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Rules and Regulations Federal Register

58285 

Vol. 75, No. 185 

Friday, September 24, 2010 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Part 701 

RIN 3133–AD71 

Short-Term, Small Amount Loans 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Final rule. 

SUMMARY: NCUA is amending its general 

lending rule to enable Federal credit 

unions (FCUs) to offer short-term, small 

amount loans (STS loans) as a viable 

alternative to predatory payday loans. 

The amendment permits FCUs to charge 

a higher interest rate for an STS loan 

than is permitted under the general 

lending rule, but imposes limitations on 

the permissible term, amount, and fees 

associated with an STS loan. This final 

rule also requires an FCU to set a cap 

on the total dollar amount of STS loans 

it will make and to set a length of 

membership requirement of at least one 

month. Also, any loan under this rule 

must be fully amortized. The STS loan 

alternative will assist FCUs in meeting 

their mission to promote thrift and meet 

their members’ credit needs, 

particularly the provident needs of 

members of modest means. Permitting a 

higher interest rate for STS loans will 

allow FCUs to make loans cost effective 

while the limitations will appropriately 

constrain the product to meeting its 

purpose as an alternative to predatory 

credit products. This final rule also 

includes guidance in the form of ‘‘best 

practices’’ FCUs should consider 

incorporating into their individual STS 

programs. 

DATES: This rule will become effective 

on October 25, 2010. 

FOR FURTHER INFORMATION CONTACT: 

Justin M. Anderson, Staff Attorney, 

Office of General Counsel, at the above 

address or telephone (703) 518–6540. 

SUPPLEMENTARY INFORMATION: 

A. Background 

The Federal Credit Union Act (the 

Act) permits FCUs to make loans and 

extend lines of credit to members but 

prohibits FCUs from charging an annual 

percentage rate (APR), inclusive of all 

finance charges, above 15%. 12 U.S.C. 

1757(5)(A)(vi). The Act, however, 

permits the NCUA Board (the Board), 

after considering certain statutory 

criteria, to establish a higher interest 

rate ceiling in 18-month cycles. Id. At 

its July 2009 meeting, the Board 

reapproved an APR ceiling of 18%, 

effective until March 10, 2011. NCUA 

Letter to Federal Credit Unions 09– 

FCU–06 (July 2009). 

The Board reviewed NCUA’s 

regulatory structure and recognized that 

under this current structure many FCUs 

could not provide their members with a 

reasonable alternative to traditional 

payday loans. The Board, therefore, 

considered amending its regulations to 

provide FCUs with a regulatory 

structure under which they could offer 

a responsible payday loan alternative to 

members in a safe and sound manner. 

B. Proposed Rule 

On April 29, 2010, the Board issued 

a proposed rule amending § 701.21 to 

increase the interest rate ceiling for STS 

loans, provided FCUs made the loans 

within the requirements of the rule. 75 

FR 2447 (May 5, 2010). The Board also 

specifically asked for comments on the 

issues of amortization, utilizing a 36% 

APR inclusive of all fees, and requiring 

members to participate in direct deposit 

or payroll deduct. The comment period 

closed on July 6, 2010. The Board 

received 33 comments from: Two credit 

union trade associations; one bank trade 

association; two private citizens; sixteen 

credit unions; seven State credit union 

leagues; three consumer advocacy 

groups; one credit union service 

organization; and one philanthropic 

foundation. Commenters addressed a 

wide range of issues including the 

different requirements of the rule, those 

areas where the Board specifically 

requested comment, and other aspects 

of payday lending that were not related 

to this rule. 

C. Summary of Comments 

1. General 

While most commenters supported 

the idea and framework of the rule, 

many commenters offered a suggestion 

on one or more aspects of the proposal. 

There were, however, three commenters 

that supported the proposed rule as 

drafted, four that did not support the 

rule, and one that only provided details 

about its payday alternative program. 

The commenters that supported the rule 

as written believe the rule would be a 

valuable tool FCUs could use to assist 

their members, is in line with the 

mission and purpose of the FCU charter, 

and would provide members with a way 

to safely break the payday loan cycle. 

Of the commenters that did not 

support the rule, one commenter 

generally opposed the idea of payday 

lending and believed NCUA should 

monitor and regulate existing programs, 

rather than help foster an alternative. 

Two other commenters did not believe 

the terms of the rule would be attractive 

to FCUs or borrowers. Finally, one 

commenter believed credit unions 

should be permitted to develop their 

own programs instead of NCUA creating 

one. With respect to the last comment, 

the Board notes this final rule does not 

prohibit an FCU from continuing or 

participating in a closed or open-end 

payday loan program that operates 

successfully and legally under NCUA’s 

Regulations and the Federal Reserve 

Board’s Regulation Z (Reg Z). 12 CFR 

Part 226. 

