Share Insurance and Appendix, 27109-27114 [2015-10553]

Download as PDF Federal Register / Vol. 80, No. 91 / Tuesday, May 12, 2015 / Proposed Rules excludes pass-through and guaranteed loans from the CLF and the National Credit Union Share Insurance Fund. This proposal would include CLFrelated bridge loans, as defined in proposed § 704.2, in the list of loans that may be excluded in calculating the aggregate amount of unsecured loans a Corporate may make. In addition, for the same reasons discussed above, this proposal would exclude CLF-related bridge loans from the requirements of § 704.7(d), which addresses loans to nonmembers. III. Regulatory Procedures 1. Regulatory Flexibility Act. The Regulatory Flexibility Act requires NCUA to prepare an analysis of any significant economic impact a regulation may have on a substantial number of small entities (primarily those under $50 million in assets).1 This proposed rule only affects Corporates, all of which have more than $50 million in assets. Accordingly, NCUA certifies the rulemaking will not have a significant economic impact on a substantial number of small credit unions. mstockstill on DSK4VPTVN1PROD with PROPOSALS 2. Paperwork Reduction Act. The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in which an agency by rule creates a new paperwork burden or increases an existing burden.2 For purposes of the PRA, a paperwork burden may take the form of a reporting or recordkeeping requirement, both referred to as information collections. This proposed rule would not create any new burdens or increase any existing burdens. Therefore, a PRA analysis is not required. 3. Executive Order 13132. Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order to adhere to fundamental federalism principles. The proposed rule does not have substantial direct effects on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. NCUA has, therefore, determined that this proposal does not constitute a policy that has federalism implications for purposes of the executive order. 15 U.S.C. 603(a); 12 U.S.C. 1787(c)(1). 2 44 U.S.C. 3507(d); 5 CFR part 1320. VerDate Sep<11>2014 17:06 May 11, 2015 Jkt 235001 4. Assessment of Federal Regulations and Policies on Families. NCUA has determined that this proposed rule will not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, 1999, Public Law 105–277, 112 Stat. 2681 (1998). List of Subjects in 12 CFR Part 704 Credit unions, Corporate credit unions, Reporting and recordkeeping requirements. By the National Credit Union Administration Board on April 30, 2015. Gerard Poliquin, Secretary of the Board. For the reasons discussed above, the National Credit Union Administration proposes to amend 12 CFR part 704 as follows: calculating Tier 1 capital are also deducted from net assets. * * * * * Net risk-weighted assets means riskweighted assets less CLF stock subscriptions, CLF-related bridge loans, loans guaranteed by the NCUSIF, and member reverse repurchase transactions. For its own account, a corporate credit union’s payables under reverse repurchase agreements and receivables under repurchase agreements may be netted out if the GAAP conditions for offsetting are met. Also, any amounts deducted in calculating Tier 1 capital are also deducted from net risk-weighted assets. * * * * * ■ 6. Amend § 704.7 by revising paragraph (c)(1)(i), as revised on May 6, 2015 (80 FR 25932), effective June 5, 2015, and revising paragraph (d)(1) to read as follows: § 704.7 PART 704—CORPORATE CREDIT UNIONS 1. The authority citation for part 704 continues to read as follows: ■ Authority: 12 U.S.C. 1766(a), 1781, and 1789. 2. Amend § 704.2 by adding a definition for CLF-related bridge loan in alphabetical order and revising the definitions of Net assets and Net riskweighted assets to read as follows: ■ § 704.2 Definitions. * * * * * CLF-related bridge loan means interim financing, extending up to ten business days, that a corporate credit union provides for a natural person credit union from the time the CLF approves a loan to the natural person credit union until the CLF funds the loan. To repay a CLF-related bridge loan, the borrowing natural person credit union assigns the proceeds of the CLF advance to the corporate credit union making the CLF-related bridge loan for the duration of the bridge loan. * * * * * Net assets means total assets less Central Liquidity Facility (CLF) stock subscriptions, CLF-related bridge loans, loans guaranteed by the National Credit Union Share Insurance Fund (NCUSIF), and member reverse repurchase transactions. For its own account, a corporate credit union’s payables under reverse repurchase agreements and receivables under repurchase agreements may be netted out if the GAAP conditions for offsetting are met. Also, any amounts deducted in PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 27109 Lending. * * * * * (c) * * * (1) * * * (i) The maximum aggregate amount in unsecured loans and lines of credit from a corporate credit union to any one member credit union, excluding CLFrelated bridge loans and pass-through and guaranteed loans from the CLF and the NCUSIF, must not exceed 50 percent of the corporate credit union’s total capital. * * * * * (d) * * * (1) Credit unions. A loan to a nonmember credit union, other than through a loan participation with another corporate credit union or a CLFrelated bridge loan, is only permissible if the loan is for an overdraft related to the providing of correspondent services pursuant to § 704.12. Generally, such a loan will have a maturity of one business day. * * * * * [FR Doc. 2015–10554 Filed 5–11–15; 8:45 am] BILLING CODE 7535–01–P NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Part 745 RIN 3133–AE49 Share Insurance and Appendix National Credit Union Administration (NCUA). ACTION: Proposed rule. AGENCY: The NCUA Board (Board) proposes to amend its share insurance regulations to implement statutory SUMMARY: E:\FR\FM\12MYP1.SGM 12MYP1 27110 Federal Register / Vol. 80, No. 91 / Tuesday, May 12, 2015 / Proposed Rules amendments to the Federal Credit Union Act (FCU Act) resulting from the recent enactment of the Credit Union Share Insurance Fund Parity Act (Insurance Parity Act). The statutory amendments require NCUA to provide enhanced, pass-through share insurance for interest on lawyers trust accounts (IOLTA) and other similar escrow accounts. As its name implies, the Insurance Parity Act ensures that NCUA and the Federal Deposit Insurance Corporation (FDIC) insure IOLTAs and other similar escrow accounts in an equivalent manner. Comments must be received on or before July 13, 2015. DATES: You may submit comments by any of the following methods (Please send comments by one method only): • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. • NCUA Web site: http://www.ncua. gov/Legal/Regs/Pages/PropRegs.aspx. Follow the instructions for submitting comments. • Email: Address to regcomments@ ncua.gov. Include ‘‘[Your name] Comments on Proposed Rule—Part 745’’ in the email subject line. • Fax: (703) 518–6319. Use the subject line described above for email. • Mail: Address to Gerard Poliquin, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314– 3428. • Hand Delivery/Courier: Same as mail address. Public Inspection: You may view all public comments on NCUA’s Web site at http://www.ncua.gov/Legal/Regs/ Pages/PropRegs.aspx as submitted, except for those we cannot post for technical reasons. NCUA will not edit or remove any identifying or contact information from the public comments submitted. You may inspect paper copies of comments in NCUA’s law library at 1775 Duke Street, Alexandria, Virginia 22314, by appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, call (703) 518– 6546 or send an email to OGCMail@ ncua.gov. mstockstill on DSK4VPTVN1PROD with PROPOSALS ADDRESSES: FOR FURTHER INFORMATION CONTACT: Frank Kressman, Associate General Counsel, Office of General Counsel, at the above address or telephone (703) 518–6540. SUPPLEMENTARY INFORMATION: I. Background II. Summary of the Proposed Rule III. Regulatory Procedures VerDate Sep<11>2014 17:06 May 11, 2015 Jkt 235001 I. Background A. History of IOLTAs According to the National Association of IOLTA Programs (NAIP),1 IOLTA programs began in Australia and Canada in the late 1960s to generate funds for legal services to the poor.2 In the United States, Congress passed legislation in the 1980s permitting the establishment of certain interest-bearing checking accounts,3 which, among many things, helped to enable the creation of IOLTA accounts throughout the United States. The various states operate IOLTA programs pursuant to their own laws.4 Under an IOLTA program, an attorney or law firm may establish an account at one or more financial institutions to hold their clients’ funds to pay for legal services or for other purposes. An attorney or a law firm would deposit clients’ funds in one or more IOLTAs and hold these funds in trust until needed. Typically, the interest or dividends on IOLTAs are donated to charities or other 501(c)(3) tax exempt organizations pursuant to state law. Generally, the donated funds are used to subsidize legal aid services or for other charitable purposes. B. The Credit Union Share Insurance Fund Parity Act of 2014 On December 18, 2014, President Obama signed into law the Insurance Parity Act.5 The Insurance Parity Act amended the share insurance provisions of the FCU Act by requiring enhanced, pass-through share insurance coverage for IOLTAs and other similar escrow accounts.6 The Insurance Parity Act specifically defines ‘‘pass-through share insurance,’’ with respect to IOLTAs and other similar escrow accounts, as ‘‘insurance coverage based on the interest of each person on whose behalf funds are held in such accounts by the attorney administering the IOLTA or the escrow agent administering a similar escrow account, in accordance with regulations issued by [NCUA].’’ 7 The Insurance Parity Act defines an IOLTA as ‘‘a system in which lawyers 1 The NAIP was established in 1986 to enhance legal services for the poor and for the administration of justice through the growth and development of IOLTA programs. http://www.iolta. org/about-naip. 2 http://www.iolta.org/what-is-iolta/iolta-history. 3 The Depository Institutions Deregulation and Monetary Control Act of 1980 (Pub. L. 96–221; 94 Stat. 132). 