This rule is issued under Marketing Order No. 946, as amended (7 CFR part 946), regulating the handling of Irish potatoes grown in Washington, hereinafter referred to as the “order.” The order is effective under the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act.”

The Department of Agriculture (USDA) is issuing this rule in conformance with Executive Order 12866.

Under the order, Washington potato handlers are subject to assessments, which provide funds to administer the order. Assessment rates issued under the order are intended to be applicable to all assessable Washington potatoes for the entire fiscal period, and continue indefinitely until amended, suspended, or terminated. The Committee's fiscal period begins on July 1, and ends on June 30.

In an interim rule published in theFederal Registeron April 1, 2011, and effective on April 2, 2011, (76 FR 18001, Doc. No. AMS-FV-11-0012, FV11-946-2 IR), § 946.248 was amended by decreasing the assessment rate established for Washington potatoes for the 2011-2012 and subsequent fiscal periods from $0.0035 to $0.003 per hundredweight. The decrease in the per hundredweight assessment rate allows the Committee to reduce its financial reserve while still providing adequate funding to meet program expenses.

Pursuant to requirements set forth in the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), the Agricultural Marketing Service (AMS) has considered the economic impact of this rule on small entities. Accordingly, AMS has prepared this final regulatory flexibility analysis.

The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions in order that small businesses will not be unduly or disproportionately burdened. Marketing orders issued pursuant to the Act, and the rules issued thereunder, are unique in that they are brought about through group action of essentially small entities acting on their own behalf.

There are 43 handlers of Washington potatoes subject to regulation under the order and approximately 267 producers in the regulated production area. Small agricultural service firms are defined by the Small Business Administration (13 CFR 121.201) as those having annual receipts of less than $7,000,000, and small agricultural producers are defined as those having annual receipts of less than $750,000.

During the 2009-2010 marketing year, the Committee reports that 9,765,131 hundredweight of Washington potatoes were shipped into the fresh market. Based on average f.o.b. prices estimated by the USDA's Economic Research Service and Committee data on individual handler shipments, the Committee estimates that 42, or approximately 98 percent of the handlers, had annual receipts of less than $7,000,000.

In addition, based on information provided by the National Agricultural Statistics Service, the average producer price for Washington potatoes for 2010 was $7.55 per hundredweight. The average gross annual revenue for the 267 Washington potato producers is therefore calculated to be approximately $276,130. In view of the foregoing, the majority of Washington potato producers and handlers may be classified as small entities.

This rule continues in effect the action that decreased the assessment rate established for the Committee and collected from handlers for the 2011-2012 and subsequent fiscal periods from $0.0035 to $0.003 per hundredweight of potatoes. The Committee unanimously recommended 2011-2012 expenditures of $40,050 and an assessment rate of $0.003 per hundredweight of potatoes. The assessment rate of $0.003 is $0.0005 lower than the rate previously in effect. Applying the $0.003 per hundredweight assessment rate to the Committee's 10,000,000 hundredweight crop estimate should provide $30,000 in assessment income. Thus, income derived from handler assessments, along with interest income and funds from the Committee's monetary reserve will be adequate to cover the budgeted expenses. This action will allow the Committee to reduce its financialreserve while still providing adequate funding to meet program expenses.

This rule continues in effect the action that decreased the assessment obligation imposed on handlers. Assessments are applied uniformly on all handlers, and some of the costs may be passed on to producers. However, decreasing the assessment rate reduces the burden on handlers, and may reduce the burden on producers.

In addition, the Committee's meeting was widely publicized throughout the Washington potato industry and all interested persons were invited to attend the meeting and participate in Committee deliberations on all issues. Like all Committee meetings, the January 26, 2011, meeting was a public meeting and all entities, both large and small, were able to express views on this issue.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the order's information collection requirements have been previously approved by the Office of Management and Budget (OMB) and assigned OMB No. 0581-0178, Vegetable and Specialty Crops. No changes in those requirements as a result of this action are anticipated. Should any changes become necessary, they would be submitted to OMB for approval.

This action imposes no additional reporting or recordkeeping requirements on either small or large Washington potato handlers. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.

USDA has not identified any relevant Federal rules that duplicate, overlap or conflict with this rule.

Comments on the interim rule were required to be received on or before May 31, 2011. No comments were received. Therefore, for reasons given in the interim rule, we are adopting the interim rule as a final rule, without change.

To view the interim rule, go to:http://www.regulations.gov/#!documentDetail;D=AMS-FV-11-0012-0001.

This action also affirms information contained in the interim rule concerning Executive Orders 12866 and 12988, and the E-Gov Act (44 U.S.C. 101).

After consideration of all relevant material presented, it is found that finalizing the interim rule, without change, as published in theFederal Register(76 FR 18001, April 1, 2011) will tend to effectuate the declared policy of the Act.

The Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691 et seq., makes it unlawful for creditors to discriminate in any aspect of a credit transaction on the basis of sex, race, color, religion, national origin, marital status, or age (provided the applicant has the capacity to contract), because all or part of an applicant's income derives from public assistance, or because an applicant has in good faith exercised any right under the Consumer Credit Protection Act. The Board's Regulation B (12 CFR part 202) implements the ECOA.

Section 701(d) of the ECOA generally requires a creditor to notify a credit applicant against whom it has taken an adverse action. Under section 701(d)(6) of the ECOA, an adverse action generally means a denial or revocation of credit, a change in the terms of an existing credit arrangement, or a refusal to grant credit in substantially the amount or on substantially the terms requested.

Section 615(a) of the FCRA, 15 U.S.C. 1681m(a), also requires a person to provide an adverse action notice when the person takes an adverse action based in whole or in part on information in a consumer report. The definition of adverse action in section 603(k) of the FCRA incorporates, for purposes of credit transactions, the definition of adverse action under the ECOA. The adverse action provisions in both the ECOA and the FCRA require certain disclosures to be given to consumers.

The ECOA adverse action provisions are implemented in Regulation B. There are no implementing regulations for the adverse action requirements of section 615(a) of the FCRA. However, as explained in staff commentary that accompanies Regulation B, certain model notices in Regulation B include the content required by both the ECOA and the FCRA, so that persons can use the model notices to comply with the adverse action requirements of both statutes.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was signed into law. Public Law 111-203, 124 Stat. 1376. Section 1100F of the Dodd-Frank Act amends section 615(a)of the FCRA to require creditors to disclose on FCRA adverse action notices a credit score used in taking any adverse action and information relating to that score. The effective date of these amendments is July 21, 2011.1

On March 15, 2011, the Board proposed to amend the model adverse action notices in Regulation B that incorporate the content requirements of FCRA section 615(a) to reflect the new content requirements added by section 1100F of the Dodd-Frank Act. 76 FR 13896. The comment period closed on April 14, 2011.2 The Board received more than 30 comment letters regarding the proposal from banks and other creditors, industry trade associations, consumer groups, individual consumers, and others. After considering the comments received, pursuant to its authority in section 703(a) of the ECOA, the Board is issuing revised model adverse action notices substantially as proposed. As revised, the adverse action model notices in Regulation B are consistent with the requirements of section 1100F of the Dodd-Frank Act to help facilitate compliance with that provision when it becomes effective.

In 2007, the Board redesignated § 202.17 of Regulation B as § 202.16. See 72 FR 63451, November 9, 2007. However, a reference to § 202.17 in § 202.12(b)(4) was not revised to reflect the change. The Board is correcting the citation in § 202.12(b)(4) so that it refers to § 202.16.

Under section 701(d) of the ECOA, a creditor must provide to applicants against whom adverse action is taken either: (1) A statement of reasons for taking the adverse action as a matter of course; or (2) a notification of adverse action which discloses the applicant's right to a statement of reasons within thirty days after receipt by the creditor of a request made by the applicant within sixty days after the written notification. Section 615(a) of the FCRA requires a person to provide, in an adverse action notice, information regarding the consumer reporting agency that furnished the consumer report used in taking the adverse action. It also requires a person to disclose that a consumer has a right to a free consumer report and a right to dispute the accuracy or completeness of any information in a consumer report.

Section 1100F of the Dodd-Frank Act amends section 615(a) of the FCRA to require that creditors disclose additional information on FCRA adverse action notices. The statute generally requires that a FCRA adverse action notice include: (1) A numerical credit score used in making the credit decision; (2) the range of possible scores under the model used; (3) up to four key factors that adversely affected the consumer's credit score (or up to five factors if the number of inquiries made with respect to that consumer report is a key factor); (4) the date on which the credit score was created; and (5) the name of the person or entity that provided the credit score.

As explained in paragraph 2 of Appendix C to Part 202, model notices C-1 through C-5 may be used to comply with the adverse action provisions of both the ECOA and the FCRA. The Board is amending model notices C-1 through C-5 substantially as proposed to incorporate the additional content requirements prescribed by section 1100F of the Dodd-Frank Act.

The Board proposed to revise Forms C-1 through C-5 to include, as applicable, a statement that the creditor obtained the consumer's credit score from a consumer reporting agency named in the notice, and used the score in making the credit decision. The proposed model notices also contained language stating that a credit score is a number that reflects the information in the consumer's consumer report, and that the consumer's credit score can change, depending on how the information in the consumer report changes. The proposed model notices provided space for the creditor to include the content required under section 1100F of the Dodd-Frank Act that is specific to the consumer. This content includes: the consumer's credit score, the date the credit score was created, the range of possible credit scores under the model used, and up to four key factors that adversely affected the consumer's credit score (or up to five factors if the number of inquiries made with respect to that consumer report is a key factor). The Board also proposed additional changes to Form C-3 for clarity, which are discussed in more detail below.

In the proposal, the Board noted that section 1100F of the Dodd-Frank Act requires a creditor to provide, if applicable, a consumer's credit score and related information to a consumer, regardless of whether the creditor provides a statement of specific reasons for taking the adverse action or a disclosure of the applicant's right to a statement of specific reasons for an adverse action. Therefore, a creditor would not comply with the adverse action provisions in section 1100F by providing the required FCRA disclosures only if a consumer responds with a request for a statement of specific reasons for an adverse action. As a result, proposed Form C-5 reflected the requirement to provide the disclosures required by section 615(a) of the FCRA, including the consumer's credit score and key factors that adversely affected the consumer's credit score, at the time a creditor provides a disclosure of the applicant's right to a statement of specific reasons for the adverse action.

The Board also proposed to amend comment 9(b)(2)-9 to clarify that the FCRA requires a creditor to disclose, as applicable, a credit score it used in taking adverse action along with related information, including up to four key factors that adversely affected the consumer's credit score (or up to five factors if the number of inquiries made with respect to that consumer report is a key factor). Proposed comment 9(b)(2)-9 also would have clarified that disclosing the key factors that adversely affected the consumer's credit score under the FCRA does not satisfy the ECOA requirement to disclose specific reasons for denying or taking other adverse action on an application or extension of credit.

In addition, the Board proposed to amend paragraph 2 of Appendix C to discuss the new disclosure requirements set forth in section 1100F of the Dodd-Frank Act. Paragraph 2 of Appendix C discusses the disclosure requirements of section 615 of the FCRA that are contained in Forms C-1 through C-5. Paragraph 2 explains that Form C-1 contains the disclosures required by FCRA sections 615(a) and (b), and Forms C-2 through C-5 contain only the disclosures required by FCRA section 615(a).

Paragraph 2 as revised would also state that the combined ECOA-FCRA disclosures in Form C-1 through Form C-5 must state that a creditor obtained information from a consumer reporting agency that was considered in the credit decision. Consistent with section 1100F of the Dodd-Frank Act, the Boardproposed to revise the paragraph to state that the combined disclosure must also include, as applicable, a credit score used in taking adverse action along with related information.

The Board received several comments on the proposed changes to the model forms, as discussed below. The Board did not receive comments on the proposed changes to comment 9(b)(2)-9 or paragraph 2 of Appendix C. For the reasons discussed below, the final rule largely adopts the proposed changes to Appendix C and model forms C-1 through C-5. For clarity, a revision has been made pertaining to the optional disclosure of contact information for the entity that provided the credit score. Comment 9(b)(2)-9 is also adopted as proposed.

Contact information for the entity that provided the credit score.Several industry commenters asked that the Board add language to the model forms directing the consumer to the consumer reporting agency for more information about the credit score. The commenters believed that consumers may otherwise contact creditors with questions about their credit score, even if creditors are not in a position to answer those questions.

The Board is adding optional language to the model forms that creditors may use to direct the consumer to the entity (which may be a consumer reporting agency or the creditor itself, for a proprietary score that meets the definition of a credit score) that provided the credit score for any questions about the credit score, along with the entity's contact information. Because this language is optional, creditors may use or not use the additional language without losing the safe harbor provided under Regulation B and the ECOA. Paragraph 2 of Appendix C is revised to clarify that the disclosure of the entity's contact information is optional.

Disclosure of source of credit score information.Some industry commenters expressed concern about the reference to “this consumer reporting agency” in the model form. One commenter requested that the Board provide flexibility to creditors to replace the general reference to “this consumer reporting agency” with a more specific reference to the name of the particular consumer reporting agency from which the creditor obtained the score being disclosed. This commenter noted that creditors need flexibility when a creditor bases its decision on reports from multiple consumer reporting agencies and only one score is disclosed on the adverse action notice.

A creditor receives a safe harbor for compliance with Regulation B for proper use of the model forms. See paragraph 5 of Appendix C. Paragraph 3 of Appendix C notes that the model forms are illustrative, however, and may not be appropriate for all creditors. The instructions provide examples of instances where a creditor would need to modify the model forms to ensure that they are accurate for the creditor's purposes. Regulation B provides creditors flexibility to change the model forms as applicable and still receive the safe harbor provided in Regulation B, although creditors must make proper use of the model forms.

When a creditor has based its adverse action decision on reports from multiple consumer reporting agencies, the Board thus expects that the creditor would replace the general reference to “this consumer reporting agency” with a more specific reference to the name of the consumer reporting agency from which the creditor obtained the score being disclosed, to avoid ambiguity and consumer confusion. Moreover, section 1100F of the Dodd-Frank Act requires disclosure of the source of the credit score. The Board does not believe that a general reference to “this consumer reporting agency” would satisfy the requirements of the statute when a creditor has based its adverse action decision on reports from multiple consumer reporting agencies.

Disclosure that credit score has been used.Model forms C-1 through C-5 contain the following language: “We also obtained your credit score from this consumer reporting agency and used it in making our credit decision.” Some industry commenters requested that the Board revise this language to allow a creditor in all cases to disclose that the creditor “may have used” the credit score in making the credit decision because the commenters believe there are circumstances where it may be ambiguous whether a creditor used a credit score. For example, one commenter stated that if a creditor judgmentally evaluates a joint application, it might not be clear whether the underwriter used one of the co-applicants' credit score. To ensure compliance with section 1100F of the Dodd-Frank Act, these commenters noted that many creditors may prefer to disclose the applicant's credit score (along with related information) whenever they receive a score as part of the application process. To facilitate this, the commenters suggested that the Board change the new model language in Appendix C to indicate that the creditor “may have used” the credit score in making the credit decision. These commenters asserted that this revised language would allow creditors to provide credit score disclosures even if there is some ambiguity regarding whether a credit score was used in the credit decision without raising the question of whether the model language is accurate.

The model forms do not include the suggested change. The commenters' suggestion would result in all consumers receiving a disclosure stating that their credit score “may” have been used. The Board believes that modifying the language in model forms C-1 through C-5 as suggested by commenters would likely confuse consumers, would not be consistent with the statute, and would substantially decrease the value of the disclosures for consumers. Creditors may still use the language in the model form stating that the creditor “used” a credit score (instead of “may have used”), even if there is some ambiguity regarding whether a credit score obtained by the creditor was considered in a judgmental evaluation. As discussed further below, the Board does not believe that section 1100F of the Dodd-Frank Act sets a high threshold for what constitutes use of a credit score.

Use of a credit score.In some cases, a creditor that is required to provide an adverse action notice under the FCRA may use a consumer report, but not a credit score, in taking the adverse action. Under section 1100F of the Dodd-Frank Act, a person is not required to disclose a credit score and related information if a credit score is not used in taking the adverse action. Therefore, the proposed amendments to Forms C-1 through C-5 generally were applicable only if a credit score was used in taking an adverse action. Some industry commenters stated that creditors should not be required to disclose credit score information when a creditor obtains but does not use a credit score, or when the credit score was not the primary cause of the adverse action decision.

Section 1100F of the Dodd-Frank Act requires disclosure if a credit score was used in taking adverse action. A creditor that obtains a credit score and takes adverse action is required to disclose that score, unless the credit score played no role in the adverse action determination. If the credit score was a factor in the adverse action decision, even if it was not a significant factor, the creditor will have used the credit score for purposes of section 1100F of the Dodd-Frank Act.

A trade association representing motor vehicle dealers submitted acomment letter asserting that in certain three-party transactions where the dealer is the original creditor, the dealer should not be subject to the requirements of section 1100F, because a third party that purchases the debt obligation from the dealer obtains the creditor score, rather than the dealer. This issue is outside the scope of this rulemaking under Regulation B and the ECOA, because it seeks an interpretation of the FCRA as it applies to a particular type of transaction. This issue is addressed, however, in the FCRA rulemaking under section 1100F of the Dodd-Frank Act published elsewhere in today'sFederal Registernotice.

Disclosure that no credit score is available.In some cases, a creditor may try to obtain a credit score for an applicant, but the applicant may have insufficient credit history for the consumer reporting agency to generate a credit score. One commenter asked that the creditor have the option to provide the applicant notice that no credit score was available from a consumer reporting agency in the space available for the credit information disclosure.

Section 1100F only applies when a creditor uses a credit score in taking adverse action. The creditor cannot disclose credit score information if an applicant has no credit score. Nothing in section 1100F of the Dodd-Frank Act prevents a creditor, however, from providing the applicant notice that no credit score was available from a consumer reporting agency, although section 1100F does not require such notice.

Key factors.Several industry commenters argued that creditors should have flexibility to disclose only factors that substantially affected the credit score. They asserted that requiring creditors to disclose the top four key factors (or five factors if the number of inquiries made with respect to that consumer report is a key factor) is burdensome and expensive for creditors, is confusing and will be of limited value to consumers. In contrast, one commenter stated that creditors should be required to disclose all factors that affected the credit score, not just the top four (or five) key factors.

Section 1100F of the Dodd-Frank Act expressly requires disclosure of the top four (or five) key factors that adversely affected the credit score, whether or not the effect was substantial. A person taking adverse action must provide the consumer the information set forth in subparagraphs (B) through (E) of section 609(f)(1) of the FCRA. Section 609(f)(1)(C) of the FCRA requires disclosure of all of the key factors that adversely affected the credit score in the model used, up to four, subject to section 609(f)(9) of the FCRA, which states that if the key factors that adversely affected the credit score include the number of inquiries made with respect to the consumer report, the “number of inquiries” must be disclosed as a key factor.

An industry commenter requested clarification that a creditor is permitted to rely on and disclose the key factors provided by consumer reporting agencies, without verification by the creditor. The commenter further asked for guidance in the event that a consumer reporting agency does not provide the key factors with the score.

Under section 615(a) of the FCRA as amended by section 1100F of the Dodd-Frank Act, the person taking adverse action is responsible for providing the credit score disclosure, including the key factors adversely affecting the credit score. If a creditor is using a credit score purchased from a consumer reporting agency, the consumer reporting agency is in the best position to identify the key factors that affected the score, and the creditor could rely on that information in its disclosure to consumers. The Board acknowledges, however, that the contractual arrangements between creditors and consumer reporting agencies may vary as to how creditors will receive the credit score information necessary to comply with section 1100F. The imposition of requirements on consumer reporting agencies is not within the scope of this rulemaking under the ECOA.

The proposed amendment to comment 9(b)(2)-9 clarified that disclosing the key factors that adversely affected the consumer's credit score does not satisfy the ECOA requirement to disclose specific reasons for denying or taking other adverse action on an application or extension of credit. Some industry commenters suggested that creditors only disclose either the key factors adversely affecting the consumer's credit score or the specific reasons for the adverse action decision, but not both. Other industry commenters asked that creditors be permitted to provide the list of key factors or specific reasons only once when the key factors that adversely affected the consumer's credit score are the same as the specific reasons for taking adverse action. Commenters suggested making a cross-reference to the first list rather than providing a second list.

As explained in the proposed rule, the Board recognizes that a key factor(s) that adversely affected the consumer's credit score may be the same as a specific reason(s) for denying credit or taking other adverse action. However, some specific reasons for taking adverse action may be unrelated to a consumer's credit score, such as reasons related to the consumer's income, employment, or residency. Therefore, the Board continues to believe the disclosure of both the key factors that adversely affected the consumer's credit score and the specific reasons for denying credit or taking other adverse action is necessary to fulfill the separate requirements of the ECOA and the FCRA. The Board believes providing separate lists, and thus distinguishing factors that adversely affected the credit score from reasons for the adverse action determination, will be more useful and clearer for consumers.

Number of inquiries.Several industry commenters suggested that creditors not be required to disclose the “number of inquiries” as a key factor that adversely affected the credit score if the number of inquiries is not one of the top four key factors. In these cases, the commenters said that the effect of the number of inquiries on the credit score is marginal, so that disclosing the “number of inquiries” as a key factor may be confusing to consumers.

As discussed above, section 609(f)(9) of the FCRA states that if the number of inquiries is a key factor that adversely affected the consumer's credit score, that factor must be disclosed pursuant to section 609(f)(1)(C) of the FCRA, without regard to the numerical limitation. The FCRA accordingly requires disclosure of the “number of inquiries” as a key factor, regardless of whether it is one of the top four key factors.

In addition to the content added to each of Forms C-1 through C-5, the Board proposed to amend Form C-3 for clarity. Form C-3 is a model notice that can be used by creditors that use a proprietary credit scoring system in taking adverse action. Proprietary scores are those developed by or for a particular creditor, as opposed to those developed by consumer reporting agencies or by a scoring company for use by multiple creditors. In the proposal, the Board explained that discussing two different types of credit scoring systems on Form C-3 could be confusing for consumers.

The Board proposed to amend Form C-3 to clarify the differences between a proprietary score and a credit score obtained from a consumer reporting agency. The proposed form allowed creditors to remove the reference to credit scoring in the title of the form. The proposed text permitted creditors toclarify that the consumer's application was processed by a system that assigns a numerical value to the various items of information the creditor considers when evaluating the consumer's application, rather than a credit scoring system. The proposed form also added topic headings to help distinguish a proprietary score from a credit score obtained from a consumer reporting agency when both types of scores are used in making the credit decision. As explained in the supplemental information to the proposal, a person may amend, at its option, Form C-3 to remove the references to a credit scoring system and add the additional headings, even if the creditor did not use both a proprietary score and a credit score obtained from a consumer reporting agency in taking adverse action. Form C-3 should help distinguish proprietary scores from credit scores obtained from consumer reporting agencies, even if both scores are not used in taking adverse action. For the reasons discussed below, the final rule adopts these additional changes to Form C-3.

Proprietary scores.Several industry commenters specifically asked for guidance on when a proprietary score would be deemed a credit score for purposes of disclosure under section 1100F of the Dodd-Frank Act. These commenters also asked for clarification on what information a creditor should disclose under section 1100F when a creditor uses a proprietary score in taking adverse action. Some industry commenters indicated that a proprietary score should not be required to be disclosed under section 1100F of the Dodd-Frank Act because Congress intended for this provision to apply only to credit scores that are obtained from consumer reporting agencies, and disclosing proprietary scores would be confusing to consumers. Consumer advocates suggested that all proprietary scores, in particular credit-based insurance scores, be subject to disclosure under section 1100F.

“Credit score” for purposes of section 1100F of the Dodd-Frank Act is defined to have the same meaning as in section 609(f)(2)(A) of the FCRA, 15 U.S.C. 1681g(f)(2)(A). Specifically, section 609(f)(2)(A) of the FCRA defines a credit score to mean “a numerical value or a categorization derived from a statistical tool or modeling system used by a person who makes or arranges a loan to predict the likelihood of certain credit behaviors, including default.” Accordingly, scores not used to predict the likelihood of certain credit behaviors, however, such as insurance scores or scores used to predict the likelihood of false identity, are not credit scores by definition, and thus are not required to be disclosed.

Most credit scores that meet the FCRA definition are scores that a creditor obtains from a consumer reporting agency. Section 609(f)(2)(A) of the FCRA specifically excludes some—but not all—proprietary scores. Some lenders develop their own “proprietary” scores that may be based on one or more factors other than information in the consumer's credit report. For example, the definition of credit score does not include any mortgage score or rating of an automated underwriting system that considers one or more factors in addition to credit information, including the loan-to-value ratio, the amount of down payment, or the financial assets of a consumer.

If a creditor uses a proprietary score that is based on one or more factors that are not information obtained from a consumer reporting agency, this proprietary score is not a credit score for purposes of section 1100F of the Dodd-Frank Act and thus does not need to be disclosed to the consumer. However, if the proprietary score is the basis for the adverse action, the creditor would be required to disclose the reasons the consumer did not score well compared to other applicants.See§ 202.9(a)(2)(i). The creditor may disclose those reasons in the “Reasons for Denial of Credit” section of Form C-3.

If a creditor uses a proprietary score that does not meet the definition of a credit score for purposes of section 609(f)(2)(A) of the FCRA and does not use a credit score from a consumer reporting agency, the creditor would not be required to comply with section 1100F of the Dodd-Frank Act, because the creditor would not have used a credit score, as defined by section 609(f)(2)(A) of the FCRA, in taking any adverse action. In that case, a creditor may use Form C-3, deleting the heading and information about the consumer's credit score. A creditor may amend Form C-3, at its option, to add the additional headings and remove the references to a credit scoring system, even through the creditor did not use a credit score in taking adverse action. Form C-3 should help distinguish proprietary scores from credit scores obtained from consumer reporting agencies, even if both scores are not used in taking adverse action.

If the creditor uses both a proprietary score that does not meet the definition of a credit score and a credit score from a consumer reporting agency in taking adverse action, the creditor is only required to disclose the credit score from the consumer reporting agency under section 1100F of the Dodd-Frank Act. The creditor may use the “Information About Your Credit Score” section of Form C-3 to disclose the credit bureau score. Likewise, if a creditor uses a credit score from a consumer reporting agency as an input to a proprietary score but the proprietary score itself is not a credit score as defined in section 609(f)(2)(A) of the FCRA, the creditor would disclose the credit score from the consumer reporting agency per the requirements of section 1100F of the Dodd-Frank Act. Again, the creditor may use the “Information About Your Credit Score” section of Form C-3 to disclose the credit bureau score.

In contrast, a creditor in taking adverse action may have used a proprietary score that only includes information obtained from a consumer reporting agency. In that case, the proprietary score would be a credit score under section 609(f)(2)(A) of the FCRA. In such cases, the creditor is required to comply with section 1100F of the Dodd-Frank Act and may use Form C-3. As noted in paragraph 3 of Appendix C, the model forms are illustrative and may not be appropriate for all creditors. Creditors should thus modify Form C-3 as necessary. Specifically, the creditor should modify the “Information about Your Credit Score” section in Form C-3 to reflect that the creditor did not obtain a credit score from a consumer reporting agency, but rather used a proprietary score that met the definition of a credit score under section 609(f)(2)(A) of the FCRA in taking adverse action. The creditor should disclose the value of the proprietary score, the date, the range of proprietary scores, and the key factors adversely affecting the consumer's proprietary score.

Commenters also asked for guidance on what information to disclose under section 1100F of the Dodd-Frank Act when a creditor uses both a proprietary score that meets the definition of a credit score, and a credit score from a consumer reporting agency in taking adverse action. If the proprietary score is the basis for the adverse action, under Regulation B the creditor would be required to disclose the reasons the consumer did not score well compared to other applicants, for the proprietary score. See § 202.9(a)(2)(i). The creditor may disclose those reasons in the “Reasons for Denial of Credit” section of Form C-3. In addition, under the FCRA the creditor must disclose one of the scores that it used in taking adverse action and may do so in the “Information About Your Credit Score” section in Form C-3. If the creditor chooses to disclose the proprietaryscore, it would amend Form C-3 as discussed above. If the creditor chooses to disclose the credit score from a consumer reporting agency, the creditor would disclose the value of the credit score, the date, the range of credit scores, and the key factors adversely affecting the consumer's credit score.

Other comments on Form C-3.One commenter highlighted language in Form C-3 that describes a proprietary score as based on the repayment histories of a large number of the creditor's consumers. The commenter thought it potentially misleading to indicate that a proprietary score is only based on repayment histories rather than on an evaluation of different categories. The commenter asked that the Board revise Form C-3 so that consumers clearly understand the difference between proprietary and other scores.

This issue is outside the narrow scope of this rulemaking to revise the model forms consistent with section 1100F of the Dodd-Frank Act. Moreover, the model forms are illustrative and may not be appropriate for all creditors. See paragraph 3 of Appendix C. The instructions to the model forms provide examples of when a creditor should amend the forms to ensure that they accurately reflect the creditor's actual practices. See paragraph 4 of Appendix. If a proprietary score is not solely based on the repayment histories of a large number of the creditor's consumers, the creditor can amend the language to describe what the proprietary score is based on. Further, Form C-3 includes a disclosure of the principal reasons why a consumer's proprietary score is lower than the scores for the creditor's other consumers. This list of reasons may provide consumers with a fuller understanding of the difference between proprietary and other scores.

As discussed above, the Board proposed to revise Forms C-1 through C-5 to incorporate disclosures required by section 1100F of the Dodd-Frank Act and include, as applicable, a statement that the creditor obtained the consumer's credit score from a consumer reporting agency named in the notice, and used the score in making the credit decision. The proposed model notices also stated that a credit score is a number that reflects the information in the consumer's consumer report, and that the consumer's credit score can change, depending on how the information in the consumer report changes. The proposed model notices provided space for the creditor to include the content required under section 1100F of the Dodd-Frank Act that is specific to the consumer. This content includes: The consumer's credit score, the date the credit score was created, the range of possible credit scores under the model used, and up to four key factors that adversely affected the consumer's credit score (or up to five factors if the number of inquiries made with respect to that consumer report is a key factor).

The Board proposed to include these new disclosures primarily in a narrative format. In addition, the Board proposed to add this additional information to the end of the model forms, after information related the reasons for why adverse action was taken, and a statement that the creditor obtained information from a consumer reporting agency.

The Board received several comments on the format of the proposed model forms, as discussed in more detail below. For the reasons discussed below, the final rule retains the format of the credit score information in the model forms, as proposed.

Order of content.An industry commenter asked that the credit score information precede information regarding the consumer report in the model forms. The final rule retains the order of the content of the model forms as proposed. The Board believes that it is appropriate to disclose the information related to consumer reports first because the primary purpose of the adverse action notices is to alert consumers that adverse action was taken as a result of their consumer reports.

Further, in the proposed format the content logically progresses from more general consumer report information to more specific credit score information. In addition, because a creditor may still use Forms C-1 through C-5 when the creditor does not use the consumer's credit score in taking adverse action, providing the credit score information after the consumer report information will promote ease of use for creditors. Because the credit score information comes at the end of Forms C-1 through C-5, it may be easier for a creditor to delete that information from the forms in cases where the creditor did not use a credit score in taking adverse action.

Disclosing credit score information on a separate document.Several industry commenters requested a model form that consumer reporting agencies could use to provide creditors the credit score information needed for adverse action notices under section 1100F of the Dodd-Frank Act. These commenters asked that creditors be permitted to attach the consumer reporting agency's form to their adverse action notices, and provide both documents to the consumer. These commenters did not believe that the creditor should be required to integrate the credit score information into its adverse action notice.

Section 615(a)(1) of the FCRA requires a creditor to provide notice of adverse action to consumers against whom it takes adverse action based in whole or in part on information contained in a consumer report. Section 1100F of the Dodd-Frank Act amended Section 615(a) to require a creditor to provide such consumers credit score information. Providing a form with credit score information separately from an adverse action notice does not appear to be consistent with the legislation.

Use of graphs or table formats.Some industry commenters requested that creditors be permitted to use a graph or table format to provide the information in the model forms without losing the safe harbor for compliance with Regulation B. These commenters asserted that graphs, tables, and other visual devices may be clearer and more useful to consumers.

To comply with Regulation B, a creditor must provide the required disclosures in a clear and conspicuous manner, in a reasonably understandable format that does not obscure the required information. See § 202.4(d)(1). Use of a different format from the model forms, such as by adding graphs or tables, could meet this standard for compliance with the regulation, but this would be determined on a case by case basis.

As discussed above, section 1100F of the Dodd-Frank Act amends section 615(a) of the FCRA to require creditors to disclose on FCRA adverse action notices a credit score used in taking any adverse action and information relating to that score. Creditors might, however, disclose credit score information to consumers to satisfy other disclosure requirements. Specifically, in January 2010, the Board and the Federal Trade Commission (the Agencies) published final rules to implement the risk-based pricing provisions in section 311 of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act), which amended the FCRA (January 2010 Final Rule). 75 FR 2724. The January 2010 Final Rule generally requires a creditor to provide a risk-based pricing notice to a consumer when the creditor uses a consumer report to grant or extend credit to the consumer on material terms that are materially less favorable thanthe most favorable terms available to a substantial proportion of consumers from or through that creditor. See § 222.72; § 640.3. The January 2010 Final Rule provides exceptions to the requirements to provide general risk-based pricing notices for persons that provide certain credit score disclosure notices to consumers who request credit (so called “credit score disclosure exception notices”). See §§ 222.74(d), (e), and (f); §§ 640.5(d), (e), and (f). In addition, section 609(g) of the FCRA requires creditors to provide credit score information to consumers applying for loans secured by one to four units of residential real property.

For loans secured by one to four units of residential real property, the credit score disclosure exemption notice would be required to be provided to the consumer concurrently and combined with the notice required by section 609(g) of the FCRA, but in any event, at or before consummation of a closed-end credit transaction or before the first transaction under an open-end credit plan. § 222.74(d)(3). Section 609(g)(1) of the FCRA states that the notice required by that subsection must be provided to the consumer “as soon as reasonably practicable.” In the January 2010 Final Rule, the Agencies noted that industry practice is generally to provide the credit score disclosure within three business days of obtaining a credit score and the Agencies would expect the integrated disclosure generally would be provided within the same timeframe. 75 FR 2741. For loans not secured by one to four units of residential real property, the credit disclosure exemption notice must be provided to the consumer as soon as reasonably practicable after the credit score has been obtained, but in any event at or before consummation in the case of closed-end credit or before the first transaction is made under an open-end credit plan. § 222.74(e)(3).

Some industry commenters asked the Board to clarify that if a creditor provides credit score exception notices or section 609 notices to consumers, the creditor would not be required to include the disclosures required by section 1100F of the Dodd-Frank Act in the adverse action notice. One industry commenter also requested that the Board clarify that a creditor is allowed to combine the section 609(g) notice with an adverse action notice. For the reasons discussed below, the Board does not believe a creditor would comply with the FCRA adverse action provisions in section 1100F by providing a credit score disclosure exception notice or section 609(g) notice. In addition, the Board does not believe that the 609(g) notice may be integrated into a FCRA adverse action notice.

