Loans to Members and Lines of Credit to Members, 10971-10976 [2019-05186]
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10971
Rules and Regulations
Federal Register
Vol. 84, No. 57
Monday, March 25, 2019
This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.
NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Part 701
RIN 3133–AE88
Loans to Members and Lines of Credit
to Members
National Credit Union
Administration (NCUA).
ACTION: Final rule.
AGENCY:
The NCUA Board (Board) is
amending its regulations regarding loans
to members and lines of credit to
members to reduce regulatory burden,
improve clarity, and make compliance
easier. The amendments make the
NCUA’s regulations more user friendly
by identifying in one section all of the
various maturity limits applicable to
federal credit union (FCU) loans, stating
that the maturity date for a new loan
under generally accepted accounting
principles (GAAP) is calculated from
the origination date of the new loan, and
more clearly expressing the limits for
loans to a single borrower or group of
associated borrowers.
DATES: The effective date for this rule is
April 24, 2019.
FOR FURTHER INFORMATION CONTACT:
Thomas I. Zells, Staff Attorney, Office of
General Counsel, at 1775 Duke Street,
Alexandria, VA 22314 or telephone:
(703) 548–2478.
SUPPLEMENTARY INFORMATION:
SUMMARY:
I. Background
II. Final Rule and Summary of Comments
III. Section-by-Section Analysis
IV. Legal Authority
V. Regulatory Procedures
I. Background
In August 2017,1 the Board published
and sought comment on the NCUA
Regulatory Reform Task Force’s (Task
Force) first report on implementing the
agency’s regulatory reform agenda
(Agenda). The Agenda identifies those
1 82
FR 39702 (Aug. 22, 2017).
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regulations the Board intends to amend
or repeal because they are outdated,
ineffective, or excessively burdensome.2
The Board published the Task Force’s
second and final report in December
2018.3 The final report contains the
Task Force’s updated recommendations
and a refined blueprint for
implementing the Agenda.
A number of the items in the Agenda
relate to the NCUA’s regulations on
loans to members and lines of credit to
members.4 The Board issued a proposed
rule in August 2018 to address those
items and to request further public
comment on other issues.5 More
specifically, the Board proposed
changes to make the NCUA’s regulations
more user friendly by: (1) Identifying in
one section the various maturity limits
applicable to FCU loans; (2) clarifying
that the maturity for a ‘‘new loan’’ under
GAAP is calculated from the new date
of origination; 6 and (3) more clearly
expressing the limits in place for loans
to a single borrower or group of
associated borrowers. The Board also
sought advanced comment on: (1)
Whether the NCUA should provide for
longer, more flexible maturity limits for
certain loans as permitted by section
107(5)(A)(i)–(ii) of the FCU Act; and (2)
whether the NCUA should establish a
single universal limit for loans to a
single borrower or group of associated
borrowers in lieu of the current system
of having various limits depending on
the type of loan.7
For the reasons discussed below, the
Board is adopting the proposed rule
largely as proposed. The NCUA is also
continuing to evaluate the comments
received on the issues for which it
sought advanced comment. Any
regulatory amendments that the Board
decides to propose based on the
2 This is consistent with the spirit of the
President’s regulatory reform agenda and Executive
Order 13777. Although the NCUA, as an
independent agency, is not required to comply with
Executive Order 13777, the Board has chosen to
comply with it in spirit and has reviewed all of the
NCUA’s regulations to that end.
3 83 FR 65926 (Dec. 21, 2018).
4 12 CFR 701.21.
5 83 FR 39622 (Aug. 10, 2018).
6 GAAP is defined as generally accepted
accounting principles in the United States as set
forth in the Financial Accounting Standards Board’s
(FASB) Accounting Standards Codification (ASC).
7 The proposal sought advanced stakeholder
comment on these related issues to help the Board
determine what, if any, changes the agency should
consider proposing in the future.
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advanced comments will be done
through the NCUA’s normal notice and
comment rulemaking process to comply
with the Administrative Procedure Act
(APA).8
II. Final Rule and Summary of
Comments
The NCUA received 31 comments on
the proposed rule. Those comments
generally fell into three categories: (1)
Comments addressing the technical and
clarifying changes the NCUA
specifically proposed; (2) comments
addressing the issues on which the
NCUA sought advanced comment; and
(3) comments addressing subjects
outside the scope of the proposed
amendments. Commenters were
overwhelmingly supportive of the
technical and clarifying changes that the
proposal made with no commenters
generally opposing the proposed
changes. As stated above, the Board is
finalizing these changes largely as
proposed.
The majority of commenters heavily
focused on the issues on which the
NCUA sought advanced comment,
namely: (1) Potential alternate maturity
limits; and (2) a potential universal limit
on loans to one borrower. The Board
reiterates that the proposal sought
advanced stakeholder input on these
topics with an eye toward making future
regulatory amendments. Any future
changes related to this request for
advanced comment will be done
through the NCUA’s normal notice and
comment rulemaking process to comply
with the APA. It is worth noting that, as
a general matter, commenters expressed
confusion about the maturities
applicable to various types of loans and
the NCUA’s authority to alter them.
Commenters also addressed a number of
issues that were largely unrelated to the
issues on which the proposal sought
comment. The Board will continue to
evaluate these comments, but notes that
such unrelated comments are outside
the scope of this rulemaking and would
require separate future action.
A. Loan Maturity Limits for Federal
Credit Unions
Section 107(5) of the Federal Credit
Union Act (FCU Act) grants FCUs the
power ‘‘to make loans, the maturities of
which shall not exceed 15 years, except
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as otherwise provided herein.’’ 9 The
NCUA implemented this general
maturity limit in § 701.21(c)(4) of its
regulations. Sections 107(5)(A)(i)–(iii) of
the FCU Act provide exceptions to the
general 15-year maturity limit, which
have been implemented in § 701.21(e)
through (g) of the NCUA’s regulations.
Section 107(5)(A)(i) of the FCU Act,
implemented in § 701.21(g) of the
NCUA’s regulations, states that ‘‘a
residential real estate loan on a one-tofour-family dwelling, including an
individual cooperative unit, that is or
will be the principal residence of a
credit union member, and which is
secured by a first lien upon such
dwelling, may have a maturity not
exceeding thirty years or such other
limits as shall be set by the National
Credit Union Administration Board
(except that a loan on an individual
cooperative unit shall be adequately
secured as defined by the Board),
subject to the rules and regulations of
the Board.’’ 10 Pursuant to its authority
in section 107(5)(A)(i) of the FCU Act to
set alternate maturities for covered 1–4
family real estate loans, the Board has
established a 40-year maximum
maturity for such loans and has
provided that longer periods may be
permitted by the Board on a case-bycase basis.11
Section 107(5)(A)(ii) of the FCU Act,
implemented in § 701.21(f) of the
NCUA’s regulations, states that ‘‘a loan
to finance the purchase of a mobile
home, which shall be secured by a first
lien on such mobile home, to be used
by the credit union member as his
residence, a loan for the repair,
alteration, or improvement of a
residential dwelling which is the
residence of a credit union member, or
a second mortgage loan secured by a
residential dwelling which is the
residence of a credit union member,
shall have a maturity not to exceed 15
years or any longer term which the
Board may allow.’’ 12 Pursuant to its
authority in § 107(5)(A)(ii) to set
alternate maturities for covered loans,
the Board has established a 20-year
maximum maturity for such loans.13
9 12
U.S.C. 1757(5).
U.S.C. 1757(5)(A)(i) (emphasis added); 12
CFR 701.21(g).
11 12 CFR 701.21(g)(1) (stating that ‘‘[a] federal
credit union may make residential real estate loans
to members, including loans secured by
manufactured homes permanently affixed to the
land, with maturities of up to 40 years, or such
longer period as may be permitted by the NCUA
Board on a case-by-case basis, subject to the
conditions of this paragraph’’).
12 12 U.S.C. 1757(5)(A)(ii) (emphasis added); 12
CFR 701.21(f).
13 12 CFR 701.21(f)(1) (stating that
‘‘[n]otwithstanding the general 15-year maturity
10 12
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Finally, section 107(5)(A)(iii) of the
FCU Act, implemented in § 701.21(e) of
the NCUA’s regulations, states that ‘‘a
loan secured by the insurance or
guarantee of, or with advance
commitment to purchase the loan by,
the Federal Government, a State
Government, or any agency of either
may be made for the maturity and under
the terms and conditions specified in
the law under which such insurance,
guarantee, or commitment is
provided.’’ 14
i. Identifying the Various Maturity
Limits in One Section
Section 701.21 of the NCUA’s
regulations addresses various loan
maturity limits in paragraphs (c), (e), (f),
and (g). Paragraph (c) provides the
general rules applicable to all loans to
members and, where indicated, all lines
of credit (including credit cards) to
members, except as otherwise provided
in the remaining provisions of § 701.21.