4 http://www.americanbar.org/groups/interest_ lawyers_trust_accounts/resources/status_of_iolta_ programs.html. As determined by each state, an IOLTA program may be mandatory, voluntary, or an attorney may opt out of the program. 5 Public Law 113–252, 128 Stat. 2893 (2014). 6 12 U.S.C. 1787(k). 7 Public Law 113–252, 128 Stat. 2893 (2014). PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 place certain client funds in interestbearing or dividend-bearing accounts, with the interest or dividends then used to fund programs such as legal service organizations who provide services to clients in need.’’ 8 Pursuant to the Insurance Parity Act, IOLTAs are treated as escrow accounts for share insurance purposes. Further, IOLTAs and other similar escrow accounts are considered member accounts if the attorney administering the IOLTA or the escrow agent administering the escrow account is a member of the insured credit union in which the funds are held.9 C. Comparison of FDIC’s and NCUA’s Current Insurance Regulations Regarding IOLTAs The FDIC’s deposit insurance regulations 10 do not specifically mention IOLTAs by name. Rather, the FDIC insures an IOLTA as an agent or nominee account. To be insured by the FDIC, an agent or nominee account like an IOLTA must expressly disclose, by way of specific reference, the existence of any fiduciary relationship such as an agent or nominee pursuant to which funds are deposited into a bank account and on which a claim for deposit insurance coverage is based. The FDIC has stated that such an account, including an IOLTA, must disclose that the funds are held by the nominal account holder on the behalf of others.11 To be insurable, the FDIC must be able to ascertain the interests of the other parties in the IOLTA from the records of the insured depository institution or from the records of the lawyer.12 Funds attributable to each client will be insured on a pass-through basis if this recordkeeping requirement is satisfied.13 Prior to the enactment of the Insurance Parity Act, NCUA’s position with respect to the insurability of IOLTAs was very similar to FDIC’s, except that NCUA’s coverage was limited only to those clients of the attorney who were also members of the insured credit union in which the IOLTA was kept. This was due to the FCU Act’s general limitation to insure only member accounts, with some 8 Id. 9 The Insurance Parity Act also emphasizes that its amendments to the FCU Act do not authorize an insured credit union to accept deposits of an IOLTA or similar escrow account in an amount greater than such credit union is authorized to accept under any other provisions of federal or state law. 10 12 CFR part 330. 11 FDIC Opinion Letter No. 98–2 (June 16, 1998) at https://www.fdic.gov/regulations/laws/rules/ 4000-9940.html. 12 Id. 13 Id. E:\FR\FM\12MYP1.SGM 12MYP1 Federal Register / Vol. 80, No. 91 / Tuesday, May 12, 2015 / Proposed Rules exceptions not relevant to this discussion. Federally insured credit unions believed they were placed at a competitive disadvantage because of this treatment. With the enactment of the Insurance Parity Act, however, this disadvantage has been removed. Specifically, provided the lawyer administering the IOLTA or the escrow agent administering a similar escrow account is a member of the insured credit union in which such account is maintained, then the interests of each client or principal, regardless of that person’s membership status, on whose behalf funds are being held in such accounts by the lawyer or escrow agent, will be insured on a pass-through basis in accordance with the limits in part 745 of NCUA’s regulations. In an IOLTA and other similar escrow accounts, the true owners of the funds are the clients and principals. The lawyers or law firms and the escrow agents are only agents holding the funds on the clients’ and principal’s behalf. II. Summary of the Proposed Rule mstockstill on DSK4VPTVN1PROD with PROPOSALS A. Why is NCUA issuing this rule as a proposal? The language of the Insurance Parity Act clearly states that NCUA shall provide pass-through share insurance for IOLTAs, and it defines what an IOLTA is. Given this level of clarity, NCUA takes the position that share insurance coverage for IOLTAs is currently in place and has been since the enactment of the Insurance Parity Act, even without any regulatory action on NCUA’s part. No implementing regulations are required to effect this aspect of the legislation. However, other aspects of the legislation do require NCUA to take regulatory action. Additionally, some of the language in the Insurance Parity Act is ambiguous and leaves unanswered certain questions. For example, these questions include: • What escrow accounts should be included in the category ‘‘other similar escrow accounts’’ as that phrase is used in the Insurance Parity Act? • Should prepaid card programs, such as payroll cards, be considered IOLTAs or other similar escrow accounts for share insurance purposes? • What recordkeeping requirements must be satisfied to receive share insurance on IOLTAs and other similar escrow accounts? • Does the enhanced share insurance coverage provided by the Insurance Parity Act affect the Bank Secrecy Act (BSA) requirements for insured credit unions? VerDate Sep<11>2014 17:06 May 11, 2015 Jkt 235001 • Should nonmember funds kept in a federal credit union as a result of the enhanced share insurance coverage provided by the Insurance Parity Act count towards a federal credit union’s limit on the receipt of payments on shares from nonmembers pursuant to § 701.32 of NCUA’s regulations? As discussed below in this rulemaking, NCUA analyzes the above questions and proposes how each should be addressed. NCUA seeks public comment on alternative interpretations of the Insurance Parity Act and alternative regulatory approaches that commenters believe are appropriate and beneficial. However, NCUA reiterates that despite the proposed nature of this rulemaking, IOLTA share insurance coverage is currently in place and will remain in place regardless of the direction any subsequent final rule may take. B. Pass-Through Share Insurance for IOLTAs and Other Similar Escrow Accounts As noted above, the Insurance Parity Act defines ‘‘pass-through share insurance,’’ with respect to IOLTAs and other similar escrow accounts, as ‘‘insurance coverage based on the interest of each person on whose behalf funds are held in such accounts by the attorney administering the IOLTA or the escrow agent administering a similar escrow account, in accordance with regulations issued by [NCUA].14 NCUA believes this definition is clear and accurate. Also, it is consistent with how NCUA currently defines ‘‘pass-through share insurance’’ in its share insurance regulations relating to coverage of certain employee benefit plans.15 NCUA proposes to adopt this statutory definition of ‘‘pass-through share insurance’’ as the regulatory definition of that term in part 745. C. What escrow accounts should be included in the category ‘‘other similar escrow accounts’’ as that phrase is used in the Insurance Parity Act? The Insurance Parity Act provides that, for share insurance purposes, IOLTAs are treated as escrow accounts. It also provides that pass-through insurance coverage is available for other kinds of escrow accounts that are similar to IOLTAs. However, the Insurance Parity Act does not define or further describe what constitutes an escrow account that is ‘‘similar’’ to an IOLTA. The Insurance Parity Act defines an IOLTA as ‘‘a system in which lawyers place certain client funds in 14 Public 15 12 PO 00000 Law 113–252, 128 Stat. 2893 (2014). U.S.C. 1787(k)(4); 12 CFR 745.9–2. Frm 00004 Fmt 4702 Sfmt 4702 27111 interest-bearing or dividend-bearing accounts, with the interest or dividends then used to fund programs such as legal service organizations who provide services to clients in need.’’ NCUA is tasked with defining the kinds of escrow accounts that are similar enough to IOLTAs to be eligible for pass-through share insurance as discussed above. NCUA acknowledges the challenge to describe with precision the circumstances under which such coverage should be provided. There are many different kinds of escrow accounts in use with varying forms and structures. Also, ‘‘similar’’ is a relative term that may necessitate NCUA reviewing escrow accounts with varying structures on a case-by-case basis to determine which are similar enough to IOLTAs to receive pass-through insurance coverage. Despite the amorphous nature of escrow accounts, NCUA believes it is important to provide insured credit unions with as much regulatory clarity and certainty as possible about which escrow accounts are considered similar enough to IOLTAs to receive passthrough insurance coverage. NCUA seeks to avoid, to the greatest extent possible, the need to make case-by-case analyses of escrow accounts as that process is labor intensive and inefficient, and it creates uncertainty for insured credit unions. There are some escrow accounts whose nature and structure are immediately recognizable as similar to an IOLTA. For example, typical realtor escrow accounts and prepaid funeral accounts have attributes that, while not identical to IOLTAs, are similar to IOLTAs and should be entitled to passthrough share insurance coverage. One of the signature characteristics common to typical realtor accounts, prepaid funeral accounts, and IOLTAs is that each of these kinds of account has a licensed professional or other individual serving in a fiduciary capacity and holding funds for the benefit of a client as part of some transaction or business relationship. Accordingly, at a minimum, NCUA proposes to extend pass-through share insurance coverage to escrow accounts with these characteristics, up to the limits provided for in part 745 of NCUA’s regulations. However, NCUA encourages commenters to identify and discuss other kinds of escrow accounts, in addition to realtor and prepaid funeral accounts, which also have characteristics similar enough to IOLTAs to warrant pass-through insurance coverage. Accordingly, NCUA requests comment on the following: (1) What E:\FR\FM\12MYP1.SGM 12MYP1 27112 Federal Register / Vol. 80, No. 91 / Tuesday, May 12, 2015 / Proposed Rules kinds of escrow accounts should qualify for pass-through share insurance coverage and why; (2) what specific attributes these escrow accounts need to possess to obtain coverage; (3) how NCUA can