Substitute notices.One industry commenter asked the Board to clarify that if a creditor provides credit score disclosure exception notices in connection with all loan applications, the creditor would not be required to include the credit score disclosures required by section 1100F of the Dodd-Frank Act in the adverse action notice.

In addition, one industry commenter suggested that if a creditor provides consumers with the disclosures required by section 609(g) of the FCRA, the creditor should not be required to disclose credit score information under section 1100F of the Dodd-Frank Act in the adverse action notice. This commenter noted that the credit score might change between the 609(g) disclosure and adverse action notice, leading to consumer confusion. The commenter argued that Congress likely did not intend consumers to receive multiple credit disclosures in connection with a single transaction.

The Board does not believe a creditor would comply with the FCRA adverse action provisions by providing a credit score disclosure exception notice or section 609(g) notice. These notices provide different information and have different timing requirements than the adverse action notice. In addition, the credit score disclosed on the credit score disclosure exception notice or section 609(g) notice might not be the credit score used in taking adverse action. For example, for purposes of the credit score disclosure exception notice, if a person uses a credit score that was not created by a consumer reporting agency, such as a proprietary score, that person is permitted to disclose either the proprietary score or a credit score it obtained from an entity regularly engaged in the business of selling credit scores, even if the latter credit score was not used in the credit decision. Nonetheless, in that circumstance, the FCRA adverse action notice must contain the proprietary score under 1100F. As discussed above, if a creditor uses a proprietary “credit” score in taking adverse action and does not use a credit score from a consumer reporting agency, the creditor must disclose information about the proprietary score under section 1100F.

Combined notices.One industry commenter requested that the Board clarify that a creditor is allowed to combine the section 609(g) notice with a FCRA adverse action notice. The Board does not believe a creditor would comply with the FCRA adverse action provisions by combining the section 609(g) notice with an adverse action notice for the reasons discussed above. In addition, the Board believes that allowing the section 609(g) notice to be combined with the adverse action notice might detract consumers from the primary purposes of the adverse action notice, which is to notify the consumer that adverse action has been taken.

Several industry commenters asked who should receive an adverse action notice when a credit application involves multiple applicants. These commenters stated that applicants should not receive each other's credit scores. They also recommended adding language to the model forms to indicate that for co-applicants, the adverse action decision may be based on either or both of the applicants' credit information. They explained that such language would decrease consumer confusion, since an applicant with an excellent credit profile who receives an adverse action notice may not realize that the adverse action decision may have been made because of the co-applicant's credit profile.

Section 202.9(f) of Regulation B permits a creditor to provide an adverse action notice to only one applicant, and requires a creditor to provide an adverse action notice to the primary applicant, when a primary applicant is readily apparent. In contrast, section 615(a) of the FCRA requires a creditor to provide the disclosures mandated by that section to “any consumer” against whom adverse action is taken, if the adverse action is based in whole or in part on information from a consumer report. The FCRA's reference to “any consumer” would seem to include co-applicants. Given privacy and customer relations concerns, the Board expects that creditors would generally provide separate FCRA adverse action notices to each applicant with only the individual's credit score on each notice.

As discussed above, several commenters recommended adding language to the model forms to indicate that for co-applicants, the adverse action decision may be based on either or both of the applicants' credit information. The Board believes that providing this additional language on the model forms would complicate the disclosures without providing a substantial benefit to consumers. An applicant with strong credit who receives an adverse action notice will likely understand that the adverse action decision was based on the co-applicant's credit information or will contact the creditor to inquire.

An application may involve a guarantor or co-signer. Some industry commenters asked whether a guarantor or co-signer should receive an adverse action notice. These commenters also asked whether the guarantor's or co-signer's credit score should be disclosed to the applicant, where the creditor uses the guarantor's or co-signer's credit score in taking adverse action.

Under section 701(d)(6) of the ECOA and § 202.2(c) of Regulation B, only an applicant can experience adverse action. Further, a guarantor or co-signer is not deemed an applicant under § 202.2(e). Sections 603(k)(1)(A) and 603(k)(1)(B)(2) of the FCRA provide that adverse action has the same meaning for purposes of the FCRA as is provided in the ECOA and Regulation B in the context of a credit application. Therefore, a guarantor or co-signer would not receive an adverse action notice under the ECOA or the FCRA. The credit applicant would, however, receive an adverse action notice, even if the adverse action decision is made solely based on information in the guarantor's or co-signer's consumer report. Section 1100F of the Dodd-Frank Act does not address whether, in this circumstance, the adverse action notice received by an applicant under the FCRA should include a guarantor or co-signer's credit score. The Board does not believe, however, that Congress intended for an individual to receive another individual's credit score. Section 609(f)(2) of the FCRA associates a credit score with a particular individual. The Board accordingly believes that a guarantor or co-signer's credit score should not be disclosed to an applicant in an adverse action notice.

Some creditors may obtain multiple credit scores from consumer reporting agencies in connection with their underwriting processes. A creditor may use one or more of those scores in taking adverse action. Section 1100F of the Dodd-Frank Act only requires a person to disclose a single credit score used in taking adverse action.

When a creditor obtains multiple scores but only uses one in making the decision, the creditor must disclose the credit score that it used. Commenters asked what credit score or scores creditors should disclose when creditors use multiple scores in taking adverse action, for example, from different consumer reporting agencies. Section 1100F of the Dodd-Frank Act does not specify what credit score should be disclosed in such cases, but only requires a person to disclose a single credit score that is used by the person in making the credit decision. A creditor would comply with the statute by disclosing any of the credit scores that it used. The Board expects that creditors will have policies and procedures to determine which of the multiple credit scores was used in taking adverse action. For instance, a creditor could have policies and procedures specifying that: (1) When the creditor obtains or creates multiple credit scores but only uses one of those credit scores in taking adverse action, for example, by using the low, middle, high, or most recent score, the creditor would disclose that credit score and information relating to that credit score; and (2) when a creditor uses multiple credit scores in taking adverse action, for example, by computing the average of all the credit scores obtained, the creditor would disclose any one of those credit scores and information relating to the credit score.

Because credit scoring models may differ considerably in nature and the range of scores used, consumers would not necessarily benefit if they receive and try to compare multiple scores. Disclosing multiple credit scores could confuse consumers who do not understand the differences, which might lessen the value of the section 1100F disclosures. Moreover, section 1078(a) of the Dodd-Frank Act requires the Consumer Financial Protection Bureau (CFPB) to conduct a study of the different credit scoring systems, and whether these variations disadvantage consumers. The CFPB's study might develop a record that could serve as the basis for reconsidering this issue in a future rulemaking.

An industry commenter asked whether credit score information under section 1100F of the Dodd-Frank Act must be disclosed in FCRA adverse action notices for non-lending products. This commenter notes that the definition of “credit score” for purposes of section 1100F of the Dodd-Frank Act refers to a credit score “used by a person who makes or arranges a loan.” The commenter asserted argued that Congress intended to limit the section 1100F disclosures to credit decisions.

Section 202.2(c) of the ECOA limits the definition of adverse action to decisions regarding credit. The FCRA, however, does not include such a limitation. See section 603(k)(1) of the FCRA. The FCRA therefore applies to adverse action decisions related to credit, but also decisions regarding, for example, a deposit account, insurance product, or employment. Although a credit score may generally be used in making or arranging loans, a credit score may also be used in taking adverse action not related to credit. The Board believes that a person would need to disclose a credit score obtained from a consumer reporting agency as part of the adverse action notice as set forth in section 1100F of the Dodd Frank Act, even if the person used the credit score to take adverse action for a non-lending product. In requiring credit score disclosures, section 1100F does not state that the credit score disclosures are only required for adverse action decisions related to credit.

Some industry commenters asked that the Board delay the rule's implementation date by 6 months to at least 12 months. One commenter suggested that the Board stay the rulemaking, and let the CFPB finalize the rule.3 Another commenter requested that creditors should receive a safe harbor for using the proposed model forms until creditors can implement the requirements in the final rule.

Section 1100F of the Dodd-Frank Act is self-effectuating and will become legally effective on July 21, 2011, even if there are no implementing rules or model forms. To provide guidance to institutions in establishing their compliance programs, this final rule will become effective 30 days after the date of publication in theFederal Register.

In accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501-3521; 5 CFR part 1320 Appendix A.1), the Board reviewed the final rulemaking under the authority delegated to the Board by the Office of Management and Budget (OMB). The collection of information that is required by this final rulemaking is found in 12 CFR part 202. In addition, as permitted by the PRA, the Board will extend for three years the current recordkeeping and disclosure requirements in connection with Regulation B. The Board may not conduct or sponsor, and an organization is not required to respond to, this information collection unless it displays a currently valid OMB control number. The OMB control number is 7100-0201.

Section 703(a)(1) of the Equal Credit Opportunity Act (15 U.S.C. 1691b(a)(1)) authorizes the Board to issue regulationsto carry out the provisions of the Act. The purpose of the Act is to ensure that credit is made available to all creditworthy customers without discrimination on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to contract), receipt of public assistance income, or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act (15 U.S.C. 1600et seq.). This information collection is mandatory.

Regulation B applies to all types of creditors, not just State member banks. However, under the PRA, the Board accounts for the burden of the paperwork associated with the regulation only for entities that are supervised by the Board. Appendix A of Regulation B defines these creditors as State member banks, branches and agencies of foreign banks (other than federal branches, federal agencies, and insured state branches of foreign banks), commercial lending companies owned or controlled by foreign banks, and organizations operating under section 25 or 25A of the Federal Reserve Act. Other federal agencies account for the paperwork burden for the institutions they supervise. Creditors are required to retain records for 12 to 25 months as evidence of compliance.

As discussed above, on March 15, 2011, the Board published in theFederal Registera notice of proposed rulemaking that is consistent with new content requirements in section 615(a) of the FCRA that were added by section 1100F of the Dodd-Frank Act. 76 FR 13896. The PRA comment period expired on May 16, 2011.

In the proposal, the Board estimated that respondents potentially affected by the additional notice would take, on average, 16 hours (2 business days) to update their systems and modify model notices to comply with the proposed requirements. The Board recognized that the amount of time needed for any particular creditor subject to the proposed requirements may be higher or lower, but believed this average figure was a reasonable estimate.

Several industry commenters believed that the Board underestimated the compliance burden of the proposed rule. These commenters asserted that compliance would require between 2 weeks and 8,000 hours.

Based on these comments, the Board is inclined to agree that some additional time beyond 16 hours may be needed. The Board, therefore, has revised upward its prior burden estimate. The Board believes that 32 hours (4 business days) is a reasonable estimate of the average amount of time to modify existing database systems to incorporate these new requirements. In addition, an industry commenter asked that the Board clarify whether the Board proposed to extend current recordkeeping requirements for 3 years, or to lengthen current recordkeeping requirements. As explained in the proposed rule, the Board is extending current recordkeeping and disclosure requirements for 3 years.

Entities affected by this final rule are already familiar with the existing adverse action provisions. It should not be overly burdensome to persons using a credit score when making the decision requiring an adverse action notice to add additional information to that notice. In addition, the Board has provided model notices that should significantly reduce the cost of compliance with the final rule.

The Board prepared an initial regulatory flexibility analysis under the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) in connection with the proposed rule. The final rule covers certain banks, other depository institutions, and non-bank entities that take adverse action against consumers. The Small Business Administration (SBA) establishes size standards that define which entities are small businesses for purposes of the RFA.4 The size standard to be considered a small business is: $175 million or less in assets for banks and other depository institutions; and $7 million or less in annual revenues for the majority of non-bank entities that are likely to be subject to the final rule. Under section 605(b) of the RFA, 5 U.S.C. 605(b), the regulatory flexibility analysis otherwise required under section 604 of the RFA is not required if an agency certifies, along with a statement providing the factual basis for such certification, that the final rule will not have a significant economic impact on a substantial number of small entities. The Board hereby certifies that the final rule will not have a significant economic impact on a substantial number of small business entities. The Board recognizes that the final rule will affect some small business entities; however the Board does not expect that a substantial number of small businesses will be affected or that the final rule will have a significant economic impact on them, particularly in light of the information already required to be disclosed under section 615(a) of the FCRA. Nonetheless, the Board has decided to publish a final regulatory flexibility analysis with the final rule and has prepared the following analysis:

Section 1100F of the Dodd-Frank Act amends section 615(a) of the FCRA to require persons to disclose a credit score and information relating to that credit score in adverse action notices when the person uses a credit score in taking adverse action. Specifically, a person must disclose, in addition to the information currently required by section 615(a) of the FCRA: (1) A numerical credit score used in making the credit decision; (2) the range of possible scores under the model used; (3) up to four key factors that adversely affected the consumer's credit score (or up to five factors if the number of inquiries made with respect to that consumer report is a key factor); (4) the date on which the credit score was created; and (5) the name of the person or entity that provided the credit score. The effective date of these amendments is July 21, 2011.

Certain model notices in Regulation B include the content required by both the ECOA and the FCRA adverse action provisions, so that creditors can use the model notices to comply with the adverse action requirements of both statutes. The Board is issuing the final rule to amend the combined ECOA-FCRA adverse action model notices in Regulation B pursuant to its existing authority under section 703(a) of the ECOA, to facilitate compliance with the new requirements under section 1100F of the Dodd-Frank Act.

TheSUPPLEMENTARY INFORMATIONabove contains information on the objectives and legal basis of the final rule. The legal basis for the final rule is section 703(a) of the ECOA. The final rule is consistent with section 1100F of the Dodd-Frank Act.

Some industry commenters stated that the proposed rules would create substantial compliance burdens, particularly for small entities. They asked that small entities be exempt from the requirements, or that the Board delay the implementation date for small entities.

This issue is outside the scope of this rulemaking, because the Board does not have authority under the ECOA to carveout small entities from the requirements of section 1100F of the Dodd-Frank Act. Further, as discussed above, Congress set the effective date for section 1100F of the Dodd-Frank Act for July 21, 2011. Section 1100F is self-implementing and will become legally effective on July 21, 2011, even if there is no implementing regulation or model forms. The final rule will facilitate compliance by providing guidance for institutions in establishing their compliance programs, and will become effective 30 days after the date of publication in theFederal Register.

The final rule applies to any person that (1) is required to provide an adverse action notice to a consumer; and (2) uses a credit score in making the credit decision requiring an adverse action notice. The total number of small entities likely to be affected by the final rule is unknown, because the Board does not have data on the number of small entities that use credit scores in taking adverse action in connection with consumer credit. The adverse action provisions of section 1100F of the Dodd-Frank Act have broad applicability to persons who use credit scores in taking adverse action in connection with the provision of consumer credit.

Based on estimates compiled by the Board, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision, there are approximately 9,458 depository institutions that could be considered small entities and that are potentially subject to the final rule.5 The available data are insufficient to estimate the number of non-bank entities that would be subject to the final rule and that are small as defined by the SBA. Such entities would include non-bank mortgage lenders, auto finance companies, automobile dealers, other non-bank finance companies, insurance companies, employers, telephone companies, and utility companies.

It also is unknown how many of these small entities that meet the SBA's size standards and that are potentially subject to the final rule use credit scores in taking adverse action in connection with the provision of consumer credit. The final rule does not, however, impose any requirements on small entities that do not use credit scores in taking adverse action in connection with consumer credit.

The compliance requirements of the final rule are described in detail in theSUPPLEMENTARY INFORMATIONabove.

A person must currently determine if it takes adverse action in connection with the provision of consumer credit, based in whole or in part on consumer reports. If the person takes adverse action based on consumer reports, the person must provide adverse action notices with the information currently required by section 615(a) of the FCRA.

Section 1100F of the Dodd-Frank Act amends section 615(a) of the FCRA to require a person who takes adverse action and uses a credit score in making the adverse action determination to provide credit score information in the adverse action notice, in addition to the information currently required by section 615(a) of the FCRA. Under the FCRA, the person would need to design, generate, and provide notices that include the credit score information. This final rule provides model forms that may be used by creditors to comply with these new requirements.

The Board does not expect that the costs associated with this final rule will place a significant burden on small entities.

The Board has not identified any federal statutes or regulations that would duplicate, overlap, or conflict with the final rule. As discussed in Part II above, the amendments to the adverse action notices are consistent with section 1100F of the Dodd-Frank Act. The Board is issuing the final rule pursuant to its existing authority under section 703(a) of the ECOA. The amendments to the adverse action model notices have been designed to work in conjunction with the requirements of section 1100F of the Dodd-Frank Act to help facilitate uniform compliance when this section becomes effective.

The Board solicited comments on any significant alternatives consistent with section 703(a) of the ECOA and the provisions of section 1100F of the Dodd-Frank Act that would minimize the impact of the final rule on small entities. As noted above, several industry commenters suggested that small entities be exempt from the proposed rules, or that the Board delay the implementation date for small entities.

The Board has sought to minimize the economic impact on small entities by providing model notices to ease creditors' burden. As explained above, however, the Board does not have authority under the ECOA to carve out small entities from the requirements of section 1100F of the Dodd-Frank Act. In addition, Congress set the effective date for section 1100F of the Dodd-Frank Act for July 21, 2011. Section 1100F is self-implementing and will become legally effective on July 21, 2011, even if there is no implementing regulation. This final rule will provide guidance to institutions in establishing their compliance programs. Accordingly, the final rule will become effective 30 days after the date of publication in theFederal Register.

For the reasons set forth in the preamble, the Board amends 12 CFR part 202 and the Official Staff Commentary, as follows:

The Fair and Accurate Credit Transactions Act of 2003 (FACT Act) was signed into law on December 4, 2003. Public Law 108-159, 117 Stat. 1952. Section 311 of the FACT Act added section 615(h), 15 U.S.C. 1681m(h), to the Fair Credit Reporting Act (FCRA) to address risk-based pricing. Risk-based pricing refers to the practice of setting or adjusting the price and other terms of credit offered or extended to a particular consumer to reflect the risk of nonpayment by that consumer. Information from a consumer report is often used in evaluating the risk posed by the consumer. Creditors that engage in risk-based pricing generally offer more favorable terms to consumers with good credit histories and less favorable terms to consumers with poor credit histories.

Under section 615(h) of the FCRA, a person generally must provide a risk-based pricing notice to a consumer when the person uses a consumer report in connection with an extension of credit and, based in whole or in part on the consumer report, extends credit to the consumer on terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers. The risk-based pricing notice is designed primarily to improve the accuracy of consumer reports by alerting consumers to the existence of negative information in their consumer reports, so that consumers can, if they choose, check their consumer reports for accuracy and correct any inaccurate information. The Board and the Commission (the Agencies) jointly published regulations implementing these risk-based pricing provisions on January 15, 2010, which had a mandatory compliance date of January 1, 2011. 75 FR 2724 (January 2010 Final Rule).

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) was signed into law. Pub. L. 111-203, 124 Stat. 1376. Section 1100F of the Dodd-Frank Act amends section 615(h) of the FCRA to require that additional content be disclosed to consumers in risk-based pricing notices; specifically, if a credit score is used in making the credit decision, the creditor must disclose that score and certain information relating to the credit score. The effective date of these amendments is July 21, 2011.2

The Agencies published proposed regulations and model forms to reflect these requirements on March 15, 2011. 76 FR 13902. The comment period closed on April 14, 2011, and comments on the Paperwork Reduction Act analysis closed on May 16, 2011. The Agencies received more than 35 comment letters regarding the proposal from banks and other creditors, industry trade associations, consumer groups, individual consumers, and others.

Title X of the Dodd-Frank Act also establishes a Bureau of Consumer Financial Protection (the Bureau), to which rulewriting authority for certain consumer protection laws will transfer. Section 1088(a)(9) of the Dodd-Frank Act amends section 615(h)(6) to provide that rulewriting authority for section 615(h) will transfer to the Bureau. Pursuant to section 1100H of the Dodd-Frank Act, however, this rulewriting authority does not transfer to the Bureau until July 21, 2011.3 Thus, rulewriting authority for the risk-based pricing provisions of the FCRA, including the amendments prescribed by section 1100F of the Dodd-Frank Act, will not be vested in the Bureau until the date that the section 1100F amendments become effective.

The Agencies believe it is important to have implementing regulations and revised model forms in place as close as possible to July 21, 2011. This will help ensure that consumers receive consistent disclosures of credit scores and information relating to credit scores, and will help facilitate uniform compliance when section 1100F of the Dodd-Frank Act becomes effective.

Accordingly, the Agencies are finalizing amendments to the risk-based pricing rules and notices to incorporate the additional content required by section 1100F of the Dodd-Frank Act, pursuant to their existing authority under section 615(h) of the FCRA. Section 615(h) gives the Agencies the authority to issue rules implementing the risk-based pricing provisions, and requires the Agencies to address in those rules the form, content, timing, and manner of delivery of risk-based pricing notices.

In particular, section 615(h)(5) prescribes certain content requirements for the risk-based pricing notices, but provides that the required content elements are the minimum that must be disclosed. Moreover, section 615(h)(6)(B)(iv) provides that the Agencies must provide a model notice that can be used to comply with section 615(h). Therefore, the Agencies have the authority to add content to the risk-based pricing notices that they deem appropriate. The Agencies believe that adding to the requirements for the risk-based pricing notice the content required by section 1100F of the Dodd-Frank Act, and providing revised model notices is appropriate to avoid consumer confusion, and to ensure timely and consistent compliance with the new content provisions.

As discussed more fully below, the Agencies received some comments from industry and consumer advocates that did not relate to the changes to the model notices to incorporate the section 1100F requirements, such as a new request to exempt certain entities from the risk-based pricing rules entirely. Given the impending transfer of rulemaking authority to the Bureau, however, the Agencies are not making changes to the risk-based pricing rules and notices beyond those required by section 1100F of the Dodd-Frank Act. Such changes are beyond the scope of this rulemaking.

Section 615(h) of the FCRA requires a person to include certain information in a risk-based pricing notice. The January 2010 Final Rule implements the generalcontent requirements for risk-based pricing notices in § 222.72(a)(1) and § 640.3(a)(1) (hereafter “general risk-based pricing notice”). The January 2010 Final Rule also sets forth the content requirements for any risk-based pricing notice required to be given as a result of the use of a consumer report in an account review in § 222.72(a)(2) and § 640.3(a)(2) (hereafter “account review notice”).

Section 1100F of the Dodd-Frank Act amends section 615(h) of the FCRA to require that creditors disclose additional information in risk-based pricing notices. Consistent with section 1100F of the Dodd-Frank Act, proposed __.73(a)(1) and (a)(2) amended the content requirements of the general risk-based pricing notice and the account review notice, pursuant to section 615(h) of the FCRA. Proposed __.73(a)(1)(ix) required a person to provide the additional content in a general risk-based pricing notice if a credit score of the consumer to whom a person grants, extends, or otherwise provides credit is used in setting the material terms of credit. Similarly, proposed __.73(a)(2)(ix) required a person to provide the additional content in an account review notice if a credit score of the consumer whose extension of credit is under review is used in increasing the annual percentage rate.

Specifically, § __.73(a)(1)(ix)(B)-(F) and § ___.73(a)(2)(ix)(B)-(F) of the proposed rules required the following disclosures: (1) the credit score4 used by the person in making the credit decision; (2) the range of possible credit scores under the model used to generate the credit score; (3) all of the key factors that adversely affected the credit score, which shall not exceed four key factors, except that if one of the key factors is the number of enquiries made with respect to the consumer report, the number of key factors shall not exceed five; (4) the date on which the credit score was created; and (5) the name of the consumer reporting agency or other person that provided the credit score. In addition, to provide context for the additional content requirements, proposed § __.73(a)(1)(ix)(A) and § __.73(a)(2)(ix)(A) required a statement that a credit score is a number that takes into account information in a consumer report, and that a credit score can change over time to reflect changes in the consumer's credit history.

Industry commenters generally supported the additional content. Some industry commenters, however, requested additional flexibility in disclosing the factors that adversely affect the credit score, as discussed below. Consumer advocates suggested that the Agencies add additional information related to credit scores to the risk-based pricing notices, as discussed below. For the reasons discussed below, the final rules adopt the changes to § __.73(a)(1)(ix)(A)-(F) and § ___.73(a)(2)(ix)(A)-(F), as proposed, with an addition to clarify that the credit score was used in setting the terms of credit.

Key factors.Several industry commenters and a consumer advocate argued that creditors should have flexibility to disclose only factors that substantially affected the credit score. They asserted that requiring creditors to disclose the top four key factors (or five factors if the number of enquiries made with respect to that consumer report is one of the key factors) was burdensome and expensive for creditors, and confusing and of limited value to consumers. In contrast, one commenter stated that creditors should be required to disclose all factors that affected the credit score, not just the top four key factors (or five factors if the number of enquiries made with respect to that consumer report is a key factor).

Section 1100F of the Dodd-Frank Act requires a person engaging in risk-based pricing to provide the consumer the information set forth in subparagraphs (B) through (E) of section 609(f)(1) of the FCRA. Section 609(f)(1)(C) of the FCRA requires disclosure of all of the key factors that adversely affected the credit score of the consumer in the model used, up to four, subject to section 609(f)(9) of the FCRA. This section requires that if the key factors that adversely affected the credit score include the number of enquiries made with respect to the consumer report, the number of enquiries must also be disclosed as a key factor. Because the statutes thus require disclosure of the top four (or five) key factors that adversely affected the credit score, the Agencies adopt § __.73(a)(1)(ix)(B)-(F) and § __.73(a)(2)(ix)(B)-(F) as proposed.

An industry commenter requested clarification that a creditor is permitted to rely on and disclose the key factors provided with the scores purchased from consumer reporting agencies, without verification. The commenter further asked for guidance in the event that a consumer reporting agency does not provide the key factors with the score.

Under section 1100F of the Dodd-Frank Act, the person setting the material terms of credit is responsible for providing the credit score disclosure, including the key factors adversely affecting the credit score. If a creditor is using a credit score purchased from a consumer reporting agency, the consumer reporting agency is in the best position to identify the key factors that affected the score. Thus, the creditor would need to and could rely on that information in its disclosure to consumers. With respect to the manner in which this information may be obtained from the consumer reporting agencies, the Agencies acknowledge that the contractual arrangements between creditors and consumer reporting agencies may vary as to how creditors will receive the credit score information necessary to comply with section 1100F, but do not believe that imposing specific disclosure requirements on consumer reporting agencies is within the scope of this rulemaking. In any event, creditors have two options: (1) they can write their contracts with consumer reporting agencies to require the consumer reporting agencies to provide them the key factors adversely affecting the credit score, or (2) they can choose to send credit score disclosure exception notices to all consumers applying for non-mortgage credit. SeeException Notices,below.

Number of enquiries.Several industry commenters suggested that creditors not be required to disclose the number of enquiries as a key factor that adversely affected the credit score if the number of enquiries is not one of the top four key factors. In these cases, the commenters said that the effect of the number of enquiries on the credit score is marginal, so that disclosing the number of enquiries as a key factor may be confusing to consumers.

As discussed above, section 609(f)(9) of the FCRA states that if the number of enquiries is a key factor that adversely affected the consumer's credit score, that factor must be disclosed pursuant to section 609(f)(1)(C) of the FCRA, without regard to the numerical limitation. The FCRA accordingly requires disclosure of the number of enquiries as a key factor, regardless of whether it is one of the top four key factors. Thus, the Agencies adopt the proposed provision without change.

Additional information regarding credit scores.Consumer advocates suggested that the Agencies add additional information related to credit scores to the risk-based pricing notices. Specifically, consumer advocates suggested that the risk-based pricing notice include an explanation that theconsumer does not have a single credit score, and that the credit score may vary with the consumer reporting agency, scoring model provider, or particular credit product for which the consumer applied. These commenters indicated that consumers need this information to help them understand why they are receiving a particular score that may not be the same as a generic score, such as a FICO or Vantage score.

The Agencies believe that requiring these additional disclosures might create “information overload” for consumers, and detract from the primary purpose of the credit score information, which is to inform consumers of the credit score that has been used to set the material terms of credit, or used in the review of the account. The Agencies agree, however, that a disclosure that informs the consumer that the disclosed score was used in setting the credit terms, or in review of the credit terms, would further consumer understanding. The Agencies are thus adding a requirement that the notice include this information. In addition, the Agencies are revising the model forms H-6 and H-7 in the Board's rule and B-6 and B-7 in the Commission's rule to add the statement: “We used your credit score to set the terms of credit we are offering you,” in the “What you should know about your credit score” box on the model forms. This statement mirrors a sentence on the current risk-based pricing notice, informing consumers that their credit report was used to set the terms of credit being offered.

Other comments on content.The January 2010 Final Rule requires that the risk-based pricing notice include a statement that the terms offered, such as the annual percentage rate, have been set based on information from a consumer report. Model Form H-1 adopted as part of the January 2010 Final Rule, and proposed Model Form H-6 state “We used information from your credit report(s) to set the terms of the credit we are offering you, such as [Annual Percentage Rate/down payment].”

Some industry commenters objected to language in the final rules and model forms adopted as part of the January 2010 Final Rule that indicated that the terms of credit were “set” or “based on” information from a consumer report. These commenters instead recommended language stating that the terms of credit were “based in whole or in part on information from a consumer report.” The final rules retain the current language in the regulation and model forms, as described above. The Agencies believe that the current language in the regulation and model forms is more concise and understandable to consumers than the language suggested by the commenters.

As discussed above, proposed __.73(a)(1)(ix) required a person to provide the additional content (i.e., the credit score and related information) in a general risk-based pricing notice if a credit score of the consumer to whom a person grants, extends, or otherwise provides credit is used in setting the material terms of credit. Similarly, proposed __.73(a)(2)(ix) required a person to provide the additional content in an account review notice if a credit score of the consumer whose extension of credit is under review is used in increasing the annual percentage rate.

Some industry commenters specifically asked when a proprietary score would be deemed a credit score for purposes of § __.73. Proprietary scores are those developed by creditors themselves or for specific creditors, as opposed to those developed by consumer reporting agencies or large scoring companies such as FICO or Vantage Score for use by individual creditors. Commenters also asked for clarification regarding the information a creditor should disclose under § __.73 and the model form a creditor should use when a creditor uses a proprietary score in setting the material terms of credit. Some industry commenters indicated that a proprietary score should not be required to be disclosed under section 1100F of the Dodd-Frank Act because Congress intended for this provision to apply only to credit scores that are obtained from consumer reporting agencies, and disclosing proprietary scores would be confusing to consumers. Consumer advocates suggested that all proprietary scores, in particular credit-based insurance scores, be subject to disclosure under § __.73.

“Credit score” for purposes of section 1100F of the Dodd-Frank Act and § __.71(1) of the January 2010 Final Rule is defined to have the same meaning as section 609(f)(2)(A) of the FCRA, 15 U.S.C. 1681g(f)(2)(A). Specifically, section 609(f)(2)(A) of the FCRA defines a credit score to mean “a numerical value or a categorization derived from a statistical tool or modeling system used by a person who makes or arranges a loan to predict the likelihood of certain credit behaviors, including default[.]” Accordingly, scores not used to predict the likelihood of certain credit behaviors, such as insurance scores or scores used to predict the likelihood of false identity, are not credit scores by definition, and thus are not required to be disclosed.

Most credit scores that meet the FCRA definition are scores that creditors obtain from consumer reporting agencies. Section 609(f)(2)(A) of the FCRA specifically excludes some—but notall—proprietary scores. The definition of credit score does not include any mortgage score or rating of an automated underwriting system that considers one or more factors in addition to credit information, including the loan-to-value ratio, the amount of down payment, or the financial assets of a consumer.

Thus, if a creditor uses a proprietary score that is based on one or more of these factors in addition to information obtained from a consumer reporting agency, this proprietary score is not a credit score for purposes of § __.71(1) and __.73 and thus does not need to be disclosed to the consumer. If, however, the creditor uses both a proprietary score that does not meet the definition of a credit score and a credit score from a consumer reporting agency in setting the material terms of credit or reviewing the account, the creditor would disclose the credit score from the consumer reporting agency under § __.73(a)(1)(ix) and __.73(a)(2)(ix), as applicable. Similarly, if a creditor uses a credit score from a consumer reporting agency as an input to a proprietary score, but that proprietary score itself is not a credit score, the creditor would disclose the credit score from the consumer reporting agency under § __.73. The creditor may use the “Your Credit Score and Understanding Your Credit Score” section of Forms H-6 and H-7 of the Board's rules and Forms B-6 and B-7 of the Commission's rules for these disclosures.

In contrast, if a creditor uses a proprietary score that only includes information acquired from a consumer reporting agency in setting the material terms of credit or reviewing the account, the proprietary score would be a credit score under section 609(f)(2)(A) of the FCRA. Commenters asked for guidance on how to disclose information required under § __.73(a)(1)(ix) and __.73(a)(2)(ix) when a creditor uses only a proprietary score deemed a credit score under 609(f)(2)(A) of the FCRA.

These commenters also suggested that the rules should permit creditors to purchase a credit score from a consumer reporting agency and disclose that credit score, instead of disclosing the proprietary score that is used in setting the material terms of credit or reviewing the account. Section 1100F of the Dodd-Frank Act requires disclosure of thecredit score used in setting the material terms of credit or reviewing the account. The Agencies do not believe that a creditor would comply with the statute by disclosing a different credit score purchased after setting the material terms of credit based on a proprietary score.

In these situations, the creditor should modify the “Your Credit Score and Understanding Your Credit Score” section of Forms H-6 and H-7 of the Board's rules and Forms B-6 and B-7 of the Commission's rules to reflect that the creditor did not obtain a credit score from a consumer reporting agency, but rather used a proprietary score that met the definition of a credit score under 609(f)(2)(A) of the FCRA in setting the material terms of credit or reviewing the account. The creditor should disclose the value of the proprietary score, the date, the range of proprietary scores, and the key factors adversely affecting the consumer's proprietary score. The creditor should indicate that it is the source of the proprietary score. Alternatively, the creditor has the option of providing all consumers requesting an extension of credit with a credit score disclosure exception notice pursuant to the January 2010 Final Rule discussed below.

Commenters also asked for guidance on what information to disclose under § __.73(a)(1)(ix) and __.73(a)(2)(ix) when a creditor uses both a proprietary score that meets the definition of a credit score, and a credit score from a consumer reporting agency in setting the material terms of credit or reviewing the account. Both scores would be deemed credit scores under section 609(f)(2)(A) of the FCRA. In such cases where both credit scores are used, a creditor has the option to choose which credit score to disclose, as detailed in § __.73(d) discussed below. The creditor may use Forms H-6 and H-7 of the Board's rules and Forms B-6 and B-7 of the Commission's rules to comply with the requirements of § __.73(a)(1)(ix) and __.73(a)(2)(ix). If the creditor chooses to disclose the proprietary score, it would amend the model forms as discussed above. If the creditor chooses to disclose the credit score from a consumer reporting agency, the creditor would disclose the value of that credit score, the date, the range of credit scores, and the key factors adversely affecting the consumer's credit score. The creditor would indicate the consumer reporting agency that is the source of the credit score.