2. Specific Comments and NCUA’s 

Response 

The remaining 25 commenters 

generally supported the rule, but offered 

suggestions on specific aspects of the 

rule or provided comments on the 

sections where the Board specifically 

requested comments. The Board 

considered all of the comments and 

modified the final rule where 

appropriate. The specific comments and 

NCUA’s responses are discussed in the 

following section-by-section analysis. 

a. Permissible Interest Rate 

A majority of the commenters 

believed an interest rate ceiling of 1000 

basis points above the established 

general interest rate ceiling, as set by the 

Board, was sufficient for FCUs offering 

an STS product. As noted above, the 

Board set interest rate ceiling is 


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58286 Federal Register / Vol. 75, No. 185 / Friday, September 24, 2010 / Rules and Regulations 

currently at 18%. A few other 

commenters, however, provided 

alternative suggestions for the Board’s 

consideration. Two commenters 

believed the interest rate ceiling for STS 

loans should be higher to account for 

the higher degree of risk associated with 

this type of lending, but did not provide 

a specific interest rate they favored. Two 

other commenters believed a 36% all 

inclusive APR was appropriate, citing a 

relation to the Department of Defense 

(DOD) regulations and the need to keep 

costs as low as possible for borrowers. 

Two commenters advocated 

maximum flexibility and believed FCUs 

should be permitted to choose between 

a 36% all inclusive APR and the 

proposed rate and fee structure. One 

commenter believed the APR for STS 

loans should be 36% plus a $20 

application fee. Other individual 

commenters suggested approaches, such 

as an 18% APR with a broader 

definition of finance charges, allowing a 

28% APR for all legally permissible 

payday programs, and not increasing the 

APR at all. 

The Board has considered these 

comments and, based on the reasons set 

forth in the preamble to the proposed 

rule, has decided to proceed with the 

proposed structure of an APR 1000 basis 

points above the Board approved 

interest rate ceiling, which currently 

would be 28%, and a $20 application 

fee. 

With respect to the comments on 

FCUs being able to offer this product to 

members of the military, the Board 

notes that the definition of a payday 

loan in the DOD regulations would not 

include most loans made under this 

final rule. The DOD regulations provide 

the following definition of a payday 

loan: 

(i) Payday loans. Closed-end credit 

with a term of 91 days or fewer in which 

the amount financed does not exceed 

$2,000 and the covered borrower: 

(A) Receives funds from and incurs 

interest and/or is charged a fee by a 

creditor, and contemporaneously with 

the receipt of funds, provides a check or 

other payment instrument to the 

creditor who agrees with the covered 

borrower not to deposit or present the 

check or payment instrument for more 

than one day, or; 

(B) Receives funds from and incurs 

interest and/or is charged a fee by a 

creditor, and contemporaneously with 

the receipt of funds, authorizes the 

creditor to initiate a debit or debits to 

the covered borrower’s deposit account 

(by electronic fund transfer or remotely 

created check) after one or more days. 

This provision does not apply to any 

right of a depository institution under 

statute or common law to offset 

indebtedness against funds on deposit 

in the event of the covered borrower’s 

delinquency or default. 

32 CFR 232.2. Under the terms of this 

final rule, all STS loans will be for less 

than $2,000 and many will have 

maturities less than 91 days. The terms 

of this final rule, however, do not 

require an FCU to obtain a check or 

payment instrument or authorization to 

debit a member’s account 

contemporaneously with an extension 

of credit. Further, NCUA does not 

generally expect FCUs to need to require 

a check or payment instrument and, as 

discussed below, FCUs are prohibited 

from conditioning the extension of 

credit on a member’s consent for 

electronic debit. An FCU, therefore, will 

typically be able to offer loans under the 

terms of this rule to members of the 

military without violating the DOD 

regulations. 

b. Loan Term 

Approximately one-third of the 

commenters submitted comments on the 

proposed permissible loan term. Of 

those commenters, most believed the 

minimum loan term should be greater 

than 30 days, with commenters citing a 

range between 90–120 days as an 

acceptable minimum term. Some 

commenters also believed the maximum 

loan terms should also be longer, citing 

12 to 18 months as an acceptable range 

for the maximum loan term. The 

commenters who advocated for a longer 

term believed that a longer term was 

necessary to enable borrowers to pay 

back a loan in small, more manageable 

payments. 