define these accounts to capture their essence and minimize the need for case-by-case analyses of their characteristics; and (4) any other aspect of this topic. In addition, NCUA specifically invites comment on whether it is appropriate to limit the pool of other similar escrow accounts to those where a recognizable fiduciary duty is owed by the escrow agent to the principal. mstockstill on DSK4VPTVN1PROD with PROPOSALS Prepaid Cards NCUA welcomes comments on its proposed treatment of prepaid card programs. To put this in context and provide background information about such programs, we include the following excerpt on prepaid cards from the Federal Financial Institutions Examination Council’s Web site.16 The market for prepaid cards, sometimes called stored-value cards, is one of the fastest-growing segments of the retail financial services industry. While the terms prepaid cards and stored-value cards are frequently used interchangeably, differences exist between the two products. Prepaid cards are generally issued to persons who deposit funds into an account of the issuer. During the funds deposit process, most issuers establish an account and obtain identifying data from the purchaser (e.g., name, phone number, etc.). Stored-value cards do not typically involve a deposit of funds as the value is prepaid and stored directly on the cards. Because its business model requires cardholders to pay in advance, it substantially eliminates the nonpayment risk for the issuing financial institution. The functionality of this product is leading to a wide range of card programs that operate in either closed or open-loop systems, and program innovation has resulted in the development of systems that operate in both structures. Closed-loop systems are generally retailer/issuer business models, while general-purpose cards issued by financial institutions tend to operate in open-loop systems. Open-loop system prepaid cards are processed using the same systems as the branded network cards (MasterCard, Visa, American Express, and Discover) and offer the same functionality. In the past, prepaid cards were mostly issued by nonfinancial businesses in limited deployment environments such as mass transit systems and universities. In recent years, prepaid cards have grown significantly as financial institutions and nonbank organizations target under-banked markets and overseas remittances. Technological innovations in the way information is stored 16 http://ithandbook.ffiec.gov/it-booklets/retailpayment-systems/payment-instruments,-clearing,and-settlement/card-based-electronic-payments/ prepaid-(stored-value)-cards.aspx. VerDate Sep<11>2014 17:06 May 11, 2015 Jkt 235001 (e.g., magnetic strip or computer chip), the physical form of the payment mechanism, and biometric account access and authentication are converging to create efficiencies, reduce transaction times at the point of sale, and lower transaction costs. There are several types of prepaid cards, including gift, payroll, travel, and teen cards. Either the consumer or an issuer funds the account for the card. When a consumer uses the card to make a purchase, the merchant deducts the amount of the purchase from the card. Transaction authorization can take place through an existing network, a chip stored on the card, or information coded on the magnetic strip. Once the stored value in the card is exhausted, customers may either replenish the value or acquire a new card. In addition to cards, stored-value payment devices are emerging in a variety of other physical forms, most notably key fobs. With the recent introduction of contactless payment technologies, use of chips (smart cards), radio frequency identification (RFID), and near-field communication (NFC) payment devices are becoming more innovative. Initiatives are underway to introduce mobile phones with integrated microchips that can initiate a payment when waved over a specially-equipped reader. The integrated chip can store value, authenticate a consumer, or contain consumer preferences and loyalty program information that can be used for marketing purposes. Prepaid cards may be subject to legal and regulatory risks. For example, the Federal Reserve Board’s final rule on Regulation E, issued August 30, 2006, extended its applicability to prepaid cards used for consumers’ payroll. The Federal Reserve Board noted that it will monitor the development of other card products and may reconsider Regulation E coverage as these products continue to develop. State laws vary widely with regard to fees. Additionally, financial institutions should ensure that prepaid card product programs comply with the Bank Secrecy Act and anti-money laundering guidance. NCUA generally does not believe that prepaid card programs, such as payroll cards, should be considered escrow accounts similar to IOLTAs for share insurance purposes because the characteristics that define an attorney’s relationship with, and the fiduciary duties owed to, the attorney’s clients are typically not present in the prepaid card scenario. An IOLTA and a prepaid card program serve very different purposes and usually have completely different structures. NCUA does not believe that a prepaid card program is always sufficiently similar to an IOLTA, for purposes of the Insurance Parity Act, to qualify for pass-through share insurance coverage as an escrow account similar to an IOLTA. However, the Board is interested in receiving comments about prepaid card programs that may be sufficiently similar to IOLTAs. Under certain circumstances some prepaid card programs may be entitled PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 to pass-through share insurance coverage under some other aspects of part 745, not related to IOLTAs. For example, if funds in a prepaid card program deposited in a federally insured credit union qualify as a share account that can be traced back to a specific owner in a specific amount and the owner is a member of the credit union where the funds are kept, then those funds would be entitled to share insurance pursuant to the terms and limits of part 745. D. What recordkeeping requirements must be met to receive share insurance on IOLTAs and other similar escrow accounts? FDIC’s deposit insurance regulations provide that the FDIC will recognize a claim for insurance coverage based on a fiduciary relationship (such as an IOLTA or escrow account) only if the relationship is expressly disclosed, by way of specific references, in the deposit account records of the insured depository institution.17 FDIC’s deposit insurance regulations further provide that if the deposit account records of an insured depository institution disclose the existence of a relationship which might provide a basis for additional insurance, then the details of the relationship and the interests of other parties in the account must be ascertainable either from the deposit account records of the insured depository institution or from records maintained, in good faith and in the regular course of business, by the depositor or by some person or entity that has undertaken to maintain such records for the depositor.18 Similarly, NCUA’s current share insurance regulations provide that the account records of an insured credit union shall be conclusive as to the existence of any relationship pursuant to which the funds in the account are deposited and on which a claim for insurance coverage is founded. Examples of such relationships would include trustee, agent, and custodian.19 These kinds of accounts also include IOLTA and other escrow accounts similar to IOLTAs. NCUA will not recognize a claim for insurance based on such a relationship in the absence of such disclosure. Further, NCUA’s share insurance regulations provide that if the account records of an insured credit union disclose the existence of a relationship which may provide a basis for additional insurance, then the details of the relationship and the 17 12 CFR 330.5(b)(1). CFR 330.5(b)(2). 19 12 CFR 745.2(c)(1). 18 12 E:\FR\FM\12MYP1.SGM 12MYP1 Federal Register / Vol. 80, No. 91 / Tuesday, May 12, 2015 / Proposed Rules interests of other parties in the account must be ascertainable either from the records of the credit union or the records of the member maintained in good faith and in the regular course of business.20 IOLTAs and other similar escrow accounts exemplify the kinds of accounts in which a relationship exists upon which a claim for insurance coverage could be founded. They are among the kinds of accounts that NCUA’s regulations are intended to cover. Accordingly, based on NCUA’s current share insurance regulations, for IOLTAs and other similar escrow accounts to receive the share insurance covered to which they are entitled, the recordkeeping provisions of NCUA’s share insurance regulations must be satisfied. No additional recordkeeping requirements are imposed by the Insurance Parity Act. Therefore, NCUA is not proposing any regulatory changes or additions in this regard, but nonetheless welcomes comments on this topic. mstockstill on DSK4VPTVN1PROD with PROPOSALS E. Does the enhanced share insurance coverage provided by the Insurance Parity Act affect the BSA requirements for insured credit unions? It is not the purpose of this proposed rule to discuss in detail an insured credit union’s BSA requirements. Accordingly, this is just a reminder to insured credit unions that they continue to have BSA responsibilities for IOLTAs and other similar escrow accounts and that they should continue to be vigilant in that regard. This is especially true considering that IOLTAs and other similar escrow accounts will begin to contain funds for nonmembers which are likely not known by the credit unions in which the accounts are kept. NCUA does not propose to make any regulatory changes in this regard, but nonetheless welcomes comments. F. Do nonmember funds kept in the credit union as a result of the enhanced share insurance coverage provided by the Insurance Parity Act count towards a federal credit union’s limit on the receipt of payments on shares from nonmembers pursuant to § 701.32 of NCUA’s regulations? The Insurance Parity Act provides that IOLTAs and other similar escrow accounts are considered member accounts if the attorney administering the IOLTA or the escrow agent administering the escrow account is a member of the insured credit union in which the