Regulatory Capital Rule: Paycheck Protection Program Lending Facility and Paycheck Protection Program Loans, 23212-23217 [2020-08920]
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§ 1778.11
Federal Register / Vol. 85, No. 81 / Monday, April 27, 2020 / Rules and Regulations
Maximum grants.
(a) Grants up to $1,000,000 may be
made to alleviate a significant decline in
quantity or quality of water available to
a rural area that occurred within two
years of filing an application with the
Agency, or to attempt to avoid a
significant decline that is expected to
occur during the twelve month period
following the filing of an application.
*
*
*
*
*
PART 1784—RURAL ALASKAN
VILLAGE GRANTS
20. The authority citation for part
1784 continues to read as follows:
■
Authority: 7 U.S.C. 1926d.
Subpart A—General Provisions.
■
Purpose.
This part sets forth the policies and
procedures that will apply when the
Rural Utilities Service (RUS) makes
grants under the Rural Alaska Village
Grant (RAVG) program (7 U.S.C. 1926d)
to native villages in Alaska. The grants
will be provided directly to a native
village or jointly with either The State
of Alaska, Department of Environmental
Conservation (DEC) or The Alaska
Native Tribal Health Consortium
(ANTHC) for the benefit of native
villages in Alaska.
■ 22. Amend § 1784.2 by removing the
definition of ‘‘Rural or Native Villages
in Alaska’’ and adding, in alphabetical
order, the definition of ‘‘Native Villages
in Alaska’’ to read as follows:
§ 1784.10
§ 1784.2
§ 1784.16
Definitions.
*
*
*
*
*
Native Villages in Alaska means a
Native village in Alaska which meets
the definition of a village as defined in
section 3 of the Alaska Native Claims
Settlement Act (43 U.S.C. 1602).
*
*
*
*
*
Subpart B—Grant Requirements
23. Amend § 1784.8 by revising
paragraphs (a)(1) through (3), (b), and
(d) to read as follows:
■
§ 1784.8
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24. Amend § 1784.10 by revising
paragraph (a) introductory text to read
as follows:
■
21. Revise § 1784.1 to read as follows:
§ 1784.1
ANTHC together with each individual
recipient community beneficiary shall
execute a grant agreement on a project
by project basis. Expenditures for
projects will be based on specific scope
and be requested on a project by project
basis.
*
*
*
*
*
(d) The median household income of
the recipient community cannot exceed
110 percent of the statewide
nonmetropolitan household income
(SNMHI), according to US Census
American Community Survey. Alaska
census communities considered to be
high cost isolated areas or ‘‘off the road
systems’’ (i.e., communities that cannot
be accessed by roads) may utilize up to
150 percent of SNMHI.
Eligibility.
(a) * * *
(1) Native village in Alaska; or
(2) DEC on behalf of one or more
recipient communities in Alaska; or
(3) ANTHC on behalf of one or more
recipient communities in Alaska.
(b) Grants made to DEC or ANTHC
may be obligated through a master letter
of conditions for more than one
recipient community; however, DEC or
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*
*
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(a) To pay reasonable costs associated
with providing potable water or waste
disposal services to residents of
recipient communities. Reasonable costs
include construction, planning, predevelopment costs (including
engineering, design, and rights-of-way
establishment), and technical assistance
as further defined in paragraphs (a)(1)
through (3) of this section:
*
*
*
*
*
Subpart C—Application Processing
25. Amend § 1784.16 by revising
paragraph (a) to read as follows:
■
General.
(a) DEC and ANTHC utilize the
National Indian Health Service,
Sanitation Deficiency System (SDS)
database as a comprehensive source of
rural sanitation needs in Alaska. The
database provides an inventory of the
sanitation deficiencies including water,
sewer, and solid waste facilities for
existing homes. The sanitation
deficiencies data are updated annually
by DEC and ANTHC in consultation
with the respective recipient
communities. The SDS system is
utilized in the RAVG program to help
prioritize applications under the Village
Safe Water Program.
*
*
*
*
*
26. Amend § 1784.17 by revising
paragraph (a) to read as follows:
■
Application for Planning grants.
(a) Entities identified in § 1784.8 may
submit a completed Standard Form 424
to apply for funding to establish a
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§ 1784.20 Applications Accepted from DEC
or ANTHC.
(a) In cases where applications are
accepted from DEC or ANTHC, one
master application may be submitted
covering recipient communities to be
funded, however, each individual
project will be broken out and (for
construction grants) each will require its
own PER, or PER-like document and
Environmental Report.
*
*
*
*
*
Chad Rupe,
Administrator, Rural Utilities Service.
[FR Doc. 2020–08034 Filed 4–24–20; 8:45 am]
BILLING CODE 3410–15–P
Eligible grant purposes.
*
§ 1784.17
Planning report for a recipient
community.
*
*
*
*
*
■ 27. Amend § 1784.20 by revising
paragraph (a) to read as follows:
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NATIONAL CREDIT UNION
ADMINISTRATION
12 CFR Parts 702 and 723
RIN 3133–AF16
Regulatory Capital Rule: Paycheck
Protection Program Lending Facility
and Paycheck Protection Program
Loans
National Credit Union
Administration (NCUA).
ACTION: Interim final rule.
AGENCY:
The NCUA Board (Board) is
issuing this interim final rule to make a
conforming amendment to its capital
adequacy regulation following the
enactment of the Coronavirus Aid,
Relief, and Economic Security Act
(CARES Act). The CARES Act
authorizes the Small Business
Administration to create a loan
guarantee program, the Paycheck
Protection Program (PPP), to help
certain businesses affected by the
COVID–19 pandemic. The CARES Act
requires that PPP loans receive a zero
percent risk weighting under the
NCUA’s risk-based capital requirements.
To reflect the statutory requirement, the
interim final rule amends the NCUA’s
capital adequacy regulation to provide
that covered PPP loans receive a zero
percent risk weight. The interim final
rule also provides that if the covered
loan is pledged as collateral for a nonrecourse loan that is provided as part of
the Board of Governors of the Federal
Reserve System’s (FRB) PPP Lending
Facility, the covered loan can be
excluded from a credit union’s
calculation of total assets for the
SUMMARY:
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purposes of calculating its net worth
ratio. The interim final rule also makes
a conforming amendment to the
definition of commercial loan in the
NCUA’s member business loans and
commercial lending rule. The Board has
found good cause to issue the interim
final rule without advance notice-andcomment procedures and with an
effective date upon publication.
This rule is effective on April 27,
2020. Comments, as discussed below,
must be received on or before May 27,
2020.
DATES:
You may submit written
comments, identified by RIN 3133–
AF16, by any of the following methods
(Please send comments by one method
only):
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Fax: (703) 518–6319. Include
‘‘[Your Name]—Comments on Interim
Final Rule: Regulatory Capital Rule:
Paycheck Protection Program Lending
Facility and Paycheck Protection
Program Loans’’ in the transmittal.
• 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 the Federal
eRulemaking Portal at https://
www.regulations.gov as submitted,
except for those we cannot post for
technical reasons. The NCUA will not
edit or remove any identifying or
contact information from the public
comments submitted. Due to social
distancing measures in effect through at
least April 30, 2020, the usual
opportunity to inspect paper copies of
comments in the NCUA’s law library is
not currently available. After social
distancing measures are relaxed, visitors
may make an appointment to review
paper copies by calling (703) 518–6540
or emailing OGCMail@ncua.gov.
ADDRESSES:
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FOR FURTHER INFORMATION CONTACT:
Amanda Parkhill, Supervisory CUE
(Policy); or Rachel Ackmann, Senior
Staff Attorney, Office of General
Counsel, 1775 Duke Street, Alexandria,
VA 22314–3428. Amanda Parkhill can
also be reached at (703) 518–6385, and
Rachel Ackmann can be reached at (703)
548–2601.
