggestions on any 

rule developed or issued by NCUA, although 

one commenter suggested that the Federal 

Credit Union Act should be amended by 

eliminating or modifying the usury ceiling 

contained in section 107 of the Act. 

1. Regulation Z, Truth in Lending 12 

CFR 226 (FRB). Two commenters 

suggested amending Regulation Z to 

require that the costs associated with 

accepting a below-market financing 

offer, such as foregoing an available 

rebate or price reduction, be included in 

the finance charge and calculation of the 

annual percentage rate (APR). Two 

commenters suggested revising 

Regulation Z’s requirement that debt 

cancellation fees may only be excluded 

from APR where the applicant has asked 

for the debt cancellation product in 

writing. The commenters characterized 

this requirement as unduly burdensome 

and asked that it be amended. They 

noted that many applicants seek credit 

through telephonic or electronic means, 

and that requiring a written request for 

a debt cancellation product is timeconsuming and unnecessary. Two 

commenters requested that Regulation Z 

be amended to exclude cash advance 

fees from APR, noting these fees are 

typically assessed on a one-time basis, 

which they consider to be inconsistent 

with the purpose of disclosing APR. 

Two commenters requested that fees 

assessed as part of an overdraft 

protection program be excluded from 

APR. One commenter recommended 

that the three-day right of rescission 

available to applicants seeking a home 

equity loan or a mortgage refinance be 

eliminated. The commenter 

characterized the provision as 

unnecessary and rarely used. One 

commenter recommended that 

Regulation Z be amended to permit use 

of a consolidated APR disclosure where 

rates for cash advance, purchase, and 

balance transfer are the same. One 

commenter asked that the Federal 

Reserve provide clearer guidance on 

Regulation Z’s disclosure requirements 

where a risk-based credit card program 

is offered. 

Two commenters recommended 

amending the Truth in Lending Act to 

eliminate the required use of APR. 

These commenters suggested that use of 

APR has become counterproductive and 

confusing to consumers, who do not 

understand what costs comprise APR or 

why there is a difference between their 

note rate and the APR. One noted that 

several of the cost components in APR 

are not imposed or controlled by the 

lender. One stated that most consumers 

no longer use APR for comparison 

purposes, and also that the costs of 

calculating APR exceed any benefit from 

its use. Both commenters believe 

consumers would be better served with 

a more simplified disclosure of the 

interest rate and an itemization of costs 

and discount points assessed by the 

lender. 

2. Regulation C, Home Mortgage 

Disclosure 12 CFR 203 (FRB). Three 

commenters objected to recent 

amendments to Regulation C adopted by 

the Federal Reserve requiring lenders to 

pursue questioning related to race when 

they receive applications electronically 

or via the telephone. These commenters 

stated that lenders who receive these 

types of applications are typically 

unaware of the applicant’s race. They 

suggested that pursuit of such 

information by the lender is both 

unnecessary and possibly 

counterproductive, instilling doubt in 

the mind of the applicant as to the 

integrity of the process. One commenter 

cautioned that the Federal Reserve 

should avoid exalting the pursuit of data 

over the regulation’s basic purpose, 

which is to discourage unlawful 

discrimination. Two commenters 

pointed out that the Federal Reserve’s 

recent determination to change Hispanic 

to an ethnic rather than a racial category 

could be counterproductive, since 

ethnicity is not a protected class under 

the fair lending rules. One commenter 

suggested that the Federal Reserve 

should raise the threshold for reporting 

obligations under Regulation C to 

include only those lenders who 

originate at least $25 million in 

mortgage loans annually. This change 

would place depository institution 

lenders on the same footing as nondepository lenders. One commenter 

opposed the Federal Reserve’s recent 

amendment to this rule expanding the 

definition of home loan to include any 

loan in which some amount of the 

proceeds is earmarked for home 

improvement. The commenter believes 

this change makes the scope of the rule 

too broad and more difficult to monitor 

for compliance purposes. 

