Third-Party Servicing of Indirect Vehicle Loans, 36661-36667 [E6-10137]
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Rules and Regulations
Federal Register
Vol. 71, No. 124
Wednesday, June 28, 2006
This section of the FEDERAL REGISTER
contains regulatory documents having general
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are keyed to and codified in the Code of
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REGISTER issue of each week.
DEPARTMENT OF ENERGY
10 CFR Part 851
[Docket No. EH–RM–04–WSHP]
RIN 1901–AA99
Worker Safety and Health Program;
Correction
Department of Energy.
Final rule; correction.
AGENCY:
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ACTION:
SUMMARY: The Department of Energy
published in the Federal Register of
February 9, 2006, a final rule to
implement the statutory mandate of
section 3173 of the Bob Stump National
Defense Authorization Act (NDAA) for
Fiscal Year 2003 to establish worker
safety and health regulations govern
contractor activities at DOE sites.
Inadvertently there were some
typographical errors made in several
sections of the rule. This document
corrects that version of the final rule.
DATES: This correction is effective on
June 28, 2006.
FOR FURTHER INFORMATION CONTACT:
Jacqueline D. Rogers, U.S. Department
of Energy, Office of Environment, Safety
and Health, EH–52, 1000 Independence
Avenue, SW., Washington, DC 20585,
202–586–4714.
SUPPLEMENTARY INFORMATION: The
Department of Energy published a
document in the Federal Register of
February 9, 2006, (71 FR 6857)
establishing (1) the framework for a
worker protection program that will
reduce or prevent occupational injuries,
illnesses, and accidental losses by
requiring DOE contractors to provide
their employees’ with safe and healthful
workplaces; and (2) procedures for
investigating whether a requirement has
been violated, for determining the
nature of such violations, and for
imposing appropriate remedy.
In FR Doc. 06–964, published in the
Federal Register of February 9, 2006,
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(71 FR 6857), make the following
corrections to the preamble:
(1) On page 6898, in the third column,
at the beginning of the first full
paragraph, remove the words ‘‘Section
851.26(a)’’ and add in its place ‘‘Section
851.26(a)(1)’’.
(2) On page 6898, in the third column,
at the beginning of the second
paragraph, remove the words ‘‘Section
851.26(a)(1)’’ and add in its place
‘‘Section 851.26(a)(2)’’.
(3) On page 6898, in the third column,
at the beginning of the third paragraph,
remove the words ‘‘Section 851(a)(2)’’
and add in its place ‘‘Section 851(a)(3)’’.
(4) On page 6898, in the third column,
at the beginning of the fourth paragraph,
remove the words ‘‘Section 851.26(b)’’
and add in its place ‘‘Sections
851.26(b)(1) and (2)’’.
(5) On page 6898, in the third column,
at the beginning of the fifth paragraph,
remove the words ‘‘Section 851.26(c)’’
and add in its place ‘‘Section
851.26(a)(4)’’.
In the same document make the
following corrections to the regulatory
text:
I
§ 851.7
[Corrected]
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Parts 701 and 741
Third-Party Servicing of Indirect
Vehicle Loans
National Credit Union
Administration.
ACTION: Final rule.
AGENCY:
SUMMARY: The National Credit Union
Administration (NCUA) is issuing a
final rule to regulate purchases by
federally insured credit unions of
indirect vehicle loans serviced by thirdparties. The rule limits the aggregate
amount of these loans serviced by any
single third-party to a percentage of the
credit union’s net worth. The rule
ensures that federally insured credit
unions do not undertake undue risk
with these purchases.
DATES: This rule is effective July 28,
2006.
Paul
Peterson, Staff Attorney, Division of
Operations, Office of General Counsel,
at (703) 518–6540; Matthew Biliouris,
Program Officer, Office of Examination
and Insurance, at (703) 518–6360; or
Steve Sherrod, Division of Capital
Markets Director, Office of Capital
Markets and Planning, at (703) 518–
6620.
FOR FURTHER INFORMATION CONTACT:
(1) On page 6933, in the third column,
§ 851.7(a) add the word ‘‘shall’’ before
the word ‘‘have’’.
SUPPLEMENTARY INFORMATION:
§ 851.31
A. Background
I
[Corrected]
(2) On page 6938, in the first column,
paragraph (d)(1) remove the words
‘‘paragraph (b)’’ and add in its place
‘‘paragraph (c)’’.
I (3) On page 6938, in the second
column, paragraphs (d)(2) and (d)(3)(i),
remove the words ‘‘paragraph (b)’’ and
add in its place ‘‘paragraph (c)’’.
I
Appendix A—[Corrected]
(4) On page 6941, in the second
column, paragraph (c)(3) add the word
‘‘unique’’ before the words ‘‘pressure
vessel’’.
I
Issued in Washington, DC on June 20,
2006.
C. Russell H. Shearer,
Acting Assistant Secretary for Environment,
Safety and Health.
[FR Doc. 06–5864 Filed 6–27–06; 8:45 am]
BILLING CODE 6450–01–P
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In December 2005, the Board issued
for public comment a proposed rule
establishing concentration limits for
indirect automobile loans and loan
participations serviced by third-party
servicers. 70 FR 75753 (Dec. 21, 2005).
As stated in the preamble to the
proposed rule, the Board recognizes
indirect lending has certain advantages
for credit unions, such as growth in
membership and loans, but is concerned
some credit unions may involve
themselves in indirect, outsourced
programs—meaning programs in which
a third party manages a credit union’s
relationship with automobile dealers
and, because the third party handles
loan servicing, with the credit union’s
members as well—without undertaking
adequate due diligence, implementing
appropriate controls, and having
sufficient experience with a third party
servicer.
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The Board proposed to limit the
aggregate amount of outsourced loans
and participations in outsourced loans a
credit union may purchase from any one
servicer to 50 percent of the credit
union’s net worth. After 30 months of
experience with a particular servicer,
the limit increases to 100 percent of net
worth. The proposal exempted
federally-insured depositories and
wholly-owned subsidiaries of those
depositories from the definition of
servicer. The proposal also included a
process and requirements for a credit
union to request a waiver from the
concentration limits from its regional
director.
Briefly summarized, this final rule
retains the concentration limits, the
servicer exemptions, and the waiver
provision as proposed but, in response
to public comments, the Board has
made certain changes in the final rule.
The final rule includes an additional
exemption for certain credit union
service organization (CUSO) servicers
and excludes loans in which the
servicer and its affiliates were not
involved in the origination process from
the concentration limits. These changes,
while not affecting the rule’s substantive
and procedural rationales, are beneficial
to credit unions by narrowing the rule’s
scope and impact. The final rule also
includes a 45-day time period for a
regional director to act on waiver
requests and provides for an appeal to
the NCUA Board. These changes are
discussed in more detail in the
following section on public comments.
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B. Public Comments on the Proposed
Rule
NCUA received 27 comment letters
from a variety of sources, including a
state supervisory authority (SSA), credit
unions, credit union trade
organizations, and vendors involved in
third-party servicing. The following
summary categorizes the comments into
general comments about the rule and
comments about specific provisions
with the Board’s response to comments,
as appropriate.
General Comments
Several commenters believe this
rulemaking is a good idea. One
commenter stated ‘‘NCUA’s concerns
are valid, and its proposal basically
sound.’’ Several commenters stated the
specific concentration limits were
reasonable and the waiver provisions
appropriate. The SSA stated it shares
NCUA’s concern about indirect lending
in general and specifically the risks
related to third-party servicing
arrangements for indirect vehicle
lending. This SSA stated it had
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reviewed a number of these programs
and found structural weaknesses and
that reported returns failed to reflect
credit losses and collection costs.
Several commenters were generally
opposed to the rulemaking. A few of
these commenters contended NCUA’s
existing guidance was sufficient to deal
with the risks of indirect automobile
loans serviced by third-party servicers.
One of these commenters stated that
each credit union’s board should have
flexibility to set policy limits in indirect
lending just as they do with other types
of lending. One commenter stated the
proposal manages credit unions to the
lowest common denominator and
unnecessarily encumbers a credit
union’s ability to use indirect lending to
manage the asset liability management
(ALM) process.
The Board appreciates these concerns
and does not wish to unnecessarily limit
the flexibility of credit union
management or encumber a credit
union’s ability to manage its ALM
process. As stated in the preamble to the
proposed rule, indirect lending
programs with third-party servicing
carry risk for credit unions. When these
programs involve a significant
percentage of the credit union’s net
worth, these programs also create risks
for the National Credit Union Share
Insurance Fund (NCUSIF). Accordingly,
the Board believes concentration limits
are appropriate but credit unions
demonstrating sufficient due diligence
should be permitted to apply for and
receive waivers to the concentration
limits.1
Comments About the Specific
Concentration Limits
As proposed, the rule permits a credit
union to buy indirect vehicle loans
serviced by a third-party servicer in an
amount up to 50 percent of net worth
for the first 30 months of the servicing
relationship and, thereafter, up to 100
percent of net worth.
Some commenters contended the rule
should permit a credit union to invest
up to 100 percent of its net worth after
only 18 or 24 months in a program
instead of having to wait 30 months. A
few commenters also thought the initial
concentration limit should be 75
percent of net worth instead of 50
percent. Some of these latter
commenters thought that a 75 percent
limit would be appropriate but only for
credit unions with a composite CAMEL
1 rating.2 A few commenters contended
1 A credit union below the concentration limits
must still perform due diligence at a level
commensurate with the program risks.
