[Federal Register Volume 76, Number 101 (Wednesday, May 25, 2011)]
[Proposed Rules]
[Pages 30286-30294]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-12828]
[[Page 30286]]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Parts 705
RIN 3133-AD91
Community Development Revolving Loan Fund
AGENCY: National Credit Union Administration (NCUA).
ACTION: Proposed rule.
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SUMMARY: NCUA proposes to change its rule governing the process by
which the agency solicits, receives, evaluates, and acts on credit
union applications seeking loans and technical assistance grants from
the Community Development Revolving Loan Fund (CDRLF or Fund). The
proposed changes update the current rule to improve transparency and
are intended to improve its organization, structure, and ease of use by
credit unions. The revisions do not reflect a change to the fundamental
mission of the CDRLF, but instead remove unnecessary detail and
outdated processes in the current rule while adding clarification and
flexibility. The proposal also clarifies the application process and
adds requirements addressing reporting and monitoring.
DATES: Comments must be received on or before July 25, 2011.
ADDRESSES: You may submit comments by any of the following methods
(Please send comments by one method only):
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
NCUA Web Site: http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the
instructions for submitting comments.
E-mail: Address to [email protected]. Include ``[Your
name] Comments on Proposed Rule 705, CDRLF Amendments'' in the e-mail
subject line.
Fax: (703) 518-6319. Use the subject line described above
for e-mail.
Mail: Address to Mary Rupp, Secretary of the Board,
National Credit Union Administration, 1775 Duke Street, Alexandria,
Virginia 22314-3428.
Hand Delivery/Courier: Same as mail address.
FOR FURTHER INFORMATION CONTACT: Pamela Williams, Credit Union Program
Analyst, Office of Small Credit Union Initiatives, or Justin Anderson,
Staff Attorney, Office of General Counsel, at the above address or
telephone (703) 518-6643 (Ms. Williams) or (703) 518-6540 (Mr.
Anderson).
SUPPLEMENTARY INFORMATION:
A. Background
The CDRLF was created by Congress in 1979 with an initial
appropriation of $6 million and has been administered exclusively by
NCUA since 1986. Through subsequent appropriations and earnings on Fund
assets, the Fund has grown to over $19.7 million as of the end of the
first quarter of 2011. The Fund serves as a source of financial
support, in the form of both loans and technical assistance grants, for
credit unions serving predominantly low-income members. It also serves
as a source of funding to help low-income credit unions respond to
emergencies arising in their communities. The NCUA Board (the Board)
has delegated to the Office of Small Credit Union Initiatives authority
to make the determination of how to allocate the finite resources of
the Fund among qualifying credit unions. Awards provided through the
CDRLF Program have strengthened credit unions by enabling them to
increase their capacity to support the communities in which they
operate. This increased capacity has allowed credit unions to provide
basic financial services to low-income residents of these communities,
resulting in more opportunities for residents of the credit unions'
communities to improve their financial circumstances.
The technical assistance grant portion of the CDRLF provides funds
to low-income credit unions so that they may extend services to their
members and improve their operations. The source of awards includes
appropriated funds, current year earnings, and a portion of prior
years' retained earnings.
Through the loan portion of the CDRLF, low-income credit unions may
receive funds to support a variety of financial and related services
designed to meet the particular needs of members and the low-income
communities served. In years where Congress has not appropriated funds
for loans, funding has come from scheduled loan repayments of prior
loans.
Part 705 has been largely unchanged, in substantive terms, since
1993. In the years following, significant enhancements, including
changes in technology, have altered the way in which NCUA retrieves and
uses data from credit unions. The proposed changes in this rule, which
comprehensively revise part 705, reflect these changes and are designed
to reduce the burden on credit unions. The proposed changes remove some
of the detail in the current rule dealing with administrative aspects
of the program to provide the agency with greater flexibility to make
changes and variations to suit specific circumstances. Other changes
add detail to the rule, for example, regarding how NCUA evaluates
applications, to provide greater transparency and better knowledge and
information to prospective applicants. The changes also add a new
section addressing reporting to and monitoring by NCUA, which is
designed to help the agency assure that an award from the Fund is used
in the manner and for the purposes represented by the credit unions
receiving loans or grants. On balance, the rule is streamlined and the
burden imposed on credit unions seeking an award from the Fund is
reduced.
B. Changes in Low-income Designation Criteria
In November 2008, the Board amended its low-income rule to change
the criteria by which credit unions serving primarily low-income
members are designated. 73 FR 71909 (November 26, 2008). NCUA further
clarified this change in August 2010. 75 FR 47171 (August 5, 2010). As
more fully discussed in the preambles to those rulemakings, NCUA
changed the standard for measuring member income from median household
income to median family income. 12 CFR 701.34. By cross reference,
which is retained in this proposal, Part 705 uses the low-income
standard promulgated in the 2008 rule making and clarified in 2010.
C. Section by Section Analysis
Sec. 705.1. Authority, Purpose and Scope. This section combines
and summarizes the essential elements in the first three sections of
the current rule. The only substantive change is driven by the Board's
recognition of the burden associated with determining whether one of
the specific purposes of the program, as described in current Sec.
705.2(a)(2), is being met. The Board recognizes that the requirement
for credit unions to measure ``income, ownership, and employment
opportunities for low-income residents in communities they serve'' is
difficult because of the lack of available data. The Board believes it
would be beneficial to replace the quoted language currently in this
section of the rule with the following more precise and measurable
standard: ``NCUA anticipates the financial awards provided will better
enable them to support the communities in which they operate; providing
basic financial services to low-income residents of these communities,
resulting in more
[[Page 30287]]
opportunities for the residents to improve their financial
circumstances.'' 12 CFR 705.1(d) (proposed). The Board believes this
proposed language provides a better description of the actual impact
awards from the Fund can have on credit unions, their membership, and
their communities. This section would also contain a general statement
that any loans or technical assistance grants from the Fund are subject
to NCUA's discretion and funds availability. 12 CFR 705.1(b)
(proposed). The Board believes it is beneficial to include this general
statement in this section rather than repeating it throughout the
proposal to ensure a concise, streamlined rule.