SUPPLEMENTARY INFORMATION:
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I. Background and Legal Authority
a. The NCUA’s Risk-Based Capital
Requirements
The Credit Union Membership Access
Act (CUMAA) requires the NCUA to
formulate a risk-based net worth
(RBNW) requirement to apply to
complex credit unions.1 Part 702 of the
NCUA’s regulations implement the riskbased net worth requirement.2 Under
current § 702.103 of the NCUA’s
regulations, a credit union is defined as
‘‘complex’’ if ‘‘[i]ts quarter-end total
assets exceed fifty million dollars
($50,000,000); and . . . [i]ts [RBNW]
requirement . . . exceeds six percent
(6%).’’ 3 Current § 702.104 of the
NCUA’s regulations defines eight risk
portfolios of complex credit union
assets, liabilities, or contingent
liabilities.4 The eight risk portfolios are
long-term real estate loans, member
business loans (MBL) outstanding,
investments, low-risk assets, averagerisk assets, loans sold with recourse,
unused MBL commitments, and
allowance. Current § 702.106 sets forth
the specific risk-weightings that are
applied to the assets, liabilities, or
contingent liabilities of each risk
portfolio.5 A credit union’s RBNW
requirement is the sum of the eight risk
portfolios times the applicable riskweighting.6 The RBNW requirement for
1 12 U.S.C. 1790d(d). Only complex credit unions
are subject to the NCUA’s risk-based net worth
requirement. See 12 U.S.C. 1790d(d)(1) and 12 CFR
702.103. The FCU Act grants the Board a broad
mandate to issue regulations governing both FCUs
and, more generally, all FICUs. For example,
section 120 of the FCU Act is a general grant of
regulatory authority and authorizes the Board to
prescribe rules and regulations for the
administration of the Act. 12 U.S.C. 1766(a).
2 12 CFR pt. 702. On January 1, 2022, the NCUA’s
capital requirements will be substantially amended
when the NCUA’s risk-based capital rules become
effective. See, 84 FR 68781 (Dec. 17, 2019). This
interim final rule only amends the NCUA’s current
risk-based net worth rules and does not amend the
NCUA’s risk-based capital rules (‘‘2015 Final
Rule’’), which will be addressed when they become
effective. Generally, the NCUA uses the term ‘‘riskbased net worth requirement’’ to reference the
statutory requirement for the Board to design a
capital standard that accounts for variations in the
risk profile of complex credit unions and the
current risk-based framework in part 702. In
contrast, the NCUA generally uses the term ‘‘riskbased capital’’ to refer to the specific standards
established in the 2015 Final Rule. The term ‘‘riskbased capital requirement,’’ however, is used in the
CARES Act and refers to both the risk-based net
worth and the risk-based capital requirements. The
Board notes that the term ‘‘risk-based capital’’ is
also used by the other banking agencies and the
international banking community when referring to
the types of risk-based requirements that are
addressed in the 2015 Final Rule.
3 12 CFR 702.103. For the definition of total
assets, see 12 CFR 702.2(k).
4 12 CFR 702.104.
5 12 CFR 702.106.
6 Id.
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credit unions meeting the definition of
‘‘complex’’ was first applied on the
basis of data in the Call Report reflecting
activity in the first quarter of 2001.7
b. The NCUA’s MBL and Commercial
Lending Rule
Among other things, CUMAA limited
the aggregate amount of MBLs that a
credit union may make to the lesser of
1.75 times the net worth of the credit
union or 1.75 times the minimum net
worth required under the Federal Credit
Union Act (FCU Act) for a credit union
to be well capitalized.8 The statutory
MBL limit is incorporated in part 723 of
NCUA’s regulations.9 Part 723 also
defines MBLs and commercial loans,
establishes minimum safety and
soundness standards, and implements
various other requirements regarding
MBLs and commercial loans. The Board
has not significantly amended part 723
since 2016.10
c. The Coronavirus Aid, Relief, and
Economic Security (CARES Act)
On March 27, 2020, President Trump
signed the CARES Act into law.11 The
law is designed to provide aid to the
U.S. economy in the midst of the
COVID–19 pandemic. The CARES Act
authorizes the Small Business
Administration (SBA) to create a loan
guarantee program, the Paycheck
Protection Program (PPP), to help
certain affected businesses meet payroll
needs and utilities (including employee
salaries, sick leave, other paid leave,
and health insurance expenses) as a
result of the COVID–19 pandemic.
Provided credit union lenders comply
with the applicable lender obligations
set forth in the SBA’s interim final rule,
the SBA will fully guarantee loans
issued under the PPP. Most federally
insured credit unions are eligible to
make PPP loans to members.12 Under
the CARES Act, PPP loans must receive
a zero percent risk weighting under the
7 65
FR 44950 (July 20, 2000).
U.S.C. 1757a; Public Law 105–219, 112 Stat.
913 (1998).
9 12 CFR part 723.
10 81 FR 13530 (Mar. 14, 2016).
11 Public Law 116–136 (Mar. 27, 2020).
12 Credit unions that are currently permitted to
make loans under the SBA’s 7(a) program are
automatically approved to make PPP loans.
Federally insured credit unions that are not current
SBA 7(a) lenders, can receive approval by
submitting an application to the SBA, unless they
are currently designated as being in troubled
condition or are subject to a formal enforcement
action that addresses unsafe and unsound lending
practices. Non-depository financing providers, such
as credit union service organizations, may qualify
as a PPP lender subject to the requirements listed
in the interim final rule.
8 12
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NCUA’s risk-based capital
requirements.13
II. The Interim Final Rule
a. Risk Weighting of PPP Loans
To reflect the statutory requirement
that PPP loans receive a zero percent
risk weight, the interim final rule
amends the NCUA’s risk-based net
worth rules. Specifically, the interim
final rule explicitly provides that PPP
loans are low-risk assets. Low-risk assets
are currently defined as cash on hand
(e.g., coin and currency, including vault,
ATM and teller cash), the National
Credit Union Share Insurance Fund
(NCUSIF) deposit, and debt instruments
unconditionally guaranteed by the
NCUA.14 Under § 702.106(d), low-risk
assets receive a zero percent risk
weight.15 Under the interim final rule,
low-risk assets are defined as cash on
hand (e.g., coin and currency, including
vault, ATM and teller cash), the NCUSIF
deposit, debt instruments
unconditionally guaranteed by the
NCUA; and loans issued under the
SBA’s Paycheck Protection Program (15
U.S.C. 636(a)(36)). Therefore, the
interim final rule provides that PPP
loans receive a zero percent risk weight
under the NCUA’s risk-based capital
rules as required by the CARES Act.
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b. Definition of Total Assets for the
Purposes of Calculating the Net Worth
Ratio
To provide liquidity to small business
lenders and the broader credit markets,
to help stabilize the financial system,
and to provide economic relief to small
businesses nationwide, the FRB
authorized each of the Federal Reserve
Banks to participate in the Paycheck
Protection Program Lending Facility
(PPPL Facility), pursuant to section
13(3) of the Federal Reserve Act.16
Under the PPPL Facility, each of the
Federal Reserve Banks will extend nonrecourse loans to eligible financial
institutions to fund PPP loans. Under
the PPPL Facility, only PPP loans that
are guaranteed by the SBA with respect
to both principal and interest and that
are originated by an eligible institution
may be pledged as collateral to the
Federal Reserve Banks. Participation in
the PPPL Facility will affect a credit
union’s balance sheet because, as a
function of participating in the PPPL
Facility, the credit union must originate
and hold PPP covered loans (that is,
assets that are eligible collateral pledged
13 Supra
note 11, at § 1102(a)(2).
CFR 702.104(d).
15 12 CFR 702.106(d).
16 12 U.S.C. 343(3).
14 12
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to the Federal Reserve Banks) on its
balance sheet.
As a result, credit unions that
participate in the PPPL Facility could
potentially be subject to increased
regulatory capital requirements (due to
the increase in total assets from
originating and holding PPP loans). To
facilitate use of the PPPL Facility, the
interim final rule allows credit unions
to neutralize the regulatory capital
effects of PPP loans pledged to the
Facility.17 Additionally, the Board
believes that the regulatory capital
requirements for certain PPP loans,
those PPP loans pledged to a Federal
Reserve Bank as part of the PPPL
Facility, do not reflect the substantial
protections from risk provided to credit
unions by the PPPL Facility. Because of
the non-recourse nature of the FRB’s
extension of credit to the credit union,
the credit union is not exposed to credit
or market risk from the pledged PPP
covered loans. Therefore, the Board
believes that it is appropriate to exclude
pledged PPP loans from regulatory
capital. Specifically, the interim final
rule excludes PPP loans pledged as
collateral to the PPPL Facility from the
definition of total assets in § 702.2 for
purposes of calculating a credit union’s
net worth ratio.18
c. Definition of Commercial Loan
The interim final rule also clarifies
that PPP loans would not constitute
commercial loans under part 723 of the
NCUA’s regulations. Generally
commercial loans are defined as any
loan, line of credit, or letter of credit
(including any unfunded commitments),
and any interest a credit union obtains
in such loans made by another lender,
to individuals, sole proprietorships,
partnerships, corporations, or other
business enterprises for commercial,
industrial, agricultural, or professional
17 The Office of the Comptroller of the Currency,
the FRB, and the Federal Deposit Insurance
Corporation (together, the other banking agencies)
adopted a similar interim final rule to allow
banking organizations to neutralize the regulatory
capital effects of participating in the PPPL Facility.