Section 1100F of the Dodd-Frank Act requires a risk-based pricing notice to include disclosure of a credit score used by a person in making the credit decision. A person who is required to provide a general risk-based pricing notice or account review notice may use a consumer report to set the credit terms offered or extended to consumers without using a credit score. In a case where a person does not use a credit score in making the credit decision requiring a risk-based pricing notice or account review notice, the person is not required to disclose a credit score and information relating to a credit score.

Several industry commenters agreed that creditors should not disclose a credit score when they do not use a credit score in making the credit decision. These commenters also asked that a creditor not be required to disclose credit score information when a creditor obtains but does not use a credit score, or when the credit score was not the cause of the risk-based pricing.

Section 1100F of the Dodd-Frank Act requires disclosure if a credit score was used in setting the material terms of credit. A creditor that obtains a credit score and engages in risk-based pricing would need to disclose that score, unless the credit score played no role in setting the material terms of credit. Moreover, even if the credit score was not a significant factor in setting the material terms of credit but was a factor in setting those terms, the creditor will have used the credit score for purposes of section 1100F of the Dodd-Frank Act.

With respect to the scope of the term “use,” the Agencies received one comment suggesting that the original creditor in certain three-party financing transactions should be considered outside the scope of the risk-based pricing rules altogether and, therefore, would not be required to provide a risk-based pricing notice. The risk-based pricing rules apply to the original creditor if that person “uses a consumer report in connection with” an application for credit. 15 U.S.C. 1681m(h)(1). The commenter contended that the original creditor does not obtain and thus does not “use” a consumer report; rather the consumer report is “used” by an underlying finance source. The Commission believes that this view of “use” is too narrow.

The specific financing situation raised in the comment involves an automobile financing transaction where an automobile dealer is the original creditor. In this three-party financing transaction, a consumer visits the automobile dealer and applies for financing by completing a loan application with the dealer. The dealer submits the loan application to one or more unrelated finance sources, which finance source(s) then conducts underwriting on the consumer's credit application. Based in whole or in part on the consumer report, the finance source(s) provides the dealer with an approval of the consumer's application and the wholesale buy rate at which the finance source(s) will purchase the resulting credit contract from the dealer. The dealer then selects the finance source to which it intends to assign the contract and determines which credit terms, including a retail finance rate (“APR”), it will offer the consumer. The commenter asserts that because the original creditor (the automobile dealer) does not directly obtain the consumer report and/or credit score from a consumer reporting agency, and instead relies upon the buy rates from the underlying financing sources, the original creditor does not “use” the consumer report and is outside the scope of the risk-based pricing rules. The Commission disagrees. The automobile dealer must provide the consumer with a risk-based pricing notice.5

The original creditor has “used” a consumer report in connection with an application for credit because the original creditor initiated the request that caused the financing source to obtain the consumer report and used the resulting information from the financing source to set the rate offered to consumers. Applying a causal, transaction-based analysis to the term “use” is consistent with the clear intent of Congress to provide consumers with information about the role that their credit history plays in setting the terms for credit.6 In the scenario set forth above, the consumer report was used in connection with the application for credit made by the consumer to the automobile dealer because the consumer report was obtained by the financing source in order to fulfill a request made to it by the automobile dealer. The finance source has not obtained and used the consumer report and/or credit score independently of the automobile dealer. The finance source, at the behest of the automobile dealer, has obtained the reports and performed underwriting and has told the automobile dealer the wholesale buy rate at which it willpurchase the contract.7 The original creditor incorporated the wholesale buy rate in the rate offered to the consumer, establishing a causal connection between the consumer report and the ultimate rate offered to the consumer.8 The original creditor has therefore “used” the consumer report.9

In some cases, a creditor may use the credit score of a guarantor, co-signer, surety, or endorser, but not a credit score of the consumer to whom it extends credit or whose extension of credit is under review. Proposed §§ __.73(a)(1)(ix) and __.73(a)(2)(ix) required a person to disclose a credit score and information relating to a credit score only when using the credit score of the consumer to whom it grants, extends, or otherwise provides credit or whose extension of credit is under review. As discussed in the January 2010 Final Rule, a person is not required to provide a risk-based pricing notice to a guarantor, co-signer, surety, or endorser.10 A person may be required, however, to provide a risk-based pricing noticeto the consumerto whom it grants, extends, or otherwise provides credit, even if the person only uses the consumer report or credit score of the guarantor, co-signer, surety, or endorser.

Some industry commenters and consumer advocates supported the proposed rules governing guarantors and co-signers. The Agencies continue to believe that the credit score of one consumer, such as a guarantor, co-signer, surety, or endorser, should not be disclosed to a different consumer entitled to receive a risk-based pricing notice. Therefore, when a person uses a credit score only of a guarantor, co-signer, surety, or endorser to set the terms of credit for the consumer to whom it extends credit or whose extension of credit is under review, a person shall not include a credit score in the general risk-based pricing notice or account review notice provided to the consumer.

The Agencies note that the January 2010 Final Rule provides exceptions to the requirements to provide general risk-based pricing notices for persons that provide credit score disclosure exception notices to consumers who request credit. See §§ 222.74(d), (e), and (f); §§ 640.5(d), (e), and (f).

Many industry commenters argued that section 1100F of the Dodd-Frank Act does not affect creditors' option to provide credit score disclosure exception notices to all consumers instead of risk-based pricing notices. Consumer advocates, however, urged the Agencies to eliminate the credit score disclosure exceptions. Consumer advocates argued that giving creditors the option to provide exception notices would result in creditors rarely providing risk-based pricing notices. They stated that a key benefit of the exception notices in comparison to the risk-based pricing notices was that consumers received a free credit score. They asserted that section 1100F of the Dodd-Frank Act eliminated this comparative benefit of the exception notices by requiring that risk-based pricing notices also disclose credit scores. Consumer advocates argued that Congress did not eliminate the exception notices in the Dodd-Frank Act because the notices were created by regulation, and were not the product of Congress. Finally, consumer advocates stated that section 1100F of the Dodd-Frank Act required disclosure of the actual credit score used by the creditor, while exception notices could contain a generic credit score.

After the Dodd-Frank Act, there remain strong arguments for retaining the credit score disclosure exceptions. The January 2010 Final Rule, which includes the credit score disclosure exceptions, was published in January 2010 and became effective on January 1, 2011. Because the rules were published more than six months before the Dodd-Frank Act was enacted, Congress could have eliminated the credit score disclosure exceptions but did not do so. Moreover, the Agencies believe that the credit score disclosure exception notices continue to be consistent with the goals of, and underlying reasons for, the risk-based pricing rule, which are to provide consumers with education about their credit profiles and alert them to potentially inaccurate information in their consumer reports that could have a negative effect on the credit terms being offered to them. Eliminating the exception notices would result in fewer consumers receiving their credit score for free. To use the exception notice provision, a creditor must provide exception notices to all consumers who apply for credit. By contrast, a creditor must provide risk-based pricing notices only to consumers receiving less favorable terms from that particular creditor. Thus, whether a consumer with a particular credit profile would receive a risk based pricing notice may depend upon the creditor to which the consumer applies. As a result, some consumers of a given creditor may not get risk-based pricing notices because they do not receive materially less favorable terms from that creditor, even though they would generally receive materially less favorable terms from other creditors based on their credit profiles. The credit score disclosure exceptions arguably achieve a better result—by requiring creditors using the exception to provide notices to all consumers who apply for credit—consumers that would not have gotten any notice would instead receive a free credit score.11 In addition, consumers are given exception notices earlier in the credit decision process, thus giving consumers an earlier opportunity to identify any potential inaccuracies in their consumer report.12 Consumers benefit from knowing their credit score earlier, even if they do not yet knowwhat terms of credit they will be offered. This earlier notice gives consumers more time to consider, given their current credit profile, whether they want to continue with a credit transaction at that time.

On the other hand, by requiring that risk-based pricing notices disclose credit scores when the credit scores were used to set the terms of credit, section 1100F of the Dodd-Frank Act has eliminated one of the key comparative benefits of the credit score disclosure exception notices over the risk-based pricing notices.13 Moreover, while the exception notices contain valuable information about how a consumer's credit score compares with the credit scores of others, it does not inform consumers that they may be receiving less favorable credit terms or an increase in their interest rate based on their consumer report and/or their credit score.

The Agencies note that eliminating the credit score disclosure exception notice would fundamentally change the structure of the risk-based pricing rules and may substantially affect compliance costs. Given that rulemaking authority will be transferred to the Bureau on July 21, 2011, the Agencies do not believe that it is appropriate to make a substantial and fundamental change to the rules at this time. The final rules are limited to implementing the requirements of section 1100F of the Dodd-Frank Act. Thus, the final rules retain the credit score disclosure exception notices.

The Agencies provided model forms that may be used for compliance with the risk-based pricing requirements in Appendices H and B of the January 2010 Final Rule. Paragraph (b)(2) of section __.73 of the January 2010 Final Rule clarifies how each of the model forms of the risk-based pricing notices required by §§ __.72(a) and (c), and by § __.72(d) may be used. Paragraph (b)(2) provides that appropriate use of the model forms contained in Appendices H-1 and H-2 of the Board's rules and Appendices B-1 and B-2 of the Commission's rules is deemed to comply with §§ __.72(a) and (c), and § __.72(d), respectively. Use of these model forms is optional.

Under the proposal, the Agencies amended Appendices H and B of the January 2010 Final Rule to add two new model forms in Appendices H-6 and H-7 of the Board's proposed rules and Appendices B-6 and B-7 of the Commission's proposed rules, for situations where a credit score and information relating to such credit score must be disclosed. SeeModel Forms,below. Proposed paragraph (b)(2) clarified that appropriate use of Model Form H-1 or H-6, or B-1 or B-6, is deemed to comply with the requirements of §§ __.72(a) and (c). It also clarified that appropriate use of Model Form H-2 or H-7, or B-2 or B-7, is deemed to comply with the requirements of § __.72(d).

The final rules adopt § __.73(b) as proposed. The comments received on the proposed model forms are discussed below. SeeModel Forms,below.

Some creditors may obtain multiple credit scores from consumer reporting agencies in connection with their underwriting processes. A creditor may use one or more of those scores in setting the material terms of credit. Section 1100F of the Dodd-Frank Act only requires a person to disclose a single credit score that is used by the person in making the credit decision. The Agencies proposed § __.73(d) to address situations where a creditor obtains multiple credit scores from consumer reporting agencies, or obtains a credit score from a consumer reporting agency in addition to using a proprietary score deemed a credit score under the FCRA, and must provide either a general risk-based pricing notice or an account review notice to a consumer.

Proposed § __.73(d)(1) provided that when a person uses one of those credit scores in setting the material terms of credit, for example, by using the low, middle, high, or most recent score, the general risk-based pricing and account review notices are required to include that credit score and information relating to that credit score as required by proposed §§ __.73(a)(1)(ix) and (a)(2)(ix). When a person uses two or more credit scores in setting the material terms of credit, for example, by computing the average of all the credit scores obtained, the notices are required to include any one of those credit scores and information relating to the credit score as required by proposed §§ __.73(a)(1)(ix) and (a)(2)(ix). The notice may, at the person's option, include more than one credit score, along with the information specified in proposed §§ __.73(a)(1)(ix) and (a)(2)(ix) for each credit score disclosed.

Proposed § __.73(d)(2) provided examples to illustrate the notice requirements for creditors that obtain multiple credit scores from consumer reporting agencies. The first example described in proposed § __.73(d)(2)(i) applied when a person that uses consumer reports to set the material terms of credit cards granted, extended, or provided to consumers regularly requests credit scores from several consumer reporting agencies and uses the low score when determining the material terms it will offer to the consumer. Under the proposed rules, that person must disclose the low score in its notices. The example described in proposed § __.73(d)(2)(ii) applied when a person that uses consumer reports to set the material terms of automobile loans granted, extended, or provided to consumers regularly requests credit scores from several consumer reporting agencies, each of which it uses in an underwriting program in order to determine the material terms it will offer to the consumer. Under the proposal, that person could choose any one of these scores to include in its notices.

A consumer advocate and several industry commenters supported the Agencies' proposal. Other consumer advocates recommended that creditors disclose all the credit scores used. For the reasons described below, the final rules adopt § __73(d) as proposed with revisions to make clear that these rules apply to use of proprietary scores that meet the definition of “credit score” in § __.71(l) as well as credit scores obtained from consumer reporting agencies.

The final rules do not require creditors to disclose all the credit scores used if a creditor uses multiple credit scores in setting the material terms of credit. The final rules permit creditors at their option to disclose all the credit scores used. As noted above, although a creditor may use multiple credit scores in setting the material terms of credit, section 1100F of the Dodd-Frank Act only requires a person to disclose a single credit score that is used by the person in making the credit decision. Further credit scoring models may differ considerably in nature and range. The Agencies believe that disclosing multiple credit scores may confuse consumers and provide them little value. Consumers may not understand the extent to which credit scoring models differ, and may try to compare the different credit scores. Such comparisons may confuse consumers and lessen the value of the credit score disclosures.

Moreover, the Agencies do not believe that requiring disclosure of a particular credit score, for example, the lowest score, would be in the best interest ofconsumers when multiple scores are used. The lowest score may not truly be the “worst” score, since credit scoring models differ, and requiring businesses to identify the “worst” score would add a layer of complexity without a clear benefit to consumers. The Agencies also note that the Dodd-Frank Act requires the Bureau to “conduct a study on the nature, range, and size variations” of different credit scoring systems, and on whether these variations disadvantage consumers. Section 1078(a). The Bureau must submit a report to Congress with the results of this study within one year after the Dodd-Frank Act enactment date. Section 1078(b). That study may shed light on the extent to which disclosure of multiple credit scores would benefit consumers, and the Bureau could revisit the Agencies' judgment in view of the results of its study.

For the reasons discussed above, the final rules do not require that creditors always disclose the lowest credit score if a creditor uses two or more credit scores in setting the material terms of credit. The Agencies believe that section 1100F of the Dodd-Frank Act does not mandate that a person disclose the lowest credit score that is used by the person in making the credit decision, if the person uses multiple credit scores in setting the material terms of credit. The person must simply disclose a credit score used.

The proposed rules amended § __.75(c) to address circumstances where a person must provide multiple consumers, such as co-borrowers, with a risk-based pricing notice in a transaction. The proposed rules retained the rule of construction that clarifies that in a transaction involving two or more consumers who are granted, extended, or otherwise provided credit, a person must provide a risk-based pricing notice to each consumer. The proposed rules, however, amended the rules addressing the provision of a risk-based pricing notice when the consumers have the same address and when the consumers have different addresses, to account for situations where a risk-based pricing notice contains a consumer's credit score.

Proposed § __.75(c)(1) provided that whether the consumers have the same address or not, the person must provide a separate notice to each consumer if a notice includes a credit score(s). Each separate notice that includes a credit score(s) must contain only the credit score(s) of the consumer to whom the notice is provided, and not the credit score(s) of the other consumer. If the consumers have the same address, and the notice does not include a credit score(s), a person may satisfy the requirements by providing a single notice addressed to both consumers.

The proposed rules also amended § __.75(c)(3)(i) to provide an example illustrating the notice requirements when a person must provide a risk-based pricing notice that includes credit score information to multiple consumers. Proposed § __.75(c)(3)(i) clarified that, in a situation where two consumers jointly apply for credit with a creditor and the credit decision is based in part on the consumers' credit scores, a separate risk-based pricing notice must be provided to each consumer whether the consumers have the same address or not. Each separate risk-based pricing notice must contain the credit score(s) of the consumer to whom the notice is provided.

Consumer advocates supported the proposed rules governing multiple consumers. Several industry commenters asked that creditors have the option to provide risk-based pricing notices to all the applicants or only to the applicant whose credit score was used in setting the material terms of credit. Some industry commenters also argued that co-applicants elect to share information with one another, and that creditors cannot prevent co-applicants from accessing each other's risk-based pricing notices.

Under section 615(h) of the FCRA, a person generally must provide a risk-based pricing notice to a consumer when the person uses a consumer report in connection with an extension of credit and, based in whole or in part on a consumer report, extends credit to the consumer on material terms that are materially less favorable than the most favorable terms available to a substantial proportion of consumers. A creditor therefore must provide a risk-based pricing notice to all co-applicants, and not only to the applicant whose credit score was used in setting the material terms of credit.14 Further, the Agencies do not believe co-applicants necessarily choose, merely by applying for credit together, to share sensitive information with one another, in particular, credit scores. The Agencies understand that creditors may not be able to prevent co-applicants from accessing each other's risk-based pricing notices. Yet the Agencies believe that creditors must provide each risk-based pricing notice to the corresponding applicant, in keeping with privacy concerns.

Appendix H of the Board's rules and Appendix B of the Commission's rules contain five model forms that the Agencies prepared to facilitate compliance with the rules. Two of the model forms are for risk-based pricing notices and three of the model forms are credit score disclosure exception notices. Each of the model forms is designated for use in a particular set of circumstances as indicated by the title of that model form. Model forms H-1 and B-1 are for use in complying with the general risk-based pricing notice requirements in § __.72. Model forms H-2 and B-2 are for use in complying with the risk-based pricing notices given in connection with account review in § __.72.

The proposed rules added two new forms that could be used when a person must disclose credit score information to a consumer. Model forms H-6 and B-6 set forth a risk-based pricing notice with credit score information that could be used to comply with the general risk-based pricing requirements if the additional content requirements of § __.73(a)(1)(ix) apply. Model forms H-7 and B-7 set forth an account review risk-based pricing notice with credit score information that could be used to comply with the account review notice requirements if the additional content requirements of § __.73(a)(2)(ix) apply.

Model forms H-1 and H-2, and B-1 and B-2, are retained. The general risk-based pricing and account review notices could continue to be used to comply with § __.72 when the additional content requirements discussed in §§ __.73(a)(1)(ix) and (a)(2)(ix) do not apply. As with the other model forms, use of the model forms H-6 or H-7, or B-6 or B-7, by creditors is optional. If a creditor appropriately uses Model Form H-6 or H-7, or B-6 or B-7, or modifies a form in accordance with the rules or the instructions to the appendix, that creditor will be within the rules' safe harbor and is deemed to be acting in compliance with the general risk-based pricing notice or account review notice requirement when the content provisions of §§ __.73(a)(1)(ix) or (a)(2)(ix) apply.

Finally, the proposal amended instructions 1. and 2. to Appendices H and B to reflect the addition of H-6 and H-7, and B-6 and B-7. The Agencies did not receive comments on the proposed changes to instructions 1. and 2. to Appendices H and B. The Agencies are adopting the changes to instructions 1. and 2. to Appendices H and B as proposed in the final rules.

In addition, as discussed in more detail above, model forms H-6 and H-7 of the Board's rules and B-6 and B-7 of the Commission's rule are also revised to add the statement: “We used your credit score to set the terms of credit we are offering you,” in the “What you should know about your credit score” box on the model forms. SeeAdditional Information Regarding Credit Scores, above.

The Agencies received several comments on the proposed model forms, as discussed in more detail below. The final rules adopt model forms H-6 and H-7 of the Board's rule and B-6 and B-7 of the Commission's rule as proposed with one revision pertaining to the disclosure of contact information for the entity that provided the credit score.

Contact information for the entity that provided the credit score.An industry commenter asked that the Agencies add language to the model forms directing the consumer to the consumer reporting agency for more information about the credit score. The commenter believed that consumers may otherwise contact creditors with questions about their credit score, but that creditors are not in a position to answer those questions.

The Agencies are adding optional language to model forms H-6 and H-7 of the Board's rule and B-6 and B-7 of the Commission's rule directing the consumer to the entity (which may be a consumer reporting agency or, in the case of a proprietary score that meets the definition of a credit score, the creditor itself) that provided the credit score for any questions about the credit score, along with the entity's contact information. Creditors may use or not use the additional language without losing the safe harbor, since the language is optional. The final rules add new instruction 4. to Appendices H and B to make clear that this disclosure of the entity's contact information is optional.

Co-applicants, guarantors, and co-signers.An industry commenter recommended providing creditors with the flexibility to add language to the model forms to indicate that for co-applicants, the terms of credit may be based on either or both of the applicants' credit information. A consumer advocate similarly suggested adding language to the model forms indicating that for applications with a guarantor or co-signer, the terms of credit may be based on either or both of the applicant's, guarantor's, or co-signer's credit information. The commenters explained that such language would decrease consumer confusion, since an applicant with an excellent credit profile who receives a risk-based pricing notice may not realize that the risk-based pricing decision may have been made because of the co-applicant's, guarantor's, or co-signer's credit profile.

The Agencies believe the additional language may simply complicate the disclosures without providing a substantial benefit to consumers. An applicant with strong credit who receives a risk-based pricing notice will likely understand that the adverse decision was based on the co-applicant, guarantor, or co-signer's credit information or will contact the creditor to inquire.

Disclosure that no credit score is available.In some cases, a creditor may try to obtain a credit score for an applicant, but the applicant may have insufficient credit history for the consumer reporting agency to generate a credit score. One commenter asked that the creditor have the option to amend the model forms to provide the applicant notice that no credit score was available from a consumer reporting agency in the space available on the model forms for the credit information disclosure.

Section 1100F only applies when a creditor uses a credit score in setting the material terms of credit. The creditor cannot and is not required to disclose credit score information if an applicant has no credit score. Nothing in section 1100F of the Dodd-Frank Act prevents a creditor from providing the applicant notice that no credit score was available from a consumer reporting agency, although section 1100F does not require such notice.

Order of content.The Agencies specifically solicited comment on the ordering of the content in Model Forms H-6 and H-7, and B-6 and B-7, and whether the credit score and information relating to a credit score should be presented prior to the information on consumer reports.

Some commenters indicated that the Agencies should not change the order of the content in the model forms to present the credit score and information relating to the credit score prior to information on consumer reports. One commenter indicated that changing the order of content would impose additional compliance burdens on creditors without providing significant additional benefits for consumers.

Another commenter proposed that the credit score information should be moved up and incorporated into the information on consumer reports, instead of disclosed separately at the bottom of the notice. The final rules retain the order of the content in the model forms as proposed. The Agencies believe that it is appropriate to disclose the information related to credit reports first because the primary purpose of the risk-based pricing notices is to alert consumers that risk-based pricing occurred as a result of their consumer reports. Further, in retaining the proposed order of the content, the model forms more logically progress from more general consumer report information to more specific credit score information. In addition, given that a creditor may still provide a consumer Forms H-1 and H-2 of the Board's rules and Forms B-1 and B-2 of the Commission's rules when the creditor does not use the consumer's credit score in setting the material terms of credit, providing the credit score information after the consumer report information will promote ease of use for creditors who use Forms H-1 and H-2 of the Board's rules and Forms B-1 and B-2 of the Commission's rules for some consumers and the amended model forms for other consumers.

Order of credit report information.One commenter suggested that the credit report information in the model form should be reordered. Proposed Model Forms H-6 and H-7 of the Board's rules and Forms B-6 and B-7 of the Commission's rules disclose the credit score in the first row of the section “Your Credit Score and Understanding Your Credit Score.” An explanation of what credit scores are is disclosed in the second row of this section. The commenter suggested that the information would be more understandable to consumer if the explanation of what credit scores are was disclosed in the first row of this section.

The final rules retain the proposed order of the credit report information in model forms H-6 and H-7 of the Board's rules and Forms B-6 and B-7 of the Commission's rules. The Agencies believe that disclosing the credit score that is used in setting the material credit terms or reviewing the account is the primary purpose of the provisions of section 1100F of the Dodd-Frank Act. By placing the credit score that is applicable to the consumer in the first row of the section “Your Credit Score and Understanding Your Credit Score,”the Agencies believe that consumers are more likely to continue reading the notice to find out additional information about the credit score.

Attaching the credit score information to the current model form.One industry commenter asked the Agencies to clarify that a creditor may staple or append the credit score information using a supplemental document to a current model form on general risk-based pricing (H-1 and B-1) or an account review notice (H-2 and B-2). The Agencies note that information contained on the first page of H-1 and B-1 is the same as the information contained on the first page of H-6 and B-6. Likewise, the information contained on the first page of H-2 and B-2 is the same as the information contained on the first page of H-7 and B-7. The difference between H-1 (or B-1) and H-6 (or B-6) is the inclusion of the credit score information contained in the section “Your Credit Score and Understanding Your Credit Score” that is contained on the second page of H-6 and B-6. Likewise, the difference between H-2 (or B-2) and H-7 (or B-7) is the inclusion of the credit score information contained in the section “Your Credit Score and Understanding Your Credit Score” that is contained on the second page of H-7 and B-7. Thus, the Agencies believe that a creditor will be deemed to have used H-6 or B-6 if it staples or appends to H-1 or B-1 the credit score information contained in the section “Your Credit Score and Understanding Your Credit Score” that is contained on the second page of H-6 and B-6. Instruction 3. to Appendices H and B sets out the modifications that may be made to the model forms without losing the benefit of safe harbor. The combined H-1 or B-1 and attachment must comply with Instruction 3. to Appendices H and B for the creditor to retain the safe harbor for using H-6 or B-6. Likewise, a creditor will be deemed to have used H-7 or B-7 if it staples or appends to H-2 or B-2 the credit score information contained in the section “Your Credit Score and Understanding Your Credit Score” that is contained on the second page of H-7 and B-7, in a format substantially similar to H-7 and B-7. The combined H-2 or B-2 and attachment must comply with Instruction 3. to Appendices H and B for the creditor to retain the safe harbor for using H-7 or B-7.

Use of graphs or table format.An industry commenter requested that the Agencies clarify that creditors may use a graph or table format to provide the information in the model forms without losing the safe harbor. The commenter stressed that graphs, tables, and other visual devices may be clearer and more useful to consumers.

Although the Agencies certainly encourage simplicity, one of the key benefits of a safe harbor is uniformity. Thus, it is difficult to make a blanket statement that creditors may substitute graphs or tables without losing the safe harbor.

The Agencies reiterate the interpretation in the proposed rule. A creditor may rearrange the format of the model forms or make technical modifications to the language of the model forms, so long as the creditor does not change the substance of the disclosures.SeeInstruction 3. to Appendices H and B. The creator may not, however, make such an extensive rearrangement or modification of the language of the model forms as to materially affect the substance, clarity, comprehensibility, or meaningful sequence of the model forms.SeeInstruction 3. to Appendices H and B. Such extensive rearrangements or modification of the language of the model forms would result in loss of the safe harbor.SeeInstruction 3. to Appendices H and B. Whether a graph or table could be used without losing the safe harbor would have to be determined on a case by case basis using this standard.

The Agencies noted in the proposal that the amendments in section 1100F of the Dodd-Frank Act are effective on July 21, 2011. Several industry commenters asked that the Agencies delay the implementation date by 6 months to at least 12 months. One commenter suggested that the Agencies stay the rulemaking, and let the Bureau finalize the rules. Another commenter requested that creditors receive the benefit of the safe harbor for using the proposed model forms until creditors can implement the requirements in the final rule.

Several industry commenters argued that the risk-based pricing requirements in section 1100F do not become effective until incorporated by rules, because section 1100F amends section 615(h) of the FCRA, and that section 615(h)(6) of the FCRA states that regulations are required to implement risk-based pricing requirements. Further, one industry commenter asserted that section 1088(a)(9) of the Dodd-Frank Act amends the FCRA to require the Bureau to issue regulations implementing section 1100F. This commenter argued that Congress could not have intended section 1100F of the Dodd-Frank Act to take effect on July 21, 2011 since the Bureau would not yet be operational. The commenter concluded that section 1100F of the Dodd-Frank Act is an exception to the July 21, 2011 effective date.

Section 1100F of the Dodd-Frank Act provides that the amendments in Subtitle H of Title X, which includes Section 1100F, become effective on a “designated transfer date.” The Secretary of the Treasury set the designated transfer date as July 21, 2011. 75 FR 57252 (Sept. 20, 2010). Thus, effective July 21, 2011, section 1100F of the Dodd-Frank Act amends section 615(h)(5) of the FCRA, which sets forth the minimum content required for risk-based pricing notices. Even if the Agencies did not modify the model forms to incorporate this additional minimum content, creditors would be required to disclose this information pursuant to the statute.

Rather than have creditors create their own notices in order to comply with section 1100F of the Dodd-Frank Act, the Agencies are exercising their existing authority to amend the model notices to reflect these changes to avoid consumer confusion, and to ensure timely, consistent, and uniform compliance with the new content provisions. Section 615(h) gives the Agencies the authority to issue rules implementing the risk-based pricing provisions, including authority to address “the form, content, timing, and manner of delivery” of risk-based pricing notices. The Agencies believe that adding to the requirements for the risk-based pricing notice the content required by section 1100F of the Dodd-Frank Act, and providing revised model notices is appropriate. These final rules are thus effective and compliance is mandatory beginning 30 days after the date of publication in theFederal Register.

The Agencies have reviewed the final rules and determined that they contain “collections of information” subject to the Paperwork Reduction Act of 1995, 44 U.S.C. 3501-3521 (PRA). An agency may not conduct or sponsor, and a respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number.

The Board has reviewed and approved the final rulemaking under the authority delegated by OMB. 5 CFR part 1320, Appendix A.1. The collections of information required by this finalrulemaking are found in 12 CFR 222.73(a)(1) and (a)(2).15

The Commission submitted the information collection requirements contained in the proposed rulemaking to OMB for review and approval under the PRA; OMB withheld formal action on the rulemaking pending its further review of the joint final rules. The collections of information required by this final rulemaking are found in 16 CFR 640.4(a)(1) and (a)(2).

As discussed above, on March 15, 2011, the Agencies published in theFederal Registera joint notice of proposed rulemaking that is consistent with new content requirements in section 615(h) of the FCRA that were added by section 1100F of the Dodd-Frank Act. 76 FR 13902. The final rules require creditors to disclose credit score information to consumers when a credit score is used to set or adjust the terms of credit. Specifically, the final rules would require the following disclosures: (1) The credit score used by the person in making the credit decision; (2) the range of possible credit scores under the model used to generate the credit score; (3) all of the key factors that adversely affected the credit score, which shall not exceed four key factors, except that if one of the key factors is the number of enquiries made with respect to the consumer report, the number of key factors shall not exceed five; (4) the date on which the credit score was created; and (5) the name of the consumer reporting agency or other person that provided the score. In addition, the final rules require a statement that a credit score is a number that takes into account information in a consumer report, that the consumer's credit score was used to set the terms of credit offered, and that a credit score can change over time to reflect changes in the consumer's credit history.

In the proposal, the Agencies collectively estimated that respondents potentially affected by the additional notice would take, on average, 16 hours (2 business days) to update their systems and modify model notices to comply with the proposed requirements. The Agencies recognized that the amount of time needed for any particular creditor subject to the proposed requirements may be higher or lower, but believed this average figure was a reasonable estimate.

The Agencies received 13 comments—two from banks, three from utilities, two from credit union trade association, two from banking trade associations, two from credit and financial services companies, one from a consumer credit trade association, and one from a law firm on behalf of an unspecified client—in response to the PRA section of the proposal. The commenters asserted that the time needed to update their systems to incorporate these requirements and coordinate with consumer reporting agencies as necessary would exceed the 16 hours estimated by the Agencies.

Based on these comments, the Agencies agree that some additional time beyond 16 hours may be needed. The Agencies, therefore, have revised upward their prior burden estimate. The Agencies believe that 32 hours (4 business days) is a reasonable estimate of the average amount of time to modify existing database systems to incorporate these new requirements. Entities affected by these final rules are already familiar with the existing provisions of section 615(h) of the FCRA, which require risk-based pricing disclosures when a person uses a consumer report in setting the material terms of credit. The new requirement to require creditors to disclose credit score information to consumers when a credit score is used to set or adjust the terms of credit should not be burdensome. In addition, the Agencies have provided model notices that should significantly reduce the cost of compliance with the final rules. Moreover, the Agencies have provided exceptions to the final rules, whereby creditors may fulfill their compliance obligation by providing credit score disclosure exception notices.

Frequency of Response:On occasion.

Affected Public:Any person that is required to provide a risk-based pricing notice and uses a credit score in making the credit decision requiring a risk-based pricing notice.

Board:

For purposes of the PRA, the Board is estimating the burden for entities regulated by the Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Office of Thrift Supervision, National Credit Union Administration, and the U.S. Department of Housing and Urban Development (collectively, the “Federal financial regulatory agencies”). Such entities may include, among others, State member banks, national banks, insured nonmember banks, savings associations, Federally-chartered credit unions, and other mortgage lending institutions.

Number of Respondents:18,173.

Estimated Time per Response:32 hours (four business days) to update systems and modify model notices to comply with final requirements.

Total Estimated Annual Burden:581,536 hours.

Commission:

For purposes of the PRA, the Commission is estimating the burden for entities that extend credit to consumers for personal, household, or family purposes, and are subject to administrative enforcement by the FTC pursuant to section 621(a)(1) of the FCRA (15 U.S.C. 1681s(a)(1)). These businesses include, among others, non-bank mortgage lenders, consumer lenders, utilities, state-chartered credit unions, and automobile dealers and retailers that directly extend credit to consumers for personal, non-business uses.

Number of Respondents:199,500.16

Estimated Time per Response:32 hours (4 business days) to update systems and modify model notices.

Total Estimated Annual Burden:Based on an estimated 199,500 respondents, the one-time burden, annualized for a 3 year PRA clearance, would be 2,128,000 hours [(32 × 199,500) ÷ 3]. The Commission believes that, on a continuing basis, the revision to the final rules would have a negligible effect on the annual burden. The estimated one-time labor cost for all categories of FTC covered entities under the final rule, annualized for a 3 year PRA clearance, is $91,397,600.

Total Estimated Cost Burden:Commission staff derived labor costs by applying appropriate estimated hourly cost figures to the burden hours described above. It is difficult tocalculate with precision the labor costs associated with the final rules, as they entail varying compensation levels of clerical, management, and/or technical staff among companies of different sizes. In calculating the cost figures, Commission staff assumes that managerial and/or professional technical personnel will update systems for providing risk-based pricing notices and adapt the written notices as necessary at an hourly rate of $42.95.17 Based on the above estimates, the estimated one-time labor cost for all categories of FTC covered entities under the final rule, annualized for a 3 year PRA clearance, is $91,397,600 [((32 hours × $42.95) × 199,500) ÷ 3].

Commission staff does not anticipate that compliance with the final rules will require any new capital or other non-labor expenditures. The final rules provide a simple and concise model notice that creditors may use to comply, and, as creditors already are providing risk-based pricing notices to consumers under the FCRA, they already have the necessary resources to generate and distribute these notices. Thus, any capital or non-labor costs associated with compliance would be negligible.

