[Federal Register Volume 85, Number 251 (Thursday, December 31, 2020)]
[Rules and Regulations]
[Pages 86797-86803]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28490]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
RIN 3133-AF24
Fees Paid by Federal Credit Unions
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
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SUMMARY: The NCUA Board (Board) is amending its regulation governing
assessment of an annual operating fee to Federal credit unions (FCUs).
First, for purposes of calculating the annual operating fee, the final
rule amends the current rule to exclude from total assets any loan an
FCU reports under the Small Business Administration's Paycheck
Protection Program (PPP) or similar future programs approved for
exclusion by the NCUA Board. Second, the final rule deletes from the
current regulation references to the Credit Union System Investment
Program and the Credit Union Homeowners Affordability Relief Program,
both of which no longer exist. Third, the final rule amends the period
used for the calculation of an FCU's total assets. Currently, total
assets are calculated using the FCU's December 31st Call Report of the
preceding year. Under the final rule, total assets will be calculated
as the average total assets reported on the FCU's previous four Call
Reports available at the time the NCUA Board approves the agency's
budget for the upcoming year, adjusted for any excludable programs as
determined by the Board. Finally, the final rule makes some minor
technical changes.
DATES: This final rule is effective on February 1, 2021.
FOR FURTHER INFORMATION CONTACT: James Holm, Supervisory Budget
Analyst, Office of the Chief Financial Officer, at (703) 518-6570;
Kevin Tuininga, Associate General Counsel, or John H. Brolin, Senior
Staff Attorney, Office of General Counsel, at (703) 518-6540; or by
mail at 1775 Duke Street, Alexandria, VA 22314.
SUPPLEMENTARY INFORMATION:
I. Introduction
II. Legal Authority
III. Summary of the Proposal and Public Comments
IV. Summary of the Final Rule
V. Regulatory Procedures
[[Page 86798]]
I. Introduction
At its July 2020 meeting, the Board issued a proposed rule \1\ to
amend the NCUA's regulation governing assessment of an annual operating
fee to Federal credit unions (FCUs), 12 CFR 701.6. For purposes of
calculating the annual operating fee, the proposed amendments would
have: (1) Excluded from total assets any loan an FCU reports under the
Small Business Administration's (SBA) Paycheck Protection Program
(PPP), or similar future programs approved for exclusion by the NCUA
Board; (2) deleted from the current regulation references to the Credit
Union System Investment Program and the Credit Union Homeowners
Affordability Relief Program, both of which no longer exist; and (3)
revised the period used for the calculation of an FCU's total assets.
Currently, total assets are calculated using the FCU's December 31st
Call Report of the preceding year. Under the proposal, total assets
would be calculated as the average total assets reported on the FCU's
previous four Call Reports available at the time the NCUA Board
approves the agency's budget for the upcoming year, adjusted for any
excludable programs as determined by the Board. Finally, the proposal
would have made some minor technical conforming changes.
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\1\ 85 FR 53708 (Aug 31, 2020).
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A. Background on the NCUA Annual Budget and Fees Paid by FCUs
The NCUA charters, regulates, and insures deposits in FCUs and
insures deposits in state-chartered credit unions that have their
shares insured through the National Credit Union Share Insurance Fund
(Share Insurance Fund). To cover expenses related to the NCUA's tasks,
the Board adopts an annual budget in the fall of each year. The Federal
Credit Union Act (FCU Act) provides two primary sources to fund the
budget: (1) Requisitions from the Share Insurance Fund; \2\ and (2)
operating fees charged against FCUs.\3\ The Board uses an allocation
formula, the Overhead Transfer Rate (OTR), to determine the amount of
the budget that it will requisition from the Share Insurance Fund.\4\
Remaining amounts needed to fund the annual budget are charged to FCUs
in the form of operating fees, based on each FCU's total assets.\5\
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\2\ See, e.g., 12 U.S.C. 1783(a) (making the Share Insurance
Fund available ``for such administrative and other expenses incurred
in carrying out the purpose of [Subchapter II of the FCU Act] as
[the Board] may determine to be proper.'').
\3\ 12 U.S.C. 1755(a) (``In accordance with rules prescribed by
the Board, each Federal credit union shall pay to the Administration
an annual operating fee which may be composed of one or more charges
identified as to the function or functions for which assessed.'').
\4\ See, e.g., Request for Comment Regarding Revised Overhead
Transfer Rate Methodology, 82 FR 29935 (June 30, 2017).
\5\ 12 CFR 701.6(a).
