[Federal Register Volume 86, Number 10 (Friday, January 15, 2021)]
[Proposed Rules]
[Pages 3876-3879]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28280]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
RIN 3133-AF20
Overdraft Policy
AGENCY: National Credit Union Administration (NCUA).
ACTION: Proposed rule.
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[[Page 3877]]
SUMMARY: The NCUA Board (Board) is issuing a proposed rule to amend
one of the requirements that a federal credit union (FCU) must adopt as
a part of their written overdraft policy. Specifically, the proposed
rule would modify the requirement that an FCU's written overdraft
policy establish a time limit, not to exceed 45 calendar days, for a
member to either deposit funds or obtain an approved loan from the FCU
to cover each overdraft. The proposed rule would remove the 45-day
limit and replace it with a requirement that the written policy must
establish a specific time limit that is both reasonable and applicable
to all members, for a member either to deposit funds or obtain an
approved loan from the credit union to cover each overdraft. Consistent
with U.S. generally accepted accounting principles (GAAP), overdraft
balances should generally be charged off when considered uncollectible.
The Board believes that this change would improve a requirement that is
not only overly prescriptive, but could be especially detrimental as
FCUs take steps to provide their members the flexibility needed to cope
with the impacts of COVID-19.
DATES: Comments must be received on or before February 16, 2021.
ADDRESSES: You may submit written comments, identified by RIN 3133-
AF20, 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
Overdraft Policy'' in the transmittal.
Mail: Address to Melane Conyers-Ausbrooks, 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, 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: Policy and Analysis: Alison Clark,
Chief Accountant, Office of Examination and Insurance, at (703) 518-
6611; Legal: Gira Bose and Thomas Zells, Staff Attorneys, Office of
General Counsel, at (703) 518-6540; or by mail at: National Credit
Union Administration, 1775 Duke Street, Alexandria, Virginia 22314.
SUPPLEMENTARY INFORMATION:
I. Background
II. Legal Authority
III. Section-by-Section Analysis
IV. Regulatory Procedures
I. Background
The COVID-19 pandemic has created uncertainty for federally insured
credit unions (FICUs) and their members. The Board has been working
with federal and state regulatory agencies, in addition to FICUs, to
assist FICUs in managing their operations and to facilitate continued
assistance to credit union members and communities impacted by the
coronavirus. As part of these ongoing efforts, the Board is proposing
to modify the maximum time an FCU overdraft policy may allow for a
member to cure an overdraft. The Board believes that this change would
help ensure that FCUs have the additional flexibility necessary to
provide relief to their members in a manner consistent with the NCUA's
responsibility to maintain the safety and soundness of the credit union
system.\1\
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\1\ Federally insured, state-chartered credit unions (FISCU) are
not subject to the overdraft policy requirements in 12 CFR
701.21(c)(3).
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The NCUA first permitted FCUs to advance money to a member to cover
his or her account deficit (overdraft) without having a credit
application on file in 2000.\2\ The Federal Credit Union Act (FCU Act)
does not specifically address an FCU's authority to pay or honor a
debit from a share account that will result in an overdrawn account.
However, the NCUA's longstanding position has been that an overdraft,
as a financial accommodation to a member, constitutes a loan or line of
credit to a member. The Board also believes that the authority to cover
overdrafts is incidental \3\ to an FCU's authority to accept payment on
shares.\4\ In particular, under the incidental powers test established
by the courts \5\ and in the NCUA's regulations in 12 CFR part 721,
covering overdrafts from such accounts: (1) Is useful in carrying out
FCU business because it facilitates ongoing maintenance of accounts
that are temporarily overdrawn; (2) is the functional equivalent and
indeed directly associated with other deposit account activity; and (3)
involves risks similar to those FCUs assume in accepting payment on
shares generally.\6\
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\2\ 65 FR 15224 (Mar. 22, 2000).
\3\ 12 U.S.C. 1757(17).
\4\ 12 U.S.C. 1757(6).
\5\ Nations Bank of N. Carolina v. Variable Annuity Life Ins.
Co., 513 U.S. 251 (1995).
\6\ See Overdraft Practices, Office of the Comptroller of the
Currency, Interpretive Letter #1082 (May 17, 2007), available at
https://www.occ.gov/topics/charters-and-licensing/interpretations-and-actions/2007/int1082.pdf.
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When providing FCUs with this authority in 2000, the NCUA adopted a
regulatory requirement that, in order for an FCU to advance money to a
member to cover an account deficit without having a credit application
from the borrower on file, the FCU must have a written overdraft policy
that meets certain requirements. One of these requirements is that the
FCU's written policy must establish a time limit not to exceed 45
calendar days for a member either to deposit funds or obtain an
approved loan from the FCU to cover each overdraft. As described more
fully in section III, the Board believes that this policy is overly
prescriptive and potentially harmful to both FCUs and their members.
