Loan Interest Rates, 42249-42251 [E6-11907]

Agencies

• National Credit Union Administration

[Federal Register Volume 71, Number 143 (Wednesday, July 26, 2006)]
[Rules and Regulations]
[Pages 42249-42251]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-11907]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

RIN 3133-AD26


Loan Interest Rates

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: NCUA is amending its lending rule to include the criteria the 
NCUA Board considers in setting a permissible interest rate for federal 
credit unions exceeding 15 percent and to establish procedures 
regarding publication of its determination. The amendment will allow 
NCUA to notify federal credit unions of any increase in the interest 
rate ceiling through a Letter to Federal Credit Unions, other NCUA 
publications, and a press release, instead of issuing an amendment to 
the regulation every 18 months as it has previously done. The amendment 
will eliminate unnecessary, periodic regulatory amendments and provides 
a more efficient and effective means of informing federal credit unions 
of the permissible interest rate.

DATES: This final rule is effective September 9, 2006.

FOR FURTHER INFORMATION CONTACT: Moisette I. Green, Staff Attorney, at 
Office of General Counsel, National Credit Union Administration, 1775 
Duke Street, Alexandria, Virginia 22314-3428 or telephone: (703) 518-
6540.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Federal Credit Union Act (the Act) sets a 15 percent ceiling on 
the interest rate federal credit unions may charge on loans to members 
unless, in 18-month intervals, the NCUA Board establishes a higher 
rate. 12 U.S.C. 1757(5)(A)(vi)(I). The Act authorizes the NCUA Board to 
establish a higher interest rate ceiling for periods of no more than 18 
months based on consideration of certain economic criteria and after 
consulting with congressional committees, the Department of Treasury, 
and federal financial institution regulatory agencies. Id. The Board's 
practice has been to exercise this authority by amending the general 
lending regulation. 12 CFR 701.21(c)(7). In the past, when the Board 
increased the interest rate ceiling, it has issued a final rule under 
the Administrative Procedure Act (APA) and published it in the Federal 
Register. 5 U.S.C. 553(b). Most recently, on January 13, 2005, the 
Board issued a final rule setting a higher maximum interest rate of 18 
percent until September 8, 2006. 70 FR 3861 (January 27, 2005).
    The NCUA Board is amending its general lending rule regarding 
permissible interest rates to address the procedures for publication of 
a temporary increase in the maximum interest rate. This amendment 
provides that the Board, at least every 18 months, will make a 
determination in accordance with the requirements of the Act as to 
whether federal credit unions will be permitted to charge interest in 
excess of 15 percent and will provide notice of its determination 
through a Letter to Federal Credit Unions, other official NCUA 
publications, and in a press release.
    This new procedure for providing notice to federal credit unions 
regarding the Board's determination on the permissible interest rate 
parallels the Board's long-standing procedure in providing notice to 
federal credit unions of its determination of the annual operating fee 
charged to federal credit unions. The operating fee is charged to 
federal credit unions under a specific provision in the Act. 12 U.S.C. 
1755(a). The Act provides for the Board to assess an annual operating 
fee on federal credit unions ``[i]n accordance with rules prescribed by 
the Board.'' Id. The regulation implementing the statutory operating 
fee provision is 12 CFR 701.6. This regulation does not set a 
particular operating fee, but describes the basis for assessment, 
coverage, the requirement of notice to credit unions, and so forth. The 
Board establishes the annual operating fee as part of adopting its 
annual budget at the end of each year, sets the operating fee as a 
sliding scale based on asset size for federal credit unions, and 
provides notice to federal credit unions. The Board provides notice, by 
regular or electronic mail, to all federal credit unions through a 
Letter to Federal Credit Unions that sets out the operating fee scale. 
In addition, the operating fee is itemized for federal credit unions in 
the individual invoice sent annually to all federally insured credit 
unions regarding their capitalization deposit that supports share 
account insurance.