Paragraph (c)(4) implements the general
15-year maturity limit that § 107(5) of
the FCU Act places on loans to
members. Paragraphs (e), (f), and (g) of
§ 701.21 implement the three exceptions
to this general 15-year limit that appear
in section 107(5)(A)(i)–(iii) of the FCU
Act.
Having the various maturity limits
spread among numerous sections of the
NCUA’s regulations, often separated by
large amounts of regulatory text
unrelated to maturities, can be
confusing to a reader and makes it more
difficult to understand the lending
regulations. To remedy this, in the
proposed rule, the Board proposed to
make the NCUA’s loan maturity
requirements more understandable and
user friendly by identifying in one
section (§ 701.21(c)(4)), including crosscitations, all of the maturity limits
applicable to FCU loans.
More than half of the comments
received specifically offered support for
the NCUA’s efforts to provide more
regulatory clarity and make compliance
easier by identifying all loan maturity
requirements in one section and adding
cross-citations. No commenters opposed
the changes. As such, the NCUA is
adopting these changes as proposed.
ii. The Treatment of Maturities for
Lending Actions That Qualify as ‘‘New
Loans’’ Under GAAP
The proposal also clarified that, in the
case of a lending action qualifying as a
‘‘new loan’’ under GAAP, the maturity
limit on loans to members, a federal credit union
may make loans with maturities of up to 20 years’’
for loans covered by this paragraph.).
14 12 U.S.C. 1757(5)(A)(iii); 12 CFR 701.21(e).
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limit is calculated from the new date of
origination.15 The Board proposed to
accomplish this by adding language to
§ 701.21(c)(4), which articulates the
general 15-year maturity limit. The
Board is adopting the proposal without
change.
Nearly one-third of commenters
addressed this aspect of the proposal.
The vast majority of these commenters
explicitly supported the proposal.
Several commenters noted that it is
unclear if the proposal applies only to
new loan originations, loan
modifications, or both, and they
requested further clarity regarding the
proposal. To alleviate any potential
confusion, the Board clarifies that the
final rule applies to any lending action
that qualifies as a new loan under
GAAP, whether that action is a new
origination or a modification.
iii. Request for Comment on Providing
Longer Maturity Limits for Certain
Loans
In the proposal, the Board sought
advanced comment on whether it
should provide longer maturity limits
for 1–4 family real estate loans and
other loans (such as certain home
improvement, mobile home, and second
mortgage loans) as permitted by section
107(5)(A)(i)–(ii) of the FCU Act and
remove the case-by-case exception that
the Board can provide for covered 1–4
family real estate loans. As discussed
earlier, these maturity limits are
implemented in § 701.21(f) and (g) of
the NCUA’s regulations. The case-bycase exception is located in
§ 701.21(g)(1) of the NCUA’s regulations
and provides that the Board can permit
an FCU to make loans with maturities
that exceed the regulation’s 40-year
limit ‘‘on a case-by-case basis, subject to
the conditions of this paragraph (g).’’ 16
Nearly every commenter addressed
the various maturity limits in some
manner. Comments on the maturity
limits generally fell into three
categories: (1) Comments asking the
NCUA to take action the Board does not
believe it is authorized to take under the
FCU Act; (2) responses to the request for
advanced comment on actions the Board
does believe it is authorized to take
under the FCU Act, which the Board is
taking under advisement for future
rulemaking purposes; and (3)
unsolicited comments that are more
appropriately handled by guidance or
legal opinion.
Category 1. Many commenters
expressed displeasure with the general
15 ASC
16 12
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15-year maturity limit 17 and
specifically the 15-year maturity limit
on first-lien, 1–4 family real estate loans
that are not the principal residence of
the borrower. The Board has no
authority to alter this statutory limit.
Category 2. Commenters addressed
the following provisions on which the
Board sought advanced comment: (1)
The current 40-year maturity limit on
long-term residential real estate loans
where the 1–4 family unit is the
principal residence of the borrower; (2)
the case-by-case exception the Board
can use to grant maturity limits that
exceed 40 years on long-term residential
real estate loans; and (3) the 20-year
maturity limit for covered home
improvement, mobile home, and second
mortgage loans. While the Board has the
authority to amend these provisions,
they are beyond the scope of what the
Board proposed and thus under the
APA the Board cannot act on them now,
and would have to issue a new
proposed rule. The Board is taking these
comments under advisement and is
considering whether to issue a proposed
rule at a later date pursuant to the
NCUA’s normal notice and comment
rulemaking process.
Category 3. Commenters provided
unsolicited feedback on issues not
specifically raised in the proposed rule.
For example, several commenters
requested clarification on the proper
characterization of a loan on a
residential dwelling that includes a
detached structure on the same parcel of
land, such as a ‘‘mother-in-law suite.’’
The Board believes this is more
appropriately handled by guidance or
legal opinion and may take such action
later this year.
B. Single Borrower and Group of
Associated Borrowers Limits
i. More Clearly Identifying the Various
Limits
Three provisions of the NCUA’s
regulations address limits on loans to a
single borrower or group of associated
borrowers: (1) § 701.21(c)(5) Addresses
the general limit; (2) § 701.22(b)(5)(iv)
addresses the limit on loan
participations; and (3) § 723.4(c)
addresses the limit on commercial
loans. Because these provisions are
spread among several sections of the
NCUA’s regulations, some stakeholders
are not aware that there are multiple
limits that apply in different contexts.
To rectify this, the proposal made clear
that all three of these limits exist. Rather
than move the provisions that
specifically apply to loan participations
and commercial loans from their current
regulatory sections to the general limit
section, the NCUA proposed to include
cross-citations to the more specific loan
participation and commercial loan
limits in the general limit section
(§ 701.21(c)(5)).
Section 701.21(c)(5), as part of the
general rules on loans and lines of credit
to members, imposes the FCU Act’s ten
percent limit on loans and lines of
credit to any member.18 Specifically,
§ 701.21(c)(5) requires that ‘‘[n]o loan or
line of credit advance may be made to
any member if such loan or advance
would cause that member to be indebted
to the Federal credit union upon loans
and advances made to the member in
the aggregate amount exceeding 10% of
the credit union’s total unimpaired
capital and surplus.’’ 19 Section
701.21(c)(5) also provides an outdated
cross-citation to part 723 for the specific
limit on commercial lending. The
proposal removed this outdated crosscitation and provided updated
references to both the current loan
participation limit in § 701.22(b)(5) and
the commercial lending limit in
§ 723.4(c).
The Board also proposed conforming
amendments to update cross-citations to
the single borrower and group of
associated borrower limits in
§§ 701.20(c)(2) and 701.22(b)(1).
One-third of commenters addressed
the technical and clarifying
amendments the Board proposed related
to the limits on loans to a single
borrower or group of associated
borrowers. All of these commenters
supported adding internal crosscitations to more clearly identify the
various limits in the general lending,
loan participations, and commercial
lending regulations. Three of these
commenters specifically stated that this
would simplify compliance. Several
commenters noted confusion with the
current layout.
One commenter said that the fact that
part 741 incorporates applicable
provisions by reference compounds the
difficulty for federally insured, statechartered credit unions (FISCUs). The
commenter recommended that the
NCUA incorporate loan limitations
applicable to FISCUs in § 741.203 in
their entirety. The Board appreciates the
commenter’s suggestion, but does not
believe such a change is necessary for
FISCUs to understand the applicable
maturity limits.
Another commenter recommended
that, because the loan participation and
commercial loan limits also apply to a
18 12
17 12
U.S.C. 1757(5).
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U.S.C. 1757(5)(A)(x).
CFR 701.21(c)(5).
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10973
group of associated borrowers, the
NCUA should also include in the
general lending regulations reference
and cross-citations to the ‘‘associated
borrower’’ definition in §§ 701.22 and
723.2 of the NCUA’s regulations. The
Board is concerned that the
commenter’s suggestion to include
cross-citations in the general lending
regulations to the definition of
‘‘associated borrower’’ in the loan
participation and commercial lending
regulations would cause confusion for
credit unions. The term ‘‘associated
borrower’’ does not appear in the
general lending regulations and does not
apply to the general lending limit. As
noted, the Board is of the view that
cross-citations to the term ‘‘associated
borrower’’ in the commercial lending
and loan participation regulations
would only serve to confuse readers and
raise questions of its applicability and
relevance to the general lending limit
where that term is not defined.