funds are held. NCUA believes that if an IOLTA or other 20 12 CFR 745.2(c)(2). VerDate Sep<11>2014 17:06 May 11, 2015 Jkt 235001 similar escrow account satisfies the above requirement and, therefore, is treated by the Insurance Parity Act as a member account, then the IOLTA or other similar escrow account also should be considered a member account for purposes of § 701.32 of NCUA’s regulations. Therefore, funds in those member accounts do not count towards a federal credit union’s limit on the receipt of payments on shares from nonmembers pursuant to § 701.32 of NCUA’s regulations.21 Accordingly, NCUA does not propose any regulatory changes in this regard but welcomes comments. III. Regulatory Procedures Regulatory Flexibility Act 27113 agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order. This rulemaking will not have a substantial direct effect on the states, on the connection between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. NCUA has determined this rulemaking does not constitute a policy that has federalism implications for purposes of the executive order. Assessment of Federal Regulations and Policies on Families NCUA has determined that this rulemaking will not affect family wellbeing within the meaning of section 654 of the Treasury and General Government Appropriations Act, 1999.25 The Regulatory Flexibility Act requires NCUA to prepare an analysis to describe any significant economic impact a regulation may have on a substantial number of small entities.22 For purposes of this analysis, NCUA considers small credit unions to be those having under $50 million in assets.23 This rulemaking implements the Insurance Parity Act, which enhances share insurance coverage for IOLTAs and other similar escrow accounts. Accordingly, NCUA certifies the rulemaking will not have a significant economic impact on a substantial number of small credit unions. By the National Credit Union Administration Board on April 30, 2015. Gerard Poliquin, Secretary of the Board. Paperwork Reduction Act ■ The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in which an agency by rule creates a new paperwork burden on regulated entities or modifies an existing burden.24 For purposes of the PRA, a paperwork burden may take the form of either a reporting or a record-keeping requirement, both referred to as information collections. This proposal, which enhances share insurance coverage for IOLTAs and other similar escrow accounts, will not create new paperwork burdens or modify any existing paperwork burdens. 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 21 12 CFR 701.32. U.S.C. 603(a). 23 Interpretive Ruling and Policy Statement 03–2, 68 FR 31949 (May 29, 2003), as amended by Interpretative Ruling and Policy Statement 13–1, 78 FR 4032 (Jan. 18, 2013). 24 44 U.S.C. 3507(d); 5 CFR part 1320. 22 5 PO 00000 Frm 00006 Fmt 4702 Sfmt 4702 List of Subjects in 12 CFR Part 745 Credit, Credit unions, Share Insurance. For the reasons stated above, NCUA proposes to amend 12 CFR part 745 as follows: PART 745—SHARE INSURANCE AND APPENDIX 1. The authority for part 745 continues to read as follows: Authority: 12 U.S.C. 1752(5), 1757, 1765, 1766, 1781, 1782, 1787, 1789; title V, Pub. L. 109–351; 120 Stat. 1966. § 745.14 [Removed]. 2. Remove § 745.14 from subpart B. 3. Add a new § 745.14 to subpart A to read as follows: ■ ■ § 745.14 Interest on lawyers trust accounts and other similar escrow accounts. (a) Pass-through share insurance. (1) The deposits or shares of any interest on lawyers trust account (IOLTA) or other similar escrow account in an insured credit union are insured on a ‘‘passthrough’’ basis, in the amount of up to the SMSIA for each client and principal on whose behalf funds are held in such accounts by either the attorney administering the IOLTA or the escrow agent administering a similar escrow account, in accordance with the other share insurance provisions of this part. (2) Pass-through coverage will only be available if the recordkeeping requirements of § 745.2(c)(1) and the relationship disclosure requirements of 25 Public E:\FR\FM\12MYP1.SGM Law 105–277, 112 Stat. 2681 (1998). 12MYP1 mstockstill on DSK4VPTVN1PROD with PROPOSALS 27114 Federal Register / Vol. 80, No. 91 / Tuesday, May 12, 2015 / Proposed Rules § 745.2(c)(2) are satisfied. In the event those requirements are satisfied, funds attributable to each client and principal will be insured on a pass-through basis in whatever right and capacity the client or principal owns the funds. For example, an IOLTA or other similar escrow account must be titled as such and the underlying account records of the insured credit union must sufficiently indicate the existence of the relationship on which a claim for insurance is founded. The details of the relationship between the attorney or escrow agent and their clients and principals must be ascertainable from the records of the insured credit union or from records maintained, in good faith and in the regular course of business, by the attorney or the escrow agent administering the account. NCUA will determine, in its sole discretion, the sufficiency of these records for an IOLTA or other similar escrow account. (b) Membership requirements and treatment of IOLTAs. For share insurance purposes, IOLTAs are treated as escrow accounts. IOLTAs and other similar escrow accounts are considered member accounts and eligible for passthrough share insurance if the attorney administering the IOLTA or the escrow agent administering the escrow account is a member of the insured credit union in which the funds are held. In this circumstance, the membership status of the clients or the principals is irrelevant. (c) Definitions. (1) For purposes of this section: Interest on lawyers trust account (IOLTA) means a system in which lawyers place certain client funds in interest-bearing or dividend-bearing accounts, with the interest or dividends then used to fund programs such as legal service organizations who provide services to clients in need. Other similar escrow account means an account where a licensed professional or other individual serving in a fiduciary capacity holds funds for the benefit of a client as part of a transaction or business relationship, such as realtor accounts and prepaid funeral accounts. Pass-through share insurance means, with respect to IOLTAs and other similar escrow accounts, insurance coverage based on the interest of each person on whose behalf funds are held in such accounts by the attorney administering the IOLTA or the escrow agent administering a similar escrow account. (2) The terms ‘‘Interest on lawyers trust account’’, ‘‘IOLTA’’, and ‘‘Passthrough share insurance’’ are given the VerDate Sep<11>2014 17:06 May 11, 2015 Jkt 235001 same meaning in this section as in 12 U.S.C. 1787(k)(5). [FR Doc. 2015–10553 Filed 5–11–15; 8:45 am] BILLING CODE 7535–01–P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA–2015–1280; Directorate Identifier 2014–NM–064–AD] RIN 2120–AA64 Airworthiness Directives; ATR–GIE ´ Avions de Transport Regional Airplanes Federal Aviation Administration (FAA), DOT. ACTION: Notice of proposed rulemaking (NPRM). AGENCY: We propose to adopt a new airworthiness directive (AD) for certain ´ ATR–GIE Avions de Transport Regional Model ATR42–500 airplanes, and Model ATR72–102, –202, –212, and –212A airplanes. This proposed AD was prompted by a report of chafed wires between electrical harnesses. This proposed AD would require inspections for wiring discrepancies, and corrective actions if necessary. We are proposing this AD to detect and correct damaged wiring and incorrect installation of the wiring harness and adjacent air ducts, which could lead to wire harness chafing and arcing, possibly resulting in an on-board fire. DATES: We must receive comments on this proposed AD by June 26, 2015. ADDRESSES: You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods: • Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the instructions for submitting comments. • Fax: 202–493–2251. • Mail: U.S. Department of Transportation, Docket Operations, M–30, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue SE., Washington, DC 20590. • Hand Delivery: U.S. Department of Transportation, Docket Operations, M–30, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue SE., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. For service information identified in this proposed AD, contact ATR–GIE ´ ´ Avions de Transport Regional, 1, Allee Pierre Nadot, 31712 Blagnac Cedex, France; telephone +33 (0) 5 62 21 62 21; SUMMARY: PO 00000 Frm 00007 Fmt 4702 Sfmt 4702 fax +33 (0) 5 62 21 67 18; email continued.airworthiness@atr.fr; Internet http://www.aerochain.com. You may view this referenced service information at the FAA, Transport Airplane Directorate, 1601 Lind Avenue SW., Renton, WA. For information on the availability of this material at the FAA, call 425–227–1221. Examining the AD Docket You may examine the AD docket on the Internet at http:// www.regulations.gov by searching for and locating Docket No. FAA–2015– 1280; or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this proposed AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone 800–647–5527) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt. FOR FURTHER INFORMATION CONTACT: Tom Rodriguez, Aerospace Engineer, International Branch, ANM–116, Transport Airplane Directorate, FAA, 1601 Lind Avenue SW., Renton, WA 98057–3356; telephone (425) 227–1137; fax (425) 227–1149. SUPPLEMENTARY INFORMATION: Comments Invited We invite you to send any written relevant data, views, or arguments about this proposed AD. Send your comments to an address listed under the ADDRESSES section. Include ‘‘Docket No. FAA–2015–1280; Directorate Identifier 2014–NM–064–AD’’ at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this proposed AD. We will consider all comments received by the closing date and may amend this proposed AD based on those comments. We will post all comments we receive, without change, to http:// www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this proposed AD. Discussion The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued EASA Airworthiness Directive 2014–0052R1, dated April 7, 2014 (referred to after this as the Mandatory Continuing Airworthiness Information, or ‘‘the MCAI’’), to correct an unsafe condition for certain ATR– E:\FR\FM\12MYP1.SGM 12MYP1

