Fees Paid by Federal Credit Unions, 86797-86803 [2020-28490]

Agencies

• National Credit Union Administration

[Federal Register Volume 85, Number 251 (Thursday, December 31, 2020)]
[Rules and Regulations]
[Pages 86797-86803]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28490]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

RIN 3133-AF24


Fees Paid by Federal Credit Unions

AGENCY:  National Credit Union Administration (NCUA).

ACTION:  Final rule.

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SUMMARY:  The NCUA Board (Board) is amending its regulation governing 
assessment of an annual operating fee to Federal credit unions (FCUs). 
First, for purposes of calculating the annual operating fee, the final 
rule amends the current rule to exclude from total assets any loan an 
FCU reports under the Small Business Administration's Paycheck 
Protection Program (PPP) or similar future programs approved for 
exclusion by the NCUA Board. Second, the final rule deletes from the 
current regulation references to the Credit Union System Investment 
Program and the Credit Union Homeowners Affordability Relief Program, 
both of which no longer exist. Third, the final rule amends the period 
used for the calculation of an FCU's total assets. Currently, total 
assets are calculated using the FCU's December 31st Call Report of the 
preceding year. Under the final rule, total assets will be calculated 
as the average total assets reported on the FCU's previous four Call 
Reports available at the time the NCUA Board approves the agency's 
budget for the upcoming year, adjusted for any excludable programs as 
determined by the Board. Finally, the final rule makes some minor 
technical changes.

DATES: This final rule is effective on February 1, 2021.

FOR FURTHER INFORMATION CONTACT: James Holm, Supervisory Budget 
Analyst, Office of the Chief Financial Officer, at (703) 518-6570; 
Kevin Tuininga, Associate General Counsel, or John H. Brolin, Senior 
Staff Attorney, Office of General Counsel, at (703) 518-6540; or by 
mail at 1775 Duke Street, Alexandria, VA 22314.

SUPPLEMENTARY INFORMATION:

I. Introduction
II. Legal Authority
III. Summary of the Proposal and Public Comments
IV. Summary of the Final Rule
V. Regulatory Procedures

[[Page 86798]]

I. Introduction

    At its July 2020 meeting, the Board issued a proposed rule \1\ to 
amend the NCUA's regulation governing assessment of an annual operating 
fee to Federal credit unions (FCUs), 12 CFR 701.6. For purposes of 
calculating the annual operating fee, the proposed amendments would 
have: (1) Excluded from total assets any loan an FCU reports under the 
Small Business Administration's (SBA) Paycheck Protection Program 
(PPP), or similar future programs approved for exclusion by the NCUA 
Board; (2) deleted from the current regulation references to the Credit 
Union System Investment Program and the Credit Union Homeowners 
Affordability Relief Program, both of which no longer exist; and (3) 
revised the period used for the calculation of an FCU's total assets. 
Currently, total assets are calculated using the FCU's December 31st 
Call Report of the preceding year. Under the proposal, total assets 
would be calculated as the average total assets reported on the FCU's 
previous four Call Reports available at the time the NCUA Board 
approves the agency's budget for the upcoming year, adjusted for any 
excludable programs as determined by the Board. Finally, the proposal 
would have made some minor technical conforming changes.
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    \1\ 85 FR 53708 (Aug 31, 2020).
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A. Background on the NCUA Annual Budget and Fees Paid by FCUs