The Board believes that the proposed
cross-citations provide an efficient and
user-friendly way to identify and
comply with the multiple lending limits
in the NCUA’s regulations. As such, the
Board is adopting the amendments as
proposed.
ii. Request for Comment Regarding the
Limits Applicable to Loan Participations
and Commercial Loans
In the proposal, the Board sought
advanced comment on the possibility of
establishing a single universal limit on
loans to a single borrower or group of
associated borrowers in lieu of the
current system of having various limits
depending on the type of loan. The
NCUA noted that such a limit may help
facilitate compliance and reduce
regulatory burden. Currently, a loans to
one borrower limit of 15 percent of a
federally insured credit union’s net
worth exists for: (1) Commercial loans
and (2) loan participations. A waiver
from this limit is available for loan
participations, but not for commercial
loans. Instead, an alternate limit is
available for commercial loans.
More specifically, the 15 percent limit
on loan participations can be waived by
the appropriate regional director for
FCUs, and, in the case of a federally
insured, state-chartered credit union, by
the regional director with prior written
concurrence of the appropriate state
supervisory authority.20 The limit on
commercial loans, however, does not
provide for a waiver. Instead, it provides
20 12 CFR 701.22(b)(5)(iv). The appropriate
regional director for FCUs with $10 billion or more
in assets is the Director of the Office of National
Examinations and Supervision. 12 CFR 700.2.
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that ‘‘the aggregate dollar amount of
commercial loans to any one borrower
or group of associated borrowers may
not exceed the greater of 15 percent of
the federally insured credit union’s net
worth or $100,000, plus an additional
10 percent of the credit union’s net
worth if the amount that exceeds the
credit union’s 15 percent general limit
is fully secured at all times with a
perfected security interest by readily
marketable collateral as defined in
§ 723.2 of this part. Any insured or
guaranteed portion of a commercial loan
made through a program in which a
federal or state agency (or its political
subdivision) insures repayment,
guarantees repayment, or provides an
advance commitment to purchase the
loan in full, is excluded from this
limit.’’ 21
Approximately half of the
commenters specifically addressed a
potential universal limit. These
commenters offered mixed views on the
potential limit and provided the Board
with a great deal to consider moving
forward. The NCUA will continue to
evaluate the comments received and
determine whether a single universal
limit would be beneficial. If the Board
determines that a universal limit should
be adopted, the Board will issue a
proposed rule at a later date pursuant to
the NCUA’s normal notice and comment
rulemaking process.
III. Section-by-Section Analysis
The clarifying amendments in this
final rule are largely technical in nature.
As a result, most of the current language
in § 701.21 remains. The changes to
§ 701.21 and the conforming
amendments to §§ 701.20 and 701.22 are
discussed in more detail below.
Section 701.20 Suretyship and
guaranty.
(c) Requirements.
The final rule makes minor
conforming amendments to § 701.20(c).
(c)(2).
The final rule makes conforming
amendments to the section governing
requirements for suretyship or guaranty
agreements by removing outdated crosscitations to the loans to one borrower or
group of associated borrowers limit in
§§ 723.2 and 723.8 of the member
business lending regulation and adding
an updated cross-citation to § 723.4(c).
Section 701.21
(c) General rules.
(c)(4) Maturity.
The final rule divides § 701.21(c)(4)
into two new paragraphs. One
21 12
CFR 723.4(c).
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paragraph, § 701.21(c)(4)(i), states the
general rule that loans carry a 15-year
maturity. The other, § 701.21(c)(4)(ii),
makes more explicit that there are
exceptions to the general 15-year
maturity limit in § 701.21(e) through (g)
for various types of credit union loans.
(c)(4)(i) General rules.
The final rule maintains all of current
§ 701.21(c)(4) in § 701.21(c)(4)(i), which
articulates the general 15-year maturity
limit that exists on FCU loans. However,
the final rule also adds language to
clarify that the maturity for a new loan
under GAAP is calculated from the new
date of origination.
(c)(4)(ii) Exceptions.
Section 701.21(c)(4)(ii) of the final
rule explicitly states, in three
paragraphs ((c)(4)(ii)(A), (B), and (C)),
that there are three exceptions to the
general 15-year maturity limit and crosscites to § 701.21(e) through (g) as
follows:
(c)(4)(ii)(A).
Section 701.21(c)(4)(ii)(A) of the final
rule cross-cites to the exception to the
general 15-year maturity limit in
§ 701.21(e) regarding covered loans
secured, in full or in part, by the
insurance or guarantee of, or with an
advance commitment to purchase the
loan, in full or in part, by the Federal
Government, a State Government or any
agency of either.
(c)(4)(ii)(B).
Section 701.21(c)(4)(ii)(B) of the final
rule cross-cites to the exception to the
general 15-year maturity limit in
§ 701.21(f) regarding covered home
improvement, mobile home, and second
mortgage loans.
(c)(4)(ii)(C).
Section 701.21(c)(4)(ii)(C) of the final
rule cross-cites to the exception to the
general 15-year maturity limit in
§ 701.21(g) regarding covered 1–4 family
real estate loans.
(c)(5) Ten percent limit.
The final rule revises § 701.21(c)(5) to
add cross-citations to the specific
requirements on loans to a single
borrower or group of associated
borrowers in the loan participation rule,
§ 701.22(b)(5)(iv), and member business
lending rule, § 723.4(c).
(e) Insured, Guaranteed, and Advance
Commitment Loans.
The final rule revises § 701.21(e) to
make more explicit that the maturity
limits applicable to loans covered by
paragraph (e) are notwithstanding the
general 15-year limit in paragraph (c)(4).
The final rule also adds a cross-citation
to paragraph (c)(4).
(f) 20-Year Loans.
The final rule retains almost all of
current § 701.21(f), but inserts some
additional language to improve clarity.
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(f)(1).
The final rule revises § 701.21(f)(1) to
make more explicit that the maturity
limit applicable to loans covered by
paragraph (f) is notwithstanding the
general 15-year limit in paragraph (c)(4).
The final rule also adds a cross-citation
to paragraph (c)(4).
(g) Long-Term Mortgage Loans.
The final rule retains almost all of
§ 701.21(g), but inserts some additional
language to improve clarity.
(g)(1).
The final rule revises § 701.21(g)(1) to
make more explicit that the maturity
limit applicable to loans covered by
paragraph (g) is notwithstanding the
general 15-year limit in paragraph (c)(4).
The final rule also adds a cross-citation
to paragraph (c)(4).
Section 701.22
(b).
As described in more detail below,
the final rule makes minor conforming
amendments to § 701.22(b) regarding
loan participations.
(b)(1).
The final rule updates the crosscitation in § 701.22(b)(1), which
provides that for a federally insured
credit union to purchase a participation
interest in a loan, the loan must comply
with all regulatory requirements to the
same extent as if the purchasing
federally insured credit union had
originated the loan. Specifically, the
final rule changes the outdated crosscitation in § 701.22(b)(1) from § 723.8 to
§ 723.4(c).
IV. Legal Authority
The Board is issuing this rule
pursuant to its authority under the FCU
Act. Under the FCU Act, the NCUA is
the chartering and supervisory authority
for FCUs and the federal supervisory
authority for federally insured credit
unions.22 The FCU Act grants NCUA a
broad mandate to issue regulations
governing both FCUs and all federally
insured credit unions. Section 120 of
the FCU Act is a general grant of
regulatory authority and authorizes the
Board to prescribe rules and regulations
for the administration of the FCU Act.23
Section 207 of the FCU Act is a specific
grant of authority over share insurance
coverage, conservatorships, and
liquidations.24 Section 209 of the FCU
Act is a plenary grant of regulatory
authority to the NCUA to issue rules
and regulations necessary or appropriate
to carry out its role as share insurer for
all federally insured credit unions.25
22 12
U.S.C. 1752–1775.
U.S.C. 1766(a).
24 12 U.S.C. 1787.
25 12 U.S.C. 1789.
23 12
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Accordingly, the FCU Act grants the
Board broad rulemaking authority to
ensure that the credit union industry
and the National Credit Union Share
Insurance Fund remain safe and sound.
levels of government. The NCUA has
determined that this final rule does not
constitute a policy that has federalism
implications for purposes of the
executive order.
V. Regulatory Procedures
D. Assessment of Federal Regulations
and Policies on Families
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)
generally requires that, in connection
with a final rule, an agency prepare and
make available for public comment a
final regulatory flexibility analysis that
describes the impact of the final rule on
small entities. A regulatory flexibility
analysis is not required, however, if the
agency certifies that the rule will not
have a significant economic impact on
a substantial number of small entities
(defined for purposes of the RFA to
include credit unions with assets less
than $100 million) 26 and publishes its
certification and a short, explanatory
statement in the Federal Register
together with the rule. The final rule
reduces regulatory burden through
clarifying and technical changes and
will not have an impact on small credit
unions. Accordingly, the NCUA certifies
that this final rule will not have a
significant economic impact on a
substantial number of small credit
unions.