Agencies

[Federal Register Volume 80, Number 91 (Tuesday, May 12, 2015)]
[Proposed Rules]
[Pages 27109-27114]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-10553]


-----------------------------------------------------------------------

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 745

RIN 3133-AE49


Share Insurance and Appendix

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The NCUA Board (Board) proposes to amend its share insurance 
regulations to implement statutory

[[Page 27110]]

amendments to the Federal Credit Union Act (FCU Act) resulting from the 
recent enactment of the Credit Union Share Insurance Fund Parity Act 
(Insurance Parity Act). The statutory amendments require NCUA to 
provide enhanced, pass-through share insurance for interest on lawyers 
trust accounts (IOLTA) and other similar escrow accounts. As its name 
implies, the Insurance Parity Act ensures that NCUA and the Federal 
Deposit Insurance Corporation (FDIC) insure IOLTAs and other similar 
escrow accounts in an equivalent manner.

DATES: Comments must be received on or before July 13, 2015.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web site: http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx. Follow the instructions for submitting comments.
     Email: Address to regcomments@ncua.gov. Include ``[Your 
name] Comments on Proposed Rule--Part 745'' in the email subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for email.
     Mail: Address to Gerard Poliquin, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    Public Inspection: You may view all public comments on NCUA's Web 
site at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as 
submitted, except for those we cannot post for technical reasons. NCUA 
will not edit or remove any identifying or contact information from the 
public comments submitted. You may inspect paper copies of comments in 
NCUA's law library at 1775 Duke Street, Alexandria, Virginia 22314, by 
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, 
call (703) 518-6546 or send an email to OGCMail@ncua.gov.

FOR FURTHER INFORMATION CONTACT: Frank Kressman, Associate General 
Counsel, Office of General Counsel, at the above address or telephone 
(703) 518-6540.

SUPPLEMENTARY INFORMATION: 

I. Background
II. Summary of the Proposed Rule
III. Regulatory Procedures

I. Background

A. History of IOLTAs

    According to the National Association of IOLTA Programs (NAIP),\1\ 
IOLTA programs began in Australia and Canada in the late 1960s to 
generate funds for legal services to the poor.\2\ In the United States, 
Congress passed legislation in the 1980s permitting the establishment 
of certain interest-bearing checking accounts,\3\ which, among many 
things, helped to enable the creation of IOLTA accounts throughout the 
United States. The various states operate IOLTA programs pursuant to 
their own laws.\4\
---------------------------------------------------------------------------

    \1\ The NAIP was established in 1986 to enhance legal services 
for the poor and for the administration of justice through the 
growth and development of IOLTA programs. http://www.iolta.org/about-naip.
    \2\ http://www.iolta.org/what-is-iolta/iolta-history.
    \3\ The Depository Institutions Deregulation and Monetary 
Control Act of 1980 (Pub. L. 96-221; 94 Stat. 132).
    \4\ http://www.americanbar.org/groups/interest_lawyers_trust_accounts/resources/status_of_iolta_programs.html. As determined by each state, an IOLTA 
program may be mandatory, voluntary, or an attorney may opt out of 
the program.
---------------------------------------------------------------------------

    Under an IOLTA program, an attorney or law firm may establish an 
account at one or more financial institutions to hold their clients' 
funds to pay for legal services or for other purposes. An attorney or a 
law firm would deposit clients' funds in one or more IOLTAs and hold 
these funds in trust until needed. Typically, the interest or dividends 
on IOLTAs are donated to charities or other 501(c)(3) tax exempt 
organizations pursuant to state law. Generally, the donated funds are 
used to subsidize legal aid services or for other charitable purposes.