After considering the comments and 

for the reasons articulated in the 

preamble to the proposed rule, the 

Board has decided to keep the proposed 

terms of a minimum maturity of one 

month and a maximum maturity of six 

months. The Board believes this final 

rule should provide a high level of 

protection for borrowers, and is 

concerned that longer term loans may 

actually have unintended negative 

consequences. The Board is specifically 

concerned that borrowers with longer 

term STS loans may continue to use 

payday lenders to cover expenses that 

arise during repayment. While it is 

possible that this scenario may also 

occur under the maturity structure in 

this rule, the Board believes loans with 

maturities between one and six months 

will provide borrowers with frequent 

enough access to credit to minimize the 

need for additional loans from payday 

lenders. To effectuate the beneficial 

nature of a one to six month maturity 

and ensure maximum borrower 

protection, the Board is reaffirming its 

statement in the preamble to the 

proposed rule that FCUs should 

structure the terms of an STS loan in a 

way that allows a borrower to repay the 

loan in the given term. NCUA will 

scrutinize an FCU’s program to ensure 

loans are being made in a way that 

provides a member with the best chance 

to successfully repay a loan made under 

this rule. 

c. Number of Loans and Roll-Overs 

Approximately one-third of the 

commenters addressed the issues of rollovers and the permissible number of 

loans. While most commenters agreed 

the final rule should prohibit roll-overs, 

there were three commenters that 

believed roll-overs could be appropriate 

in limited circumstances. The 

commenters cited that without rollovers a borrower who cannot pay off the 

loan within the loan term will incur late 

fees and, possibly, a negative entry on 

his or her credit report. Also, one 

commenter asked for further 

clarification of the term ‘‘roll-over’’ in 

the final rule. 

After considering these comments, the 

Board has determined to keep the 

prohibition against roll-overs, but will 

provide some flexibility in the final rule 

so borrowers can meet their payment 

obligations without incurring additional 

fees. While the Board continues to 

disagree that roll-overs are ever 

appropriate, it believes permitting FCUs 

to extend the term of a loan, without 

any additional fees, may be beneficial to 

both FCUs and borrowers. The 

prohibition against roll-overs in this 

rule applies to situations in which a 

borrower is charged additional fees for 

extending or ‘‘re-borrowing’’ funds to 

avoid delinquency. Under this rule, an 

FCU may, however, extend the term of 

the loan, within the maximum loan term 

set by this rule, provided the FCU does 

not charge any additional fees, except 

interest, or extend any additional funds. 

For example, if a borrower takes out a 

$300 loan for three months and, at some 

point within those three months, is 

unable to continue making payments, 

the FCU can extend the loan term for 

another one to three months, but cannot 

extend any new credit or charge 

additional fees in connection with this 

extension. The Board believes allowing 

for an extension without any additional 

fees will provide borrowers with the 

best opportunity to repay the loan and 

avoid delinquencies. NCUA generally 

expects FCUs, however, to set the term 

and amount of the loan in a way that 

allows borrowers to repay it within the 


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Federal Register / Vol. 75, No. 185 / Friday, September 24, 2010 / Rules and Regulations 58287 

term and avoid the need to extend a 

loan. 

With respect to the number of loans, 

most commenters believed there should 

be a higher limit on the number of loans 

a borrower may have in a 12-month 

period or no cap at all. Commenters 

believed that the number imposed in the 

proposed rule was too limiting and 

could drive borrowers back to payday 

lenders. 

After considering these comments the 

Board has determined to proceed with 

the terms in the proposed rule, which 

limit FCUs to making only one loan at 

a time to a member and no more than 

three in any rolling six-month period. In 

response to the commenters advocating 

for a higher number of loans, the Board 

disagrees that a limited number of loans 

will push borrowers back to payday 

lenders. As noted above, the Board 

intends this rule to provide borrowers 

with enough access to credit to preclude 

the need for a borrower to also borrow 

from a payday lender. The Board also 

intends this rule to help borrowers 

curtail the repetitive use of payday 

loans and transition them to more 

mainstream financial products and more 

responsible borrowing. A cap of three 

loans in any rolling six-month period 

coupled with the minimum and 

maximum maturities, set out above, 

achieves this balance of providing 

borrowers with sufficient access to 

credit while helping borrowers 

transition from a reliance on repetitive 

borrowings. 

d. Application Fee and Amount of the 

Loan 

Approximately one-half of the 

commenters addressed the appropriate 

amount of an application fee. Two 

commenters believed $20 was an 

appropriate amount but two other 

commenters felt an application fee 

should be capped at $25. Of the 

remaining commenters, four believed 

the application fee should be higher, but 

did not provide a specific amount and 

several commenters believed FCUs 

should be permitted to set their own 

application fees in accordance with 

Regulation Z or the application fee 

should be tied to the amount of the loan. 

All commenters who sought a higher 

application fee cited an increased risk in 

this type of lending. Two commenters 

believed FCUs should charge a borrower 

only one $20 application fee every six 

months and two commenters believed 

the Board should not permit FCUs to 

charge any fees for these loans, 

including application and late fees. All 

commenters who favored a lower fee or 

no fee cited a minimal underwriting 

process that does not justify a fee. 