Board:

The Board prepared an initial regulatory flexibility analysis under the Regulatory Flexibility Act (RFA) (5 U.S.C. 601et seq.) in connection with the proposed rules. The final rules cover certain banks, other depository institutions, and non-bank entities that extend credit to consumers. The Small Business Administration (SBA) establishes size standards that define which entities are small businesses for purposes of the RFA.18 The size standard to be considered a small business is: $175 million or less in assets for banks and other depository institutions; and $7 million or less in annual revenues for the majority of non-bank entities that are likely to be subject to the final rules. Under Section 605(b) of the RFA, 5 U.S.C. 605(b), the regulatory flexibility analysis otherwise required under section 604 of the RFA is not required if an agency certifies, along with a statement providing the factual basis for such certification, that the rules will not have a significant economic impact on a substantial number of small entities. The Board hereby certifies that the final rules will not have a significant economic impact on a substantial number of small business entities. The Board recognizes that the final rules will affect some small business entities; however the Board does not expect that a substantial number of small businesses will be affected or that the final rules will have a significant economic impact on them. Nonetheless, the Board has decided to publish a final regulatory flexibility analysis with the final rules and has prepared the following analysis:

Section 1100F of the Dodd-Frank Act amends section 615(h) of the FCRA to require persons to disclose a credit score and information relating to that credit score in risk-based pricing notices when the person uses a credit score in setting the material terms of credit. Specifically, a person must disclose, in addition to the information currently required by the January 2010 Final Rule: (1) A numerical credit score used in making the credit decision; (2) the range of possible scores under the model used; (3) the key factors that adversely affected the credit score of the consumer in the model used; (4) the date on which the credit score was created; and (5) the name of the person or entity that provided the credit score. The effective date of these amendments is July 21, 2011.

The Agencies are issuing final rules to amend the risk-based pricing rules pursuant to their existing authority under section 615(h) of the FCRA, to facilitate compliance with the new requirements under section 1100F of the Dodd-Frank Act.

TheSUPPLEMENTARY INFORMATIONabove contains information on the objectives and legal basis of the final rules. The legal basis for the final rules is section 615(h) of the FCRA. The final rules are consistent with section 1100F of the Dodd-Frank Act.

Some industry commenters stated that the proposed rules would create substantial compliance burdens, particularly for small entities. They asked that small entities be exempt from the requirements, or that the Board delay the implementation date for small entities.

The compliance burdens identified by these commenters are not substantially different from the burdens imposed by the January 2010 Final Rule. In addition, the exemption requested by the commenters would also affect the underlying January 2010 Final Rule. Further, changes to the risk-based pricing rules and notices beyond those required by section 1100F of the Dodd-Frank Act are outside the scope of this rulemaking. Finally, the Agencies do not believe such changes to the January 2010 Final Rule are appropriate in light of the impending transfer of rulemaking authority to the Bureau.

The final rules apply to any person that (1) is required to provide a risk-based pricing notice to a consumer; and (2) uses a credit score in making the credit decision requiring a risk-based pricing notice. The total number of small entities likely to be affected by the final rules is unknown, because the Agencies do not have data on the number of small entities that use credit scores for risk-based pricing in connection with consumer credit. The risk-based pricing provisions of section 1100F of the Dodd-Frank Act have broad applicability to persons who use credit scores for risk-based pricing in connection with the provision of consumer credit.

Based on estimates compiled by the Board, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision, there are approximately 9,458 depository institutions that could be considered small entities and that are potentially subject to the final rules.19 The available data are insufficient to estimate the number of non-bank entities that would be subject to the final rules and that are small as defined by the SBA. Such entities would include non-bank mortgage lenders, automobile finance companies, automobile dealers, other non-bank finance companies, telephone companies, and utility companies.

It also is unknown how many of these small entities that meet the SBA's size standards and that are potentially subject to the final rules use credit scores for risk-based pricing in connection with the provision of consumer credit. The final rules do not impose any requirements on small entities that do not use credit scores forrisk-based pricing in connection with consumer credit.

The compliance requirements of the final rules are described in detail in theSUPPLEMENTARY INFORMATIONabove.

The final rules generally require a person that is required to provide a risk-based pricing notice to a consumer and uses a credit score in making the credit decision to provide a credit score and information relating to that credit score in the notice, in addition to the information currently required by the January 2010 Final Rule.

Pursuant to the January 2010 Final Rule, a person is required to determine if it engages in risk-based pricing, based in whole or in part on consumer reports, in connection with the provision of consumer credit. If the person does engage in risk-based pricing based on consumer reports, the person generally is currently required to establish procedures for identifying those consumers to whom it must provide risk-based pricing notices.

A person that is required to provide risk-based pricing notices to certain consumers would need to analyze the regulations. The person would need to determine whether it used credit scores for risk-based pricing of the consumers to whom it must provide risk-based pricing notices. Pursuant to the final rules, a person that uses credit scores for risk-based pricing would need to provide a credit score and information relating to that credit score to those consumers to whom it must provide an risk-based pricing notice, in addition to the information currently required by the January 2010 Final Rule. The person would need to design, generate, and provide notices, including a credit score and information relating to that credit score, to the consumers to whom it must provide a risk-based pricing notice.

The Board does not expect that the costs associated with the final rules will place a significant burden on small entities.

The Board has not identified any federal statutes or regulations that would duplicate, overlap, or conflict with the final rules. As discussed in Part II above, the amendments to the risk-based pricing rules are consistent with section 1100F of the Dodd-Frank Act. The Agencies are issuing the final rules pursuant to their existing authority under section 615(h) of the FCRA. The amendments to the risk-based pricing rules have been designed to work in conjunction with the requirements of section 1100F of the Dodd-Frank Act, to help facilitate uniform compliance when this section becomes effective.

The Board solicited comments on any significant alternatives consistent with section 615(h) of the FCRA, including the provisions of section 1100F of the Dodd-Frank Act, that would minimize the impact of the final rules on small entities. As noted above, several industry commenters suggested that small entities be exempt from the proposed rules, or that the Board delay the effective date for small entities.

The Board has sought to minimize the economic impact on small entities by adopting rules that are consistent with those adopted by the Commission, and providing model notices to ease creditors' burden. As explained above, given the impending transfer of rulemaking authority to the Bureau, the Agencies do not believe it is appropriate to make changes to the January 2010 risk-based pricing rules and notices beyond those required by section 1100F of the Dodd-Frank Act. Such changes are beyond the scope of this rulemaking. In addition, Congress set the effective date for section 1100F of the Dodd-Frank Act for July 21, 2011. To facilitate compliance, the final rules are effective and compliance is mandatory beginning 30 days after the date of publication in theFederal Register.

The Regulatory Flexibility Act (“RFA”), 5 U.S.C. 601-612, requires that the Commission provide an Initial Regulatory Flexibility Analysis (IRFA) with a proposed rules and a Final Regulatory Flexibility Analysis (FRFA) with the final rules, unless the Commission certifies that the rules will not have a significant economic impact on a substantial number of small entities.See5 U.S.C. 603-605.

The Commission hereby certifies that the final rules will not have a significant economic impact on a substantial number of small business entities. The Commission recognizes that the final rules will affect some small business entities; however we do not expect that a substantial number of small businesses will be affected or that the final rules will have a significant economic impact on them.

The Commission continues to believe that a precise estimate of the number of small entities that fall under the final rules is not feasible. The Commission did not receive any comments relating to the total number of small entities that would be affected by the final rules. We did receive some comments from industry suggesting that the compliance with the final rules would be burdensome. One comment stated that publicly owned utilities, many of which qualify as small entities, will incur “significant” costs to comply with the final rules and requested that the Commission conduct the full FRFA analysis. The Commission considered these comments, and based on the Commission's own experience and knowledge of industry practices, the Commission continues to believe that the cost and burden to small entities of complying with the final rules are minimal. Accordingly, this document serves as notice to the Small Business Administration of the agency's certification of no effect. Nonetheless, the Commission has decided to publish a FRFA with the final rules and has prepared the following analysis:

Section 1100F of the Dodd-Frank Act amends section 615(h) of the FCRA to require persons to disclose a credit score and information relating to that credit score in risk-based pricing notices when the person uses a credit score in setting the material terms of credit. Specifically, a person must disclose, in addition to the information currently required by the January 2010 Final Rule: (1) The numerical credit score used in making the credit decision; (2) the range of possible scores under the model used; (3) the key factors that adversely affected the credit score of the consumer in the model used; (4) the date on which the credit score was created; and (5) the name of the person or entity that provided the credit score. The effective date of these amendments is July 21, 2011.

The Agencies are issuing final rules to amend the risk-based pricing rules pursuant to their existing authority under section 615(h) of the FCRA, to facilitate compliance with the new requirements under section 1100F of the Dodd-Frank Act.

The Commission received a number of comments in response to the proposed rules. Some of the industry comments stated that the proposed rules would create substantial compliance burdens, particularly for small entities. They asked that certain small entities be exempt from the requirements, or that the Commission delay the implementation date for small entities.

The compliance burdens identified by these comments are not substantially different or distinct from the burdens imposed by the original Final Rule, which became effective January 1, 2011. Therefore the exemption requested by the comments—to be excluded from the requirement to provide risk-based pricing notices—would affect the underlying Rule. Given the impending transfer of rulemaking authority to the Bureau, however, the Agencies do not believe it is appropriate to make changes to the risk-based pricing rules and notices beyond those required by section 1100F of the Dodd-Frank Act. Such changes are beyond the scope of this rulemaking.

The final rules apply to any person that (1) Is required to provide a risk-based pricing notice to a consumer; and (2) uses a credit score in making the credit decision requiring a risk-based pricing notice. The total number of small entities likely to be affected by the final rules is unknown, because the Commission does not have data on the number of small entities that use credit scores for risk-based pricing in connection with consumer credit.

Moreover, the entities under the Commission's jurisdiction are so varied that there is no way to identify them in general and, therefore, no way to know how many of them qualify as small entities. Generally, the entities under the Commission's jurisdiction that also are covered by section 311 include state-chartered credit unions, non-bank mortgage lenders, automobile dealers, and utility companies. The available data, however, are not sufficient for the Commission to realistically estimate the number of small entities, as defined by the SBA, that the Commission regulates and that would be subject to the proposed rules.20 The Commission received one comment stating that a majority of publicly owned utilities qualified as small entities and would, therefore, be affected by these final rules. The final rules do not, however, impose any requirements on small entities that do not use credit scores for risk-based pricing in connection with the provision of consumer credit.

The compliance requirements of the final rules are described in detail in theSUPPLEMENTARY INFORMATIONabove.

The final rules generally require a creditor that is required to provide a risk-based pricing notice to a consumer, and uses a credit score in making the credit decision to provide a credit score and information relating to that credit score in the notice, in addition to the information that is currently required by the January 2010 Final Rule. Pursuant to the January 2010 Final Rule, a person is required to determine if it engages in risk-based pricing, based in whole or in part on consumer reports, in connection with the provision of consumer credit. If the person does engage in risk-based pricing based on consumer reports, the person generally is required to establish procedures for identifying those consumers to whom it must provide risk-based pricing notices.

A person that is required to provide risk-based pricing notices would need to analyze the rules. The person would need to determine whether it used credit scores for risk-based pricing of the consumers to whom it must provide risk-based pricing notices. Pursuant to the final rules, a person that uses credit scores for risk-based pricing would need to provide credit score information relating to that credit score to those consumers to whom it must provide a risk-based pricing notice, in addition to the information currently required by the January 2010 Final Rule. The person would need to design, generate, and provide notices, including a credit score and information relating to that credit score, to the consumers to whom it must provide a risk-based pricing notice.

Compliance with the final rules will involve some expenditure of time and resources, although Commission staff anticipates that the costs per entity will not be significant. Most of the costs will be incurred initially as entities update their systems for determining which of their consumers should receive risk-based pricing notices, and update notices to include a credit score and information relating to that score, as necessary, and as they train staff to comply with the rules. In calculating these costs, Commission staff assumes that for all entities managerial or professional technical personnel will handle the initial aspects of compliance with the rule, and that sales associates or administrative personnel will handle any ongoing responsibilities. To further minimize the costs associated with the final rules, the Agencies have provided a model notice to facilitate compliance. Cost estimates for compliance with the final rules are described in detail in the PRA section of this Notice.

Commission staff does not expect that the costs associated with the final rules will place a significant burden on small entities.

The Commission considered whether any significant alternatives, consistent with section 615(h) of the FCRA, including the provisions of section 1100F of the Dodd-Frank Act, could further minimize the final rules' impact on small entities. As noted above, some industry commenters suggested that small entities be exempt from the rules, or that the Commission delay the effective date for small entities.

As explained above, given the impending transfer of rulemaking authority to the Bureau, however, the Agencies do not believe it is appropriate to make changes to the risk-based pricing rules and notices beyond those required by section 1100F of the Dodd-Frank Act. Such changes are beyond the scope of this rulemaking. In addition, Congress set the effective date for section 1100F of the Dodd-Frank Act for July 21, 2011. The final rules are effective and compliance is mandatory beginning 30 days after the date of publication in theFederal Register.

The Commission has sought to minimize the economic impact on small entities by providing a model notice to ease creditor's burden and facilitate compliance. By using the model notice, creditors qualify for the safe harbor. Creditors are not required to use the model notice, however. If they provide a notice that clearly and conspicuously conveys the required information, these creditors would comply with the requirements of the rules, though they would not receive the benefit of the safe harbor. In addition, compliance with this notice requirement is format-neutral. Finally, a creditor may comply with the January 2010 Final Rule by providing consumers with a credit score disclosure notice. By providing a range of options, the Agencies have sought to help businesses of all sizes reduce the burden of complying with the final rules.

For the reasons set forth in the joint preamble, the Board is amending chapter II of title 12 of the Code of Federal Regulations by amending 12 CFR part 222, as follows:

For the reasons discussed in the joint preamble, the Federal Trade Commission is amending chapter I, title 16, Code of Federal Regulations, as follows:

The Dodd-Frank Act (Pub. L. 111-203, 12 U.S.C. 5301et seq.,July 21, 2010) was enacted on July 21, 2010. Title II of the Act provides for the appointment of the FDIC as receiver of a nonviable financial company that poses significant risk to the financial stability of the United States (a “covered financial company”) following the prescribed recommendation, determination, and judicial review process set forth in the Act. Title II outlines the process for the orderly liquidation of a covered financial company following the FDIC's appointment as receiver and provides for additional implementation of the orderly liquidation authority by rulemaking. The Final Rule is being promulgated pursuant to section 209 of the Act, which authorizes the FDIC, in consultation with the Financial Stability Oversight Council, to prescribe such rules and regulations as the FDIC considers necessary or appropriate to implement Title II; section 210(s)(3), which directs the FDIC to promulgate regulations to implement the requirements of the Act with respect to recoupment of compensation from senior executives or directors materially responsible for the failed condition of a covered financial company, which regulation is required to include a definition of the term “compensation;” section 210(a)(7)(D), with respect to the establishment of a post-insolvency interest rate; and section 210(b)(1)(C)-(D), with respect to the index for inflation applied to certain employee compensation and benefit claims. While it is not expected that the FDIC will be appointed as receiver for a covered financial company in the near future, it is important for the FDIC to have rules in place in a timely manner so that stakeholders may plan transactions going forward.

The Final Rule represents a culmination of an initial phase of rulemaking under Title II of the Dodd-Frank Act with respect to the implementation of its authority to undertake the orderly liquidation of a covered financial company. On October 19, 2010, the FDIC published in theFederal Registera notice of proposed rulemaking (75 FR 64173, October 19, 2010). Following consideration of comments received, that proposed rule was implemented as an Interim Final Rule (“IFR”) issued on January 25, 2011, and was codified at 12 CFR part 380, consisting of §§ 380.1-380.6 (76 FR 4207, January 25, 2011). The IFR addressed discrete topics that were critical for initial guidance for the financial industry, including the payment of similarly situated creditors, the honoring of personal service agreements, the recognition of contingent claims, the treatment of any remaining shareholder value in the case of a covered financial company that is a subsidiary of an insurance company and limitations on liens that the FDIC may take on the assets of a covered financial company that is an insurance company or a covered subsidiary of an insurance company. The FDIC requested additional general comments on the IFR as well as comments relating to specific provisions. The comment period for the IFR ended on March 28, 2011.

On March 15, 2010, the FDIC issued a notice of proposed rulemaking covering additional subjects pertinent to an orderly liquidation under Title II of the Act (76 FR 16324, March 23, 2011). The purpose of the proposed rule (the “Proposed Rule”) that was the subject of this second notice was to continue to build on the framework initially begun with the IFR. The Proposed Rule addressed the recoupment of compensation from senior executives and directors of a covered financial company; further clarified the definition of “financial company” in section 201 of the Dodd-Frank Act by detailing what it means to be “predominantly engaged in activities that are financial or incidental thereto;” clarified the receiver's powers to avoid fraudulent and preferential transfers by a covered financial company; addressed the order of priority for the payment of claims, which included clarifying the meaning of “administrative expenses” and “amounts owed to the United States,” the priority for setoff claims, how post-insolvency interest is to be paid, the payment of claims for contracts and agreements expressly assumed by a bridge financial company; and addressed the receivership administrative claims process, including the treatment of secured claims. The notice of proposed rulemaking published in theFederal Registerrequested comments on all aspects of the Proposed Rule as well as comments relating to specific provisions. The comment period ended May 23, 2011.

The FDIC received 10 comments in response to the IFR and 21 comments in response to the Proposed Rule. Almost all of the comments were submitted by financial industry trade associations, with others submitted by insurance trade associations, clearing and settlement companies, a foundation for research and advocacy, a committee of bankruptcy attorneys, a group of law and business school faculty, and a group of law school students.

The general themes of comments that did not directly relate to the text of the IFR and Proposed Rule were wide-ranging. Commenters simultaneously urged prompt and comprehensive rulemaking to increase transparency with respect to the implementation of the orderly liquidation authority and certainty in the implementation of ongoing and future financial transactions, while counseling a deliberate pace to allow input from industry representatives and the benefit of the review of resolution plans prior to the implementation of rules governing the orderly liquidation process.

Many comments urged the greatest possible harmony with bankruptcy laws, rules and processes. These comments sought, among other things: Increased input from creditors and creditor committees, deference to bankruptcy case law, adoption of bankruptcy reporting processes, and earlier and broader judicial input and review. In this connection, comments requested greater clarity with respect to the procedures that the FDIC will follow in determining claims and valuations of collateral and assets, as well as an appeals procedure for disputed valuations of property. Commenters also urged clarification with respect to the implementation of the so-called “Chapter 7 minimum” payment to creditors pursuant to section 210(a)(7)(B) of the Act.1

Commenters from the insurance industry similarly urged the greatest possible deference to state regulators and to state laws, rules and regulations governing insurance companies. One commenter has repeatedly requested clarification that mutual insurance holding companies will be treated as insurance companies for the purposes of the Dodd-Frank Act.

Comments emphasized the importance of maximizing the going concern value of the business and assets of the covered financial company and suggested establishment of standards for the conduct of sales of assets and collateral. A specific concern was the need for clarification of the treatment of custodial assets held by non-banks in an orderly liquidation.

Another broad theme was the importance of clarifying the process and criteria for designating systemically important financial companies that may be subject to orderly liquidation. These comments generally sought to limit the scope of such a designation. In addition to general comments on this theme, one commenter took the position that money managers should never be considered systemically important. Another commenter took the same position with respect to money funds. Additional clarification also was sought with respect to the process for the designation of covered financial companies and the appointment of the receiver.

The implementation of special assessments and the clawback of preferential payments made to similarly situated creditors has been a recurring theme in comments to the IFR and the Proposed Rule. Commenters sought clarity with respect to the designation of preferential payments deemed necessary to essential operations that are exempt from the clawback under section 210(o) of the Dodd-Frank Act. Other comments urged restraint in making preferential payments and suggested additional procedural safeguards with respect to this process. Comments also urged careful consideration of any need for special assessments on the industry to avoid undue burden on well-run companies.

Commenters requested additional clarification of the implementation of the authority to create bridge financial companies, including the processes and procedures for creating and terminating bridge financial companies, the treatment of assets transferred to bridge financial companies, and the treatment of claims against bridge financial companies. One commenter suggested a rule clarifying that all qualified financial contracts will be transferred to a bridge financial company.

Commenters also expressed concern about the process for resolving aninternational financial company and stressed the need for international cooperation and coordination.

Finally, one commenter argued that the IFR and the Proposed Rule are unconstitutionally broad and usurp the legislative function constitutionally delegated to Congress.

Comments beyond the scope of the IFR and the Proposed Rule will be considered in connection with future rulemakings. Comments relating to specific provisions of the IFR and Proposed Rule are discussed below in the analysis of the relevant sections of the Final Rule.

The Final Rule will divide Part 380 into subparts A, B, and C. In subpart A, § 380.1 provides definitions of general applicability in part 380. Section 380.3 provides that services rendered by employees to the covered financial company after the FDIC has been appointed as receiver, or during the period where some or all of the operations of the covered financial company are continued by a bridge financial company, will be compensated according to the terms and conditions of any applicable personal service agreements and that such payments will be treated as an administrative expense. Section 380.5 provides that if the FDIC acts as receiver for a direct or indirect subsidiary of an insurance company and that subsidiary is not an insured depository institution or an insurance company itself, the value realized from the liquidation of the subsidiary will be distributed according to the order of priorities set forth in the Dodd-Frank Act. Section 380.6 provides that the FDIC will avoid taking a lien on some or all of the assets of a covered financial company that is an insurance company or a subsidiary that is an insurance company unless it determines that taking such a lien is necessary for the orderly liquidation of the covered financial company and will not unduly impede or delay the liquidation or rehabilitation of the insurance company or the recovery by its policyholders. Section 380.7 provides that the FDIC as receiver of a covered financial company may recover from senior executives and directors who were substantially responsible for the failed condition of the covered financial company any compensation they received during the two-year period preceding the date on which the FDIC was appointed as receiver, or for an unlimited period in the case of fraud.

The Proposed Rule included § 380.8, implementing section 201(b) of the Act. Section 201(b) of the Act requires the FDIC, in consultation with the Secretary of the U.S. Treasury, to establish by regulation criteria for determining, for the purposes of Title II, if a company is predominantly engaged in activities that are financial in nature or incidental thereto as determined by the Board of Governors of the Federal Reserve System (“Board of Governors”) under section 4(k) of the Bank Holding Company Act (“BHC Act”). A company that is predominantly engaged in such activities is a “financial company” under Title II (unless expressly excluded by section 201(a)(11)(C) of the Act) and may be subject to the orderly liquidation provisions of the Dodd-Frank Act. On February 11, 2011, the Board of Governors published a notice of proposed rulemaking entitled “Definitions of `Predominantly Engaged in Financial Activities' and `Significant' Nonbank Financial Company and Bank Holding Company” (76 FR 7731, February 11, 2011) (“Board of Governors' NPR”).

The Board of Governors' NPR proposed criteria for determining whether a company is “predominantly engaged in financial activities” for purposes of determining if the company is a nonbank financial company under Title I of the Act. There are substantial similarities between the provisions in Title I of the Act, which the Board of Governors' NPR implements, and section 201(b) of the Act, which § 380.8 of the FDIC's Proposed Rule would implement. In light of those similarities, the FDIC staff coordinated with the staff of the Board of Governors, to the extent practicable, on the proposed criteria in § 380.8. The FDIC staff is continuing to coordinate with the staff of the Board of Governors on this issue and intends to finalize the criteria for determining if a company is predominantly engaged in activities that are financial in nature or incidental thereto through a separate notice in theFederal Register.Consequently, § 380.8 is reserved in the Final Rule.

Section 380.9 in subpart A clarifies the interpretation of provisions of the Act authorizing the FDIC as receiver of a covered financial company to avoid fraudulent or preferential transfers in a manner comparable to the relevant provisions of the Bankruptcy Code so that transferees will have the same treatment in a liquidation under the Act as they would have in a bankruptcy proceeding.

Subpart B of the Final Rule addresses the priorities for expenses of the receiver of a covered financial company and other unsecured claims against the covered financial company or the receiver. Subpart B integrates and harmonizes the various provisions of the Dodd-Frank Act that determine the nature and priority of payments. In particular, the subpart integrates the various statutory references to administrative expenses throughout the Act. It also provides additional context with respect to the definition of “amounts owed to the United States” to clarify that unsecured obligations advanced to provide funds for the orderly liquidation of a covered financial company or to avoid or mitigate adverse effects on the financial stability of the United States in the liquidation of the covered financial company are included among the class of claims paid at the higher statutory level accorded to amounts owed to the United States, while unsecured obligations to the United States that were incurred by the covered financial company in the ordinary course of its business prior to the appointment of the receiver will be paid at the priority of general unsecured or senior liabilities of the covered financial company. Additionally, subpart B confirms the statutory treatment of claims arising out of the loss of setoff rights at a priority ahead of other general unsecured creditors if the loss of the setoff is due to the receiver's sale or transfer of an asset, finalizes the methodology for calculating post-insolvency interest on unsecured claims and clarifies the payment of obligations of bridge financial companies and the rights of receivership creditors to any remaining value upon termination of a bridge financial company. For a more logical organizational flow, subpart B also now includes at § 380.27 the rule originally found at § 380.2 of the IFR, clarifying that the FDIC will not use its discretion to differentiate among similarly situated creditors under section 210 of the Act to give preferential treatment to certain long-term senior debt with a term longer than 360 days, and that subordinated debt and equity never will qualify for preferential treatment.

Subpart C sets forth the administrative process for the determination of claims against a covered financial company as established by relevant provisions of the Dodd-Frank Act. This process will not apply to any liabilities or obligations assumed by a bridge financial company or other entity or to any extension of credit from a Federal reserve bank or the FDIC to a covered financial company. Under the claims procedures, the receiver will publish and mail a noticeto advise creditors to file their claims by a bar date that is not less than 90 days after the date of the initial publication. The receiver will have up to 180 days to determine whether to allow or disallow the claim, subject to any extension agreed to by the claimant. The claimant will have 60 days from the earlier of any disallowance of the claim or the end of the 180-day period (or any period extended by agreement) to file a lawsuit in federal court for a judicial determination. No court has jurisdiction over any claim, however, unless the claimant has exhausted its administrative remedies through the claims process.

Subpart C also includes provisions concerning contingent claims and secured claims. With respect to claims based on a contingent obligation of a covered financial company, the receiver will estimate the value of the contingent claim at the end of either the 180-day claim determination period or any extended period agreed to by the claimant. If the claim becomes fixed before it has been estimated, it may be allowed in the fixed amount; otherwise, the estimated value will be used to calculate the claimant's pro rata distribution. With respect to secured claims, subpart C provides that property of a covered financial company that secures a claim will be valued at the time of the proposed use or disposition of the property. Secured claimants may request the consent of the receiver to obtain possession of or exercise control over their collateral. The Final Rule provides that the receiver will grant consent unless it decides to use, sell or lease the property, in which case it must provide adequate protection of the claimant's security interest in the property. This provision will not apply in a case where the receiver repudiates or disaffirms a secured contract, however.

The Final Rule contains substantive revisions and technical corrections to the provisions of the IFR and the Proposed Rule responsive to the comments received. The changes are discussed in more detail in the section-by-section analysis of the Final Rule. In summary, the substantive revisions in the Final Rule are as follows:

(1) In the Proposed Rule, § 380.2(c) provided that collateral securing claims against the covered financial company would be valued as of the date of the appointment of the receiver. This provision has been moved to § 380.50(b) of the Final Rule, which states that such property will be valued at the time of the proposed use or disposition of the property. This approach to the valuation of collateral follows the comparable provision of the Bankruptcy Code.

(2) Section 380.4 of the IFR concerning contingent claims has been moved to § 380.39 of the Final Rule. The original text of this section has been retained and new provisions have been added to provide that the receiver will estimate the value of a contingent claim no later than 180 days after the claim is filed or any extended period agreed to by the claimant.

(3) Section 380.7 addresses the recoupment of compensation from former and current senior executives and directors who are substantially responsible for the failed condition of the covered financial company. The Proposed Rule provided a standard of conduct in which, among other things, a senior executive or director would be deemed “substantially responsible” if he or she failed to conduct his or her responsibilities with the requisite degree of skill and care required by that position. The Final Rule clarifies the standard and provides that a senior executive or director would be deemed “substantially responsible” if he or she failed to conduct his or her responsibilities with the degree of skill and care an ordinarily prudent person in a like position would exercise under similar circumstances. The revision clarifies that the standard of care that will trigger section 210(s) is a negligence standard; a higher standard, such as gross negligence, is not required. The Final Rule was also revised to reflect that the FDIC as receiver may commence an action to seek recoupment and has a “savings clause” to preserve the rights of the FDIC as receiver to recoup compensation under all applicable laws.

(4) As discussed, the provision in § 380.8 of the Proposed Rule regarding the criteria for determining if a company is predominantly engaged in activities that are financial in nature or incidental thereto will be the subject of future rulemaking. Section 380.8 is reserved in the Final Rule.

(5) Section 380.21 of the Proposed Rule enumerated the priorities of payments to unsecured creditors. A new sentence is added in the Final Rule to provide that contractual subordination agreements will be respected, which is consistent with the practice in bankruptcy.

(6) The Proposed Rule contained a definition of “amounts owed to the United States” that would be entitled to the priority of claims immediately following administrative expenses, that included all amounts of any kind owed to any department, agency or instrumentality of the United States. Under the Final Rule, the definition of “amounts owed to the United States” in § 380.23 has been revised to clarify that the obligations entitled to the priority afforded to “amounts owed to the United States” include only amounts advanced to the covered financial company to promote the orderly resolution of the covered financial company or to avoid or mitigate adverse effects on the financial stability of the United States in the resolution of the covered financial company. Consistent with the goal of the Dodd-Frank Act to end any taxpayer bail-out of a nonviable financial company, unpaid unsecured federal income tax obligations also are repaid at the priority afforded to amounts owed to the United States. In response to comments and to provide clearer guidance, this section also sets forth a non-exclusive list of included types of advances, and a similar list of excluded types of advances. The level of priority afforded to amounts owed to the United States is not applicable to administrative expenses, which are dealt with in § 380.22, nor to secured obligations, which are dealt with in §§ 380.50-53 regarding secured claims.

(7) Section 380.24, which addresses the priority granted to creditors who have lost setoff rights due to the exercise of the receiver's right to sell or transfer assets free and clear of such rights, has been modified to make clear that the provisions of that section do not affect the provisions of the Dodd-Frank Act relating to rights of netting with respect to qualified financial contracts.

(8) Section 380.31 addresses the scope and applicability of the receivership administrative claims process by providing that the claims process does not apply to claims against a bridge financial company or involving its assets or liabilities, or extensions of credit from a Federal reserve bank or the FDIC to a covered financial company.

(9) Section 380.35(b)(2)(i) of the Final Rule permits the receiver to consider a claim filed after the claims bar date if the claimant did not have notice of the appointment of the receiver in time to file its claim because the claim is based on an act or omission of the receiver that occurs after the claims bar date. The Proposed Rule addressed claims that did not “accrue” until after the claims bar date. It was decided, however, that this was too broad because it could cover contingent claims, which are addressed in § 380.39 of the Final Rule.

(10) Sections 380.50-380.53 of the Proposed Rule have been extensively modified to more fully protect the rights of secured claimants. Property of acovered financial company will be valued at the time of any proposed disposition or use of the property. A secured claimant may request the receiver's consent to exercise its rights against its collateral, which the receiver will grant unless it decides to use, sell or lease the collateral, in which case the receiver must provide adequate protection of the claimant's security interest in the property.

Definitions.Section 380.1 of the Final Rule contains definitions of the following terms of general applicability to part 380: “allowed claim,” “Board of Governors,” “bridge financial company,” “compensation,” “corporation,” “covered financial company,” “covered subsidiary,” “director,” “Dodd-Frank Act,” “employee benefit plan,” “insurance company,” and “senior executive.” Some of these terms are terms that are defined in the Act which were not included in the IFR or the Proposed Rule, and others had been included among the substantive provisions of those rules but are now moved to § 380.1 because those terms are, or may be, used on more than one occasion throughout part 380. All of the definitions are consistent with the language of the Dodd-Frank Act. By and large, definitions that had been included in the IFR and the Proposed Rule have not been changed. The terms “Board of Governors,” “Dodd-Frank Act” and “employee benefits plan” were added for ease of reference and the avoidance of doubt. A clarifying change was made to the definition of “director” to make clear that the term includes individuals serving entities that may have a different legal form than a corporation, such as a limited liability company, in a capacity similar to a director for a corporation.

Few comments were received on these definitions. One commenter argued that the definition of “compensation” should use only the precise language of section 210(s)(3) of the Act, and not include any additional language. The Proposed Rule provided greater clarity to the industry by providing a non-exclusive list of the types of compensation that would be subject to recoupment that is consistent with the intent of section 210(s). Accordingly, no change to this definition is being made in the Final Rule.

Section 380.2 is reserved; the content of § 380.2 of the IFR has been moved to § 380.27 of the Final Rule and is discussed below.

Personal service agreements.Section 380.3 of the Final Rule assures that an employee who provides services to the covered financial company after appointment of the receiver, or to the bridge financial company, will be paid for such services according to the terms of any applicable personal service agreement, and such payment shall be treated as an administrative expense of the receiver. This provision does not restrict the receiver's ability to repudiate a personal services agreement, nor does it impair the ability of the receiver to negotiate different terms of employment by mutual agreement. Section 380.3 does not apply to senior executives or directors of a covered financial company and it does not limit the power to recover compensation previously paid to senior executives or directors under section 210(s) of the Dodd-Frank Act and the regulations promulgated thereunder.

Only one comment addressed the treatment of personal service agreements under § 380.3 of the IFR. That comment pointed out that the reference to covered subsidiaries in the IFR was confusing, because covered subsidiaries are, by definition, not in receivership and therefore contracts to which the subsidiary is a party cannot be repudiated by the FDIC as receiver pursuant to section 210(c) of the Act. Section 380.3 of the IFR was intended to address the possibility that an agreement entered into by a parent company may cover employees of an affiliate or subsidiary of the covered financial company. It is the intent of the Final Rule that employees be paid for work performed under a contract with a covered financial company or, if applicable, a bridge financial company, in accordance with the terms of the agreement until such time as the contract is assumed by a third party or repudiated by the FDIC as receiver. To the extent that the FDIC as receiver for the covered financial company has the power to exercise control over a subsidiary, it will ensure that employees of the subsidiary continue to be paid in accordance with the personal services agreement. However, the reference to covered subsidiaries has been deleted from § 380.3 in the Final Rule to clarify that this section does not imply that the FDIC as receiver has the power to repudiate a contract entered into by a covered subsidiary nor does it have the power to enforce the terms of such a contract except by virtue of its role as parent to such subsidiary, unless or until the FDIC is appointed as receiver of a subsidiary.