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The FCU Act requires each FCU to, ``in accordance with rules
prescribed by the Board [. . .] pay to the [NCUA] an annual operating
fee which may be composed of one or more charges identified as to the
function or functions for which assessed.'' \6\ The fee must ``be
determined according to a schedule, or schedules, or other method
determined by the Board to be appropriate, which gives due
consideration to the expenses of the [NCUA] in carrying out its
responsibilities under the [FCU Act] and to the ability of [FCUs] to
pay the fee.'' \7\ The statute requires the Board to, among other
things, ``determine the periods for which the fee shall be assessed and
the date or dates for the payment of the fee or increments thereof.''
\8\
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\6\ 12 U.S.C. 1755(a).
\7\ 12 U.S.C. 1755(b).
\8\ Id.
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Section 701.6 of the NCUA's regulations governs operating fee
processes.\9\ The regulation establishes the following: (1) The basis
for charging operating fees (i.e., total assets of the FCU, with
certain exclusions, as of December 31st of the preceding year); (2) the
notice the NCUA must provide to FCUs regarding the fees; (3) coverage
provisions providing certain exceptions for new FCU charters,
conversions, mergers, and liquidations; and (4) the assessment of
administrative fees and interest for late payment, among other
principles and processes.\10\ Certain aspects of and adjustments to the
operating fee process, such as the multipliers used to determine fees
applicable to designated asset tiers, are not included in the NCUA's
regulations. Instead, the Board generally adopts an operating fee
schedule at an open meeting each year and publishes the schedule in the
agency's annual budget and on its website.\11\
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\9\ 12 CFR 701.6.
\10\ Id.
\11\ In November 2015, the Board delegated authority to the
Chief Financial Officer to administer the Board-approved methodology
and to set the operating fees as calculated per the approved
methodology each annual budget cycle beginning with 2016. See Board
Action Memorandum on 2016 Operating Fee (Nov. 19, 2015), https://www.ncua.gov/About/Documents/Agenda%20Items/AG20151119Item6a.pdf.
Since that time, the operating fee schedule has been published in
the NCUA's annual budget. See 2020-2021 Budget Justification
(December 12, 2019), https://www.ncua.gov/files/agenda-items/AG20191212Item1b.pdf.
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Section 701.6(a) sets out the basis on which the NCUA assesses the
operating fee. Paragraph (a) provides that FCUs must pay the NCUA an
annual operating fee based on the credit union's total assets.\12\ The
NCUA calculates an FCU's operating fee by multiplying the dollar amount
of its total assets by a percentage set by the Board based on asset
tiers after considering the expenses of the NCUA and the ability of
FCUs to pay the fee. The term ``total assets'' for purposes of the
operating fee presently includes all assets, with certain exclusions,
reported on an FCU's Call Report as of December 31st of the previous
fiscal year.
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\12\ 12 CFR 701.6(a).
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Operating fee payments are due from FCUs in April each year, and
the NCUA prepares invoices using reported assets from the prior year's
December Call Report.\13\ In order to provide clarity to FCUs about
their operating fee charges for the upcoming year, the Board typically
approves the budget and sets the associated operating fee rates in
November or December of the year before the operating fee is billed.
Because the budget and operating fee rates are approved before December
Call Report data is available, the Chief Financial Officer uses
projected FCU asset growth to set the operating fee rates. Therefore,
if actual total assets reported in December Call Reports are below the
projected asset growth used for setting the operating fee rates, the
NCUA will collect less in operating fee revenue than it requires to
fund the budget. Conversely, if total assets reported in December Call
Reports are greater than projected growth, the NCUA may collect more
than is required.
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\13\ Id.
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B. Background on the CARES Act and the SBA's Paycheck Protection
Program
On March 27, 2020, President Trump signed the Coronavirus Aid,
Relief, and Economic Security Act, or CARES Act, into law.\14\ The law
is designed to provide aid to the U.S. economy in the midst of the
COVID-19 pandemic. The CARES Act authorized the SBA to create a loan
guarantee program, the PPP, to help certain businesses affected by the
COVID-19 pandemic meet payroll needs (including employee salaries, sick
leave, other paid leave, and health insurance expenses), as well as
mortgage, rent, and utilities expenses. 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
[[Page 86799]]
issued under the PPP, backed by the full faith and credit of the United
States. Most federally insured credit unions were eligible to make PPP
loans to members.\15\ Under the CARES Act, PPP loans must receive a
zero percent risk weighting for purposes of the NCUA's risk-based
capital requirements.\16\
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\14\ Public Law 116-136 (Mar. 27, 2020).
\15\ 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.
\16\ Public Law 116-135, section 1102(a)(2).