2 For a discussion of CAMEL ratings, see NCUA
Letter to Credit Unions No. 03–CU–04, Subject:
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credit unions qualifying for the NCUA
Regulatory Flexibility Program should
be entirely exempt from the proposed
limits. 12 CFR part 742.
The Board believes a credit union
should have sufficient experience with
a third-party servicer before entrusting it
with indirect vehicles loans in an
amount equaling the credit union’s
entire net worth. Given the expected
lives of various types of vehicle loans,
the Board continues to believe 30
months is a reasonable time for a credit
union to obtain the experience.
Accordingly, the final rule retains the
30-month time period.
The Board also believes half of a
credit union’s net worth is a reasonable
exposure during its initial involvement
with a third-party servicer, regardless of
a credit union’s CAMEL rating. As
stated in the preamble to the proposed
rule, risks associated with these
programs are similar to risks associated
with asset backed securities (ABS).
While natural person credit unions
generally may not invest in ABS,
national banks may, and the Office of
the Comptroller of the Currency (OCC)
limits a bank’s aggregate investments in
ABS issued by any one issuer to 25
percent of capital and surplus. 12 CFR
1.3(f). Since the capital and surplus of
a national bank is roughly equivalent to
the net worth of a natural person credit
union, the 50 percent and 100 percent
limits in the proposed rule are
significantly less restrictive than the 25
percent that the OCC permits for
national bank investment in ABS. In
addition, the OCC’s 25 percent
concentration limit on ABS applies to
all banks, regardless of the bank’s asset
size or net worth ratio or the general
performance ratings that OCC examiners
assign to a particular bank. NCUA’s
proposal is less restrictive than the
OCC’s ABS limits because NCUA wants
to encourage lending, but some safety
and soundness limits are necessary.
Accordingly, the final rule retains 50
percent as the initial limit for credit
unions and 100 percent as the general
limit, subject to a credit union receiving
a waiver.
One commenter analogized the risks
the proposal addressed to the risks of
participation lending and suggested
concentration limits should be related to
loans to a single borrower, not to a
particular servicer. The Board believes
risks associated with third-party
servicing of indirect vehicle loans apply
equally to whole loans and participation
interests in loans and these risks are
best constrained by limits expressed in
CAMEL Rating System, dated March 2003, located
on NCUA’s Web site at https://www.ncua.gov.
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terms of exposure to particular
servicers. Another commenter stated
concentration limits should be set as a
percentage of paid-in and unimpaired
capital and surplus rather than as a
percentage of net worth. This
commenter believes using net worth in
the calculation encourages credit unions
to maintain unnecessarily high levels of
net worth.
The Board believes third-party
servicer concentration limits, which
protect the viability of the credit union
and also limit risk to the NCUSIF, are
best expressed in terms of a credit
union’s net worth and not in terms of
paid-in and unimpaired capital and
surplus. Paid-in and unimpaired capital
and surplus includes both shares and
undivided earnings. 12 CFR 700.2(f).
Including shares in this definition
means a credit union with relatively low
levels of net worth could have
significant paid-in and unimpaired
capital. Accordingly, concentration
limits calculated as a percentage of the
paid-in and unimpaired capital and
surplus may not adequately protect a
credit union or the NCUSIF.
The Board confirms, as some
commenters requested, that the
concentration limits are calculated
based on the outstanding loan balance.
Further, the Board clarifies, as requested
by one commenter, that a credit union
may calculate the initial 30-month
servicing relationship period from a
date preceding this rulemaking. The 30month servicing relationship period
starts from the date a credit union first
acquires an interest in loans from a
particular third-party servicer.
Comments About Exemptions for
Certain Types of Servicers
The proposal exempted servicers that
are federally-insured depository
institutions or wholly-owned
subsidiaries of federally-insured
depository institutions from the
concentration limits. The rationale for
this exemption is federal regulators have
access to and oversight of these entities.
Many comment letters addressed this
exemption.
Several commenters contended the
‘‘wholly-owned subsidiary’’ exemption
should be broadened to include
servicers that are only partially owned
by credit unions. These commenters
suggested various alternatives to the
‘‘wholly-owned subsidiary’’ language,
including: exempting any servicer that
is also a CUSO; any CUSO that has a
majority of voting interests owned by
federally-insured depository
institutions; or any CUSO that has a
majority of voting interests owned by
federally-insured depository institutions
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and to which SSAs have access. One
commenter also stated additional
language could be added to require
access by a Federal regulatory authority.
NCUA understands the concerns of
these commenters. As suggested by
some of the commenters, the final rule
exempts any servicing entity that has a
majority of its voting interests owned by
federally-insured credit unions and that
includes in its servicing agreements
with credit unions a provision
providing NCUA with access to the
servicer’s books and records and the
ability to review its internal controls.
This written access provision is similar
to the CUSO rule requirement that
federal credit unions and their CUSOs
must agree in writing to permit NCUA
access to the CUSO. 12 CFR 712.3(d)(3).
Credit unions relying on this exemption
must provide the regional director a
copy of the servicing agreement. This
will keep regional directors informed of
the number of these arrangements,
particularly regarding state-chartered
credit unions that NCUA does not
examine on a regular basis.
A few commenters suggested NCUA
should exempt any servicer that agrees
to allow NCUA access, whether or not
the servicer is affiliated with a federallyinsured credit union. Absent at least
majority ownership of the servicer by
federally insured credit unions, the
Board does not believe an agreement
will assure unfettered and cooperative
access. Similarly, while a few
commenters stated access by an SSA
should be sufficient to exempt a servicer
from the rule, the Board concludes the
circumstances this rule addresses
present particular safety and soundness
concerns requiring NCUA or another
Federal insurer to have access to the
servicing entity.
One commenter suggested the rule
should be changed to apply only to
those servicers involved in the loan
origination process. This commenter
contended that, where a credit union
controls the underwriting process, uses
its own dealer relationships for
originations, and contracts directly with
an independent, financially sound
servicer with appropriate asset class
experience, the credit union’s risks are
not significantly different from risks in
its internal programs and, therefore,
should not have different concentration
limits.
As stated in the preamble to the
proposed rule, NCUA is primarily
concerned with indirect vehicle lending
programs where both control over the
loan origination process and servicing
are outsourced to a third-party. While
NCUA drafted the proposed
concentration limits so as to apply to
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any indirect loan serviced by a thirdparty servicer, regardless of the
servicer’s involvement in the loan
origination process, after considering
the comments, the Board agrees
separating servicing from other aspects
of the loan, such as underwriting,
originating, or insuring, mitigates the
overall risk. Accordingly, the Board has
determined to exclude loans in which
the servicer and its affiliates have no
involvement with the loan other than
servicing from the concentration limit.
Specifically, the final rule excludes
from the definition of covered vehicle
loans any loan where neither the thirdparty servicer nor any of its affiliates are
involved in underwriting, originating, or
insuring the loan or the process by
which the credit union acquires its
interest in the loan.
Aside from this modification, the final
rule retains the basic definition of
vehicle loan, that is, ‘‘any installment
vehicle sales contract or its equivalent
that is reported as an asset under
generally accepted accounting
principles [GAAP].’’ The Board notes
that, under GAAP, an interest in a
vehicle loan transferred with recourse
may not be a true sale. See Financial
Accounting Standards Board Standard
No. 140. If the transfer does not warrant
true sale accounting, the transferred
loan interest would remain as an asset
on the transferring credit union’s books
and, if serviced by a third-party servicer,
count toward the concentration limits.
Comments About Definitions
The proposal defined net worth as:
[T]he retained earnings balance of the
credit union at quarter end as determined
under generally accepted accounting
principles. For low income-designated credit
unions, net worth also includes secondary
capital accounts that are uninsured and
subordinate to all other claims, including
claims of creditors, shareholders, and the
National Credit Union Share Insurance Fund.
Proposed § 701.21(h)(3)(iv). A few
commenters believe this definition of
‘‘net worth’’ should be modified to
permit calculation of the appropriate
limits from the line items on NCUA’s
Call Report, NCUA Form 5300.
NCUA’s current Call Report has an
automated ‘‘PCA Net Worth Calculation
Worksheet.’’ If a credit union makes
accurate Call Report entries, line 7 of
this Worksheet, entitled ‘‘Total Net
Worth,’’ will provide the credit union
with its retained earnings balance as
determined under generally accepted
accounting principles. This information
can help credit unions determine their
net worth for purposes of these
concentration limits. The final rule text,
however, does not refer to the Call
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Report directly since NCUA modifies
the Call Report and the specific line
items change on occasion.
The concentration limits will apply to
all indirect vehicle loans serviced by a
particular third-party servicer and its
affiliates. The proposal defined affiliate
as follows:
The term ‘‘its affiliates,’’ as it relates to the
third-party servicer, means any entities that:
(A) Control, are controlled by, or are under
common control with, that third-party
servicer; or (B) are under contract with that
third-party servicer or other entity described
in paragraph (h)(3)(ii)(A) of this section.
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Proposed § 701.21(h)(3)(ii). One
commenter asked why the proposed
definition includes entities under
contract as well as entities under
common control. If a credit union is
using two or more servicers to service
indirect automobile loans, the Board
believes the loans of both servicers
should be aggregated for purposes of the
concentration limits if there is any
contractual connection between the two
servicers.3 If the contractual
relationship does not increase the risk to
a credit union in a particular case, it
may seek a waiver from the regional
director under the rule’s waiver
provisions and provide the regional
director with details about the
contractual relationship.