As a technical revision to the IFR, § 380.3 of the Final Rule does not include the definition of the term “senior executive” as the IFR had. The definition of that term has been moved into the general definitions of § 380.1. In addition, a reference is included in the last sentence of § 380.3(c) to the rule regarding recoupment of executive compensation included in this Final Rule at § 380.7.

Section 380.4 is reserved as the content of that Proposed Rule has been moved to § 380.39 and is discussed below.

Insurance company subsidiaries.The IFR provides at § 380.5 that where the FDIC acts as receiver for a direct or indirect subsidiary of an insurance company, the value realized from the liquidation of the subsidiary will be distributed according to the priorities established in the Dodd-Frank Act and will be available to the policy holders of the parent insurance company. No comments were received recommending changes to § 380.5 of the IFR. The sole revision to that section in the Final Rule is to include a reference to the regulations promulgated under section 210(b)(1) of the Act that are included in subpart B of this Final Rule.

Liens on insurance company assets.Section 380.6 of the IFR limits the ability of the FDIC to take liens on insurance company assets and assets of the insurance company's covered subsidiaries under certain circumstances after the FDIC has been appointed as receiver. As discussed in the preamble of the notice of proposed rulemaking with respect to this rule, section 204 of the Dodd-Frank Act provides that in the event that the FDIC as receiver of a covered financial company determines it to be necessary or appropriate, it may provide funding for the orderly liquidation of covered financial companies and covered subsidiaries by, among other things, making loans, acquiring debt, purchasing assets or guaranteeing them against loss, assuming or guaranteeing obligations, making payments, or entering into certain transactions. In particular, pursuant to section 204(d)(4) of the Dodd-Frank Act, the FDIC is authorized to take liens “on any or all assets of the covered financial company or any covered subsidiary, including a first priority lien on all unencumbered assets of the covered financial company or any covered subsidiary to secure repayment” of any advances made.

Commenters to the IFR questioned the reference to liens on assets of an affiliate of a covered financial company as wellas assets of a covered subsidiary. The FDIC as receiver has clear authority under section 204(d)(4) of the Act to take a lien on the “assets of the covered financial company or any covered subsidiary to secure repayment of any transactions conducted” under that section. While section 203(e) of the Act contemplates that the FDIC could be appointed as receiver for an affiliate of an insurance company that is not itself a subsidiary, it is clear that upon appointment, the affiliate would become a covered financial company, rendering the reference to “affiliates” in § 380.6 superfluous. The Final Rule has been revised accordingly to eliminate the reference to “affiliates” of the covered financial company and to make clear that the rule applies only to covered subsidiaries of insurance companies.

Recoupment of Compensation.Section 380.7 of the Final Rule implements section 210(s) of the Dodd-Frank Act, which authorizes the FDIC as receiver to recoup compensation when a current or former senior executive or director is “substantially responsible” for the failed condition of a covered financial company. The Final Rule provides, in pertinent part, that a senior executive or director would be deemed “substantially responsible” if he or she failed to conduct his or her responsibilities with the degree of skill and care required by that position. Comments received on § 380.7 of the Proposed Rule sought clarification or made recommendations regarding this standard. Some comments took the position that substantial responsibility should be based on state law or established legal standards. One commenter took the position that substantial responsibility should exist based solely on the failure of the covered financial company with no inquiry into conduct. In response to the comments, the Final Rule clarifies the standard and provides that a senior executive or director would be deemed “substantially responsible” if he or she failed to conduct his or her responsibilities with the degree of skill and care an ordinarily prudent person in a like position would exercise under similar circumstances. The revision clarifies that the standard of care that will trigger section 210(s) is a negligence standard; a higher standard, such as gross negligence, is not required. In the event that a covered financial company is liquidated under Title II, the FDIC as receiver will undertake an analysis of whether the individual has breached his or her duty of care, including an assessment of whether the individual exercised his or her business judgment. The burden of proof, however, will be on the former senior executive or director to establish that he or she exercised his or her business judgment. State “business judgment rules” and “insulating statutes” will not shift the burden of proof to the FDIC or increase the standard of care under which the FDIC as receiver may recoup compensation.

The Final Rule provides that, in certain limited circumstances, a senior executive or director would be presumed to be substantially responsible for the failed condition of the covered financial company. Some commenters objected to the use of the rebuttable presumption of substantial responsibility that was based on the position or the duties of the current or former senior executive or director. Those commenters argued that a presumption based solely on an individual's position in a company would be a disincentive for any individual to take that position and would be detrimental to the financial industry. Other commenters objected to the presumption of substantial responsibility that was based on an individual's removal from his or her position under section 206 of the Act. One commenter argued that the presumption exception for “white knights” was too narrow and would serve as a disincentive for individuals to take positions with financially impaired companies. The statutory language of the Dodd-Frank Act provides for the recoupment of compensation from current or former senior executives or directors of covered financial companies when they have not performed their duties and responsibilities. The use of rebuttable presumptions for those individuals under the limited circumstances described in the Proposed Rule is aligned with the intent shown in the statutory language; thus, the presumptions remain unchanged in the Final Rule.

Some comments requested clarification of the procedure that would be used for pursuing recoupment of compensation. The FDIC anticipates that it will seek recoupment of compensation through the court system using a procedure similar to the procedure that it currently uses when it seeks recovery from individuals whose negligent actions have caused losses to failed financial institutions. In those situations, the FDIC as receiver undertakes an investigation to determine if there are meritorious and cost-effective claims and, if so, staff requests authority to sue from the FDIC Board of Directors or the appropriate delegated authority. Similarly, under section 210(s) of the Act, the FDIC anticipates that it will investigate whether the statutory criteria for compensation recoupment are met and, if so, staff will request authorization of a suit for recoupment. The Final Rule reflects this procedure by indicating that the FDIC as receiver may file an action to seek recoupment of compensation.

The Final Rule has a “savings clause” to preserve the rights of the FDIC as receiver to recoup compensation under all applicable laws.

Treatment of fraudulent and preferential transfers.Section 380.9 of the Proposed Rule addressed the powers granted to the FDIC as receiver in section 210(a)(11) of the Dodd-Frank Act to avoid certain fraudulent and preferential transfers and sought to harmonize the application of these powers with the analogous provisions of the Bankruptcy Code so that the transferees of assets will have the same treatment in a liquidation under Title II as they would in a bankruptcy proceeding.

One commenter noted that § 380.9(b)(2) of the Proposed Rule provided that the term “fixture” shall be interpreted in accordance with federal bankruptcy law, and stated that a bankruptcy court would look to applicable non-insolvency law when determining what constitutes a fixture. The commenter pointed out that typically under non-insolvency law, the law of the state in which a fixture is located would govern the determination of what constitutes a fixture, and suggested that the FDIC need not apply a federal rule to determine what a fixture is for preference purposes. By providing in the Proposed Rule that the term “fixture” is to be interpreted in accordance with federal bankruptcy law, it was intended that the term be interpreted in the same manner as under federal bankruptcy law. Thus, to the extent that bankruptcy courts continue to define “fixture” by reference to applicable non-insolvency law, including state law, the same analysis would be applied to define “fixture” under § 380.9. Therefore, the provision does not create a new federal rule to define “fixture,” and no clarifying change to the Final Rule is necessary.

Subpart B addresses the priority for expenses and unsecured claims established under section 210(b) of the Act. It organizes and clarifies provisions throughout the Act dealing with the relative priorities of various creditors with unsecured claims against a failed financial company.

Priorities.Section 380.21 lists each of the eleven priority classes of claims established under the Dodd-Frank Act in the order of its relative priority. In addition to the specified priorities listed in section 210(b) of the Act, the Final Rule integrates additional levels of priority established under section 210(b)(2) (certain post-receivership debt); section 210(a)(13) (claims for loss of setoff rights); and section 210(a)(7)(D) (post-insolvency interest).

Section 380.21(b) conforms the method of adjusting certain payments for inflation to the similar provisions of the Bankruptcy Code. Section 380.21(c) provides that each class will be paid in full before payment of the next priority, and that if funds are insufficient to pay any class of creditors, the funds will be allocated among creditors in that class,pro rata.

Section 380.21 of the Final Rule contains four changes from the language of the Proposed Rule. The introduction to paragraph (a) now uses the defined term “allowed claims” for consistency and to clarify that this rule applies only to unsecured claims, including the unsecured portion of under-secured claims. This change is in response to the request of several commenters that this important point be made even clearer and more express in recognition of the mandate of section 210(b)(5) that section 210 of the Act shall not affect a secured claim except to the extent that the security is insufficient to satisfy the claim. Also, § 380.21(a)(3) was modified to clarify that the class of claims for “amounts owed to the United States” does not include obligations that meet the definition of administrative expenses in § 380.22. A corresponding clarification has been made to § 380.23. A technical change to § 380.21(a)(4) and (5) substitutes the word “within” for the phrase “not later than” to make clear that the relevant employees' claims must arise during the time period within 180 days before the date of the appointment of the receiver.

A comment also requested clarification of the impact of contractual agreements on priorities. The last sentence of § 380.21(c) is added in response to that comment, to make clear that enforceable contractual subordination agreements will be respected. This is consistent with section 510(a) of the Bankruptcy Code, which provides that subordination agreements enforceable under applicable non-bankruptcy law will be respected by the trustee in bankruptcy.

Administrative expenses of the receiver.Section 380.22 of the Proposed Rule expanded and clarified the statutory definition of the term “administrative expenses of the receiver” by consolidating various statutory references to administrative expenses in a single section and by making clear that administrative expenses of the receiver can include costs and expenses incurred by the FDIC prior to the appointment as receiver, as well as post-appointment expenses if the expenses are necessary and appropriate to facilitate the smooth and orderly liquidation of the covered financial company.2

The changes to § 380.22 of the Proposed Rule are intended solely to provide clarity. A commenter questioned how expenses of the receiver might pre-date the appointment of the receiver. The change to “pre- and post-failure costs and expenses of the FDIC in connection with its role as receiver” clarifies that costs incurred in anticipation of and preparation for the role as receiver are administrative expenses of the receiver. Similarly, comments revealed some confusion about debt accorded super-priority status ahead of administrative expenses under § 380.21(a)(1) of the Proposed Rule. The language of the Final Rule more closely tracks the statutory language with respect to debt that qualifies for super-priority status.

Amounts owed to the United States.Section 380.23 of the Proposed Rule established a definition of “amounts owed to the United States” that are entitled to be paid at the level of priority immediately following administrative expenses. It defined that class of claims to include amounts advanced by the U.S. Treasury, or by any other department, instrumentality or agency of the United States, whether such sums are advanced before or after the appointment of the receiver. It expressly included advances by the FDIC for funding of the orderly liquidation of the covered financial company pursuant to section 204(d)(4) of the Act but also included other sums advanced by departments, agencies and instrumentalities of the United States such as payments on FDIC corporate guarantees, including the Temporary Liquidity Guarantee Program and unsecured claims for net realized losses by a federal reserve bank in connection with loans made under section 13(3) of the Federal Reserve Act, 12 U.S.C. 343, and unsecured accrued and unpaid taxes owed to the United States.

Several comments requested clarification with respect to the relationship between pre- and post-receivership administrative expenses incurred by the FDIC that were described in § 380.22 of the Proposed Rule and are included in the administrative expense class of claims under § 380.21(a)(2). For the sake of clarity, § 380.23 of the Final Rule states that amounts owed to the United States do not include any amounts included in the administrative expense classes of claims at § 380.21(a)(1) and (a)(2).

All of the comments specifically addressing § 380.23 of the Proposed Rule reflected concerns that expressly including amounts owed to all “departments, agencies and instrumentalities” of the United States in the regulatory definition of “amounts owed to the United States” was vague and potentially overbroad. Clarification was requested with respect to specific examples of amounts that might be deemed to be included in the broad definition under the Proposed Rule, such as amounts owed to the Pension Benefit Guaranty Corporation arising out of underfunded pension obligations, amounts owed to the Environmental Protection Agency arising out of superfund cleanup obligations, and fees payable to the Securities and Exchange Commission or other regulatory agencies, to name a few. In the Final Rule, the phrase “departments, agencies and instrumentalities” of the United States found in the Proposed Rule is omitted in favor of the simpler statutory reference to the “United States.” This change is not intended to limit the definition strictly to amounts owed to the U.S. Treasury and the Final Rule expressly provides in § 380.23(a) that amounts owed to agencies or instrumentalities other than the U.S. Treasury for certain purposes will be included as “amounts owed to the United States.”

Section 380.23(a) adds language to make clear that the priority for amounts owed to the United States relates to amounts advanced in connection with the purposes and mandates of Title II of the Act, namely, to conduct the orderly resolution of a covered financial company, to avoid or mitigate adverse consequences to the financial stability of the United States arising out of the failure of the covered financial company and to ensure that outstanding tax obligations to the U.S. Treasury are repaid to protect the taxpayers. These include obligations such as advances under the Temporary Liquidity Guaranty Program that was created bythe FDIC to address a systemic liquidity crisis, repayment of the amount of any debt owed to a Federal reserve bank related to loans made through programs or facilities authorized under the Federal Reserve Act, 12 U.S.C. 221et seq.,as well as payment of unpaid unsecured federal income tax obligations of the covered financial company.

Although the language of the Dodd-Frank Act does not elaborate on the intent of the phrase “amounts owed to the United States,” it is clear that it is not intended to include all amounts owed to the United States of any kind or nature. The fact that the Act specifically mentions the inclusion of some obligations,3 suggests that others must be excluded, and that it is not the intent of the Act to elevate liabilities for unsecured amounts due to government departments, agencies or instrumentalities arising in the covered financial company's ordinary course of business over other general or senior liabilities. Thus, the Final Rule includes a new paragraph (b) to establish the general rule that obligations incurred prior to the appointment of the receiver that are unrelated to the particular mandates of the Dodd-Frank Act will not be included among the class of claims described in § 380.21(a)(3). The Final Rule expressly provides that unsecured obligations such as any unsecured portion of a Federal Home Loan Bank advance or payments due under guarantees from government sponsored entities such as the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation are not included among “amounts owed to the United States.” These exclusions were identified in the preamble to the Proposed Rule. Similarly, the Final Rule provides that unsecured unpaid filing or registration fees due to any federal agency would not be classified as “amounts owed to the United States” because they are unrelated to the mandates of the Dodd-Frank Act. These unsecured amounts would be included among the priority class otherwise applicable to such claims under § 380.21(a)(7).

New paragraph (a)(5) in § 380.23 was added to clarify that government departments, agencies, and instrumentalities may, for avoidance of doubt, expressly designate amounts advanced as amounts intended to be included as amounts owed to the United States for the purpose of the priorities established in § 380.21. Such designation would be used in the case of advances to a financial company to avoid or mitigate adverse effects on the financial stability of the United States or to liquidate a covered financial company.4 Any such designation would be in writing by the appropriate department, agency or instrumentality in a form acceptable to the FDIC.

In addition, some commenters requested clarification that the Final Rule does not affect the rights of secured creditors. No change to the rule is necessary to clarify that point. The priorities established under section 210(b) of the Act relate only to unsecured claims and do not affect the rights of secured creditors, which are addressed in §§ 380.50-380.53 of the Final Rule. To underscore this point, the reference to “secured or unsecured” amounts advanced under section 204(d) of the Act in § 380.23(a)(1) of the Proposed Rule has been deleted in the Final Rule. Although the text of section 204(d) of the Act refers both to the priorities under section 210(b) and to taking liens to secure amounts advanced, it is a clearer, more consistent approach to treat all secured claims under the rules applicable to such claims and not under the priorities applicable to unsecured claims.

Finally, some commenters expressed concern that the definition of “amounts owed to the United States” may have the effect of increasing the amount of risk-based assessments that may be charged by the FDIC under section 210(o)(1)(B) of the Dodd-Frank Act. That provision authorizes and directs the FDIC to impose risk-based assessments on eligible financial companies “if such assessments are necessary to pay in full the obligations issued by the [FDIC] to the Secretary [of the U.S. Treasury] under [Title II] within 60 months of the date of issuance of such obligations.” The priority of payments applied by the receiver in the liquidation of the assets of the covered financial company is independent of the assessments imposed by FDIC in its corporate capacity in exercising its authority under section 210(o) of the Act. While only the obligations that are expressly included in section 210(a)(1)(B) of the Act are entitled to the benefit of the assessments, this does not constitute a preferential payment to a similarly situated creditor because it is imposed pursuant to a statutory requirement and cannot be subject to clawback under section 210(o)(1)(D)(i).

Paragraph (c) of § 380.23 is unchanged. It acknowledges that the United States may subordinate its right to repayment behind any class of creditors by express written consent, provided that in any event all amounts due to the United States must be paid prior to any payment to equity holders of the covered financial company. Absent such express written subordination, all amounts owed to the United States will be paid at the priority under § 380.21(a)(3), regardless of whether they are characterized as debt or equity on the books of the covered financial company.

Claims for loss of setoff rights.Section 380.24 of the Final Rule addresses the claims of creditors who have lost a right of setoff due to the exercise of the receiver's right to sell or transfer assets of the covered financial company free and clear in a manner consistent with the express provisions of the Act. Any claim for the loss of setoff rights is given a priority above other general unsecured creditors but below administrative claims, amounts owed to the United States and certain employee-related claims.

Several comments to § 380.24 pointed out that the treatment of setoff under the Proposed Rule is different from the practice in bankruptcy and took issue with the statement in the preamble to the Proposed Rule that treatment of setoff claims under the Dodd-Frank Act “should normally provide value to setoff claimants equivalent to the value of setoff under the Bankruptcy Code.” These commenters agreed with the statement in the preamble that in bankruptcy setoff rights are functionally equivalent to a secured claim and pointed out that this is a significantly higher place in the preference scheme than the super-priority general unsecured creditor status that claims arising out of loss of setoff rights are granted under the Dodd-Frank Act. In context, the quoted sentence points out that it is anticipated that in most cases there will be sufficient funds to pay creditors with claims arising out of loss of setoff rights in a Title II orderly liquidation, Dodd-Frank orderly resolution, not that the outcome is certain to be identical under either priority scheme. The Dodd-Frank Act provides that a creditor who has lost a right of setoff due to the exercise of the receiver's right to sell or transfer assets of the covered financial company freeand clear of the claims of third parties pursuant to section 210(a)(12)(F) is entitled to a claim senior to all unsecured liabilities other than those described in section 210(b)(A)-(D) of the Act (i.e., immediately behind the class of general unsecured creditors and senior liabilities described in § 380.21(a)(7)). The language of the Proposed Rule respected this clear expression of intent by the legislature, and no change to this language is made in the Final Rule with respect to the priority accorded to claims arising from loss of setoff rights.

Commenters also sought clarification that § 380.24 does not affect the contractual rights of netting with respect to qualified financial contracts that are protected under the Dodd-Frank Act. Section 210(c)(8) of the Act provides that qualified financial contracts are exempt from provisions of the Act limiting any right to offset in certain circumstances. Accordingly, a new paragraph (c) was added to § 380.24 in the Final Rule to clarify that the provisions of this section are not intended to disturb such rights with respect to qualified financial contracts. If a qualified financial contract is subject to a master agreement, such master agreement will be treated as a single agreement as provided in section 210(c)(8)(D)(viii).

Post-insolvency interest.Section 380.25 of the Final Rule establishes a post-insolvency interest rate, as required by section 210(a)(7)(D) of the Dodd-Frank Act. That rate is based upon the coupon equivalent yield of the average discount rate set on the three-month U.S. Treasury bill, which is consistent with the post-insolvency interest rate applied to claims under section 11(d)(10)(C) of the Federal Deposit Insurance Act (the “FDI Act”), 12 U.S.C. 1821(d)(10)(C). (See12 CFR 360.7.)

Six comments pertaining to § 380.25 of the Proposed Rule were received. Commenters variously suggested the use of the federal rate as is the practice in some bankruptcy cases, or the contract rate where one is specified, or any specified contract rate other than a default rate. Two commenters agreed that the use of a post-insolvency interest rate based on the average discount rate for the three-month Treasury bill is appropriate, at least where no contract rate is provided. One commenter pointed out that given the fact that post-insolvency interest is paid only after all creditors have been fully paid, the provision will rarely, as practical matter, materially affect creditors. As was recognized by some commenters, there is no express rule for treatment of post-insolvency interest under the Bankruptcy Code and applicable case law is not uniform. The Final Rule adopts the language of the Proposed Rule with respect to the method of calculating the post-insolvency interest rate for unsecured claims without change, in favor of the consistency and ease of administration of the rate that has been applied by the FDIC with respect to claims under the FDI Act.

Bridge financial companies.Section 380.26 was included in the Proposed Rule during the early stages of the rulemaking process because of the importance of addressing two issues that were the subject of several requests for clarification. First, it made clear that any contract or agreement purchased and assumed or entered into de novo by the bridge financial company becomes the obligation of the bridge financial company and that the bridge financial company shall enforce and observe the terms of any such contract or agreement. Secondly, it stated that any remaining assets or proceeds of the bridge financial company after payment of all administrative expenses and other claims shall be distributed to the receiver of the related covered financial company for the benefit of the creditors of that covered financial company.

Commenters have continued to call for additional clarifications with respect to the treatment of bridge financial companies and their assets and liabilities. A more expansive treatment of this topic is beyond the scope of the Final Rule and will be the topic of a future rulemaking. Accordingly, other than two minor changes to the language intended simply to clarify the text, the Final Rule is unchanged from the Proposed Rule. The two minor changes are the use of the indefinite “any” in lieu of the definite article “a” before “contract or agreement giving rise to such asset or liability” in paragraph (a), and the use of the defined term “allowed claim” in place of the word “claim” in the same paragraph. No substantive changes to the Final Rule are intended by these corrections.

Similarly situated creditors.Section 380.27 contains the provision found at § 380.2 of the IFR addressing the treatment of similarly situated creditors. This provision makes clear that certain categories of creditors, including creditors holding unsecured debt with a term of more than 360 days, will not be given additional payments compared to other general trade creditors or any general or senior liability of the covered financial company nor will exceptions be made for favorable treatment of holders of subordinated debt, shareholders or other equity holders. Although some commenters have supported this rule, others have consistently objected to it through two rounds of comments. These comments reiterated the objections to this rule that were considered in implementing the IFR. Accordingly, the Final Rule contains no change to the language of the IFR now set forth in § 380.27(a) and (b). These provisions are clearly consistent with the mandate of the Dodd-Frank Act expressed in sections 204(a) and 210(a)(1)(M) that the orderly resolution of covered financial companies is to be undertaken in a manner that ensures that the creditors and shareholders of a covered financial company will bear the losses of the covered financial company.

Paragraph (c) of § 380.2 of the IFR has been deleted in its entirety from § 380.27 of the Final Rule, and is moved to § 380.50(b), as the subject of the treatment of secured creditors is addressed in §§ 380.50-380.53.

Although not impacting the text of the Final Rule, one new topic was addressed in a joint comment letter from two trade associations representing the banking and securities industries. This letter suggested an alternative approach for the orderly resolution of systemically important financial institutions that would provide for the exchange of certain subordinated debt for equity. The joint working paper prepared by these trade associations describes a recapitalization plan that the FDIC could implement following its appointment as receiver of a covered financial company via the transfer of the viable assets and businesses of a failed institution into a bridge financial company established after failure and a conversion of certain creditors of the failed institution into equity holders in the bridge financial company. In the view of the commenters, this approach would neither be considered a traditional “bail-in” recapitalization nor contingent capital, nor would it require a taxpayer-funded bailout. The commenters suggested that this approach might also facilitate the discussion of the resolution of a failed cross-border financial institution. No change to the Final Rule is made in connection with this proposal, as any exchange of debt for equity in the bridge financial company would be accomplished pro rata and in accordance with the priorities established under § 380.21. Furthermore, although this approach may prove to be useful in conducting an orderly liquidation of a covered financial company in certain circumstances, comment on this particular approach is outside the scope of the Final Rule. This letter may,however, be seen as an example of the value generated by constructive dialogue between the private financial markets and the federal government on topics such as this one.

Subpart C of the Final Rule adopts and interprets where necessary the administrative claims determination process provided for in the Act.

Receivership administrative claims process.Section 380.30 of the Final Rule reflects the authorization under the Dodd-Frank Act that the FDIC as receiver of the covered financial company shall determine all claims in accordance with the statutory procedures set forth in sections 210(a)(2)-(5) of the Act and with the regulations promulgated by the FDIC.

Scope & Applicability.Section 380.31 of the Final Rule addresses the scope of the claims process. It clarifies that the claims process will not apply to a bridge financial company or to any extension of credit from a Federal reserve bank or the FDIC to a covered financial company. Commenters sought clarification that the claims process does not affect the contractual rights of netting and setoff with respect to qualified financial contracts that are protected under the Dodd-Frank Act. This concern is addressed in § 380.51(g) of the Final Rule, which excepts qualified financial contracts from the requirement to seek the consent of the receiver before exercising contractual rights against property of the covered financial company. If a party to a qualified financial contract has an unsecured claim after terminating the contract and liquidating any collateral, such claim would be subject to the claims process.

The definitions in § 380.31 of the Proposed Rule have been moved into the general definitions of § 380.1 of the Final Rule.

Claims bar date.Section 380.32 of the Final Rule follows section 210(a)(2)(B) of the Dodd-Frank Act authorizing the receiver to establish a “claims bar date” by which creditors of the covered financial company are to file their claims with the receiver. The claims bar date must be identified in both the published notices and the mailed notices required by the statutory procedures. Section 380.32 clarifies that the claims bar date is calculated from the date of the first published notice to creditors, not from the date of appointment of the receiver.

Notice requirements.Section 380.33 of the Final Rule follows the statutory procedures for notice to creditors of the covered financial company. As required by the statute, upon its appointment as receiver of a covered financial company, the FDIC as receiver will promptly publish a notice; subsequently, the receiver will publish a second and third notice one month and two months, respectively, after the first notice is published. The notices must inform creditors to present their claims to the receiver, together with proof, by no later than the claims bar date. The Final Rule provides that the notices shall be published in one or more newspapers of general circulation in the market where the covered financial company had its principal place of business. In recognition of the public's growing reliance on communication using the Internet as well as the prevalence of online commerce, the FDIC may also post the notice on its public website. Several comments suggested that notices be published in certain specific financial news media both domestically and abroad. The Final Rule does not adopt this suggestion; the FDIC will provide notices in specific media that will be appropriate under the particular circumstances.

Discovered claimants.In addition to publishing the notice described in § 380.33(a), the receiver also must mail a notice that is similar to the publication notice to each creditor appearing on the books and records of the covered financial company. The mailed notice will be sent at the same time as the first publication notice to the last address of the creditor appearing on the books or in any claim filed by a claimant. The Final Rule supplements this procedure by providing that after sending the initial mailed notice, the receiver may communicate by electronic media (such as email) with any claimant who agrees to such means of communication. This provision will facilitate the filing of claims electronically if a claimant chooses to do so.

Section 380.33(d) of the Final Rule clarifies the treatment of creditors that are discovered after the initial publication and mailing has taken place. The FDIC as receiver will mail a notice similar to the publication notice to any claimant not appearing on the books and records of the covered financial company no later than 30 days after the date that the name and address of such claimant is discovered. If the name and address of the claimant is discovered prior to the claims bar date, such claimant will be required to file the claim by the claims bar date. There may be instances when notice to the discovered claimant is sent too close before the claims bar date to reasonably permit timely filing, however. In such a case, the claimant may invoke the statutory exception for late-filed claims set forth in section 210(a)(3)(C)(ii) of the Dodd-Frank Act in order to have its claim considered by the receiver.

Because section 210(a)(2)(C) of the Dodd-Frank Act does not distinguish between claimants discovered before and claimants discovered after the claims bar date, the statute literally would require the receiver to mail a notice of the claims bar date to a claimant discovered after such date. However, such a discovered claimant cannot file a claim timely if the claims bar date has already passed. Therefore, the Final Rule provides that a claimant discovered after the claims bar date will be given 90 days to file a claim. This time frame is consistent with the time frame set forth in section 210(a)(2)(B) of the Dodd-Frank Act, which provides for the claims bar date to be not less than 90 days after the first publication of the notice to creditors. The receiver will disallow any claim filed by such a “late-discovered” claimant after the 90-day period, however.

Some comments suggested that claimants discovered within 30 days before the claims bar date should not be required to submit a claim by the claims bar date but given additional time to file a claim. This suggestion is unnecessary because the Dodd-Frank Act's late-filed claim exception (see section 210(a)(3)(C)(ii)) encompasses claimants who are notified before the claims bar date but do not have sufficient time to prepare and file a claim before such date. In such a case, the claimant must show that it did not have notice of the appointment of the receiver in time to file by the claims bar date.

Procedures for filing claims.Section 380.34 of the Final Rule provides guidance to potential claimants regarding certain aspects of filing a claim. The FDIC as receiver has determined to provide creditors with instructions on how to file a claim in several different formats. These will include providing FDIC contact information in the publication notice, providing a proof of claim form and filing instructions with the mailed notice, and posting a link to the FDIC's non-deposit claims processing web site. A claim will be deemed filed with the receiver as of the date of postmark if the claim is mailed or as of the date of successful transmission if the claim is submitted by facsimile or electronically.

This section also confirms that each individual claimant must submit its own claim and that no single party may assert a claim on behalf of a class of litigants. On the other hand, a trustee named or appointed in connection witha structured financial transaction or securitization is permitted to file a claim on behalf of the investors as a group because in such a case the trustee legally owns the claim. The suggestion that an agent bank in a syndicated loan arrangement be permitted to file a claim on behalf of the lender group was rejected because each lender in a syndication arrangement has contractual privity with the borrower and therefore should be required to file a claim on its own behalf. The Final Rule follows the statutory provision that the filing of a claim constitutes the commencement of an action for purposes of any applicable statute of limitations and does not prejudice a claimant's right to continue any legal action filed prior to the date of the receiver's appointment. The Final Rule also clarifies that the claimant cannot continue its legal action until after the receiver determines the claim.

Determination of claims.Section 380.35 of the Final Rule follows the requirements of section 210(a)(3) of the Dodd-Frank Act authorizing the receiver to allow and disallow claims. The FDIC has added a clarifying clause in the Final Rule to be consistent with section 210(a)(3)(D)(iii) of the Act, which excludes any extension of credit from a Federal reserve bank or the FDIC to a covered financial company.

Late-filed claim exception.Section 210(a)(3)(C) of the Dodd-Frank Act instructs the receiver to disallow any claim that is filed after the claims bar date, subject to an exception for certain late-filed claims. Under this exception, a claim filed after the claims bar date may be considered by the receiver if (i) the claimant did not have notice of the appointment of the receiver in time to file by the claims bar date and (ii) the claim is filed in time to permit payment by the receiver. As in the Proposed Rule, § 380.35(b)(2) of the Final Rule incorporates the statutory exception.

Some comments suggested that an “excusable neglect” exception to late-filed claims similar to the Bankruptcy Code should be used. This suggestion is inapposite because, as discussed, the Dodd-Frank Act's late-filed claim exception encompasses claimants who are notified before the claims bar date but do not have sufficient time to prepare and file a claim before such date. In such a case, the claimant may show that it did not have notice of the appointment of the receiver in time to file by the claims bar date. Congress intended for late-filed claims to be disallowed unless the claimant qualifies for the late-filed claim exception. (See section 210(a)(3)(C) of the Act.)

One comment noted that under section 726(a) of the Bankruptcy Code, late-filed claims are paid ahead of claims for post-petition interest and distributions to the holders of equity interests. It was suggested that a similar treatment be adopted for the payment of late-filed claims in covered financial company receiverships. This suggestion cannot be adopted because Congress has established the order of priority of claims in the Dodd-Frank Act and the FDIC has not been given the authority to alter that priority scheme.

Section 380.35(b)(2)(i) has been revised in the Final Rule in order to accommodate specifically claims based on an act or omission of the receiver, such as a repudiation or breach of a contract, that occurs after the claims bar date. Section 210(a)(9)(D)(ii) of the Dodd-Frank Act deprives a court of jurisdiction over any claim relating to any act or omission of the FDIC as receiver unless the claimant first complies with the receivership administrative claims process. A party to a contract that is repudiated or breached by the receiver after the claims bar date, however, would be unable to timely file a claim and would not technically qualify for the statutory late-filed claim exception because it would be unable to show that it did not have notice of the appointment of the receiver prior to the claims bar date; accordingly, this party could neither comply with the claims process nor have a court determine its claim. In order to provide relief to a party in this situation, the Final Rule permits the receiver to consider a claim filed after the claims bar date if the claim is based on an act or omission of the receiver that occurs after the claims bar date. In the Proposed Rule, the late-filed claim exception had been expanded to encompass any claim that did not accrue until after the claims bar date. After consideration, it was determined that this provision would have been too broad because it could be read to encompass contingent claims which are addressed separately in § 380.39.

Decision period.Section 380.36 of the Final Rule provides that under the statute the receiver must notify a claimant of its decision to allow or disallow a claim prior to the 180th day after the claim is filed. The Final Rule also provides that the claimant and the receiver may extend the claims determination period by mutual agreement in writing. In accordance with the statute, the receiver must notify the claimant regarding its determination of the claim prior to the end of the extended claims determination period.

Notification of determination.As required by section 210(a)(3)(A)(i) of the Dodd-Frank Act, § 380.37 of the Final Rule provides that the receiver will notify the claimant that the claim is allowed or disallowed. The notification will be mailed to the claimant as set forth in section 210(a)(3)(A)(iii) of the Act, unless the claimant has filed its claim electronically, in which case the receiver may use electronic media for the notification. If the receiver disallows the claim, the notification will provide the reason(s) for the disallowance and also advise the claimant of the procedure for filing or continuing an action in court.

The Final Rule reiterates the provisions of section 210(a)(3)(A)(ii) of the Dodd-Frank Act that if the receiver fails to notify the claimant of any disallowance within 180 days after the claim is filed, or the end of any extension agreed to by the claimant, the claim will be deemed to be disallowed. The claimant may then file or continue an action in court as provided in section 210(a)(4) of the Act. The Final Rule has been revised to cite the statutory authority for this provision. Comments on this aspect of the rule suggested that after 180 days the claim should be deemed to be allowed instead of disallowed. Other comments suggested that the receiver should provide affirmative notification of the disallowance of a claim at the end of the claims determination period. These suggestions cannot be adopted because they are contrary to the provisions of the Act. In section 210(a)(3)(D)(ii) of the Act, Congress adopted the approach that the failure to notify the claimant of a disallowance within 180 days after the claim is filed is deemed to be a disallowance of the claim in order to impose a clear and reasonable time limit on the receiver's consideration of claims. Without such a time limit, the claims procedure would be inadequate and not subject to exhaustion as a prerequisite for judicial determination, which would be contrary to the intent of Congress. Once the claimant enters the receivership claims process by filing a claim, the claimant is on notice of the statutory provisions governing that process and will bear the responsibility to monitor the claims determination period in order to timely file or continue a lawsuit with respect to the claim.