    The NCUA charters, regulates, and insures deposits in FCUs and 
insures deposits in state-chartered credit unions that have their 
shares insured through the National Credit Union Share Insurance Fund 
(Share Insurance Fund). To cover expenses related to the NCUA's tasks, 
the Board adopts an annual budget in the fall of each year. The Federal 
Credit Union Act (FCU Act) provides two primary sources to fund the 
budget: (1) Requisitions from the Share Insurance Fund; \2\ and (2) 
operating fees charged against FCUs.\3\ The Board uses an allocation 
formula, the Overhead Transfer Rate (OTR), to determine the amount of 
the budget that it will requisition from the Share Insurance Fund.\4\ 
Remaining amounts needed to fund the annual budget are charged to FCUs 
in the form of operating fees, based on each FCU's total assets.\5\
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    \2\ See, e.g., 12 U.S.C. 1783(a) (making the Share Insurance 
Fund available ``for such administrative and other expenses incurred 
in carrying out the purpose of [Subchapter II of the FCU Act] as 
[the Board] may determine to be proper.'').
    \3\ 12 U.S.C. 1755(a) (``In accordance with rules prescribed by 
the Board, each Federal credit union shall pay to the Administration 
an annual operating fee which may be composed of one or more charges 
identified as to the function or functions for which assessed.'').
    \4\ See, e.g., Request for Comment Regarding Revised Overhead 
Transfer Rate Methodology, 82 FR 29935 (June 30, 2017).
    \5\ 12 CFR 701.6(a).
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    The FCU Act requires each FCU to, ``in accordance with rules 
prescribed by the Board [. . .] pay to the [NCUA] an annual operating 
fee which may be composed of one or more charges identified as to the 
function or functions for which assessed.'' \6\ The fee must ``be 
determined according to a schedule, or schedules, or other method 
determined by the Board to be appropriate, which gives due 
consideration to the expenses of the [NCUA] in carrying out its 
responsibilities under the [FCU Act] and to the ability of [FCUs] to 
pay the fee.'' \7\ The statute requires the Board to, among other 
things, ``determine the periods for which the fee shall be assessed and 
the date or dates for the payment of the fee or increments thereof.'' 
\8\
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    \6\ 12 U.S.C. 1755(a).
    \7\ 12 U.S.C. 1755(b).
    \8\ Id.
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    Section 701.6 of the NCUA's regulations governs operating fee 
processes.\9\ The regulation establishes the following: (1) The basis 
for charging operating fees (i.e., total assets of the FCU, with 
certain exclusions, as of December 31st of the preceding year); (2) the 
notice the NCUA must provide to FCUs regarding the fees; (3) coverage 
provisions providing certain exceptions for new FCU charters, 
conversions, mergers, and liquidations; and (4) the assessment of 
administrative fees and interest for late payment, among other 
principles and processes.\10\ Certain aspects of and adjustments to the 
operating fee process, such as the multipliers used to determine fees 
applicable to designated asset tiers, are not included in the NCUA's 
regulations. Instead, the Board generally adopts an operating fee 
schedule at an open meeting each year and publishes the schedule in the 
agency's annual budget and on its website.\11\
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    \9\ 12 CFR 701.6.
    \10\ Id.
    \11\ In November 2015, the Board delegated authority to the 
Chief Financial Officer to administer the Board-approved methodology 
and to set the operating fees as calculated per the approved 
methodology each annual budget cycle beginning with 2016. See Board 
Action Memorandum on 2016 Operating Fee (Nov. 19, 2015), https://www.ncua.gov/About/Documents/Agenda%20Items/AG20151119Item6a.pdf. 
Since that time, the operating fee schedule has been published in 
the NCUA's annual budget. See 2020-2021 Budget Justification 
(December 12, 2019), https://www.ncua.gov/files/agenda-items/AG20191212Item1b.pdf.
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    Section 701.6(a) sets out the basis on which the NCUA assesses the 
operating fee. Paragraph (a) provides that FCUs must pay the NCUA an 
annual operating fee based on the credit union's total assets.\12\ The 
NCUA calculates an FCU's operating fee by multiplying the dollar amount 
of its total assets by a percentage set by the Board based on asset 
tiers after considering the expenses of the NCUA and the ability of 
FCUs to pay the fee. The term ``total assets'' for purposes of the 
operating fee presently includes all assets, with certain exclusions, 
reported on an FCU's Call Report as of December 31st of the previous 
fiscal year.
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    \12\ 12 CFR 701.6(a).
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    Operating fee payments are due from FCUs in April each year, and 
the NCUA prepares invoices using reported assets from the prior year's 
December Call Report.\13\ In order to provide clarity to FCUs about 
their operating fee charges for the upcoming year, the Board typically 
approves the budget and sets the associated operating fee rates in 
November or December of the year before the operating fee is billed. 
Because the budget and operating fee rates are approved before December 
Call Report data is available, the Chief Financial Officer uses 
projected FCU asset growth to set the operating fee rates. Therefore, 
if actual total assets reported in December Call Reports are below the 
projected asset growth used for setting the operating fee rates, the 
NCUA will collect less in operating fee revenue than it requires to 
fund the budget. Conversely, if total assets reported in December Call 
Reports are greater than projected growth, the NCUA may collect more 
than is required.
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    \13\ Id.
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B. Background on the CARES Act and the SBA's Paycheck Protection 
Program

    On March 27, 2020, President Trump signed the Coronavirus Aid, 
Relief, and Economic Security Act, or CARES Act, into law.\14\ The law 
is designed to provide aid to the U.S. economy in the midst of the 
COVID-19 pandemic. The CARES Act authorized the SBA to create a loan 
guarantee program, the PPP, to help certain businesses affected by the 
COVID-19 pandemic meet payroll needs (including employee salaries, sick 
leave, other paid leave, and health insurance expenses), as well as 
mortgage, rent, and utilities expenses. 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