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Following enactment of the CARES Act, the Board issued an interim
final rule to make several amendments to the NCUA's regulations
relating to PPP loans.\17\ The April 27, 2020 interim final rule
provided that if a covered PPP loan made by a federally insured credit
union 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 Liquidity Facility,\18\ the covered loan can be excluded from a
credit union's calculation of total assets for the purposes of
calculating its net worth ratio.\19\ The exclusion of PPP loans pledged
to the FRB's Liquidity Facility was comparable to an interim final rule
issued by the other banking agencies with respect to their capital
regulations,\20\ which is consistent with the statutory requirement for
the Board to prescribe a system of prompt corrective action that is,
among other things, comparable to the section of the Federal Deposit
Insurance Act that established prompt corrective action requirements
for banks.
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\17\ 85 FR 23212 (Apr. 27, 2020).
\18\ The program was named as both the PPP Lending Facility and
the PPP Liquidity Facility when the Board approved the interim final
rule. It is now named the PPP Liquidity Facility in FRB
documentation on the program.
\19\ 85 FR 23212.
\20\ 85 FR 20387 (Apr. 13, 2020).
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That change applied to only the calculation of the net worth ratio
and not to other requirements or calculations in the NCUA's regulations
that depend on a credit union's total assets. At present, an FCU must
report the value of all of its PPP loans in its Call Reports, whether
the FCU originated the loans, purchased them in the secondary market,
or has pledged them to the FRB Liquidity Facility.\21\ The value of PPP
loans reported in Call Reports could therefore increase the total asset
amounts the NCUA uses to compute the annual operating fees due. Without
a change to the NCUA's current operating fee regulation,\22\ an FCU's
PPP loans could subject the FCU to a higher operating fee, and this
could impose a burden for participation in the program, or a
disincentive to participate now that the program has been extended. As
the PPP serves an important public purpose, the Board believes PPP
loans warrant exclusion from total assets when determining operating
fees to avoid these harms.
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\21\ See SBA Procedural Notice, Guidance on Whole Loan Sales of
Paycheck Protection Program Loans (May 1, 2020), available at
https://www.sba.gov/sites/default/files/2020-05/5000-20024.pdf.
\22\ 12 CFR 701.6(a).
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Under the FCU Act, the Board considers, among other things, FCUs'
ability to pay assessments.\23\ The Board finds that an increase in an
FCU's assets based on PPP loans--regardless of whether they are pledged
to the PPP Liquidity Facility--poses no undue risk to the credit
union's capital strength. Additionally, given the short-term and low-
fee nature of PPP loans, FCUs that report increased total assets as a
result of them are unlikely to have a corresponding increase in their
ability to pay a higher assessment. Furthermore, excluding PPP loans
from operating fee assessments makes the program more affordable to the
participants and avoids imposing a burden based on participation in a
program designed to provide an important public benefit. These benefits
closely align with the mission of credit unions to support their member
communities through trusted and affordable financial services.
Accordingly, based on this statutory analysis and application, the
NCUA's proposal had a broader scope of exclusion than the Board's April
27, 2020, interim final rule on PPP loans.\24\
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\23\ 12 U.S.C. 1755.
\24\ 85 FR 23212 (Apr. 27, 2020).
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In a separate Federal Register document,\25\ the Board requested
comment on the methodologies it uses to set the rate schedule for
operating fees and how it determines the OTR. Members of the public
were encouraged to comment about these methodologies by responding to
that Federal Register notice.
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\25\ 85 FR 53854 (Aug. 31 2020).
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II. Legal Authority
The Board is issuing this final rule pursuant to its authority
under the FCU Act.\26\ The FCU Act grants the Board a broad mandate to
issue regulations governing both FCUs and, more generally, all
federally insured credit unions. 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 FCU
Act.\27\ Section 105 of the FCU Act requires FCUs to pay an annual
operating fee to the NCUA.\28\ In particular, section 105(b) provides
that the fee assessed under this section 105 shall be determined
according to a schedule, or schedules, or other method determined by
the Board to be appropriate, which gives due consideration to the
expenses of the Administration in carrying out its responsibilities
under this chapter and to the ability of Federal credit unions to pay
the fee.\29\ Section 105(b) provides further that the Board shall,
among other things, determine the periods for which the fee shall be
assessed and the date or dates for the payment of the fee or increments
thereof. \30\
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\26\ 12 U.S.C. 1751 et seq.
\27\ 12 U.S.C. 1766(a).
\28\ 12 U.S.C. 1755(a).
\29\ 12 U.S.C. 1755(b).
\30\ Id.
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Accordingly, the FCU Act provides the Board with broad discretion
to decide how the amount of the operating fee is determined.