After considering the comments, the 

Board has decided to keep the proposed 

maximum application fee of $20. While 

the Board agrees that this type of 

lending is inherently riskier than many 

other types of lending, it is interest 

income and not the application fee that 

allows FCUs to offset the higher degree 

of risk. The Board notes, Reg Z limits 

application fees to the recovery of costs 

associated with processing applications 

for credit that are charged to all 

consumers who apply, regardless if 

credit is actually extended. 12 CFR 

226.4(c)(1). For the reasons articulated 

in the preamble to the proposed rule, 

the Board believes a maximum 

application fee of $20 is sufficient to 

allow FCUs to recoup the costs 

associated with processing an 

application for an STS loan. With regard 

to those commenters who argued for a 

lower application fee or a restriction 

that application fees be charged only 

once in a six-month period, the Board 

points out that $20 under this rule is the 

maximum amount FCUs can charge for 

an application fee and that FCUs are 

still bound by the definition of 

application fee in Reg Z. As such, an 

FCU’s application fee can only be the 

amount needed to recoup the actual 

costs associated with processing an 

application. If an FCU undertakes a 

more limited application process with 

repeat borrowers, there would be no 

justification for charging the same 

application fee each time the borrower 

applied. NCUA will scrutinize 

application fees to ensure FCUs are 

using the fee to recoup costs associated 

with processing an application and not 

to account for the riskier nature of this 

type of lending. 

On the issue of the permissible 

amount of a loan, slightly less than onehalf of the commenters provided 

suggestions. A majority of the 

commenters believed the minimum loan 

amount should be less than $200, citing 

a high demand for loans between $50 

and $100. One commenter believed the 

minimum loan amount was acceptable, 

but the maximum loan amount should 

be $2,500. Finally, one commenter 

believed that the maximum amount 

should be lowered because most payday 

borrowers cannot pay back $1,000, even 

over a six-month period. 

The Board believes the proposed 

minimum loan amount of $200 and the 

proposed maximum amount of $1000 

are appropriate and has included these 

amounts in the final rule. With respect 

to those commenters who advocated for 

a lower minimum amount, the Board 

notes, as discussed above, that this rule 

does not prohibit FCUs from making 

smaller loans that are legal under 

NCUA’s regulations and Reg Z. Also, as 

noted in the preamble to the proposed 

rule, a minimum loan amount of $200 

is in-line with the typical loan extended 

to payday loan borrowers. 

In response to the commenter who 

argued that the maximum loan amount 

should be $2,500, the Board does not 

believe it would be prudent to allow 

FCUs to lend amounts over $1,000 to 

borrowers at terms of six months or less. 

As noted in the preamble to the 

proposed rule, the Board chose a 

maximum loan amount of $1,000 

because it may allow borrowers to repay 

loans from payday lenders and 

transition to more traditional FCU 

products while still being a manageable 

short-term loan. 

Finally, in response to the comment 

that most borrowers could not pay back 

$1,000 in six months and, therefore, the 

maximum amount should be lower, the 

Board notes the discussion above 

regarding the impetus for a maximum 

loan of $1,000. In addition, as discussed 

earlier in this preamble, the Board 

expects FCUs to extend loans to 

borrowers in amounts and under terms 

in which the borrower can manage 

repayment of the loan, within the 

confines of this rule. 

e. Amortization and Length of 

Membership Requirements 

In response to the Board’s specific 

request for comment on the issue of 

amortization, approximately one-third 

of the commenters provided a response. 

The majority of those commenters 

believed that the final rule should 

require FCUs to fully amortize STS 

loans. There were two commenters, 

however, that believed FCUs should 

have the option to use balloon 

payments, citing that, in limited 

circumstances, balloon payments may 

actually benefit members. 

The Board agrees with the majority of 

the commenters that FCUs should fully 

amortize loans made under this rule, 

and is including a specific requirement 

in the final rule. The Board notes that 

balloon payments often create 

additional difficulty for borrowers 

trying to repay their loans, and requiring 

FCUs to fully amortize the loans will 

allow borrowers to make manageable 

payments over the term of the loan, 

rather than trying to make one large 

payment. Under the requirement to 

amortize a loan, FCUs must structure 

the payments so that the borrower is 

paying a portion of the principal and 

interest in equal or near-equal 

installments on a periodic basis over the 

course of the loan. While the Board is 

not prescribing specific payment 

schedules, i.e., monthly or bi-weekly, 


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58288 Federal Register / Vol. 75, No. 185 / Friday, September 24, 2010 / Rules and Regulations 

FCUs should offer payment schedules 

that allow borrowers to easily repay the 

loan within the given term. 