[[Page 86799]]

issued under the PPP, backed by the full faith and credit of the United 
States. Most federally insured credit unions were eligible to make PPP 
loans to members.\15\ Under the CARES Act, PPP loans must receive a 
zero percent risk weighting for purposes of the NCUA's risk-based 
capital requirements.\16\
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    \14\ Public Law 116-136 (Mar. 27, 2020).
    \15\ 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.
    \16\ Public Law 116-135, section 1102(a)(2).
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    Following enactment of the CARES Act, the Board issued an interim 
final rule to make several amendments to the NCUA's regulations 
relating to PPP loans.\17\ The April 27, 2020 interim final rule 
provided that if a covered PPP loan made by a federally insured credit 
union 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 Liquidity Facility,\18\ the covered loan can be excluded from a 
credit union's calculation of total assets for the purposes of 
calculating its net worth ratio.\19\ The exclusion of PPP loans pledged 
to the FRB's Liquidity Facility was comparable to an interim final rule 
issued by the other banking agencies with respect to their capital 
regulations,\20\ which is consistent with the statutory requirement for 
the Board to prescribe a system of prompt corrective action that is, 
among other things, comparable to the section of the Federal Deposit 
Insurance Act that established prompt corrective action requirements 
for banks.
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    \17\ 85 FR 23212 (Apr. 27, 2020).
    \18\ The program was named as both the PPP Lending Facility and 
the PPP Liquidity Facility when the Board approved the interim final 
rule. It is now named the PPP Liquidity Facility in FRB 
documentation on the program.
    \19\ 85 FR 23212.
    \20\ 85 FR 20387 (Apr. 13, 2020).
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    That change applied to only the calculation of the net worth ratio 
and not to other requirements or calculations in the NCUA's regulations 
that depend on a credit union's total assets. At present, an FCU must 
report the value of all of its PPP loans in its Call Reports, whether 
the FCU originated the loans, purchased them in the secondary market, 
or has pledged them to the FRB Liquidity Facility.\21\ The value of PPP 
loans reported in Call Reports could therefore increase the total asset 
amounts the NCUA uses to compute the annual operating fees due. Without 
a change to the NCUA's current operating fee regulation,\22\ an FCU's 
PPP loans could subject the FCU to a higher operating fee, and this 
could impose a burden for participation in the program, or a 
disincentive to participate now that the program has been extended. As 
the PPP serves an important public purpose, the Board believes PPP 
loans warrant exclusion from total assets when determining operating 
fees to avoid these harms.
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    \21\ See SBA Procedural Notice, Guidance on Whole Loan Sales of 
Paycheck Protection Program Loans (May 1, 2020), available at 
https://www.sba.gov/sites/default/files/2020-05/5000-20024.pdf.
    \22\ 12 CFR 701.6(a).
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    Under the FCU Act, the Board considers, among other things, FCUs' 
ability to pay assessments.\23\ The Board finds that an increase in an 
FCU's assets based on PPP loans--regardless of whether they are pledged 
to the PPP Liquidity Facility--poses no undue risk to the credit 
union's capital strength. Additionally, given the short-term and low-
fee nature of PPP loans, FCUs that report increased total assets as a 
result of them are unlikely to have a corresponding increase in their 
ability to pay a higher assessment. Furthermore, excluding PPP loans 
from operating fee assessments makes the program more affordable to the 
participants and avoids imposing a burden based on participation in a 
program designed to provide an important public benefit. These benefits 
closely align with the mission of credit unions to support their member 
communities through trusted and affordable financial services. 
Accordingly, based on this statutory analysis and application, the 
NCUA's proposal had a broader scope of exclusion than the Board's April 
27, 2020, interim final rule on PPP loans.\24\
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    \23\ 12 U.S.C. 1755.
    \24\ 85 FR 23212 (Apr. 27, 2020).
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    In a separate Federal Register document,\25\ the Board requested 
comment on the methodologies it uses to set the rate schedule for 
operating fees and how it determines the OTR. Members of the public 
were encouraged to comment about these methodologies by responding to 
that Federal Register notice.
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    \25\ 85 FR 53854 (Aug. 31 2020).
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II. Legal Authority

    The Board is issuing this final rule pursuant to its authority 
under the FCU Act.\26\ The FCU Act grants the Board a broad mandate to 
issue regulations governing both FCUs and, more generally, all 
federally insured credit unions. 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 FCU 
Act.\27\ Section 105 of the FCU Act requires FCUs to pay an annual 
operating fee to the NCUA.\28\ In particular, section 105(b) provides 
that the fee assessed under this section 105 shall be determined 
according to a schedule, or schedules, or other method determined by 
the Board to be appropriate, which gives due consideration to the 
expenses of the Administration in carrying out its responsibilities 
under this chapter and to the ability of Federal credit unions to pay 
the fee.\29\ Section 105(b) provides further that the Board shall, 
among other things, determine the periods for which the fee shall be 
assessed and the date or dates for the payment of the fee or increments 
thereof. \30\
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    \26\ 12 U.S.C. 1751 et seq.
    \27\ 12 U.S.C. 1766(a).
    \28\ 12 U.S.C. 1755(a).
    \29\ 12 U.S.C. 1755(b).
    \30\ Id.
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    Accordingly, the FCU Act provides the Board with broad discretion 
to decide how the amount of the operating fee is determined.