[[Page 42250]]

    The interest rate provision in the Act does not require the Board 
to implement its authority in a rule or regulation, but provides only 
that the Board can ``establish'' a higher rate subject to certain 
criteria. 12 U.S.C. 1757(5)(A)(vi)(I). Although the Board has used the 
procedure of issuing a final rule amending the general lending 
regulation, the Board concludes the Act does not require it to do so 
and that it may act to ``establish'' an interest rate by Board action 
and provide notice by other means. Further, the Board believes the new 
procedure of individual notice to federal credit unions and elimination 
of potential regulatory amendments every 18 months are a more efficient 
and effective means for the Board to address and for federal credit 
unions to be informed of permissible interest rates in accordance with 
the Act. Accordingly, the Board is revising the current regulation to 
provide that it will determine, under the Act's criteria, no less than 
every 18 months regarding whether federal credit unions may charge 
interest rates in excess of 15 percent and will give notice to federal 
credit unions directly, in substantially the same way it provides 
notice of the federal credit union operating fee.
    Under the APA, notice and public comment are not required for 
interpretative rules, general statements of policy, or rules of agency 
organization, procedure, or practice, or when the agency for good cause 
finds that notice and public comment are impracticable, unnecessary, or 
contrary to the public interest. 5 U.S.C. 553(b). The Board has 
determined previously that notice and public comment for adjustments in 
the permissible interest rate ceiling are impractical and not in the 
public interest. See 70 FR 3861, 3863 (January 27, 2005). The Board 
notes the specific statutory criteria it must consider and the 18-month 
intervals for re-consideration make meaningful public comment virtually 
impossible. In addition, because of safety and soundness 
considerations, federal credit unions need to be able to forecast and 
adjust their rates to meet market changes with some degree of certainty 
as to what will be legally permissible. For these reasons, the Board's 
long-standing practice has been to issue a final rule, rather than 
seeking public comment, to notify federal credit unions of adjustments 
in the maximum allowable interest rate in order to provide maximum 
flexibility and certainty for federal credit unions.
    Section 701.21(c)(7) of the NCUA regulations is amended to allow 
the Board to provide actual notice of any change in the interest rate 
ceiling to federal credit unions. The APA permits executive agencies to 
personally serve or otherwise provide actual notice to persons subject 
to a rule instead of publishing it in the Federal Register. 5 U.S.C. 
553(b). To publish an increase in the interest rate ceiling and comply 
with the requirements of section 107 of the Act, the Board must 
determine the ceiling in enough time to prevent a reversion to the 
statutory 15 percent maximum. 12 U.S.C. 1757(5)(A)(vi)(I). Before 
publishing any increase in the interest rate ceiling, the Board must 
coordinate with congressional committees, the Department of the 
Treasury, and other financial regulators, and consider other factors, 
such as money market rates and credit union safety and soundness. Id. 
If the Board makes an adjustment, providing notice to federal credit 
unions directly is more expedient than publishing it in the Federal 
Register. Accordingly, the Board is amending its procedure to allow for 
the actual notice of any increase in the maximum interest rate.
    The Board will notify federal credit unions of an increase in the 
interest rate ceiling through official NCUA publications and the media. 
NCUA's primary method of notifying federal credit unions will be 
through a Letter to Federal Credit Unions. NCUA currently uses these 
Letters to notify credit unions of policy statements, examination 
procedures, practices, and other significant regulatory matters, 
including, as noted above, the operating fee scale. The Letters are 
sent to all Federal credit unions by first-class or electronic mail. 
Interested persons may obtain copies of the Letters from the NCUA Web 
site or by contacting the NCUA Publications Office. Additionally, the 
Board will provide notice of an adjustment in the maximum interest rate 
in a press release. Federal credit unions will usually receive notice 
of an adjustment within two to three days of the Board's determination 
through these methods versus a general notice to the public of a 
regulatory amendment within a week through the Federal Register.
    Additionally, the Board notes that the approach in this amendment 
to Sec.  701.21(c)(7) tracks the rules and procedures of the Federal 
Open Market Committee for publishing information relating to open 
market operations. 12 CFR 271.3. The Board has determined the 
amendments to Sec.  701.21(c)(7), the methods for publishing an 
adjustment in the interest rate ceiling for federal credit unions, 
relate to statements of policy, internal procedures, and practices for 
which public notice, comment, and a delayed effective date are not 
required under the APA. See 5 U.S.C. 553(b) and (d).

