[Federal Register Volume 64, Number 76 (Wednesday, April 21, 1999)]
[Rules and Regulations]
[Pages 19441-19443]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-9931]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 64, No. 76 / Wednesday, April 21, 1999 /
Rules and Regulations
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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: NCUA is issuing a final rule that incorporates into its
regulations the agency's longstanding interpretation that federal
credit unions (FCUs) are authorized, within limits, to make charitable
contributions and donations. NCUA seeks to increase regulatory
effectiveness by making it easier for FCUs to locate applicable rules
regarding the making of charitable contributions and donations.
DATES: This rule is effective May 21, 1999.
FOR FURTHER INFORMATION CONTACT: Frank S. Kressman, Staff Attorney,
Division of Operations, Office of General Counsel, (703) 518-6540.
SUPPLEMENTARY INFORMATION:
Background
On October 29, 1998, the NCUA Board requested comments on a
proposed rule to incorporate into NCUA regulations the requirements of
Interpretive Ruling and Policy Statement 79-6, Donations/Contributions
(IRPS 79-6). 63 FR 57942, October 29, 1998. Tracking IRPS 79-6, the
proposed rule permitted an FCU to make charitable contributions to a
recipient that is a tax exempt organization under Section 501(c)(3) of
the Internal Revenue Code (501(c)(3) organization) and located in or
conducting its activities in a community in which the FCU has a
principal place of business. 26 U.S.C. 501(c)(3) (1998). The proposed
rule also permitted FCUs to make charitable contributions to a
501(c)(3) organization that operates primarily to promote and develop
credit unions. Finally, the proposed rule provided that an FCU's board
of directors must approve charitable contributions based on a
determination that the contributions are in the best interests of the
credit union and are reasonable given the financial condition of the
credit union.
Summary of Comments
The NCUA Board received thirty-four comment letters regarding the
proposal: three from national trade associations; seven from credit
union leagues; twenty-three from FCUs; and one from a state-chartered
credit union.
Comments on Proposed Section 701.25(a)
Twenty-six commenters stated that limiting donation recipients to
501(c)(3) organizations is too restrictive and could exclude
organizations and causes that are otherwise worthy of receiving
donations from FCUs. One commenter suggested broadening the 501(c)(3)
restriction by defining eligible recipients as ``organizations that
primarily serve either a charitable, social, welfare, or educational
purpose, or are exempt from taxation pursuant to section 501(c)(3) of
the internal revenue code.'' Revised Code of Washington 31.12.402(20).
We note that, while Washington state law does not require that
recipients are tax exempt organizations under 501(c)(3), it requires
credit unions to work with community leaders and limits donations to
``efforts to improve areas where their [credit union] members reside.''
Since issuance of IRPS 79-6, the NCUA has viewed the legal
authority for FCUs to make contributions as ``an activity incidental to
an FCU's business'' under the provision of the FCU Act that authorizes
FCUs ``to exercise such incidental powers as shall be necessary or
requisite to enable it to carry on effectively the business for which
it is incorporated.'' 44 FR 56691 (Oct. 2 1979); 12 U.S.C. 1757(17). An
FCU's purpose, as a nonpropfit cooperative, is to benefit its members
by ``promoting thrift among its members and creating a source of credit
for provident or productive purposes.'' 12 U.S.C. 1752(1). Prior to
issuance of IRPS 79-6, the NCUA had permitted FCUs to make donations
only where the FCU would derive a direct benefit. While IRPS 79-6
broadened an FCU's ability to make contributions by permitting
contributions for ``diverse, charitable, recreational and educational
needs of the public,'' it limited permissible donations to 501(c)(3)
organizations. The discussion accompanying IRPS 79-6 specifically
prohibited contributions for candidates to league or trade association
positions or for political office and cautioned FCUs about the
applicability of the conflict of interest provisions of the FCU bylaws.