3. Regulation B, Equal Credit 

Opportunity 12 CFR Part 202 (FRB). All 

four commenters objected to the Federal 

Reserve’s recent amendments to 

Regulation B imposing new standards 

for determining if an application for 

credit has been made jointly. The 

commenters believe these new 

standards, which preclude a lender from 

relying on either a joint financial 

statement or joint signatures on the 

promissory note as evidence of intent to 

jointly apply for an extension of credit, 

unduly increase the compliance burden 

and will result in delays. One 

commenter noted that use of the new 

standards is particularly difficult with 

telephonic or electronic credit 

applications. 

4. Flood Insurance Part 760. Two 

commenters complained that the federal 

statute that authorizes funding for flood 

insurance needs annual congressional 

appropriation. The commenters are 

concerned that the appropriation 

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69The appendix to part 745 is published for 

comment as part of the rulemaking process and 

includes both example and interpretations. 

process results in needless uncertainty 

about whether the required funds will 

be available. The commenters suggested 

that the enabling legislation be amended 

to provide for an automatic 

appropriation. 

5. Federal Credit Union Act; Usury 

Ceiling. One commenter called for an 

amendment to section 107 of the 

Federal Credit Union Act to eliminate 

the 15 percent annual interest rate 

ceiling. The commenter noted that the 

FCU Act provides the NCUA Board with 

authority to establish a different usury 

ceiling under certain circumstances for 

periods not in excess of 18 months. The 

commenter stated that the possibility of 

change every 18 months creates 

uncertainty hindering the development 

of new loan products. The commenter 

believes the NCUA Board has ample 

authority to regulate against interest rate 

risk and suggested that the statutory 

usury ceiling has become unnecessary 

and arguably excessive. 

6. Guidance on Electronic 

Disclosures. One commenter asked that 

the Federal Reserve provide guidance to 

the financial sector about the use of 

electronic disclosures under its lending 

regulations, as well as its electronic 

funds transfer and truth in savings 

regulations. The commenter stated that 

greater flexibility is necessary 

concerning what constitutes an 

‘‘electronic address’’ and that 

clarification is necessary about how a 

consumer may evidence his or her 

consent to accept disclosures 

electronically. 

B. Share Account—Deposit 

Relationships and Miscellaneous 

Consumer Regulations (69 FR 41202, 

July 8, 2004) 

Note: Includes FRB rules governing 

Electronic Fund Transfers (Regulation E). 

1. Truth in Savings Part 707. Two 

commenters suggested amending the 

Truth in Savings rule to eliminate the 

requirement that annual percentage 

yield on savings accounts be calculated 

and disclosed periodically, citing 

confusion that results on the part of 

consumers from this calculation. Two 

commenters also suggested that the rule 

be amended to eliminate the cumulative 

reporting of fees, as is presently 

required. One commenter suggested 

updating the dollar amount for 

determining if a bonus is permissible 

from $10 to $25, along with eliminating 

the required aggregation of de minimis 

items. Other suggestions to improve this 

rule included conforming the change in 

terms notice requirement to the 21 days 

that is required in Regulation E, as well 

as permitting the use of the acronym 

‘‘APY’’ for annual percentage yield, 

similar to that which is permitted in 

Regulation Z for annual percentage rate. 

A commenter suggested modifying the 

requirement in the rule pertaining to 

advance disclosures in the case of noncheck transactions, citing the difficulty 

in doing so with present technology. 

Two commenters suggested allowing 

notices to be delivered electronically 

through the home banking interface, 

rather than through e-mail, given the 

better security available in such 

programs. One commenter noted that 

this is a preferable approach in other 

consumer disclosures as well, such as 

Regulations Z, E, and M. Finally, one 

commenter supported the continued use 

of this rule as the principal avenue for 

regulation of bounce protection 

programs. 