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(PRA) applies to rulemakings in which
an agency creates new or amends
existing information collection
requirements.27 For purposes of the
PRA, an information collection
requirement may take the form of a
reporting, recordkeeping, or a thirdparty disclosure requirement. The final
rule does not contain information
collection requirements that require
approval by OMB under the PRA.28 The
final rule only makes clarifying and
technical changes.
C. Executive Order 13132
Executive Order 13132 encourages
independent regulatory agencies to
consider the impact of their actions on
state and local interests. In adherence to
fundamental federalism principles, the
NCUA, an independent regulatory
agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive
order. This 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
26 See
80 FR 57512 (Sept. 24, 2015).
U.S.C. 3507(d); 5 CFR part 1320.
28 44 U.S.C. chap. 35.
The NCUA has determined that this
final rule will not affect family wellbeing within the meaning of Section 654
of the Treasury and General
Government Appropriations Act,
1999.29
E. Small Business Regulatory
Enforcement Fairness Act of 1996
The Small Business Regulatory
Enforcement Fairness Act of 1996
(SBREFA) provides generally for
congressional review of agency rules. A
reporting requirement is triggered in
instances where the NCUA issues a final
rule as defined by Section 551 of the
Administrative Procedure Act. The
NCUA does not believe this final rule is
a ‘‘major rule’’ within the meaning of
the relevant sections of SBREFA. The
NCUA has submitted the rule to the
Office of Management and Budget for its
determination in that regard.
List of Subjects in 12 CFR Part 701
Credit, Credit unions, Reporting and
recordkeeping requirements.
By the National Credit Union
Administration Board on March 14, 2019.
Gerard Poliquin,
Secretary of the Board.
For the reasons discussed above, the
Board amends 12 CFR part 701 as
follows:
PART 701—ORGANIZATION AND
OPERATION OF FEDERAL CREDIT
UNIONS
1. The authority citation for part 701
continues to read as follows:
■
Authority: 12 U.S.C. 1752(5), 1755, 1756,
1757, 1758, 1759, 1761a, 1761b, 1766, 1767,
1782, 1784, 1785, 1786, 1787, 1788, 1789.
Section 701.6 is also authorized by 15 U.S.C.
3717. Section 701.31 is also authorized by 15
U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601–
3610. Section 701.35 is also authorized by 42
U.S.C. 4311–4312.
§ 701.20
[Amended]
2. Amend § 701.20(c)(2) by removing
the words ‘‘723.2 and 723.8’’ and adding
in their place ‘‘723.4(c)’’.
■ 3. Amend § 701.21 by revising
paragraphs (c)(4) and (5), (e), (f)(1)
introductory text, and (g)(1) to read as
follows:
■
27 44
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Frm 00005
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10975
§ 701.21 Loans to members and lines of
credit to members.
*
*
*
*
*
(c) * * *
(4) Maturity. (i) In General. The
maturity of a loan to a member may not
exceed 15 years. Lines of credit are not
subject to a statutory or regulatory
maturity limit. Amortization of line of
credit balances and the type and amount
of security on any line of credit shall be
as determined by contract between the
Federal credit union and the member/
borrower. In the case of a lending action
that qualifies as a ‘‘new loan’’ under
GAAP, the new loan’s maturity is
calculated from the new date of
origination.
(ii) Exceptions. Notwithstanding the
general 15-year maturity limit on loans
to members, a federal credit union may
make loans with maturities:
(A) As specified in the law,
regulations or program under which a
loan is secured, in full or in part, by the
insurance or guarantee of, or with an
advance commitment to purchase the
loan, in full or in part, by the Federal
Government, a State government or any
agency of either, as provided in
paragraph (e) of this section;
(B) of up to 20 years or such longer
term as is provided in paragraph (f) of
this section; and
(C) of up to 40 years or such longer
term as is provided in paragraph (g) of
this section.
(5) Ten percent limit. No loan or line
of credit advance may be made to any
member if such loan or advance would
cause that member to be indebted to the
Federal credit union upon loans and
advances made to the member in an
aggregate amount exceeding 10% of the
credit union’s total unimpaired capital
and surplus. In the case of loan
participations as defined in § 701.22(a)
of this part and commercial loans as
defined in § 723.2 of this chapter,
additional limitations apply as set forth
in § 701.22(b)(5)(iv) of this part and
§ 723.4(c) of this chapter.
*
*
*
*
*
(e) Insured, Guaranteed, and Advance
Commitment Loans. Notwithstanding
the general 15-year maturity limit on
loans to members in paragraph (c)(4) of
this section, a loan secured, in full or in
part, by the insurance or guarantee of,
or with an advance commitment to
purchase the loan, in full or in part, by
the Federal Government, a State
government or any agency of either, may
be made for the maturity and under the
terms and conditions, including rate of
interest, specified in the law,
regulations or program under which the
insurance, guarantee or commitment is
provided.
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Federal Register / Vol. 84, No. 57 / Monday, March 25, 2019 / Rules and Regulations
(f) * * *
(1) Notwithstanding the general 15year maturity limit on loans to members
in paragraph (c)(4) of this section, a
federal credit union may make loans
with maturities of up to 20 years in the
case of:
*
*
*
*
*
(g) * * *
(1) Authority. Notwithstanding the
general 15-year maturity limit on loans
to members in paragraph (c)(4) of this
section, a federal credit union may make
residential real estate loans to members,
including loans secured by
manufactured homes permanently
affixed to the land, with maturities of up
to 40 years, or such longer period as
may be permitted by the NCUA Board
on a case-by-case basis, subject to the
conditions of this paragraph (g).
*
*
*
*
*
§ 701.22
[Amended]
4. Amend § 701.22(b)(1) by removing
the words ‘‘§ 723.8’’ and adding in their
place ‘‘§ 723.4’’.
■
[FR Doc. 2019–05186 Filed 3–22–19; 8:45 am]
BILLING CODE 7535–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9852]
RIN 1545–BL96
Chapter 4 Regulations Relating to
Verification and Certification
Requirements for Certain Entities and
Reporting by Foreign Financial
Institutions
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
AGENCY:
This document finalizes (with
limited revisions) certain proposed
regulations. The final regulations
provide compliance requirements and
verification procedures for sponsoring
entities of foreign financial institutions
(FFIs) and certain non-financial foreign
entities (NFFEs), trustees of certain
trustee-documented trusts, registered
deemed-compliant FFIs, and financial
institutions that implement
consolidated compliance programs
(compliance FIs). These final
regulations affect certain financial
institutions and NFFEs.
DATES:
Effective date: These regulations are
effective on March 25, 2019.
SUMMARY:
VerDate Sep<11>2014
15:47 Mar 22, 2019
Jkt 247001
Applicability dates: For dates of
applicability, see §§ 1.1471–1(c),
1.1471–4(j), 1.1471–5(m), and 1.1472–
1(h).
FOR FURTHER INFORMATION CONTACT:
Charles Rioux, at (202) 317–6942 (not a
toll free number).
SUPPLEMENTARY INFORMATION:
Background
This Treasury decision contains
amendments to 26 CFR part 1. On
January 6, 2017, a notice of proposed
rulemaking (REG–103477–14) proposing
regulations under chapter 4 of Subtitle
A (sections 1471 through 1474) of the
Internal Revenue Code of 1986 (Code)
relating to verification requirements for
certain entities was published in the
Federal Register (82 FR 1629). The
notice of proposed rulemaking also
included proposed regulations,
unrelated to these verification
requirements, by cross-reference to
temporary regulations that were
published in the same issue of the
Federal Register (82 FR 2124; TD 9809).
On September 15, 2017, a correction to
the notice of proposed rulemaking was
published in the Federal Register (82
FR 43314). No public hearing was
requested or held. Written comments
were received, and are available at
www.regulations.gov or upon request.
After consideration of the comments
received, the proposed regulations
relating to verification requirements for
certain entities under chapter 4 are
adopted (with limited modifications) by
this Treasury decision. This Treasury
decision does not finalize the proposed
regulations in the notice of proposed
rulemaking that cross-reference the
temporary regulations. Those proposed
regulations (REG–132857–17) will be
adopted as final regulations at a later
date. Hereinafter, the term ‘‘proposed
regulations’’ when used in this
preamble means the proposed
regulations (REG–103477–14) relating to
verification requirements for certain
entities under chapter 4.