Approximately one-quarter of the 

commenters addressed the issue of a 

length of membership requirement. Of 

those commenters, all but one believed 

FCUs should have the option to impose 

a length of membership requirement, 

but that it should not be a regulatory 

requirement. The Board disagrees that 

FCUs should have the option of setting 

a length of membership requirement 

and has included a requirement in the 

final rule that FCUs set a length of 

minimum membership requirement of 

at least one month. The Board wants to 

provide FCUs with as much flexibility 

as possible in developing an STS loan 

program, but it must consider the riskier 

nature of this type of loan and the safety 

and soundness of the FCUs offering 

them. The Board believes a minimum 

membership requirement of one month 

will build a meaningful relationship 

between the borrower and the FCU and 

help reduce the chance of a borrower 

defaulting on an STS loan. While the 

final rule imposes a minimum 

requirement of one month, individual 

FCUs should evaluate their risk 

tolerance and set a membership 

requirement accordingly. 

f. Lending Cap and Payroll Deduct/ 

Direct Deposit 

Less than a quarter of the commenters 

addressed the issue of a lending cap. Of 

those commenters, there was an even 

split between the number of 

commenters that believed NCUA should 

impose a cap and those that believed the 

Board should permit FCUs to set their 

own cap. The Board received three 

suggestions on how to establish a cap: 

Setting a cap at 20% of net worth; 5– 

10% of assets; and a cap only on the 

dollar amount of total loans made as a 

percentage of net worth. 

After considering these comments, the 

Board has decided to require FCUs to 

set a cap in their written lending 

policies on the aggregate dollar amount 

of loans outstanding not to exceed 20% 

of total net worth. While the Board 

believes it is preferential to allow an 

FCU to evaluate its own risk tolerance 

and resources in setting a cap, the Board 

also wants to provide FCUs with a 

ceiling to ensure any cap set by an FCU 

is sufficient from a safety and soundness 

perspective. The Board believes a cap 

on the aggregate dollar amount with a 

ceiling of 20% net worth will be 

sufficient to ensure FCUs are not 

exposed to unnecessary risks and their 

resources are not stretched. Depending 

on the success of these programs, the 

Board can consider raising the cap 

ceiling at a later date. 

Over half of the commenters 

addressed the issue of requiring credit 

unions to provide STS loans only to 

members that had direct deposit or 

authorized payroll deduction. Of those 

commenters, nearly three-quarters 

believed FCUs should have the option 

to require direct deposit or payroll 

deduct as part of their program, but it 

should not be a regulatory requirement. 

One commenter believed it should be a 

regulatory requirement and three 

believed the rule should specifically 

prohibit the practices. One of the 

commenters that believed the rule 

should prohibit the practices stated that 

requiring payroll deduct to obtain a loan 

was prohibited by the Federal Reserve 

Board’s Regulation E. 

The Board agrees with a majority of 

the commenters that direct deposit and 

payroll deduct for members should not 

be regulatory requirements. While the 

Board believes direct deposit is a useful 

tool for limiting risk, it recognizes that 

a regulatory requirement may restrict 

FCUs from offering STS loans to 

members who may not have access to 

direct deposit. Rather, the Board 

believes an FCU should be able to 

evaluate its risk tolerance and members’ 

needs in determining whether or not to 

require members to participate in direct 

deposit in order to borrow an STS loan. 

On the issue of payroll deduct, the 

Board notes that Regulation E prohibits 

financial institutions, including FCUs, 

from conditioning an extension of credit 

to a consumer on the consumer’s 

repayment by preauthorized electronic 

fund transfers. 12 CFR 205.10(e)(1). 

However, under Regulation E, FCUs can 

offer members a lower rate or other 

incentives if they participate in payroll 

deduct. 12 CFR Part 205, Supplement I, 

205.10(e)(1). The Board believes that 

payroll deduction is an important tool 

for FCUs to utilize in lowering the risk 

associated with these loans. Based on 

these considerations, the Board will let 

individual FCUs decide if they wish to 

provide an incentive to or encourage 

members to utilize payroll deduct or 

other pre-authorized electronic fund 

transfers, but will not include any 

regulatory requirement. The Board is 

also modifying the best practices section 

in the final rule to reflect these legal 

considerations regarding payroll 

deduction. 

g. Underwriting and Best Practices 

In addition to comments on the 

specific requirements of the rule, the 

Board also received a few comments 

requesting that it not require specific 

underwriting criteria in the regulation 

and also not change the best practices 

section into regulatory requirements. 

With regard to underwriting, the Board 

will proceed with the approach in the 

proposed rule that an FCU is required 

to establish underwriting standards in 

its written lending policies, but the 

Board will not require specific 

standards. The Board believes an FCU is 

in the best position to evaluate the 

needs of its members and its risk 

tolerance and set appropriate 

underwriting standards. The Board will 

also keep the underwriting in the best 

practices section to provide FCUs with 

guidance on how to structure 

underwriting for STS loans. With 

respect to the best practice section, the 

Board will keep the approach in the 

proposed rule and offer this section as 

guidance and not as a regulatory 

requirement. While the Board believes 

the suggestions in the best practices 

section may be beneficial to FCUs and 

members, the Board also believes an 

FCU should have flexibility to 

determine the features of its own 

program. 

h. Other Comments 

In addition to the comments 

addressed above, the Board received 

several comments that did not address 

specific features of the rule, but warrant 

a discussion in this preamble. Several 

commenters asked NCUA to collect data 

about STS loans under this rule and 

reevaluate the requirements in a year. 