II. Regulatory Procedures

The Administrative Procedure Act

    The amendments in this rule address the Board's procedure for 
providing notice to federal credit unions of the Board's decision 
regarding changes in the permissible interest rate and are procedural 
rather than substantive. Therefore, the rule is exempt from notice and 
public comment. 5 U.S.C. 553(b)(3)(A). The Board is establishing 
September 9, 2006 as the effective date of this rule because the 
current expiration date for the last amendment to the lending rule 
establishing an 18 percent ceiling is September 8, 2006. The Board 
notes that, currently, there are legislative proposals under 
consideration in Congress that may affect the provision in the Act on 
interest rates and, as necessary, it will make changes in the lending 
rule and its procedures.

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a rule may have on a 
substantial number of small entities, those credit unions with less 
than ten million dollars in assets. This rule will not have a 
significant economic impact on a substantial number of small credit 
unions, and, therefore, a regulatory flexibility analysis is not 
required.

Paperwork Reduction Act

    NCUA has determined that this rule will not increase paperwork 
requirements under the Paperwork Reduction Act of 1995 and regulations 
of the Office of Management and Budget.

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 relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. NCUA has 
determined that this rule does not constitute a policy that has 
federalism implications for purposes of the executive order.

[[Page 42251]]

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this rule will not affect family well-
being within the meaning of the Treasury and General Government 
Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 (1998).

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996, 
Pub. L. 104-121, (SBREFA) 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 APA. 5 
U.S.C. 551. The Office of Information and Regulatory Affairs, an office 
within OMB, has determined that, for purposes of SBREFA, this is not a 
major rule. As required by SBREFA, NCUA will file the appropriate 
reports with Congress and the General Accounting Office so that the 
rule may be reviewed.

List of Subjects in 12 CFR Part 701

    Credit, Credit unions, Loan interest rates.

    By the National Credit Union Administration Board on July 20, 
2006.
Mary F. Rupp,
Secretary of the Board.

0
For the reasons set forth in the preamble, the Board amends 12 CFR part 
701 as set forth below:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

0
1. The authority citation for part 701 is revised to read:

    Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 
1761b, 1766, 1767, 1784, 1787, 1789. Section 701.6 is also 
authorized by 15 U.S.C. 3717. Section 701.21 is also authorized by 5 
U.S.C. 552. Section 701.31 is also authorized by 12 U.S.C. 1601 et 
seq.; 42 U.S.C. 1981 and 3601-3610. Section 701.35 is also 
authorized by 42 U.S.C. 4311-4312.


0
2. Amend Sec.  701.21 by revising paragraphs (c)(7)(i) and (ii) to read 
as follows:


Sec.  701.21  Loans to members and lines of credit to members.

* * * * *
    (c) * * *
    (7) * * *
    (i) General. Except when the Board establishes a higher maximum 
rate, federal credit unions may not extend credit to members at rates 
exceeding 15 percent per year on the unpaid balance inclusive of all 
finance charges. Federal credit unions may use variable rates of 
interest but only if the effective rate over the term of a loan or line 
of credit does not exceed the maximum permissible rate.
    (ii) Temporary rates. (A) At least every 18 months, the Board will 
determine if federal credit unions may extend credit to members at an 
interest rate exceeding 15 percent. After consultation with appropriate 
congressional committees, the Department of Treasury, and other federal 
financial institution regulatory agencies, the Board may establish a 
rate exceeding the 15 percent per year rate, if it determines money 
market interest rates have risen over the preceding six-month period 
and prevailing interest rate levels threaten the safety and soundness 
of individual federal credit unions as evidenced by adverse trends in 
liquidity, capital, earnings, and growth.
    (B) When the Board establishes a higher maximum rate, the Board 
will provide notice to federal credit unions of the adjusted rate by 
issuing a Letter to Federal Credit Unions, as well as providing 
information in other NCUA publications and in a statement for the 
press.
    (C) Federal credit unions may continue to charge rates exceeding 
the established maximum rate only on existing loans or lines of credit 
made before the effective date of any lowering of the maximum rate.
* * * * *

 [FR Doc. E6-11907 Filed 7-25-06; 8:45 am]
BILLING CODE 7535-01-P