[Federal Register Volume 85, Number 81 (Monday, April 27, 2020)]
[Rules and Regulations]
[Pages 23212-23217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08920]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Parts 702 and 723
RIN 3133-AF16
Regulatory Capital Rule: Paycheck Protection Program Lending
Facility and Paycheck Protection Program Loans
AGENCY: National Credit Union Administration (NCUA).
ACTION: Interim final rule.
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SUMMARY: The NCUA Board (Board) is issuing this interim final rule to
make a conforming amendment to its capital adequacy regulation
following the enactment of the Coronavirus Aid, Relief, and Economic
Security Act (CARES Act). The CARES Act authorizes the Small Business
Administration to create a loan guarantee program, the Paycheck
Protection Program (PPP), to help certain businesses affected by the
COVID-19 pandemic. The CARES Act requires that PPP loans receive a zero
percent risk weighting under the NCUA's risk-based capital
requirements. To reflect the statutory requirement, the interim final
rule amends the NCUA's capital adequacy regulation to provide that
covered PPP loans receive a zero percent risk weight. The interim final
rule also provides that if the covered loan is pledged as collateral
for a non-recourse loan that is provided as part of the Board of
Governors of the Federal Reserve System's (FRB) PPP Lending Facility,
the covered loan can be excluded from a credit union's calculation of
total assets for the
[[Page 23213]]
purposes of calculating its net worth ratio. The interim final rule
also makes a conforming amendment to the definition of commercial loan
in the NCUA's member business loans and commercial lending rule. The
Board has found good cause to issue the interim final rule without
advance notice-and-comment procedures and with an effective date upon
publication.
DATES: This rule is effective on April 27, 2020. Comments, as discussed
below, must be received on or before May 27, 2020.
ADDRESSES: You may submit written comments, identified by RIN 3133-
AF16, by any of the following methods (Please send comments by one
method only):
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Fax: (703) 518-6319. Include ``[Your Name]--Comments on
Interim Final Rule: Regulatory Capital Rule: Paycheck Protection
Program Lending Facility and Paycheck Protection Program Loans'' in the
transmittal.
Mail: Address to Gerard Poliquin, Secretary of the Board,
National Credit Union Administration, 1775 Duke Street, Alexandria,
Virginia 22314-3428.
Hand Delivery/Courier: Same as mail address.
Public Inspection: You may view all public comments on the Federal
eRulemaking Portal at http://www.regulations.gov as submitted, except
for those we cannot post for technical reasons. The NCUA will not edit
or remove any identifying or contact information from the public
comments submitted. Due to social distancing measures in effect through
at least April 30, 2020, the usual opportunity to inspect paper copies
of comments in the NCUA's law library is not currently available. After
social distancing measures are relaxed, visitors may make an
appointment to review paper copies by calling (703) 518-6540 or
emailing OGCMail@ncua.gov.
FOR FURTHER INFORMATION CONTACT: Amanda Parkhill, Supervisory CUE
(Policy); or Rachel Ackmann, Senior Staff Attorney, Office of General
Counsel, 1775 Duke Street, Alexandria, VA 22314-3428. Amanda Parkhill
can also be reached at (703) 518-6385, and Rachel Ackmann can be
reached at (703) 548-2601.
SUPPLEMENTARY INFORMATION:
I. Background and Legal Authority
a. The NCUA's Risk-Based Capital Requirements
The Credit Union Membership Access Act (CUMAA) requires the NCUA to
formulate a risk-based net worth (RBNW) requirement to apply to complex
credit unions.\1\ Part 702 of the NCUA's regulations implement the
risk-based net worth requirement.\2\ Under current Sec. 702.103 of the
NCUA's regulations, a credit union is defined as ``complex'' if ``[i]ts
quarter-end total assets exceed fifty million dollars ($50,000,000);
and . . . [i]ts [RBNW] requirement . . . exceeds six percent (6%).''