See, 85 FR 20387 (Apr. 13, 2020).
18 The Board has broad authority to define the
term ‘‘total assets.’’ While 12 U.S.C. 1790d defines
‘‘net worth’’—the numerator for determining the net
worth ratio—it does not define the term ‘‘total
assets,’’ which comprises the denominator of the
equation. However, the Board has elected to define
the term in part 702. In addition to the Board’s
broad authority to define the term ‘‘total assets,’’ the
Board finds that given the unique and
unprecedented nature of the COVID–19 pandemic,
encouraging use of the PPP Facility by excluding
pledged PPP loans from total assets would further
the purpose of section 1790d. Pledged covered PPP
loans present less risk and would potentially
facilitate resolving the problems of credit unions at
the least possible long-term cost to the NCUSIF
compared to non-pledged covered PPP loans.
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purposes, but not for personal
expenditure purposes.19 The current
definition also provides various
exclusions. The interim final rule
amends the commercial loan definition
to add PPP loans issued under the
CARES Act as an exclusion from the
definition of commercial loan in § 723.2.
While other federally guaranteed loans
may still be considered commercial
loans under the regulation, the unique
nature of PPP loans mitigates the need
for enhanced commercial underwriting
of these loans. The SBA’s interim final
rule specifically limits each lender’s
underwriting obligation under the PPP
to the items noted in the rule.20
Additionally, lenders will be held
harmless for any borrower’s failure to
comply with PPP criteria and, in
addition to the 100 percent guarantee,
PPP loans may qualify for loan
forgiveness.
III. Clarification Regarding Eligible
Recipients of PPP Loans
In general, the SBA has restrictions on
who can receive SBA business loans.21
The SBA, however, recognizes that,
unlike other SBA loan programs, PPP
Loans are uniform for all borrowers, and
the standard underwriting process does
not apply because no creditworthiness
assessment is required for PPP Loans.
The SBA also recognizes that many
directors and equity holders of lenders
making PPP Loans are owners of
unrelated businesses. Therefore, the
SBA has determined that certain of its
prohibitions regarding eligible
borrowers for SBA loans are not
applicable.22 In general, it appears that
a credit union director may obtain a PPP
Loan from the credit union on whose
board the director serves, provided that
the related business follows the same
process as any similarly situated
member or account holder of the credit
union and the director is not an officer
or key employee of the credit union.23
This change to the SBA’s regulations,
however, does not affect the FCU Act,
the NCUA’s rules on insider lending, or
any relevant provision of a credit
union’s bylaws.
Under the FCU Act, a loan, or
aggregate of loans, to a director or
member of the supervisory or credit
committee of the credit union making
the loan which exceeds $20,000 (plus
19 12
CFR 723.2.
https://www.sba.gov/document/policyguidance--ppp-interim-final-rule.
21 See e.g., 13 CFR 120.110 and 120.140.
22 85 FR 21747 (Apr. 20, 2020).
23 Officers and key employees of the credit union
may obtain a PPP Loan from a different lender, but
not from the credit union with which they are
associated.
20 See,
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any applicable pledged shares) must be
approved by the board of directors.24
Similarly, loans to other members for
which directors or members of the
supervisory or credit committee act as
guarantor or endorser must be approved
by the board of directors when such
loans, standing alone or when added to
any outstanding loan or loans of the
guarantor or endorser, exceeds
$20,000.25 The NCUA’s regulations
implement these restrictions under part
701, which explains how balances are
calculated for purposes of these
provisions and sets forth loan approval
requirements.26 The SBA’s interim final
rules and the CARES Act do not provide
any authority to set these statutory
restrictions aside, and the FCU Act
contains no authority for the Board to
provide an exception.27 Therefore, as
discussed above, current NCUA
provisions governing loans to insiders
are applicable to PPP Loans.
IV. Regulatory Procedures
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A. Administrative Procedure Act
The Board is issuing this interim final
rule without prior notice and the
opportunity for public comment and the
delayed effective date ordinarily
prescribed by the Administrative
Procedure Act (APA). Pursuant to the
APA, general notice and the opportunity
for public comment are not required
with respect to a rulemaking when an
‘‘agency for good cause finds (and
incorporates the finding and a brief
statement of reasons therefor in the
rules issued) that notice and public
procedure thereon are impracticable,
unnecessary, or contrary to the public
interest.’’ 28 The Board believes that the
public interest is best served by
implementing the interim final rule
immediately upon publication in the
Federal Register. The Board notes that
the COVID–19 crisis is unprecedented.
It is rapidly changing and difficult to
anticipate how the disruptions caused
by the crisis will manifest themselves
within the financial system and how
individual credit unions may be
impacted. Because of the widespread
impact of a pandemic and the speed
with which business and economic
disruptions have transmitted throughout
the United States, the Board believes it
has good cause to determine that
ordinary notice and public procedure
24 12
U.S.C. 1757(5)(A)(iv).
U.S.C. 1757(5)(A)(v).
26 12 CFR 701.21(d).
27 Cf. 12 U.S.C. 375b(9)(D)(ii) (authority for FRB
to grant an exception to a similar restriction for
member banks for extensions of credit that pose
‘‘minimal risk’’).
28 5 U.S.C. 553(b)(3)(B).
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are impracticable and that moving
expeditiously in the form of an interim
final rule is in the best interests of the
public and the credit unions that serve
that public.
The Board also believes that noticeand-comment procedures are
unnecessary for this interim final rule as
it principally implements a statutory
requirement and the Board has no
discretion in providing the zero risk
weight for PPP loans. Furthermore, the
Board believes notice-and-comment
procedures are impractical because
credit unions have already begun to
offer PPP loans to members affected by
COVID–19.29 Credit unions need clarity
and certainty on the applicable
treatment of PPP loans both in regards
to the risk weighting and whether the
loans qualify as commercial loans under
the NCUA’s MBL and commercial
lending rule. For these reasons, the
Board finds that there is good cause
consistent with the public interest to
issue the interim final rule without
advance notice and the opportunity to
comment.30
The APA also requires a 30-day
delayed effective date, except for (1)
substantive rules which grant or
recognize an exemption or relieve a
restriction; (2) interpretative rules and
statements of policy; or (3) as otherwise
provided by the agency for good
cause.31 For the reasons stated above,
the Board finds good cause to issue the
rule with an immediate effective date.
This rule would also be excepted from
the delayed effective date requirement
because it relieves a restriction that
would otherwise apply.
While the Board believes that there is
good cause to issue the rule without
advance notice and comment and with
an immediate effective date, the Board
is interested in the views of the public
and requests comment.
B. Congressional Review Act
For purposes of the Congressional
Review Act, the OMB makes a
determination as to whether a final rule
constitutes a ‘‘major’’ rule. If a rule is
deemed a ‘‘major rule’’ by the Office of
Management and Budget (OMB), the
Congressional Review Act generally
29 Financial institutions could begin offering PPP
loans April 3, 2020. See, https://www.sba.com/
funding-a-business/government-small-businessloans/ppp/.
30 . 5 U.S.C. 553(b)(B); 553(d)(3). For the same
reasons, the Board is not providing the usual 60-day
comment period before finalizing this rule. See
NCUA Interpretive Ruling and Policy Statement
(IRPS) 87–2, as amended by IRPS 03–2 and IRPS
15–1. 80 FR 57512 (Sept. 24, 2015), available at
https://www.ncua.gov/files/publications/irps/
IRPS1987-2.pdf.
31 5 U.S.C. 553(d).
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provides that the rule may not take
effect until at least 60 days following its
publication.