III. Summary of the Proposed Rule and Public Comments
At its July 30, 2020 meeting, the NCUA Board (Board) proposed
amending the agency's regulation governing assessment of an annual
operating fee to Federal credit unions (FCUs). The proposal provided
for a 60-day comment period, which ended on October 30, 2020. The NCUA
received nine comment letters in response to the proposed rule. In
general, all of the letters received from commenters--two from credit
union trade associations and seven from state credit union leagues--
expressed broad support for the proposal. A few of the commenters,
however, did raise issues for the NCUA's consideration, which are
discussed in more detail below.
The proposed rule would have amended Sec. 701.6(a) by excluding
PPP loans from FCUs' total assets for purposes of calculating its
operating fee. In particular, the proposal would have amended current
Sec. 701.6(a) to provide, among other things, that the operating fee
shall be based on the total assets of each FCU, less loans made under
the PPP.\31\ Under the proposed rule, participating FCUs would have
continued to report their assets in the quarterly Call Report. For
purposes of determining the operating fee, the
[[Page 86800]]
NCUA would have excluded reported PPP loans in the calculation of total
assets. The NCUA believed the change would ensure that FCUs interested
in making PPP loans did not bear greater financial burdens for doing
so. The Board proposed excluding PPP loans from the calculation of
total assets even if the PPP loans were not pledged to the FRB PPP
Liquidity Facility because PPP loans pose no undue risk to the FCU's
capital strength and, due to their unique structure, do not increase an
FCU's ability to pay a higher operating fee. Excluding all reported PPP
loans when determining total assets would also ensure that FCUs that do
not pledge their PPP loans to the FRB are treated consistently with
those FCUs that do. Absent such consistent treatment, FCUs that do not
pledge their PPP loans to the FRB's Liquidity Facility would bear a
larger relative cost burden of the operating fee compared to those FCUs
that do pledge their PPP loans.
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\31\ 15 U.S.C. 636(a)(36).
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Comments Received: None of the commenters objected to this change.
All nine of the commenters stated that they supported excluding from
total assets any loan an FCU reports under the PPP and agreed with the
NCUA's rationale supporting this change. Four of the commenters
specifically stated further that they supported excluding PPP loans
from the calculation of total assets even if the PPP loans are not
pledged to the Federal Reserve Board's (FRB) PPP Liquidity Facility.
Proposing to exclude PPP loans from the calculation of total assets
was similar to the amendment the Board made to the calculation of total
assets in a 2009 final rule to encourage FCU participation in the
Credit Union System Investment Program (CU SIP) or the Credit Union
Homeowners Affordability Relief Program (CU HARP).\32\ Investments in
those programs were excluded from the computation of total assets
because the instruments were guaranteed by the Share Insurance Fund,
posed no credit risk to the participating credit unions, and the
exclusion was intended to encourage a greater participation rate in
programs with a clear public benefit. The CU SIP ended in 2010.
Similarly, CU HARP investments were issued by the U.S. Central Federal
Credit Union and all of those investments matured prior to that credit
union's liquidation in 2012. Because these programs no longer exist and
have no remaining investments, the Board proposed to amend current
Sec. 701.6(a) to delete references to them.
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\32\ 74 FR 29934 (June 24, 2009).
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Comments Received: None of the commenters objected to this change.
Two commenters expressly stated that they supported deleting references
to the programs and agreed with the NCUA's rationale supporting this
change.
Given the potential for additional programs similar to the PPP to
arise in the near future or as a result of future economic crises, the
Board proposed adding regulatory language that would allow for the
exclusion of assets in the future under similar programs without
requiring a reference to the specific program in the regulation. Under
the proposed new language, the Board anticipated making exclusions of
similar future programs by issuing an order, which could be published
in a letter to FCUs or a similar notice.
Comments Received: None of commenters objected to the language, and
eight of the commenters stated that they supported including the
general language allowing the exclusion of such programs to be approved
by the Board. One of the commenters, however, suggested that the NCUA
also include provisions to exclude assets related to programs that
provide relief during nationwide and regional crises; for example,
disaster declarations and associated SBA disaster lending authorized as
a result of hurricanes or other national disasters.
NCUA Response: In response to the comment suggesting the NCUA also
exclude assets related to programs that provide relief during
nationwide and regional crises, the agency has decided not to make that
change in the final rule. Such a change is beyond the scope of the
proposal. The NCUA, however, does plan to evaluate the feasibility and
impact of such exclusions in its next cyclical review of the operating
fee rule. In particular, the NCUA plans to evaluate whether SBA
disaster lending presents the same general low level of risk to credit
unions' balance sheets, and whether excluding SBA disaster lending from
total assets would have a material impact on the regional distribution
of operating fees.