III. Summary of the Proposed Rule and Public Comments

    At its July 30, 2020 meeting, the NCUA Board (Board) proposed 
amending the agency's regulation governing assessment of an annual 
operating fee to Federal credit unions (FCUs). The proposal provided 
for a 60-day comment period, which ended on October 30, 2020. The NCUA 
received nine comment letters in response to the proposed rule. In 
general, all of the letters received from commenters--two from credit 
union trade associations and seven from state credit union leagues--
expressed broad support for the proposal. A few of the commenters, 
however, did raise issues for the NCUA's consideration, which are 
discussed in more detail below.
    The proposed rule would have amended Sec.  701.6(a) by excluding 
PPP loans from FCUs' total assets for purposes of calculating its 
operating fee. In particular, the proposal would have amended current 
Sec.  701.6(a) to provide, among other things, that the operating fee 
shall be based on the total assets of each FCU, less loans made under 
the PPP.\31\ Under the proposed rule, participating FCUs would have 
continued to report their assets in the quarterly Call Report. For 
purposes of determining the operating fee, the

[[Page 86800]]

NCUA would have excluded reported PPP loans in the calculation of total 
assets. The NCUA believed the change would ensure that FCUs interested 
in making PPP loans did not bear greater financial burdens for doing 
so. The Board proposed excluding PPP loans from the calculation of 
total assets even if the PPP loans were not pledged to the FRB PPP 
Liquidity Facility because PPP loans pose no undue risk to the FCU's 
capital strength and, due to their unique structure, do not increase an 
FCU's ability to pay a higher operating fee. Excluding all reported PPP 
loans when determining total assets would also ensure that FCUs that do 
not pledge their PPP loans to the FRB are treated consistently with 
those FCUs that do. Absent such consistent treatment, FCUs that do not 
pledge their PPP loans to the FRB's Liquidity Facility would bear a 
larger relative cost burden of the operating fee compared to those FCUs 
that do pledge their PPP loans.
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    \31\ 15 U.S.C. 636(a)(36).
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    Comments Received: None of the commenters objected to this change. 
All nine of the commenters stated that they supported excluding from 
total assets any loan an FCU reports under the PPP and agreed with the 
NCUA's rationale supporting this change. Four of the commenters 
specifically stated further that they supported excluding PPP loans 
from the calculation of total assets even if the PPP loans are not 
pledged to the Federal Reserve Board's (FRB) PPP Liquidity Facility.
    Proposing to exclude PPP loans from the calculation of total assets 
was similar to the amendment the Board made to the calculation of total 
assets in a 2009 final rule to encourage FCU participation in the 
Credit Union System Investment Program (CU SIP) or the Credit Union 
Homeowners Affordability Relief Program (CU HARP).\32\ Investments in 
those programs were excluded from the computation of total assets 
because the instruments were guaranteed by the Share Insurance Fund, 
posed no credit risk to the participating credit unions, and the 
exclusion was intended to encourage a greater participation rate in 
programs with a clear public benefit. The CU SIP ended in 2010. 
Similarly, CU HARP investments were issued by the U.S. Central Federal 
Credit Union and all of those investments matured prior to that credit 
union's liquidation in 2012. Because these programs no longer exist and 
have no remaining investments, the Board proposed to amend current 
Sec.  701.6(a) to delete references to them.
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    \32\ 74 FR 29934 (June 24, 2009).
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    Comments Received: None of the commenters objected to this change. 
Two commenters expressly stated that they supported deleting references 
to the programs and agreed with the NCUA's rationale supporting this 
change.
    Given the potential for additional programs similar to the PPP to 
arise in the near future or as a result of future economic crises, the 
Board proposed adding regulatory language that would allow for the 
exclusion of assets in the future under similar programs without 
requiring a reference to the specific program in the regulation. Under 
the proposed new language, the Board anticipated making exclusions of 
