99-19252. Organization and Operations of Federal Credit Unions

[Federal Register Volume 64, Number 144 (Wednesday, July 28, 1999)]
[Proposed Rules]
[Pages 40786-40787]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19252]


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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: Notice of proposed rulemaking and request for comments.

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SUMMARY: The NCUA is proposing to amend 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 the 
proposed changes will clarify the permissible alternatives and provide 
additional flexibility for low-income designated credit unions.

DATES: Comments must be received on or before September 27, 1999.

ADDRESSES: Direct comments to Becky Baker, Secretary of the Board. Mail 
or hand-deliver comments to: National Credit Union Administration, 1775 
Duke Street, Alexandria, Virginia 22314-3428. You may also fax comments 
to [phone]. Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: Frank S. Kressman, Staff Attorney, 
Division of Operations, Office of General Counsel, at the above address 
or telephone: [phone].

SUPPLEMENTARY INFORMATION: 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, NCUA promulgated rules in 1996 to enhance 
LICUs' ability to build capital. 61 FR 3788 (February 2, 1996); 61 FR 
50696 (September 27, 1996). Specifically, 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 provides that funds in 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. 
This includes accrued interest that has been paid into the account. 
NCUA wishes to clarify, however, that although interest paid into the 
secondary capital account must remain there until account maturity, 
there are other permissible alternatives for disposing of accrued 
interest. Specifically, 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.
    Section 701.34 specifies that net available reserves and undivided 
earnings, as described above, are reserves and undivided earnings 
exclusive of allowance accounts for loan and investment losses. 
Allowance accounts for investment losses are no longer recognized by 
generally accepted accounting principles or NCUA's regulatory 
accounting practices. Accordingly, the proposed rule makes no reference 
to these accounts. Language in the rule pertaining to allowance 
accounts for loan losses remains unchanged.

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 
proposed amendments, if adopted, 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 proposed amendments 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.

Agency Regulatory Goal

    NCUA's goal is to promulgate clear and understandable regulations 
that impose minimal regulatory burden. We request your comments on 
whether the proposed amendment is understandable and minimally 
intrusive if implemented as proposed.

[[Page 40787]]

List of Subjects in 12 CFR Part 701

    Credit unions, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on July 22, 
1999.
Becky Baker,
Secretary of the Board.

    For the reasons set forth above, it is proposed that 12 CFR part 
701 be 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 to 
last paragraph 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 net available 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 ____________ 
(organization).
* * * * *
[FR Doc. 99-19252 Filed 7-27-99; 8:45 am]
BILLING CODE 7535-01-U