In addition, the Board proposed amending current Sec. 701.6(a) to
use the average of FCUs' four most-recently reported quarterly assets
to calculate operating fees and to make conforming amendments to the
regulatory text to ensure this same approach was applied to merged and
recently converted FCUs. The Board proposed to use an average of total
assets because it believed that doing so would reduce the effect of
seasonal fluctuation in the total assets of FCUs, and would provide
more certainty to FCUs about their operating fee charges for the
forthcoming year. The change to a four-quarter average of reported
assets would also reduce the risk that the Board would collect less in
operating fee revenue than it requires if actual assets reported in
FCUs' December Call Reports were below the asset growth assumption used
to set the operating fee rates in the budget.
In particular, the proposed rule would have amended current Sec.
701.6(a) to provide, among other things, that the operating fee shall
be based on the average of total assets of each FCU based on data
reported in the preceding four Call Reports (as reported on NCUA Form
5300 for natural person FCUs and Form 5310 for corporate FCUs), or as
otherwise determined pursuant to paragraph (b) of Sec. 701.6. When
determining the operating fee rate and the invoice amounts due under
the proposal, the NCUA Board would have used the average of FCUs' four
most-recent Call Reports available at the time the Board approved the
budget for the forthcoming year.
The Board anticipated that the proposed change would have no impact
on current billing practices for newly chartered FCUs because such
credit unions do not receive an operating fee invoice until the second
year after they are chartered. The Board proposed continuing its
current practice of treating merged FCUs and conversions of non-FCUs
into FCUs as a single entity for purposes of calculating the average
total assets that are the basis for determining the amount of operating
fees due. For purposes of calculating the average total assets of an
FCU that converts from or merges with a federally insured, state-
chartered credit union (FISCU), the Board proposed computing comparable
quarterly total assets using the Call Report data in the agency's
possession. For conversions to an FCU charter from entities not insured
by the NCUA, the Board proposed to average assets based only on Call
Reports filed by the time the Board finalized its budget because the
NCUA cannot validate the accuracy or consistency of other data sources
that may be similar to NCUA Call Reports.
Under the proposed rule, in circumstances in which a conversion to
an FCU charter from an entity not insured by the NCUA occurs in the
fourth quarter of the year before the operating fee is due, no Call
Report data would have been available at the time the Board finalized
its budget, and the converted entity would therefore pay no operating
fee in the year following conversion. While this approach would have
produced a different result based only on insured status prior to
conversion for entities that are otherwise of the same FCU status after
[[Page 86801]]
the conversion, the Board believed its lack of access to verified Call
Report data for non-NCUA insured entities supported the distinction. In
addition, the Board expected such circumstances to be rare occurrences,
with relatively small impacts, as the maximum amount of forgone revenue
is one quarter of reported assets for which a converted entity could be
exempt from paying an operating fee.
While this discrepancy could be avoided if the Board continued its
current practice of estimating December Call Report data as the sole
point of reference for determining total assets for the operating fee,
the Board believed the four-quarter average was more equitable on the
whole because it could account for seasonal share account fluctuations
that some FCUs experience based on the characteristics and transaction
patterns engaged in by their fields of membership. As discussed above,
the proposed four-quarter average approach also would have eliminated
the risk that the Board could over- or under-collect operating fees
based on differences between its estimation of and actual December Call
Report data.\33\
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\33\ While the proposed regulatory language introducing Sec.
701.6(b)(2)(i)(B) could be read to require an entity not insured by
the NCUA that converts to a FCU charter in the fourth quarter to pay
a fee in the year following conversion, the lack of available Call
Report data prior to the date the Board adopts the budget would
preclude a fee in that scenario.
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With respect to mergers in which an entity not insured by the NCUA
merges into a continuing FCU, the same issue existed under the proposed
rule with regard to the Board's access to data comparable to the Call
Report for periods prior to the merger date. Here again, the proposed
rule would have combined assets looking back four quarters for mergers
involving two FCUs or where a FISCU merges into a continuing FCU. On
the other hand, for mergers into FCUs of entities that are not insured
by the NCUA, the proposed rule would not have required the combination
of assets prior to the merger date, because the NCUA does not collect
asset data for entities it does not insure. Instead, the continuing FCU
would have paid a fee based only on assets reported on its own Call
Reports filed prior to the effective date of the merger. Depending on
the specific timing of when the merger occurred, this could have
resulted in multiple quarters where the assets acquired from the non-
NCUA insured entity were not included in the calculated average assets
used to bill the continuing FCU. For the same reasons expressed above
with respect to conversions, the Board believed the benefits of the
four-quarter average outweighed the different treatment for mergers
with FISCUs compared to mergers with entities not insured by the NCUA.