similar future programs by issuing an order, which could be published 
in a letter to FCUs or a similar notice.
    Comments Received: None of commenters objected to the language, and 
eight of the commenters stated that they supported including the 
general language allowing the exclusion of such programs to be approved 
by the Board. One of the commenters, however, suggested that the NCUA 
also include provisions to exclude assets related to programs that 
provide relief during nationwide and regional crises; for example, 
disaster declarations and associated SBA disaster lending authorized as 
a result of hurricanes or other national disasters.
    NCUA Response: In response to the comment suggesting the NCUA also 
exclude assets related to programs that provide relief during 
nationwide and regional crises, the agency has decided not to make that 
change in the final rule. Such a change is beyond the scope of the 
proposal. The NCUA, however, does plan to evaluate the feasibility and 
impact of such exclusions in its next cyclical review of the operating 
fee rule. In particular, the NCUA plans to evaluate whether SBA 
disaster lending presents the same general low level of risk to credit 
unions' balance sheets, and whether excluding SBA disaster lending from 
total assets would have a material impact on the regional distribution 
of operating fees.
    In addition, the Board proposed amending current Sec.  701.6(a) to 
use the average of FCUs' four most-recently reported quarterly assets 
to calculate operating fees and to make conforming amendments to the 
regulatory text to ensure this same approach was applied to merged and 
recently converted FCUs. The Board proposed to use an average of total 
assets because it believed that doing so would reduce the effect of 
seasonal fluctuation in the total assets of FCUs, and would provide 
more certainty to FCUs about their operating fee charges for the 
forthcoming year. The change to a four-quarter average of reported 
assets would also reduce the risk that the Board would collect less in 
operating fee revenue than it requires if actual assets reported in 
FCUs' December Call Reports were below the asset growth assumption used 
to set the operating fee rates in the budget.
    In particular, the proposed rule would have amended current Sec.  
701.6(a) to provide, among other things, that the operating fee shall 
be based on the average of total assets of each FCU based on data 
reported in the preceding four Call Reports (as reported on NCUA Form 
5300 for natural person FCUs and Form 5310 for corporate FCUs), or as 
otherwise determined pursuant to paragraph (b) of Sec.  701.6. When 
determining the operating fee rate and the invoice amounts due under 
the proposal, the NCUA Board would have used the average of FCUs' four 
most-recent Call Reports available at the time the Board approved the 
budget for the forthcoming year.
    The Board anticipated that the proposed change would have no impact 
on current billing practices for newly chartered FCUs because such 
credit unions do not receive an operating fee invoice until the second 
year after they are chartered. The Board proposed continuing its 
current practice of treating merged FCUs and conversions of non-FCUs 
into FCUs as a single entity for purposes of calculating the average 
total assets that are the basis for determining the amount of operating 
fees due. For purposes of calculating the average total assets of an 
FCU that converts from or merges with a federally insured, state-
chartered credit union (FISCU), the Board proposed computing comparable 
quarterly total assets using the Call Report data in the agency's 
possession. For conversions to an FCU charter from entities not insured 
by the NCUA, the Board proposed to average assets based only on Call 
Reports filed by the time the Board finalized its budget because the 
NCUA cannot validate the accuracy or consistency of other data sources 
that may be similar to NCUA Call Reports.
    Under the proposed rule, in circumstances in which a conversion to 
an FCU charter from an entity not insured by the NCUA occurs in the 
fourth quarter of the year before the operating fee is due, no Call 
Report data would have been available at the time the Board finalized 
its budget, and the converted entity would therefore pay no operating 
fee in the year following conversion. While this approach would have 
produced a different result based only on insured status prior to 
conversion for entities that are otherwise of the same FCU status after