2. Privacy Part 716. Two commenters 

noted opposition to the requirement of 

annual consumer privacy notices where 

there has been no change in privacy 

policy and no right of opt-out. One 

commenter acknowledged this is a 

statutory requirement and sought 

NCUA’s support for a change in the law. 

This commenter also stated there was 

no need to change the form of privacy 

notices, especially where a short form 

with no opt out is used. Three 

commenters indicated that any change 

to the privacy notices ought to await 

completion of rule changes required by 

the Fair and Accurate Credit 

Transactions Act (FACT Act), which 

was enacted last year and amends the 

Fair Credit Reporting Act. One 

commenter suggested NCUA should 

amend the definition of affiliate to 

include a company that may be owned 

or controlled by more than one credit 

union. 

3. Electronic Funds Transfers 12 CFR 

Part 205 (FRB). Two commenters 

opposed any change from current 

requirements relating to debit card 

transactions, and indicated that 

technological difficulties exist with 

providing fee information in connection 

with point of sale debit card 

transactions. One commenter also noted 

opposition to any requirement that 

transaction fees on ATM or POS 

transactions be disclosed on a year-todate, cumulative basis on periodic 

account statements. 

4. Share Insurance Part 745. One 

commenter approved of the use of 

examples of share insurance coverage in 

the appendix to the share insurance 

regulation and asked that two additional 

examples, relating to insurance coverage 

for joint revocable trusts, be added. One 

commenter suggested that NCUA 

include the examples as part of official 

staff commentary, subject to notice and 

public comment. The commenter also 

recommended that NCUA include staff 

interpretations in the official 

commentary, as an alternative to the use 

of private legal opinion letters.69

VI. Corporate Credit Unions (70 FR 

75986, December 22, 2005) 

A. Corporate Credit Unions Part 704 

Commenters addressed several other 

aspects of the corporate rule and related 

matters. One commenter requested 

different treatment for corporations for 

Bank Secrecy Act compliance and antimoney laundering rules because of 

corporates’ lower risk profile. One 

commenter advocated more flexibility 

for corporates’ investments, such as 

permitting derivatives indexed to 

inflation, to allow beneficial hedging 

opportunities. This commenter also 

advocated narrowing the scope of the 

corporate CUSO rule so the rule only 

applies to CUSOs in which a corporate 

has a controlling interest. This 

commenter opposed the loan limits 

applicable to corporate lending to 

CUSOs and suggested NCUA make 

loans to CUSOs subject to the same or 

comparable rules as member loans. This 

commenter stated the requirement that 

a corporate obtain a legal opinion 

addressing the issue of corporate 

separateness is burdensome and 

unnecessary in view of the actual risks. 

This commenter also asserted part B 

Expanded Authority, part V, is unduly 

burdensome when applied to wholesale 

corporates, because it restricts loan 

participation authority to loans made by 

members and natural person credit 

unions cannot be members of wholesale 

corporates. 

Two commenters requested NCUA 

change the provisions of section 704.2 

to enable corporates to settle ACH 

transactions on the settlement date, not 

the advice date. One commenter 

requested NCUA remove the restriction 

in section 704.14(a)(2), contending it 

unnecessarily restricts corporates from 

considering the full range of potential 

directors. This commenter also 

advocated that NCUA allow CUSOs to 

engage in the full range of permissible 

lending available to credit unions and 

allow corporates to deal in CUSO loans 

in the same manner as credit union 

loans. This commenter advocated 

greater flexibility in the loans to one 

borrower limits, especially for 

corporates holding expanded 

authorities. This commenter also 

indicated the requirement in section 

704.12(a)(1), pertaining to providing 

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services to nonmembers only through a 

correspondent agreement, is overly 

burdensome and reduces competition 

and so should be eliminated. Finally, 

this commenter recommended NCUA 

prepare guidance on corporate mergers 

because they are likely to continue for 

the foreseeable future. 