The Congressional Review Act defines
a ‘‘major rule’’ as any rule that the
Administrator of the Office of
Information and Regulatory Affairs of
the OMB finds has resulted in or is
likely to result in (A) an annual effect
on the economy of $100,000,000 or
more; (B) a major increase in costs or
prices for consumers, individual
industries, Federal, State, or local
government agencies or geographic
regions, or (C) significant adverse effects
on competition, employment,
investment, productivity, innovation, or
on the ability of United States-based
enterprises to compete with foreignbased enterprises in domestic and
export markets.32
For the same reasons set forth above,
the Board is adopting the interim final
rule without the delayed effective date
generally prescribed under the
Congressional Review Act. The delayed
effective date required by the
Congressional Review Act does not
apply to any rule for which an agency
for good cause finds (and incorporates
the finding and a brief statement of
reasons therefor in the rule issued) that
notice and public procedure thereon are
impracticable, unnecessary, or contrary
to the public interest.33 As discussed
above, the Board has concluded there is
good cause to issue the interim final
rule without notice-and-comment
procedures.
As required by the Congressional
Review Act, the Board will submit the
interim final rule and other appropriate
reports to Congress and the Government
Accountability Office for review.
C. 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 (44
U.S.C. 3507(d)). For purposes of the
PRA, a paperwork burden may take the
form of a reporting, recordkeeping, or a
third-party disclosure requirement,
referred to as an information collection.
The NCUA may not conduct or sponsor,
and the respondent is not required to
respond to, an information collection
unless it displays a valid OMB control
number.
To capture activity related to the PPP,
beginning with the June reporting cycle
by credit unions, the NCUA will add
four accounts to the quarterly Call
Report (NCUA 5300) to identify the
32 5
33 5
E:\FR\FM\27APR1.SGM
U.S.C. 804(2).
U.S.C. 808.
27APR1
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number and amount of PPP loans, the
amount of PPP loans pledged as
collateral to secure Federal Reserve
System’s PPP Lending Facility, and the
amount of FRB PPP Lending Facility
loans. The changes to the Call Report
will assist NCUA in off-site monitoring
and supervision of credit unions while
minimizing the burden during on-site
examinations.
These changes will not alter the
current estimate of four hours per
response necessary to review the
instructions and complete the form. The
amount of data elements added are
minimal and will not impact the total
burden. The Office of Management
Budget (OMB) has approved this change
under a ‘‘non-substantive change’’
request to the information collection
requirements approved under OMB
control number 3133–0004.
D. Executive Order 13132
Executive Order 13132 encourages
independent regulatory agencies to
consider the impact of their actions on
state and local interests. The 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.
This interim final 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. The NCUA has
therefore determined that this rule does
not constitute a policy that has
federalism implications for purposes of
the executive order.
lotter on DSKBCFDHB2PROD with RULES
E. Assessment of Federal Regulations
and Policies on Families
The NCUA has determined that this
rule will not affect family well-being
within the meaning of § 654 of the
Treasury and General Government
Appropriations Act, 1999, Public Law
105–277, 112 Stat. 2681 (1998).
F. Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (RFA)
generally requires that when an agency
issues a proposed rule or a final rule
pursuant to the APA 34 or another law,
the agency must prepare a regulatory
flexibility analysis that meets the
requirements of the RFA and publish
such analysis in the Federal Register.35
Specifically, the RFA normally requires
agencies to describe the impact of a
rulemaking on small entities by
U.S.C. 553(b).
35 5 U.S.C. 603, 604.
16:16 Apr 24, 2020
List of Subjects
12 CFR Part 702
Capital, Credit unions, Reporting and
recordkeeping requirements.
12 CFR Part 723
Credit, Credit unions, Member
business loans, Commercial lending,
Reporting and recordkeeping
requirements.
By the NCUA Board on April 22, 2020.
Gerard Poliquin,
Secretary of the Board.
For the reasons discussed above, the
NCUA Board amends parts 702 and 723
of chapter VII of title 12 of the Code of
Federal Regulations as follows:
PART 702—CAPITAL ADEQUACY
1. The authority for part 702
continues to read as follows:
■
Authority: 12 U.S.C. 1766(a), 1790d.
2. In § 702.2, add paragraph (k)(3) to
read as follows:
■
§ 702.2
Definitions.
*
*
*
*
*
(k) * * *
(3) Notwithstanding paragraph (k)(1)
of this section, a credit union may
exclude loans pledged as collateral for
a non-recourse loan that is provided as
part of the Paycheck Protection Program
Lending Facility, announced by the
36 NCUA Interpretive Ruling and Policy
Statement 15–1. 80 FR 57512 (Sept. 24, 2015).
37 5 U.S.C. 553(b)(3)(B).
34 5
VerDate Sep<11>2014
providing a regulatory impact analysis.
For purposes of the RFA, the Board
considers credit unions with assets less
than $100 million to be small entities.36
As discussed previously, consistent
with the APA,37 the Board has
determined for good cause that general
notice and opportunity for public
comment is unnecessary, and therefore
the Board is not issuing a notice of
proposed rulemaking. Rules that are
exempt from notice and comment
procedures are also exempt from the
RFA requirements, including
conducting a regulatory flexibility
analysis, when among other things the
agency for good cause finds that notice
and public procedure are impracticable,
unnecessary, or contrary to the public
interest. Accordingly, the Board has
concluded that the RFA’s requirements
relating to initial and final regulatory
flexibility analysis do not apply.
Nevertheless, the Board seeks
comment on whether, and the extent to
which, the interim final rule would
affect a significant number of small
entities.
Jkt 250001
PO 00000
Frm 00012
Fmt 4700
Sfmt 4700
Federal Reserve Board on April 7, 2020,
from the calculation of total assets for
the purpose of calculating its net worth
ratio. For the purpose of this provision,
a credit union’s liability under the
Facility must be reduced by the
principal amount of the loans pledged
as collateral for funds advanced under
the Facility.
*
*
*
*
*
■ 3. In § 702.104, revise paragraph (d) to
read as follows:
§ 702.104
Risk portfolios defined.
*
*
*
*
*
(d) Low-risk assets. Cash on hand
(e.g., coin and currency, including vault,
ATM and teller cash), the NCUSIF
deposit, debt instruments
unconditionally guaranteed by the
National Credit Union Administration;
and covered loans issued under the
Small Business Administration’s
Paycheck Protection Program, 15 U.S.C.
636(a)(36).
*
*
*
*
*
PART 723—MEMBER BUSINESS
LOANS; COMMERCIAL LENDING
4. The authority for part 723
continues to read as follows:
■
Authority: 12 U.S.C. 1756, 1757, 1757a,
1766, 1785, 1789.
5. In § 723.2, revise the definition of
‘‘commercial loan’’ to read as follows:
■
§ 723.2
Definitions.
*
*
*
*
*
Commercial loan means any loan, line
of credit, or letter of credit (including
any unfunded commitments), and any
interest a credit union obtains in such
loans made by another lender, to
individuals, sole proprietorships,
partnerships, corporations, or other
business enterprises for commercial,
industrial, agricultural, or professional
purposes, but not for personal
expenditure purposes. Excluded from
this definition are loans made by a
corporate credit union; loans made by a
federally insured credit union to
another federally insured credit union;
loans made by a federally insured credit
union to a credit union service
organization; loans secured by a 1- to 4family residential property (whether or
not it is the borrower’s primary
residence); loans fully secured by shares
in the credit union making the
extension of credit or deposits in other
financial institutions; loans secured by
a vehicle manufactured for household
use; and loans that would otherwise
meet the definition of commercial loan
and which, when the aggregate
outstanding balances plus unfunded
E:\FR\FM\27APR1.SGM
27APR1
Federal Register / Vol. 85, No. 81 / Monday, April 27, 2020 / Rules and Regulations
commitments less any portion secured
by shares in the credit union to a
borrower or an associated borrower, are
equal to less than $50,000. The
definition of commercial loan also
excludes covered loans issued under the
Small Business Administration’s
Paycheck Protection Program, 15 U.S.C.
636(a)(36).
*
*
*
*
*
[FR Doc. 2020–08920 Filed 4–24–20; 8:45 am]
BILLING CODE 7535–01–P
BUREAU OF CONSUMER FINANCIAL
PROTECTION
12 CFR Part 1005
Treatment of Pandemic Relief
Payments Under Regulation E and
Application of the Compulsory Use
Prohibition
Bureau of Consumer Financial
Protection.
AGENCY:
ACTION:
Interpretive rule.