[[Page 86801]]

the conversion, the Board believed its lack of access to verified Call 
Report data for non-NCUA insured entities supported the distinction. In 
addition, the Board expected such circumstances to be rare occurrences, 
with relatively small impacts, as the maximum amount of forgone revenue 
is one quarter of reported assets for which a converted entity could be 
exempt from paying an operating fee.
    While this discrepancy could be avoided if the Board continued its 
current practice of estimating December Call Report data as the sole 
point of reference for determining total assets for the operating fee, 
the Board believed the four-quarter average was more equitable on the 
whole because it could account for seasonal share account fluctuations 
that some FCUs experience based on the characteristics and transaction 
patterns engaged in by their fields of membership. As discussed above, 
the proposed four-quarter average approach also would have eliminated 
the risk that the Board could over- or under-collect operating fees 
based on differences between its estimation of and actual December Call 
Report data.\33\
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    \33\ While the proposed regulatory language introducing Sec.  
701.6(b)(2)(i)(B) could be read to require an entity not insured by 
the NCUA that converts to a FCU charter in the fourth quarter to pay 
a fee in the year following conversion, the lack of available Call 
Report data prior to the date the Board adopts the budget would 
preclude a fee in that scenario.
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    With respect to mergers in which an entity not insured by the NCUA 
merges into a continuing FCU, the same issue existed under the proposed 
rule with regard to the Board's access to data comparable to the Call 
Report for periods prior to the merger date. Here again, the proposed 
rule would have combined assets looking back four quarters for mergers 
involving two FCUs or where a FISCU merges into a continuing FCU. On 
the other hand, for mergers into FCUs of entities that are not insured 
by the NCUA, the proposed rule would not have required the combination 
of assets prior to the merger date, because the NCUA does not collect 
asset data for entities it does not insure. Instead, the continuing FCU 
would have paid a fee based only on assets reported on its own Call 
Reports filed prior to the effective date of the merger. Depending on 
the specific timing of when the merger occurred, this could have 
resulted in multiple quarters where the assets acquired from the non-
NCUA insured entity were not included in the calculated average assets 
used to bill the continuing FCU. For the same reasons expressed above 
with respect to conversions, the Board believed the benefits of the 
four-quarter average outweighed the different treatment for mergers 
with FISCUs compared to mergers with entities not insured by the NCUA.
    With respect to purchase and assumption transactions, the 
regulation presently designates that such transactions will be treated 
as mergers in circumstances in which an FCU purchases all or 
essentially all of the assets of another credit union. Under the 
proposal, the Board retained that language, but requested comments on 
alternative approaches the Board may wish to consider. The Board 
acknowledged that, in some circumstances, determining whether a 
purchase and assumption included all or essentially all assets could be 
a difficult determination.
    Comments Received: All nine commenters stated that they supported 
these change and generally agreed with the NCUA's rationale supporting 
this change. While all of the commenters supported this change, four of 
the commenters did ask that the NCUA also regularly review this change 
and its impact to ensure it does not cause any unintended consequences.
    Although beyond the scope of this proposal, one commenter did 
suggested that the NCUA further amend Sec.  701.6 to treat mergers into 
and conversions with federally insured, state-chartered credit unions 
(FISCUs) differently. The commenter stated that, while the current rule 
bars the payment of a fee refund when a conversion to or merger into a 
FISCU occurs, the NCUA should reconsider this issue since the resulting 
credit union's NCUSIF deposit will reflect the merger, unlike a 
combination with an entity that is not NCUSIF-insured, and the 
resulting entity is not an FCU. The commenter suggested that the NCUA 
provide pro rata fee refunds if an FCU converts to or merges into a 
FISCU.
    NCUA Response: In response to the comment suggesting that the NCUA 
regularly review these changes and their impact, the NCUA reviews all 
of its existing regulations every three years. The NCUA's Office of 
General Counsel maintains a rolling review schedule that identifies 
one-third of the NCUA's existing regulations for review each year and 
provides notice to the public of those regulations under review so the 
public may have an opportunity to comment. The changes made by this 
final rule will be regularly reviewed as part of that process and the 
credit union industry and public will be given a regular opportunity to 
raise any concerns they may have.
    In response to the comment suggesting that the NCUA issue a pro 
rata fee refund to an FCU that converts to or merges into a FISCU, the 
agency has made no changes in the final rule. Such a change would be 
outside the scope of the proposal. Moreover, the operating fees charged 
to FCUs are based on a detailed workload projection of the agency's 
examination program, which is used to inform the agency's annual budget 
formulation and calculation of operating fee collections. The agency 
generally does not have insight into the future merger or charter 
conversion plans of a given FCU, and therefore must base its workload 
estimates on the population of FCUs that exist in the year before the 
budget is set and the fee is calculated. If the NCUA were to issue pro 
rata refunds to FCUs that subsequently merge with or convert to a 
FISCU, it would face continuing, unfunded liabilities for staff 
salaries and associated expenses that could not be recouped from other 
sources since the operating fee is billed only once annually. 
Similarly, the OTR share of the annual operating budget is determined 
in part based on the relative distribution of projected workload 
between FCUs and FISCUs in the year before the OTR is applied to actual 
operating expenses. Although the NCUA's actual workload may be 
marginally reduced if an FCU converts to or merges with a FISCU, such a 
change cannot be retroactively applied to the OTR used in a given year.
    The Board also proposed some technical changes to existing rule 
language. First, the proposed rule clarified that the NCUA would not 
issue refunds of operating fees to FCUs that convert to any other type 
of charter, not just a state charter. The proposed rule was intended to 
ensure the same treatment for a conversion to a mutual savings bank or 
any other charter type. The Board also proposed removing the language 
``in the year in which the conversion takes place'' from the provision, 
as a refund is never provided to any converting FCU, regardless of 
timing. The Board proposed the same changes to the rule text on refunds 
in the context of mergers.
    Comments Received: The NCUA received no objections to this change.
    In addition, the Board proposed to expand the situations expressly 
covered in the regulation to include conversions and mergers involving 
entities not insured by the NCUA. Such transactions could involve 
privately insured, state-chartered credit unions or banking 
institutions. To support this expansion, the proposed regulatory 
language introduced the phrase ``entity not

[[Page 86802]]

insured by the NCUA.'' In the language specifying that certain purchase 
and assumption transactions would be treated as mergers, the Board 
proposed changing the term ``credit union'' to ``depository 
institution'' to clarify that a purchase and assumption involving a 
bank, for example, would be treated in the same manner. Finally, the 
proposed rule would have divided paragraph (b) of the regulation into 
additional subparagraphs to improve readability.
    Comments Received: The NCUA received no objections to this change.