\3\ Current Sec. 702.104 of the NCUA's regulations defines eight risk
portfolios of complex credit union assets, liabilities, or contingent
liabilities.\4\ The eight risk portfolios are long-term real estate
loans, member business loans (MBL) outstanding, investments, low-risk
assets, average-risk assets, loans sold with recourse, unused MBL
commitments, and allowance. Current Sec. 702.106 sets forth the
specific risk-weightings that are applied to the assets, liabilities,
or contingent liabilities of each risk portfolio.\5\ A credit union's
RBNW requirement is the sum of the eight risk portfolios times the
applicable risk-weighting.\6\ The RBNW requirement for credit unions
meeting the definition of ``complex'' was first applied on the basis of
data in the Call Report reflecting activity in the first quarter of
2001.\7\
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\1\ 12 U.S.C. 1790d(d). Only complex credit unions are subject
to the NCUA's risk-based net worth requirement. See 12 U.S.C.
1790d(d)(1) and 12 CFR 702.103. The FCU Act grants the Board a broad
mandate to issue regulations governing both FCUs and, more
generally, all FICUs. For example, section 120 of the FCU Act is a
general grant of regulatory authority and authorizes the Board to
prescribe rules and regulations for the administration of the Act.
12 U.S.C. 1766(a).
\2\ 12 CFR pt. 702. On January 1, 2022, the NCUA's capital
requirements will be substantially amended when the NCUA's risk-
based capital rules become effective. See, 84 FR 68781 (Dec. 17,
2019). This interim final rule only amends the NCUA's current risk-
based net worth rules and does not amend the NCUA's risk-based
capital rules (``2015 Final Rule''), which will be addressed when
they become effective. Generally, the NCUA uses the term ``risk-
based net worth requirement'' to reference the statutory requirement
for the Board to design a capital standard that accounts for
variations in the risk profile of complex credit unions and the
current risk-based framework in part 702. In contrast, the NCUA
generally uses the term ``risk-based capital'' to refer to the
specific standards established in the 2015 Final Rule. The term
``risk-based capital requirement,'' however, is used in the CARES
Act and refers to both the risk-based net worth and the risk-based
capital requirements. The Board notes that the term ``risk-based
capital'' is also used by the other banking agencies and the
international banking community when referring to the types of risk-
based requirements that are addressed in the 2015 Final Rule.
\3\ 12 CFR 702.103. For the definition of total assets, see 12
CFR 702.2(k).
\4\ 12 CFR 702.104.
\5\ 12 CFR 702.106.
\6\ Id.
\7\ 65 FR 44950 (July 20, 2000).
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b. The NCUA's MBL and Commercial Lending Rule
Among other things, CUMAA limited the aggregate amount of MBLs that
a credit union may make to the lesser of 1.75 times the net worth of
the credit union or 1.75 times the minimum net worth required under the
Federal Credit Union Act (FCU Act) for a credit union to be well
capitalized.\8\ The statutory MBL limit is incorporated in part 723 of
NCUA's regulations.\9\ Part 723 also defines MBLs and commercial loans,
establishes minimum safety and soundness standards, and implements
various other requirements regarding MBLs and commercial loans. The
Board has not significantly amended part 723 since 2016.\10\
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\8\ 12 U.S.C. 1757a; Public Law 105-219, 112 Stat. 913 (1998).
\9\ 12 CFR part 723.
\10\ 81 FR 13530 (Mar. 14, 2016).
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c. The Coronavirus Aid, Relief, and Economic Security (CARES Act)
On March 27, 2020, President Trump signed the CARES Act into
law.\11\ The law is designed to provide aid to the U.S. economy in the
midst of the COVID-19 pandemic. The CARES Act authorizes the Small
Business Administration (SBA) to create a loan guarantee program, the
Paycheck Protection Program (PPP), to help certain affected businesses
meet payroll needs and utilities (including employee salaries, sick
leave, other paid leave, and health insurance expenses) as a result of
the COVID-19 pandemic. Provided credit union lenders comply with the
applicable lender obligations set forth in the SBA's interim final
rule, the SBA will fully guarantee loans issued under the PPP. Most
federally insured credit unions are eligible to make PPP loans to
members.\12\ Under the CARES Act, PPP loans must receive a zero percent
risk weighting under the
[[Page 23214]]
NCUA's risk-based capital requirements.\13\
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\11\ Public Law 116-136 (Mar. 27, 2020).