VII. Directors, Officers, and Employees 

(70 FR 39202, July 7, 2005) 

A. Parts 711 and 713; Sections 701.21, 

701.33, and 701.19 

1. Officers, Directors, and Employees. 

Two commenters wrote in support of a 

provision currently in both the Credit 

Union Regulatory Improvements and 

the Regulatory Relief bills pending in 

Congress that would allow a credit 

union to reimburse a volunteer for 

wages lost due to time spent in service 

to the credit union. Two commenters 

recommended that NCUA amend 

section 701.21, the general lending rule, 

to specify that a credit union employee 

who is also a member of its board of 

directors can receive any discounts, for 

example in interest rates, that the credit 

union makes available to other 

employees. 

Two commenters that had previously 

submitted comments on the proposed 

amendments to part 713 reiterated their 

comments here. Each suggested that 

NCUA expand its eligibility criteria for 

the higher deductible beyond credit 

unions that qualify under NCUA’s 

RegFlex program and allow well 

capitalized credit unions to qualify 

under the rule. One reiterated its 

support for the proposed changes to the 

coverage limits in the rule. The other 

reiterated its request that NCUA add a 

waiver procedure to enable credit 

unions needing a longer time period to 

procure a bond with different coverage 

as required by the rule. This same 

commenter asked that we also include 

an exemption procedure for credit 

unions to avoid having to meet the new 

coverage limits. A third commenter 

suggested that NCUA clarify the 

distinction between references to a 

credit union’s board of directors and the 

NCUA Board. 

One commenter requested that NCUA 

broaden the provisions in section 

701.19(c) to allow greater discretion and 

flexibility in making investments to 

support employee benefit plans. 

VIII. Anti-Money Laundering (70 FR 

5946, February 4, 2005) 

A. Anti-Money Laundering Part 748 

Five commenters sought guidance and 

clarification from NCUA concerning 

requirements to file SARs; one sought 

an outright exemption from the filing 

requirements for small credit unions. 

Three commenters recommended 

raising the threshold for filing Currency 

Transaction Reports from the current 

$10,000 trigger; one sought an 

expansion of the time in which filing is 

required to 30 days. One commenter 

recommended raising the thresholds for 

reporting on monetary instruments from 

the current $3,000 trigger and for filing 

money laundering SARs from its current 

reporting threshold of $5,000. This 

commenter also advocated establishing 

a de minimis threshold for reporting 

insider theft and abuse, as well as 

eliminating the annual recertification 

requirements for exempt customers. 

Two commenters sought training and 

guidance from NCUA, in concert with 

the other banking regulators, on what 

constitutes an adequate anti-money 

laundering program and what 

requirements apply in testing and 

auditing of these programs. Two 

commenters recommended that the 

Office of Foreign Assets Control be 

merged with FinCEN under the auspices 

of the Department of the Treasury. 

IX. Rules of Practice and Procedure (70 

FR 39202, July 7, 2005) 

A. Parts 709, 710, 747 

1. Rules of Practice and Procedure. No 

commenters addressed any aspect of the 

rules of practice and procedure. 

X. Safety and Soundness (70 FR 39202, 

July 7, 2005) 

A. Safety and Soundness Parts 703, 715, 

722, 741, 748, 749; Section 701.21 

Four commenters suggested amending 

the Federal Credit Union Act to provide 

NCUA with greater flexibility in 

establishing maximum rates and 

maturities on loans. One commenter 

suggested liberalizing the requirements 

in the lending rules governing approval 

for loans to insiders. Although the MBL 

rule was not specifically included in 

this notice, two commenters 

recommended changes to it, including 

expanding the permissible maturity 

limits and allowing individual boards of 

directors to make some of the decisions 

that currently require NCUA waiver or 

specific approval. One commenter 

suggested expanding the privileges 

available to RegFlex credit unions in the 

MBL context to all adequately 

capitalized credit unions. The same 

commenter suggested raising the 

threshold for the mandatory use of 

appraisals above its current statutory 

limit of $250,000 for real estate loans. 