Sec. 705.2. Definitions. The current rule has only two
definitions: ``low-income members'' and ``participating credit
unions.'' 12 CFR 705.3 (current rule). The 2008 amendment, discussed
above, by which the criteria for determining whether a credit union
qualifies for low-income designation, affected the definition of low-
income members. This proposal retains the definition of ``low-income
members,'' as amended. With respect to the definition of
``participating credit unions,'' this proposal modifies that definition
and also defines ``qualifying credit unions,''' which is a new term.
These definitions retain much of the language in the current definition
of ``participating credit unions,'' but do contain new language, which
the Board believes will protect the Fund and better reflect agency
practice. Under this proposal a ``qualifying credit union'' is one that
may be or has agreed to be examined by NCUA and holds a current low-
income designation. The proposal clarifies that low-income designations
are pursuant to Sec. 701.34 for Federal credit unions and Sec.
741.204 for Federally insured state-chartered credit unions. Section
701.34 states that low-income designations for Federal credit unions
will be made by the appropriate NCUA Regional Director, and, Sec.
741.204 states that low-income designations for Federally insured
state-chartered credit unions must be made by the appropriate state
regulator in accordance with the requirements in Sec. 701.34(a) and
have the concurrence of the appropriate NCUA Regional Director. 12 CFR
701.34 and 741.204. In addition, this proposal states that low-income
designations for non-federally insured state-chartered credit unions
must be made by the appropriate state regulator under applicable state
standards with the concurrence of NCUA. As mentioned above, the
definition of ``qualifying credit union,'' under this proposal, would
apply to only those credit unions that NCUA may examine or agree to be
examined by NCUA. The Board believes this requirement will allow NCUA
to obtain all relevant information about a credit union's financial
condition, so that it can make the most prudent and responsible choices
among credit union applicants seeking awards from the Fund without
excluding credit unions interested in awards from the Fund. The Board
notes that there has traditionally been very limited interest by
nonfederally insured state-chartered credit unions, which are not
subject to examination by NCUA, in awards from the CDRLF. If a non-
federally insured credit union is interested in participation, it would
have to agree to examination by NCUA. The proposed revised definition
of a ``participating credit union'' is a qualifying credit union that
has submitted an application that has been approved by NCUA. Other
newly defined terms in the proposal, including Notice of Funding
Opportunity, Application, Loan and Technical Assistance Grant, are
self-explanatory and designed to supplement the substantive sections of
the proposal dealing with those respective issues.
Sec. 705.3. Eligibility. This section, which encompasses material
from several sections in the current rule, is designed to establish the
criteria by which credit unions will be considered eligible to apply
for and receive financial assistance from the Fund. Subsection (a)
states that, to be eligible to receive an award, a credit union must
complete an application and meet the underwriting criteria established
by NCUA.
Sec. 705.4. Permissible Uses of Loan Funds. The Board has
included, in this section, examples of permissible uses of loan funds
received from the CDRLF. The Board believes it will be helpful for the
rule to provide examples of the types of programs and uses that can be
supported through loans from the Fund. In addition to listing basic
examples, the proposal notes that NCUA will announce in the Notice of
Funding Opportunity other funding priorities and permissible uses of
loan funds. Permissible uses of technical assistance grants are
discussed in Sec. 705.10 of this proposal.
Sec. 705.5. Terms and Conditions. This section simplifies the
current rule by eliminating much of the information presently set out
in Sec. Sec. 705.5 and 705.7. The intent of this proposed section is
to confirm that, with respect to loans, NCUA will establish the terms
and conditions governing the loan in separate loan documents. The
proposed rule does, however, provide some detail on the maximum loan
amount, the interest rate, repayment, acceleration, and matching
requirements. With respect to the maximum loan amount, the Board
acknowledges in this proposal that generally the maximum loan amount is
$300,000, but NCUA may make loans that exceed this amount in certain
circumstances. A list of factors NCUA would consider in deciding to
make a loan in excess of $300,000 will be included in the Notice of
Funding Opportunity rather than in this proposal to preserve maximum
flexibility for the agency to address changing circumstances that would
necessitate the need for higher amount loans. The Board has also
included a portion of current Sec. 705.7(a), which states that at
NCUA's discretion, a loan from the Fund must be recorded as a note
payable or nonmember deposit.
Also in this proposal, the Board has eliminated the range of
interest rates that may be charged on a loan from the Fund, which is
currently set in the rule at 1% to 3%. Instead, the Board proposes to
reference the CDRLF's Interest Rate Policy, which has been in effect
since January 2008 and is located on NCUA's Web site. NCUA will include
the specific interest rate for a funding in the Notice of Funding
Opportunity. This again will ensure maximum flexibility for NCUA to set
interest rates that are appropriate for the particular economic climate
at the time of a funding and the needs of credit unions.
This portion of the proposal also incorporates language from
current Sec. Sec. 705.7(b),(c), and (e) addressing repayment,
maturity, matching, and acceleration. These sections are unchanged from
the current rule except that the matching requirement in the current
section is now at NCUA's option rather than expressly required. The
current rule states that ``generally,'' monies obtained from the Fund
``must be matched'' by the participating credit union. This proposal
makes the matching requirement expressly optional at NCUA's discretion
based on the financial condition of the credit union. This proposed
change will enable the agency to more readily employ its judgment and
experience in determining whether matching will be beneficial and
necessary in any given case. This proposal does, however, retain
Sec. Sec. 705.7(b)(1), (2), and (3) from the current rule that address
the requirements for a credit union that must provide matching funds.
These requirements have been largely unchanged, but do provide more
flexibility for NCUA to determine how
[[Page 30288]]
to address matching funds on a case-by-case basis. For example, the
statement that all member share deposits will be credited as a two-for-
one match has been deleted. This section also clarifies that all
matching funds must be from non-governmental sources. 12 CFR 705.5(g)
(proposed). The Board notes that this requirement is consistent with
other community development lending programs and believes it is
necessary to ensure that credit unions do not become too reliant or
completely dependent on governmental sources of funding. Additional
requirements for matching funds will be included in the loan documents
with a credit union required to provide matching funds. 12 CFR 705.5(g)
(proposed).