\12\ Credit unions that are currently permitted to make loans
under the SBA's 7(a) program are automatically approved to make PPP
loans. Federally insured credit unions that are not current SBA 7(a)
lenders, can receive approval by submitting an application to the
SBA, unless they are currently designated as being in troubled
condition or are subject to a formal enforcement action that
addresses unsafe and unsound lending practices. Non-depository
financing providers, such as credit union service organizations, may
qualify as a PPP lender subject to the requirements listed in the
interim final rule.
\13\ Supra note 11, at Sec. 1102(a)(2).
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II. The Interim Final Rule
a. Risk Weighting of PPP Loans
To reflect the statutory requirement that PPP loans receive a zero
percent risk weight, the interim final rule amends the NCUA's risk-
based net worth rules. Specifically, the interim final rule explicitly
provides that PPP loans are low-risk assets. Low-risk assets are
currently defined as cash on hand (e.g., coin and currency, including
vault, ATM and teller cash), the National Credit Union Share Insurance
Fund (NCUSIF) deposit, and debt instruments unconditionally guaranteed
by the NCUA.\14\ Under Sec. 702.106(d), low-risk assets receive a zero
percent risk weight.\15\ Under the interim final rule, low-risk assets
are defined as cash on hand (e.g., coin and currency, including vault,
ATM and teller cash), the NCUSIF deposit, debt instruments
unconditionally guaranteed by the NCUA; and loans issued under the
SBA's Paycheck Protection Program (15 U.S.C. 636(a)(36)). Therefore,
the interim final rule provides that PPP loans receive a zero percent
risk weight under the NCUA's risk-based capital rules as required by
the CARES Act.
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\14\ 12 CFR 702.104(d).
\15\ 12 CFR 702.106(d).
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b. Definition of Total Assets for the Purposes of Calculating the Net
Worth Ratio
To provide liquidity to small business lenders and the broader
credit markets, to help stabilize the financial system, and to provide
economic relief to small businesses nationwide, the FRB authorized each
of the Federal Reserve Banks to participate in the Paycheck Protection
Program Lending Facility (PPPL Facility), pursuant to section 13(3) of
the Federal Reserve Act.\16\ Under the PPPL Facility, each of the
Federal Reserve Banks will extend non-recourse loans to eligible
financial institutions to fund PPP loans. Under the PPPL Facility, only
PPP loans that are guaranteed by the SBA with respect to both principal
and interest and that are originated by an eligible institution may be
pledged as collateral to the Federal Reserve Banks. Participation in
the PPPL Facility will affect a credit union's balance sheet because,
as a function of participating in the PPPL Facility, the credit union
must originate and hold PPP covered loans (that is, assets that are
eligible collateral pledged to the Federal Reserve Banks) on its
balance sheet.
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\16\ 12 U.S.C. 343(3).
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As a result, credit unions that participate in the PPPL Facility
could potentially be subject to increased regulatory capital
requirements (due to the increase in total assets from originating and
holding PPP loans). To facilitate use of the PPPL Facility, the interim
final rule allows credit unions to neutralize the regulatory capital
effects of PPP loans pledged to the Facility.\17\ Additionally, the
Board believes that the regulatory capital requirements for certain PPP
loans, those PPP loans pledged to a Federal Reserve Bank as part of the
PPPL Facility, do not reflect the substantial protections from risk
provided to credit unions by the PPPL Facility. Because of the non-
recourse nature of the FRB's extension of credit to the credit union,
the credit union is not exposed to credit or market risk from the
pledged PPP covered loans. Therefore, the Board believes that it is
appropriate to exclude pledged PPP loans from regulatory capital.