The existing chapter 4 regulations
permit certain FFIs and NFFEs to be
sponsored by other entities (sponsoring
entities) for purposes of satisfying their
chapter 4 requirements. Generally, a
sponsoring entity is an entity that agrees
to perform chapter 4 due diligence,
withholding, and reporting
requirements on behalf of certain FFIs
(sponsored FFIs) or chapter 4 due
diligence and reporting obligations on
behalf of certain direct reporting NFFEs
(sponsored direct reporting NFFEs). An
FFI that is a sponsored FFI is a deemedcompliant FFI, and a NFFE that is a
sponsored direct reporting NFFE is an
PO 00000
Frm 00006
Fmt 4700
Sfmt 4700
excepted NFFE. The proposed
regulations provide verification
requirements (including certifications of
compliance) and events of default for
sponsoring entities. The proposed
regulations also provide certification
requirements and procedures for the
IRS’s review of trustees of certain
trustee-documented trusts and
procedures for the IRS’s review of
periodic certifications provided by
registered deemed-compliant FFIs. In
addition, the proposed regulations
describe the procedures for future
modifications to the requirements for
certifications of compliance for
participating FFIs. The proposed
regulations also clarify the requirements
in the chapter 4 regulations for periodic
certifications of compliance for
consolidated compliance programs of
participating FFIs and provide
requirements for preexisting account
certifications for these programs.
Summary of Comments and
Explanation of Revisions
After consideration of all the
comments, the proposed regulations are
adopted as amended by this Treasury
decision. The comments and revisions
are discussed below.
Definition of Responsible Officer
The proposed regulations require a
sponsoring entity of a sponsored FFI to
appoint a responsible officer to oversee
the compliance of the sponsoring entity
with respect to each sponsored FFI.
Proposed § 1.1471–1(b)(116) defines the
term responsible officer with respect to
a sponsoring entity as an officer of the
sponsoring entity with sufficient
authority to fulfill the duties of a
responsible officer described in
§ 1.1471–5(j) or § 1.1472–1(f) (as
applicable). A comment requested that
the definition of responsible officer be
expanded to include an officer of an FFI
in the sponsoring entity’s expanded
affiliated group that has responsibility
for ensuring the compliance of the
sponsoring entity. The comment noted
that in some cases an investment
manager that is a sponsoring entity is a
member of an affiliated group in which
one member of the group is designated
to oversee the compliance of all
members with their chapter 4
requirements.
The proposed regulations require the
responsible officer of a sponsoring
entity to be an individual who is an
officer of the sponsoring entity because
the certifications required under these
regulations should be made by the
individual in the best position to know
and represent whether the sponsoring
entity is complying with its obligations.
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]]>Agencies
[Federal Register Volume 84, Number 57 (Monday, March 25, 2019)]
[Rules and Regulations]
[Pages 10971-10976]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-05186]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
========================================================================
Federal Register / Vol. 84, No. 57 / Monday, March 25, 2019 / Rules
and Regulations
[[Page 10971]]
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 701
RIN 3133-AE88
Loans to Members and Lines of Credit to Members
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The NCUA Board (Board) is amending its regulations regarding
loans to members and lines of credit to members to reduce regulatory
burden, improve clarity, and make compliance easier. The amendments
make the NCUA's regulations more user friendly by identifying in one
section all of the various maturity limits applicable to federal credit
union (FCU) loans, stating that the maturity date for a new loan under
generally accepted accounting principles (GAAP) is calculated from the
origination date of the new loan, and more clearly expressing the
limits for loans to a single borrower or group of associated borrowers.
DATES: The effective date for this rule is April 24, 2019.
FOR FURTHER INFORMATION CONTACT: Thomas I. Zells, Staff Attorney,
Office of General Counsel, at 1775 Duke Street, Alexandria, VA 22314 or
telephone: (703) 548-2478.
SUPPLEMENTARY INFORMATION:
I. Background
II. Final Rule and Summary of Comments
III. Section-by-Section Analysis
IV. Legal Authority
V. Regulatory Procedures
I. Background
In August 2017,\1\ the Board published and sought comment on the
NCUA Regulatory Reform Task Force's (Task Force) first report on
implementing the agency's regulatory reform agenda (Agenda). The Agenda
identifies those regulations the Board intends to amend or repeal
because they are outdated, ineffective, or excessively burdensome.\2\
The Board published the Task Force's second and final report in
December 2018.\3\ The final report contains the Task Force's updated
recommendations and a refined blueprint for implementing the Agenda.
---------------------------------------------------------------------------
\1\ 82 FR 39702 (Aug. 22, 2017).
\2\ This is consistent with the spirit of the President's
regulatory reform agenda and Executive Order 13777. Although the
NCUA, as an independent agency, is not required to comply with
Executive Order 13777, the Board has chosen to comply with it in
spirit and has reviewed all of the NCUA's regulations to that end.
\3\ 83 FR 65926 (Dec. 21, 2018).
---------------------------------------------------------------------------
A number of the items in the Agenda relate to the NCUA's
regulations on loans to members and lines of credit to members.\4\ The
Board issued a proposed rule in August 2018 to address those items and
to request further public comment on other issues.\5\ More
specifically, the Board proposed changes to make the NCUA's regulations
more user friendly by: (1) Identifying in one section the various
maturity limits applicable to FCU loans; (2) clarifying that the
maturity for a ``new loan'' under GAAP is calculated from the new date
of origination; \6\ and (3) more clearly expressing the limits in place
for loans to a single borrower or group of associated borrowers. The
Board also sought advanced comment on: (1) Whether the NCUA should
provide for longer, more flexible maturity limits for certain loans as
permitted by section 107(5)(A)(i)-(ii) of the FCU Act; and (2) whether
the NCUA should establish a single universal limit for loans to a
single borrower or group of associated borrowers in lieu of the current
system of having various limits depending on the type of loan.\7\
---------------------------------------------------------------------------
\4\ 12 CFR 701.21.
\5\ 83 FR 39622 (Aug. 10, 2018).
\6\ GAAP is defined as generally accepted accounting principles
in the United States as set forth in the Financial Accounting
Standards Board's (FASB) Accounting Standards Codification (ASC).
\7\ The proposal sought advanced stakeholder comment on these
related issues to help the Board determine what, if any, changes the
agency should consider proposing in the future.
---------------------------------------------------------------------------
For the reasons discussed below, the Board is adopting the proposed
rule largely as proposed. The NCUA is also continuing to evaluate the
comments received on the issues for which it sought advanced comment.
Any regulatory amendments that the Board decides to propose based on
the advanced comments will be done through the NCUA's normal notice and
comment rulemaking process to comply with the Administrative Procedure
Act (APA).\8\
---------------------------------------------------------------------------
\8\ 5 U.S.C. 551 et seq.
---------------------------------------------------------------------------
II. Final Rule and Summary of Comments
The NCUA received 31 comments on the proposed rule. Those comments
generally fell into three categories: (1) Comments addressing the
technical and clarifying changes the NCUA specifically proposed; (2)
comments addressing the issues on which the NCUA sought advanced
comment; and (3) comments addressing subjects outside the scope of the
proposed amendments. Commenters were overwhelmingly supportive of the
technical and clarifying changes that the proposal made with no
commenters generally opposing the proposed changes. As stated above,
the Board is finalizing these changes largely as proposed.
The majority of commenters heavily focused on the issues on which
the NCUA sought advanced comment, namely: (1) Potential alternate
maturity limits; and (2) a potential universal limit on loans to one
borrower. The Board reiterates that the proposal sought advanced
stakeholder input on these topics with an eye toward making future
regulatory amendments. Any future changes related to this request for
advanced comment will be done through the NCUA's normal notice and
comment rulemaking process to comply with the APA. It is worth noting
that, as a general matter, commenters expressed confusion about the
maturities applicable to various types of loans and the NCUA's
authority to alter them. Commenters also addressed a number of issues
that were largely unrelated to the issues on which the proposal sought
comment. The Board will continue to evaluate these comments, but notes
that such unrelated comments are outside the scope of this rulemaking
and would require separate future action.
A. Loan Maturity Limits for Federal Credit Unions
Section 107(5) of the Federal Credit Union Act (FCU Act) grants
FCUs the power ``to make loans, the maturities of which shall not
exceed 15 years, except
[[Page 10972]]
as otherwise provided herein.'' \9\ The NCUA implemented this general
maturity limit in Sec. 701.21(c)(4) of its regulations. Sections
107(5)(A)(i)-(iii) of the FCU Act provide exceptions to the general 15-
year maturity limit, which have been implemented in Sec. 701.21(e)
through (g) of the NCUA's regulations.
---------------------------------------------------------------------------
\9\ 12 U.S.C. 1757(5).