The Bureau of Consumer
Financial Protection (Bureau) is issuing
this interpretive rule to provide
guidance to government agencies
distributing aid to consumers in
response to the COVID–19 pandemic.
The Bureau concludes in this
interpretive rule that certain pandemicrelief payments are not ‘‘government
benefits’’ for purposes of Regulation E
and the Electronic Fund Transfer Act
(EFTA) and are therefore not subject to
the compulsory use prohibition in
EFTA, if certain conditions are met.
Specifically, government benefits do not
include payments from Federal, State,
or local governments if those payments:
Are made to provide assistance to
consumers in response to the COVID–19
pandemic or its economic impacts; are
not part of an already-established
government benefit program; are made
on a one-time or otherwise limited
basis; and are distributed without a
general requirement that consumers
apply to the agency to receive funds.
SUMMARY:
This interpretive rule is effective
on April 27, 2020.
DATES:
lotter on DSKBCFDHB2PROD with RULES
FOR FURTHER INFORMATION CONTACT:
Kristine M. Andreassen, Senior Counsel,
Office of Regulations, at 202–435–7700
or https://
reginquiries.consumerfinance.gov/. If
you require this document in an
alternative electronic format, please
contact CFPB_Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
VerDate Sep<11>2014
17:00 Apr 24, 2020
Jkt 250001
I. Discussion
A. Background
Section 913 of the Electronic Fund
Transfer Act (EFTA) provides, among
other things, that no person may require
a consumer to establish an account for
receipt of electronic fund transfers with
a particular financial institution as a
condition of employment or receipt of a
government benefit.1 This provision,
often referred to as the compulsory use
prohibition, is implemented in
§ 1005.10(e)(2) of Regulation E.
In the mid-1990s, the Board of
Governors of the Federal Reserve
System (Board) extended consumer
protections under Regulation E to
accounts established by government
agencies for distributing benefits to
consumers electronically (government
benefit accounts).2 Government benefits
covered under the rule include
Federally-administered government
benefit programs and non-needs tested
State and local government benefit
programs (they do not include accounts
for distributing needs-tested benefits in
programs established under State or
local law or administered by a State or
local agency).3 Provisions specific to
government benefit accounts were
codified in § 1005.15 of Regulation E.
On October 5, 2016, the Bureau issued
a final rule titled ‘‘Prepaid Accounts
Under the Electronic Fund Transfer Act
(Regulation E) and the Truth In Lending
Act (Regulation Z)’’ (2016 Final Rule).4
The Bureau subsequently amended the
2016 Final Rule twice, in 2017 and
2018.5 The 2016 Final Rule, as
subsequently amended, is referred to
herein as the Prepaid Accounts Rule.
The Prepaid Accounts Rule, among
other things, extended Regulation E
coverage to prepaid accounts and
adopted provisions specific to such
accounts. The definition of ‘‘prepaid
account’’ in the Prepaid Accounts Rule
includes government benefit accounts
(as defined in § 1005.15(a)(2)), which
were already covered by Regulation E as
described above. The Prepaid Accounts
Rule generally maintained the existing
provisions specific to government
benefit accounts, while adding certain
new requirements such as preacquisition disclosures. The Prepaid
Accounts Rule did not change the
compulsory use prohibition in
1 15
U.S.C. 1693k(2).
FR 10678 (Mar. 7, 1994) and 62 FR 43467
(Aug. 14, 1997).
3 See § 1005.15(a)(2).
4 81 FR 83934 (Nov. 22, 2016).
5 See 82 FR 18975 (Apr. 25, 2017) and 83 FR 6364
(Feb. 13, 2018). These amendments, among other
things, extended the effective date of the Prepaid
Accounts Rule to April 1, 2019.
2 59
PO 00000
Frm 00013
Fmt 4700
Sfmt 4700
23217
§ 1005.10(e) of Regulation E, but did add
commentary to clarify the compulsory
use prohibition’s application to
government benefits (comment 10(e)(2)–
2), which is in line with pre-existing
commentary regarding payroll
(comment 10(e)(2)–1).
Federal, State, and local governments
are considering a variety of approaches
to providing consumers relief from the
economic impacts of the COVID–19
pandemic. These approaches may
include government distribution of
funds directly to consumers, in some
cases outside of existing government
benefit programs. In some cases, the
relevant governmental agencies may not
have access to consumers’ account
information, such as account and
routing numbers, and therefore may
have difficulty disbursing funds via
direct deposit in a timely manner; in
other cases, consumers may not have a
pre-existing account that is capable of
receiving funds via direct deposit.
B. Use of Electronic Fund Transfers in
Government Benefit Disbursement
The Bureau notes that Regulation E
provides significant flexibility to
government agencies that wish to
disburse government benefits via
electronic fund transfers. As stated
above, EFTA and Regulation E prohibit
requiring consumers to establish
accounts for receipt of electronic fund
transfers with a particular financial
institution as a condition of receipt of a
government benefit.6 The compulsory
use prohibition does not require the
agency to also offer payment through
any other method the consumer may
prefer; it simply requires that
government agencies provide the
consumer a choice. Specifically,
comment 10(e)(2)–2 to Regulation E
states that a government agency may
require direct deposit of benefits by
electronic means if recipients are
allowed to choose the institution that
will receive the direct deposit.7
In the preamble to the 2016 Final
Rule, the Bureau recognized that in
some cases, circumstances may require
that financial institutions or other
persons disburse funds to consumers
within a certain period. Consumers may
be presented with options of how to
receive payment but fail to exercise a
choice. In such cases, the Bureau noted
6 See EFTA section 913(a)(2) (15 U.S.C. 1693k(2))
and § 1005.10(e)(2).
7 Government agencies are permitted to provide
paper checks as an option for payment, but are not
required to do so by EFTA or Regulation E.
Similarly, government agencies may, but are not
required to, offer direct deposit into an account of
the consumer’s choosing as an alternative method
of payment.
E:\FR\FM\27APR1.SGM
27APR1
]]>Agencies
[Federal Register Volume 85, Number 81 (Monday, April 27, 2020)]
[Rules and Regulations]
[Pages 23212-23217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08920]
=======================================================================
-----------------------------------------------------------------------
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Parts 702 and 723
RIN 3133-AF16
Regulatory Capital Rule: Paycheck Protection Program Lending
Facility and Paycheck Protection Program Loans
AGENCY: National Credit Union Administration (NCUA).
ACTION: Interim final rule.
-----------------------------------------------------------------------
SUMMARY: The NCUA Board (Board) is issuing this interim final rule to
make a conforming amendment to its capital adequacy regulation
following the enactment of the Coronavirus Aid, Relief, and Economic
Security Act (CARES Act). The CARES Act authorizes the Small Business
Administration to create a loan guarantee program, the Paycheck
Protection Program (PPP), to help certain businesses affected by the
COVID-19 pandemic. The CARES Act requires that PPP loans receive a zero
percent risk weighting under the NCUA's risk-based capital
requirements. To reflect the statutory requirement, the interim final
rule amends the NCUA's capital adequacy regulation to provide that
covered PPP loans receive a zero percent risk weight. The interim final
rule also provides that if the covered loan is pledged as collateral
for a non-recourse loan that is provided as part of the Board of
Governors of the Federal Reserve System's (FRB) PPP Lending Facility,
the covered loan can be excluded from a credit union's calculation of
total assets for the
[[Page 23213]]
purposes of calculating its net worth ratio. The interim final rule
also makes a conforming amendment to the definition of commercial loan
in the NCUA's member business loans and commercial lending rule. The
Board has found good cause to issue the interim final rule without
advance notice-and-comment procedures and with an effective date upon
publication.
DATES: This rule is effective on April 27, 2020. Comments, as discussed
below, must be received on or before May 27, 2020.
ADDRESSES: You may submit written comments, identified by RIN 3133-
AF16, by any of the following methods (Please send comments by one
method only):
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Fax: (703) 518-6319. Include ``[Your Name]--Comments on
Interim Final Rule: Regulatory Capital Rule: Paycheck Protection
Program Lending Facility and Paycheck Protection Program Loans'' in the
transmittal.