Specifically, the interim final rule excludes PPP loans pledged as
collateral to the PPPL Facility from the definition of total assets in
Sec. 702.2 for purposes of calculating a credit union's net worth
ratio.\18\
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\17\ The Office of the Comptroller of the Currency, the FRB, and
the Federal Deposit Insurance Corporation (together, the other
banking agencies) adopted a similar interim final rule to allow
banking organizations to neutralize the regulatory capital effects
of participating in the PPPL Facility. See, 85 FR 20387 (Apr. 13,
2020).
\18\ The Board has broad authority to define the term ``total
assets.'' While 12 U.S.C. 1790d defines ``net worth''--the numerator
for determining the net worth ratio--it does not define the term
``total assets,'' which comprises the denominator of the equation.
However, the Board has elected to define the term in part 702. In
addition to the Board's broad authority to define the term ``total
assets,'' the Board finds that given the unique and unprecedented
nature of the COVID-19 pandemic, encouraging use of the PPP Facility
by excluding pledged PPP loans from total assets would further the
purpose of section 1790d. Pledged covered PPP loans present less
risk and would potentially facilitate resolving the problems of
credit unions at the least possible long-term cost to the NCUSIF
compared to non-pledged covered PPP loans.
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c. Definition of Commercial Loan
The interim final rule also clarifies that PPP loans would not
constitute commercial loans under part 723 of the NCUA's regulations.
Generally commercial loans are defined as any loan, line of credit, or
letter of credit (including any unfunded commitments), and any interest
a credit union obtains in such loans made by another lender, to
individuals, sole proprietorships, partnerships, corporations, or other
business enterprises for commercial, industrial, agricultural, or
professional purposes, but not for personal expenditure purposes.\19\
The current definition also provides various exclusions. The interim
final rule amends the commercial loan definition to add PPP loans
issued under the CARES Act as an exclusion from the definition of
commercial loan in Sec. 723.2. While other federally guaranteed loans
may still be considered commercial loans under the regulation, the
unique nature of PPP loans mitigates the need for enhanced commercial
underwriting of these loans. The SBA's interim final rule specifically
limits each lender's underwriting obligation under the PPP to the items
noted in the rule.\20\ Additionally, lenders will be held harmless for
any borrower's failure to comply with PPP criteria and, in addition to
the 100 percent guarantee, PPP loans may qualify for loan forgiveness.
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\19\ 12 CFR 723.2.
\20\ See, https://www.sba.gov/document/policy-guidance--ppp-interim-final-rule.
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III. Clarification Regarding Eligible Recipients of PPP Loans
In general, the SBA has restrictions on who can receive SBA
business loans.\21\ The SBA, however, recognizes that, unlike other SBA
loan programs, PPP Loans are uniform for all borrowers, and the
standard underwriting process does not apply because no
creditworthiness assessment is required for PPP Loans. The SBA also
recognizes that many directors and equity holders of lenders making PPP
Loans are owners of unrelated businesses. Therefore, the SBA has
determined that certain of its prohibitions regarding eligible
borrowers for SBA loans are not applicable.\22\ In general, it appears
that a credit union director may obtain a PPP Loan from the credit
union on whose board the director serves, provided that the related
business follows the same process as any similarly situated member or
account holder of the credit union and the director is not an officer
or key employee of the credit union.\23\ This change to the SBA's
regulations, however, does not affect the FCU Act, the NCUA's rules on
insider lending, or any relevant provision of a credit union's bylaws.
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\21\ See e.g., 13 CFR 120.110 and 120.140.
\22\ 85 FR 21747 (Apr. 20, 2020).
\23\ Officers and key employees of the credit union may obtain a
PPP Loan from a different lender, but not from the credit union with
which they are associated.