One commenter thought that, in the
definition of ‘‘servicer,’’ the phrase
‘‘pursuant to the terms of a loan’’ should
be clarified to ensure that lockbox
relationships are not inadvertently
covered by the regulation.4 The Board
understands lockbox accounts are
typically established at banks, and the
rule’s definition of servicer specifically
excludes banks and other federallyinsured depository institutions and their
wholly-owned subsidiaries. While a
bank is excluded from the rule, any
other entity falling within the definition
of servicer is subject to the rule whether
or not it employs a lockbox account
arrangement as part of its servicing
activities.
3 Although a credit union has a contract with its
third-party servicer, the credit union is not an
affiliate servicer for purposes of calculating
compliance with its own concentration limits. In
other words, a credit union does not have to
aggregate any loans that it services in-house with
loans serviced by third-party servicers.
4 A ‘‘lock box’’ is a ‘‘[c]ash management system
whereby a company’s customers mail payments to
a post office box near the company’s bank. The
bank collects checks from the lock box * * *
deposits them directly to the account of the firm,
and informs the company’s cash manager by
telephone of the deposit. This reduces the float and
puts cash to work more quickly.’’ J. Downes and J.
Goodman, Barron’s Dictionary of Finance and
Investment Terms, 333 (5th ed. 1998).
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Comments About the Waiver Provision
The proposal provided that a regional
director, upon request, could grant a
credit union a waiver from the
concentration limits. The proposal
provided criteria a regional director will
consider when evaluating a waiver
request, including: a credit union’s
understanding of the third-party
servicer’s organization, business model,
financial health, and the related
program risks; the credit union’s due
diligence in monitoring and protecting
against program risks; the contracts
between the credit union and the thirdparty servicer; and other factors relevant
to safety and soundness. Many
commenters thought this waiver
provision was a good idea and the
provision for a waiver and proposed
criteria are retained in the final rule.
Several commenters suggested the
waiver provision should set a time
period for a regional director’s decision.
A few commenters thought the rule
should permit appeal of a waiver
decision to the NCUA Board. The Board
agrees with these commenters. The final
rule provides that a regional director
will make a written determination on a
waiver request within 45 calendar days
after receipt of the request. The 45-day
period will not begin until a credit
union has submitted all necessary
information to the regional director. A
credit union may appeal any part of the
determination to the NCUA Board.
Appeals must be submitted through the
regional director within 30 days of the
date of the determination. The Board
believes these time periods are
reasonable and notes they are similar to
other waiver processes the Board has
adopted. See, e.g., 12 CFR
701.36(a)(2)(iii).
Two commenters thought the rule
should permit state chartered credit
unions to obtain waivers from their
SSAs rather than from a regional
director. The proposed rule required the
SSA of a state chartered credit union to
concur before the regional director
grants a waiver, and the final rule
retains this requirement. Because thirdparty servicing of indirect vehicle loans
creates risk for the NCUSIF, however,
NCUA should have a role in the
decision to grant or deny all waivers.
One commenter thought the waiver
procedure was overly burdensome. The
Board understands the commenter’s
concern, but believes it has balanced
safety and soundness concerns
appropriately with the burden
associated with requesting a waiver.
Another commenter questioned why an
approved waiver should have an
expiration date. Circumstances change
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with the passage of time, including the
structure of the servicer, the content of
its program, and the composition of the
credit union’s internal staff and due
diligence. Given the significance of the
risks, a credit union with an existing
waiver should demonstrate periodically
that it understands and controls the
risks associated with a servicer’s
program.
Two commenters sought clarification
that credit unions could request a
waiver from the initial concentration
limit of 50 percent as well as the 100
percent concentration limit. The Board
confirms that, as proposed and as
provided in the final rule, credit unions
may request waivers of either limit.
One commenter noted one of the
criteria a regional director will consider
when reviewing a waiver is the ability
of a credit union to replace an
inadequate servicer. This commenter
expressed concern that credit unions
purchasing participation interests
generally have little or no ability under
standard servicing contracts to replace
the servicer. The Board agrees an owner
of a loan participation interest is
unlikely to have much say in replacing
a poor servicer but notes this criterion
is only one factor among several a
regional director considers in
determining whether to grant a waiver
request.
Several commenters stated they
would like additional information about
the requirements for a waiver. Two
commenters thought waiver criteria
should include information about the
rating of any associated insurance
company. The Board believes the rule
sufficiently describes the criteria a
regional director will consider but
provides the following additional
discussion of the criteria and
documentation for waiver requests.
Much of this discussion is repeated
from the preamble of the proposed rule.
70 FR 75753, 75756 (Dec. 21, 2005).
Credit unions seeking higher
concentration limits should have high
levels of due diligence and tight
controls. Due diligence, in turn, begins
with a demonstrated understanding of
the third-party servicer’s organization,
business model, financial health, and
program risks. Accordingly, a waiver
request should provide information
about the following:
• The vendor’s organization,
including identification of subsidiaries
and affiliates involved in the program
and the purpose of each;
• The various sources of income to
the vendor and the credit union in the
program and any potential vendor
conflicts with the interests of the credit
union;
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• The experience, character, and
fitness of the vendor’s owners and key
employees;
• The vendor’s ability to fulfill
commitments, as evidenced by aggregate
financial commitments, capital strength,
liquidity, reputation, and operating
results; 5
• How loan-related cash flows,
including borrower payments, borrower
payoffs, and insurance payments, are
tracked and identified in the program;
• An analysis of whether, in the event
of the servicer’s insolvency, the various
borrower, insurance, and resale
payments in the possession of the
servicer and the vehicle collateral are
protected from the bankruptcy trustee;
• The vendor’s internal controls to
protect against fraud and abuse, as
documented by, for example, a current
SAS 70 type II report prepared by an
independent and well-qualified
accounting firm;
• Insurance offered by the vendor,
including interrelated insurance
products, premiums, conditions for
coverage beyond the control of the
credit union (e.g., a prohibition on
extension of the insured loans past
maturity), the rating of the insurer, and
limitations such as aggregate loss limits;
• The underwriting criteria provided
by the vendor, including an analysis of
the expected yield based on historical
loan data, and a sensitivity analysis
considering the potential effects of a
deteriorating economic environment,
failure of associated insurance, the
possibility of fraud at the servicer, a
decline in average portfolio credit
quality, and, if applicable, movement in
the program back toward industry-wide
performance statistics; 6
• Vendor involvement in the
underwriting and processing of loan
applications, including use of
proprietary scoring or screening models
not included in the credit union
approved underwriting criteria; and
• The program risks, including (1)
Credit risk, (2) liquidity risk, (3)
transaction risk, (4) compliance risk, (5)
strategic risk, (6) interest rate risk, and
(7) reputation risk.
To qualify for a waiver of
concentration limits, the servicing
agreement should also include more
5 Nationally recognized statistical rating
organization (NRSRO) ratings, multi-year audited
and segmented financials, and explanations of
related party transactions and changes to the net
worth of the vendor, if any, are also relevant.
6 If the program loans have historically
outperformed industry averages, perhaps because of
lower prepayment rates or lower default
proportions, a credit union should calculate
expected yield if the prepayment rates or default
proportions move upwards toward the industry
averages.
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than minimal protections for the credit
union. Servicer performance standards
should be objective and clear, and a
waiver request should clearly articulate
how the performance standards protect
the interests of the credit union. The
exit clause, including any cure period,
should be exercisable in a reasonable
period of time. The more intensive the
requisite servicing, such as for
nonprime or subprime loans, the shorter
that period of time should be. A credit
union’s right to exit the servicing
agreement should be exercisable at a
reasonable cost to the credit union. If a
credit union must pay a punitive fee to
replace a poor servicer, give up valuable
insurance protection, or forfeit legal
rights without adequate compensation,
the servicing agreement will not satisfy
this waiver criterion.
Some indirect, outsourced programs
have complex business models that
include vendor management of the
dealer relationship and also insurance
provided by the vendor. These business
models can produce situations where
the vendor’s financial interests are not
aligned with the credit union’s interests.
The credit union needs to be aware of
these situations and, if appropriate, take
protective action.
For example, a dealer’s interest in an
indirect lending situation is to obtain
financing so the dealer can sell a
vehicle. A credit union’s interest is to
ensure loan applications are properly
underwritten and only members
meeting the underwriting standards
receive loans. With an indirect,
outsourced program, a third-party
vendor controls information on the
quality of a particular dealer’s
originations. A vendor could present
loans to a credit union from a changing
list of dealers, making it difficult for a
credit union to identify and screen
substandard dealers. This creates a
potential for the vendor to permit
dealers with substandard underwriting
performance to remain active in the
program.
Unlike typical indirect lending where
a dealer receives an origination fee, in
some vendor programs, a vendor
processes loan applications for the
credit union and also receives
significant income from dealer fees. A
credit union needs to fully understand
the relationship between the vendor and
the dealers. Credit unions seeking a
concentration limit waiver should
review agreements between the vendor
and associated dealers.