With respect to purchase and assumption transactions, the
regulation presently designates that such transactions will be treated
as mergers in circumstances in which an FCU purchases all or
essentially all of the assets of another credit union. Under the
proposal, the Board retained that language, but requested comments on
alternative approaches the Board may wish to consider. The Board
acknowledged that, in some circumstances, determining whether a
purchase and assumption included all or essentially all assets could be
a difficult determination.
Comments Received: All nine commenters stated that they supported
these change and generally agreed with the NCUA's rationale supporting
this change. While all of the commenters supported this change, four of
the commenters did ask that the NCUA also regularly review this change
and its impact to ensure it does not cause any unintended consequences.
Although beyond the scope of this proposal, one commenter did
suggested that the NCUA further amend Sec. 701.6 to treat mergers into
and conversions with federally insured, state-chartered credit unions
(FISCUs) differently. The commenter stated that, while the current rule
bars the payment of a fee refund when a conversion to or merger into a
FISCU occurs, the NCUA should reconsider this issue since the resulting
credit union's NCUSIF deposit will reflect the merger, unlike a
combination with an entity that is not NCUSIF-insured, and the
resulting entity is not an FCU. The commenter suggested that the NCUA
provide pro rata fee refunds if an FCU converts to or merges into a
FISCU.
NCUA Response: In response to the comment suggesting that the NCUA
regularly review these changes and their impact, the NCUA reviews all
of its existing regulations every three years. The NCUA's Office of
General Counsel maintains a rolling review schedule that identifies
one-third of the NCUA's existing regulations for review each year and
provides notice to the public of those regulations under review so the
public may have an opportunity to comment. The changes made by this
final rule will be regularly reviewed as part of that process and the
credit union industry and public will be given a regular opportunity to
raise any concerns they may have.
In response to the comment suggesting that the NCUA issue a pro
rata fee refund to an FCU that converts to or merges into a FISCU, the
agency has made no changes in the final rule. Such a change would be
outside the scope of the proposal. Moreover, the operating fees charged
to FCUs are based on a detailed workload projection of the agency's
examination program, which is used to inform the agency's annual budget
formulation and calculation of operating fee collections. The agency
generally does not have insight into the future merger or charter
conversion plans of a given FCU, and therefore must base its workload
estimates on the population of FCUs that exist in the year before the
budget is set and the fee is calculated. If the NCUA were to issue pro
rata refunds to FCUs that subsequently merge with or convert to a
FISCU, it would face continuing, unfunded liabilities for staff
salaries and associated expenses that could not be recouped from other
sources since the operating fee is billed only once annually.
Similarly, the OTR share of the annual operating budget is determined
in part based on the relative distribution of projected workload
between FCUs and FISCUs in the year before the OTR is applied to actual
operating expenses. Although the NCUA's actual workload may be
marginally reduced if an FCU converts to or merges with a FISCU, such a
change cannot be retroactively applied to the OTR used in a given year.
The Board also proposed some technical changes to existing rule
language. First, the proposed rule clarified that the NCUA would not
issue refunds of operating fees to FCUs that convert to any other type
of charter, not just a state charter. The proposed rule was intended to
ensure the same treatment for a conversion to a mutual savings bank or
any other charter type. The Board also proposed removing the language
``in the year in which the conversion takes place'' from the provision,
as a refund is never provided to any converting FCU, regardless of
timing. The Board proposed the same changes to the rule text on refunds
in the context of mergers.
Comments Received: The NCUA received no objections to this change.
In addition, the Board proposed to expand the situations expressly
covered in the regulation to include conversions and mergers involving
entities not insured by the NCUA. Such transactions could involve
privately insured, state-chartered credit unions or banking
institutions. To support this expansion, the proposed regulatory
language introduced the phrase ``entity not
[[Page 86802]]
insured by the NCUA.'' In the language specifying that certain purchase
and assumption transactions would be treated as mergers, the Board
proposed changing the term ``credit union'' to ``depository
institution'' to clarify that a purchase and assumption involving a
bank, for example, would be treated in the same manner. Finally, the
proposed rule would have divided paragraph (b) of the regulation into
additional subparagraphs to improve readability.
Comments Received: The NCUA received no objections to this change.
III. Summary of the Final Rule
For the reasons discussed above, the Board is issuing this final
rule without change from the proposed rule. Revised Sec. 701.6(a)
provides that each calendar year, or as otherwise directed by the
Board, each Federal credit union shall pay an operating fee to the NCUA
for the current fiscal year (January 1 to December 31) in accordance
with a schedule fixed by the Board from time to time. New Sec.