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 the Federal
eRulemaking Portal at https://www.regulations.gov as submitted, except
for those we cannot post for technical reasons. The NCUA will not edit
or remove any identifying or contact information from the public
comments submitted. Due to social distancing measures in effect through
at least April 30, 2020, the usual opportunity to inspect paper copies
of comments in the NCUA's law library is not currently available. After
social distancing measures are relaxed, visitors may make an
appointment to review paper copies by calling (703) 518-6540 or
emailing [email protected].
FOR FURTHER INFORMATION CONTACT: Amanda Parkhill, Supervisory CUE
(Policy); or Rachel Ackmann, Senior Staff Attorney, Office of General
Counsel, 1775 Duke Street, Alexandria, VA 22314-3428. Amanda Parkhill
can also be reached at (703) 518-6385, and Rachel Ackmann can be
reached at (703) 548-2601.
SUPPLEMENTARY INFORMATION:
I. Background and Legal Authority
a. The NCUA's Risk-Based Capital Requirements
The Credit Union Membership Access Act (CUMAA) requires the NCUA to
formulate a risk-based net worth (RBNW) requirement to apply to complex
credit unions.\1\ Part 702 of the NCUA's regulations implement the
risk-based net worth requirement.\2\ Under current Sec. 702.103 of the
NCUA's regulations, a credit union is defined as ``complex'' if ``[i]ts
quarter-end total assets exceed fifty million dollars ($50,000,000);
and . . . [i]ts [RBNW] requirement . . . exceeds six percent (6%).''
\3\ Current Sec. 702.104 of the NCUA's regulations defines eight risk
portfolios of complex credit union assets, liabilities, or contingent
liabilities.\4\ The eight risk portfolios are long-term real estate
loans, member business loans (MBL) outstanding, investments, low-risk
assets, average-risk assets, loans sold with recourse, unused MBL
commitments, and allowance. Current Sec. 702.106 sets forth the
specific risk-weightings that are applied to the assets, liabilities,
or contingent liabilities of each risk portfolio.\5\ A credit union's
RBNW requirement is the sum of the eight risk portfolios times the
applicable risk-weighting.\6\ The RBNW requirement for credit unions
meeting the definition of ``complex'' was first applied on the basis of
data in the Call Report reflecting activity in the first quarter of
2001.\7\
---------------------------------------------------------------------------
\1\ 12 U.S.C. 1790d(d). Only complex credit unions are subject
to the NCUA's risk-based net worth requirement. See 12 U.S.C.
1790d(d)(1) and 12 CFR 702.103. The FCU Act grants the Board a broad
mandate to issue regulations governing both FCUs and, more
generally, all FICUs. For example, section 120 of the FCU Act is a
general grant of regulatory authority and authorizes the Board to
prescribe rules and regulations for the administration of the Act.
12 U.S.C. 1766(a).
\2\ 12 CFR pt. 702. On January 1, 2022, the NCUA's capital
requirements will be substantially amended when the NCUA's risk-
based capital rules become effective. See, 84 FR 68781 (Dec. 17,
2019). This interim final rule only amends the NCUA's current risk-
based net worth rules and does not amend the NCUA's risk-based
capital rules (``2015 Final Rule''), which will be addressed when
they become effective. Generally, the NCUA uses the term ``risk-
based net worth requirement'' to reference the statutory requirement
for the Board to design a capital standard that accounts for
variations in the risk profile of complex credit unions and the
current risk-based framework in part 702. In contrast, the NCUA
generally uses the term ``risk-based capital'' to refer to the
specific standards established in the 2015 Final Rule. The term
``risk-based capital requirement,'' however, is used in the CARES
Act and refers to both the risk-based net worth and the risk-based
capital requirements. The Board notes that the term ``risk-based
capital'' is also used by the other banking agencies and the
international banking community when referring to the types of risk-
based requirements that are addressed in the 2015 Final Rule.
\3\ 12 CFR 702.103. For the definition of total assets, see 12
CFR 702.2(k).
\4\ 12 CFR 702.104.
\5\ 12 CFR 702.106.
\6\ Id.
\7\ 65 FR 44950 (July 20, 2000).
---------------------------------------------------------------------------
b. The NCUA's MBL and Commercial Lending Rule
Among other things, CUMAA limited the aggregate amount of MBLs that
a credit union may make to the lesser of 1.75 times the net worth of
the credit union or 1.75 times the minimum net worth required under the
Federal Credit Union Act (FCU Act) for a credit union to be well
capitalized.\8\ The statutory MBL limit is incorporated in part 723 of
NCUA's regulations.\9\ Part 723 also defines MBLs and commercial loans,
establishes minimum safety and soundness standards, and implements
various other requirements regarding MBLs and commercial loans. The
Board has not significantly amended part 723 since 2016.\10\
---------------------------------------------------------------------------
\8\ 12 U.S.C. 1757a; Public Law 105-219, 112 Stat. 913 (1998).
\9\ 12 CFR part 723.
\10\ 81 FR 13530 (Mar. 14, 2016).
---------------------------------------------------------------------------
c. The Coronavirus Aid, Relief, and Economic Security (CARES Act)
On March 27, 2020, President Trump signed the CARES Act into
law.\11\ The law is designed to provide aid to the U.S. economy in the
midst of the COVID-19 pandemic. The CARES Act authorizes the Small
Business Administration (SBA) to create a loan guarantee program, the
Paycheck Protection Program (PPP), to help certain affected businesses
meet payroll needs and utilities (including employee salaries, sick
leave, other paid leave, and health insurance expenses) as a result of
the COVID-19 pandemic. Provided credit union lenders comply with the
applicable lender obligations set forth in the SBA's interim final
rule, the SBA will fully guarantee loans issued under the PPP. Most
federally insured credit unions are eligible to make PPP loans to
members.\12\ Under the CARES Act, PPP loans must receive a zero percent
risk weighting under the
[[Page 23214]]
NCUA's risk-based capital requirements.\13\
---------------------------------------------------------------------------
\11\ Public Law 116-136 (Mar. 27, 2020).
\12\ Credit unions that are currently permitted to make loans
under the SBA's 7(a) program are automatically approved to make PPP
loans. Federally insured credit unions that are not current SBA 7(a)
lenders, can receive approval by submitting an application to the
SBA, unless they are currently designated as being in troubled
condition or are subject to a formal enforcement action that
addresses unsafe and unsound lending practices. Non-depository
financing providers, such as credit union service organizations, may
qualify as a PPP lender subject to the requirements listed in the
interim final rule.
\13\ Supra note 11, at Sec. 1102(a)(2).
---------------------------------------------------------------------------
II. The Interim Final Rule
a. Risk Weighting of PPP Loans
To reflect the statutory requirement that PPP loans receive a zero
percent risk weight, the interim final rule amends the NCUA's risk-
based net worth rules. Specifically, the interim final rule explicitly
provides that PPP loans are low-risk assets. Low-risk assets are
currently defined as cash on hand (e.g., coin and currency, including
vault, ATM and teller cash), the National Credit Union Share Insurance
Fund (NCUSIF) deposit, and debt instruments unconditionally guaranteed
by the NCUA.\14\ Under Sec. 702.106(d), low-risk assets receive a zero
percent risk weight.\15\ Under the interim final rule, low-risk assets
are defined as cash on hand (e.g., coin and currency, including vault,
ATM and teller cash), the NCUSIF deposit, debt instruments
unconditionally guaranteed by the NCUA; and loans issued under the
SBA's Paycheck Protection Program (15 U.S.C. 636(a)(36)). Therefore,
the interim final rule provides that PPP loans receive a zero percent
risk weight under the NCUA's risk-based capital rules as required by
the CARES Act.
---------------------------------------------------------------------------
\14\ 12 CFR 702.104(d).
\15\ 12 CFR 702.106(d).
---------------------------------------------------------------------------
b. Definition of Total Assets for the Purposes of Calculating the Net
Worth Ratio
To provide liquidity to small business lenders and the broader
credit markets, to help stabilize the financial system, and to provide
economic relief to small businesses nationwide, the FRB authorized each
of the Federal Reserve Banks to participate in the Paycheck Protection
Program Lending Facility (PPPL Facility), pursuant to section 13(3) of
the Federal Reserve Act.\16\ Under the PPPL Facility, each of the
Federal Reserve Banks will extend non-recourse loans to eligible
financial institutions to fund PPP loans. Under the PPPL Facility, only
PPP loans that are guaranteed by the SBA with respect to both principal
and interest and that are originated by an eligible institution may be
pledged as collateral to the Federal Reserve Banks. Participation in
the PPPL Facility will affect a credit union's balance sheet because,
as a function of participating in the PPPL Facility, the credit union
must originate and hold PPP covered loans (that is, assets that are
eligible collateral pledged to the Federal Reserve Banks) on its
balance sheet.