Some vendors provide third-party
default insurance or reinsurance and
this presents a potential conflict
between the vendor as servicer and the
vendor as insurer. Accordingly, a credit
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36665
union needs to understand the
relationship between the vendor and the
insurance company and the associated
risks to the credit union. To understand
this relationship fully, a credit union
desiring a concentration limit waiver
should review all agreements between
the vendor, affiliates of the vendor, and
the associated insurance companies.
Another potential conflict exists
where the vendor controls the dealer
relationship and can route a potential
loan to multiple funding sources. For
example, some vendors track statistics
on loan performance by dealership. A
credit union should be aware if a vendor
then routes loan applications from the
preferred dealerships to the preferred
funding sources. A credit union desiring
a waiver should understand the various
funding sources available to the vendor
and document how the vendor tracks
vendor performance and makes funding
decisions.
With each identified risk, a credit
union should explain to the regional
director how it plans to eliminate or
mitigate the risk. Some, but not all, risks
may be dealt with through contractual
arrangements. For example, the credit
union must ensure that its contracts
with the servicer grant the credit union
sufficient control over the servicer’s
actions and provide for replacing an
inadequate servicer. As NCUA stated in
Letter to Credit Unions No. 04–CU–13,
and, again, in NCUA Risk Alert No. 05–
01, safety and soundness requires a
credit union to limit the power of a
third-party servicer to alter loan terms.
Also, the servicing contract must
contain a mechanism, or exit clause, to
replace an unsatisfactory servicer.
A regional director may also consider
any legal reviews obtained by the credit
union on these contracts and should
consider the scope and depth of the
review and the reviewer’s qualifications.
Regional directors may consider other
relevant factors when determining
whether to grant a waiver of
concentration limits as well as the size
of any substitute limit. Other factors
include the demonstrated strength of the
credit union’s management and the
credit union’s previous history in
exercising due diligence over similar
programs. In addition, higher
concentration levels entail more risk to
the net worth of a credit union, and so
the requisite due diligence also depends
on the substitute concentration limit the
credit union requests.
C. Effective Date
The effective date of this final rule is
30 days from the date of publication in
the Federal Register.
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As discussed in the preamble to the
proposed rule, 70 FR 75753, 75757 (Dec.
21, 2005), several credit unions that
currently participate in indirect,
outsourced programs have
concentration levels that exceed the
proposed concentration limits. For those
credit unions that exceed the
concentration limits on the effective
date, the rule will not require any
divestiture. The rule will prohibit these
credit unions from purchasing any
additional loans, or interests in loans,
from the affected vendor program until
such time as the credit union either
reduces its holdings below the
appropriate concentration limit or the
credit union obtains a waiver to permit
a greater concentration limit.
The Board is concerned that some
credit unions may consider making
large purchases of loans that would be
subject to the rule before the effective
date of the final rule. NCUA will review
any large purchases closely and credit
unions should be advised that NCUA
may consider appropriate supervisory
action, including divestiture, to ensure
that the credit union’s actions were safe
and sound.
D. Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act
requires NCUA to prepare an analysis to
describe any significant economic
impact a proposed rule may have on a
substantial number of small credit
unions (those under $10 million in
assets). This final rule establishes for
federally-insured credit unions a
concentration limit on indirect vehicle
loans serviced by certain third parties.
In the preamble of the proposed rule
NCUA published its estimate that no
more than five small credit unions were
involved in purchasing vehicle loans, or
interests in loans, from an indirect,
outsourced vendor program. NCUA
received no comments on this estimate.
Accordingly, NCUA has determined that
the rule will not have a significant
economic impact on a substantial
number of small credit unions and that
a regulatory flexibility analysis is not
required.
Party Servicing of Indirect Vehicle
Loans. On March 1, 2006, OMB
approved this new Collection of
Information. The OBM Collection
Number is 3133–0171.
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,
NCUA, an independent regulatory
agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive
order. This rule will not have
substantial direct effects 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. NCUA has
determined that this rule does not
constitute a policy that has federalism
implications for purposes of the
Executive Order.
The Treasury and General Government
Appropriations Act, 1999—Assessment
of Federal Regulations and Policies on
Families
NCUA has determined that this rule
would not affect family well-being
within the meaning of section 654 of the
Treasury and General Government
Appropriations Act, 1999, Pub. L. 105–
277, 112 Stat. 2681 (1998).
Small Business Regulatory Enforcement
Fairness Act
The Small Business Regulatory
Enforcement Act of 1996 (Pub. L. 104–
121) provides generally for
congressional review of agency rules. A
reporting requirement is triggered in
instances where NCUA issues a final
rule as defined by section 551 of the
Administrative Procedure Act. 5 U.S.C.
551. The Office of Management and
Budget has determined that this rule is
not a major rule for purposes of the
Small Business Regulatory Enforcement
Fairness Act of 1996.
List of Subjects
12 CFR Part 701
Credit unions, Loans.
mstockstill on PROD1PC61 with RULES
Paperwork Reduction Act
The waiver provision in § 701.21(h)(2)
contains information collection
requirements. As required by the
Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)), NCUA submitted a
copy of the proposed rule as part of an
information collection package to the
Office of Management and Budget
(OMB) for its review and approval of a
new Collection of Information, Third-
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15:04 Jun 27, 2006
Jkt 208001
12 CFR Part 741
Credit unions, Requirements for
insurance.
By the National Credit Union
Administration Board on June 22, 2006.
Mary Rupp,
Secretary of the Board.
For the reasons stated in the preamble,
the National Credit Union
I
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Administration amends 12 CFR parts
701 and 741 as set forth below:
PART 701—ORGANIZATION AND
OPERATION OF FEDERAL CREDIT
UNIONS
1. The authority citation for part 701
continues to read as follows:
I
Authority: 12 U.S.C. 1752(5), 1755, 1756,
1757, 1759, 1761a, 1761b, 1766, 1767, 1782,
1784, 1787, and 1789. Section 701.6 is also
authorized by 31 U.S.C. 3717. Section 701.31
is also authorized by 15 U.S.C. 1601 et seq.;
42 U.S.C. 1981 and 3601–3619. Section
701.35 is also authorized by 42 U.S.C. 4311–
4312.
2. Add a new paragraph (h) to § 701.21
to read as follows:
I
§ 701.21 Loans to members and lines of
credit to members.
*
*
*
*
*
(h) Third-party servicing of indirect
vehicle loans. (1) A federally-insured
credit union must not acquire any
vehicle loan, or any interest in a vehicle
loan, serviced by a third-party servicer
if the aggregate amount of vehicle loans
and interests in vehicle loans serviced
by that third-party servicer and its
affiliates would exceed:
(i) 50 percent of the credit union’s net
worth during the initial thirty months of
that third-party servicing relationship;
or
(ii) 100 percent of the credit union’s
net worth after the initial thirty months
of that third-party servicing
relationship.
(2) Regional directors may grant a
waiver of the limits in paragraph (h)(1)
of this section to permit greater limits
upon written application by a credit
union. In determining whether to grant
or deny a waiver, a regional director
will consider:
(i) The credit union’s understanding
of the third-party servicer’s
organization, business model, financial
health, and the related program risks;
(ii) The credit union’s due diligence
in monitoring and protecting against
program risks;
(iii) If contracts between the credit
union and the third-party servicer grant
the credit union sufficient control over
the servicer’s actions and provide for
replacing an inadequate servicer; and
(iv) Other factors relevant to safety
and soundness.
(3) A regional director will provide a
written determination on a waiver
request within 45 calendar days after
receipt of the request; however, the 45day period will not begin until the
requesting credit union has submitted
all necessary information to the regional
director. If the regional director does not
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Federal Register / Vol. 71, No. 124 / Wednesday, June 28, 2006 / Rules and Regulations
provide a written determination within
the 45-day period the request is deemed
denied. A credit union may appeal any
part of the determination to the NCUA
Board. Appeals must be submitted
through the regional director within 30
days of the date of the determination.
(4) For purposes of paragraph (h) of
this section:
(i) The term ‘‘third-party servicer’’
means any entity, other than a federallyinsured depository institution or a
wholly-owned subsidiary of a federallyinsured depository institution, that
receives any scheduled, periodic
payments from a borrower pursuant to
the terms of a loan and distributes
payments of principal and interest and
any other payments with respect to the
amounts received from the borrower as
may be required pursuant to the terms
of the loan. The term also excludes any
servicing entity that meets the following
three requirements:
(A) Has a majority of its voting
interests owned by federally-insured
credit unions;
(B) Includes in its servicing
agreements with credit unions a
provision that the servicer will provide
NCUA with complete access to its books
and records and the ability to review its
internal controls as deemed necessary
by NCUA in carrying out NCUA’s
responsibilities under the Act; and
(C) Has its credit union clients
provide a copy of the servicing
agreement to their regional directors.
(ii) The term ‘‘its affiliates,’’ as it
relates to the third-party servicer, means
any entities that:
(A) Control, are controlled by, or are
under common control with, that thirdparty servicer; or
(B) Are under contract with that thirdparty servicer or other entity described
in paragraph (h)(4)(ii)(A) of this section.
(iii) The term ‘‘vehicle loan’’ means
any installment vehicle sales contract or
its equivalent that is reported as an asset
under generally accepted accounting
principles. The term does not include:
(A) Loans made directly by a credit
union to a member, or
(B) Loans in which neither the thirdparty servicer nor any of its affiliates are
involved in the origination,
underwriting, or insuring of the loan or
the process by which the credit union
acquires its interest in the loan.