701.6(a)(1) provides that the operating fee shall be based on the
average of total assets of each Federal credit union based on data
reported in NCUA Forms 5300 and 5310 from the four quarters immediately
preceding the time the Board approves the agency's budget or as
otherwise determined pursuant to paragraph (b) of this section. New
Sec. 701.6(a)(2) provides that for purposes of calculating the
operating fee, total assets shall not include any loans on the books of
a natural person Federal credit union made under the Small Business
Administration's Paycheck Protection Program, 15 U.S.C. 636(a)(36), or
any similar program approved for exclusion by the Board.
Revised Sec. 701.6(b), Coverage, provides that the operating fee
shall be paid by each Federal credit union engaged in operations as of
January 1 of each calendar year in accordance with paragraph (a),
except as otherwise provided by this paragraph. Section 701.6(b)(1),
New Charters, continues to provide that a newly chartered FCU will not
pay an operating fee until the year following the first full calendar
year after the date chartered. Revised Sec. 701.6(b)(2), Coverage,
continues to address coverage issues, but now includes several new
subsections. New Sec. 701.6(b)(2)(i)(A) provides that in the first
calendar year following conversion: A FISCU that converts to an FCU
charter must pay an operating fee based on the average assets reported
in the year of conversion on NCUA Forms 5300 or 5310 from the four
quarters immediately preceding the time the Board approves the agency's
budget in the year of conversion. New Sec. 701.6(b)(2)(i)(B) provides
that in the first calendar year following conversion: An entity not
insured by the NCUA that converts to an FCU charter must pay an
operating fee based on the assets, or average thereof, reported on NCUA
Forms 5300 or 5310 for any one or more quarters immediately preceding
the time the Board approves the agency's budget in the year of
conversion. New Sec. 701.6(b)(2)(ii) provides that an FCU converting
to a different charter will not receive a refund of any operating fees
paid to the NCUA.
Revised Sec. 701.6(b)(3), Mergers, continues to address merger
issues, but now includes several new subsections. New Sec.
701.6(b)(3)(i)(A) provides that in the first calendar year following
merger: A continuing FCU that has merged with one or more federally
insured credit unions must pay an operating fee based on the average
combined total assets of the FCU and any merged federally insured
credit unions as reported on NCUA Forms 5300 or 5310 in the four
quarters immediately preceding the time the Board approves the agency's
budget in the merger year. New Sec. 701.6(b)(3)(i)(B) provides that
for purposes of paragraph (b)(3), a purchase and assumption transaction
in which the continuing FCU purchases all or essentially all of the
assets of another depository institution shall be deemed a merger. New
Sec. 701.6(b)(3)(ii) provides that an FCU that merges with a Federal
or state-chartered credit union, or an entity not insured by the NCUA,
will not receive a refund of any operating fee paid to the NCUA.
Finally, Sec. 701.6(b)(4), Liquidations, continues to provide that
an FCU placed in liquidation will not pay any operating fee after the
date of liquidation.
IV. Regulatory Procedures
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires that, in
connection with a final rule, an agency prepare and make available for
public comment an final regulatory flexibility analysis that describes
the impact of a proposed rule on small entities. A regulatory
flexibility analysis is not required, however, if the agency certifies
that the rule will not have a significant economic impact on a
substantial number of small entities (defined for purposes of the RFA
to include federally insured credit unions with assets less than $100
million) and publishes its certification and a short, explanatory
statement in the Federal Register together with the rule. This final
rule will make a technical change to the period for measuring total
assets for calculating the Operating Fee. However, the Board does not
believe the impact will disproportionally impact small credit unions
such that a regulatory flexibility analysis is required. First, small
credit unions are still required to report assets on a quarterly basis,
and the regulation only increases the number of quarters the NCUA will
consider in adjusting the operating fee. Nor does the exclusion of PPP
loans from assets increase reporting requirements, as the NCUA already
has the information necessary to make that exclusion. Finally, although
exclusion of PPP loans will decrease fee amounts for some small credit
unions, the Board does not believe the change will amount to a
significant impact on a substantial number of small entities.
Accordingly, the NCUA certifies that this final rule will not have a
significant economic impact on a substantial number of small credit
unions.
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in
which an agency creates a new or amends existing information collection
requirements.\34\ For the purpose of the PRA, an information collection
requirement may take the form of a reporting, recordkeeping, or a
third-party disclosure requirement. This final rule does not contain
information collection requirements that require approval by OMB under
the PRA.\35\
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\34\ 44 U.S.C. 3507(d); 5 CFR part 1320.
\35\ 44 U.S.C. Chap. 35.