---------------------------------------------------------------------------
Section 107(5)(A)(i) of the FCU Act, implemented in Sec. 701.21(g)
of the NCUA's regulations, states that ``a residential real estate loan
on a one-to-four-family dwelling, including an individual cooperative
unit, that is or will be the principal residence of a credit union
member, and which is secured by a first lien upon such dwelling, may
have a maturity not exceeding thirty years or such other limits as
shall be set by the National Credit Union Administration Board (except
that a loan on an individual cooperative unit shall be adequately
secured as defined by the Board), subject to the rules and regulations
of the Board.'' \10\ Pursuant to its authority in section 107(5)(A)(i)
of the FCU Act to set alternate maturities for covered 1-4 family real
estate loans, the Board has established a 40-year maximum maturity for
such loans and has provided that longer periods may be permitted by the
Board on a case-by-case basis.\11\
---------------------------------------------------------------------------
\10\ 12 U.S.C. 1757(5)(A)(i) (emphasis added); 12 CFR 701.21(g).
\11\ 12 CFR 701.21(g)(1) (stating that ``[a] federal credit
union may make residential real estate loans to members, including
loans secured by manufactured homes permanently affixed to the land,
with maturities of up to 40 years, or such longer period as may be
permitted by the NCUA Board on a case-by-case basis, subject to the
conditions of this paragraph'').
---------------------------------------------------------------------------
Section 107(5)(A)(ii) of the FCU Act, implemented in Sec.
701.21(f) of the NCUA's regulations, states that ``a loan to finance
the purchase of a mobile home, which shall be secured by a first lien
on such mobile home, to be used by the credit union member as his
residence, a loan for the repair, alteration, or improvement of a
residential dwelling which is the residence of a credit union member,
or a second mortgage loan secured by a residential dwelling which is
the residence of a credit union member, shall have a maturity not to
exceed 15 years or any longer term which the Board may allow.'' \12\
Pursuant to its authority in Sec. 107(5)(A)(ii) to set alternate
maturities for covered loans, the Board has established a 20-year
maximum maturity for such loans.\13\
---------------------------------------------------------------------------
\12\ 12 U.S.C. 1757(5)(A)(ii) (emphasis added); 12 CFR
701.21(f).
\13\ 12 CFR 701.21(f)(1) (stating that ``[n]otwithstanding the
general 15-year maturity limit on loans to members, a federal credit
union may make loans with maturities of up to 20 years'' for loans
covered by this paragraph.).
---------------------------------------------------------------------------
Finally, section 107(5)(A)(iii) of the FCU Act, implemented in
Sec. 701.21(e) of the NCUA's regulations, states that ``a loan secured
by the insurance or guarantee of, or with advance commitment to
purchase the loan by, the Federal Government, a State Government, or
any agency of either may be made for the maturity and under the terms
and conditions specified in the law under which such insurance,
guarantee, or commitment is provided.'' \14\
---------------------------------------------------------------------------
\14\ 12 U.S.C. 1757(5)(A)(iii); 12 CFR 701.21(e).
---------------------------------------------------------------------------
i. Identifying the Various Maturity Limits in One Section
Section 701.21 of the NCUA's regulations addresses various loan
maturity limits in paragraphs (c), (e), (f), and (g). Paragraph (c)
provides the general rules applicable to all loans to members and,
where indicated, all lines of credit (including credit cards) to
members, except as otherwise provided in the remaining provisions of
Sec. 701.21. Paragraph (c)(4) implements the general 15-year maturity
limit that Sec. 107(5) of the FCU Act places on loans to members.
Paragraphs (e), (f), and (g) of Sec. 701.21 implement the three
exceptions to this general 15-year limit that appear in section
107(5)(A)(i)-(iii) of the FCU Act.
Having the various maturity limits spread among numerous sections
of the NCUA's regulations, often separated by large amounts of
regulatory text unrelated to maturities, can be confusing to a reader
and makes it more difficult to understand the lending regulations. To
remedy this, in the proposed rule, the Board proposed to make the
NCUA's loan maturity requirements more understandable and user friendly
by identifying in one section (Sec. 701.21(c)(4)), including cross-
citations, all of the maturity limits applicable to FCU loans.
More than half of the comments received specifically offered
support for the NCUA's efforts to provide more regulatory clarity and
make compliance easier by identifying all loan maturity requirements in
one section and adding cross-citations. No commenters opposed the
changes. As such, the NCUA is adopting these changes as proposed.
ii. The Treatment of Maturities for Lending Actions That Qualify as
``New Loans'' Under GAAP
The proposal also clarified that, in the case of a lending action
qualifying as a ``new loan'' under GAAP, the maturity limit is
calculated from the new date of origination.\15\ The Board proposed to
accomplish this by adding language to Sec. 701.21(c)(4), which
articulates the general 15-year maturity limit. The Board is adopting
the proposal without change.
---------------------------------------------------------------------------
\15\ ASC 310-20-35-9 & 10.
---------------------------------------------------------------------------
Nearly one-third of commenters addressed this aspect of the
proposal. The vast majority of these commenters explicitly supported
the proposal. Several commenters noted that it is unclear if the
proposal applies only to new loan originations, loan modifications, or
both, and they requested further clarity regarding the proposal. To
alleviate any potential confusion, the Board clarifies that the final
rule applies to any lending action that qualifies as a new loan under
GAAP, whether that action is a new origination or a modification.
iii. Request for Comment on Providing Longer Maturity Limits for
Certain Loans
In the proposal, the Board sought advanced comment on whether it
should provide longer maturity limits for 1-4 family real estate loans
and other loans (such as certain home improvement, mobile home, and
second mortgage loans) as permitted by section 107(5)(A)(i)-(ii) of the
FCU Act and remove the case-by-case exception that the Board can
provide for covered 1-4 family real estate loans. As discussed earlier,
these maturity limits are implemented in Sec. 701.21(f) and (g) of the
NCUA's regulations. The case-by-case exception is located in Sec.
701.21(g)(1) of the NCUA's regulations and provides that the Board can
permit an FCU to make loans with maturities that exceed the
regulation's 40-year limit ``on a case-by-case basis, subject to the
conditions of this paragraph (g).'' \16\
---------------------------------------------------------------------------
\16\ 12 CFR 701.21(g)(1).
---------------------------------------------------------------------------
Nearly every commenter addressed the various maturity limits in
some manner. Comments on the maturity limits generally fell into three
categories: (1) Comments asking the NCUA to take action the Board does
not believe it is authorized to take under the FCU Act; (2) responses
to the request for advanced comment on actions the Board does believe
it is authorized to take under the FCU Act, which the Board is taking
under advisement for future rulemaking purposes; and (3) unsolicited
comments that are more appropriately handled by guidance or legal
opinion.
Category 1. Many commenters expressed displeasure with the general
[[Page 10973]]
15-year maturity limit \17\ and specifically the 15-year maturity limit
on first-lien, 1-4 family real estate loans that are not the principal
residence of the borrower. The Board has no authority to alter this
statutory limit.
---------------------------------------------------------------------------
\17\ 12 U.S.C. 1757(5).
---------------------------------------------------------------------------
Category 2. Commenters addressed the following provisions on which
the Board sought advanced comment: (1) The current 40-year maturity
limit on long-term residential real estate loans where the 1-4 family
unit is the principal residence of the borrower; (2) the case-by-case
exception the Board can use to grant maturity limits that exceed 40
years on long-term residential real estate loans; and (3) the 20-year
maturity limit for covered home improvement, mobile home, and second
mortgage loans. While the Board has the authority to amend these
provisions, they are beyond the scope of what the Board proposed and
thus under the APA the Board cannot act on them now, and would have to
issue a new proposed rule. The Board is taking these comments under
advisement and is considering whether to issue a proposed rule at a
later date pursuant to the NCUA's normal notice and comment rulemaking
process.
Category 3. Commenters provided unsolicited feedback on issues not
specifically raised in the proposed rule. For example, several
commenters requested clarification on the proper characterization of a
loan on a residential dwelling that includes a detached structure on
the same parcel of land, such as a ``mother-in-law suite.'' The Board
believes this is more appropriately handled by guidance or legal
opinion and may take such action later this year.
B. Single Borrower and Group of Associated Borrowers Limits
i. More Clearly Identifying the Various Limits
Three provisions of the NCUA's regulations address limits on loans
to a single borrower or group of associated borrowers: (1) Sec.