The Board is especially concerned that the requirement has and will
continue to prevent FCUs from taking appropriate steps to provide their
members the flexibility needed to cope with the impact of COVID-19. As
such, the Board proposes removing the prescriptive 45-day limit and
instead requiring that an FCU's written policy must establish a
specific time limit that is both reasonable and applicable to all
members for a member to cure their overdraft by either depositing funds
or obtaining an approved loan. Consistent with U.S. GAAP, overdraft
balances should generally be charged off when considered uncollectible.
The Board is also proposing to add a reference to Regulation E,\7\
which implements the Electronic Fund Transfer Act and governs certain
overdraft services.
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\7\ 12 CFR part 1005.
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II. Legal Authority
The Board is issuing this proposed rule pursuant to its authority
under the FCU Act.\8\ 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.\9\ Section 209 of the
FCU Act is a plenary grant of regulatory authority to issue rules and
regulations necessary or appropriate to carry out its role as share
[[Page 3878]]
insurer for all FICUs.\10\ Other provisions of the Act confer specific
rulemaking authority to address prescribed issues or circumstances.\11\
Accordingly, the FCU Act grants the Board broad rulemaking authority to
ensure that the credit union industry and the National Credit Union
Share Insurance Fund (NCUSIF) remain safe and sound.
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\8\ 12 U.S.C. 1751 et seq.
\9\ 12 U.S.C. 1766(a).
\10\ 12 U.S.C. 1789.
\11\ An example of a provision of the FCU Act that provides the
Board with specific rulemaking authority is section 207 (12 U.S.C.
1787), which is a specific grant of authority over share insurance
coverage, conservatorships, and liquidations.
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III. The Proposed Rule
Section 701.21(c)(3) of the NCUA's regulations provides that an FCU
can advance money to a member to cover his or her account deficit
without having a credit application on file if the credit union had a
written overdraft policy. Specifically, Sec. 701.21(c)(3) requires
that an FCU's written overdraft policy must: (1) Set a cap on the total
dollar amount of all overdrafts the credit union will honor consistent
with the credit union's ability to absorb losses; (2) establish a time
limit not to exceed 45 calendar days for a member either to deposit
funds or obtain an approved loan from the credit union to cover each
overdraft; (3) limit the dollar amount of overdrafts the credit union
will honor per member; and (4) establish the fee and interest rate, if
any, the credit union will charge members for honoring overdrafts.
As previously noted, the Board is concerned that the requirement
that an FCU's overdraft policy establish a time limit not to exceed 45
calendar days for a member to cure their overdraft is unnecessarily
prescriptive during normal times, but has been and will continue to be
especially detrimental as FCUs and their members face challenges
imposed by COVID-19. The Board believes it is imperative that FCUs have
the flexibility to work with their members to take positive and
proactive actions that can manage or mitigate adverse impacts on
members while maintaining safe-and-sound operations. As such, the Board
proposes amending Sec. 701.21(c)(3) to remove the prescriptive 45-day
limit for curing an overdraft and replacing it with a requirement that
an FCU's written overdraft policy must establish a specific time limit
that is both reasonable and applicable to all members for a member to
either deposit funds or obtain an approved loan from the FCU to cover
each overdraft. Consistent with U. S. GAAP, overdraft balances should
generally be charged off when considered uncollectible.
This change would also remedy a discrepancy between the current 45-
day limit imposed on FCUs for curing an overdraft and NCUA-adopted
interagency guidance on overdraft protection programs that suggests a
maximum of 60 days before an overdraft is charged-off.\12\ The Board
emphasizes that the recommended maximum of 60 days for charging off an
overdraft in the interagency guidance is a suggestion derived from
general safety and soundness considerations and U.S. GAAP for generally
charging off overdraft balances when they are considered
uncollectible.\13\ The Board expects that FCUs will exercise their
good, professional judgment when working with members and determining
when overdraft balances are deemed uncollectible. This professional
judgment is especially important as FCUs help their members deal with
the impacts of COVID-19.
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\12\ In February 2005, the NCUA, along with the Federal Reserve
Board, Federal Deposit Insurance Corporation, and Office of the
Comptroller of the Currency, published guidance on overdraft
protection programs in response to concerns about aspects of the
growing marketing, disclosure, and implementation of overdraft
services. 70 FR 9127 (February 24, 2005) (Joint Guidance)
(``[O]verdraft balances should generally be charged off when
considered uncollectible, but no later than 60 days from the date
first overdrawn.''), available at https://www.ncua.gov/files/letters-credit-unions/LCU2005-03Encl.pdf.
\13\ Overdraft balances should be charged off against the
allowance for loan and lease losses or allowance for credit losses,
if applicable. Any payments received after the account is charged
off, up to the amount charged off against the allowance should be
reported as a recovery.