Procedures for seeking judicial review of disallowed claim.Section 380.38 of the Final Rule implements the statutory procedures for a claimant to seek a judicial determination of its claim after the claim has been disallowed or partially disallowed by the FDIC as receiver. Consistent with section 210(a)(4) of the Dodd-Frank Act, a claimant may (a) file a lawsuit on its disallowed claim in the district courtwhere the covered financial company's principal place of business is located, or (b) continue a previously pending lawsuit.

The Final Rule clarifies that if the claimant continues a previously filed action, the claimant may continue such action in the court in which the case was pending before the appointment of the receiver, resolving any uncertainty whether the action should be “continued” in the district court where the covered financial company's principal place of business is located. (In the case of an action pending in state court, the receiver would have the authority to remove the action to federal court if it chose to do so.) Some comments suggested that the FDIC should designate the district court where the covered financial company's principal office is located as the exclusive forum for judicial review of claims. The FDIC must decline to adopt this suggestion; as discussed, the FDIC must follow the established statutory scheme and cannot alter court jurisdiction or venue when these issues have been decided by Congress.

As provided by statute, § 308.38(c) of the Final Rule provides that the claimant has 60 days to commence or continue an action regarding the disallowed claim. The time period for commencing or continuing a lawsuit would be calculated, as applicable, from the date of the notification of disallowance, the end of the 180-day claims determination date, or the end of the extended determination date, if any. If a claimant fails to file suit on a claim (or continue a pre-receivership lawsuit) before the end of the 60-day period, the claimant will have no further rights or remedies with respect to the claim. This time period is not subject to a tolling agreement between the FDIC and the claimant. The Final Rule affirms that exhaustion of the administrative claims process is a jurisdictional prerequisite for any court to adjudicate a claim against a covered financial company or the receiver, as provided in section 210(a)(9)(D) of the Dodd-Frank Act.

Provability of claims based on contingent obligations.Section 380.39 of the Final Rule addresses contingent claims, which was previously the subject of § 380.4 of the IFR. The holder of a contingent claim against the covered financial company will be required to file its claim by the claims bar date. Section 380.39(a) provides that the receiver will not disallow a claim solely because the claim is based on a contingent obligation. Instead, the receiver will estimate the value of a contingent claim as of the date of the appointment of the receiver. If the receiver repudiates a contingent obligation, repudiation damages shall be no less than the estimated value of the claim as of the date of the receiver's appointment. Comments suggested that any estimation of the value of a contingent claim be delayed until just prior to a final distribution by the receiver. This approach would be inconsistent with the statute because section 210(a)(3)(A) of the Dodd-Frank Act instructs the receiver to determine whether to allow a claim no later than 180 days after the claim is filed, subject to any extension agreed to by the claimant. Therefore, in accordance with the statute, the receiver will estimate the value of a contingent claim before the end of either the 180-day period beginning on the date the claim is filed or any mutually agreed-upon extension of this time period. Unless the contingency becomes absolute and fixed prior to the receiver's determination of the estimated value, the estimated value will be recognized as the allowed amount of the claim. The estimated value of the contingent claim will represent the receiver's determination of the claim for purposes of the exhaustion of administrative remedies by the claimant prior to seeking a judicial determination of the claim.

Secured claims.Because section 210(b)(5) of the Dodd-Frank Act provides that section 210 of the Dodd-Frank Act, which sets forth the powers and duties of the FDIC acting as receiver of a covered financial company, “shall not affect secured claims or security entitlements in respect of assets or property held by the covered financial company,” the Final Rule has been revised to more effectively safeguard the rights of secured claimants. The approach taken in the Final Rule should provide more legal certainty for the secured lenders of a systemically important financial institution.

A number of comments regarding the Proposed Rule expressed concerns about the valuation of property used as collateral, the ability of a secured claimant to exercise its rights against its collateral or to obtain adequate protection of its interest and the need for expedited judicial review of actions by the receiver affecting a secured claimant. The Final Rule contains several revised provisions to address those concerns, satisfy the statutory directive not to affect secured claims and harmonize with the relevant provisions of the Bankruptcy Code. With respect to judicial review, however, harmonization with the Bankruptcy Code is not possible. In contrast to a case under the Bankruptcy Code, in which a debtor's or trustee's actions are subject to prior approval by a court, a receivership of a covered financial company is an administrative process conducted by the FDIC as receiver. Under the Act, court jurisdiction is limited and subject to exhaustion of the receivership claims process. A claimant may have its day in court but only after the receiver has first made a determination regarding the claim or the claimant's rights.

Determination of secured claims.Section 380.50 has been revised in the Final Rule to model Bankruptcy Code section 506. Section 380.50(a) affirms that under section 210(a)(3)(D)(ii) of the Dodd-Frank Act, a claim is secured to the extent of the value of the property securing the claim by incorporating the principle that a claim that is secured by property of the covered financial company may be treated as an unsecured claim to the extent that the claim exceeds the fair market value of the property. Section 380.50(b) provides that the fair market value of such property shall be determined in light of the purpose of the valuation and of the proposed disposition or use of the property and at the time of the proposed disposition or use. To illustrate, if a secured claimant requests the receiver's consent to obtain possession of or exercise control over property that secures the claim, the receiver would value the property at the time of the request. If the receiver proposes to sell property that is subject to a security interest, the property will be valued at the time of the sale. By not specifying a particular point in time (such as the date of appointment of the receiver) when property will be valued, the problem of potential windfalls to either the secured claimant or the receiver should be avoided. The approach taken should provide more accurate valuations, protect the rights of secured creditors, and provide flexibility for the receiver.

Recovery of fees, etc.Section 380.50(c) provides that the receiver may recover from property subject to a security interest any reasonable and necessary costs and expenses of preserving or disposing of the property to the extent the claimant is benefited thereby. When provided for by agreement or State law, claims for interest, fees, costs, and charges are secured claims to the extent that the property has sufficient value to cover them. Section 380.50(d) recognizes that if the value of property subject to a security interest is greater than the amount of the claim, the claimant will be allowed, to the extent of the value of the property, interest and any reasonable fees, costs, or chargesprovided for under the agreement or State statute under which the claim arose.

Consent to certain actions.Section 380.51 of the Final Rule addresses relief for a secured claimant from the effect of section 210(c)(13)(C) of the Dodd-Frank Act. Section 210(c)(13)(C) would delay any claimant holding a security interest or other lien against any property of a covered financial company from exercising its rights to obtain possession or control of the property for a period of 90 days beginning on the date of the appointment of the receiver for the company, unless the receiver consents. Secured claims that are not transferred to a bridge financial company or other acquiring entity but are retained in the receivership can be resolved either by the receiver selling the collateral and remitting the proceeds to the secured claimant up to the amount of the claim, or by the claimant liquidating any collateral itself. In either case, the claimant may file a claim with the receiver for any deficiency that exists after the value of the collateral is applied to the claim. The claimant may obtain judicial review if the receiver disallows the claim in whole or in part. Accordingly, § 380.51 has been revised in the Final Rule to facilitate this process by implementing a procedure for a secured claimant to obtain the receiver's consent to the claimant's taking possession or control of collateral. Under this procedure, a secured claimant may request the consent of the receiver for relief. The request for consent must be in writing and state the amount of the claim, a description of the property that secures the claim, the value of the property, the proposed disposition of the property by the claimant, including the expected date of such disposition, along with supporting documentation for each item, including an appraisal or other evidence establishing the value of the property. The receiver will grant its consent if the receiver determines that it will not use, sell or lease the property and therefore will not need to provide adequate protection of the claimant's interest. (Section 380.52 of the Final Rule describes the different ways that adequate protection may be provided.) If the receiver has not acted on the request for consent within 30 days after the request is made, consent will be deemed to have been granted. Section 380.51(d) affirms that regardless of whether the receiver has decided to withhold consent, the stay of section 210(c)(13)(C) will terminate 90 days after the appointment of the FDIC as receiver. The provisions of § 380.51 shall not apply to a director or officer liability contract, a financial institution bond, the rights of parties to qualified financial contracts or netting contracts, any extension of credit from a Federal reserve bank or the FDIC, or in a case where the receiver repudiates a secured contract.

The other provision of the Dodd-Frank Act that may affect secured claimants is section 210(q)(1)(B), pursuant to which property of a covered financial company in the hands of the FDIC as receiver is not subject to levy, attachment, garnishment, foreclosure, or sale without the consent of the receiver. While this statutory provision was addressed in the consent provision that appeared in the Proposed Rule, the FDIC believes that it would be more appropriate to address this provision with a Statement of Policy that would be issued in the future by the FDIC. This approach was taken by the FDIC to address the comparable provision in the FDI Act, 12 U.S.C. 1825(b).

Adequate protection.Section 380.52 of the Final Rule addresses adequate protection for the interest of a secured claimant if the receiver decides to use or sell property subject to a security interest. If the receiver determines that it will use, sell, or lease such property, the receiver must provide adequate protection by (1) Making a cash payment or periodic cash payments to the claimant if the sale, use, or lease of the property or the grant of a security interest or other lien against the property by the receiver results in a decrease in the value of such claimant's security interest in such property; (2) providing to the claimant an additional or replacement lien to the extent that the sale, use, or lease of the property or the grant of a security interest against the property by the receiver results in a decrease in the value of the claimant's security interest in the property; or (3) providing any other relief that will result in the realization by the claimant of the indubitable equivalent of the claimant's security interest in such property. Adequate protection of the claimant's security interest will be presumed if the value of the property is not depreciating or is sufficiently greater than the amount of the claim so that the claimant's security interest is not impaired.

The text of § 380.53 of the Proposed Rule, which reiterated section 210(a)(5) of the Dodd-Frank Act concerning an expedited procedure for the determination of a claim of a secured creditor alleging irreparable harm if the ordinary claims procedure was followed, has been deleted from the Final Rule as unnecessary for purposes of the regulation. The expedited procedure is fully set forth in section 210(a)(5) of the Act.

Repudiation of secured contract.Section 380.53 of the Final Rule contains the text of § 380.52 of the Proposed Rule. This section confirms that under section 210(c)(12)(A) of the Dodd-Frank Act, the authority of the receiver to repudiate a contract of the covered financial company will not have the effect of avoiding any legally enforceable and perfected security interests in the property (except those avoidable as fraudulent or preferential transfers under section 210(a)(11)). This section also provides that after repudiation the security interest would no longer secure the contract but would instead secure any claim for repudiation damages. Accordingly, the receiver may consent to the claimant's liquidation of the collateral and application of the proceeds to the claim for repudiation damages. Comments supported the inclusion of this provision in the Final Rule.

The text of § 380.54 of the Proposed Rule, which concerned the sale of secured property by the receiver, has been deleted from the Final Rule. This subject is addressed in § 380.52 of the Final Rule.

The text of § 380.55 of the Proposed Rule, which provided that the receiver may redeem property of the covered financial company from a lien held by a secured creditor by paying the creditor in cash the fair market value of the property up to the value of its lien, has been deleted as unnecessary. The receiver already has the inherent ability to pay a secured claim anytime because such claims are excluded from the statutory order of priority for the payment of unsecured claims.

The Final Rule would not involve any new collections of information pursuant to the Paperwork Reduction Act (44 U.S.C. 3501et seq.). Consequently, no information has been submitted to the Office of Management and Budget for review.

The Regulatory Flexibility Act (5 U.S.C. 601et seq.) requires an agency that is issuing a final rule to prepare and make available a regulatory flexibility analysis that describes the impact of the final rule on small entities. (5 U.S.C. 603(a)). The Regulatory Flexibility Act provides that an agency is not required to prepare and publish a regulatory flexibility analysis if the agency certifiesthat the final rule will not have a significant economic impact on a substantial number of small entities. Pursuant to section 605(b) of the Regulatory Flexibility Act, the FDIC certifies that the Final Rule will not have a significant economic impact on a substantial number of small entities. The Final Rule will clarify rules and procedures for the liquidation of a nonviable systemically important financial company, which will provide internal guidance to FDIC personnel performing the liquidation of such a company and will address any uncertainty in the financial system as to how the orderly liquidation of such a company would operate. As such, the Final Rule will not have a significant economic impact on small entities.

The Office of Management and Budget has determined that the Final Rule is not a “major rule” within the meaning of the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), (5 U.S.C. 801et seq.) As required by the SBREFA, the FDIC will file the appropriate reports with Congress and the General Accounting Office so that the Final Rule may be reviewed.

The FDIC has determined that the Final Rule will not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, enacted as part of the Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1999 (Pub. L. 105-277, 112 Stat. 2681).

Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 Stat. 1338, 1471) requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The FDIC has sought to present the Final Rule in a simple and straightforward manner.

For the reasons stated above, the Board of Directors of the Federal Deposit Insurance Corporation amends part 380 of title 12 of the Code of Federal Regulations as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to supersede airworthiness directive (AD) 2008-20-01, amendment 39-15680 (73 FR 56464, September 29, 2008). That AD applies to the specified products. The NPRM published in theFederal Registeron January 5, 2011 (76 FR 485). That NPRM proposed to continue to require revising the maintenance program by incorporating new airworthiness limitations for fuel tank systems to satisfy Special Federal Aviation Regulation No. 88 requirements. That NPRM also proposed to continue to require the accomplishment of certain fuel system modifications, the initial inspections of certain repetitive fuel system limitations to phase in those inspections, and repair if necessary. That NPRM also proposed to correct certain part number references, add an additional inspection area, and for certain airplanes, require certain actions to be re-accomplished according to revised service information.

We gave the public the opportunity to participate in developing this AD. The following presents the comment received on the proposal and the FAA's response to the comment.

Lynden Air Cargo requested that the cost for revising the Instructions for Continued Airworthiness be included in the Costs of Compliance estimate. Lynden Air Cargo stated that there is a significant amount of work-hours associated with revising “company manuals, job cards, maintenance programs, computerized tracking programs and record keeping documents” so that the operator can comply with the requirements of a new AD. Lynden Air Cargo estimated that these actions will take at least 80 work-hours for its office staff, and estimated that this cost would affect other operators. Lynden Air Cargo also pointed out that this work load for the office staff will have a greater impact on smaller fleet operators with smaller staff.

We agree that a requirement of the new AD will require an update of the maintenance program to incorporate references to revised service information. This action is estimated to take approximately 1 work-hour per airplane. However, we disagree with increasing the estimated work-hours for the time that it takes for writing job cards, tracking programs, or record-keeping, since those actions are not directly required by this AD. The costs specified by Lynden Air Cargo will not be the same for all operators. The Costs of Compliance estimate has been revised accordingly.

We reviewed the relevant data, considered the comment received, and determined that air safety and the public interest require adopting the AD as proposed.

There are about 62 airplanes of the affected design in the worldwide fleet. The following table provides the estimated costs for U.S. operators to comply with this AD. The average labor rate per hour is $85. The costs of the new requirements of this AD are as follows:

The current costs for AD 2008-20-01 are repeated for the convenience of affected operators, as follows:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an airworthiness directive (AD) that would apply to the specified products. That NPRM published in theFederal Registeron March 14, 2011 (76 FR 13543). That NPRM proposed to require a detailed inspection to detect distress and existing repairs to the leading edge structure of the vertical stabilizer at the splice at Station Zfs = 52.267; repetitive inspections for cracking in the front spar cap forward flanges of the vertical stabilizer, and either the aft flanges or side skins; repetitive inspections for loose and missing fasteners; and related investigative and corrective actions if necessary.

We gave the public the opportunity to participate in developing this AD. The following presents the comments received on the proposal and the FAA's response to each comment.

Boeing stated that it agrees with the NPRM.

American Airlines (American) stated that the heading of “Repetitive Inspections for Cracks, and Related Investigative and Corrective Actions” prior to paragraph (h) of the NPRM should not include “repetitive” because paragraph (h) of the NPRM only address initial inspections. From these statements, we infer that American wants us to remove “repetitive” from the heading preceding paragraph (h) of the NPRM.

We disagree. The heading applies to all paragraphs following the heading until the next header. Paragraph (h)(2) of this AD requires repetitive inspections if no crack is detected by the initial inspection. We have not changed the AD in this regard.

American stated that Boeing Alert Service Bulletin MD80-55A067, dated June 24, 2010, in paragraph 4 and 5 of the Accomplishment Instructions, recommends repetitive inspections of the leading edge and spar cap structure, and that only paragraph (j) of the NPRM requires repetitive inspections and then only for the leading edge structure under some conditions. We infer that American wants us to change the AD to match Boeing Alert Service Bulletin MD80-55A067, dated June 24, 2010.

We disagree with revising the AD. In addition to paragraph (j), paragraph (h)(2) of this AD requires repetitive inspections for cracks of the left and right vertical stabilizer front spar cap if no crack is detected by the initial inspection, which is consistent with the service information and results in the AD and service information having consistent requirements. We have not changed the AD in this regard.

We reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting the AD as proposed.

We estimate that this AD will affect 668 airplanes of U.S. registry.

We estimate the following costs to comply with this AD:

We have received no definitive data that would enable us to provide cost estimates for the on-condition actions specified in this AD.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to the specified products. That NPRM was published in theFederal Registeron January 5, 2011 (76 FR 477). That NPRM proposed to correct an unsafe condition for the specified products. The MCAI states:

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM or on the determination of the cost to the public.

We reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed.

We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information.

We might also have required different actions in this AD from those in the MCAI in order to follow our FAA policies. Any such differences are highlighted in a NOTE within the AD.

We estimate that this AD will affect 103 products of U.S. registry. We also estimate that it will take about 1 work-hour per product to comply with the basic requirements of this AD. The average labor rate is $85 per work-hour. Based on these figures, we estimate the cost of this AD to the U.S. operators to be $8,755, or $85 per product.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this proposed AD and placed it in the AD docket.

You may examine the AD docket on the Internet athttp://www.regulations.gov;or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains the NPRM, the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647-5527) is in theADDRESSESsection. Comments will be available in the AD docket shortly after receipt.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Community, has issued EASA Airworthiness Directive 2010-0173, dated August 17, 2010 (referred to after this as “the MCAI”), to correct an unsafe condition for the specified products. The MCAI states:

Airbus has issued Mandatory Service Bulletin A330-53-3185, including Appendices 01 and 02, dated May 20, 2010. The actions described in this service information are intended to correct the unsafe condition identified in the MCAI.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, we have been notified of the unsafe condition described in the MCAI and service information referenced above. We are issuing thisAD because we evaluated all pertinent information and determined the unsafe condition exists and is likely to exist or develop on other products of the same type design.

There are no products of this type currently registered in the United States. However, this rule is necessary to ensure that the described unsafe condition is addressed if any of these products are placed on the U.S. Register in the future.

We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information.

We might also have required different actions in this AD from those in the MCAI in order to follow FAA policies. Any such differences are highlighted in a NOTE within the AD.

Since there are currently no domestic operators of this product, notice and opportunity for public comment before issuing this AD are unnecessary.

This AD is a final rule that involves requirements affecting flight safety, and we did not precede it by notice and opportunity for public comment. We invite you to send any written relevant data, views, or arguments about this AD. Send your comments to an address listed under theADDRESSESsection. Include “Docket No. FAA-2011-0653; Directorate Identifier 2010-NM-249-AD” at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this AD. We will consider all comments received by the closing date and may amend this AD because of those comments.

We will post all comments we receive, without change, tohttp://www.regulations.gov,including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this AD.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify this AD:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to supersede an airworthiness directive (AD) 97-26-07, Amendment 39-10250 (62 FR 65352, December 12, 1997). That AD applies to the specified products. The NPRM published in theFederal Registeron December 14, 2010 (75 FR 77793). That NPRM proposed to continue to require repetitive inspections to detect damage of the sleeving and wire bundles of the boost pumps of the numbers 1 and 4 main fuel tanks, and of the auxiliary tank jettison pumps (if installed); replacement of any damaged sleeving with new sleeving; and repair or replacement of any damaged wires with new wires. For airplanes on which any burned wires are found, that NPRM also proposed to continue to require an inspection to detect damage of the conduit, and replacement of any damaged conduit with a serviceable conduit. That NPRM proposed to reduce the initial compliance time and repetitive inspection interval in the existing AD.

We gave the public the opportunity to participate in developing this AD. The following presents the comments received on the proposal and the FAA's response to each comment.

United Airlines (UA) asked that we change the heading titled “Restatement of Requirements of AD 96-26-06, Amendment 39-9870,” which precedes paragraph (g) of the NPRM, to “Restatement of Requirements of AD 97-26-07, Amendment 39-10250. UA pointed out that AD 97-26-07 superseded AD 96-26-06.

We agree with UA for the reason provided. Although certain requirements in AD 96-26-06 are carried over in AD 97-26-07—and in this AD—those requirements are identified by the AD number within the applicable paragraphs. We have changed the heading preceding paragraph (g) of this AD accordingly.

UA asked that Boeing Alert Service Bulletin 747-28A2204, Revision 2, dated September 1, 2005, be included in paragraphs (g), (i), (j), and (k) of the NPRM. UA stated that Boeing Alert Service Bulletin 747-28A2204, Revision 2, dated September 1, 2005, was approved as an alternative method of compliance (AMOC) to the requirements of paragraph (a) of AD 97-26-07.

We partially agree with UA. We agree that Revision 2, dated September 1, 2005, of Boeing Alert Service Bulletin 747-28A2204, was reviewed by the FAA, and approved as an AMOC to the requirements of paragraph (a) of AD 97-26-07. We do not agree that Boeing Alert Service Bulletin 747-28A2204, Revision 2, dated September 1, 2005, should be added to the requested paragraphs because those paragraphs are part of the restatement of the requirements of AD 97-26-07. However, we have added a new paragraph (p) to this AD (and reidentified subsequent paragraphs) to give operators credit for using Boeing Alert Service Bulletin 747-28A2204, Revision 2, dated September 1, 2005, to accomplish the specified actions.

UA asked that terminating action be included in the NPRM. UA stated that it believes Boeing is developing a solution that would terminate the inspections required by the NPRM.

We acknowledge the comment from UA. However, Boeing has not submitted a revised service bulletin with terminating action for the repetitive inspections. We are aware that Boeing is developing a solution to the wire chafing issue, but until a modification is approved and available we are unable to reference it in the AD. However, under the provisions of paragraph (q) of this AD, we will consider requests for accomplishing a terminating modification if data are submitted to substantiate that it would provide an acceptable level of safety. We have made no change to the AD in this regard.

We reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting the AD with the changes described previously. We have determined that these changes will neither increase the economic burden on any operator nor increase the scope of the AD.

We estimate that this AD affects 215 airplanes of U.S. registry. The new requirements of this AD add no additional economic burden. The current costs for this AD are repeated below for the convenience of affected operators.

The actions that are required by AD 97-26-07 and retained in this AD take about 4 work-hours per airplane, at an average labor rate of $85 per work-hour. Based on these figures, the estimated cost of the currently required actions is $73,100, or $340 per airplane, per inspection cycle.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

On August 19, 2010, we issued Emergency AD (EAD) 2010-18-51. That EAD was prompted by two reports of cracks detected in the lower hub near the flex beam bolt hole location during maintenance. That EAD required, within 4 hours time-in-service (TIS), visually inspecting the lower hub for a crack and, if you find a crack, before further flight, replacing the lower hub with an airworthy lower hub and, within 10 days, reporting a cracked lower hub to the LAACO. We superseded EAD 2010-18-51 with EAD 2010-18-52, issued August 23, 2010, upon discovering a typographical error in the “Applicability” section of the EAD in the lower hub part number (P/N). EAD 2010-18-52 contained the same requirements as EAD 2010-18-51 but corrected the P/N for the lower hub.

Since we issued the AD, 5 additional lower hubs were found cracked. We determined that one manufacturer of lower hubs with serial numbers (S/Ns) beginning with 5009 (e.g.,5009-XXXX) had incorrectly inserted flanged bushings into the lower hub bore. This condition resulted in local corrosion leading to fatigue cracking. Examination of lower hubs from the other manufacturer shows correct bushing installation.

We reviewed MDHI Service Bulletin SB900-117, dated January 14, 2011 (SB). The SB specifies an initial 100-hour and recurring 300-hour visual and eddy current inspections of the lower hub for a crack and, if there is a crack, replacing the lower hub with an airworthy lower hub. The inspections would be done at the stated intervals or at the next annual inspection, whichever occurs first. The SB also specifies replacing an affected lower hub within 3 years after the date of the SB.

We are issuing this AD because we evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other helicopters of this same type design.

This AD requires a visual inspection, and if necessary, an eddy current inspection of the lower hub for a crack. If there is a crack, the AD requires replacing the lower hub with an airworthy lower hub. This AD requires accomplishing these actions by following specified portions of the service information described previously, except as discussed under “Differences Between the AD and the Service Information.”

This superseding AD changes the compliance time for the visual inspection and adds an eddy current inspection of the lower hub for a crack. This AD also removes the reporting requirement to the LAACO and the requirement for an OMB control number. This AD also reduces the applicability to only those helicopters with certain serial-numbered lower hubs installed.

This AD does not require contacting the manufacturer or returning the lower hub assembly with a certain report. This AD also does not require the 300-hour inspection or replacing the lower hub within 3 years from the date of the SB because these actions do not fit our criteria for a Final rule, request for comments.

An unsafe condition exists that requires the immediate adoption of this AD. The FAA has found that the risk to the flying public justifies waiving notice and comment prior to adoption of this rule because the previously described unsafe condition can adversely affect the structural integrity and controllability of the helicopter. The inspection is required within 100 hours TIS or during the annual inspection, whichever occurs first, unless done within the last 200 hours TIS. Since the affected helicopters could reach 100 hours TIS within 1 month, we find that notice and opportunity for prior public comment are impracticable and that good cause exists for making this amendment effective in less than 30 days.

This AD is a final rule that involves requirements affecting flight safety, and we did not provide you with notice and an opportunity to provide your comments before it becomes effective. However, we invite you to send any written data, views, or arguments about this AD. Send your comments to an address listed under theADDRESSESsection. Include the docket number FAA-2011-0695 and directorate identifier 2011-SW-001-AD at the beginning of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of this AD. We will consider all comments received by the closing date and may amend this AD because of those comments.

We will post all comments we receive, without change, tohttp://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact we receive about this AD.

We estimate that this AD affects 12 helicopters of U.S. registry. We estimate the following costs to comply with this AD:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to the specified products. That NPRM was published in theFederal Registeron April 8, 2011 (76 FR 19719). That NPRM proposed to correct an unsafe condition for the specified products. The MCAI states:

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM or on the determination of the cost to the public.

We reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed.

We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information.

We might also have required different actions in this AD from those in the MCAI in order to follow our FAA policies. Any such differences are highlighted in a NOTE within the AD.

We estimate that this AD will affect about 8 products of U.S. registry. We also estimate that it will take about 1 work-hour per product to comply with the basic requirements of this AD. The average labor rate is $85 per work-hour. Required parts will cost about $1,039 per product. Where the service information lists required parts costs that are covered under warranty, we have assumed that there will be no charge for these parts. As we do not control warranty coverage for affected parties, some parties may incur costs higher than estimated here. Based on these figures, we estimate the cost of this AD to the U.S. operators to be $8,992, or $1,124 per product.

In addition, we estimate that any necessary follow-on actions would take about 10 work-hours and require parts costing $1,039, for a cost of $1,889 perproduct. We have no way of determining the number of products that may need these actions.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify this AD:

1. Is not a ”significant regulatory action” under Executive Order 12866;

2. Is not a ”significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket.

You may examine the AD docket on the Internet athttp://www.regulations.gov;or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains the NPRM, the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647-5527) is in theADDRESSESsection. Comments will be available in the AD docket shortly after receipt.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an AD that would apply to the specified products. That NPRM published in theFederal Registeron April 29, 2011 (76 FR 23921). That NPRM proposed to require inserting an update to the performance charts in the FAA-approved Airplane Flight Manual and the Pilot's Operating Handbook, part number (P/N) 130-590031-245. The required runway distances published in the current manual could be up to 320 feet shorter than what is necessary. Hawker Beechcraft Corporation determined data in the pilot's checklist (P/N 130-590031-273) was correct. This condition, if not corrected, could result in taking off from shorter runways than required by the airplane if the airplane loses an engine after takeoff decision speed (V1). This could result in the airplane running out of runway before take-off can be accomplished.

We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM or on the determination of the cost to the public.

We reviewed the relevant data and determined that air safety and the public interest require adopting the AD as proposed except for minor editorial changes. We have determined that these minor changes:

• Are consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM.

We estimate that this proposed AD affects 46 airplanes of U.S. registry.

We estimate the following costs to comply with this proposed AD:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an airworthiness directive (AD) that would apply to the specified products. That NPRM published in theFederal Registeron February 23, 2011 (76 FR 9984). That NPRM proposed to require an inspection/records check to determine the manufacturer and part number of the oxygen mask assemblies installed, an inspection to determine the manufacturing date and modification status if certain oxygen mask assemblies are installed, and corrective action for certain oxygen mask assemblies.

We gave the public the opportunity to participate in developing this AD. The following presents the comments received on the proposal and the FAA's response to each comment. B/E Aerospace supports the NPRM.

The Boeing Company (Boeing) stated that a statement should be included in the final rule AD action to address installation of the affected oxygen mask assemblies on Boeing airplanes that are not included in existing Boeing service bulletins because these airplanes are past production cut over point.

Boeing stated that, due to long-time lag between production cut over change and the release of the AD, there is a high likelihood that on Boeing airplanes past production cut over point, but prior to release of this AD due to lack of awareness of the pending AD release, operators could have installed one of the affected oxygen mask assemblies during routine maintenance. The Applicability section of the proposed AD could mislead operators to not take corrective actions on Boeing airplanes even if they had unknowingly installed affected oxygen mask assemblies on airplanes past production cut over prior to release of the AD. This could also apply to installation of affected oxygen mask assemblies on Boeing airplanes through supplemental type certificate (STC) or through field approval.

We agree with the commenter. However, the unsafe condition on Boeing airplanes will be addressed separately from this AD. If additional action is necessary to address Boeing's concerns, additional rulemaking may be taken specific to Boeing airplanes.

We have not changed the final rule AD action based on this comment.

Boeing stated that there is confusion between the statements in the Differences Between the Proposed AD and the Service Information section and the Applicability section in the proposed AD. The statements are contradictory and could mislead operators. In the proposed AD, it is stated in the Differences Between the Proposed AD and the Service Information section that oxygen maskassemblies affected by AD 2007-26-06, AD 2008-08-08, AD 2008-12-05, AD 2008-13-21, or AD 2010-14-06 are not affected by this proposed AD. In the Applicability section of the proposed AD, it is stated that the AD applies to B/E Aerospace, Continuous Flow Passenger Oxygen Mask Assembly; Part Numbers 174006-( ), 174080-( ), 174085-( ), 174095-( ), 174097-( ), and 174098-( ) as listed in B/E Aerospace Service Bulletin 174080-35-04, Rev 000, dated September 6, 2010, that are installed on any aircraft except for those Boeing airplanes specified in the ADs referenced in paragraphs (b)(1), (b)(2), (b)(3), (b)(4), and (b)(5) of this AD.

The Differences Between the Proposed AD and the Service Information section excludes mask assemblies by part number from the proposed AD if they are included in the previously referenced ADs. The Applicability section provides relief for Boeing airplanes covered by the previously referenced ADs. This information is contradictory and needs to be clarified in the final rule AD action.

We agree with the commenter. The statement in the Differences Between the Proposed AD and the Service Information section is incorrect. The template used for preparing final rule AD actions does not include the Differences Between the Proposed AD and the Service Information section, which is part of the Discussion section and not part of the actual AD. The Applicability section in the proposed AD is correct. We regret any confusion this may have caused.

We have not changed the final rule AD action based on this comment.

Airbus, jetBlue Airways, and All Nippon Airways stated Airbus airplanes in compliance with B/E Aerospace Service Bulletin 174080-35-02, Rev. 1, as specified in European Aviation Safety Agency (EASA) AD 2010-0165, dated August 5, 2010, should be excluded from the applicability of the proposed AD.

The commenters state that this change would harmonize the EASA AD with the FAA AD and avoid duplicate work.

We partially agree with the commenters. We do not agree to exclude Airbus airplanes affected by the EASA AD because the EASA AD does not include all of the oxygen mask assembly part numbers that contain the potentially defective in-line flow indicators. We do agree that duplicate work should be avoided and that credit for compliance with the EASA AD could be given, but only if it can be positively determined that no oxygen mask assembly part number listed in B/E Aerospace Service Bulletin 174080-35-04, Rev 000, dated September 6, 2010, or listed in EASA AD 2010-0165, dated August 5, 2010, is installed by STC or alternation.

We have revised the final rule AD action to include a statement in paragraph (g)(1) giving conditional credit for compliance with the EASA AD 2010-0165, dated August 5, 2010, or EASA AD 2010-0165R1, correction dated January 31, 2011.

Airbus stated that compliance with the final rule AD action should include inspection of the oxygen mask assembly container for a manufacture date of oxygen mask assemblies that were fitted at time of production delivery providing that no replacement of masks occurred up to the effective date of the final rule AD action.

Airbus stated that they received a statement from B/E Aerospace stating that “container assemblies that were manufactured after March 1, 2006, do not contain masks that were manufactured before March 1, 2006.” Airbus confirms that no modification is performed on the container assemblies and/or subassemblies before aircraft delivery.

We partially agree with the commenter. We agree that inspection of the oxygen mask assembly container for manufacture date is adequate only if it can be verified that the original oxygen masks in the container assembly are installed. We disagree that relying on the container assembly manufacture date alone addresses the safety concern because the masks in the container assembly may have been changed after it was manufactured.

We have revised the final rule AD action based on this comment to include inspection of the container assembly date only if it can be positively determined that the passenger oxygen masks within the container assembly have not been modified since it was manufactured.

Airbus stated that replacement of the in-line flow indicator before further flight after the inspection would only be necessary if, during the physical check of the oxygen mask assembly, it is found broken. Based on difficulties in getting spare parts from the supplier in sufficient time, the compliance time for modifying the affected oxygen masks should be changed to 36 months after the effective date of the AD or within 6,500 hours time-in-service (TIS) after the effective date of the AD, whichever occurs first.

We agree with the commenter. Changing the compliance time for modifying the affected oxygen masks will still address the safety concern of the unsafe condition identified in the proposed AD.

We have revised the final rule AD action to change the replacement/modification compliance time in paragraph (h).

BOS Aviation Ltd. stated that the Applicability section should also include additional in-line flow indicator part numbers because faulty in-line flow indictors are fitted to more masks than identified in B/E Aerospace Service Bulletin 174080-35-04, Rev 000, dated September 6, 2010. BOS Aviation Ltd. stated that some technical documentation suggests that a very popular series of AVOX oxygen masks contain the same in-line flow indicator, although it masquerades under AVOX part number 804273-01. They also stated that examination of the failure mode of the suspect in-line flow indicator showed that the failure was where the two halves are glued together, not as was suggested at the “weak” sharp molded joint stated in the B/E Aerospace service bulletin and other communication.