The Board agrees with these 

commenters and will modify the 5300 

call report by January 2011 to include 

new sections to evaluate loan programs 

under this rule. One year from the 

effective date of this final rule the Board 

will evaluate the data collected on the 

5300 call report and reevaluate the 

requirements in the final rule. 

There were also several commenters 

that urged NCUA to take enforcement 

actions against FCUs that are offering 

predatory payday lending products. The 

Board notes that NCUA staff will 

continue to investigate programs that 

may be predatory in nature and take 

action where appropriate. 

D. Dodd-Frank Wall Street Reform and 

Consumer Protection Act (The DoddFrank Act) 

The Dodd-Frank Act, signed into law 

by President Obama on July 21, 2010, 

includes, as Title XII, the Improving 

Access to Mainstream Financial 

Institutions Act of 2010 (Title XII). Title 

XII includes, among other things, 

Federal assistance to Federally-insured 

financial institutions that are providing 

small-dollar value loans. Specifically, 

§ 1205 of Title XII authorizes the 


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Federal Register / Vol. 75, No. 185 / Friday, September 24, 2010 / Rules and Regulations 58289 

Secretary of the Treasury to establish 

multi-year demonstration programs by 

means of grants, cooperative 

agreements, financial agency 

agreements, and similar contracts or 

undertakings with eligible entities to 

provide low-cost, small loans to 

consumers that will provide alternatives 

to more costly small dollar loans. The 

Dodd–Frank Wall Street Reform and 

Consumer Protection Act, Public Law 

111–203, § 1205 (2010). Institutions 

participating in programs under this 

section are required to promote and 

provide financial education and literacy 

to small-dollar loan borrowers. 

In addition, section 1206 amends the 

Community Development Banking and 

Financial Institutions Act of 1994 by 

requiring the Community Development 

Fund (the Fund) to make grants to 

community development financial 

institutions (CDFIs) and to any other 

Federally insured depository institution 

with a primary mission to serve targeted 

investment areas to enable such 

institutions to establish a loan-loss 

reserve fund to defray the costs of a 

small dollar loan program established or 

maintained by such institution. Id. at 

section 1206(a)(1). Institutions accepting 

grants under this section are required to 

provide non-Federal matching funds in 

an amount equal to 50% of the grant. 

This section also requires the Fund to 

make technical assistance grants to be 

used for technology, staff support, and 

other costs associated with establishing 

a small-dollar loan program. To receive 

a grant or technical assistance grant 

under this section, a financial 

institution must have or establish a 

program with loans under $2,500 that 

are paid in installments with no prepayment penalties, and the institution 

must report payments of the loan to at 

least one consumer reporting agency 

and meet any other affordability 

requirements established by the 

Administrator of the Fund. Id. at section 

1206(b). Title XII also grants the 

Secretary of the Treasury the authority 

to issue regulations implementing and 

administering the grants and programs 

discussed in Title XII. Id. at section 

1209. 

The Board would like to clarify that 

the requirements of this final rule will 

not prohibit an FCU, which is otherwise 

eligible, from receiving a grant or 

participating in a program under Title 

XII. The requirements and best practices 

guidance in the final rule are in line 

with the requirements imposed by Title 

XII on participating financial 

institutions. FCUs will be able to 

comply with the requirements of the 

final rule to take advantage of the higher 

interest rate and still be within the 

limitations of Title XII. 

As discussed above, the Secretary of 

the Treasury has the authority to issue 

regulations implementing Title XII and 

the Administrator of the Fund can 

impose other affordability requirements 

for grants. The Board will review any 

regulations or requirements related to 

the Title XII grants and programs and 

compare them to the requirements in 

the final rule to ensure FCUs with STS 

loan programs can continue to take 

advantage of the benefits included in 

Title XII. 

Regulatory Procedures 

Regulatory Flexibility Act 

The Regulatory Flexibility Act 

requires NCUA to prepare an analysis to 

describe any significant economic 

impact a proposed rule may have on a 

substantial number of small credit 

unions (those under $10 million in 

assets). This final rule increases the 

interest rate ceiling for STS loans and 

sets out several STS loan program 

requirements an FCU must meet to take 

advantage of the higher interest rates. 

The final rule will not have a significant 

economic impact on a substantial 

number of small credit unions, and, 

therefore, a regulatory flexibility 

analysis is not required. 