The range of organizations that qualify as 501(c)(3) organizations
is very broad, permitting donations to community chests and religious,
charitable, scientific, and educational organizations, institutions and
foundations. In addition, the 501(c)(3) designation insures a degree of
credibility and independence in the exercise of the board of directors'
decision as fiduciaries for member funds. These factors are important
given that the funds an FCU will use for contributions would otherwise
be available for dividends to members who, in turn, could use their
dividends to make their own decisions about charitable giving.
NCUA acknowledges that there may be cases where an FCU may want to
contribute to a worthy cause or activity that is not part of or
sponsored by a 501(c)(3) organization and that boards of directors
should have the discretion to do so. Examples that appear appropriate
would be good will, scholarships, not for profit projects as
contributing to a community sports team, local clean-up projects, or
community festivals or fairs. Accordingly, the final rule permits FCUs
to make donations to recipients without regard to their status as
501(c)(3) organizations. The reasonableness of a donation will depend
on the size and financial condition of the FCU. Finally, FCUs should be
aware that, while the final regulation does not require that recipients
be 501(c)(3) organizations, the regulation is not authority for
contributions to candidates for a trade association or credit union
league office or for other political contributions which, as noted in
the preamble to the proposed regulation, are governed by the Federal
Election Campaign Act (2 U.S.C. 441b).
Twenty-one commenters stated that limiting donation recipients to
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organizations that are located in or conduct their activities in a
community in which the FCU has a principal place of business is too
restrictive and could exclude organizations and causes that are
otherwise worthy of receiving donations from FCUs. The typical examples
noted by commenters were organizations serving victims of distant
natural disasters such as hurricanes or earthquakes and well-known
national organizations that may not have a local office near the FCU.
Most of these commenters favored removing the restriction from the
regulation while others only suggested that it be broadened to include
donation recipients located or conducting activities anywhere the FCU
has members. The final rule, consistent with IRPS 79-6 and the proposed
rule, permits contributions to national charitable organizations such
as the Red Cross which, as needed, conduct activities in the community
where the credit union is located and, therefore, would qualify as
permissible recipients.
One commenter noted that the proximity requirement is particularly
restrictive for some community chartered credit unions, especially
those in rural areas. NCUA believes that any organization located or
conducting activities within the geographic boundaries of a community
chartered credit union is, by definition, located in the community in
which the FCU has a principal place of business and would be eligible
to receive contributions under the final regulation. To provide
additional flexibility and avoid questions that could arise about
whether a particular office or branch of an FCU is a ``principal''
place of business, the Board has decided to delete the word
``principal'' from this description in the final rule. By stating in
the final regulation that a recipient be located or conduct activities
in a community where the FCU has a place of business, the Board means a
branch or office of the FCU. Place of business would not, however,
include an ATM location.
Another commenter noted that members of some multiple group FCUs
are spread over large geographic areas and contended that there may be
members located far from any of the FCU's principal places of business.
Credit unions generally locate their places of business where a
relatively significant number of their members will have access to
services. NCUA recognizes an FCU's interest in serving communities
where its members reside or carry on their activities through
charitable donations and believes there should be flexibility in
construing the term ``community.'' Donating to recipients in areas
where relatively few members are located, however, would not serve the
needs of the FCU's community. NCUA believes that limiting donation
recipients to organizations located in or conducting activities in a
community in which the FCU has a place of business helps to ensure that
the FCU's charitable donations will be used to serve the needs of
communities where its members are located.
Finally, without regard to the location of the organization, NCUA
has maintained in the final regulation the provision from the proposed
rule that permits FCUs to make charitable donations to organizations
that operate primarily to promote and develop credit unions even if the
organization is not located or does not conduct activities in a
community where the FCU has a place of business. For these
contributions to be permissible, the final rule retains the requirement
that these organizations be 501(c)(3) organizations.
Comments on Proposed Section 701.25(b)
Twelve commenters suggested that an FCU's board of directors should
be permitted to approve a budget for charitable donations and delegate
authority to other FCU officials to allocate these funds. The preamble
to the proposed rule stated that this would be an appropriate approach.