III. Summary of the Final Rule

    For the reasons discussed above, the Board is issuing this final 
rule without change from the proposed rule. Revised Sec.  701.6(a) 
provides that each calendar year, or as otherwise directed by the 
Board, each Federal credit union shall pay an operating fee to the NCUA 
for the current fiscal year (January 1 to December 31) in accordance 
with a schedule fixed by the Board from time to time. New Sec.  
701.6(a)(1) provides that the operating fee shall be based on the 
average of total assets of each Federal credit union based on data 
reported in NCUA Forms 5300 and 5310 from the four quarters immediately 
preceding the time the Board approves the agency's budget or as 
otherwise determined pursuant to paragraph (b) of this section. New 
Sec.  701.6(a)(2) provides that for purposes of calculating the 
operating fee, total assets shall not include any loans on the books of 
a natural person Federal credit union made under the Small Business 
Administration's Paycheck Protection Program, 15 U.S.C. 636(a)(36), or 
any similar program approved for exclusion by the Board.
    Revised Sec.  701.6(b), Coverage, provides that the operating fee 
shall be paid by each Federal credit union engaged in operations as of 
January 1 of each calendar year in accordance with paragraph (a), 
except as otherwise provided by this paragraph. Section 701.6(b)(1), 
New Charters, continues to provide that a newly chartered FCU will not 
pay an operating fee until the year following the first full calendar 
year after the date chartered. Revised Sec.  701.6(b)(2), Coverage, 
continues to address coverage issues, but now includes several new 
subsections. New Sec.  701.6(b)(2)(i)(A) provides that in the first 
calendar year following conversion: A FISCU that converts to an FCU 
charter must pay an operating fee based on the average assets reported 
in the year of conversion on NCUA Forms 5300 or 5310 from the four 
quarters immediately preceding the time the Board approves the agency's 
budget in the year of conversion. New Sec.  701.6(b)(2)(i)(B) provides 
that in the first calendar year following conversion: An entity not 
insured by the NCUA that converts to an FCU charter must pay an 
operating fee based on the assets, or average thereof, reported on NCUA 
Forms 5300 or 5310 for any one or more quarters immediately preceding 
the time the Board approves the agency's budget in the year of 
conversion. New Sec.  701.6(b)(2)(ii) provides that an FCU converting 
to a different charter will not receive a refund of any operating fees 
paid to the NCUA.
    Revised Sec.  701.6(b)(3), Mergers, continues to address merger 
issues, but now includes several new subsections. New Sec.  
701.6(b)(3)(i)(A) provides that in the first calendar year following 
merger: A continuing FCU that has merged with one or more federally 
insured credit unions must pay an operating fee based on the average 
combined total assets of the FCU and any merged federally insured 
credit unions as reported on NCUA Forms 5300 or 5310 in the four 
quarters immediately preceding the time the Board approves the agency's 
budget in the merger year. New Sec.  701.6(b)(3)(i)(B) provides that 
for purposes of paragraph (b)(3), a purchase and assumption transaction 
in which the continuing FCU purchases all or essentially all of the 
assets of another depository institution shall be deemed a merger. New 
Sec.  701.6(b)(3)(ii) provides that an FCU that merges with a Federal 
or state-chartered credit union, or an entity not insured by the NCUA, 
will not receive a refund of any operating fee paid to the NCUA.
    Finally, Sec.  701.6(b)(4), Liquidations, continues to provide that 
an FCU placed in liquidation will not pay any operating fee after the 
date of liquidation.

IV. 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 an final regulatory flexibility analysis that describes 
the impact of a proposed 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 federally insured credit unions with assets less than $100 
million) and publishes its certification and a short, explanatory 
statement in the Federal Register together with the rule. This final 
rule will make a technical change to the period for measuring total 
assets for calculating the Operating Fee. However, the Board does not 
believe the impact will disproportionally impact small credit unions 
such that a regulatory flexibility analysis is required. First, small 
credit unions are still required to report assets on a quarterly basis, 
and the regulation only increases the number of quarters the NCUA will 
consider in adjusting the operating fee. Nor does the exclusion of PPP 
loans from assets increase reporting requirements, as the NCUA already 
has the information necessary to make that exclusion. Finally, although 
exclusion of PPP loans will decrease fee amounts for some small credit 
unions, the Board does not believe the change will amount to a 
significant impact on a substantial number of small entities. 
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 a new or amends existing information collection 
requirements.\34\ For the purpose of the PRA, an information collection 
requirement may take the form of a reporting, recordkeeping, or a 
third-party disclosure requirement. This final rule does not contain 
information collection requirements that require approval by OMB under 
the PRA.\35\
---------------------------------------------------------------------------