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Under the FCU Act, a loan, or aggregate of loans, to a director or
member of the supervisory or credit committee of the credit union
making the loan which exceeds $20,000 (plus
[[Page 23215]]
any applicable pledged shares) must be approved by the board of
directors.\24\ Similarly, loans to other members for which directors or
members of the supervisory or credit committee act as guarantor or
endorser must be approved by the board of directors when such loans,
standing alone or when added to any outstanding loan or loans of the
guarantor or endorser, exceeds $20,000.\25\ The NCUA's regulations
implement these restrictions under part 701, which explains how
balances are calculated for purposes of these provisions and sets forth
loan approval requirements.\26\ The SBA's interim final rules and the
CARES Act do not provide any authority to set these statutory
restrictions aside, and the FCU Act contains no authority for the Board
to provide an exception.\27\ Therefore, as discussed above, current
NCUA provisions governing loans to insiders are applicable to PPP
Loans.
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\24\ 12 U.S.C. 1757(5)(A)(iv).
\25\ 12 U.S.C. 1757(5)(A)(v).
\26\ 12 CFR 701.21(d).
\27\ Cf. 12 U.S.C. 375b(9)(D)(ii) (authority for FRB to grant an
exception to a similar restriction for member banks for extensions
of credit that pose ``minimal risk'').
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IV. Regulatory Procedures
A. Administrative Procedure Act
The Board is issuing this interim final rule without prior notice
and the opportunity for public comment and the delayed effective date
ordinarily prescribed by the Administrative Procedure Act (APA).
Pursuant to the APA, general notice and the opportunity for public
comment are not required with respect to a rulemaking when an ``agency
for good cause finds (and incorporates the finding and a brief
statement of reasons therefor in the rules issued) that notice and
public procedure thereon are impracticable, unnecessary, or contrary to
the public interest.'' \28\[thinsp]The Board believes that the public
interest is best served by implementing the interim final rule
immediately upon publication in the Federal Register. The Board notes
that the COVID-19 crisis is unprecedented. It is rapidly changing and
difficult to anticipate how the disruptions caused by the crisis will
manifest themselves within the financial system and how individual
credit unions may be impacted. Because of the widespread impact of a
pandemic and the speed with which business and economic disruptions
have transmitted throughout the United States, the Board believes it
has good cause to determine that ordinary notice and public procedure
are impracticable and that moving expeditiously in the form of an
interim final rule is in the best interests of the public and the
credit unions that serve that public.
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\28\ 5 U.S.C. 553(b)(3)(B).
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The Board also believes that notice-and-comment procedures are
unnecessary for this interim final rule as it principally implements a
statutory requirement and the Board has no discretion in providing the
zero risk weight for PPP loans. Furthermore, the Board believes notice-
and-comment procedures are impractical because credit unions have
already begun to offer PPP loans to members affected by COVID-19.\29\
Credit unions need clarity and certainty on the applicable treatment of
PPP loans both in regards to the risk weighting and whether the loans
qualify as commercial loans under the NCUA's MBL and commercial lending
rule. For these reasons, the Board finds that there is good cause
consistent with the public interest to issue the interim final rule
without advance notice and the opportunity to comment.\30\
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\29\ Financial institutions could begin offering PPP loans April
3, 2020. See, https://www.sba.com/funding-a-business/government-small-business-loans/ppp/.
\30\ . 5 U.S.C. 553(b)(B); 553(d)(3). For the same reasons, the
Board is not providing the usual 60-day comment period before
finalizing this rule. See NCUA Interpretive Ruling and Policy
Statement (IRPS) 87-2, as amended by IRPS 03-2 and IRPS 15-1. 80 FR
57512 (Sept. 24, 2015), available at https://www.ncua.gov/files/publications/irps/IRPS1987-2.pdf.
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The APA also requires a 30-day delayed effective date, except for
(1) substantive rules which grant or recognize an exemption or relieve
a restriction; (2) interpretative rules and statements of policy; or
(3) as otherwise provided by the agency for good cause.\31\ For the
reasons stated above, the Board finds good cause to issue the rule with
an immediate effective date. This rule would also be excepted from the
delayed effective date requirement because it relieves a restriction
that would otherwise apply.