B. The Credit Union Share Insurance Fund Parity Act of 2014

    On December 18, 2014, President Obama signed into law the Insurance 
Parity Act.\5\ The Insurance Parity Act amended the share insurance 
provisions of the FCU Act by requiring enhanced, pass-through share 
insurance coverage for IOLTAs and other similar escrow accounts.\6\ The 
Insurance Parity Act specifically defines ``pass-through share 
insurance,'' with respect to IOLTAs and other similar escrow accounts, 
as ``insurance coverage based on the interest of each person on whose 
behalf funds are held in such accounts by the attorney administering 
the IOLTA or the escrow agent administering a similar escrow account, 
in accordance with regulations issued by [NCUA].'' \7\
---------------------------------------------------------------------------

    \5\ Public Law 113-252, 128 Stat. 2893 (2014).
    \6\ 12 U.S.C. 1787(k).
    \7\ Public Law 113-252, 128 Stat. 2893 (2014).
---------------------------------------------------------------------------

    The Insurance Parity Act defines an IOLTA as ``a system in which 
lawyers place certain client funds in interest-bearing or dividend-
bearing accounts, with the interest or dividends then used to fund 
programs such as legal service organizations who provide services to 
clients in need.'' \8\ Pursuant to the Insurance Parity Act, IOLTAs are 
treated as escrow accounts for share insurance purposes. Further, 
IOLTAs and other similar escrow accounts are considered member accounts 
if the attorney administering the IOLTA or the escrow agent 
administering the escrow account is a member of the insured credit 
union in which the funds are held.\9\
---------------------------------------------------------------------------

    \8\ Id.
    \9\ The Insurance Parity Act also emphasizes that its amendments 
to the FCU Act do not authorize an insured credit union to accept 
deposits of an IOLTA or similar escrow account in an amount greater 
than such credit union is authorized to accept under any other 
provisions of federal or state law.
---------------------------------------------------------------------------

C. Comparison of FDIC's and NCUA's Current Insurance Regulations 
Regarding IOLTAs

    The FDIC's deposit insurance regulations \10\ do not specifically 
mention IOLTAs by name. Rather, the FDIC insures an IOLTA as an agent 
or nominee account. To be insured by the FDIC, an agent or nominee 
account like an IOLTA must expressly disclose, by way of specific 
reference, the existence of any fiduciary relationship such as an agent 
or nominee pursuant to which funds are deposited into a bank account 
and on which a claim for deposit insurance coverage is based. The FDIC 
has stated that such an account, including an IOLTA, must disclose that 
the funds are held by the nominal account holder on the behalf of 
others.\11\ To be insurable, the FDIC must be able to ascertain the 
interests of the other parties in the IOLTA from the records of the 
insured depository institution or from the records of the lawyer.\12\ 
Funds attributable to each client will be insured on a pass-through 
basis if this recordkeeping requirement is satisfied.\13\
---------------------------------------------------------------------------

    \10\ 12 CFR part 330.
    \11\ FDIC Opinion Letter No. 98-2 (June 16, 1998) at https://www.fdic.gov/regulations/laws/rules/4000-9940.html.
    \12\ Id.
    \13\ Id.
---------------------------------------------------------------------------

    Prior to the enactment of the Insurance Parity Act, NCUA's position 
with respect to the insurability of IOLTAs was very similar to FDIC's, 
except that NCUA's coverage was limited only to those clients of the 
attorney who were also members of the insured credit union in which the 
IOLTA was kept. This was due to the FCU Act's general limitation to 
insure only member accounts, with some

[[Page 27111]]

exceptions not relevant to this discussion.
    Federally insured credit unions believed they were placed at a 
competitive disadvantage because of this treatment. With the enactment 
of the Insurance Parity Act, however, this disadvantage has been 
removed. Specifically, provided the lawyer administering the IOLTA or 
the escrow agent administering a similar escrow account is a member of 
the insured credit union in which such account is maintained, then the 
interests of each client or principal, regardless of that person's 
membership status, on whose behalf funds are being held in such 
accounts by the lawyer or escrow agent, will be insured on a pass-
through basis in accordance with the limits in part 745 of NCUA's 
regulations. In an IOLTA and other similar escrow accounts, the true 
owners of the funds are the clients and principals. The lawyers or law 
firms and the escrow agents are only agents holding the funds on the 
clients' and principal's behalf.

II. Summary of the Proposed Rule

A. Why is NCUA issuing this rule as a proposal?

    The language of the Insurance Parity Act clearly states that NCUA 
shall provide pass-through share insurance for IOLTAs, and it defines 
what an IOLTA is. Given this level of clarity, NCUA takes the position 
that share insurance coverage for IOLTAs is currently in place and has 
been since the enactment of the Insurance Parity Act, even without any 
regulatory action on NCUA's part. No implementing regulations are 
required to effect this aspect of the legislation. However, other 
aspects of the legislation do require NCUA to take regulatory action.
    Additionally, some of the language in the Insurance Parity Act is 
ambiguous and leaves unanswered certain questions. For example, these 
questions include:
     What escrow accounts should be included in the category 
``other similar escrow accounts'' as that phrase is used in the 
Insurance Parity Act?
     Should prepaid card programs, such as payroll cards, be 
considered IOLTAs or other similar escrow accounts for share insurance 
purposes?
     What recordkeeping requirements must be satisfied to 
receive share insurance on IOLTAs and other similar escrow accounts?
     Does the enhanced share insurance coverage provided by the 
Insurance Parity Act affect the Bank Secrecy Act (BSA) requirements for 
insured credit unions?
     Should nonmember funds kept in a federal credit union as a 
result of the enhanced share insurance coverage provided by the 
Insurance Parity Act count towards a federal credit union's limit on 
the receipt of payments on shares from nonmembers pursuant to Sec.  
701.32 of NCUA's regulations?
    As discussed below in this rulemaking, NCUA analyzes the above 
questions and proposes how each should be addressed. NCUA seeks public 
comment on alternative interpretations of the Insurance Parity Act and 
alternative regulatory approaches that commenters believe are 
appropriate and beneficial. However, NCUA reiterates that despite the 
proposed nature of this rulemaking, IOLTA share insurance coverage is 
currently in place and will remain in place regardless of the direction 
any subsequent final rule may take.

B. Pass-Through Share Insurance for IOLTAs and Other Similar Escrow 
Accounts

    As noted above, the Insurance Parity Act defines ``pass-through 
share insurance,'' with respect to IOLTAs and other similar escrow 
accounts, as ``insurance coverage based on the interest of each person 
on whose behalf funds are held in such accounts by the attorney 
administering the IOLTA or the escrow agent administering a similar 
escrow account, in accordance with regulations issued by [NCUA].\14\ 
NCUA believes this definition is clear and accurate. Also, it is 
consistent with how NCUA currently defines ``pass-through share 
insurance'' in its share insurance regulations relating to coverage of 
certain employee benefit plans.\15\ NCUA proposes to adopt this 
statutory definition of ``pass-through share insurance'' as the 
regulatory definition of that term in part 745.
---------------------------------------------------------------------------

    \14\ Public Law 113-252, 128 Stat. 2893 (2014).
    \15\ 12 U.S.C. 1787(k)(4); 12 CFR 745.9-2.
---------------------------------------------------------------------------

C. What escrow accounts should be included in the category ``other 
similar escrow accounts'' as that phrase is used in the Insurance 
Parity Act?

    The Insurance Parity Act provides that, for share insurance 
purposes, IOLTAs are treated as escrow accounts. It also provides that 
pass-through insurance coverage is available for other kinds of escrow 
accounts that are similar to IOLTAs. However, the Insurance Parity Act 
does not define or further describe what constitutes an escrow account 
that is ``similar'' to an IOLTA. The Insurance Parity Act defines an 
IOLTA as ``a system in which lawyers place certain client funds in 
interest-bearing or dividend-bearing accounts, with the interest or 
dividends then used to fund programs such as legal service 
organizations who provide services to clients in need.''
    NCUA is tasked with defining the kinds of escrow accounts that are 
similar enough to IOLTAs to be eligible for pass-through share 
insurance as discussed above. NCUA acknowledges the challenge to 
describe with precision the circumstances under which such coverage 
should be provided. There are many different kinds of escrow accounts 
in use with varying forms and structures. Also, ``similar'' is a 
relative term that may necessitate NCUA reviewing escrow accounts with 
varying structures on a case-by-case basis to determine which are 
similar enough to IOLTAs to receive pass-through insurance coverage.
    Despite the amorphous nature of escrow accounts, NCUA believes it 
is important to provide insured credit unions with as much regulatory 
clarity and certainty as possible about which escrow accounts are 
considered similar enough to IOLTAs to receive pass-through insurance 
coverage. NCUA seeks to avoid, to the greatest extent possible, the 
need to make case-by-case analyses of escrow accounts as that process 
is labor intensive and inefficient, and it creates uncertainty for 
insured credit unions.
    There are some escrow accounts whose nature and structure are 
immediately recognizable as similar to an IOLTA. For example, typical 
realtor escrow accounts and prepaid funeral accounts have attributes 
that, while not identical to IOLTAs, are similar to IOLTAs and should 
be entitled to pass-through share insurance coverage. One of the 
signature characteristics common to typical realtor accounts, prepaid 
funeral accounts, and IOLTAs is that each of these kinds of account has 
a licensed professional or other individual serving in a fiduciary 
capacity and holding funds for the benefit of a client as part of some 
transaction or business relationship. Accordingly, at a minimum, NCUA 
proposes to extend pass-through share insurance coverage to escrow 
accounts with these characteristics, up to the limits provided for in 
part 745 of NCUA's regulations. However, NCUA encourages commenters to 
identify and discuss other kinds of escrow accounts, in addition to 
realtor and prepaid funeral accounts, which also have characteristics 
similar enough to IOLTAs to warrant pass-through insurance coverage.
    Accordingly, NCUA requests comment on the following: (1) What

