[Federal Register Volume 64, Number 247 (Monday, December 27, 1999)]
[Rules and Regulations]
[Pages 72269-72270]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-33274]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
Organization and Operations of Federal Credit Unions
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
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SUMMARY: The NCUA is issuing a final rule that amends its regulation
regarding secondary capital accounts in low-income designated credit
unions to specify that interest on these accounts may be accrued in the
account, paid directly to the investor, or paid into a separate account
from which an investor may make withdrawals. The NCUA believes that
these amendments will clarify the permissible alternatives and provide
additional flexibility for low-income designated credit unions.
DATES: This rule is effective January 26, 2000.
FOR FURTHER INFORMATION CONTACT: Frank S. Kressman, Staff Attorney,
Division of Operations, Office of General Counsel, at the above address
or telephone: (703) 518-6540.
SUPPLEMENTARY INFORMATION:
Background
Federal credit unions that serve predominantly low-income members
may be designated by NCUA as low-income credit unions (LICUs). LICUs
play an important role in providing financial services to low-income
individuals and communities for whom these services are often
unavailable. LICUs often find it difficult, however, to accumulate
capital due to the limited resources of their members. In response to
this obstacle, Sec. 701.34 of NCUA's regulations permits LICUs to offer
secondary capital accounts to nonnatural person members and nonnatural
person nonmembers.
Section 701.34 makes it clear that funds in the secondary capital
account, including accrued interest paid into the account, must be
available to cover operating losses realized by the credit union that
exceed its net available reserves and undivided earnings. Section
701.34 may not have clearly stated, however, that although interest
paid into the secondary capital account must remain there until account
maturity, credit unions have flexibility to use other permissible
alternatives for disposing of accrued interest. To clarify this, NCUA
issued a proposed rule that specified that in addition to depositing
accrued interest into the secondary capital account, a credit union may
pay the interest directly to the investor or deposit it into a separate
account from which the investor could make withdrawals. 64 FR 40786
(July 28, 1999). The proposed rule also clarified that net available
reserves and undivided earnings, as discussed above, are reserves and
undivided earnings exclusive of allowance accounts for loan losses.
Allowance accounts for investment losses used to be considered in
determining net available reserves and undivided earnings, but are no
longer as they are no longer recognized by generally accepted
accounting principles or NCUA's regulatory accounting practices.
Summary of Comments
The NCUA Board received five comment letters in response to the
proposed rule: four from credit union trade associations and one from a
federal credit union. All of the commenters generally supported the
proposed rule and made other specific recommendations.
Two commenters suggested that secondary capital accounts, or
similar programs, should be made available to all credit unions not
just LICUs. Secondary capital accounts are presently and have
historically been intended to address the specific needs of LICUs,
especially the difficulty many have in accumulating capital. Any change
in this approach is not a matter
[[Page 72270]]
before the Board in consideration of this proposal.
One commenter suggested that credit unions and their investors with
existing secondary capital account agreements should be able to
voluntarily modify those agreements to alter the manner in which
interest accrued in the future is treated. NCUA does not object to this
so long as the secondary capital agreements are properly amended and it
only applies to future interest to be accrued and not to interest
already paid into the secondary capital account.
Two commenters stated that the disclosures and acknowledgment
required in the Appendix to Sec. 701.34 should be modified.
Specifically, they suggested including language that would indicate
which method of paying accrued interest has been agreed to by the LICU
and its investor. We agree and have incorporated this suggestion into
the Appendix to Sec. 701.34.
One commenter stated that an investor should have the option of
having interest payments directed to accounts outside of the LICU if it
wishes. The proposed rule permits interest payments to be directed to a
separate account from which an investor may make withdrawals. NCUA
intends for this option to include accounts outside of the LICU.
Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact any regulation may have on
a substantial number of small credit unions, meaning those under $1
million in assets.
The NCUA has determined and certifies that this rule will not have
a significant economic impact on a substantial number of small credit
unions. The reason for this determination is that the amendments to
Sec. 701.34 only clarify the permissible alternatives LICUs have in
disposing of accrued interest on secondary capital accounts. The
amendments provide LICUs with additional flexibility without imposing
any costs or significant regulatory requirements. Accordingly, the NCUA
has determined that a Regulatory Flexibility Analysis is not required.
Paperwork Reduction Act
NCUA has determined that the amendments to Sec. 701.34 do not
increase paperwork requirements under the Paperwork Reduction Act of
1995 and regulations of the Office of Management and Budget.
Executive Order 12612
Executive Order 12612 requires NCUA to consider the effect of its
actions on state interests. It states that: ``Federal action limiting
the policy-making discretion of the states should be taken only where
constitutional authority for the action is clear and certain, and the
national activity is necessitated by the presence of a problem of
national scope.'' This rule will not have a direct effect on the
states, on the relationship between the national government and the
states, or on the distribution of power and responsibilities among the
various levels of government. NCUA has determined that this rule does
not constitute a significant regulatory action for purposes of the
executive order.
List of Subjects in 12 CFR Part 701
Credit unions, Reporting and recordkeeping requirements.
By the National Credit Union Administration Board on December 16,
1999.
Becky Baker,
Secretary of the Board.
For the reasons set forth above 12 CFR part 701 is amended as
follows:
PART 701--ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNIONS
1. The authority citation for part 701 continues to read as
follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a,
1761b, 1766, 1767, 1782, 1784, 1787, and 1789. Section 701.6 is also
authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by
15 U.S.C. 1601 et seq., 42 U.S.C. 1861 and 42 U.S.C. 3601-3610.
Section 701.35 is also authorized by 42 U.S.C. 4311-4312.
2. Section 701.34 is amended by revising paragraph (b)(7) to read
as follows:
Sec. 701.34 Designation of low-income status; receipt of secondary
capital accounts by low-income designated credit unions.
* * * * *
(b) * * *
(7) Funds deposited into the secondary capital account, including
interest accrued and paid into the secondary capital account, must be
available to cover operating losses realized by the credit union that
exceed its net available reserves and undivided earnings (i.e.,
reserves and undivided earnings exclusive of allowance accounts for
loan losses), and to the extent funds are so used, the credit union
shall under no circumstances restore or replenish the account. The
credit union may, in lieu of paying interest into the secondary capital
account, pay interest accrued on the secondary capital account directly
to the investor or into a separate account from which the secondary
capital investor may make withdrawals. Losses shall be distributed pro-
rata among all secondary capital accounts held by the credit union at
the time the losses are realized.
* * * * *
3. The Appendix to Sec. 701.34 is amended by revising the second
paragraph of the next to last bulleted section and adding a third
paragraph to that section to read as follows:
Appendix to Sec. 701.34
* * * * *
The funds committed to the secondary capital account and any
interest paid into the account may be used by __________ (name of
credit union) to cover any and all operating losses that exceed the
credit union's reserves and undivided earnings exclusive of
allowance accounts for loan losses, and in the event the funds are
so used ________ (name of credit union) will under no circumstances
restore or replenish those funds to ________ (name of institutional
investor).
By initialing below, ________ (name of credit union) ________
and (name of institutional investor) agree that accrued interest
will be:
______ ______ paid into and become part of the secondary capital
account;
______ ______ paid directly to the investor;
______ ______ paid into a separate account from which the investor
may make withdrawals; or
______ ______ any combination of the above provided the details are
specified and agreed to in writing.
* * * * *
[FR Doc. 99-33274 Filed 12-23-99; 8:45 am]
BILLING CODE 7535-01-U