701.21(c)(5) Addresses the general limit; (2) Sec. 701.22(b)(5)(iv)
addresses the limit on loan participations; and (3) Sec. 723.4(c)
addresses the limit on commercial loans. Because these provisions are
spread among several sections of the NCUA's regulations, some
stakeholders are not aware that there are multiple limits that apply in
different contexts. To rectify this, the proposal made clear that all
three of these limits exist. Rather than move the provisions that
specifically apply to loan participations and commercial loans from
their current regulatory sections to the general limit section, the
NCUA proposed to include cross-citations to the more specific loan
participation and commercial loan limits in the general limit section
(Sec. 701.21(c)(5)).
Section 701.21(c)(5), as part of the general rules on loans and
lines of credit to members, imposes the FCU Act's ten percent limit on
loans and lines of credit to any member.\18\ Specifically, Sec.
701.21(c)(5) requires that ``[n]o loan or line of credit advance may be
made to any member if such loan or advance would cause that member to
be indebted to the Federal credit union upon loans and advances made to
the member in the aggregate amount exceeding 10% of the credit union's
total unimpaired capital and surplus.'' \19\ Section 701.21(c)(5) also
provides an outdated cross-citation to part 723 for the specific limit
on commercial lending. The proposal removed this outdated cross-
citation and provided updated references to both the current loan
participation limit in Sec. 701.22(b)(5) and the commercial lending
limit in Sec. 723.4(c).
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\18\ 12 U.S.C. 1757(5)(A)(x).
\19\ 12 CFR 701.21(c)(5).
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The Board also proposed conforming amendments to update cross-
citations to the single borrower and group of associated borrower
limits in Sec. Sec. 701.20(c)(2) and 701.22(b)(1).
One-third of commenters addressed the technical and clarifying
amendments the Board proposed related to the limits on loans to a
single borrower or group of associated borrowers. All of these
commenters supported adding internal cross-citations to more clearly
identify the various limits in the general lending, loan
participations, and commercial lending regulations. Three of these
commenters specifically stated that this would simplify compliance.
Several commenters noted confusion with the current layout.
One commenter said that the fact that part 741 incorporates
applicable provisions by reference compounds the difficulty for
federally insured, state-chartered credit unions (FISCUs). The
commenter recommended that the NCUA incorporate loan limitations
applicable to FISCUs in Sec. 741.203 in their entirety. The Board
appreciates the commenter's suggestion, but does not believe such a
change is necessary for FISCUs to understand the applicable maturity
limits.
Another commenter recommended that, because the loan participation
and commercial loan limits also apply to a group of associated
borrowers, the NCUA should also include in the general lending
regulations reference and cross-citations to the ``associated
borrower'' definition in Sec. Sec. 701.22 and 723.2 of the NCUA's
regulations. The Board is concerned that the commenter's suggestion to
include cross-citations in the general lending regulations to the
definition of ``associated borrower'' in the loan participation and
commercial lending regulations would cause confusion for credit unions.
The term ``associated borrower'' does not appear in the general lending
regulations and does not apply to the general lending limit. As noted,
the Board is of the view that cross-citations to the term ``associated
borrower'' in the commercial lending and loan participation regulations
would only serve to confuse readers and raise questions of its
applicability and relevance to the general lending limit where that
term is not defined.
The Board believes that the proposed cross-citations provide an
efficient and user-friendly way to identify and comply with the
multiple lending limits in the NCUA's regulations. As such, the Board
is adopting the amendments as proposed.
ii. Request for Comment Regarding the Limits Applicable to Loan
Participations and Commercial Loans
In the proposal, the Board sought advanced comment on the
possibility of establishing a single universal limit on loans to a
single borrower or group of associated borrowers in lieu of the current
system of having various limits depending on the type of loan. The NCUA
noted that such a limit may help facilitate compliance and reduce
regulatory burden. Currently, a loans to one borrower limit of 15
percent of a federally insured credit union's net worth exists for: (1)
Commercial loans and (2) loan participations. A waiver from this limit
is available for loan participations, but not for commercial loans.
Instead, an alternate limit is available for commercial loans.
More specifically, the 15 percent limit on loan participations can
be waived by the appropriate regional director for FCUs, and, in the
case of a federally insured, state-chartered credit union, by the
regional director with prior written concurrence of the appropriate
state supervisory authority.\20\ The limit on commercial loans,
however, does not provide for a waiver. Instead, it provides
[[Page 10974]]
that ``the aggregate dollar amount of commercial loans to any one
borrower or group of associated borrowers may not exceed the greater of
15 percent of the federally insured credit union's net worth or
$100,000, plus an additional 10 percent of the credit union's net worth
if the amount that exceeds the credit union's 15 percent general limit
is fully secured at all times with a perfected security interest by
readily marketable collateral as defined in Sec. 723.2 of this part.
Any insured or guaranteed portion of a commercial loan made through a
program in which a federal or state agency (or its political
subdivision) insures repayment, guarantees repayment, or provides an
advance commitment to purchase the loan in full, is excluded from this
limit.'' \21\
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\20\ 12 CFR 701.22(b)(5)(iv). The appropriate regional director
for FCUs with $10 billion or more in assets is the Director of the
Office of National Examinations and Supervision. 12 CFR 700.2.
\21\ 12 CFR 723.4(c).
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Approximately half of the commenters specifically addressed a
potential universal limit. These commenters offered mixed views on the
potential limit and provided the Board with a great deal to consider
moving forward. The NCUA will continue to evaluate the comments
received and determine whether a single universal limit would be
beneficial. If the Board determines that a universal limit should be
adopted, the Board will issue a proposed rule at a later date pursuant
to the NCUA's normal notice and comment rulemaking process.
III. Section-by-Section Analysis
The clarifying amendments in this final rule are largely technical
in nature. As a result, most of the current language in Sec. 701.21
remains. The changes to Sec. 701.21 and the conforming amendments to
Sec. Sec. 701.20 and 701.22 are discussed in more detail below.
Section 701.20 Suretyship and guaranty.
(c) Requirements.
The final rule makes minor conforming amendments to Sec.
701.20(c).
(c)(2).
The final rule makes conforming amendments to the section governing
requirements for suretyship or guaranty agreements by removing outdated
cross-citations to the loans to one borrower or group of associated
borrowers limit in Sec. Sec. 723.2 and 723.8 of the member business
lending regulation and adding an updated cross-citation to Sec.
723.4(c).
Section 701.21
(c) General rules.
(c)(4) Maturity.
The final rule divides Sec. 701.21(c)(4) into two new paragraphs.
One paragraph, Sec. 701.21(c)(4)(i), states the general rule that
loans carry a 15-year maturity. The other, Sec. 701.21(c)(4)(ii),
makes more explicit that there are exceptions to the general 15-year
maturity limit in Sec. 701.21(e) through (g) for various types of
credit union loans.
(c)(4)(i) General rules.
The final rule maintains all of current Sec. 701.21(c)(4) in Sec.
701.21(c)(4)(i), which articulates the general 15-year maturity limit
that exists on FCU loans. However, the final rule also adds language to
clarify that the maturity for a new loan under GAAP is calculated from
the new date of origination.
(c)(4)(ii) Exceptions.
Section 701.21(c)(4)(ii) of the final rule explicitly states, in
three paragraphs ((c)(4)(ii)(A), (B), and (C)), that there are three
exceptions to the general 15-year maturity limit and cross-cites to
Sec. 701.21(e) through (g) as follows:
(c)(4)(ii)(A).
Section 701.21(c)(4)(ii)(A) of the final rule cross-cites to the
exception to the general 15-year maturity limit in Sec. 701.21(e)
regarding covered loans secured, in full or in part, by the insurance
or guarantee of, or with an advance commitment to purchase the loan, in
full or in part, by the Federal Government, a State Government or any
agency of either.
(c)(4)(ii)(B).
Section 701.21(c)(4)(ii)(B) of the final rule cross-cites to the
exception to the general 15-year maturity limit in Sec. 701.21(f)
regarding covered home improvement, mobile home, and second mortgage
loans.
(c)(4)(ii)(C).
Section 701.21(c)(4)(ii)(C) of the final rule cross-cites to the
exception to the general 15-year maturity limit in Sec. 701.21(g)
regarding covered 1-4 family real estate loans.
(c)(5) Ten percent limit.
The final rule revises Sec. 701.21(c)(5) to add cross-citations to
the specific requirements on loans to a single borrower or group of
associated borrowers in the loan participation rule, Sec.
701.22(b)(5)(iv), and member business lending rule, Sec. 723.4(c).
(e) Insured, Guaranteed, and Advance Commitment Loans.
The final rule revises Sec. 701.21(e) to make more explicit that
the maturity limits applicable to loans covered by paragraph (e) are
notwithstanding the general 15-year limit in paragraph (c)(4). The
final rule also adds a cross-citation to paragraph (c)(4).
(f) 20-Year Loans.