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\31\ 5 U.S.C. 553(d).
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While the Board believes that there is good cause to issue the rule
without advance notice and comment and with an immediate effective
date, the Board is interested in the views of the public and requests
comment.
B. Congressional Review Act
For purposes of the Congressional Review Act, the OMB makes a
determination as to whether a final rule constitutes a ``major'' rule.
If a rule is deemed a ``major rule'' by the Office of Management and
Budget (OMB), the Congressional Review Act generally provides that the
rule may not take effect until at least 60 days following its
publication.
The Congressional Review Act defines a ``major rule'' as any rule
that the Administrator of the Office of Information and Regulatory
Affairs of the OMB finds has resulted in or is likely to result in (A)
an annual effect on the economy of $100,000,000 or more; (B) a major
increase in costs or prices for consumers, individual industries,
Federal, State, or local government agencies or geographic regions, or
(C) significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic and
export markets.\32\
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\32\ 5 U.S.C. 804(2).
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For the same reasons set forth above, the Board is adopting the
interim final rule without the delayed effective date generally
prescribed under the Congressional Review Act. The delayed effective
date required by the Congressional Review Act does not apply to any
rule for which an agency for good cause finds (and incorporates the
finding and a brief statement of reasons therefor in the rule issued)
that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest.\33\ As discussed
above, the Board has concluded there is good cause to issue the interim
final rule without notice-and-comment procedures.
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\33\ 5 U.S.C. 808.
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As required by the Congressional Review Act, the Board will submit
the interim final rule and other appropriate reports to Congress and
the Government Accountability Office for review.
C. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in
which an agency by rule creates a new paperwork burden on regulated
entities or modifies an existing burden (44 U.S.C. 3507(d)). For
purposes of the PRA, a paperwork burden may take the form of a
reporting, recordkeeping, or a third-party disclosure requirement,
referred to as an information collection. The NCUA may not conduct or
sponsor, and the respondent is not required to respond to, an
information collection unless it displays a valid OMB control number.
To capture activity related to the PPP, beginning with the June
reporting cycle by credit unions, the NCUA will add four accounts to
the quarterly Call Report (NCUA 5300) to identify the
[[Page 23216]]
number and amount of PPP loans, the amount of PPP loans pledged as
collateral to secure Federal Reserve System's PPP Lending Facility, and
the amount of FRB PPP Lending Facility loans. The changes to the Call
Report will assist NCUA in off-site monitoring and supervision of
credit unions while minimizing the burden during on-site examinations.
These changes will not alter the current estimate of four hours per
response necessary to review the instructions and complete the form.
The amount of data elements added are minimal and will not impact the
total burden. The Office of Management Budget (OMB) has approved this
change under a ``non-substantive change'' request to the information
collection requirements approved under OMB control number 3133-0004.
D. Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. The
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive order to adhere to fundamental
federalism principles.
This interim final rule does not have substantial direct effects 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. The NCUA has therefore determined that
this rule does not constitute a policy that has federalism implications
for purposes of the executive order.
E. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this rule will not affect family well-
being within the meaning of Sec. 654 of the Treasury and General
Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681
(1998).
F. Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (RFA) generally requires that when
an agency issues a proposed rule or a final rule pursuant to the APA
\34\ or another law, the agency must prepare a regulatory flexibility
analysis that meets the requirements of the RFA and publish such
analysis in the Federal Register.\35\ Specifically, the RFA normally
requires agencies to describe the impact of a rulemaking on small
entities by providing a regulatory impact analysis. For purposes of the
RFA, the Board considers credit unions with assets less than $100
million to be small entities.\36\
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\34\ 5 U.S.C. 553(b).
\35\ 5 U.S.C. 603, 604.
\36\ NCUA Interpretive Ruling and Policy Statement 15-1. 80 FR
57512 (Sept. 24, 2015).