This section concludes with a general statement that other terms
and conditions of loans from the Fund will be included in the Notice of
Funding Opportunity and applicable loan documents. 12 CFR 705.5(h)
(proposed rule). The Board believes it is prudent to preserve its
flexibility by addressing other specific details concerning the loan in
the Notice of Funding Opportunity and loan documents, which can be more
readily adapted to change and adjusted as circumstances and experience
warrant.
Sec. 705.6. Application and Award Processes. As discussed below,
this section would combine portions of Sec. Sec. 705.5 and 705.9 of
the current rule as well as add expanded explanation and direction
about the application and award processes. The Board believes this
section of the proposed rule provides transparency and clarity about
the way in which a credit union applies for funds and NCUA renders a
decision on that application. Each subsection of this section is
discussed in detail below.
(a) Notice of Funding Opportunity. This section corresponds to
current Sec. 705.9 but would provide more detail about how and where
NCUA will publicly announce loan and technical assistance grant program
initiatives. In addition to publishing Notices of Funds Opportunity in
the Federal Register, NCUA will follow Federal government protocol and
post its current program initiatives on the government's basic Internet
portal for financial award programs (currently at http://www.grants.gov), and will also post information on its own Web site.
This process conforms to current agency practice, as does the
discussion in this section about how NCUA also provides direct notice
of program opportunities through Letters to Credit Unions and its
electronic mail service, NCUA Express. Also, to increase flexibility,
the Board proposes to delete the requirement that NCUA publish this
notice annually.
(b) Application Requirements. This section would incorporate
provisions from Sec. Sec. 705.5(a), (b)(1), and (b)(5) of the current
regulation, which address the information an applicant credit union
must provide when applying for financial awards from the CDRLF. In this
respect, the proposal notes that NCUA would require a credit union to
provide a narrative about how the credit union intends to use the money
from the Fund to enhance the products and services it provides to its
members and how those enhanced products or services will support the
economic development of the community served by the credit union. This
proposed aspect replaces the current requirement that a credit union
develop a Community Needs Plan. (See current Sec. 705.6). The Board
believes that replacing the Community Needs Plan will provide a better
instruction for credit unions developing this portion of the
application and reduce the burden on applicant credit unions to provide
an additional plan. This subsection also addresses the additional
information that is required from nonfederally insured credit unions.
This information was carried over from Sec. 705.5 of the current rule,
and, for the reasons discussed, above adds the requirement that
nonfederally insured state-chartered credit unions agree to be examined
by NCUA.
(c) Evaluation and Selection of Participating Credit Unions. This
new subsection is consistent with the Board's goal of enhancing
transparency in how the agency makes decisions. Specifically, this
proposed subsection describes the criteria that NCUA will generally
evaluate in deciding among competing applications seeking limited
funds, including financial and performance considerations, whether the
proposed uses of funds are compatible with program goals, and whether
the credit union is likely to be successful in accomplishing its stated
objectives. NCUA, however, will not be confined to only considering
these criteria and could consider any other criteria identified in the
Notice of Funding Opportunity it deems relevant depending upon the
funding initiative, economic environment, or other factors. Given that
requests for funding routinely exceed available funds, the Board
believes this subsection will provide useful information that will help
credit unions in developing and refining their applications and
understanding how the agency makes its determinations. In addition,
this proposed subsection states that, with regard to Qualifying Federal
Credit Unions, NCUA will consult and consider information from the
examination staff that conducted the applicant credit union's most
recent examination and will seek the concurrence of the applicant
credit union's supervising Regional Director before an award is made.
Consultation with examination staff and Regional Director has been a
matter of practice and the Board believes including it in this section
will improve transparency. Information relating to the examination of a
Qualifying State-chartered Credit Union is addressed in Sec. 705.8,
which is discussed below.
(d) Requests for Additional Information. This new proposed
subsection articulates that NCUA may require additional information
from applicants before rendering its decision, and will do so using its
discretion to choose the applicants that are likely to be the most
successful in carrying out the purpose of the Program. This subsection
also states that failure to provide the requested information may
result in NCUA rejecting the application.
(e) Timing. This new subsection states that NCUA will include a
timeframe to submit all requested information in the Notice of Funding
Opportunity and that failure to submit all of the requested information
by the stated deadline may result in NCUA rejecting the application
without further consideration.
(f) Notice of Award and Appeals. This new subsection, which
contains some substantive information in the current Sec. 705.5(c),
articulates that NCUA will notify applicant credit unions as to whether
or not they have qualified for a loan or technical assistance grant.
This subsection would also follow the approach taken in the current
rule with respect to appeals, which is to acknowledge that any credit
union submitting an application for either a loan or a technical
assistance grant that is considered nonqualified may appeal that
decision to the NCUA Board. The proposal makes clear that the scope of
review by the Board is limited to the threshold question of
qualification and not the issue of whether, among qualified applicants,
a particular loan or technical assistance grant is funded. Awards from
the Fund are discretionary and that determination is not subject to
administrative appeal to the Board. Information on appealing denials of
technical assistance grant reimbursements is discussed below in Sec.
705.10.
(g) Disbursement. This new subsection states that before NCUA will
disburse a loan, the Participating Credit
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Union must sign all applicable loan documents and the promissory note.
This section also states that NCUA may, in its discretion, choose not
to disburse the entire loan at once.
Sec. 705.7. Urgency. This new section specifically acknowledges
that, on an emergency basis, NCUA may consider a funding request from a
qualifying credit union experiencing an unplanned or unexpected expense
that the credit union is unable to meet with its own resources. The
credit union will be required to demonstrate a compelling need for
immediate action or attention without which its continued operations
would be threatened or severely disrupted. NCUA will evaluate these
applications to determine if emergency funding is warranted. Urgent
needs for funding are not part of any specific initiative, but rather
an ongoing process that will not be included in specific Notices of
Funds Opportunity. The Board notes in this proposal, however, that
technical assistance grants and loans provided under this section
should not be a regular source of funding for credit unions and credit
unions must still exhibit a purpose consistent with the goals of the
Fund.
