04-24674. Rules of Practice and Procedure in Adjudicatory Proceedings; Civil Money Penalty Inflation Adjustment

AGENCY:

Office of Thrift Supervision, Treasury.

ACTION:

Final rule.

SUMMARY:

The Federal Civil Penalties Inflation Adjustment Act of 1990 requires all federal agencies with statutory authority to impose civil money penalties (CMPs) to evaluate and adjust those CMPs every four years. The Office of Thrift Supervision (OTS) last adjusted its CMP statutes in 2000. Consequently, OTS is issuing this final rule to implement the required adjustments to OTS's CMP statutes.

DATES:

Effective November 4, 2004.

FOR FURTHER INFORMATION CONTACT:

Timothy P. Leary, Counsel (Banking & Finance), [phone], Regulations and Legislation Division, Office of the Chief Counsel, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

The Federal Civil Penalties Inflation Adjustment Act of 1990^[1] (FCPIAA) requires each agency to make inflationary adjustments to the CMPs in statutes that it administers.^[2] Under the FCPIAA, agencies must make those adjustments at least once every four years. OTS last adjusted its CMPs in 2000.^[3] OTS's civil money penalty adjustment regulation is 12 CFR 509.103. An increased CMP applies only to violations that occur after the increase takes effect.

While the CMP statutes of many agencies provide for minimum and maximum penalty amounts, all of OTS's CMP statutes provide only for a daily maximum amount per violation. Today's rule therefore refers only to maximum CMPs. Today's increases in maximum CMPs may not necessarily affect the amount of any CMP that OTS may seek for a particular violation. OTS calculates each CMP on a case-by-case basis based upon a variety of factors (including the gravity of the violation, whether the violation was willful or recurring, and any harm to the depository institution). As a result, the maximums merely serve as caps.

Under the statute, the agency determines the inflation adjustment by increasing the maximum CMP by a “cost-of-living” adjustment. The “cost-of-living” adjustment is the percentage by which the Consumer Price Index (CPI) for the month of June of the calendar year preceding the adjustment exceeds the CPI for the month of June of the calendar year in which the amount of the CMP was last set or adjusted. Under Section 3 of the statute, the CPI is the Consumer Price Index for all urban consumers (CPI-U) published by the Department of Labor.

The statute contains specific rules for rounding any increase.^[4] Agencies do not have discretion in choosing whether to adjust a maximum CMP, how much to adjust a maximum CMP, or the methods used to determine the adjustment.

II. Summary of Calculation

To explain the inflation adjustment calculation, we will use the following example. Under 12 U.S.C. 1818(i), as adjusted in 2000 under 12 CFR 509.103, OTS may impose a daily maximum third-tier CMP not to exceed $1,175,000 for violations of certain banking laws.

First, we determine the appropriate CPI-Us. The statute requires OTS to use the CPI-U for June of the calendar year preceding the year of adjustment. Here, because we are adjusting CMPs in 2004, we use the CPI-U for June 2003, which was 183.7. We must also determine the CPI-U for June of the year the CMP was last set by law or adjusted for inflation. Because OTS last adjusted the CMPs under 12 U.S.C. 1818 in 2000, we use the CPI-U for June 2000, which was 172.4.

Second, we calculate the cost of living adjustment or inflation factor. To do this, we divide the CPI-U for June 2003 (183.7) by the CPI-U for June 2000 (172.4). Our result is 1.065 (i.e., a 6.6% increase).

Third, we calculate the raw inflation adjustment. To do this, we multiply the maximum penalty amounts by the inflation factor. In our example, $1,175,000 multiplied by the inflation factor of 1.065 equals $1,251,375.

Fourth, we round the raw inflation amounts according to the rounding rules in sec. 5(a) of the FCPIAA. Since we round only the increased amount, we calculate the increased amount by subtracting the current maximum penalty amounts from the raw maximum inflation adjustments. Accordingly, the increased amount for the maximum penalty in our example is $76,375 (i.e., $1,251,375 less $1,175,000). Under the rounding rules, if the penalty is greater than $200,000, we round the increase to the nearest multiple of $25,000. Therefore, the maximum penalty increase for our example is $75,000.