[[Page 27112]]

kinds of escrow accounts should qualify for pass-through share 
insurance coverage and why; (2) what specific attributes these escrow 
accounts need to possess to obtain coverage; (3) how NCUA can define 
these accounts to capture their essence and minimize the need for case-
by-case analyses of their characteristics; and (4) any other aspect of 
this topic. In addition, NCUA specifically invites comment on whether 
it is appropriate to limit the pool of other similar escrow accounts to 
those where a recognizable fiduciary duty is owed by the escrow agent 
to the principal.
Prepaid Cards
    NCUA welcomes comments on its proposed treatment of prepaid card 
programs. To put this in context and provide background information 
about such programs, we include the following excerpt on prepaid cards 
from the Federal Financial Institutions Examination Council's Web 
site.\16\
---------------------------------------------------------------------------

    \16\ http://ithandbook.ffiec.gov/it-booklets/retail-payment-systems/payment-instruments,-clearing,-and-settlement/card-based-electronic-payments/prepaid-(stored-value)-cards.aspx.

    The market for prepaid cards, sometimes called stored-value 
cards, is one of the fastest-growing segments of the retail 
financial services industry. While the terms prepaid cards and 
stored-value cards are frequently used interchangeably, differences 
exist between the two products.
    Prepaid cards are generally issued to persons who deposit funds 
into an account of the issuer. During the funds deposit process, 
most issuers establish an account and obtain identifying data from 
the purchaser (e.g., name, phone number, etc.).
    Stored-value cards do not typically involve a deposit of funds 
as the value is prepaid and stored directly on the cards. Because 
its business model requires cardholders to pay in advance, it 
substantially eliminates the nonpayment risk for the issuing 
financial institution. The functionality of this product is leading 
to a wide range of card programs that operate in either closed or 
open-loop systems, and program innovation has resulted in the 
development of systems that operate in both structures. Closed-loop 
systems are generally retailer/issuer business models, while 
general-purpose cards issued by financial institutions tend to 
operate in open-loop systems. Open-loop system prepaid cards are 
processed using the same systems as the branded network cards 
(MasterCard, Visa, American Express, and Discover) and offer the 
same functionality.
    In the past, prepaid cards were mostly issued by nonfinancial 
businesses in limited deployment environments such as mass transit 
systems and universities. In recent years, prepaid cards have grown 
significantly as financial institutions and nonbank organizations 
target under-banked markets and overseas remittances. Technological 
innovations in the way information is stored (e.g., magnetic strip 
or computer chip), the physical form of the payment mechanism, and 
biometric account access and authentication are converging to create 
efficiencies, reduce transaction times at the point of sale, and 
lower transaction costs.
    There are several types of prepaid cards, including gift, 
payroll, travel, and teen cards. Either the consumer or an issuer 
funds the account for the card. When a consumer uses the card to 
make a purchase, the merchant deducts the amount of the purchase 
from the card. Transaction authorization can take place through an 
existing network, a chip stored on the card, or information coded on 
the magnetic strip. Once the stored value in the card is exhausted, 
customers may either replenish the value or acquire a new card.
    In addition to cards, stored-value payment devices are emerging 
in a variety of other physical forms, most notably key fobs. With 
the recent introduction of contactless payment technologies, use of 
chips (smart cards), radio frequency identification (RFID), and 
near-field communication (NFC) payment devices are becoming more 
innovative. Initiatives are underway to introduce mobile phones with 
integrated microchips that can initiate a payment when waved over a 
specially-equipped reader. The integrated chip can store value, 
authenticate a consumer, or contain consumer preferences and loyalty 
program information that can be used for marketing purposes.
    Prepaid cards may be subject to legal and regulatory risks. For 
example, the Federal Reserve Board's final rule on Regulation E, 
issued August 30, 2006, extended its applicability to prepaid cards 
used for consumers' payroll. The Federal Reserve Board noted that it 
will monitor the development of other card products and may 
reconsider Regulation E coverage as these products continue to 
develop. State laws vary widely with regard to fees. Additionally, 
financial institutions should ensure that prepaid card product 
programs comply with the Bank Secrecy Act and anti-money laundering 
guidance.

    NCUA generally does not believe that prepaid card programs, such as 
payroll cards, should be considered escrow accounts similar to IOLTAs 
for share insurance purposes because the characteristics that define an 
attorney's relationship with, and the fiduciary duties owed to, the 
attorney's clients are typically not present in the prepaid card 
scenario. An IOLTA and a prepaid card program serve very different 
purposes and usually have completely different structures. NCUA does 
not believe that a prepaid card program is always sufficiently similar 
to an IOLTA, for purposes of the Insurance Parity Act, to qualify for 
pass-through share insurance coverage as an escrow account similar to 
an IOLTA. However, the Board is interested in receiving comments about 
prepaid card programs that may be sufficiently similar to IOLTAs.
    Under certain circumstances some prepaid card programs may be 
entitled to pass-through share insurance coverage under some other 
aspects of part 745, not related to IOLTAs. For example, if funds in a 
prepaid card program deposited in a federally insured credit union 
qualify as a share account that can be traced back to a specific owner 
in a specific amount and the owner is a member of the credit union 
where the funds are kept, then those funds would be entitled to share 
insurance pursuant to the terms and limits of part 745.

D. What recordkeeping requirements must be met to receive share 
insurance on IOLTAs and other similar escrow accounts?

    FDIC's deposit insurance regulations provide that the FDIC will 
recognize a claim for insurance coverage based on a fiduciary 
relationship (such as an IOLTA or escrow account) only if the 
relationship is expressly disclosed, by way of specific references, in 
the deposit account records of the insured depository institution.\17\ 
FDIC's deposit insurance regulations further provide that if the 
deposit account records of an insured depository institution disclose 
the existence of a relationship which might provide a basis for 
additional insurance, then the details of the relationship and the 
interests of other parties in the account must be ascertainable either 
from the deposit account records of the insured depository institution 
or from records maintained, in good faith and in the regular course of 
business, by the depositor or by some person or entity that has 
undertaken to maintain such records for the depositor.\18\
---------------------------------------------------------------------------

    \17\ 12 CFR 330.5(b)(1).
    \18\ 12 CFR 330.5(b)(2).
---------------------------------------------------------------------------

    Similarly, NCUA's current share insurance regulations provide that 
the account records of an insured credit union shall be conclusive as 
to the existence of any relationship pursuant to which the funds in the 
account are deposited and on which a claim for insurance coverage is 
founded. Examples of such relationships would include trustee, agent, 
and custodian.\19\ These kinds of accounts also include IOLTA and other 
escrow accounts similar to IOLTAs. NCUA will not recognize a claim for 
insurance based on such a relationship in the absence of such 
disclosure. Further, NCUA's share insurance regulations provide that if 
the account records of an insured credit union disclose the existence 
of a relationship which may provide a basis for additional insurance, 
then the details of the relationship and the

[[Page 27113]]

interests of other parties in the account must be ascertainable either 
from the records of the credit union or the records of the member 
maintained in good faith and in the regular course of business.\20\
---------------------------------------------------------------------------

    \19\ 12 CFR 745.2(c)(1).
    \20\ 12 CFR 745.2(c)(2).
---------------------------------------------------------------------------

    IOLTAs and other similar escrow accounts exemplify the kinds of 
accounts in which a relationship exists upon which a claim for 
insurance coverage could be founded. They are among the kinds of 
accounts that NCUA's regulations are intended to cover. Accordingly, 
based on NCUA's current share insurance regulations, for IOLTAs and 
other similar escrow accounts to receive the share insurance covered to 
which they are entitled, the recordkeeping provisions of NCUA's share 
insurance regulations must be satisfied. No additional recordkeeping 
requirements are imposed by the Insurance Parity Act. Therefore, NCUA 
is not proposing any regulatory changes or additions in this regard, 
but nonetheless welcomes comments on this topic.