Sec. 705.8. Qualifying State-chartered Credit Unions. This section
incorporates language from Sec. 705.8 of the current regulation, which
articulates requirements that are specific to state-chartered credit
unions. These requirements include obtaining written concurrence from
the credit union's state regulatory authority, making state examination
reports available to NCUA and agreeing to examination by NCUA for the
purpose of compliance with this part. The requirement in this section
relating to an examination is in addition to a general requirement that
to be eligible, a credit union must be able to be or agree to be
examined by NCUA. The Board notes that to qualify for awards from the
Fund, NCUA must be able to examine the entire financial condition of
the credit union, whereas an examination under this proposed subsection
allows NCUA to examine the credit union only to verify compliance with
this Part.
Sec. 705.9. Reporting and Monitoring. This new section is designed
to provide the framework for the way in which the agency assures that
recipients of awards from the Fund actually use the money they receive
for its intended purposes. In this respect, the Board intends this
proposal will clarify NCUA's practices of monitoring the use of CDRLF
funding to ensure and document that credit unions use the funds for the
intended purposes. The proposed rule first establishes that NCUA's
policy in this respect is to do such monitoring. The proposal goes on
to describe two methods the agency will employ in this regard: first,
reporting by participating credit unions, at such times and in such
formats as NCUA shall direct, of the uses to which funds have been made
and the results that have been obtained; and second, NCUA may elect to
review information to which it already has access, including
information obtained from the examination process and call reports, for
verification and monitoring purposes.
Sec. 705.10. Technical Assistance Grants. This section of the
proposal incorporates much of the text in current Sec. 705.10 and
makes a general reference to the funding of technical assistance grants
and preserves maximum flexibility in the establishment of amounts and
other terms and conditions. The proposal does acknowledge that, as a
general rule, technical assistance grants are provided on a
reimbursement basis to cover expenditures approved in advance and
supported by receipts. This section also includes a new subsection that
discusses the appeal rights for technical assistance grant
reimbursement denials in accordance with NCUA Interpretative Ruling and
Policy Statement (IRPS) 11-1. 76 FR 3674 (January 20, 2011). IRPS 11-1
provides that technical assistance grant reimbursement denials may only
be appealed to NCUA's Supervisory Review Committee. Credit unions must
make appeals under this IRPS within 30 days from the date of the
denial. Id. Also, with respect to appeals, this section states that the
determination of NCUA's Supervisory Review Committee is final and its
decisions are not appealable to the Board.
Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) requires NCUA to prepare an
analysis to describe any significant economic impact any proposed
regulation may have on a substantial number of small entities. NCUA
considers credit unions having less than ten million dollars in assets
to be small for purposes of RFA. Interpretive Ruling and Policy
Statement (IRPS) 87-2 as amended by IRPS 03-2. The proposed revisions
to part 705 are designed to update and streamline the rule, thereby
reducing the burden for credit unions that are seeking financial
awards, whether in the form of a technical assistance grant or a loan,
from NCUA. Moreover, the rule implements a program that is entirely
voluntary on the part of credit unions. It has no impact on credit
unions that elect not to pursue this funding opportunity. NCUA has
determined and certifies that this proposed rule, if adopted, will not
have a significant economic impact on a substantial number of small
credit unions. Accordingly, the NCUA has determined that an RFA
analysis is not required.
Paperwork Reduction Act
There are aspects of the CDRLF Program that involve information
collection within the meaning of the Paperwork Reduction Act of 1995
(PRA). 44 U.S.C. 3507(d).
Previously, NCUA sought and obtained Office of Management and
Budget (OMB) approval for its use of certain documents, including the
application and the report forms used to monitor and follow up on the
uses credit unions have made of funds provided under the technical
assistance grant and loan programs. These documents have been assigned
OMB Control No. 3133-0137, which remained valid through December 2010.
The proposed rule eliminates much of the detail from current
Sec. Sec. 705.5 and 705.7 and provides that terms and conditions
pertaining to loans from the Fund will be governed in separate loan
documents. These documents, which will be required to obtain loan funds
from the CDRLF, constitute information collections within the meaning
of the PRA. Accordingly, NCUA intends to secure OMB approval, through
an application for reinstatement of OMB Control No. 3133-0137, to
include a promissory note and a loan agreement under that number. As
required by the PRA, NCUA is submitting a copy of this proposed
regulation as part of its request for OMB approval of reinstatement of
this previously approved information collection. Since the prior number
has expired, NCUA believes it is prudent and appropriate to seek
approval for reinstatement of the previously approved control number.
The proposed rule contemplates that credit unions that are approved
for loans from the Fund will be required to execute a promissory note
and a loan agreement. NCUA estimates approximately fifteen credit
unions will be approved for loans per year. NCUA also estimates it will
take a credit union approximately two hours to review, evaluate and
execute the loan documents, noting in particular that the credit union
must attach, as an exhibit to the loan agreement, a duly executed board
resolution confirming the decision to borrow the funds has been
approved by the board and that the individual executing the note on
behalf
[[Page 30290]]
of the credit union has been duly authorized to do so.
The loan agreement also calls for a report describing the use of
loan proceeds, the impact of any new programs supported or funded by
loan proceeds, and any obstacles encountered affecting the credit
union's ability to accomplish the objectives identified in its loan
application. This report must be provided to NCUA annually. NCUA
estimates the burden associated with this reporting to be another two
hours per year. On average, there are about 50 loans outstanding at any
given time for which reporting may be necessary.
The loan agreement also contemplates that other information about a
credit union's business, operations and financial condition may be
requested by NCUA from time to time, if necessary to permit the Fund to
maintain or perfect its security interest in collateral or to otherwise
fully effectuate the purposes of the loan agreement. NCUA estimates it
will request this additional information only with respect to ten
percent of outstanding loans and that the burden associated with
compliance with this request will be four hours.