Small Business Regulatory Enforcement 

Fairness Act 

The Small Business Regulatory 

Enforcement Fairness Act (SBREFA) of 

1996, Public Law 104–121, provides 

generally for congressional review of 

agency rules. A reporting requirement is 

triggered in instances where NCUA 

issues a final rule as defined by Section 

551 of the Administrative Procedures 

Act. 5 U.S.C. 551. The Office of 

Information and Regulatory Affairs, an 

office within OMB, is currently 

reviewing this rule, and NCUA 

anticipates it will determine that, for 

purposes of SBREFA, this is not a major 

rule. 

Paperwork Reduction Act 

This rule adds a requirement that 

Federal credit unions establish a cap on 

short-term, small-dollar loans in their 

general written lending policies, which 

Federal credit unions are already 

required to maintain and is currently 

approved under the Paperwork 

Reduction Act control number 3133– 

0139. NCUA has determined that the 

requirements of this rule are additions 

to an FCU’s customary business records 

and do not increase the paperwork 

requirements under the Paperwork 

Reduction Act of 1995 and regulations 

of the Office of Management and 

Budget. 

Executive Order 13132 

Executive Order 13132 encourages 

independent regulatory agencies to 

consider the impact of their actions on 

State and local interests. In adherence to 

fundamental federalism principles, 

NCUA, an independent regulatory 

agency as defined in 44 U.S.C. 3502(5), 

voluntarily complies with the executive 

order. The final rule will not have 

substantial direct effects on the States, 

on the connection between the national 

government and the States, or on the 

distribution of power and 

responsibilities among the various 

levels of government. NCUA has 

determined that this final rule does not 

constitute a policy that has federalism 

implications for purposes of the 

executive order. 

The Treasury and General Government 

Appropriations Act, 1999—Assessment 

of Federal Regulations and Policies on 

Families 

NCUA has determined that this final 

rule would not affect family well-being 

within the meaning of section 654 of the 

Treasury and General Government 

Appropriations Act, 1999, Public Law 

105–277, 112 Stat. 2681 (1998). 

List of Subjects in 12 CFR Part 701. 

Credit unions, Federal credit unions. 

By the National Credit Union 

Administration Board on September 16, 

2010. 

Mary Rupp, 

Secretary of the Board. 

■ For the reasons discussed above, the 

National Credit Union Administration is 

amending 12 CFR chapter VI as set forth 

below: 

PART 701—ORGANIZATION AND 

OPERATIONS OF FEDERAL CREDIT 

UNIONS 

■ 1. The authority citation for part 701 

continues to read as follows: 

Authority: 12 U.S.C. 1752(5), 1755, 1756, 

1757, 1759, 1761a, 1761b, 766, 1767, 1782, 

1784, 1787, 1789. Section 701.6 is also 

authorized by 15 U.S.C. 3717. Section 701.31 

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

42 U.S.C. 1981 and 3601–3610. Section 

701.35 is also authorized by 42 U.S.C. 4311– 

4312. 

■ 2. In § 701.21 add paragraph (c)(7)(iii) 

to read as follows: 

§ 701.21 Loans to members and lines of 

credit to members. 

* * * * * 

(c) * * * 


hsrobinson on DSK69SOYB1PROD with RULES
58290 Federal Register / Vol. 75, No. 185 / Friday, September 24, 2010 / Rules and Regulations 

(7) * * * 

(iii) Short-term, small amount Loans 

(STS loans). (A) Notwithstanding the 

provisions in § 701.21(c)(7)(ii), a Federal 

credit union may charge an interest rate 

of 1000 basis points above the 

maximum interest rate as established by 

the Board, provided the Federal credit 

union is making a closed-end loan in 

accordance with the following 

conditions: 

(1) The principal of the loan is not 

less than $200 or more than $1000; 

(2) The loan has a minimum maturity 

term of one month and a maximum 

maturity term of six months; 

(3) The Federal credit union does not 

make more than three STS loans in any 

rolling six-month period to any one 

borrower and makes no more than one 

short-term, small amount loan at a time 

to a borrower; 

(4) The Federal credit union must not 

roll-over any STS loan; 

(A) The prohibition against roll-overs 

does not apply to an extension of the 

loan term within the maximum loan 

terms in paragraph (c)(7)(iii)(3) provided 

the Federal credit union does not charge 

any additional fees or extend any new 

credit. 

(B) [Reserved] 

(5) The Federal credit union fully 

amortizes the loan; 

(6) The Federal credit union sets a 

minimum length of membership 

requirement of at least one month; 

(7) The Federal credit union charges 

an application fee to all members 

applying for a new loan that reflects the 

actual costs associated with processing 

the application, but in no case may the 

application fee exceed $20; and 

(8) The Federal credit union includes, 

in its written lending policies, a limit on 

the aggregate dollar amount of loans 

made under this section of a maximum 

of 20% of net worth and implements 

appropriate underwriting guidelines to 

minimize risk; for example, requiring a 

borrower to verify employment by 

producing at least two recent pay stubs. 