The final rule retains almost all of current Sec. 701.21(f), but
inserts some additional language to improve clarity.
(f)(1).
The final rule revises Sec. 701.21(f)(1) to make more explicit
that the maturity limit applicable to loans covered by paragraph (f) is
notwithstanding the general 15-year limit in paragraph (c)(4). The
final rule also adds a cross-citation to paragraph (c)(4).
(g) Long-Term Mortgage Loans.
The final rule retains almost all of Sec. 701.21(g), but inserts
some additional language to improve clarity.
(g)(1).
The final rule revises Sec. 701.21(g)(1) to make more explicit
that the maturity limit applicable to loans covered by paragraph (g) is
notwithstanding the general 15-year limit in paragraph (c)(4). The
final rule also adds a cross-citation to paragraph (c)(4).
Section 701.22
(b).
As described in more detail below, the final rule makes minor
conforming amendments to Sec. 701.22(b) regarding loan participations.
(b)(1).
The final rule updates the cross-citation in Sec. 701.22(b)(1),
which provides that for a federally insured credit union to purchase a
participation interest in a loan, the loan must comply with all
regulatory requirements to the same extent as if the purchasing
federally insured credit union had originated the loan. Specifically,
the final rule changes the outdated cross-citation in Sec.
701.22(b)(1) from Sec. 723.8 to Sec. 723.4(c).
IV. Legal Authority
The Board is issuing this rule pursuant to its authority under the
FCU Act. Under the FCU Act, the NCUA is the chartering and supervisory
authority for FCUs and the federal supervisory authority for federally
insured credit unions.\22\ The FCU Act grants NCUA a broad mandate to
issue regulations governing both FCUs and all federally insured credit
unions. Section 120 of the FCU Act is a general grant of regulatory
authority and authorizes the Board to prescribe rules and regulations
for the administration of the FCU Act.\23\ Section 207 of the FCU Act
is a specific grant of authority over share insurance coverage,
conservatorships, and liquidations.\24\ Section 209 of the FCU Act is a
plenary grant of regulatory authority to the NCUA to issue rules and
regulations necessary or appropriate to carry out its role as share
insurer for all federally insured credit unions.\25\
[[Page 10975]]
Accordingly, the FCU Act grants the Board broad rulemaking authority to
ensure that the credit union industry and the National Credit Union
Share Insurance Fund remain safe and sound.
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\22\ 12 U.S.C. 1752-1775.
\23\ 12 U.S.C. 1766(a).
\24\ 12 U.S.C. 1787.
\25\ 12 U.S.C. 1789.
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V. Regulatory Procedures
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires that, in
connection with a final rule, an agency prepare and make available for
public comment a final regulatory flexibility analysis that describes
the impact of the final rule on small entities. A regulatory
flexibility analysis is not required, however, if the agency certifies
that the rule will not have a significant economic impact on a
substantial number of small entities (defined for purposes of the RFA
to include credit unions with assets less than $100 million) \26\ and
publishes its certification and a short, explanatory statement in the
Federal Register together with the rule. The final rule reduces
regulatory burden through clarifying and technical changes and will not
have an impact on small credit unions. Accordingly, the NCUA certifies
that this final rule will not have a significant economic impact on a
substantial number of small credit unions.
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\26\ See 80 FR 57512 (Sept. 24, 2015).
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B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in
which an agency creates new or amends existing information collection
requirements.\27\ For purposes of the PRA, an information collection
requirement may take the form of a reporting, recordkeeping, or a
third-party disclosure requirement. The final rule does not contain
information collection requirements that require approval by OMB under
the PRA.\28\ The final rule only makes clarifying and technical
changes.
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\27\ 44 U.S.C. 3507(d); 5 CFR part 1320.
\28\ 44 U.S.C. chap. 35.
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C. Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. In
adherence to fundamental federalism principles, the NCUA, an
independent regulatory agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive order. This 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.
The NCUA has determined that this final rule does not constitute a
policy that has federalism implications for purposes of the executive
order.
D. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this final rule will not affect family
well-being within the meaning of Section 654 of the Treasury and
General Government Appropriations Act, 1999.\29\
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\29\ Public Law 105-277, 112 Stat. 2681 (1998).
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E. Small Business Regulatory Enforcement Fairness Act of 1996
The Small Business Regulatory Enforcement Fairness Act of 1996
(SBREFA) provides generally for congressional review of agency rules. A
reporting requirement is triggered in instances where the NCUA issues a
final rule as defined by Section 551 of the Administrative Procedure
Act. The NCUA does not believe this final rule is a ``major rule''
within the meaning of the relevant sections of SBREFA. The NCUA has
submitted the rule to the Office of Management and Budget for its
determination in that regard.
List of Subjects in 12 CFR Part 701
Credit, Credit unions, Reporting and recordkeeping requirements.
By the National Credit Union Administration Board on March 14,
2019.
Gerard Poliquin,
Secretary of the Board.
For the reasons discussed above, the Board amends 12 CFR part 701
as follows:
PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS
0
1. The authority citation for part 701 continues to read as follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759,
1761a, 1761b, 1766, 1767, 1782, 1784, 1785, 1786, 1787, 1788, 1789.
Section 701.6 is also authorized by 15 U.S.C. 3717. Section 701.31
is also authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and
3601-3610. Section 701.35 is also authorized by 42 U.S.C. 4311-4312.
Sec. 701.20 [Amended]
0
2. Amend Sec. 701.20(c)(2) by removing the words ``723.2 and 723.8''
and adding in their place ``723.4(c)''.
0
3. Amend Sec. 701.21 by revising paragraphs (c)(4) and (5), (e),
(f)(1) introductory text, and (g)(1) to read as follows:
Sec. 701.21 Loans to members and lines of credit to members.
* * * * *
(c) * * *
(4) Maturity. (i) In General. The maturity of a loan to a member
may not exceed 15 years. Lines of credit are not subject to a statutory
or regulatory maturity limit. Amortization of line of credit balances
and the type and amount of security on any line of credit shall be as
determined by contract between the Federal credit union and the member/
borrower. In the case of a lending action that qualifies as a ``new
loan'' under GAAP, the new loan's maturity is calculated from the new
date of origination.
(ii) Exceptions. Notwithstanding the general 15-year maturity limit
on loans to members, a federal credit union may make loans with
maturities:
(A) As specified in the law, regulations or program under which a
loan is secured, in full or in part, by the insurance or guarantee of,
or with an advance commitment to purchase the loan, in full or in part,
by the Federal Government, a State government or any agency of either,
as provided in paragraph (e) of this section;
(B) of up to 20 years or such longer term as is provided in
paragraph (f) of this section; and
(C) of up to 40 years or such longer term as is provided in
paragraph (g) of this section.
(5) Ten percent limit. No loan or line of credit advance may be
made to any member if such loan or advance would cause that member to
be indebted to the Federal credit union upon loans and advances made to
the member in an aggregate amount exceeding 10% of the credit union's
total unimpaired capital and surplus. In the case of loan
participations as defined in Sec. 701.22(a) of this part and
commercial loans as defined in Sec. 723.2 of this chapter, additional
limitations apply as set forth in Sec. 701.22(b)(5)(iv) of this part
and Sec. 723.4(c) of this chapter.
* * * * *
(e) Insured, Guaranteed, and Advance Commitment Loans.
Notwithstanding the general 15-year maturity limit on loans to members
in paragraph (c)(4) of this section, a loan secured, in full or in
part, by the insurance or guarantee of, or with an advance commitment
to purchase the loan, in full or in part, by the Federal Government, a
State government or any agency of either, may be made for the maturity
and under the terms and conditions, including rate of interest,
specified in the law, regulations or program under which the insurance,
guarantee or commitment is provided.
[[Page 10976]]
(f) * * *
(1) Notwithstanding the general 15-year maturity limit on loans to
members in paragraph (c)(4) of this section, a federal credit union may
make loans with maturities of up to 20 years in the case of:
* * * * *
(g) * * *
(1) Authority. Notwithstanding the general 15-year maturity limit
on loans to members in paragraph (c)(4) of this section, a federal
credit union may make residential real estate loans to members,
including loans secured by manufactured homes permanently affixed to
the land, with maturities of up to 40 years, or such longer period as
may be permitted by the NCUA Board on a case-by-case basis, subject to
the conditions of this paragraph (g).
* * * * *
Sec. 701.22 [Amended]
0
4. Amend Sec. 701.22(b)(1) by removing the words ``Sec. 723.8'' and
adding in their place ``Sec. 723.4''.
[FR Doc. 2019-05186 Filed 3-22-19; 8:45 am]
BILLING CODE 7535-01-P