This yields an estimated annual burden of 150 hours for this
information collection, as broken out and itemized below:
a. Promissory Note and Loan Agreement
Average number of new loans annually: 15
Annual hour burden: 2
2 hours x 15 = 30
b. Regular Annual Reports
Number of respondents: 50
Frequency of response: annually
Annual hour burden: 2
2 hours x 50 = 100
c. Irregular Reports as requested by NCUA
Number of respondents: 5
Frequency of response: annually
Annual hour burden: 4
4 hours x 5 = 20
Total hours: 30 + 100 + 20 = 150
Organizations and individuals that wish to submit comments on this
information collection requirement should direct them to the Office of
Information and Regulatory Affairs, OMB, Room 10226, New Executive
Office Building, Washington, DC 20503, with a copy to Mary Rupp,
Secretary of the Board, National Credit Union Administration, 1775 Duke
Street, Alexandria, Virginia 22314-3428.
The NCUA considers comments by the public on this proposed
collection of information in:
Evaluating whether the proposed collection of information
is necessary for the proper performance of the functions of the NCUA,
including whether the information will have a practical use;
Evaluating the accuracy of the NCUA's estimate of the
burden of the proposed collection of information, including the
validity of the methodology and assumptions used;
Enhancing the quality, usefulness, and clarity of the
information to be collected; and
Minimizing the burden of collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology; e.g., permitting
electronic submission of responses.
The Paperwork Reduction Act requires OMB to make a decision
concerning the collection of information contained in the proposed
regulation between 30 and 60 days after publication of this document in
the Federal Register. Therefore, a comment to OMB is best assured of
having its full effect if OMB receives it within 30 days of
publication. This does not affect the deadline for the public to
comment to the NCUA on the proposed regulation.
Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. In
adherence to fundamental federalism principles, NCUA, an independent
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies
with the executive order. The financial award programs administered
through the CDRLF are available to FCUs as well as to state chartered
credit unions. By law, state chartered institutions with Federal share
insurance are already subject to numerous provisions of NCUA's rules,
based on the agency's role as the insurer of member share accounts and
the significant interest NCUA has in the safety and soundness of their
operations. In any event, the proposed rule will not have substantial
direct effects on the states, on the relationship between the national
government and the states, or on the distribution of power and
responsibilities among the various levels of government. NCUA has
determined that this proposal does not constitute a policy that has
federalism implications for purposes of the executive order.
The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this proposed rule will not affect
family well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, 1999, Public Law 105-277, 112
Stat. 2681 (1998).
Agency Regulatory Goal
NCUA's goal is to promulgate clear and understandable regulations
that impose minimal regulatory burden. We request comments on whether
the proposed rule is understandable and minimally intrusive if
implemented as proposed.
List of Subjects in 12 CFR Part 705
Credit unions, Loans, Grants, Revolving fund, Community programs,
Low income.
By the National Credit Union Administration Board on May 19,
2011.
Mary F. Rupp,
Secretary of the Board.
Accordingly, NCUA proposes to amend 12 CFR part 705 as follows:
PART 705--COMMUNITY DEVELOPMENT REVOLVING LOAN FUND FOR CREDIT
UNIONS
1. The authority citation for part 705 continues to read as
follows:
Authority: 12 U.S.C. 1756, 1757(5)(D), and (7)(I), 1766, 1782,
1784, 1785 and 1786.
2. Revise part 705 as follows:
Community Development Revolving Loan Fund for Credit Unions
Sec.
705.1 Authority, purpose and scope.
705.2 Definitions.
705.3 Eligibility requirements.
705.4 Permissible uses of loan funds.
705.5 Terms and conditions.
705.6 Application and awards processes.
705.7 Urgency.
705.8 Qualifying state-chartered credit unions.
705.9 Reporting and monitoring.
705.10 Technical assistance grants.
Sec. 705.1 Authority, purpose and scope.
(a) Part 705 is issued by the National Credit Union Administration
(NCUA) under Sec. 130 of the Federal Credit Union Act, 12 U.S.C.
1772c-1, which implements the Community Development Credit Union
Revolving Loan Fund Transfer Act (Pub. L. 99-609, 100 Stat. 3475
(November 6, 1986)).
(b) This Part describes how NCUA makes money available to credit
unions from its Community Development
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Revolving Loan Fund (Fund). NCUA administers the Fund and makes both
loans and technical assistance grants to credit unions in accordance
with the eligibility criteria and other qualifications, and subject to
the terms and conditions set out in this Part. All loans and technical
assistance grants made under this Part are subject to funds
availability and NCUA's discretion.
(c) The Fund is intended to support the efforts of credit unions
through loans and technical assistance grants needed for:
(1) Providing basic financial and related services to residents in
their communities;
(2) Enhancing their capacity to better serve their members and the
communities in which they operate; and
(3) Responding to emergencies.
(d) The policy of NCUA is to revolve funds to credit unions as
often as practical in order to gain maximum economic impact on as many
credit unions as possible. NCUA anticipates the financial awards
provided to credit unions through the Fund will better enable them to
support the communities in which they operate; providing basic
financial services to low-income residents of these communities,
resulting in more opportunities for the residents to improve their
financial circumstances.
(e) This Part generally establishes the following:
(1) Definitions;
(2) The application process and requirements for qualifying for a
loan from the Fund;
(3) The evaluation process;
(4) How loan funds are to be made available and their repayment;
and
(5) Technical assistance grants to be provided to credit unions.
Sec. 705.2 Definitions.
(a) For purposes of this Part, the following terms shall have the
meanings assigned to them in this section.
(1) Administrator means the office within NCUA to which the Board
has delegated authority to administer the Fund, including the authority
to establish priorities for funding initiatives, receiving and
evaluating applications and making determinations among competing
applications about which applications should be funded.
(2) Application means a form supplied by the NCUA by which a
Qualifying Credit Union may apply for a loan or a technical assistance
grant from the Fund.
(3) Board refers to the National Credit Union Administration Board.