---------------------------------------------------------------------------
\16\ 12 U.S.C. 343(3).
---------------------------------------------------------------------------
As a result, credit unions that participate in the PPPL Facility
could potentially be subject to increased regulatory capital
requirements (due to the increase in total assets from originating and
holding PPP loans). To facilitate use of the PPPL Facility, the interim
final rule allows credit unions to neutralize the regulatory capital
effects of PPP loans pledged to the Facility.\17\ Additionally, the
Board believes that the regulatory capital requirements for certain PPP
loans, those PPP loans pledged to a Federal Reserve Bank as part of the
PPPL Facility, do not reflect the substantial protections from risk
provided to credit unions by the PPPL Facility. Because of the non-
recourse nature of the FRB's extension of credit to the credit union,
the credit union is not exposed to credit or market risk from the
pledged PPP covered loans. Therefore, the Board believes that it is
appropriate to exclude pledged PPP loans from regulatory capital.
Specifically, the interim final rule excludes PPP loans pledged as
collateral to the PPPL Facility from the definition of total assets in
Sec. 702.2 for purposes of calculating a credit union's net worth
ratio.\18\
---------------------------------------------------------------------------
\17\ The Office of the Comptroller of the Currency, the FRB, and
the Federal Deposit Insurance Corporation (together, the other
banking agencies) adopted a similar interim final rule to allow
banking organizations to neutralize the regulatory capital effects
of participating in the PPPL Facility. See, 85 FR 20387 (Apr. 13,
2020).
\18\ The Board has broad authority to define the term ``total
assets.'' While 12 U.S.C. 1790d defines ``net worth''--the numerator
for determining the net worth ratio--it does not define the term
``total assets,'' which comprises the denominator of the equation.
However, the Board has elected to define the term in part 702. In
addition to the Board's broad authority to define the term ``total
assets,'' the Board finds that given the unique and unprecedented
nature of the COVID-19 pandemic, encouraging use of the PPP Facility
by excluding pledged PPP loans from total assets would further the
purpose of section 1790d. Pledged covered PPP loans present less
risk and would potentially facilitate resolving the problems of
credit unions at the least possible long-term cost to the NCUSIF
compared to non-pledged covered PPP loans.
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c. Definition of Commercial Loan
The interim final rule also clarifies that PPP loans would not
constitute commercial loans under part 723 of the NCUA's regulations.
Generally commercial loans are defined as any loan, line of credit, or
letter of credit (including any unfunded commitments), and any interest
a credit union obtains in such loans made by another lender, to
individuals, sole proprietorships, partnerships, corporations, or other
business enterprises for commercial, industrial, agricultural, or
professional purposes, but not for personal expenditure purposes.\19\
The current definition also provides various exclusions. The interim
final rule amends the commercial loan definition to add PPP loans
issued under the CARES Act as an exclusion from the definition of
commercial loan in Sec. 723.2. While other federally guaranteed loans
may still be considered commercial loans under the regulation, the
unique nature of PPP loans mitigates the need for enhanced commercial
underwriting of these loans. The SBA's interim final rule specifically
limits each lender's underwriting obligation under the PPP to the items
noted in the rule.\20\ Additionally, lenders will be held harmless for
any borrower's failure to comply with PPP criteria and, in addition to
the 100 percent guarantee, PPP loans may qualify for loan forgiveness.
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\19\ 12 CFR 723.2.
\20\ See, https://www.sba.gov/document/policy-guidance--ppp-interim-final-rule.
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III. Clarification Regarding Eligible Recipients of PPP Loans
In general, the SBA has restrictions on who can receive SBA
business loans.\21\ The SBA, however, recognizes that, unlike other SBA
loan programs, PPP Loans are uniform for all borrowers, and the
standard underwriting process does not apply because no
creditworthiness assessment is required for PPP Loans. The SBA also
recognizes that many directors and equity holders of lenders making PPP
Loans are owners of unrelated businesses. Therefore, the SBA has
determined that certain of its prohibitions regarding eligible
borrowers for SBA loans are not applicable.\22\ In general, it appears
that a credit union director may obtain a PPP Loan from the credit
union on whose board the director serves, provided that the related
business follows the same process as any similarly situated member or
account holder of the credit union and the director is not an officer
or key employee of the credit union.\23\ This change to the SBA's
regulations, however, does not affect the FCU Act, the NCUA's rules on
insider lending, or any relevant provision of a credit union's bylaws.
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\21\ See e.g., 13 CFR 120.110 and 120.140.
\22\ 85 FR 21747 (Apr. 20, 2020).
\23\ Officers and key employees of the credit union may obtain a
PPP Loan from a different lender, but not from the credit union with
which they are associated.
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Under the FCU Act, a loan, or aggregate of loans, to a director or
member of the supervisory or credit committee of the credit union
making the loan which exceeds $20,000 (plus
[[Page 23215]]
any applicable pledged shares) must be approved by the board of
directors.\24\ Similarly, loans to other members for which directors or
members of the supervisory or credit committee act as guarantor or
endorser must be approved by the board of directors when such loans,
standing alone or when added to any outstanding loan or loans of the
guarantor or endorser, exceeds $20,000.\25\ The NCUA's regulations
implement these restrictions under part 701, which explains how
balances are calculated for purposes of these provisions and sets forth
loan approval requirements.\26\ The SBA's interim final rules and the
CARES Act do not provide any authority to set these statutory
restrictions aside, and the FCU Act contains no authority for the Board
to provide an exception.\27\ Therefore, as discussed above, current
NCUA provisions governing loans to insiders are applicable to PPP
Loans.
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\24\ 12 U.S.C. 1757(5)(A)(iv).
\25\ 12 U.S.C. 1757(5)(A)(v).
\26\ 12 CFR 701.21(d).
\27\ Cf. 12 U.S.C. 375b(9)(D)(ii) (authority for FRB to grant an
exception to a similar restriction for member banks for extensions
of credit that pose ``minimal risk'').
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IV. Regulatory Procedures
A. Administrative Procedure Act
The Board is issuing this interim final rule without prior notice
and the opportunity for public comment and the delayed effective date
ordinarily prescribed by the Administrative Procedure Act (APA).
Pursuant to the APA, general notice and the opportunity for public
comment are not required with respect to a rulemaking when an ``agency
for good cause finds (and incorporates the finding and a brief
statement of reasons therefor in the rules issued) that notice and
public procedure thereon are impracticable, unnecessary, or contrary to
the public interest.'' \28\[thinsp]The Board believes that the public
interest is best served by implementing the interim final rule
immediately upon publication in the Federal Register. The Board notes
that the COVID-19 crisis is unprecedented. It is rapidly changing and
difficult to anticipate how the disruptions caused by the crisis will
manifest themselves within the financial system and how individual
credit unions may be impacted. Because of the widespread impact of a
pandemic and the speed with which business and economic disruptions
have transmitted throughout the United States, the Board believes it
has good cause to determine that ordinary notice and public procedure
are impracticable and that moving expeditiously in the form of an
interim final rule is in the best interests of the public and the
credit unions that serve that public.
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\28\ 5 U.S.C. 553(b)(3)(B).
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The Board also believes that notice-and-comment procedures are
unnecessary for this interim final rule as it principally implements a
statutory requirement and the Board has no discretion in providing the
zero risk weight for PPP loans. Furthermore, the Board believes notice-
and-comment procedures are impractical because credit unions have
already begun to offer PPP loans to members affected by COVID-19.\29\
Credit unions need clarity and certainty on the applicable treatment of
PPP loans both in regards to the risk weighting and whether the loans
qualify as commercial loans under the NCUA's MBL and commercial lending
rule. For these reasons, the Board finds that there is good cause
consistent with the public interest to issue the interim final rule
without advance notice and the opportunity to comment.\30\
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\29\ Financial institutions could begin offering PPP loans April
3, 2020. See, https://www.sba.com/funding-a-business/government-small-business-loans/ppp/.