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The Board is also proposing to amend Sec. 701.21(c)(3) to add a
cross-reference to Regulation E. Regulation E sets forth other
requirements applicable to certain overdraft services and was amended
in 2009, after the adoption of Sec. 701.21(c)(3).\14\ This addition
would not impose any new or additional requirements on FCUs, nor would
this rule supersede, or relieve FCUs from complying with, any
provisions of Regulation E.
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\14\ 12 CFR part 1005.
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The Board requests comment on all aspects of this proposed rule.
Because of the targeted nature of the proposed amendments to this
existing regulation, the Board believes that a 30-day comment period
provides adequate opportunity for public participation.\15\
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\15\ 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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In addition to offering your comments on any aspect of this
proposed rule, please provide your input on the following questions:
1. What specific difficulties or adverse outcomes you have
encountered as a result of the 45-day time limit in 12 CFR 701.21
during COVID-19?
2. Has your credit union made any changes to its overdraft
program to mitigate the impact of the pandemic on members, such as
reducing or eliminating overdraft or insufficient funds fees? Please
share any and all overdraft relief you are currently providing to your
members.
3. With regard to overdraft programs in general, what
additional relief do commenters feel would be appropriate for the NCUA
and/or credit unions to extend to members utilizing overdraft products
during COVID-19? Are there any other potential changes to the overdraft
provisions in 12 CFR 701.21 that could be beneficial for credit union
members?
IV. Regulatory Procedures
A. 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.
The proposed rule would modify the requirements of an FCU's written
overdraft policy by removing the 45-day overdraft limit requirement and
replacing it with a requirement that the policy establish a specific
time limit that is, reasonable, applicable to all members, and
consistent with U.S. GAAP. The information collection requirement of
this part to retain and maintain a written overdraft policy is
currently covered by OMB control number 3133-0092. The rule would not
result in a change in burden, and there are no new information
collection requirements associated with the rule.
B. 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 proposed rule would not have substantial direct effects on the
states,
[[Page 3879]]
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
proposed rule does not constitute a policy that has federalism
implications for purposes of the executive order.
C. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this proposed rule would 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).
D. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires that when
an agency issues a proposed rule or a final rule pursuant to the APA
\16\ 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.\17\ Specifically, the RFA 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.\18\ The proposed rule would relieve some of the
restrictiveness of a requirement applicable to all FCUs to maintain
requirements in policies relating to member overdrafts. The proposed
rule would not require any FCUs to change their current policies or
impose new burdens. Therefore, the Board certifies that this proposed
rule would not have a significant economic effect on a substantial
number of small entities.
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\16\ 5 U.S.C. 553(b).
\17\ 5 U.S.C. 603, 604.
\18\ NCUA IRPS 15-1. 80 FR 57512 (Sept. 24, 2015).
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List of Subjects in 12 CFR Part 701
Credit, Credit unions, Reporting and recordkeeping requirements.
By the NCUA Board on December 17, 2020.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons discussed in the preamble, the Board proposes to
amend part 701 of chapter VII of title 12 of the Code of Federal
Regulations to read as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
0
1. The authority citation for part 701 continues to read as follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759,
1761a, 1761b, 1766, 1767, 1782, 1784, 1785, 1786, 1787, 1788, 1789.
Section 701.6 is also authorized by 15 U.S.C. 3717. Section 701.31
is also authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and
3601-3610. Section 701.35 is also authorized by 42 U.S.C. 4311-4312.
0
2. Amend Sec. 701.21 by revising paragraph (c)(3) to read as follows:
Sec. 701.21 Loans to Members and lines of credit to members.
* * * * *
(c) * * *
(3) Credit applications and overdrafts. Consistent with policies
established by the board of directors, the credit committee or loan
officer shall ensure that a credit application is kept on file for each
borrower supporting the decision to make a loan or establish a line of
credit. A credit union may advance money to a member to cover an
account deficit without having a credit application from the borrower
on file if the credit union has a written overdraft policy. The policy
must: Set a cap on the total dollar amount of all overdrafts the credit
union will honor consistent with the credit union's ability to absorb
losses; establish a specific time limit that is reasonable and
universally applicable for a member either to deposit funds or obtain
an approved loan from the credit union to cover each overdraft; limit
the dollar amount of overdrafts the credit union will honor per member;
and establish the fee and interest rate, if any, the credit union will
charge members for honoring overdrafts. Consistent with U.S. GAAP,
overdraft balances should generally be charged off when considered
uncollectible. In addition, overdraft services covered by Regulation E,
12 CFR part 1005, are subject to applicable requirements set forth in
that regulation.
* * * * *
[FR Doc. 2020-28280 Filed 1-14-21; 8:45 am]
BILLING CODE 7535-01-P