We do not agree with the commenter. AVOX stopped using the B/E Aerospace in-line flow indicator in their passenger oxygen masks several years before 2002 when the AVOX part number 804273-01 was introduced. The B/E Aerospace part number 118023-02 in-line flow indicator is not glued; it is welded together. The photos provided by BOS Aviation Ltd. show that the failure did not occur at the weld since the opaque material is still bonded to the transparent material.

The FAA issued Special Alert Information Bulletin (SAIB) NM-11-25 to address an issue with AVOX in-line flow indicators that is different from the B/E Aerospace in-line flow indicators.

We have not changed the final rule AD action based on this comment.

BOS Aviation Ltd. stated that the manufacturer date window be removed from the final rule AD action because several suspect part number in-line flow indicators are in service that were manufactured before the January 1, 2002date specified in B/E Aerospace Service Bulletin 174080-35-04, Rev 000, dated September 6, 2010. BOS Aviation Ltd. stated that the date is not carried on the in-flow indicator, thereby making it difficult to confirm the age of the in-line flow indicator regardless of the age of the oxygen mask. The same ambiguity applies if there has been any repair to the unit.

We do not agree with the commenter. Based on the failure data we have, we determined that no AD action is necessary for other in-line flow indicators or for in-line flow indicators manufactured before 2002.

We have not changed the final rule AD action based on this comment.

BOS Aviation Ltd. requested that the personal safety unit (PSU) (as well as the actual oxygen mask assembly) be marked to show compliance with the AD; thereby negating the need to open the PSU and drop the oxygen mask assembly to confirm compliance in the future.

We partially agree with the commenter. We agree that the oxygen mask assembly needs to be marked to show it has been modified as specified in the service bulletin. However, we do not agree to require marking of the oxygen mask stowage container to show compliance with the AD when compliance can be confirmed by checking the maintenance records.

We have not changed the final rule AD action based on this comment.

BOS Aviation Ltd. stated that the FAA should instruct owner/operators to use standard maintenance practices when doing the actions required in the final rule AD action. This should be done for a myriad of good reasons that relate primarily to safety, none of which goes away simply because the maintenance is carried out as a result of an AD or a service bulletin.

We partially agree with the commenter. We agree that standard maintenance practices should always be used. Appropriate personnel and procedures must be used for the inspection and modification required by this AD to ensure safety and not create additional hazards. We disagree that language should be added to the AD to emphasize safety when doing actions required in an AD.

We have not changed the final rule AD action based on this comment.

BOS Aviation Ltd. stated that B/E Aerospace has offered to supply replacement in-line flow indicators to operators free of charge. The FAA assessed the cost of compliance based on the manpower requirement stated in B/E Aerospace Service Bulletin 174080-35-04, Rev 000, dated September 6, 2011, and is grossly underestimated. In many applications, the suspect oxygen masks are contained in a PSU that is live and installed in operational aircraft. The proposed AD requires opening and disassembling the oxygen mask assembly in order to carry out the inspection, in addition to modifying any defective oxygen mask. To do this task safely and following various manufacturers' maintenance instructions, the oxygen mask assembly should be removed from the aircraft, taken to an oxygen clean environment, and made safe in preparation for maintenance.

Once open, depending on type, the oxygen mask assemblies are tightly wrapped with their tube specifically coiled and packaged with the in-line flow indicator not immediately visible, which then requires “unpacking” the box that may contain up to four masks. The box then requires proper “re-packing” before reinstallation and test in the aircraft.

BOS Aviation Ltd. stated that they have conducted tests that would suggest the accomplishment time (as presented in AD 2007-26-06 for example) is probably adequate for an aircraft of a half or a third the capacity of the 747. Moreover, where aircraft PSUs use chemical oxygen generators, the issue to ensure safety with respect to the oxygen generating canister becomes paramount and increases the workhours required. Our estimate, at the very best, for accomplishing the AD on an airplane's set of PSUs on a 150 seat narrow body airplane, will require a minimum of 3 days down time, not including transport of the PSUs to a suitable workshop for accomplishment of the AD.

We do not agree with the commenter. The cost estimate of $19,400,00 for the estimated number of affected oxygen mask assemblies is based on the following:

• The cost estimate for the AD assumes that all of the 400,000 part number in-line flow indicators manufactured on or after January 1, 2002, and before March 1, 2006, are replaced for compliance with this AD. In reality, most of these in-line flow indicators are installed in Boeing and Airbus airplanes and will be replaced in compliance with the previously referenced ADs. The exact number that will be replaced in accordance with this AD is unknown, but it will be less than the estimated 400,000.

• The cost estimate assumes 30 minutes are required to do the actions required in this AD for each affected oxygen mask assembly. This estimate is much higher than the 3-minute time proposed in B/E Aerospace Service Bulletin 174080-35-04, Rev 000, dated September 6, 2010.

• For the oxygen mask assemblies to be maintained in an airworthy condition, a recurrent inspection for each oxygen mask is necessary. The 6,500-hour TIS/36-month compliance time of this AD will allow many operators to do the actions required in this AD at the same time as the recurrent inspection.

We have not changed the final rule AD action based on this comment.

We reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting the AD with the changes described previously and minor editorial changes. We have determined that these minor changes:

• Αre consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM.

We also determined that these changes will not increase the economic burden on any operator or increase the scope of the AD.

We estimate that this AD affects 400,000 oxygen mask assemblies.

We estimate the following costs to comply with this AD:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to include an airworthiness directive (AD) that would apply to the specified products. That NPRM published in theFederal Registeron December 1, 2010 (75 FR 74663). That NPRM proposed to require a general visual inspection to determine the routing of the wire bundles in the number two and number three engine pylons near the leading edge, and related investigative and corrective actions if necessary. For certain airplanes, that NPRM also proposed to require certain concurrent actions.

We gave the public the opportunity to participate in developing this AD. The following presents the comments received on the proposal and the FAA's response to each comment.

Boeing requested a change to the wording describing the precipitating event specified in the Summary and Discussion sections and paragraph (e) of the NPRM to clarify the location of the fuel leak. Boeing clarified that, for the record, the fuel leaked from the main fuel feed tube and drained through the drain line.

We agree that changing the language to specify the location of the leak makes the description more accurate. Therefore, we have changed the wording appropriately in the Summary section and paragraph (e) of this AD. However, the subject text does not appear in the Discussion section in the final rule.

Boeing requested that we change the last sentence of the “FAA's Determination and Requirements of this Proposed AD” paragraph in the NPRM to cite the specific service bulletin number, revision level, and date to differentiate between previous and new service information.

We agree that the requested change might clarify the information. However, because that section is not restated in the final rule, we cannot make the requested change to this AD.

Boeing requested that we remove the cost of the concurrent inspection and bracket installation from the Costs of Compliance section of the NPRM. Boeing stated that the cost for the concurrent inspection and bracket installation was previously stated in AD 92-27-13, Amendment 39-8448 (58 FR 5920, January 25, 1993), and is not necessary in this proposed AD.

We disagree that it is unnecessary to include the cost of the concurrent actions in this AD. We acknowledge that these costs have already been stated in an existing AD; however, we have provided costs for required actions in this AD, including concurrent actions, regardless of whether operators might already have done them. No change has been made to the AD in this regard.

Boeing stated that we should include the costs of inspecting the fuel feed tube and the alternating current motor driven hydraulic pump wire bundle, repairs, replacing the fuel tube, and changing the routing of the wire bundle to above the support bracket.

We agree with the request to include the costs of these actions specified above. We have added an “On-condition costs” table to reflect these costs.

We reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting the AD with the changes described previously—and minor editorial changes. We have determined that these minor changes:

• Are consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and

• Do not add any additional burden upon the public than was already proposed in the NPRM.

We also determined that these changes will not significantly increase the economic burden on any operator or increase the scope of the AD.

We estimate that this AD affects 15 airplanes of U.S. registry.

We estimate the following costs to comply with this AD:

We estimate the following costs to do any necessary inspections or repairs that would be required based on the results of the required inspection. We have no way of determining the number of aircraft that might need these inspections or repairs:

The cost estimate figures discussed above are based on assumptions that no operator has yet accomplished any of the actions required by this AD, and that no operator would accomplish those actions in the future if this AD were not adopted. However, we have been advised that the concurrent inspection and bracket installation have alreadybeen done on some affected airplanes. Therefore, the future economic cost impact of this rule on U.S. operators is expected to be less than the cost impact figure indicated above.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979),

(3) Will not affect intrastate aviation in Alaska, and

(4) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

The Commission is adopting new Rule 15b12-1T under the Exchange Act as an interim final temporary rule. The rule will expire and no longer be effective on July 16, 2012. The Commission is soliciting comments on all aspects of this interim final temporary rule. The Commission will carefully consider any comments received and intends to take further action if it determines that further action is necessary or appropriate, either prior to or following the expiration of the rule. In making this determination, the Commission may consider a number of alternative approaches with respect to retail forex transactions, including proposing new rules for public comment; issuing a final rule amending the interim final temporary rule; issuing a final rule adopting the interim final temporary rule as final; or allowing the interim final temporary rule to expire without further action, which would allow the statutory prohibition to take effect.

On July 21, 2010, President Obama signed into law the Dodd-Frank Act.1 As amended by the Dodd-Frank Act,2 the Commodity Exchange Act (“CEA”) provides that a person for which there is a Federal regulatory agency,3 including a broker-dealer registered under section 15(b) (except pursuant to paragraph (11) thereof) or 15C of the Exchange Act,4 shall not enter into, or offer to enter into, a transaction described in section 2(c)(2)(B)(i)(I) of the CEA with a person who is not an “eligible contract participant”5 exceptpursuant to a rule or regulation of a Federal regulatory agency allowing the transaction under such terms and conditions as the Federal regulatory agency shall prescribe6 (“retail forex rule”).7 Transactions described in CEA section 2(c)(2)(B)(i)(I) include “an agreement, contract, or transaction in foreign currency that * * * is a contract of sale of a commodity for future delivery (or an option on such a contract) or an option (other than an option executed or traded on a national securities exchange registered pursuant to section 6(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(a)).”8 A Federal regulatory agency's retail forex rule must treat all agreements, contracts, and transactions in foreign currency described in CEA section 2(c)(2)(B)(i)(I) and all agreements, contracts, and transactions in foreign currency that are functionally or economically similar to agreements, contracts, or transactions described in CEA section 2(c)(2)(B)(i)(I), similarly.9 Any retail forex rule also must prescribe appropriate requirements with respect to disclosure, recordkeeping, capital and margin, reporting, business conduct, and documentation, and may include such other standards or requirements as the Federal regulatory agency determines to be necessary.10

This amendment to the CEA takes effect on July 16, 2011, which is 360 days from the date of enactment of the Dodd-Frank Act.11 After that date, for purposes of CEA section 2(c)(2)(B), broker-dealers for which the Commission is the “Federal regulatory agency” may not engage in off-exchange retail forex futures and options with a customer except pursuant to a retail forex rule issued by the Commission.12 This prohibition will not apply to (1) forex transactions with a customer who qualifies as an ECP, or (2) transactions that are spot forex contracts or forward forex contracts irrespective of whether the customer is an ECP.13 However, consistent with other Federal regulatory agencies' retail forex rules, Rule 15b12-1T applies to “rolling spot” transactions in foreign currency by broker-dealers.14 The discussion of the definition of “retail forex transaction” below addresses the distinctions between rolling spot forex transactions and spot and forward forex contracts.

Prior to June 2011, the Commission had not been made aware of industry concerns with respect to the operation of section 742 of the Dodd-Frank Act in the absence of Commission rulemaking. In mid-June 2011, however, market participants for the first time brought to the attention of Commission staff the possibility that section 742 of the Dodd-Frank Act may have serious adverse consequences for certain securities markets in the absence of rulemaking by the Commission before the impending effective date of the provision (i.e.,July 16, 2011).15 Although this correspondence from market participants brought this issue to the attention of Commission staff, the Commission understands that this is in fact a wider concern shared by several other market participants. One potential consequence concerns the ability of broker-dealers to facilitate the settlement of foreign securities transactions for retail customers. For example, a broker-dealer may purchase a foreign currency or exchange a foreign currency for U.S. dollars on behalf of a retail customer in connection with the customer's purchase or sale of a security listed on a foreign exchange and denominated in the foreign currency. In particular, a representative of certain market participants informed the staff that section 742 could operate to preclude broker-dealers from continuing to engage in certain foreign exchange transactions that are inherent in certain of their customers' securities transactions, and that serve to minimize their customers' risk exposure to changes in foreign currency rates.16

The Commission further understands that there may be other situations in which broker-dealers engage in foreign exchange transactions in connection with facilitating the ordinary execution, clearance, or settlement of customers' securities transactions and that may warrant rulemaking by the Commission in order to avoid market disruption due to the potential application of section 742 of the Dodd-Frank Act. At the same time, the Commission notes that media coverage over the past few years has highlighted potentially abusive practices by some intermediaries in connection with retail forex transactions.17 The Commission also notes that other regulators have expressed concerns with regard to the retail forex practices of the entities that they regulate.18

In order to provide the Commission with the opportunity to receive comments regarding practices in this area and to consider prescribing additional rules to address investor protection concerns (e.g., abusive sales practices, volatility and riskiness of theforex market)19 as they affect the regulatory treatment of retail forex transactions by broker-dealers—while also preserving potentially beneficial market practices identified to the Commission only weeks before the July 16, 2011 effective date for section 742 of the Dodd-Frank Act—the Commission today is adopting interim final temporary Rule 15b12-1T under the Exchange Act to enable broker-dealers to engage in a retail forex business under the existing regulatory regime for one year. By receiving comments regarding practices in this area, the Commission will be better positioned to determine, for example, the scope of retail forex business conducted by broker-dealers that may be beneficial and poses limited risk to customers and any aspects of the business that may pose substantial undue risks to customers. The Commission will carefully consider comments on what additional rulemaking may be necessary, if any.

The Commission is adopting interim final temporary Rule 15b12-1T to maintain the ability of broker-dealers to engage in a retail forex business during a one-year period under the existing regulatory framework that now applies to broker-dealers providing these services. The Commission solicits comment on each aspect of the rule and the nature and circumstances surrounding retail forex business conducted by broker-dealers. The Commission intends to carefully consider comments received to determine what further regulatory action, if any, would be appropriate. In making this determination, the Commission may consider a number of alternatives with respect to retail forex transactions, including proposing new rules for public comment; issuing a final rule amending the interim final temporary rule; issuing a final rule adopting the interim final temporary rule as final; or allowing the interim final temporary rule to expire without further action, which would allow the statutory prohibition to take effect.

Rule 15b12-1T(a) sets forth the definitions of terms specific to the interim final temporary rule. Many of the terms (i.e.,broker, dealer, person, registered broker or dealer, and self-regulatory organization) have the same meanings as in the Exchange Act. The term “Act,” as used in the rule, refers to the Exchange Act.20 The Commission chose these terms and definitions because their meanings are readily understood in the industry.

The term “retail forex business” is defined as “engaging in one or more retail forex transactions with the intent to derive income from those transactions, either directly or indirectly.”21 This definition mirrors the definition contained in the FDIC's final retail forex rules and the OCC's proposed rules.22 This term is intended to include retail forex transactions that may not generate income to the broker-dealer or a retail forex business that is ultimately not profitable. The Commission chose this definition because it focuses on the intent to engage in a series of forex transactions with a business purpose, whether or not the transactions result in income or profits.

The term “retail forex transaction” is defined as “any account, agreement, contract or transaction in foreign currency that is offered or entered into by a broker or dealer with a person that is not an eligible contract participant as defined in section 1a(18) of the Commodity Exchange Act (7 U.S.C. 1a(18)) and that is: (i) A contract of sale of a commodity for future delivery or an option on such a contract; (ii) an option, other than an option executed or traded on a national securities exchange registered pursuant to section 6(a) of the Act (15 U.S.C. 78(f)(a)); or (iii) offered, or entered into, on a leveraged or margined basis, or financed by a broker or dealer or any person acting in concert with the broker or dealer on a similar basis, other than: (A) a security that is not a security futures product as defined in section 1a(47) of the Commodity Exchange Act (7 U.S.C. 1a(47)); or (B) a contract of sale that: (1) Results in actual delivery within two days; or (2) creates an enforceable, obligation to deliver between a seller and buyer that have the ability to deliver and accept delivery, respectively, in connection with their line of business.”23 This definition is based on the CEA, incorporates the terms described in CEA sections 2(c)(2)(B) and 2(c)(2)(C),24 and is substantially the same as the definition in the FDIC's final section 349.225 and the OCC's proposed section 48.2.26 This definition has at least two important features.

First, certain transactions in foreign currency are excluded from the definition of the term “retail forex transaction.” For example, the CEA expressly excludes “a contract of sale [in foreign currency] that * * * results in actual delivery within 2 days.”27 As defined by court decisions as well as the retail forex rules of other Federal regulatory agencies, this term refers to a “spot” forex transaction, in which one currency is purchased for another, the transaction is settled within two days, and actual delivery occurs as soon as practicable.28 Similarly, based upon the language in the CEA,29 a “retail forex transaction” does not include a contract of sale that creates an enforceable obligation to deliver between a buyer and seller that have the ability to deliver and accept delivery, respectively, in connection with their line of business.30 This statutory language refers to a retail forex forward contract with a commercial entity that creates an enforceable obligation to make or take delivery, provided the commercial counterparty has the ability to make delivery and accept delivery in connection with its line of business.31 Inaddition, consistent with the approach of other Federal regulatory agencies' retail forex rules, the definition does not include forex transactions executed or traded on an exchange or designated contract market.32

Second, a “rolling spot” forex transaction (also known as aZelenercontract),33 including without limitation such a transaction traded on the Internet, through a mobile phone, or on an electronic platform, falls within the definition of “retail forex transaction,”34 and thus is not excluded from the definition as a “spot” transaction. This interpretation is consistent with the approach of other Federal regulatory agencies acting pursuant to section 742 of the Dodd-Frank Act to treat all agreements, contracts, and transactions in foreign currency described in CEA section 2(c)(2)(B)(i)(I) and all agreements, contracts, and transactions in foreign currency that are functionally or economically similar to agreements, contracts, or transactions described in CEA section 2(c)(2)(B)(i)(I), similarly.35 Like a spot forex transaction, a rolling spot forex transaction with a retail customer may initially require delivery of currency within two days. In practice, however, contracts with a retail customer for a rolling spot forex transaction may be indefinitely renewed every other day, and no currency is actually delivered until one party affirmatively closes out the position.36 The Commission preliminarily believes that a contract with a retail customer for a rolling spot forex transaction is economically more similar to a retail forex future, as described in CEA section 2(c)(2)(B)(i)(I), than a spot forex contract.

Rule 15b12-1T(b) allows any registered broker or dealer to engage in a retail forex business provided that such broker or dealer complies with the Exchange Act, the rules and regulations thereunder, and the SRO rules, including, but not limited to, the disclosure, recordkeeping (or documentation), capital and margin, reporting, and business conduct requirements, insofar as they are applicable to retail forex transactions. In order for broker-dealers to engage in retail forex transactions after July 16, 2011, the Commission must adopt rules prescribing appropriate requirements with respect to disclosure, recordkeeping, capital and margin, reporting, business conduct, documentation,37 and such other standards or requirements that the Commission determines to be necessary.38 Because broker-dealers engaging in a retail forex business are already subject to numerous regulatory requirements with respect to this business under the Exchange Act, the rules and regulations thereunder, and SRO rules, the Commission does not intend to create any new obligations under this interim final temporary rule for broker-dealers that are engaged in a retail forex business. The Commission provides below illustrative examples of obligations, including certain SRO requirements, applicable to broker-dealers' retail forex transactions.39

Broker-dealers that engage in a retail forex business must comply with the disclosure requirements in NASD Rule 2210.40 NASD Rule 2210 requires all communications with the public by members of FINRA—including forex-related communications—to be based on principles of fair dealing and good faith, to be fair and balanced, and to provide a sound basis for evaluating the facts regarding the market generally and a customer's specific transaction.41 NASD Rule 2210 further prohibits broker-dealers from making “any false, exaggerated, unwarranted or misleading statement or claim in any communication with the public.” As stated in the FINRA Forex Notice, a broker-dealer's communications with the public “must adequately disclose the risks associated with forex trading, including the risks of highly leveraged trading,” and a broker-dealer “must also make sure that [its] communications with the public are not misleading regarding, among other things: [t]he likelihood of profits or the risks of forex trading, including leveraged trading; [t]he firm's role in or compensation from the trade; [t]he firm's or the customer's access to the interbank currency market; or [t]he performance or accuracy of electronic trading platforms or software sold or licensed by or through the firm to customers in connection with forex trading, including falsely advertising claims regarding slippage rates.”42

Further, FINRA stated in its regulatory notice to members that FINRA Rule 2010 (formerly NASD Rule 2110), which requires broker-dealers, in the conduct of their business, to observe high standards of commercial honor and just and equitable principles of trade, applies to all of a broker-dealer'sbusiness, including its retail forex business.43 FINRA stated, for example, that to comply with FINRA Rule 2010, a member firm must adequately disclose to its retail customers that the firm is acting as a counterparty to a transaction, the risks associated with forex trading, and the risks and terms of leveraged trading.44

Exchange Act Rules 17a-3 and 17a-4 require a broker-dealer to make, keep current, and preserve records regarding its business. For example, Exchange Act Rules 17a-3(a)(2) and 17a-3(a)(11) require a broker-dealer to make and keep current a general ledger, which provides details relating to all assets, liabilities, and nominal accounts.

A broker-dealer is also required to preserve, for a period of not less than three years, originals of all communications received and copies of all communications (and any approvals thereof) sent by the broker-dealer relating to its business as such, including all communications that are subject to SRO rules regarding communications with the public.45 As discussed above, communications with the public regarding retail forex are subject to NASD Rule 2210.46 In addition, Exchange Act Rule 17a-4(b)(7) requires a broker-dealer to preserve, for a period of not less than three years, all written agreements (or copies thereof) entered into by the broker-dealer relating to its business as such, including agreements with respect to any account. Accordingly, broker-dealers must preserve, for a period of not less than three years, originals of all communications received and copies of all communications (and any approvals thereof) sent by the broker-dealer and any written agreements with respect to retail forex transactions.

Another example of recordkeeping requirements applicable to retail forex transactions derives from the Bank Secrecy Act (“BSA”), as amended by the USA PATRIOT Act and implemented under rules promulgated by the U.S. Treasury Department's Financial Crimes Enforcement Network (“FinCEN”), which requires broker-dealers to make, keep, retain, and report certain records that have a high degree of usefulness for the purposes of criminal, tax, or regulatory matters.47 Exchange Act Rule 17a-8 requires broker-dealers to comply with the reporting, recordkeeping, and record retention requirements of the BSA's implementing regulations.48

Each broker-dealer must comply with Exchange Act Rule 15c3-1, which prescribes minimum regulatory net capital requirements for broker-dealers and is applicable to all business activities of the broker-dealer, including forex. The Commission notes that, under Exchange Act Rule 15c3-1, any uncollateralized current exposure by a broker-dealer to retail forex transactions must be deducted when computing the firm's net capital. The provisions of the net capital rule dealing with contractual commitment charges under Rule 15c3-1(c)(2)(viii) also apply to commitments with respect to foreign currency. Further, pursuant to Exchange Act section 7, broker-dealer margin requirements are generally set according to Regulation T49 and SRO margin rules.50

A broker-dealer is required to file with the Commission periodic financial and operational reports (i.e.,FOCUS Reports), as prescribed in Exchange Act Rule 17a-5, that include relevant information regarding the broker-dealer, including information regarding its retail forex business, if any. In addition, FINRA has advised its member firms that a broker-dealer's expansion of its business to include retail forex transactions constitutes a material change in business operations pursuant to NASD Rule 1017(a), and broker-dealers must first apply for and receive approval from FINRA to conduct this activity.51 Additionally, as discussed above, Exchange Act Rule 17a-8 requires broker-dealers to report to FinCEN certain enumerated types of transactions, including suspicious transactions in foreign currencies and foreign currency futures and options.52

In the course of complying with certain Exchange Act requirements, rules and regulations thereunder, and SRO rules relating to business conduct, broker-dealers must address their retail forex business. For example, as discussed above, FINRA Rule 2010 (formerly NASD Rule 2110), which requires broker-dealers, in the conduct of their business, to observe high standards of commercial honor and just and equitable principles of trade, applies to all of a broker-dealer's business, including its retail forex business.53 FINRA has noted that the following examples of conduct in relation to a retail forex business are prohibited under FINRA Rule 2010, including: Misappropriating or mishandling customer funds; using, selling, or leasing electronic trading platforms that allow “slippage” of trade executions in a manner that disproportionately or unfairly affects the customer; manipulating or displaying false quotes; offering mock, or “demonstration,” accounts that do not accurately reflect the risks of forex trading; making post-execution price adjustments that are inappropriate and unfavorable to the customer; soliciting business for and introducing customers to a forex dealer without conducting adequate due diligence on the forex dealer, or in a way that misleads the customer about the forex dealer or forex trading, including how customer funds will be held; failing to conduct due diligence on any solicitors that introduce forex customers to the broker-dealer; and accepting forex-related trades from an entity or individual that solicits retail forex business on behalf of the firm in a misleading or deceptive way.54

Broker-dealers also need to address retail forex transactions in connection with the customer reserve bank account requirements under Exchange Act Rule 15c3-3. In calculating what amount, if any, a broker-dealer must deposit on behalf of its customers in a reserve bank account pursuant to Exchange Act Rule 15c3-3(e), the broker-dealer must use the formula set forth in Exchange Act Rule 15c3-3a. Specifically, the Commission staff has interpreted Exchange Act Rule 15c3-3 to require that the broker-dealer must include the net balance due to customers in non-regulated commodity accounts, reduced by any deposits of cash or securities with any clearing organization or clearing broker in connection with the open contracts in such accounts.55

Furthermore, Exchange Act section 15(b)(4)(E) authorizes the Commission to impose sanctions against a broker-dealer for failing reasonably to supervise another person subject to the firm's supervision who committed a violation of specified laws, including the CEA, unless the broker-dealer established procedures, and a system for applying such procedures, that would reasonably be expected to prevent and detect, insofar as practicable, the violation of law.56 Thus, broker-dealers engaged in a retail forex business should include in their policies and procedures mechanisms to prevent and detect potential violations of applicable laws and regulations in connection with that business.

The examples provided above are not inclusive of all regulatory requirements administered by the Commission that are implicated by retail forex business conducted by broker-dealers. By providing these examples, the Commission does not intend to suggest that other provisions, rules and regulations, including antifraud provisions and SRO rules, may not apply to retail forex business. At the same time, this interim final temporary rule is not intended to impose new regulatory obligations for broker-dealers, in connection with such business.

Rule 15b12-1T(c) provides that any registered broker or dealer that engages in a retail forex business in compliance with paragraph (b) of this rule on or after the effective date of this rule will be deemed, until July 16, 2012, to be acting pursuant to rule or regulation described in CEA section 2(c)(2)(E)(ii)(I), as amended by section 742 of the Dodd-Frank Act. This rule will allow broker-dealers that engage in a retail forex business to do so until July 16, 2012, subject to compliance with existing applicable requirements.

Rule 15b12-1T(c) applies to broker-dealers that prior to the effective date of the rule had entered into retail forex transactions that continue after the effective date. The rule also applies to broker-dealers that begin after the rule's effective date to engage in retail forex transactions. As the Commission explained above, FINRA has advised its member firms that a broker-dealer that expands into a retail forex business must first apply for and receive approval to conduct this activity, as a change in business operations pursuant to NASD Rule 1017(a).57

Rule 15b12-1T(d) provides that the rule will expire and no longer be effective on July 16, 2012. The Commission believes that the sunset date is appropriate because it will allow the existing regulatory framework for a retail forex business to continue for a defined period and thereby give the Commission sufficient time to determine what further appropriate steps, if any, to take with respect to a retail forex business.

The Commission is requesting comments from all members of the public regarding all aspects of the interim final temporary rule and the current market practices involving retail forex transactions, as well as any investor protection or other concerns that should be addressed by Commission rulemaking. The Commission particularly requests comments from the point of view of broker-dealers that are presently engaged in a retail forex business, broker-dealers that plan to engage in such a business, customers that use retail forex transactions, and ECPs. Together with continued discussions with market participants and other regulators, the Commission considers this rulemaking to be an important avenue for gathering more information from affected parties about the current scope and nature of retail forex transactions. Such information will inform the Commission's thoughtful review of the appropriate regulatory framework for retail forex transactions before or beyond the expiration of the interim final rule. The Commission also seeks comment on the particular questions below, which have been designed to elicit a robust discussion of the uses and reasons for such transactions as they occur today, as well as the potential need for additional regulation. The Commission will carefully consider all comments received, and will benefit especially from detailed comments and comments responding to other commentary in the public file for this rulemaking.

1. Should the Commission clarify or modify any of the definitions included in Rule 15b12-1T? If so, which definitions and what specific modifications are appropriate or necessary?

2. Are the requirements in Rule 15b12-1T sufficiently clear? Is additional guidance from the Commission necessary?

3. Rule 15b12-1T is an interim final temporary rule that is set to expire on July 16, 2012. Should the Commission extend the expiration date of the rule and if so, for how long?

4. Should the Commission propose new rules relating to the retail forex business operated by broker-dealers for public comment, issue a final rule amending the interim final temporary rule, issue a final rule adopting the interim final temporary rule as final, or allow the interim final temporary rule to expire without further action, which would allow the statutory prohibition to take effect? If further rulemaking is appropriate, what should those rules provide?

5. Should the Commission prohibit a broker-dealer from engaging in retail forex transactions altogether? Alternatively, should the Commission prohibit a broker-dealer from engaging in retail forex transactions other than forex transactions engaged in solely (1) to effect the purchase or sale of a foreign security or in order to clear or settle such purchase or sale, or (2) to facilitate distribution to customers of monies or securities received through corporate actions (e.g., coupons, dividends, class action settlements, and rights offerings)with respect to foreign securities? Should the Commission permit other retail forex transactions that otherwise facilitate customers' securities transactions and minimize risk exposure to customers from changes in foreign currency rates? Do investors have adequate recourse against broker-dealers for any misconduct related to retail forex transactions? Would retail forex customers be harmed if broker-dealers were unable to provide them with certain forex-related services? Which services? What benefits might retail forex customers receive in connection with forex-related services offered by broker-dealers, as compared to other intermediaries? Would the benefits outweigh potential harm?

6. Should the Commission adopt rules modeled on the Final CFTC Retail Forex Rule, the Final FDIC Retail Forex Rule, or the Proposed OCC Retail Forex Rule? If so, which aspects of those rules should the Commission consider adopting? What would be the associated costs and benefits?

7. Should the Commission adopt final permanent rules governing retail forex transactions? If so, what should those rules address?

8. Are there any requirements or prohibitions not covered in the Final CFTC Retail Forex Rule, the Final FDIC Retail Forex Rule, or the Proposed OCC Retail Forex Rule that the Commission should address? Do existing Exchange Act provisions, rules and regulations thereunder, and SRO rules governing broker-dealers appropriately protect retail forex customers of broker-dealers? Should the Commission consider rulemaking to address any concerns that are not adequately addressed under the current regulatory framework?

9. What distinctive characteristics of retail forex transactions should the Commission take into consideration if it were to engage in further rulemaking relating to such transactions? Are there certain types of retail forex transactions (e.g., rolling spot transactions) that warrant Commission rulemaking to address specific disclosure and other investor protection concerns?58

10. What is the extent of the retail forex business currently conducted by broker-dealers? Does the retail forex business currently conducted by broker-dealers consist solely or primarily of forex transactions to facilitate customers' securities transactions and minimize risk exposure to customers from changes in foreign currency rates? In general, what proportion of the retail forex business currently conducted by broker-dealers do such transactions account for? Please provide as comprehensive of a description as possible of the retail forex activities of broker-dealers.

11. For what other reasons do broker-dealers engage in retail forex transactions and what proportion of the retail forex business currently conducted by broker-dealers do such transactions account for? What benefits do these transactions provide to customers? What risks do customers face by engaging in such transactions?

12. Provide estimates of the absolute size of the retail forex business (in both dollar amounts and numbers of transactions) conducted by the broker-dealer. What does this business represent as an estimated percent of the broker-dealer's total business? As an estimated percent of its total forex business?

13. What is the estimated absolute size of the retail forex business (in both dollar amounts and numbers of transactions) conducted by broker-dealers overall? What does this business represent as a percent of their total business? As a percent of their total forex business?

14. What types of customers engage in retail forex transactions, including rolling spot forex transactions?

15. Is the existing regulatory framework for retail forex business as currently conducted by broker-dealers consistent with the protection of investors, the maintenance of fair, orderly, and efficient markets, and the facilitation of capital formation?

16. What disclosures do broker-dealers provide to their customers regarding forex transactions that are conducted to facilitate settlement of securities transactions? What disclosures do broker-dealers provide to customers regarding forex transactions that are conducted for other purposes (e.g., at the customer's request to hedge against currency exchange risk exposure associated with securities transactions, or to engage in speculative activity)? Do broker-dealers adequately and fully disclose the risks associated with forex trading? Do broker-dealers provide information to customers regarding pricing of forex transactions (e.g., pricing methodology, exchange rates for foreign currencies, how the price was calculated)? If so, is this information provided in advance of or following the forex transactions?

17. On what basis do broker-dealers price retail forex transactions? For example, do broker-dealers use the end-of-day currency exchange rate or some other benchmark? Do broker-dealers maintain policies and procedures that govern how forex transactions are handled and priced for retail forex customers? If broker-dealers do not provide pricing information to retail customers, what documentation does the broker-dealer maintain to demonstrate the price provided in retail forex transactions?

18. Are transaction-time records for retail forex transactions currently created and provided to retail customers? If not, what would be the cost to create transaction-time records for retail forex transactions? What would be the cost to report to customers the transaction time and/or the source or basis for the currency exchange rate provided on retail forex transactions?

19. For broker-dealers that provide custody services to retail customers, please describe any retail forex business conducted with respect to these custody services. What disclosures are provided to retail customers in connection with custody services? What pricing information is provided to retail customers in connection with forex transactions conducted in relation to custody services (e.g., pricing methodology, exchange rates for foreign currencies, how the price was calculated)? If pricing information is provided, is this information provided in advance of or following the forex transactions? On what basis do broker-dealers price retail forex transactions conducted in connection with custody services? Do broker-dealers maintain policies and procedures that govern how forex transactions are handled and priced in connection with custody services for retail forex customers? If broker-dealers do not provide pricing information to retail customers in connection with their custody business, what documentation do broker-dealers maintain to demonstrate to examiners the price provided in retail forex transactions?