(B) STS Loan Program Guidance and 

Best Practices. In developing a 

successful STS loan program, a Federal 

credit union should consider how the 

program will help benefit a member’s 

financial well-being while considering 

the higher degree of risk associated with 

this type of lending. The guidance and 

best practices are intended to help 

Federal credit unions minimize risk and 

develop a successful program, but are 

not an exhaustive checklist and do not 

guarantee a successful program with a 

low degree of risk. 

(1) Program Features. Several features 

that may increase the success of an STS 

loan program and enhance member 

benefit include adding a savings 

component, financial education, 

reporting of members’ payment of STS 

loans to credit bureaus, or electronic 

loan transactions as part of an STS 

program. In addition, although a Federal 

credit union cannot require members to 

authorize a payroll deduction, a Federal 

credit union should encourage or 

incentivize members to utilize payroll 

deduction. 

(2) Underwriting. Federal credit 

unions need to develop minimum 

underwriting standards that account for 

a member’s need for quickly available 

funds, while adhering to principles of 

responsible lending. Underwriting 

standards should address required 

documentation for proof of employment 

or income, including at least two recent 

paycheck stubs. FCUs should be able to 

use a borrower’s proof of recurring 

income as the key criterion in 

developing standards for maturity 

lengths and loan amounts so a borrower 

can manage repayment of the loan. For 

members with established accounts, 

FCUs should only need to review a 

member’s account records and proof of 

recurring income or employment. 

(3) Risk Avoidance. Federal credit 

unions need to consider risk avoidance 

strategies, including: requiring members 

to participate in direct deposit and 

conducting a thorough evaluation of the 

Federal credit union’s resources and 

ability to engage in an STS loan 

program. 

* * * * * 

[FR Doc. 2010–23610 Filed 9–23–10; 8:45 am] 

BILLING CODE 7535–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2010–0364; Directorate 

Identifier 2009–NE–27–AD; Amendment 39– 

16446; AD 2010–20–11] 

RIN 2120–AA64 

Airworthiness Directives; Rolls-Royce 

plc RB211 Trent 700 and Trent 800 

Series Turbofan Engines 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule. 

SUMMARY: We are adopting a new 

airworthiness directive (AD) for the 

products listed above. This AD results 

from mandatory continuing 

airworthiness information (MCAI) 

issued by an aviation authority of 

another country to identify and correct 

an unsafe condition on an aviation 

product. The MCAI describes the unsafe 

condition as: 

In completing a review of Engine Manual 

repair/acceptance limits for titanium 

compressor shafts, Rolls-Royce has found the 

specified limits to be incorrect such that the 

shot peened surface layer at life critical 

features (the axial dovetail slots) may have 

been inadvertently removed in-service. 

Removal of the shot peened layer results in 

increased vulnerability of the part to tensile 

stresses, which could reduce the life of the 

shaft to below the published life limits. 

We are issuing this AD to prevent 

failure of the intermediate-pressure (IP) 

and high-pressure (HP) shaft, which 

could result in an overspeed condition, 

possible uncontained disc failure and 

damage to the airplane. 

DATES: This AD becomes effective 

October 29, 2010. 

ADDRESSES: The Docket Operations 

office is located at Docket Management 

Facility, U.S. Department of 

Transportation, 1200 New Jersey 

Avenue, SE., West Building Ground 

Floor, Room W12–140, Washington, DC 

20590–0001. 

FOR FURTHER INFORMATION CONTACT: 

James Lawrence, Aerospace Engineer, 

Engine Certification Office, FAA, Engine 

and Propeller Directorate, 12 New 

England Executive Park, Burlington, MA 

01803; e-mail: james.lawrence@faa.gov; 

telephone (781) 238–7176; fax (781) 

238–7199. 

SUPPLEMENTARY INFORMATION: 

Discussion 

We issued a notice of proposed 

rulemaking (NPRM) to amend 14 CFR 

part 39 to include an AD that would 

apply to the specified products. That 

NPRM was published in the Federal 

Register on April 7, 2010 (75 FR 17630). 

That NPRM proposed to correct an 

unsafe condition for the specified 

products. The MCAI states: 

In completing a review of Engine Manual 

repair/acceptance limits for titanium 

compressor shafts, Rolls-Royce has found the 

specified limits to be incorrect such that the 

shot peened surface layer at life critical 

features (the axial dovetail slots) may have 

been inadvertently removed in-service. 

Removal of the shot peened layer results in 

increased vulnerability of the part to tensile 

stresses, which could reduce the life of the 

shaft to below the published life limits. The 

acceptable limits for material loss on these 

surfaces have now been corrected in the 

Engine Manual. 

This AD identifies shafts for which such 

dressing operations have been known to have 

been carried out and requires that an 

inspection for compliance with the corrected 

Engine Manual limits be accomplished and 

that the shafts be dispositioned accordingly. 


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