(4) Credit Union means a credit union chartered under the Federal
Credit Union Act or under the laws of any state of the United States.
(5) Fund means the Community Development Revolving Loan Fund.
(6) Loan is an extension of credit from the Fund to a Participating
Credit Union that must be repaid, with interest.
(7) Low-income Members are those members defined in Sec. 701.34 of
this chapter.
(8) Notice of Funding Opportunity, as more fully described in Sec.
705.6 of this Part, means the notice NCUA publishes describing one or
more loan or technical assistance grant programs or initiatives
currently being supported by the Fund and inviting interested
Qualifying Credit Unions to submit applications to participate in the
program(s) or initiative(s).
(9) Participating Credit Union refers to a Qualifying Credit Union
that has submitted an application for a loan or a technical assistance
grant from the Fund that has been approved by NCUA. A Participating
Credit Union shall not be deemed to be an agency, department or
instrumentality of the United States because of its receipt of a
financial award from the Fund.
(10) Program means the Community Development Revolving Loan Fund
Program under which NCUA makes loans and technical assistance grants
available to credit unions.
(11) Qualifying Credit Union means a credit union that may be or
has agreed to be examined by NCUA, with a current low-income
designation pursuant to Sec. 701.34(a)(1) or Sec. 741.204 of this
chapter or, in the case of a state-chartered nonfederally insured
credit union, a low-income designation from a state regulator, made
under appropriate state standards with the concurrence of NCUA.
Services to low-income members must include, at a minimum, share
account and loan services.
(12) Technical Assistance Grant means an award of money from the
Fund to a Participating Credit Union that does not have to be repaid.
Sec. 705.3 Eligibility requirements.
(a) To be eligible to receive an award, in the form of either a
loan or a technical assistance grant from the Fund, a Qualifying Credit
Union must, within the time frames specified in any Notice of Funding
Opportunity, also:
(1) Complete and submit an application; and
(2) Meet the underwriting standards established by NCUA, including
any pertaining to financial viability, as set forth in the application
and any related materials developed by NCUA.
Sec. 705.4 Permissible uses of loan funds.
(a) NCUA may make loans from the Fund to Participating Credit
Unions for various uses. The following is a non-exhaustive list of
examples of permissible uses or projects:
(1) Development of new products or services for members, including
new or expanded electronic banking facilities, share draft programs,
credit card programs, security and disaster recovery programs, or other
operational programs;
(2) Partnership arrangements with community based service
organizations or government agencies;
(3) Loan programs, including, but not limited to, micro business
loans, payday loan alternatives, education loans, and real estate
loans; and
(4) Acquisition, expansion or improvement of office space or
equipment, including branch facilities and ATMs.
(b) In addition to the examples listed in subsection (a) of this
section, NCUA may identify other funding priorities and uses in the
Notice of Funding Opportunity, which is discussed in Sec. 705.6 of
this Part.
Sec. 705.5 Terms and Conditions.
(a) NCUA may make loans, in such amounts and subject to such terms
and conditions as it may determine, from the Fund to Participating
Credit Unions for any of the examples identified in Sec. 705.4 of this
Part or as identified in a particular Notice of Funding Opportunity.
(b) Funding Limits. Loans may be granted in amounts up to $300,000
in the aggregate, depending on the creditworthiness of the Qualifying
Credit Union, financial need, and a demonstrated capability of the
Qualifying Credit Union to provide financial and related services to
its members. NCUA may, however, make loans that exceed $300,000 in
certain circumstances. NCUA will include in the Notice of Funding
Opportunity the particular criteria used to evaluate an application for
a loan that exceeds $300,000.
(c) Recording of a loan. At the discretion of NCUA, a loan will be
recorded by a Participating Credit Union as either a note payable or a
nonmember deposit.
(d) Interest rate. The rate of interest on loans is governed by the
CDRLF Loan Interest Rate Policy, which can be found on NCUA's Web site
of by contacting NCUA's Office of Small Credit Union Initiatives. The
specific interest rate for a particular funding will be announced in
the Notice of Funding Opportunity. The Board will announce changes, if
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any, to the CDRLF Loan Interest Rate Policy and those changes will
apply to loans made under future Notices of Funding Opportunity.
(e) Repayment and maturity. (1) Awards made available through
loans, whether recorded as a note payable or nonmember deposit are in
the form of a loan and must be repaid to NCUA. All loans will be
scheduled for repayment within the shortest time compatible with sound
business practices and the objectives of the Program, but in no case
will the term exceed five years.
(2) Semiannual interest payments (beginning six months after the
initial distribution of a loan) and semiannual principal payments
(beginning one year after the initial distribution of a loan) will be
required.
(f) Acceleration. The terms of each loan agreement will provide for
the immediate acceleration of the unpaid balance for breach or default
in the performance by the Participating Credit Union of the terms or
conditions of the loan. Default and breach will include
misrepresentation; failure to make interest or principal payments;
failure to report; insolvency; and failure, if required by NCUA, to
maintain adequate matching funds for the duration of the loan period.
Other specific causes of default and breach will be identified in the
loan documents between the Participating Credit Union and NCUA. The
unpaid balance will also be accelerated and immediately due if any part
of the loan funds are improperly used or if uninvested loan proceeds
remain unused for an unreasonable or unjustified period of time.
(g) Matching requirements. NCUA may require a Participating Credit
Union to develop and implement a plan to match all or a portion of the
funds represented by loan proceeds. Such requirement will be based on
the financial condition of the Participating Credit Union, which will
be evaluated under criteria contained in the Notice of Funding
Opportunity. Matching funds must be from non-governmental member or
nonmember share deposits. Participating Credit Unions required to
provide matching funds are subject to the following general provisions
and any other conditions in the Notice of Funding Opportunity and
agreements between the Participating Credit Union and the
Administrator:
(1) Generally loan monies made available must be matched by the
Participating Credit Union in an amount equal to the loan amount. Any
loan monies matched by nonmember share deposits are not subject to the
20% limitation on nonmember deposits under Sec. 701.32 of this
Chapter. Participating Credit Unions must maintain the increase in the
total amount of share deposits for the duration of the loan. Once the
loan is repaid, nonmember share deposits accepted to meet the matching
requirement are subject to Sec. 701.32 of this Chapter.