Some commenters suggested including this in the regulation and the
final rule incorporates this provision. Seven other commenters
suggested that an FCU's board of directors should be permitted to
delegate authority to make charitable donations to other FCU officials,
including complete discretion to determine donation amounts without the
board approving a budget for this purpose. While delegation of the
approval of the recipients of charitable donations within an FCU board-
approved budget category is permitted, the NCUA Board has rejected
complete delegation without a budget item being approved by the FCU's
board because it believes that an FCU's decision as to the amount of
donations is a significant one that warrants the consideration of its
board of directors.
Other Comments
Ten commenters stated that NCUA oversight of contributions and
donations is more appropriately accomplished through guidelines, as
opposed to regulations. Four commenters stated that charitable giving
should not be the subject of NCUA oversight at all. The NCUA Board
notes that FCUs do not have the express authority to make contributions
or donations. IRPS 79-6 was a formal ruling by the NCUA Board regarding
the incidental power of FCUs that has permitted them to make donations
and contributions. As noted in the preamble to the proposed rule,
NCUA's foremost intention in incorporating IRPS 79-6 into its
regulations is to increase regulatory effectiveness by making it easier
for FCUs to locate applicable rules regarding the making of charitable
contributions and donations.
The NCUA notes that this final rule provides broad discretion and
flexibility for FCUs in determining the amount, the administration, and
recipients for contributions but the incidental power to make
contributions is not unlimited. The NCUA believes that contributions
and donations may raise safety and soundness concerns and deserve
regulatory oversight. The limitations and requirements in the final
rule balance the interests of FCU members with the responsibility of
FCU boards of directors to exercise their fiduciary responsibility to
make independent and prudent decisions about contributions and
donations.
Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact any proposed regulation may
have on a substantial number of small entities (primarily those under
$1 million in assets). The NCUA has determined and certifies that the
final rule will not have a significant economic impact on a substantial
number of small credit unions. Accordingly, the NCUA has determined
that a Regulatory Flexibility Analysis is not required.
Paperwork Reduction Act
NCUA has determined that the final rule does 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. The final rule only applies to federal
credit unions. NCUA has determined that the proposed amendment does not
constitute a significant regulatory action for purposes of Executive
Order 12612.
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Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996
(Pub. L. 104-121) provides generally for congressional review of agency
rules. A reporting requirement is triggered in instances where NCUA
issues a final rule as defined by Section 551 of the Administrative
Procedures Act. 5 U.S.C. 551. The Office of Management and Budget has
determined that this rule does not constitute a major rule for purposes
of the Small Business Regulatory Enforcement Fairness Act of 1996.
List of Subjects in 12 CFR Part 701
Charitable contributions, Credit unions.
By the National Credit Union Administration Board on April 15,
1999.
Becky Baker,
Secretary of the Board.
For the reasons set forth above, NCUA amends 12 CFR part 701 as
follows:
PART 701--ORGANIZATION AND OPERATION 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. Part 701 is amended by adding Sec. 701.25 to read as follows:
Sec. 701.25 Charitable contributions and donations.
(a) A federal credit union may make charitable contributions and/or
donate funds to recipients not organized for profit that are located in
or conduct activities in a community in which the federal credit union
has a place of business or to organizations that are tax exempt
organizations under Section 501(c)(3) of the Internal Revenue Code and
operate primarily to promote and develop credit unions.
(b) The board of directors must approve charitable contributions
and/or donations, and the approval must be based on a determination by
the board of directors that the contributions and/or donations are in
the best interests of the federal credit union and are reasonable given
the size and financial condition of the federal credit union. The board
of directors, if it chooses, may establish a budget for charitable
contributions and/or donations and authorize appropriate officials of
the federal credit union to select recipients and disburse budgeted
funds among those recipients.
[FR Doc. 99-9931 Filed 4-20-99; 8:45 am]
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