(iv) The term ‘‘net worth’’ means the
retained earnings balance of the credit
union at quarter end as determined
under generally accepted accounting
principles. For low income-designated
credit unions, net worth also includes
secondary capital accounts that are
uninsured and subordinate to all other
claims, including claims of creditors,
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15:04 Jun 27, 2006
Jkt 208001
shareholders, and the National Credit
Union Share Insurance Fund.
*
*
*
*
*
PART 741—REQUIREMENTS FOR
INSURANCE
3. The authority citation for part 741
continues to read as follows:
I
Authority: 12 U.S.C. 1757, 1766, 1781–
1790, and 1790d. Section 741.4 is also
authorized by 31 U.S.C. 3717.
4. Add a new paragraph (c) to
§ 741.203 to read as follows:
I
§ 741.203 Minimum loan policy
requirements.
*
*
*
*
*
(c) Adhere to the requirements stated
in § 701.21(h) of this chapter concerning
third-party servicing of indirect vehicle
loans. Before a state-chartered credit
union applies to a regional director for
a waiver under § 701.21(h)(2), it must
first notify its state supervisory
authority. The regional director will not
grant a waiver unless the appropriate
state official concurs in the waiver. The
45-day period for the regional director
to act on a waiver request, as described
§ 701.21(h)(3), will not begin until the
regional director has received the state
official’s concurrence and any other
necessary information.
[FR Doc. E6–10137 Filed 6–27–06; 8:45 am]
BILLING CODE 7535–01–P
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Part 701
Organization and Operations of
Federal Credit Unions
National Credit Union
Administration (NCUA).
ACTION: Final rule.
AGENCY:
SUMMARY: NCUA is amending its field of
membership rules regarding service to
underserved areas to limit underserved
area additions to multiple commonbond credit unions and revise facility
requirements for underserved areas.
These amendments are being made after
a comprehensive review of chartering
policy based upon NCUA’s experience
addressing field of membership issues
and the uncertainty resulting from
recent litigation challenging service to
underserved areas in Utah and the
current ambiguity in the Federal Credit
Union Act on this issue. This final rule
will ensure continued reliable and
efficient service to federal credit union
members located in approved
underserved areas and continue to allow
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36667
multiple common-bond credit unions to
add underserved areas to their charters.
The final rule generally adopts the
amendments as proposed. In addition,
the final rule retains the definition of
service facility as a credit union owned
facility where shares are accepted for
members’ accounts, loan applications
are accepted, and loans are disbursed.
DATES: Effective July 28, 2006
FOR FURTHER INFORMATION CONTACT:
Michael J. McKenna, Deputy General
Counsel, John K. Ianno, Senior Trial
Attorney, or Regina Metz, Staff
Attorney, Office of General Counsel,
1775 Duke Street, Alexandria, Virginia
22314 or telephone (703) 518–6540.
SUPPLEMENTARY INFORMATION:
A. Background
NCUA’s chartering and field of
membership policy is set out in NCUA’s
Chartering and Field of Membership
Manual (Chartering Manual),
Interpretive Ruling and Policy
Statement 03–1. 68 FR 18333, Apr. 15,
2003. The policy is incorporated by
reference in NCUA’s regulations at 12
CFR 701.1. On December 29, 2005, the
NCUA Board issued a moratorium
suspending that portion of its chartering
policy allowing non-multiple-commonbond credit unions to add new
underserved areas. After establishing a
moratorium, the NCUA conducted a
comprehensive review of its
underserved area policy.
On January 19, 2006, the NCUA Board
approved a proposed rule regarding
service to underserved areas. 71 FR
4530, Jan. 27, 2006. The NCUA
proposed two amendments that would
apply only prospectively. The first
proposed change was to limit the
addition of new underserved areas to
only multiple common-bond credit
unions. The second proposed change
was to the definition and location of the
service facility. When adding
underserved areas, NCUA proposed
requiring a physical presence in the
underserved areas to assure better
service to members in these locations
and deleting the choice of a credit union
owned electronic facility with certain
functions as a service facility.
B. Comments
NCUA welcomed general comments
on the proposed rule and also on all
aspects of NCUA’s rules on credit
unions serving underserved areas. In
addition to seeking general comments
on the proposed rule, the Board
specifically sought comments on a
series of questions related to the impact
of the proposed changes on consumers
and credit unions. The comments were
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]]>Agencies
[Federal Register Volume 71, Number 124 (Wednesday, June 28, 2006)]
[Rules and Regulations]
[Pages 36661-36667]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-10137]
=======================================================================
-----------------------------------------------------------------------
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Parts 701 and 741
Third-Party Servicing of Indirect Vehicle Loans
AGENCY: National Credit Union Administration.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The National Credit Union Administration (NCUA) is issuing a
final rule to regulate purchases by federally insured credit unions of
indirect vehicle loans serviced by third-parties. The rule limits the
aggregate amount of these loans serviced by any single third-party to a
percentage of the credit union's net worth. The rule ensures that
federally insured credit unions do not undertake undue risk with these
purchases.
DATES: This rule is effective July 28, 2006.
FOR FURTHER INFORMATION CONTACT: Paul Peterson, Staff Attorney,
Division of Operations, Office of General Counsel, at (703) 518-6540;
Matthew Biliouris, Program Officer, Office of Examination and
Insurance, at (703) 518-6360; or Steve Sherrod, Division of Capital
Markets Director, Office of Capital Markets and Planning, at (703) 518-
6620.
SUPPLEMENTARY INFORMATION:
A. Background
In December 2005, the Board issued for public comment a proposed
rule establishing concentration limits for indirect automobile loans
and loan participations serviced by third-party servicers. 70 FR 75753
(Dec. 21, 2005). As stated in the preamble to the proposed rule, the
Board recognizes indirect lending has certain advantages for credit
unions, such as growth in membership and loans, but is concerned some
credit unions may involve themselves in indirect, outsourced programs--
meaning programs in which a third party manages a credit union's
relationship with automobile dealers and, because the third party
handles loan servicing, with the credit union's members as well--
without undertaking adequate due diligence, implementing appropriate
controls, and having sufficient experience with a third party servicer.
[[Page 36662]]
The Board proposed to limit the aggregate amount of outsourced
loans and participations in outsourced loans a credit union may
purchase from any one servicer to 50 percent of the credit union's net
worth. After 30 months of experience with a particular servicer, the
limit increases to 100 percent of net worth. The proposal exempted
federally-insured depositories and wholly-owned subsidiaries of those
depositories from the definition of servicer. The proposal also
included a process and requirements for a credit union to request a
waiver from the concentration limits from its regional director.
Briefly summarized, this final rule retains the concentration
limits, the servicer exemptions, and the waiver provision as proposed
but, in response to public comments, the Board has made certain changes
in the final rule. The final rule includes an additional exemption for
certain credit union service organization (CUSO) servicers and excludes
loans in which the servicer and its affiliates were not involved in the
origination process from the concentration limits. These changes, while
not affecting the rule's substantive and procedural rationales, are
beneficial to credit unions by narrowing the rule's scope and impact.
The final rule also includes a 45-day time period for a regional
director to act on waiver requests and provides for an appeal to the
NCUA Board. These changes are discussed in more detail in the following
section on public comments.
B. Public Comments on the Proposed Rule
NCUA received 27 comment letters from a variety of sources,
including a state supervisory authority (SSA), credit unions, credit
union trade organizations, and vendors involved in third-party
servicing. The following summary categorizes the comments into general
comments about the rule and comments about specific provisions with the
Board's response to comments, as appropriate.
General Comments
Several commenters believe this rulemaking is a good idea. One
commenter stated ``NCUA's concerns are valid, and its proposal
basically sound.'' Several commenters stated the specific concentration
limits were reasonable and the waiver provisions appropriate. The SSA
stated it shares NCUA's concern about indirect lending in general and
specifically the risks related to third-party servicing arrangements
for indirect vehicle lending. This SSA stated it had reviewed a number
of these programs and found structural weaknesses and that reported
returns failed to reflect credit losses and collection costs.
Several commenters were generally opposed to the rulemaking. A few
of these commenters contended NCUA's existing guidance was sufficient
to deal with the risks of indirect automobile loans serviced by third-
party servicers. One of these commenters stated that each credit
union's board should have flexibility to set policy limits in indirect
lending just as they do with other types of lending. One commenter
stated the proposal manages credit unions to the lowest common
denominator and unnecessarily encumbers a credit union's ability to use
indirect lending to manage the asset liability management (ALM)
process.
The Board appreciates these concerns and does not wish to
unnecessarily limit the flexibility of credit union management or
encumber a credit union's ability to manage its ALM process. As stated
in the preamble to the proposed rule, indirect lending programs with
third-party servicing carry risk for credit unions. When these programs
involve a significant percentage of the credit union's net worth, these
programs also create risks for the National Credit Union Share
Insurance Fund (NCUSIF). Accordingly, the Board believes concentration
limits are appropriate but credit unions demonstrating sufficient due
diligence should be permitted to apply for and receive waivers to the
concentration limits.\1\
---------------------------------------------------------------------------
\1\ A credit union below the concentration limits must still
perform due diligence at a level commensurate with the program
risks.
---------------------------------------------------------------------------
Comments About the Specific Concentration Limits
As proposed, the rule permits a credit union to buy indirect
vehicle loans serviced by a third-party servicer in an amount up to 50
percent of net worth for the first 30 months of the servicing
relationship and, thereafter, up to 100 percent of net worth.