(2) Upon approval of its loan application, and before it meets its
matching requirement, a Participating Credit Union may receive the
entire loan commitment in a single payment. If any funds are withheld,
the remainder of the funds committed will be available to the
Participating Credit Union only after it has documented that it has met
the match requirement.
(3) Failure of a Participating Credit Union to generate the
required match within the time specified in the loan documents may
result in the reduction of the loan proportionate to the amount of
match actually generated. Payment of any additional funds initially
approved may be limited as appropriate to reflect the revised amount of
the loan approved. Any funds already advanced to the Participating
Credit Union in excess of the revised amount of loan approval must be
repaid immediately to NCUA. Failure to repay such funds to NCUA upon
demand may result in the default of the entire loan.
(h) Other terms and conditions pertaining to loans, including but
not necessarily limited to duration, repayment obligations, and
covenants, will be specified in the Notice of Funding Opportunity and
applicable loan documents to be signed by the Participating Credit
Union.
Sec. 705.6 Application and award processes.
(a) Notice of Funding Opportunity. NCUA will publish a Notice of
Funding Opportunity in the Federal Register, on all applicable
government Web sites, and its own Web site, describing the loan and
technical assistance grant programs for the period in which funds are
available. The Notice of Funding Opportunity will announce special
initiatives, the amount of funds available, funding priorities,
permissible uses of funds, funding limits, deadlines, and other
pertinent details. The Notice of Funding Opportunity will also advise
potential applicants on how to obtain an application and any related
materials.
(1) NCUA may supplement the information contained in the Notice of
Funding Opportunity through such other media as it determines
appropriate, including Letters to Credit Unions, direct notices to
Qualifying Credit Unions, and announcements on its Web site.
(b) Application requirements. An application for a loan must
provide information demonstrating the Qualifying Credit Union's sound
financial position and ability to manage its day-to-day business
affairs, including the Qualifying Credit Union's financial projections
and planned use of proceeds consistent with the purpose of the Program,
requirements of this Part, and the Notice of Funding Opportunity.
(1) Applications to participate and qualify for a loan or technical
assistance grant under the Program may be obtained from the National
Credit Union Administration, Community Development Revolving Loan
Program for Credit Unions as outlined in the Notice of Funds
Opportunity.
(2) With respect to loans, NCUA will also require a Qualifying
Credit Union to develop and submit a narrative describing how the
Qualifying Credit Union intends to use the money obtained from the Fund
to enhance the products or services it provides to its membership and
how those enhanced products or services support the membership and
community served by the Qualifying Credit Union. The Notice of Funding
Opportunity may include additional details and requirements.
(3) In addition to those items required in this section, a
Qualifying Nonfederally Insured Credit Union must also include the
following:
(i) A copy of its most recent external audit report;
(ii) Proof of deposit and surety bond insurance which states the
maximum insurance levels permitted by the policies;
(iii) A balance sheet, an income and expense statement, and a
schedule of delinquent loans, for each of the four most recent quarter-
ends;
(iv) A description of any other involvement in existing community
development programs of state and Federal agencies; and
(v) An agreement to be subject to examination by NCUA.
(c) Evaluation and Selection of Qualifying Credit Unions. NCUA will
generally evaluate applications submitted by Qualifying Credit Unions
in accordance with the criteria described in this section. Nothing in
this section, however, precludes NCUA from considering other criteria
included in the Notice of Funding Opportunity that NCUA determines to
be necessary based on the type of funding initiative, economic
environment, or other factors or conditions that warrant the evaluation
of additional or alternative criteria. Generally, complete applications
will be evaluated by NCUA
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to determine if the Qualifying Credit Union satisfies the following:
(1) Financial and Performance. The Qualifying Credit Union must
exhibit a safe and sound financial condition, including a demonstrated
ability to perform the requirements associated with the type of award
being sought and compliance with NCUA's underwriting standards. In this
respect, NCUA will consider the Qualifying Credit Union's long term
financial viability, including absence of indicators suggesting the
Qualifying Credit Union is a candidate for merger, a purchase and
assumption transaction, or conservatorship. NCUA will also consider the
Qualifying Credit Union's compliance with the provisions of any
previous loan or technical assistance grant received. NCUA may also
consider information concerning the Qualifying Credit Union, to which
it already has access, including information obtained through the
examination process and data contained in Call Reports.
(2) Compatibility. NCUA will evaluate whether the stated objectives
to be accomplished through the use of the loan or technical assistance
grant proceeds conform to the broad purposes and rationale underlying
the Fund. Specifically, NCUA will consider whether the award will
enable the Qualifying Credit Union to provide basic financial products
and related services to its members or enhance its capacity to better
serve its members and the community in which it operates. NCUA will
also consider whether the use of the financial award will conform to
any applicable funding priority, special initiative, or special
instruction announced in the Notice of Funding Opportunity.
(3) Feasibility. NCUA will consider the likelihood of the
Qualifying Credit Union being successful in accomplishing its stated
objectives, based on its application and the factors NCUA determines
are relevant.
(4) Examination Information and Concurrence from Regional Director
for Qualifying Federal Credit Unions. NCUA will consider information
and statements provided by NCUA staff or State Supervisory Authority
staff that performed the Qualifying Credit Union's most recent
examination in evaluating the Qualifying Credit Union. NCUA will only
provide a loan or a technical assistance grant to a Qualifying
Federally-insured Credit Union with the concurrence of the Credit
Union's supervising Regional Director. Examination information for
Qualifying State-chartered Credit Unions is discussed in Sec. 705.8 of
this Part.
(d) Requests for additional information. NCUA will make its funding
determinations among the several qualified applications using its
discretion and considering which best meet the priorities and
initiatives established and announced by NCUA. During its evaluation
process, however, NCUA may request a Qualifying Credit Union provide
additional clarifying or technical information to support its
application. NCUA may determine not to provide further consideration of
any application failing to provide additional required information.