E. Does the enhanced share insurance coverage provided by the Insurance 
Parity Act affect the BSA requirements for insured credit unions?

    It is not the purpose of this proposed rule to discuss in detail an 
insured credit union's BSA requirements. Accordingly, this is just a 
reminder to insured credit unions that they continue to have BSA 
responsibilities for IOLTAs and other similar escrow accounts and that 
they should continue to be vigilant in that regard. This is especially 
true considering that IOLTAs and other similar escrow accounts will 
begin to contain funds for nonmembers which are likely not known by the 
credit unions in which the accounts are kept. NCUA does not propose to 
make any regulatory changes in this regard, but nonetheless welcomes 
comments.

F. Do nonmember funds kept in the credit union as a result of the 
enhanced share insurance coverage provided by the Insurance Parity Act 
count towards a federal credit union's limit on the receipt of payments 
on shares from nonmembers pursuant to Sec.  701.32 of NCUA's 
regulations?

    The Insurance Parity Act provides that IOLTAs and other similar 
escrow accounts are considered member accounts if the attorney 
administering the IOLTA or the escrow agent administering the escrow 
account is a member of the insured credit union in which the funds are 
held. NCUA believes that if an IOLTA or other similar escrow account 
satisfies the above requirement and, therefore, is treated by the 
Insurance Parity Act as a member account, then the IOLTA or other 
similar escrow account also should be considered a member account for 
purposes of Sec.  701.32 of NCUA's regulations. Therefore, funds in 
those member accounts do not count towards a federal credit union's 
limit on the receipt of payments on shares from nonmembers pursuant to 
Sec.  701.32 of NCUA's regulations.\21\ Accordingly, NCUA does not 
propose any regulatory changes in this regard but welcomes comments.
---------------------------------------------------------------------------

    \21\ 12 CFR 701.32.
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III. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a regulation may have on a 
substantial number of small entities.\22\ For purposes of this 
analysis, NCUA considers small credit unions to be those having under 
$50 million in assets.\23\ This rulemaking implements the Insurance 
Parity Act, which enhances share insurance coverage for IOLTAs and 
other similar escrow accounts. Accordingly, NCUA certifies the 
rulemaking will not have a significant economic impact on a substantial 
number of small credit unions.
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    \22\ 5 U.S.C. 603(a).
    \23\ Interpretive Ruling and Policy Statement 03-2, 68 FR 31949 
(May 29, 2003), as amended by Interpretative Ruling and Policy 
Statement 13-1, 78 FR 4032 (Jan. 18, 2013).
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Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency by rule creates a new paperwork burden on regulated 
entities or modifies an existing burden.\24\ For purposes of the PRA, a 
paperwork burden may take the form of either a reporting or a record-
keeping requirement, both referred to as information collections. This 
proposal, which enhances share insurance coverage for IOLTAs and other 
similar escrow accounts, will not create new paperwork burdens or 
modify any existing paperwork burdens.
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    \24\ 44 U.S.C. 3507(d); 5 CFR part 1320.
---------------------------------------------------------------------------

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 rulemaking will not have a substantial 
direct effect on the states, on the connection between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. NCUA has 
determined this rulemaking does not constitute a policy that has 
federalism implications for purposes of the executive order.

Assessment of Federal Regulations and Policies on Families

    NCUA has determined that this rulemaking will not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999.\25\
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    \25\ Public Law 105-277, 112 Stat. 2681 (1998).
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List of Subjects in 12 CFR Part 745

    Credit, Credit unions, Share Insurance.

    By the National Credit Union Administration Board on April 30, 
2015.
Gerard Poliquin,
Secretary of the Board.

    For the reasons stated above, NCUA proposes to amend 12 CFR part 
745 as follows:

PART 745--SHARE INSURANCE AND APPENDIX

0
1. The authority for part 745 continues to read as follows:

    Authority: 12 U.S.C. 1752(5), 1757, 1765, 1766, 1781, 1782, 
1787, 1789; title V, Pub. L. 109-351; 120 Stat. 1966.


Sec.  745.14  [Removed].

0
2. Remove Sec.  745.14 from subpart B.
0
3. Add a new Sec.  745.14 to subpart A to read as follows:


Sec.  745.14  Interest on lawyers trust accounts and other similar 
escrow accounts.

    (a) Pass-through share insurance. (1) The deposits or shares of any 
interest on lawyers trust account (IOLTA) or other similar escrow 
account in an insured credit union are insured on a ``pass-through'' 
basis, in the amount of up to the SMSIA for each client and principal 
on whose behalf funds are held in such accounts by either the attorney 
administering the IOLTA or the escrow agent administering a similar 
escrow account, in accordance with the other share insurance provisions 
of this part.
    (2) Pass-through coverage will only be available if the 
recordkeeping requirements of Sec.  745.2(c)(1) and the relationship 
disclosure requirements of

[[Page 27114]]

Sec.  745.2(c)(2) are satisfied. In the event those requirements are 
satisfied, funds attributable to each client and principal will be 
insured on a pass-through basis in whatever right and capacity the 
client or principal owns the funds. For example, an IOLTA or other 
similar escrow account must be titled as such and the underlying 
account records of the insured credit union must sufficiently indicate 
the existence of the relationship on which a claim for insurance is 
founded. The details of the relationship between the attorney or escrow 
agent and their clients and principals must be ascertainable from the 
records of the insured credit union or from records maintained, in good 
faith and in the regular course of business, by the attorney or the 
escrow agent administering the account. NCUA will determine, in its 
sole discretion, the sufficiency of these records for an IOLTA or other 
similar escrow account.
    (b) Membership requirements and treatment of IOLTAs. For share 
insurance purposes, IOLTAs are treated as escrow accounts. IOLTAs and 
other similar escrow accounts are considered member accounts and 
eligible for pass-through share insurance if the attorney administering 
the IOLTA or the escrow agent administering the escrow account is a 
member of the insured credit union in which the funds are held. In this 
circumstance, the membership status of the clients or the principals is 
irrelevant.
    (c) Definitions. (1) For purposes of this section:
    Interest on lawyers trust account (IOLTA) means a system in which 
lawyers place certain client funds in interest-bearing or dividend-
bearing accounts, with the interest or dividends then used to fund 
programs such as legal service organizations who provide services to 
clients in need.
    Other similar escrow account means an account where a licensed 
professional or other individual serving in a fiduciary capacity holds 
funds for the benefit of a client as part of a transaction or business 
relationship, such as realtor accounts and prepaid funeral accounts.
    Pass-through share insurance means, with respect to IOLTAs and 
other similar escrow accounts, insurance coverage based on the interest 
of each person on whose behalf funds are held in such accounts by the 
attorney administering the IOLTA or the escrow agent administering a 
similar escrow account.
    (2) The terms ``Interest on lawyers trust account'', ``IOLTA'', and 
``Pass-through share insurance'' are given the same meaning in this 
section as in 12 U.S.C. 1787(k)(5).

[FR Doc. 2015-10553 Filed 5-11-15; 8:45 am]
 BILLING CODE 7535-01-P