Some commenters contended the rule should permit a credit union to
invest up to 100 percent of its net worth after only 18 or 24 months in
a program instead of having to wait 30 months. A few commenters also
thought the initial concentration limit should be 75 percent of net
worth instead of 50 percent. Some of these latter commenters thought
that a 75 percent limit would be appropriate but only for credit unions
with a composite CAMEL 1 rating.\2\ A few commenters contended credit
unions qualifying for the NCUA Regulatory Flexibility Program should be
entirely exempt from the proposed limits. 12 CFR part 742.
---------------------------------------------------------------------------
\2\ For a discussion of CAMEL ratings, see NCUA Letter to Credit
Unions No. 03-CU-04, Subject: CAMEL Rating System, dated March 2003,
located on NCUA's Web site at https://www.ncua.gov.
---------------------------------------------------------------------------
The Board believes a credit union should have sufficient experience
with a third-party servicer before entrusting it with indirect vehicles
loans in an amount equaling the credit union's entire net worth. Given
the expected lives of various types of vehicle loans, the Board
continues to believe 30 months is a reasonable time for a credit union
to obtain the experience. Accordingly, the final rule retains the 30-
month time period.
The Board also believes half of a credit union's net worth is a
reasonable exposure during its initial involvement with a third-party
servicer, regardless of a credit union's CAMEL rating. As stated in the
preamble to the proposed rule, risks associated with these programs are
similar to risks associated with asset backed securities (ABS). While
natural person credit unions generally may not invest in ABS, national
banks may, and the Office of the Comptroller of the Currency (OCC)
limits a bank's aggregate investments in ABS issued by any one issuer
to 25 percent of capital and surplus. 12 CFR 1.3(f). Since the capital
and surplus of a national bank is roughly equivalent to the net worth
of a natural person credit union, the 50 percent and 100 percent limits
in the proposed rule are significantly less restrictive than the 25
percent that the OCC permits for national bank investment in ABS. In
addition, the OCC's 25 percent concentration limit on ABS applies to
all banks, regardless of the bank's asset size or net worth ratio or
the general performance ratings that OCC examiners assign to a
particular bank. NCUA's proposal is less restrictive than the OCC's ABS
limits because NCUA wants to encourage lending, but some safety and
soundness limits are necessary. Accordingly, the final rule retains 50
percent as the initial limit for credit unions and 100 percent as the
general limit, subject to a credit union receiving a waiver.
One commenter analogized the risks the proposal addressed to the
risks of participation lending and suggested concentration limits
should be related to loans to a single borrower, not to a particular
servicer. The Board believes risks associated with third-party
servicing of indirect vehicle loans apply equally to whole loans and
participation interests in loans and these risks are best constrained
by limits expressed in
[[Page 36663]]
terms of exposure to particular servicers. Another commenter stated
concentration limits should be set as a percentage of paid-in and
unimpaired capital and surplus rather than as a percentage of net
worth. This commenter believes using net worth in the calculation
encourages credit unions to maintain unnecessarily high levels of net
worth.
The Board believes third-party servicer concentration limits, which
protect the viability of the credit union and also limit risk to the
NCUSIF, are best expressed in terms of a credit union's net worth and
not in terms of paid-in and unimpaired capital and surplus. Paid-in and
unimpaired capital and surplus includes both shares and undivided
earnings. 12 CFR 700.2(f). Including shares in this definition means a
credit union with relatively low levels of net worth could have
significant paid-in and unimpaired capital. Accordingly, concentration
limits calculated as a percentage of the paid-in and unimpaired capital
and surplus may not adequately protect a credit union or the NCUSIF.
The Board confirms, as some commenters requested, that the
concentration limits are calculated based on the outstanding loan
balance. Further, the Board clarifies, as requested by one commenter,
that a credit union may calculate the initial 30-month servicing
relationship period from a date preceding this rulemaking. The 30-month
servicing relationship period starts from the date a credit union first
acquires an interest in loans from a particular third-party servicer.
Comments About Exemptions for Certain Types of Servicers
The proposal exempted servicers that are federally-insured
depository institutions or wholly-owned subsidiaries of federally-
insured depository institutions from the concentration limits. The
rationale for this exemption is federal regulators have access to and
oversight of these entities. Many comment letters addressed this
exemption.
Several commenters contended the ``wholly-owned subsidiary''
exemption should be broadened to include servicers that are only
partially owned by credit unions. These commenters suggested various
alternatives to the ``wholly-owned subsidiary'' language, including:
exempting any servicer that is also a CUSO; any CUSO that has a
majority of voting interests owned by federally-insured depository
institutions; or any CUSO that has a majority of voting interests owned
by federally-insured depository institutions and to which SSAs have
access. One commenter also stated additional language could be added to
require access by a Federal regulatory authority.
NCUA understands the concerns of these commenters. As suggested by
some of the commenters, the final rule exempts any servicing entity
that has a majority of its voting interests owned by federally-insured
credit unions and that includes in its servicing agreements with credit
unions a provision providing NCUA with access to the servicer's books
and records and the ability to review its internal controls. This
written access provision is similar to the CUSO rule requirement that
federal credit unions and their CUSOs must agree in writing to permit
NCUA access to the CUSO. 12 CFR 712.3(d)(3). Credit unions relying on
this exemption must provide the regional director a copy of the
servicing agreement. This will keep regional directors informed of the
number of these arrangements, particularly regarding state-chartered
credit unions that NCUA does not examine on a regular basis.
A few commenters suggested NCUA should exempt any servicer that
agrees to allow NCUA access, whether or not the servicer is affiliated
with a federally-insured credit union. Absent at least majority
ownership of the servicer by federally insured credit unions, the Board
does not believe an agreement will assure unfettered and cooperative
access. Similarly, while a few commenters stated access by an SSA
should be sufficient to exempt a servicer from the rule, the Board
concludes the circumstances this rule addresses present particular
safety and soundness concerns requiring NCUA or another Federal insurer
to have access to the servicing entity.
One commenter suggested the rule should be changed to apply only to
those servicers involved in the loan origination process. This
commenter contended that, where a credit union controls the
underwriting process, uses its own dealer relationships for
originations, and contracts directly with an independent, financially
sound servicer with appropriate asset class experience, the credit
union's risks are not significantly different from risks in its
internal programs and, therefore, should not have different
concentration limits.
As stated in the preamble to the proposed rule, NCUA is primarily
concerned with indirect vehicle lending programs where both control
over the loan origination process and servicing are outsourced to a
third-party. While NCUA drafted the proposed concentration limits so as
to apply to any indirect loan serviced by a third-party servicer,
regardless of the servicer's involvement in the loan origination
process, after considering the comments, the Board agrees separating
servicing from other aspects of the loan, such as underwriting,
originating, or insuring, mitigates the overall risk. Accordingly, the
Board has determined to exclude loans in which the servicer and its
affiliates have no involvement with the loan other than servicing from
the concentration limit. Specifically, the final rule excludes from the
definition of covered vehicle loans any loan where neither the third-
party servicer nor any of its affiliates are involved in underwriting,
originating, or insuring the loan or the process by which the credit
union acquires its interest in the loan.
Aside from this modification, the final rule retains the basic
definition of vehicle loan, that is, ``any installment vehicle sales
contract or its equivalent that is reported as an asset under generally
accepted accounting principles [GAAP].'' The Board notes that, under
GAAP, an interest in a vehicle loan transferred with recourse may not
be a true sale. See Financial Accounting Standards Board Standard No.
140. If the transfer does not warrant true sale accounting, the
transferred loan interest would remain as an asset on the transferring
credit union's books and, if serviced by a third-party servicer, count
toward the concentration limits.
Comments About Definitions
The proposal defined net worth as:
[T]he retained earnings balance of the credit union at quarter
end as determined under generally accepted accounting principles.
For low income-designated credit unions, net worth also includes
secondary capital accounts that are uninsured and subordinate to all
other claims, including claims of creditors, shareholders, and the
National Credit Union Share Insurance Fund.
Proposed Sec. 701.21(h)(3)(iv). A few commenters believe this
definition of ``net worth'' should be modified to permit calculation of
the appropriate limits from the line items on NCUA's Call Report, NCUA
Form 5300.
NCUA's current Call Report has an automated ``PCA Net Worth
Calculation Worksheet.'' If a credit union makes accurate Call Report
entries, line 7 of this Worksheet, entitled ``Total Net Worth,'' will
provide the credit union with its retained earnings balance as
determined under generally accepted accounting principles. This
information can help credit unions determine their net worth for
purposes of these concentration limits. The final rule text, however,
does not refer to the Call
[[Page 36664]]
Report directly since NCUA modifies the Call Report and the specific
line items change on occasion.
The concentration limits will apply to all indirect vehicle loans
serviced by a particular third-party servicer and its affiliates. The
proposal defined affiliate as follows:
The term ``its affiliates,'' as it relates to the third-party
servicer, means any entities that: (A) Control, are controlled by,
or are under common control with, that third-party servicer; or (B)
are under contract with that third-party servicer or other entity
described in paragraph (h)(3)(ii)(A) of this section.