Three commenters addressed the 

investments rule. One recommended 

eliminating restrictions on purchasing 

steeply discounted CMOs, and another 

suggested extending the investment 

privileges available to RegFlex credit 

unions to all adequately capitalized 

credit unions. The third commenter 

suggested amending the investment 

regulation to require closer monitoring 

and reporting of investments that fall 

outside of the board’s investment 

policy. 

One commenter requested that the 

NCUA permit smaller credit unions to 

file the 5300 Call Report on a 

semiannual or annual basis, rather than 

a quarterly basis. Four commenters 

sought clarification and liberalization of 

our recordkeeping rule, including 

guidance on what constitutes a vital 

record and clarification about the time 

period after which records that pertain 

to a merged credit union may be 

destroyed by the continuing credit 

union. 

B. Impact of NCUA Rules on Federally 

Insured Credit Unions Part 741 

One commenter sought clarification 

on the extent to which NCUA’s rules 

apply to state-chartered, federally 

insured credit unions. This commenter 

opposed NCUA’s current method, as 

reflected in 12 CFR 741, that notes those 

rules that apply to federally insured 

state credit unions. The commenter 

believes this approach leads to 

confusion and uncertainty, especially 

when a rule may not apply in its 

entirety to a state credit union. The 

commenter recommends NCUA should 

restate explicitly which of the rules 

outside of part 741 apply to these credit 

unions, even if this results in some 

redundancy in the rules. 

C. Miscellaneous 

Two commenters addressed 

documents recently published by NCUA 

that provide guidance to credit unions. 

The guidance documents, dealing with 

overdraft protection programs and 

incident response programs in cases 

involving breach of security, are 

intended to assist credit unions to 

comply applicable regulatory and 

statutory requirements but do not have 

the force or effect of regulations. One 

commenter suggested that the bounce 

program guidance was incorrect in 

calling for overdrafts to be reported as 

loans, and also questioned the 

recommendation in the guidance 

concerning notice to consumers about 

the availability of overdraft protection 

in non-checking account transactions 

such as debit card or ATM use. The 

other commenter, addressing the 

security program guidance, 

recommended that NCUA clarify the 

steps a credit union should take in 

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62104 Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / Notices 

monitoring an account that has been the 

subject of a security breach. 

Although not discussed in an 

EGRRPA notice, one commenter offered 

specific suggestions in support of 

several items included in the regulatory 

relief bills currently pending, including 

support for raising the CUSO 

investment authority from 1 percent to 

3 percent of assets, or higher as 

determined by the credit union’s level 

of capital adequacy. The commenter 

also supports allowing a continuing 

credit union in a merger to include the 

retained earnings of the merging credit 

union in calculating and reporting its 

net worth, as well as permitting credit 

unions to cash checks and provide wire 

transfer services to anyone within the 

field of membership. Finally, the 

commenter supports allowing a 

converting credit union to continue to 

serve members of a select employee 

group post-conversion and providing 

NCUA with greater flexibility in 

adjusting the FCU usury ceiling. 

XI. Total Comments Received, by Type 

In response to its 6 published notices 

soliciting comment on its 10 categories 

of rules, NCUA received a total of 41 

comments. Of these, 17 were generated 

by national trade associations, 13 by 

natural person credit unions, 6 by state 

credit union leagues, 3 by corporate 

credit unions, and 2 by individuals. 

End of text of the Joint Report to 

Congress, July 31, 2007, Economic 

Growth and Regulatory Paperwork 

Reduction Act 

Tamara J. Wiseman, 

Executive Secretary, Federal Financial 

Institutions Examination Council. 

[FR Doc. 07–5385 Filed 10–31–07; 8:45 am] 

BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P; 

6720–01–P; 7535–01–P 

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