\30\ . 5 U.S.C. 553(b)(B); 553(d)(3). For the same reasons, the
Board is not providing the usual 60-day comment period before
finalizing this rule. See NCUA Interpretive Ruling and Policy
Statement (IRPS) 87-2, as amended by IRPS 03-2 and IRPS 15-1. 80 FR
57512 (Sept. 24, 2015), available at https://www.ncua.gov/files/publications/irps/IRPS1987-2.pdf.
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The APA also requires a 30-day delayed effective date, except for
(1) substantive rules which grant or recognize an exemption or relieve
a restriction; (2) interpretative rules and statements of policy; or
(3) as otherwise provided by the agency for good cause.\31\ For the
reasons stated above, the Board finds good cause to issue the rule with
an immediate effective date. This rule would also be excepted from the
delayed effective date requirement because it relieves a restriction
that would otherwise apply.
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\31\ 5 U.S.C. 553(d).
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While the Board believes that there is good cause to issue the rule
without advance notice and comment and with an immediate effective
date, the Board is interested in the views of the public and requests
comment.
B. Congressional Review Act
For purposes of the Congressional Review Act, the OMB makes a
determination as to whether a final rule constitutes a ``major'' rule.
If a rule is deemed a ``major rule'' by the Office of Management and
Budget (OMB), the Congressional Review Act generally provides that the
rule may not take effect until at least 60 days following its
publication.
The Congressional Review Act defines a ``major rule'' as any rule
that the Administrator of the Office of Information and Regulatory
Affairs of the OMB finds has resulted in or is likely to result in (A)
an annual effect on the economy of $100,000,000 or more; (B) a major
increase in costs or prices for consumers, individual industries,
Federal, State, or local government agencies or geographic regions, or
(C) significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic and
export markets.\32\
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\32\ 5 U.S.C. 804(2).
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For the same reasons set forth above, the Board is adopting the
interim final rule without the delayed effective date generally
prescribed under the Congressional Review Act. The delayed effective
date required by the Congressional Review Act does not apply to any
rule for which an agency for good cause finds (and incorporates the
finding and a brief statement of reasons therefor in the rule issued)
that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest.\33\ As discussed
above, the Board has concluded there is good cause to issue the interim
final rule without notice-and-comment procedures.
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\33\ 5 U.S.C. 808.
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As required by the Congressional Review Act, the Board will submit
the interim final rule and other appropriate reports to Congress and
the Government Accountability Office for review.
C. 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 (44 U.S.C. 3507(d)). For
purposes of the PRA, a paperwork burden may take the form of a
reporting, recordkeeping, or a third-party disclosure requirement,
referred to as an information collection. The NCUA may not conduct or
sponsor, and the respondent is not required to respond to, an
information collection unless it displays a valid OMB control number.
To capture activity related to the PPP, beginning with the June
reporting cycle by credit unions, the NCUA will add four accounts to
the quarterly Call Report (NCUA 5300) to identify the
[[Page 23216]]
number and amount of PPP loans, the amount of PPP loans pledged as
collateral to secure Federal Reserve System's PPP Lending Facility, and
the amount of FRB PPP Lending Facility loans. The changes to the Call
Report will assist NCUA in off-site monitoring and supervision of
credit unions while minimizing the burden during on-site examinations.
These changes will not alter the current estimate of four hours per
response necessary to review the instructions and complete the form.
The amount of data elements added are minimal and will not impact the
total burden. The Office of Management Budget (OMB) has approved this
change under a ``non-substantive change'' request to the information
collection requirements approved under OMB control number 3133-0004.
D. Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. The
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.
This interim final 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. The NCUA has therefore determined that
this rule does not constitute a policy that has federalism implications
for purposes of the executive order.
E. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this rule will not affect family well-
being within the meaning of Sec. 654 of the Treasury and General
Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681
(1998).
F. Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (RFA) generally requires that when
an agency issues a proposed rule or a final rule pursuant to the APA
\34\ or another law, the agency must prepare a regulatory flexibility
analysis that meets the requirements of the RFA and publish such
analysis in the Federal Register.\35\ Specifically, the RFA normally
requires agencies to describe the impact of a rulemaking on small
entities by providing a regulatory impact analysis. For purposes of the
RFA, the Board considers credit unions with assets less than $100
million to be small entities.\36\
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\34\ 5 U.S.C. 553(b).
\35\ 5 U.S.C. 603, 604.
\36\ NCUA Interpretive Ruling and Policy Statement 15-1. 80 FR
57512 (Sept. 24, 2015).
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As discussed previously, consistent with the APA,\37\ the Board has
determined for good cause that general notice and opportunity for
public comment is unnecessary, and therefore the Board is not issuing a
notice of proposed rulemaking. Rules that are exempt from notice and
comment procedures are also exempt from the RFA requirements, including
conducting a regulatory flexibility analysis, when among other things
the agency for good cause finds that notice and public procedure are
impracticable, unnecessary, or contrary to the public interest.
Accordingly, the Board has concluded that the RFA's requirements
relating to initial and final regulatory flexibility analysis do not
apply.
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\37\ 5 U.S.C. 553(b)(3)(B).
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Nevertheless, the Board seeks comment on whether, and the extent to
which, the interim final rule would affect a significant number of
small entities.
List of Subjects
12 CFR Part 702
Capital, Credit unions, Reporting and recordkeeping requirements.
12 CFR Part 723
Credit, Credit unions, Member business loans, Commercial lending,
Reporting and recordkeeping requirements.
By the NCUA Board on April 22, 2020.
Gerard Poliquin,
Secretary of the Board.
For the reasons discussed above, the NCUA Board amends parts 702
and 723 of chapter VII of title 12 of the Code of Federal Regulations
as follows:
PART 702--CAPITAL ADEQUACY
0
1. The authority for part 702 continues to read as follows:
Authority: 12 U.S.C. 1766(a), 1790d.
0
2. In Sec. 702.2, add paragraph (k)(3) to read as follows:
Sec. 702.2 Definitions.
* * * * *
(k) * * *
(3) Notwithstanding paragraph (k)(1) of this section, a credit
union may exclude loans pledged as collateral for a non-recourse loan
that is provided as part of the Paycheck Protection Program Lending
Facility, announced by the Federal Reserve Board on April 7, 2020, from
the calculation of total assets for the purpose of calculating its net
worth ratio. For the purpose of this provision, a credit union's
liability under the Facility must be reduced by the principal amount of
the loans pledged as collateral for funds advanced under the Facility.
* * * * *
0
3. In Sec. 702.104, revise paragraph (d) to read as follows:
Sec. 702.104 Risk portfolios defined.
* * * * *
(d) Low-risk assets. Cash on hand (e.g., coin and currency,
including vault, ATM and teller cash), the NCUSIF deposit, debt
instruments unconditionally guaranteed by the National Credit Union
Administration; and covered loans issued under the Small Business
Administration's Paycheck Protection Program, 15 U.S.C. 636(a)(36).
* * * * *
PART 723--MEMBER BUSINESS LOANS; COMMERCIAL LENDING
0
4. The authority for part 723 continues to read as follows:
Authority: 12 U.S.C. 1756, 1757, 1757a, 1766, 1785, 1789.
0
5. In Sec. 723.2, revise the definition of ``commercial loan'' to read
as follows:
Sec. 723.2 Definitions.
* * * * *
Commercial loan means any loan, line of credit, or letter of credit
(including any unfunded commitments), and any interest a credit union
obtains in such loans made by another lender, to individuals, sole
proprietorships, partnerships, corporations, or other business
enterprises for commercial, industrial, agricultural, or professional
purposes, but not for personal expenditure purposes. Excluded from this
definition are loans made by a corporate credit union; loans made by a
federally insured credit union to another federally insured credit
union; loans made by a federally insured credit union to a credit union
service organization; loans secured by a 1- to 4-family residential
property (whether or not it is the borrower's primary residence); loans
fully secured by shares in the credit union making the extension of
credit or deposits in other financial institutions; loans secured by a
vehicle manufactured for household use; and loans that would otherwise
meet the definition of commercial loan and which, when the aggregate
outstanding balances plus unfunded
[[Page 23217]]
commitments less any portion secured by shares in the credit union to a
borrower or an associated borrower, are equal to less than $50,000. The
definition of commercial loan also excludes covered loans issued under
the Small Business Administration's Paycheck Protection Program, 15
U.S.C. 636(a)(36).
* * * * *
[FR Doc. 2020-08920 Filed 4-24-20; 8:45 am]
BILLING CODE 7535-01-P