Fifth, we add the rounded increase to the maximum penalty amount last set or adjusted. In our example, $1,175,000 plus $75,000 yields a maximum inflation adjusted penalty amount of $1,250,000.^[5]

III. Need for an Immediately Effective Final Rule

To issue a final rule without public notice and comment, an agency must find good cause that notice and comment are impracticable, unnecessary, or contrary to the public interest.^[6] Similarly, to issue a rule that is immediately effective, the agency must find good cause for dispensing with the 30-day delay required by the Administrative Procedure Act.^[7] Moreover, sec. 302 of the Riegle Community Development and Regulatory Improvement Act of 1994^[8] requires that a regulation that imposes new requirements take effect on the first day of the quarter following publication of the final rule. That section provides, however, that an agency may determine that the rule should take effect earlier upon a finding of good cause.

Under the statute, agencies must make the required CMP inflation adjustments: (1) According to the very specific formula in the statute; and (2) within four years of the last inflation adjustment, or by October 31, 2004. Agencies have no discretion as to the amount or timing of the adjustment. The regulation is ministerial, technical, and noncontroversial. OTS is unable to vary the amounts of the adjustments to reflect any views or suggestions provided by commenters. Accordingly, OTS believes that notice and comment are unnecessary. For these same reasons, OTS believes that there is good cause to make this rule effective immediately upon publication.

IV. Regulatory Flexibility Act

An initial regulatory flexibility analysis under the Regulatory Flexibility Act (RFA) is required only when an agency must publish a general notice of proposed rulemaking.^[9] As already noted, OTS has determined that publication of a notice of proposed rulemaking is not necessary for this final rule. Accordingly, the RFA does not require an initial regulatory flexibility analysis. Nevertheless, OTS has considered the likely impact of the rule on small entities and believes that the rule will not have a significant impact on a substantial number of small entities.

V. Executive Order 12866

OTS has determined that this final rule does not constitute a “significant regulatory action” for purposes of Executive Order 12866.

VI. Unfunded Mandates Act of 1995

OTS had determined that the final rule will not result in expenditures by state, local, or tribal governments or by the private sector of $100 million or more. Accordingly, this rulemaking is not subject to sec. 202 of the Unfunded Mandates Act.

List of Subjects in 12 CFR Part 509

• Administrative practice and procedure
• Penalties

Accordingly, for the reasons outlined in the preamble, OTS amends part 509 of chapter V, title 12, Code of Federal Regulations, as set forth below.

PART 509—RULES OF PRACTICE AND PROCEDURE IN ADJUDICATORY PROCEEDINGS

1. The authority citation for part 509 continues to read as follows:

Authority: 5 U.S.C. 504, 554-557; 12 U.S.C. 1464, 1467, 1467a, 1468, 1817(j), 1818, 3349, 4717; 15 U.S.C. 78(l), 78o-5, 78u-2; 28 U.S.C. 2461 note; 31 U.S.C. 5321; 42 U.S.C. 4012a.

2. Revise § 509.103(c) to read as follows:

§ 509.103

Civil money penalties.

* * * * *

(c) Inflation adjustment. Under the Federal Civil Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note), OTS must adjust for inflation the civil monetary penalties in statutes that it administers. The following chart displays the adjusted civil money penalties. The amounts in this chart apply to violations that occur after November 4, 2004:

U.S. code citation	CMP description	New maximum amount
12 U.S.C. 1464(v)(4)	Reports of Condition—1st Tier	$2,200.
12 U.S.C. 1464(v)(5)	Reports of Condition—2nd Tier	$27,500.
12 U.S.C. 1464(v)(6)	Reports of Condition—3rd Tier	$1,250,000.
12 U.S.C. 1467(d)	Refusal to Cooperate in Exam	$6,500.
12 U.S.C. 1467a(i)(2)	Holding Company Act Violation	$27,500.
12 U.S.C. 1467a(i)(3)	Holding Company Act Violation	$27,500.
12 U.S.C. 1467a(r)(1)	Late/Inaccurate Reports—1st Tier	$2,200.
12 U.S.C. 1467a(r)(2)	Late/Inaccurate Reports—2nd Tier	$27,500.
12 U.S.C. 1467a(r)(3)	Late/Inaccurate Reports—3rd Tier	$1,250,000.
12 U.S.C. 1817(j)(16)(A)	Change in Control—1st Tier	$6,500.
12 U.S.C. 1817(j)(16)(B)	Change in Control—2nd Tier	$32,500.
12 U.S.C. 1817(j)(16)(C)	Change in Control—3rd Tier	$1,250,000.
12 U.S.C. 1818(i)(2)(A)	Violation of Law or Unsafe or Unsound Practice—1st Tier	$6,500.
12 U.S.C. 1818(i)(2)(B)	Violation of Law or Unsafe or Unsound Practice—2nd Tier	$32,500.
12 U.S.C. 1818(i)(2)(C)	Violation of Law or Unsafe or Unsound Practice—3rd Tier	$1,250,000.
12 U.S.C. 1884	Violation of Security Rules	$110.
12 U.S.C. 3349(b)	Appraisals Violation—1st Tier	$6,500.
12 U.S.C. 3349(b)	Appraisals Violation—2nd Tier	$32,500.
12 U.S.C. 3349(b)	Appraisals Violation—3rd Tier	$1,250,000.
42 U.S.C. 4012a(f)	Flood Insurance	$385 (per 4012a(f) violation). $125,000 (per calendar year).

Dated: October 29, 2004.

By the Office of Thrift Supervision.

James E. Gilleran,

Director.

Footnotes

1.  28 U.S.C. 2461 note.

2.  Some of OTS's CMPs are in a commonly administered statute, 12 U.S.C. 1818. Each agency that administers this statute is making identical adjustments.

3.  12 CFR 509.103; 65 FR 61260 (Oct. 17, 2000).

4.  The rounding rules require that an increase be rounded to the nearest multiple of: $10 in the case of penalties less than or equal to $100; $100 in the case of penalties greater than $100 but less than or equal to $1,000; $1,000 in the case of penalties greater than $1,000 but less than or equal to $10,000; $5,000 in the case of penalties greater than $10,000 but less than or equal to $100,000; $10,000 in the case of penalties greater than $100,000 but less than or equal to $200,000; and $25,000 in the case of penalties greater than $200,000. See 28 U.S.C. 2461 note, sec. 5.

5.  Nine CMPs are subject to a slightly different treatment because the statutorily mandated computation and the rounding rules did not result in any adjustment in 2000. Eight of those penalties were last adjusted in 1996. For those eight penalties (12 U.S.C. 1464(v)(5), 12 U.S.C. 1467(d), 12 U.S.C. 1467a(r)(2), 12 U.S.C. 1817(j)(16)(A) and (B), 12 U.S.C. 1818(i)(2)(A) and (B), and 12 U.S.C. 3349(b) (first and second tier)), we compared the CPI-U for June 1996 (156.7) to the CPI-U for June 2003 (183.7), resulting in an inflation increase of 17.2%.

Moreover, because of application of the rounding rules, the $350 per violation penalty for failure to require flood insurance or notify the borrower of lack of coverage found in 42 U.S.C. 4012a(f) has never been adjusted for inflation. For that penalty, we compared the CPI-U for June of the year of enactment, 1994 (see Riegle Community Development and Regulatory Improvement Act of 1994, Pub. L. 103-325, Title V, section 525, 108 Stat. 2260) (148.0) with the CPI-U for June 2003 (183.7). This resulted in an inflation increase of 24.1%. Because this is the first time these CMPs have been adjusted pursuant to the statute, the adjustment cannot exceed 10%. The adjustment to the per violation penalty in 42 U.S.C. 4012a(f) therefore is capped at $35; the resulting penalty is $385.

6.  5 U.S.C. 553(b).

7.  Id.

8.  12 U.S.C. 4802.

9.  5 U.S.C. 603.