    \34\ 44 U.S.C. 3507(d); 5 CFR part 1320.
    \35\ 44 U.S.C. Chap. 35.
---------------------------------------------------------------------------

C. Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub. L. 104-121) (SBREFA) generally provides for congressional review 
of agency rules.\36\ A reporting requirement is triggered in instances 
where the NCUA issues a final rule as defined by Section 551 of the 
APA.\37\ An agency rule, in addition to being subject to congressional 
oversight, may also be subject to a delayed effective date if the rule 
is a ``major rule.'' \38\ The NCUA does not believe this rule is a 
``major rule'' within the meaning of the relevant sections of SBREFA. 
As required by SBREFA, the NCUA will submit this final rule to OMB for 
it to determine if the final rule is a ``major rule'' for purposes of 
SBREFA. The NCUA also will file appropriate reports with Congress and 
the Government

[[Page 86803]]

Accountability Office so this rule may be reviewed.
---------------------------------------------------------------------------

    \36\ 5 U.S.C. 801-804.
    \37\ 5 U.S.C. 552.
    \38\ 5 U.S.C. 804(2).
---------------------------------------------------------------------------

D. 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 final rule 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.\39\
---------------------------------------------------------------------------

    \39\ Public Law 105-277, 112 Stat. 2681 (1998).
---------------------------------------------------------------------------

List of Subjects in 12 CFR Part 701

    Credit unions, Low income, Nonmember deposits, Secondary capital, 
Shares.

    By the National Credit Union Administration Board on December 
17, 2020.
Melane Conyers-Ausbrooks,
Secretary of the Board.

    For the reasons discussed above, the Board amends 12 CFR part 701 
as follows:

PART 701--Organization and Operations 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.


0
2. In Sec.  701.6, revise paragraphs (a) and (b) to read as follows:


Sec.  701.6   Fees paid by Federal credit unions.

    (a) Basis for assessment. Each calendar year, or as otherwise 
directed by the NCUA Board, each Federal credit union shall pay an 
operating fee to the NCUA for the current fiscal year (January 1 to 
December 31) in accordance with a schedule fixed by the Board from time 
to time.
    (1) General. The operating fee shall be based on the average of 
total assets of each Federal credit union based on data reported in 
NCUA Forms 5300 and 5310 from the four quarters immediately preceding 
the time the Board approves the agency's budget or as otherwise 
determined pursuant to paragraph (b) of this section.
    (2) Exclusions from total assets. For purposes of calculating the 
operating fee, total assets shall not include any loans on the books of 
a natural person Federal credit union made under the Small Business 
Administration's Paycheck Protection Program, 15 U.S.C. 636(a)(36), or 
any similar program approved for exclusion by the NCUA Board.
    (b) Coverage. The operating fee shall be paid by each Federal 
credit union engaged in operations as of January 1 of each calendar 
year in accordance with paragraph (a) of this section, except as 
otherwise provided by this paragraph (b).
    (1) New charters. A newly chartered Federal credit union will not 
pay an operating fee until the year following the first full calendar 
year after the date chartered.
    (2) Conversions. (i) In the first calendar year following 
conversion:
    (A) A federally insured state-chartered credit union that converts 
to a Federal credit union charter must pay an operating fee based on 
the average assets reported in the year of conversion on NCUA Forms 
5300 or 5310 from the four quarters immediately preceding the time the 
Board approves the agency's budget in the year of conversion.
    (B) An entity not insured by the NCUA that converts to a Federal 
credit union charter must pay an operating fee based on the assets, or 
average thereof, reported on NCUA Forms 5300 or 5310 for any one or 
more quarters immediately preceding the time the Board approves the 
agency's budget in the year of conversion.
    (ii) A Federal credit union converting to a different charter will 
not receive a refund of any operating fees paid to the NCUA.
    (3) Mergers. (i) In the first calendar year following merger:
    (A) A continuing Federal credit union that has merged with one or 
more federally insured credit unions must pay an operating fee based on 
the average combined total assets of the Federal credit union and any 
merged federally insured credit unions as reported on NCUA Forms 5300 
or 5310 in the four quarters immediately preceding the time the Board 
approves the agency's budget in the merger year.
    (B) For purposes of this paragraph (b)(3), a purchase and 
assumption transaction where the continuing Federal credit union 
purchases all or essentially all of the assets of another depository 
institution shall be deemed a merger.
    (ii) A Federal credit union that merges with a Federal or state-
chartered credit union, or an entity not insured by the NCUA, will not 
receive a refund of any operating fee paid to the NCUA.
    (4) Liquidations. A Federal credit union placed in liquidation will 
not pay any operating fee after the date of liquidation.
* * * * *
[FR Doc. 2020-28490 Filed 12-30-20; 8:45 am]
BILLING CODE 7535-01-P