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As discussed previously, consistent with the APA,\37\ the Board has
determined for good cause that general notice and opportunity for
public comment is unnecessary, and therefore the Board is not issuing a
notice of proposed rulemaking. Rules that are exempt from notice and
comment procedures are also exempt from the RFA requirements, including
conducting a regulatory flexibility analysis, when among other things
the agency for good cause finds that notice and public procedure are
impracticable, unnecessary, or contrary to the public interest.
Accordingly, the Board has concluded that the RFA's requirements
relating to initial and final regulatory flexibility analysis do not
apply.
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\37\ 5 U.S.C. 553(b)(3)(B).
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Nevertheless, the Board seeks comment on whether, and the extent to
which, the interim final rule would affect a significant number of
small entities.
List of Subjects
12 CFR Part 702
Capital, Credit unions, Reporting and recordkeeping requirements.
12 CFR Part 723
Credit, Credit unions, Member business loans, Commercial lending,
Reporting and recordkeeping requirements.
By the NCUA Board on April 22, 2020.
Gerard Poliquin,
Secretary of the Board.
For the reasons discussed above, the NCUA Board amends parts 702
and 723 of chapter VII of title 12 of the Code of Federal Regulations
as follows:
PART 702--CAPITAL ADEQUACY
0
1. The authority for part 702 continues to read as follows:
Authority: 12 U.S.C. 1766(a), 1790d.
0
2. In Sec. 702.2, add paragraph (k)(3) to read as follows:
Sec. 702.2 Definitions.
* * * * *
(k) * * *
(3) Notwithstanding paragraph (k)(1) of this section, a credit
union may exclude loans pledged as collateral for a non-recourse loan
that is provided as part of the Paycheck Protection Program Lending
Facility, announced by the Federal Reserve Board on April 7, 2020, from
the calculation of total assets for the purpose of calculating its net
worth ratio. For the purpose of this provision, a credit union's
liability under the Facility must be reduced by the principal amount of
the loans pledged as collateral for funds advanced under the Facility.
* * * * *
0
3. In Sec. 702.104, revise paragraph (d) to read as follows:
Sec. 702.104 Risk portfolios defined.
* * * * *
(d) Low-risk assets. Cash on hand (e.g., coin and currency,
including vault, ATM and teller cash), the NCUSIF deposit, debt
instruments unconditionally guaranteed by the National Credit Union
Administration; and covered loans issued under the Small Business
Administration's Paycheck Protection Program, 15 U.S.C. 636(a)(36).
* * * * *
PART 723--MEMBER BUSINESS LOANS; COMMERCIAL LENDING
0
4. The authority for part 723 continues to read as follows:
Authority: 12 U.S.C. 1756, 1757, 1757a, 1766, 1785, 1789.
0
5. In Sec. 723.2, revise the definition of ``commercial loan'' to read
as follows:
Sec. 723.2 Definitions.
* * * * *
Commercial loan means any loan, line of credit, or letter of credit
(including any unfunded commitments), and any interest a credit union
obtains in such loans made by another lender, to individuals, sole
proprietorships, partnerships, corporations, or other business
enterprises for commercial, industrial, agricultural, or professional
purposes, but not for personal expenditure purposes. Excluded from this
definition are loans made by a corporate credit union; loans made by a
federally insured credit union to another federally insured credit
union; loans made by a federally insured credit union to a credit union
service organization; loans secured by a 1- to 4-family residential
property (whether or not it is the borrower's primary residence); loans
fully secured by shares in the credit union making the extension of
credit or deposits in other financial institutions; loans secured by a
vehicle manufactured for household use; and loans that would otherwise
meet the definition of commercial loan and which, when the aggregate
outstanding balances plus unfunded
[[Page 23217]]
commitments less any portion secured by shares in the credit union to a
borrower or an associated borrower, are equal to less than $50,000. The
definition of commercial loan also excludes covered loans issued under
the Small Business Administration's Paycheck Protection Program, 15
U.S.C. 636(a)(36).
* * * * *
[FR Doc. 2020-08920 Filed 4-24-20; 8:45 am]
BILLING CODE 7535-01-P