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C. Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996
(Pub. L. 104-121) (SBREFA) generally provides for congressional review
of agency rules.\36\ A reporting requirement is triggered in instances
where the NCUA issues a final rule as defined by Section 551 of the
APA.\37\ An agency rule, in addition to being subject to congressional
oversight, may also be subject to a delayed effective date if the rule
is a ``major rule.'' \38\ The NCUA does not believe this rule is a
``major rule'' within the meaning of the relevant sections of SBREFA.
As required by SBREFA, the NCUA will submit this final rule to OMB for
it to determine if the final rule is a ``major rule'' for purposes of
SBREFA. The NCUA also will file appropriate reports with Congress and
the Government
[[Page 86803]]
Accountability Office so this rule may be reviewed.
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\36\ 5 U.S.C. 801-804.
\37\ 5 U.S.C. 552.
\38\ 5 U.S.C. 804(2).
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D. Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. In
adherence to fundamental federalism principles, the NCUA, an
independent regulatory agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the Executive order. This final rule will not
have a substantial direct effect on the states, on the connection
between the National Government and the states, or on the distribution
of power and responsibilities among the various levels of government.
The NCUA has determined that this final rule does not constitute a
policy that has federalism implications for purposes of the Executive
order.
D. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this final rule will not affect family
well-being within the meaning of Section 654 of the Treasury and
General Government Appropriations Act, 1999.\39\
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\39\ Public Law 105-277, 112 Stat. 2681 (1998).
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List of Subjects in 12 CFR Part 701
Credit unions, Low income, Nonmember deposits, Secondary capital,
Shares.
By the National Credit Union Administration Board on December
17, 2020.
Melane Conyers-Ausbrooks,
Secretary of the Board.
For the reasons discussed above, the Board amends 12 CFR part 701
as follows:
PART 701--Organization and Operations 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. In Sec. 701.6, revise paragraphs (a) and (b) to read as follows:
Sec. 701.6 Fees paid by Federal credit unions.
(a) Basis for assessment. Each calendar year, or as otherwise
directed by the NCUA Board, each Federal credit union shall pay an
operating fee to the NCUA for the current fiscal year (January 1 to
December 31) in accordance with a schedule fixed by the Board from time
to time.
(1) General. The operating fee shall be based on the average of
total assets of each Federal credit union based on data reported in
NCUA Forms 5300 and 5310 from the four quarters immediately preceding
the time the Board approves the agency's budget or as otherwise
determined pursuant to paragraph (b) of this section.
(2) Exclusions from total assets. For purposes of calculating the
operating fee, total assets shall not include any loans on the books of
a natural person Federal credit union made under the Small Business
Administration's Paycheck Protection Program, 15 U.S.C. 636(a)(36), or
any similar program approved for exclusion by the NCUA Board.
(b) Coverage. The operating fee shall be paid by each Federal
credit union engaged in operations as of January 1 of each calendar
year in accordance with paragraph (a) of this section, except as
otherwise provided by this paragraph (b).
(1) New charters. A newly chartered Federal credit union will not
pay an operating fee until the year following the first full calendar
year after the date chartered.
(2) Conversions. (i) In the first calendar year following
conversion:
(A) A federally insured state-chartered credit union that converts
to a Federal credit union charter must pay an operating fee based on
the average assets reported in the year of conversion on NCUA Forms
5300 or 5310 from the four quarters immediately preceding the time the
Board approves the agency's budget in the year of conversion.
(B) An entity not insured by the NCUA that converts to a Federal
credit union charter must pay an operating fee based on the assets, or
average thereof, reported on NCUA Forms 5300 or 5310 for any one or
more quarters immediately preceding the time the Board approves the
agency's budget in the year of conversion.
(ii) A Federal credit union converting to a different charter will
not receive a refund of any operating fees paid to the NCUA.
(3) Mergers. (i) In the first calendar year following merger:
(A) A continuing Federal credit union that has merged with one or
more federally insured credit unions must pay an operating fee based on
the average combined total assets of the Federal credit union and any
merged federally insured credit unions as reported on NCUA Forms 5300
or 5310 in the four quarters immediately preceding the time the Board
approves the agency's budget in the merger year.
(B) For purposes of this paragraph (b)(3), a purchase and
assumption transaction where the continuing Federal credit union
purchases all or essentially all of the assets of another depository
institution shall be deemed a merger.
(ii) A Federal credit union that merges with a Federal or state-
chartered credit union, or an entity not insured by the NCUA, will not
receive a refund of any operating fee paid to the NCUA.
(4) Liquidations. A Federal credit union placed in liquidation will
not pay any operating fee after the date of liquidation.
* * * * *
[FR Doc. 2020-28490 Filed 12-30-20; 8:45 am]
BILLING CODE 7535-01-P