Proposed Sec. 701.21(h)(3)(ii). One commenter asked why the
proposed definition includes entities under contract as well as
entities under common control. If a credit union is using two or more
servicers to service indirect automobile loans, the Board believes the
loans of both servicers should be aggregated for purposes of the
concentration limits if there is any contractual connection between the
two servicers.\3\ If the contractual relationship does not increase the
risk to a credit union in a particular case, it may seek a waiver from
the regional director under the rule's waiver provisions and provide
the regional director with details about the contractual relationship.
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\3\ Although a credit union has a contract with its third-party
servicer, the credit union is not an affiliate servicer for purposes
of calculating compliance with its own concentration limits. In
other words, a credit union does not have to aggregate any loans
that it services in-house with loans serviced by third-party
servicers.
---------------------------------------------------------------------------
One commenter thought that, in the definition of ``servicer,'' the
phrase ``pursuant to the terms of a loan'' should be clarified to
ensure that lockbox relationships are not inadvertently covered by the
regulation.\4\ The Board understands lockbox accounts are typically
established at banks, and the rule's definition of servicer
specifically excludes banks and other federally-insured depository
institutions and their wholly-owned subsidiaries. While a bank is
excluded from the rule, any other entity falling within the definition
of servicer is subject to the rule whether or not it employs a lockbox
account arrangement as part of its servicing activities.
---------------------------------------------------------------------------
\4\ A ``lock box'' is a ``[c]ash management system whereby a
company's customers mail payments to a post office box near the
company's bank. The bank collects checks from the lock box * * *
deposits them directly to the account of the firm, and informs the
company's cash manager by telephone of the deposit. This reduces the
float and puts cash to work more quickly.'' J. Downes and J.
Goodman, Barron's Dictionary of Finance and Investment Terms, 333
(5th ed. 1998).
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Comments About the Waiver Provision
The proposal provided that a regional director, upon request, could
grant a credit union a waiver from the concentration limits. The
proposal provided criteria a regional director will consider when
evaluating a waiver request, including: a credit union's understanding
of the third-party servicer's organization, business model, financial
health, and the related program risks; the credit union's due diligence
in monitoring and protecting against program risks; the contracts
between the credit union and the third-party servicer; and other
factors relevant to safety and soundness. Many commenters thought this
waiver provision was a good idea and the provision for a waiver and
proposed criteria are retained in the final rule.
Several commenters suggested the waiver provision should set a time
period for a regional director's decision. A few commenters thought the
rule should permit appeal of a waiver decision to the NCUA Board. The
Board agrees with these commenters. The final rule provides that a
regional director will make a written determination on a waiver request
within 45 calendar days after receipt of the request. The 45-day period
will not begin until a credit union has submitted all necessary
information to the regional director. A credit union may appeal any
part of the determination to the NCUA Board. Appeals must be submitted
through the regional director within 30 days of the date of the
determination. The Board believes these time periods are reasonable and
notes they are similar to other waiver processes the Board has adopted.
See, e.g., 12 CFR 701.36(a)(2)(iii).
Two commenters thought the rule should permit state chartered
credit unions to obtain waivers from their SSAs rather than from a
regional director. The proposed rule required the SSA of a state
chartered credit union to concur before the regional director grants a
waiver, and the final rule retains this requirement. Because third-
party servicing of indirect vehicle loans creates risk for the NCUSIF,
however, NCUA should have a role in the decision to grant or deny all
waivers.
One commenter thought the waiver procedure was overly burdensome.
The Board understands the commenter's concern, but believes it has
balanced safety and soundness concerns appropriately with the burden
associated with requesting a waiver. Another commenter questioned why
an approved waiver should have an expiration date. Circumstances change
with the passage of time, including the structure of the servicer, the
content of its program, and the composition of the credit union's
internal staff and due diligence. Given the significance of the risks,
a credit union with an existing waiver should demonstrate periodically
that it understands and controls the risks associated with a servicer's
program.
Two commenters sought clarification that credit unions could
request a waiver from the initial concentration limit of 50 percent as
well as the 100 percent concentration limit. The Board confirms that,
as proposed and as provided in the final rule, credit unions may
request waivers of either limit.
One commenter noted one of the criteria a regional director will
consider when reviewing a waiver is the ability of a credit union to
replace an inadequate servicer. This commenter expressed concern that
credit unions purchasing participation interests generally have little
or no ability under standard servicing contracts to replace the
servicer. The Board agrees an owner of a loan participation interest is
unlikely to have much say in replacing a poor servicer but notes this
criterion is only one factor among several a regional director
considers in determining whether to grant a waiver request.
Several commenters stated they would like additional information
about the requirements for a waiver. Two commenters thought waiver
criteria should include information about the rating of any associated
insurance company. The Board believes the rule sufficiently describes
the criteria a regional director will consider but provides the
following additional discussion of the criteria and documentation for
waiver requests. Much of this discussion is repeated from the preamble
of the proposed rule. 70 FR 75753, 75756 (Dec. 21, 2005).
Credit unions seeking higher concentration limits should have high
levels of due diligence and tight controls. Due diligence, in turn,
begins with a demonstrated understanding of the third-party servicer's
organization, business model, financial health, and program risks.
Accordingly, a waiver request should provide information about the
following:
The vendor's organization, including identification of
subsidiaries and affiliates involved in the program and the purpose of
each;
The various sources of income to the vendor and the credit
union in the program and any potential vendor conflicts with the
interests of the credit union;
[[Page 36665]]
The experience, character, and fitness of the vendor's
owners and key employees;
The vendor's ability to fulfill commitments, as evidenced
by aggregate financial commitments, capital strength, liquidity,
reputation, and operating results; \5\
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\5\ Nationally recognized statistical rating organization
(NRSRO) ratings, multi-year audited and segmented financials, and
explanations of related party transactions and changes to the net
worth of the vendor, if any, are also relevant.
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How loan-related cash flows, including borrower payments,
borrower payoffs, and insurance payments, are tracked and identified in
the program;
An analysis of whether, in the event of the servicer's
insolvency, the various borrower, insurance, and resale payments in the
possession of the servicer and the vehicle collateral are protected
from the bankruptcy trustee;
The vendor's internal controls to protect against fraud
and abuse, as documented by, for example, a current SAS 70 type II
report prepared by an independent and well-qualified accounting firm;
Insurance offered by the vendor, including interrelated
insurance products, premiums, conditions for coverage beyond the
control of the credit union (e.g., a prohibition on extension of the
insured loans past maturity), the rating of the insurer, and
limitations such as aggregate loss limits;
The underwriting criteria provided by the vendor,
including an analysis of the expected yield based on historical loan
data, and a sensitivity analysis considering the potential effects of a
deteriorating economic environment, failure of associated insurance,
the possibility of fraud at the servicer, a decline in average
portfolio credit quality, and, if applicable, movement in the program
back toward industry-wide performance statistics; \6\
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\6\ If the program loans have historically outperformed industry
averages, perhaps because of lower prepayment rates or lower default
proportions, a credit union should calculate expected yield if the
prepayment rates or default proportions move upwards toward the
industry averages.
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Vendor involvement in the underwriting and processing of
loan applications, including use of proprietary scoring or screening
models not included in the credit union approved underwriting criteria;
and
The program risks, including (1) Credit risk, (2)
liquidity risk, (3) transaction risk, (4) compliance risk, (5)
strategic risk, (6) interest rate risk, and (7) reputation risk.
To qualify for a waiver of concentration limits, the servicing
agreement should also include more than minimal protections for the
credit union. Servicer performance standards should be objective and
clear, and a waiver request should clearly articulate how the
performance standards protect the interests of the credit union. The
exit clause, including any cure period, should be exercisable in a
reasonable period of time. The more intensive the requisite servicing,
such as for nonprime or subprime loans, the shorter that period of time
should be. A credit union's right to exit the servicing agreement
should be exercisable at a reasonable cost to the credit union. If a
credit union must pay a punitive fee to replace a poor servicer, give
up valuable insurance protection, or forfeit legal rights without
adequate compensation, the servicing agreement will not satisfy this
waiver criterion.
Some indirect, outsourced programs have complex business models
that include vendor management of the dealer relationship and also
insurance provided by the vendor. These business models can produce
situations where the vendor's financial interests are not aligned with
the credit union's interests. The credit union needs to be aware of
these situations and, if appropriate, take protective action.
For example, a dealer's interest in an indirect lending situation
is to obtain financing so the dealer can sell a vehicle. A credit
union's interest is to ensure loan applications are properly
underwritten and only members meeting the underwriting standards
receive loans. With an indirect, outsourced program, a third-party
vendor controls information on the quality of a particular dealer's
originations. A vendor could present loans to a credit union from a
changing list of dealers, making it difficult for a credit union to
identify and screen substandard dealers. This creates a potential for
the vendor to permit dealers with substandard underwriting performance
to remain active in the program.
Unlike typical indirect lending where a dealer receives an
origination fee, in some vendor programs, a vendor processes loan
applications for the credit union and also receives significant income
from dealer fees. A credit union needs to fully understand the
relationship between the vendor and the dealers. Credit unions seeking
a concentration limit waiver should review agreements between the
vendor and associated dealers.
Some vendors provide third-party default insurance or reinsurance
and this presents a potential conflict between the vendor as servicer
and the vendor as insurer. Accordingly, a credit union needs to
understand the relationship between the vendor and the insurance
company and the associated risks to the credit union. To understand
this relationship fully, a credit union desiring a concentration limit
waiver should review all agreements between the vendor, affiliates of
the vendor, and the associated insurance companies.