(e) Timing. NCUA will announce, in the Notice of Funding
Opportunity, the deadline for Qualifying Credit Unions to submit all
require documentation including the application. Failure to submit all
of the requested information or to submit the information within the
timeframe specified in the Notice of Funding Opportunity may result in
NCUA rejecting the application without further consideration.
(f) Notice of Award and Appeals. The Administrator will make an
initial determination as to whether an application meets NCUA's
standards established by this Part and the Notice of Funding
Opportunity. The Administrator will provide written notice to a
Qualifying Credit Union as to whether or not it has qualified for a
loan or technical assistance grant under this Part. A Qualifying Credit
Union whose application has been denied for failure of a qualification
may appeal that decision to the NCUA Board in accordance with the
following:
(1) Within thirty days of its receipt of a notice of non-
qualification, a credit union may appeal the Administrator's decision
to the NCUA Board. The scope of the NCUA Board's review is limited to
the threshold question of qualification and not the issue of whether,
among qualified applicants, a particular loan or technical assistance
grant is funded.
(2) The foregoing procedure shall apply only with respect to
applications received by NCUA during an open period in which funds are
available and NCUA has called for applications. Any application
submitted by an applicant during a period in which NCUA has not called
for applications will be rejected, except for those applications
submitted under Sec. 705.7 if this section, and such rejection shall
not be subject to appeal or review by the NCUA Board.
(g) Disbursement. Before NCUA will disburse a loan, the
Participating Credit Union must sign the loan agreement, promissory
note, and any other loan related documents. NCUA may, in its
discretion, choose not to disburse the entire amount of the loan at
once.
Sec. 705.7 Urgency.
(a) On an emergency basis, subject to funds availability, NCUA may
consider a funding request from a Qualifying Credit Union experiencing
an unplanned or unexpected expense that the Qualifying Credit Union is
unable to meet with its own resources. The Qualifying Credit Union must
demonstrate a compelling need for immediate action or attention without
which its continued operations would be threatened or severely
disrupted. NCUA, in its discretion, will determine whether the
situation constitutes an emergency and if the Qualifying Credit Union
is required to submit any additional information to show why the funds
are needed on an emergency basis. The Administrator will determine and
substantiate any reason to expedite funding in such case. Requests for
loans or technical assistance grants under this section will be
addressed on an ongoing basis and are outside the scope of the Notice
of Funding Opportunity. Technical assistance grants and loans provided
on this basis must still exhibit a purpose consistent with the goals of
the Fund. Loans and technical assistance grants made under this section
are not anticipated to be a regular source of funding for any one or
more Qualifying Credit Unions.
Sec. 705.8 Qualifying state-chartered credit unions.
(a) A Qualifying State-chartered Credit Union that has submitted an
application to NCUA for participation must obtain written concurrence
from its respective state regulatory authority before NCUA will approve
its application. A Qualifying State-chartered Credit Union must also
make copies of its state examination reports available to NCUA and must
agree to examination by NCUA for the limited purpose of compliance with
this Part. An agreement to examination under this section is in
addition to the requirement in Sec. 705.6(b)(3)(v) of this Part, which
requires non-federally insured, state-chartered credit unions to agree
to be examined by NCUA as a condition of qualification under the
Program.
Sec. 705.9 Reporting and monitoring.
(a) General. NCUA's policy is to monitor Participating Credit
Unions to assure that loan and technical assistance grant funds awarded
under this Part have been used in accordance with their intended
purposes and to determine whether anticipated outcomes have been
achieved. Particular emphasis will
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be placed on reviewing loan funds earmarked for programs or initiatives
proposed by the Participating Credit Union to determine if the funds
have been used as represented and whether the program or initiative has
had the impact anticipated by the Participating Credit Union.
(b) Reporting. A Participating Credit Union must complete and
submit all required reports, at such times and in such formats as NCUA
will direct. Such reports must describe how the Participating Credit
Union has used the loan or technical assistance grant proceeds and the
results it has obtained, in relation to the programs, policies or
initiatives identified by the Participating Credit Union in its
application. In addition, the Participating Credit Union's board of
directors must report on the progress of providing needed community
services to the Participating Credit Union's members once a year,
either at the annual meeting or in a written report sent to all
members. The Participating Credit Union must also submit the written
report or a summary of the report given at the annual meeting to NCUA.
NCUA may request additional information as it determines appropriate.
(c) Monitoring. At its discretion, for verification purposes, NCUA
may elect to review information concerning Participating Credit Unions,
to which it already has access, including information obtained through
the examination process and data contained in Call Reports, as part of
its evaluation of the effectiveness of the loan and technical
assistance grant programs.
Sec. 705.10 Technical assistance grants.
(a) Technical assistance grants may be funded in such amounts, and
in accordance with such terms and conditions, as NCUA may establish. In
general, technical assistance grants are provided on a reimbursement
basis, to cover expenditures approved in advance by NCUA and supported
by receipts evidencing payment by the Participating Credit Union.
(1) Permissible uses of technical assistance grant funds. Sections
705.4(a) and (b) of this part also apply to technical assistance grants
made under this section and provide examples and other information with
respect to the permissible use of funds from the CDRLF. In addition,
technical assistance grants generally should enhance and support the
Participating Credit Union's internal capacity to serve its members and
better enable it to provide financial services to the community in
which the Participating Credit Union is located.
(2) Appeals of technical assistance grant reimbursement denials.
Notwithstanding Sec. 705.6(e), pursuant to NCUA Interpretative Ruling
and Policy Statement 11-1, any Participating Credit Union may appeal a
determination of the Administrator to deny a technical assistance grant
reimbursement to NCUA's Supervisory Review Committee. All appeals of
technical assistance grant reimbursements must be submitted to the
Supervisory Review Committee within 30 days from the date of the
denial. The decisions of the Supervisory Review Committee are final and
are not appealable to the NCUA Board.
[FR Doc. 2011-12828 Filed 5-24-11; 8:45 am]
BILLING CODE 7535-01-P