Another potential conflict exists where the vendor controls the
dealer relationship and can route a potential loan to multiple funding
sources. For example, some vendors track statistics on loan performance
by dealership. A credit union should be aware if a vendor then routes
loan applications from the preferred dealerships to the preferred
funding sources. A credit union desiring a waiver should understand the
various funding sources available to the vendor and document how the
vendor tracks vendor performance and makes funding decisions.
With each identified risk, a credit union should explain to the
regional director how it plans to eliminate or mitigate the risk. Some,
but not all, risks may be dealt with through contractual arrangements.
For example, the credit union must ensure that its contracts with the
servicer grant the credit union sufficient control over the servicer's
actions and provide for replacing an inadequate servicer. As NCUA
stated in Letter to Credit Unions No. 04-CU-13, and, again, in NCUA
Risk Alert No. 05-01, safety and soundness requires a credit union to
limit the power of a third-party servicer to alter loan terms. Also,
the servicing contract must contain a mechanism, or exit clause, to
replace an unsatisfactory servicer.
A regional director may also consider any legal reviews obtained by
the credit union on these contracts and should consider the scope and
depth of the review and the reviewer's qualifications.
Regional directors may consider other relevant factors when
determining whether to grant a waiver of concentration limits as well
as the size of any substitute limit. Other factors include the
demonstrated strength of the credit union's management and the credit
union's previous history in exercising due diligence over similar
programs. In addition, higher concentration levels entail more risk to
the net worth of a credit union, and so the requisite due diligence
also depends on the substitute concentration limit the credit union
requests.
C. Effective Date
The effective date of this final rule is 30 days from the date of
publication in the Federal Register.
[[Page 36666]]
As discussed in the preamble to the proposed rule, 70 FR 75753,
75757 (Dec. 21, 2005), several credit unions that currently participate
in indirect, outsourced programs have concentration levels that exceed
the proposed concentration limits. For those credit unions that exceed
the concentration limits on the effective date, the rule will not
require any divestiture. The rule will prohibit these credit unions
from purchasing any additional loans, or interests in loans, from the
affected vendor program until such time as the credit union either
reduces its holdings below the appropriate concentration limit or the
credit union obtains a waiver to permit a greater concentration limit.
The Board is concerned that some credit unions may consider making
large purchases of loans that would be subject to the rule before the
effective date of the final rule. NCUA will review any large purchases
closely and credit unions should be advised that NCUA may consider
appropriate supervisory action, including divestiture, to ensure that
the credit union's actions were safe and sound.
D. Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact a proposed rule may have on
a substantial number of small credit unions (those under $10 million in
assets). This final rule establishes for federally-insured credit
unions a concentration limit on indirect vehicle loans serviced by
certain third parties. In the preamble of the proposed rule NCUA
published its estimate that no more than five small credit unions were
involved in purchasing vehicle loans, or interests in loans, from an
indirect, outsourced vendor program. NCUA received no comments on this
estimate. Accordingly, NCUA has determined that the rule will not have
a significant economic impact on a substantial number of small credit
unions and that a regulatory flexibility analysis is not required.
Paperwork Reduction Act
The waiver provision in Sec. 701.21(h)(2) contains information
collection requirements. As required by the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)), NCUA submitted a copy of the proposed rule as
part of an information collection package to the Office of Management
and Budget (OMB) for its review and approval of a new Collection of
Information, Third-Party Servicing of Indirect Vehicle Loans. On March
1, 2006, OMB approved this new Collection of Information. The OBM
Collection Number is 3133-0171.
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, NCUA, an independent
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies
with the executive order. This rule will not have substantial direct
effects 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. NCUA has
determined that this rule does not constitute a policy that has
federalism implications for purposes of the Executive Order.
The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
NCUA has determined that this rule would not affect family well-
being within the meaning of section 654 of the Treasury and General
Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat. 2681
(1998).
Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Act of 1996 (Pub. L. 104-
121) provides generally for congressional review of agency rules. A
reporting requirement is triggered in instances where NCUA issues a
final rule as defined by section 551 of the Administrative Procedure
Act. 5 U.S.C. 551. The Office of Management and Budget has determined
that this rule is not a major rule for purposes of the Small Business
Regulatory Enforcement Fairness Act of 1996.
List of Subjects
12 CFR Part 701
Credit unions, Loans.
12 CFR Part 741
Credit unions, Requirements for insurance.
By the National Credit Union Administration Board on June 22,
2006.
Mary Rupp,
Secretary of the Board.
0
For the reasons stated in the preamble, the National Credit Union
Administration amends 12 CFR parts 701 and 741 as set forth below:
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, 1759, 1761a,
1761b, 1766, 1767, 1782, 1784, 1787, and 1789. Section 701.6 is also
authorized by 31 U.S.C. 3717. Section 701.31 is also authorized by
15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601-3619. Section 701.35
is also authorized by 42 U.S.C. 4311-4312.
0
2. Add a new paragraph (h) to Sec. 701.21 to read as follows:
Sec. 701.21 Loans to members and lines of credit to members.
* * * * *
(h) Third-party servicing of indirect vehicle loans. (1) A
federally-insured credit union must not acquire any vehicle loan, or
any interest in a vehicle loan, serviced by a third-party servicer if
the aggregate amount of vehicle loans and interests in vehicle loans
serviced by that third-party servicer and its affiliates would exceed:
(i) 50 percent of the credit union's net worth during the initial
thirty months of that third-party servicing relationship; or
(ii) 100 percent of the credit union's net worth after the initial
thirty months of that third-party servicing relationship.
(2) Regional directors may grant a waiver of the limits in
paragraph (h)(1) of this section to permit greater limits upon written
application by a credit union. In determining whether to grant or deny
a waiver, a regional director will consider:
(i) The credit union's understanding of the third-party servicer's
organization, business model, financial health, and the related program
risks;
(ii) The credit union's due diligence in monitoring and protecting
against program risks;
(iii) If contracts between the credit union and the third-party
servicer grant the credit union sufficient control over the servicer's
actions and provide for replacing an inadequate servicer; and
(iv) Other factors relevant to safety and soundness.
(3) A regional director will provide a written determination on a
waiver request within 45 calendar days after receipt of the request;
however, the 45-day period will not begin until the requesting credit
union has submitted all necessary information to the regional director.
If the regional director does not
[[Page 36667]]
provide a written determination within the 45-day period the request is
deemed denied. A credit union may appeal any part of the determination
to the NCUA Board. Appeals must be submitted through the regional
director within 30 days of the date of the determination.
(4) For purposes of paragraph (h) of this section:
(i) The term ``third-party servicer'' means any entity, other than
a federally-insured depository institution or a wholly-owned subsidiary
of a federally-insured depository institution, that receives any
scheduled, periodic payments from a borrower pursuant to the terms of a
loan and distributes payments of principal and interest and any other
payments with respect to the amounts received from the borrower as may
be required pursuant to the terms of the loan. The term also excludes
any servicing entity that meets the following three requirements:
(A) Has a majority of its voting interests owned by federally-
insured credit unions;
(B) Includes in its servicing agreements with credit unions a
provision that the servicer will provide NCUA with complete access to
its books and records and the ability to review its internal controls
as deemed necessary by NCUA in carrying out NCUA's responsibilities
under the Act; and
(C) Has its credit union clients provide a copy of the servicing
agreement to their regional directors.
(ii) The term ``its affiliates,'' as it relates to the third-party
servicer, means any entities that:
(A) Control, are controlled by, or are under common control with,
that third-party servicer; or
(B) Are under contract with that third-party servicer or other
entity described in paragraph (h)(4)(ii)(A) of this section.
(iii) The term ``vehicle loan'' means any installment vehicle sales
contract or its equivalent that is reported as an asset under generally
accepted accounting principles. The term does not include:
(A) Loans made directly by a credit union to a member, or
(B) Loans in which neither the third-party servicer nor any of its
affiliates are involved in the origination, underwriting, or insuring
of the loan or the process by which the credit union acquires its
interest in the loan.
(iv) The term ``net worth'' means the retained earnings balance of
the credit union at quarter end as determined under generally accepted
accounting principles. For low income-designated credit unions, net
worth also includes secondary capital accounts that are uninsured and
subordinate to all other claims, including claims of creditors,
shareholders, and the National Credit Union Share Insurance Fund.
* * * * *
PART 741--REQUIREMENTS FOR INSURANCE
0
3. The authority citation for part 741 continues to read as follows:
Authority: 12 U.S.C. 1757, 1766, 1781-1790, and 1790d. Section
741.4 is also authorized by 31 U.S.C. 3717.
0
4. Add a new paragraph (c) to Sec. 741.203 to read as follows:
Sec. 741.203 Minimum loan policy requirements.
* * * * *
(c) Adhere to the requirements stated in Sec. 701.21(h) of this
chapter concerning third-party servicing of indirect vehicle loans.
Before a state-chartered credit union applies to a regional director
for a waiver under Sec. 701.21(h)(2), it must first notify its state
supervisory authority. The regional director will not grant a waiver
unless the appropriate state official concurs in the waiver. The 45-day
period for the regional director to act on a waiver request, as
described Sec. 701.21(h)(3), will not begin until the regional
director has received the state official's concurrence and any other
necessary information.
[FR Doc. E6-10137 Filed 6-27-06; 8:45 am]
BILLING CODE 7535-01-P