20. Do broker-dealers provide retail customers alternatives for obtaining prevailing prices on retail forex transactions? For example, do broker-dealers inform customers that the customer can choose whether the broker-dealers will handle retail forex transactions at rates set under a “standing instruction” (i.e.,non-negotiated trades, where a customer provides the broker-dealer discretion with respect to handling the forex transaction) or as a negotiated trade? Where a broker-dealer provides a“standing instruction” process for customers, what methods are used to determine the appropriate exchange rate? Do retail customers receive the interbank rate or some other rate?

21. What conflicts of interest exist in connection with broker-dealers handling and pricing of retail forex transactions? How do broker-dealers manage these conflicts of interest? Do broker-dealers disclose when they are acting as a counterparty to a forex transaction with a retail customer?

22. What compensation structures do broker-dealers apply to retail forex transactions (e.g., per trade commissions, spreads, both)? Do broker-dealers charge retail forex customers rolling fees or additional transaction fees, such as maintenance charges, software licensing fees, commissions paid to introducing brokers or other third-party service providers? Are there breakpoints offered to retail customers based on, for example, volume or number of trades? If so, are the breakpoints available to all retail customers?

23. What fees are charged by broker-dealers for each type of retail forex trade? What is the prevailing market rate for retail forex transactions? How does this differ from the prevailing market rate for forex transactions with ECPs? Does the prevailing market rate differ for standing instruction fees and negotiated trade fees?

24. Do broker-dealers disclose all compensation charged to retail customers? At what point during the customer relationship are compensation disclosures made (e.g., prior to any forex transactions, following a forex transaction)? What is the scope and breadth of those disclosures? Should the Commission consider rules that would expand broker-dealers' disclosure obligations?

25. In light of the authority provided under section 742 of the Dodd-Frank Act for the Commission to consider any other standards or requirements in connection with retail forex transactions that it determines to be necessary, when a broker-dealer solicits business for and introduces customers to a forex dealer, what due diligence does the broker-dealer conduct about the forex dealer? What policies and procedures do broker-dealers have in place, if any, regarding supervision of unregistered solicitors that introduce forex customers to the broker-dealer and that are employees or agents of the broker-dealer?

26. What policies and procedures do broker-dealers have in place regarding advertisements and marketing materials related to forex services offered to retail customers?

27. Do broker-dealers provide information to customers regarding access to the interbank currency market?

28. What disclosures do broker-dealers make to retail customers regarding the performance and accuracy (including slippage rates) of electronic trading platforms or software sold or licensed by or through the firm to customers in connection with forex trading?

29. What information do retail customers believe is important for them to receive from broker-dealers regarding their forex transactions?

30. What business conduct concerns do retail customers have regarding the manner in which their broker-dealers handle and price forex transactions?

31. Do broker-dealers provide structured products to retail customers that require forex transactions at maturity? In connection with these types of products, how are the foreign exchange conversion fees calculated and disclosed? Is the cost of the conversion embedded in the transaction itself, or must investors pay additional fees for conversion?

32. What alternatives for handling forex transactions outside of broker-dealers are available to retail investors? Would a transition of retail forex business out of broker-dealers be efficient or costly from the standpoint of customers?

The Administrative Procedure Act generally requires an agency to publish notice of a proposed rulemaking in theFederal Register.59 This requirement does not apply, however, if the agency “for good cause finds * * * that notice and public procedure are impracticable, unnecessary, or contrary to the public interest.”60 Further, the Administrative Procedure Act also generally requires that an agency publish an adopted rule in the Federal Register 30 days before it becomes effective.61 This requirement, however, does not apply if the agency finds good cause for making the rule effective sooner.62 The Commission, for the reasons discussed above and below, finds that notice and solicitation of comment before the effective date of Rule 15b12-1T is impracticable, unnecessary, and contrary to the public interest.63

It was not until mid-June 2011 that market participants first informed the Commission of a possible disruption of a potentially important forex service provided by broker-dealers to retail investors if the Commission did not act swiftly to adopt a rule allowing retail forex transactions by July 16, 2011, the effective date of section 742 of the Dodd-Frank Act.64 As noted above, one representative of certain market participants stated that “it would expose both broker-dealers and their retail customers to needless operational, price, credit and other risks if the [Commission did] not allow broker-dealers to engage in foreign exchange activity that is ancillary to the broker-dealer's ordinary securities execution, clearing, settlement and booking activity.”65 The Commission believes that Congress, in enacting section 742 of the Dodd-Frank Act, may not have intended to prohibit certain types of foreign exchange activity, which might be beneficial to retail investors. To allow the existing regulatory framework for retail forex transactions to continue for a defined period, to avoid potentially unintended consequences from broker-dealers immediately discontinuing their retail forex business, and to provide the Commission sufficient time to determine the appropriate regulatory framework regarding retail forex transactions, the Commission is adopting on an interim final temporary basis Rule 15b12-1T. The Commission does not intend to create new regulatory obligations for broker-dealers in adopting this interim final temporary rule. The Commission further emphasizes that it is requesting comment on all aspects of the rule. The Commission will carefully consider the comments it receives.

The Commission notes that interim final temporary Rule 15b12-1T does not create new regulatory obligations for broker-dealers, and therefore does not impose any new “collections of information” within the meaning of the Paperwork Reduction Act of 1995 (“PRA”),66 nor does it create any new filing, reporting, recordkeeping, or disclosure reporting requirements for broker-dealers that are or plan to be engaged in a retail forex business.Accordingly, the Commission did not submit the interim final temporary rule to the Office of Management and Budget for review in accordance with the PRA. The Commission requests comment on its conclusion that there are no collections of information.

Exchange Act section 23(a)(2) requires the Commission, when adopting rules under the Exchange Act, to consider the impact that any new rule would have on competition, and prohibits the Commission from adopting any rule that would impose a burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. Furthermore, section 2(b) of the Securities Act of 1933 and Exchange Act section 3(f) require the Commission, when engaging in rulemaking where it is required to consider or determine whether an action is necessary or appropriate in the public interest, to also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation.

As noted above, section 742(c) of the Dodd-Frank Act amended the CEA to prohibit broker-dealers from engaging in retail forex transactions after July 16, 2011, absent rulemaking by the Commission to allow such transactions. If there is no such rulemaking in place, then certain transactions that may be considered beneficial to retail investors, such as hedging transactions and securities conversion trades that take more than two days to settle, may no longer be conducted by broker-dealers. Retail investors who transact in foreign securities through a broker-dealer may find it difficult to minimize their currency risk exposure if risk-minimizing hedging transactions are moved outside the broker-dealer.

The Commission is adopting interim final temporary Rule 15b12-1T to allow broker-dealers to engage in a retail forex business for one year. This rule keeps in place the regulatory framework that currently exists for broker-dealers, and preserves the ability of broker-dealers to provide, among other services, hedging and conversion trades, to retail investors while the Commission considers what further appropriate steps to take, if any.

Rule 15b12-1T is intended to minimize market disruptions that may occur when section 724(c) of the Dodd-Frank Act goes into effect. Absent rulemaking by the Commission, broker-dealers would be required to exit the retail forex business. Consequently, retail customers who transact with a broker-dealer for their foreign investments may need to find another service provider for their foreign exchange transactions, which could interrupt the customers' ability to trade in forex, depending on the availability of retail forex-related services outside of broker-dealers.

The interim final temporary rule preserves retail customers' access to the forex markets through broker-dealers. To the extent that this provides hedging opportunities for foreign investments or otherwise promotes an efficient investment opportunity set by, for example, permitting the continued use of forex in connection with clearing trades in foreign securities, economic benefits accrue to retail investors, assuming that no close substitutes exist or that retail access to forex is not easily available elsewhere.

Furthermore, by preserving a channel for retail customers to access forex transactions, the interim final temporary rule prevents any loss of competition in the retail forex space that could result if broker-dealers were required to exit the business. Potential effects of reduced competition include, but are not limited to, higher customer fees for retail forex transactions charged by remaining service providers, as well as reduced availability of forex services to retail customers if customers no longer have access to these transactions through broker-dealers.

Because Rule 15b12-1T preserves the regulatory regime that is in place prior to the effective date of section 742(c) of the Dodd-Frank Act, the rule imposes no new regulatory burdens beyond those that already exist for broker-dealers engaged in a retail forex business. The Commission recognizes, however, that broker-dealers will face regulatory costs and requirements associated with operating in the retail forex market, which are costs and requirements that they already shoulder from doing business. These include costs related to disclosure, recordkeeping and documentation, capital and margin, reporting, and business conduct. For example, a broker-dealer that presently engages in forex transactions with retail customers incurs costs associated with establishing, maintaining, and implementing policies and procedures to comply with regulatory requirements; preparing disclosure documents; establishing and maintaining forex-related business records; and preparing filings with the Commission, which may include legal and accounting fees.

As discussed above, the Commission is aware of potentially abusive practices that may be occurring in the retail forex market. To the extent that such practices continue, for example, lack of disclosure about fees and forex pricing, or insufficient capital or margin requirements, the retail forex market may bear costs associated with the inefficient provision of retail forex services. The Commission believes, however, that the cost of market disruption that may occur if the Commission does not promulgate the interim final temporary rule is greater than the cost of maintaining the current regulatory regime while the Commission seeks comment and evaluates whether a more comprehensive regulatory regime is necessary.

Because the regulatory requirements for broker-dealers operating in the retail forex market will remain unchanged, Rule 15b12-1T will impose no new burden on competition. Similarly, since the rule preserves an existing regulatory structure, the Commission does not expect any potential impairment of the capital formation process. Finally, because the rule allows hedging transactions, securities conversions, and other transactions that allow investors to continue to have access to these vehicles, the Commission believes that the interim temporary final rule will promote efficiency.

The Commission hereby certifies that pursuant to 5 U.S.C. 605(b) the interim final temporary rule contained in this release will not have a significant economic impact on a substantial number of small entities. The interim final temporary rule applies to broker-dealers that may engage in retail forex transactions. However, the Commission does not intend for the interim final temporary rule to impose new regulatory obligations, costs, or burdens on such broker-dealers. While the rule applies to broker-dealers that may be small businesses, any costs or regulatory burdens incurred as a result of the rule are the same as those incurred by small broker-dealers prior to the effective date of section 742 of the Dodd-Frank Act. Broker-dealers have already incurred those costs and regulatory burdens through establishing compliance with the rules adopted by the Commission under the Exchange Act applicable to broker-dealers. Further, the interim final temporary rule does not change the burdens on small broker-dealers relative to large broker-dealers. Accordingly, theinterim final temporary rule should not have a significant economic impact on a substantial number of small entities. The Commission requests comment on its conclusion that Rule 15b12-1T should not have a significant economic impact on a substantial number of small entities.

The Commission is adopting Exchange Act Rule 15b12-1T pursuant to section 2(c)(2) of the Commodity Exchange Act, as well as pursuant to the Exchange Act, as amended.

In accordance with the foregoing, the Securities and Exchange Commission is amending Title 17, chapter II of the Code of Federal Regulations as follows:

We are revising paragraph (g) in § 416.924 of our regulations. This paragraph explains how adjudicators at each level of our administrative review process must explain their findings about whether a child is disabled or continues to be disabled under the Supplemental Security Income (SSI) program. As currently drafted, that paragraph requires us to complete a standard Form SSA-538, Childhood Disability Evaluation Form, when we make an initial or reconsideration determination. The form outlines the steps of the sequential evaluation process for children under SSI, and we use it to explain our findings.

We are removing the requirement that we complete a specific form, the SSA-538. Instead, we are revising § 416.924(g) to provide that adjudicators at the initial and reconsideration levels will indicate their findings “in writing in a manner that we prescribe.”

We are making this revision because we process some of our cases electronically, and we plan eventually to process all of our cases electronically. The State agencies that are already processing cases electronically use a web-based tool we developed to indicate their findings. The web-based tool does not include an exact copy of our paper Form SSA-538,1 although it includes all of the major elements of the SSA-538 at appropriate points as the program leads adjudicators (including State agency medical and psychological consultants) through the decisionmaking process in SSI childhood cases. Both the SSA-538 and the web-based tool include choices of possible case dispositions and space in which to explain the disposition. When a functional assessment is required, both the SSA-538 and the web-based tool provide: (1) Space for explaining the assessment of the child's limitation in each of the six functional domains (§ 416.926a(b)(1)); (2) choices for indicating the severity of the limitation of any affected domains; and (3) selections for whether a child's impairment or combination of impairments functionally equals the listings. They also require the State agency medical or psychological consultant with overall responsibility for the findings to affirm that:

• He or she considered essential policy factors and evidence,2 and

• The determination is accurate and complete.

The tool also requires affirmations from any other medical or psychological consultant(s) who provided input for the findings.

Since we do not yet use electronic programs to process cases in all State agencies, we are not eliminating the Form SSA-538, only removing reference to it from § 416.924(g). We are revising the paragraph only to provide us with the flexibility we need to use electronic programs in making disability determinations for children under SSI.

We follow the Administrative Procedure Act (APA) rulemaking procedures specified in 5 U.S.C. 553 when we develop regulations. Social Security Act, section 702(a)(5). The APA provides exceptions to its notice and public comment procedures when an agency finds that there is good cause for dispensing with such procedures because they are impracticable, unnecessary, or contrary to the public interest.

We find that there is good cause under 5 U.S.C. 553(b)(B) for dispensing with notice and public comment procedures because notice and public comment are unnecessary. As we indicated above, the only change we are making in these rules is to remove our requirement to use a specific paper form, which will allow State agency adjudicators to show, explain, and affirm their findings in other ways. We are not making any substantive changes to the information they must provide or to our signature requirements. As we explained in more detail earlier in this preamble, the web-based tool includes all of the essential elements of the SSA-538; it simply does not include an electronic version of a “Form SSA-538” or contain web pages that look exactly like the paper form.

For the same reason, we also find good cause for dispensing with the 30-day delay in the effective date of a final rule under 5 U.S.C. 553(d). The change represents merely another option for recording and affirming our findings and does not change the substance of what we require adjudicators to record. Therefore, we find that it is unnecessary to delay the effective date of these rules.

We consulted with the Office of Management and Budget (OMB) and determined that this final rule meets the criteria for a significant regulatory action under Executive Order 12866, as supplemented by Executive Order 13563. Therefore, OMB reviewed it.

We certify that this final rule does not have a significant economic impact on a substantial number of small entities because it affects only persons or States. Thus, a regulatory flexibility analysis as provided in the Regulatory Flexibility Act, as amended, is not required.

This rule does not create any new or affect any existing collections and, therefore, does not require Office of Management and Budget approval under the Paperwork Reduction Act.

For the reasons set out in the preamble, we amend title 20 of the Code of Federal Regulations, chapter III, part 416, subpart I as follows:

I. Background

In a notice published in theFederal Registerof April 8, 2010 (75 FR 17928), FDA announced that Nisso America Inc., 45 Broadway, Suite 2120, New York, NY 10006, filed a food additive petition (FAP 0A4780). The petition proposed to amend the food additive regulations in § 172.870 (21 CFR 172.870), by lowering the minimum permitted viscosity of hydroxypropyl cellulose (HPC) identified in § 172.870(a)(1) from 145 cPs to 10 cPs and to permit its use as a binder in dietary supplements.

Section 172.870 includes both high-substituted HPC, which contains not more than 4.6 hydroxypropyl groups per anhydroglucose unit (§ 172.870(a)(1)), and low-substituted HPC, which contains on average 0.1 to 0.4 hydroxypropyl groups per anhydroglucose unit (§ 172.870(a)(2)). High-substituted HPC can be used, in accordance with good manufacturing practice, as an emulsifier, film former, protective colloid, stabilizer, suspending agent and thickener (§ 172.870(b)(1)). Low-substituted HPC can be used, in accordance with good manufacturing practice, as a binder and disintegrator in tablets or wafers containing dietary supplements (§ 172.870(b)(2)). It is the high-substituted HPC regulated under § 172.870(a)(1) and (b)(1) that is the subject of this petition.

Under the general safety standard in section 409 of the Federal Food, Drug, and Cosmetic Act (the FD&C Act) (21 U.S.C. 348), a food additive cannot be approved for a particular use unless a fair evaluation of the data available to FDA establishes that the additive is safe for that use. FDA's food additive regulations (21 CFR 170.3(i)) define safe as “a reasonable certainty in the minds of competent scientists that the substance is not harmful under the intended conditions of use.” To establish with reasonable certainty thata food additive is not harmful under its intended conditions of use, FDA considers the estimated human dietary intake of the additive, the additive's toxicological data, and other relevant information (such as published literature) available to the Agency.

Both high-substituted HPC (the subject of this petition) and low-substituted HPC are forms of cellulose and cellulose derivatives. The safety of cellulose and cellulose derivatives has been studied extensively in animals and humans. These studies show that cellulose and cellulose derivatives pass unchanged through the gastrointestinal tract and can be quickly detected in the feces of test animals and humans when consumed, confirming that the consumption of cellulose and cellulose derivatives at the proposed viscosity and use level will not result in toxicity. The Joint Food and Agriculture Organization and the World Health Organization (FAO/WHO) Expert Committee for Food Additives (JECFA) has evaluated the food uses of modified celluloses, including HPC, and has concluded that, as a group, modified celluloses are of very low toxicity at the levels of intake necessary to achieve the desired effect and do not pose a hazard to health (Ref. 1). Viscosity is not specified by the JECFA as a factor related to the safety of these additives.

Although there is no available safety testing directly on HPC with a viscosity of < 145 cPs, there have been numerous studies on the viscosity related safety effect for other modified celluloses. Most of the safety studies we reviewed analyzed the use of cellulose and cellulose derivatives. All of these studies support the assertion that there is no safety effect arising from a change in viscosity. Because high-substituted HPC with a minimum viscosity of 10 cPs is not expected to have significantly different biological properties than those cellulose and cellulose derivatives which have been studied, or the high and low-substituted HPC currently permitted under § 172.870, FDA concludes that the proposed use of high-substituted HPC with a minimum viscosity of 10 cPs is safe.

Lastly, because high-substituted HPC with a minimum viscosity of 10 cPs is intended to be used for the same purposes as are currently permitted for either high and low-substituted HPC, including as a binder in dietary supplements, FDA concludes that the proposed changes to § 172.870 will not result in an increase in the combined overall daily intake of high-substituted and low-substituted HPC. Thus, permitting the use of high-substituted HPC with a minimum viscosity of 10 cPs for use as a binder in dietary supplements will not result in an increased intake or harm to human health under the established conditions of use.

FDA reviewed data in the petition and other available relevant material to evaluate the safety of the petitioned use of high-substituted HPC with a minimum viscosity of 10 cPs as an emulsifier, film former, protective colloid, stabilizer, suspending agent, or thickener in food, and as a binder in dietary supplements. Based on this information, FDA concludes that the proposed use of the additive is safe and will achieve its intended technical effect under the proposed conditions of use. Therefore, the regulations in 21 CFR part 172 should be amended as set forth in this document.

In accordance with § 171.1(h) (21 CFR 171.1(h)), the petition and the documents that FDA considered and relied upon in reaching its decision to approve the petition will be made available for inspection at the Center for Food Safety and Applied Nutrition by appointment with the information contact person (seeFOR FURTHER INFORMATION CONTACT). As provided in § 171.1(h), the Agency will delete from the documents any materials that are not available for public disclosure before making the documents available for inspection.

The Agency has previously considered the environmental effects of this rule as announced in the notice of filing for FAP 0A4780 (75 FR 17928). No new information or comments have been received that would affect the Agency's previous determination that there is no significant impact on the human environment and that an environmental impact statement is not required.

This final rule contains no collection of information. Therefore, clearance by the Office of Management and Budget under the Paperwork Reduction Act of 1995 is not required.

Any person who will be adversely affected by this regulation may file with the Division of Dockets Management (seeADDRESSES) either electronic or written objections. Each objection shall be separately numbered, and each numbered objection shall specify with particularity the provisions of the regulation to which objection is made and the grounds for the objection. Each numbered objection on which a hearing is requested shall specifically so state. Failure to request a hearing for any particular objection shall constitute a waiver of the right to a hearing on that objection. Each numbered objection for which a hearing is requested shall include a detailed description and analysis of the specific factual information intended to be presented in support of the objection in the event that a hearing is held. Failure to include such a description and analysis for any particular objection shall constitute a waiver of the right to a hearing on the objection. It is only necessary to send one set of documents. It is no longer necessary to send three copies of all documents. Identify documents with the docket number found in brackets in the heading of this document. Any objections received in response to the regulation may be seen in the Division of Dockets Management between 9 a.m. and 4 p.m., Monday through Friday.

FDA's review of this petition was limited to section 409 of FD&C Act. This final rule is not a statement regarding compliance with other sections of the FD&C Act. For example, the Food and Drug Administration Amendments Act of 2007, which was signed into law on September 27, 2007, amended the FD&C Act to, among other things, add section 301(ll) (21 U.S.C. 331(ll)). Section 301(ll) of the FD&C Act prohibits the introduction or delivery for introduction into interstate commerce of any food that contains a drug approved under section 505 of the FD&C Act (21 U.S.C. 355), a biological product licensed under section 351 of the Public Health Service Act (42 U.S.C. 262), or a drug or biological product for which substantial clinical investigations have been instituted and their existence has been made public, unless one of the exceptions in section 301(ll)(1) to (ll)(4) applies. In our review of this petition, FDA did not consider whether section 301(ll) of the FD&C Act or any of its exemptions apply to food containing this additive. Accordingly, this final rule should not be construed to be a statement that a food containing this additive, if introduced or delivered for introduction into interstate commerce, would not violate section 301(ll) of the FD&C Act. Furthermore, this language is included in all food additive final rules and therefore should not be construed to be a statement of the likelihood that section 301(ll) of the FD&C Act applies.

The following reference has been placed on display in the Division of Dockets Management (seeADDRESSES) and may be seen by interested persons between 9 a.m. and 4 p.m., Monday through Friday. (FDA has verified the Web site address, but FDA is not responsible for any subsequent changes to the Web sites after this document publishes in theFederal Register).

1. Evaluations of the Joint FAO/WHO Expert Committee on Food Additives (JECFA), Hydroxypropyl Cellulose Toxicology Monograph 687, FAS 26-JECFA 35/85, 1989;http://apps.who.int/ipsc/database/evaluations/search.aspx.

Therefore, under the Federal Food, Drug, and Cosmetic Act and under authority delegated to the Commissioner of Food and Drugs and redelegated to the Director, Center for Food Safety and Applied Nutrition, 21 CFR part 172 is amended as follows:

PBGC's regulation on Benefits Payable in Terminated Single-Employer Plans (29 CFR part 4022) prescribes actuarial assumptions—including interest assumptions—for paying plan benefits under terminating single-employer plans covered by title IV of the Employee Retirement Income Security Act of 1974. The interest assumptions in the regulation are also published on PBGC's Web site (http://www.pbgc.gov).

PBGC uses the interest assumptions in Appendix B to Part 4022 to determine whether a benefit is payable as a lump sum and to determine the amount to pay. Appendix C to Part 4022 contains interest assumptions for private-sector pension practitioners to refer to if they wish to use lump-sum interest rates determined using PBGC's historical methodology. Currently, the rates in Appendices B and C of the benefit payment regulation are the same.

The interest assumptions are intended to reflect current conditions in the financial and annuity markets. Assumptions under the benefit payments regulation are updated monthly. This final rule updates the benefit payments interest assumptions for August 2011.1

The August 2011 interest assumptions under the benefit payments regulation will be 2.25 percent for the period during which a benefit is in pay status and 4.00 percent during any years preceding the benefit's placement in pay status. In comparison with the interest assumptions in effect for July 2011, these interest assumptions are unchanged.

PBGC has determined that notice and public comment on this amendment are impracticable and contrary to the public interest. This finding is based on the need to determine and issue new interest assumptions promptly so that the assumptions can reflect current market conditions as accurately as possible.

Because of the need to provide immediate guidance for the payment of benefits under plans with valuation dates during August 2011, PBGC finds that good cause exists for making the assumptions set forth in this amendment effective less than 30 days after publication.

PBGC has determined that this action is not a “significant regulatory action” under the criteria set forth in Executive Order 12866.

Because no general notice of proposed rulemaking is required for this amendment, the Regulatory Flexibility Act of 1980 does not apply. See 5 U.S.C. 601(2).

In consideration of the foregoing, 29 CFR part 4022 is amended as follows:

The Coast Guard will enforce the Safety Zone; Chicago Harbor, Navy Pier Southeast, Chicago, IL listed in 33 CFR 165.931 for the following events:

(1)Navy Pier Fireworks;on August 3, 2011 from 9:15 p.m. through 9:45 p.m.; on August 6, 2011 from 10: p.m. through 10:30 p.m.; on August 10, 2011 from 9:15 p.m. through 9:45 p.m.; on August 13, 2011 from 10 p.m. through 10:30 p.m.; on August 17, 2011 from 9:15 p.m. through 9:45 p.m.; on August 20, 2011 from 10 p.m. through 10:30 p.m.; on August 24, 2011 from 9:15 p.m. through 9:45 p.m.; on August 27, 2011 from 10 p.m. through 10:30 p.m.; and on August 31, 2011 from 9:15 p.m. through 9:45 p.m.

All vessels must obtain permission from the Captain of the Port, Sector Lake Michigan, or his or her on-scene representative to enter, move within, or exit the safety zone. Vessels and persons granted permission to enter the safety zone shall obey all lawful orders or directions of the Captain of the Port, Sector Lake Michigan, or his or her on-scene representative. While within the safety zone, all vessels shall operate at the minimum speed necessary to maintain a safe course.

This notice is issued under authority of 33 CFR 165.931 and 5 U.S.C. 552 (a). In addition to this notice in theFederal Register, the Coast Guard will provide the maritime community with advance notification of these enforcement periods via broadcast Notice to Mariners or Local Notice to Mariners. The Captain of the Port, Sector Lake Michigan, will issue a Broadcast Notice to Mariners notifying the public when enforcement of this safety zone is suspended. If the Captain of the Port, Sector Lake Michigan, determines that the safety zone need not be enforced for the full duration stated in this notice, he or she may use a Broadcast Notice to Mariners to grant general permission to enter the safety zone. The Captain of the Port, Sector Lake Michigan, or his or her on-scene representative may be contacted via VHF Channel 16.

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because waiting for a comment period to run would be impractical in that it would prevent the Captain of the Port Detroit from performing the function of keeping the boating public safe from the hazards associated with a maritime fireworks display.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in theFederal Register. Waiting for a 30 day effective period to run is impracticable and contrary to the public interest for the same reasons discussed in the preceding paragraph.

On July 25, 2011, Bowling Green State University will hold its BGSU Football Gridiron Classic Golf and Dinner Fireworks, a fundraising golf tournament at the Catawba Island Club on the shores of Lake Erie. The associated fireworks will be launched from a waterborne platform between 9:30 p.m. and 10 p.m. The Captain of the Port Detroit has determined that waterborne fireworks displays present various public hazards. Such hazards include obstructions to the waterway that may cause marine casualties and the explosive danger of fireworks and debris falling into the water that may cause death or serious bodily harm. Establishing a safety zone to control vessel movement around the location of the launch platform will help ensure the safety of persons and property at these events and help minimize the associated risks.

Because of the aforementioned hazards, the Captain of the Port Detroit has determined that a temporary safety zone is necessary to ensure the safety of spectators and vessels during the setup, loading, and launching of the BGSU Football Gridiron Classic Golf and Dinner Fireworks Display. The safety zone will encompass all U.S. navigable waters of Lake Erie within a 75-yard radius of the fireworks launch site located at position 41°34′18.10″ N, 082°51′18.70″ W. All geographic coordinates are North American Datum of 1983 (NAD 83).

All persons and vessels shall comply with the instructions of the Coast Guard Captain of the Port, Sector Detroit or the designated on scene patrol personnel. Entry into, transiting, or anchoring within the safety zone is prohibited unless authorized by the Captain of the Port, Sector Detroit or his designated on scene representative. The Captain of the Port, Sector Detroit or his designated on scene representative may be contacted via VHF Channel 16.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 of these statutes or executive orders.

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS). We conclude that this rule is not a significant regulatory action because we anticipate that it will have minimal impact on the economy, will not interfere with other agencies, will not adversely alter the budget of any grant or loan recipients, and will not raise any novel legal or policy issues. The safety zone around the pier will be relatively small and exist for relatively short time. Thus, restrictions on vessel movement within that particular area are expected to be minimal. Under certain conditions, moreover, vessels may still transit through the safety zone when permitted by the Captain of the Port.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

This rule will affect the following entities, some of which may be small entities: The owners and operators of vessels intending to transit or anchor in a portion of the Lake Erie, Catawba Island, Port Clinton, OH between 9:30p.m. on July 25, 2011 and 10 p.m. on July 25, 2011.

This safety zone will not have a significant economic impact on a substantial number of small entities for the following reasons: This rule will only be in effect for thirty minutes. In the event that this temporary safety zone affects shipping, commercial vessels may request permission from the Captain of the Port, Sector Detroit to transit through the safety zone. The Coast Guard will give notice to the public via a Broadcast Notice to Mariners that the regulation is in effect.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Public Law 104-121), we offer to assist small entities in understanding the rule so that they can better evaluate its effects on them and participate in the rulemaking process.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not affect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g.,specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies.

This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this rule under Commandant Instruction M16475.lD and Department of Homeland Security Management Directive 023-01, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have concluded this action is one of a category of actions which do not individually or cumulatively have a significant effect on the human environment. This rule is categorically excluded, under figure 2-1, paragraph (34)(g) of the Instruction because it involves the establishment of a temporary safety zone. An environmental analysis checklist and a categorical exclusion determination are available in the docket where indicated underADDRESSES.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR Part 165 as follows:

The Coast Guard will enforce the safety zone listed in 33 CFR 165.935, Safety Zones, Milwaukee Harbor, Milwaukee, WI, for the following events:

(1)Festa Italiana fireworks displayon July 21, 2011 from 10 p.m. through 10:45 p.m.; on July 22, 2011 from 10 p.m. through 10:45 p.m.; on July 23, 2011 from 10 p.m. through 10:45 p.m.; on July 24, 2010 from 10 p.m. through 10:45 p.m.

(2)German Festival fireworks displayon July 29, 2011 from 9:45 p.m. through 10:30 p.m.; on July 30, 2011 from 10:15 p.m. through 11 p.m.

(3)Irish Festival fireworks displayon August 21, 2011 from 10:15 p.m. through 11 p.m.

All vessels must obtain permission from the Captain of the Port, Sector Lake Michigan, or his or her on-scene representative to enter, move within, or exit a safety zone. Vessels and persons granted permission to enter the safety zone shall obey all lawful orders or directions of the Captain of the Port, Sector Lake Michigan, or a designated representative. While within a safety zone, all vessels shall operate at the minimum speed necessary to maintain a safe course.

This notice is issued under authority of 33 CFR 165.935 Safety Zone, Milwaukee Harbor, Milwaukee, WI and 5 U.S.C. 552(a). In addition to this notice in theFederal Register, the Coast Guard will provide the maritime community with advance notification of these enforcement periods via Broadcast Notice to Mariners or Local Notice to Mariners. The Captain of the Port, Sector Lake Michigan will issue a Broadcast Notice to Mariners notifying the public when enforcement of the safety zone established by this section is suspended. If the Captain of the Port, Sector Lake Michigan, determines that the safety zone need not be enforced for the full duration stated in this notice, he or she may use a Broadcast Notice to Mariners to grant general permission to enter the safety zone. The Captain of the Port, Sector Lake Michigan, or his or her on-scene representative may be contacted via VHF Channel 16.

The Coast Guard is issuing this temporary final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when an agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under U.S.C. 553 (b)(B), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because waiting for a notice and comment period to run would be impracticable and contrary to the public interest in that it would prevent the Coast Guard from protecting the public and vessels on navigable waters.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in theFederal Register. For the reasons discussed in the preceding paragraph, a 30-day notice period would be impracticable and contrary to the public interest.

The Truman-Hobbs alteration of the Elgin Joliet & Eastern Railroad Drawbridge will begin on July 08, 2011. This temporary safety zone is necessary to protect vessels from the hazards associated with those alteration efforts. The falling debris associated with the removal and replacement of the bridge spans poses a serious risk of injury to persons and property. As such, the Captain of the Port, Sector Lake Michigan, has determined that the alteration project of the Elgin Joliet & Eastern Railroad Drawbridge poses significant risks to public safety and property and that a safety zone is necessary.

The safety zone will encompass all U.S. navigable waters of the Illinois River in the vicinity of the Elgin Joliet & Eastern Railroad Drawbridge between Mile Marker 270.1 and Mile Marker 271.5 of the Illinois River in Morris, IL. [DATUM: NAD 83].

All persons and vessels shall comply with the instructions of the Coast Guard Captain of the Port, Sector Lake Michigan, or his or her designated representative. Entry into, transiting, or anchoring within the safety zone is prohibited unless authorized by the Captain of the Port, Sector Lake Michigan, or his or her designated representative. The Captain of the Port, Sector Lake Michigan, or his or her designated representative may be contacted via VHF Channel 16.

We developed this rule after considering numerous statutes and executive orders related to rulemaking. Below we summarize our analyses based on 13 of these statutes or executive orders.

This rule is not a significant regulatory action under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS). We conclude that this rule is not a significant regulatory action because we anticipate that it will have minimal impact on the economy, will not interfere with other agencies, will not adversely alter the budget of any grant or loan recipients, and will not raise any novel legal or policy issues. The safety zone around the bridge project will be relatively small and exist for relatively short duration. Thus, restrictions on vessel movement within that particular area are expected to be minimal. Under certain conditions, moreover, vessels may still transit through the safety zone when permitted by the Captain of the Port.

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule will have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

This rule will affect the following entities, some of which might be small entities: The owners or operators of vessels intending to transit or anchor on a portion of the Illinois River between 7 a.m. on July 08, 2011 and 7 a.m. on July 16, 2011.

This safety zone will not have a significant economic impact on a substantial number of small entities for the following reasons: This rule will only be enforced while unsafe conditions exist. Vessel traffic will be minimal due to the public and commercial outreach that has been made the by D8 Bridge Branch over the last 18 months.

In the event that this temporary safety zone affects shipping, commercial vessels may request permission from the Captain of The Port, Sector Lake Michigan, or his or her designated representative to transit through the safety zone. The Coast Guard will give notice to the public via a Broadcast to Mariners that the regulation is in effect.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we offer to assist small entities in understanding the rule so that they could better evaluate its effects on them and participate in the rulemaking process. Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federalregulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not affect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not concern an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

The National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note) directs agencies to use voluntary consensus standards in their regulatory activities unless the agency provides Congress, through the Office of Management and Budget, with an explanation of why using these standards would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., specifications of materials, performance, design, or operation; test methods; sampling procedures; and related management systems practices) that are developed or adopted by voluntary consensus standards bodies.

This rule does not use technical standards. Therefore, we did not consider the use of voluntary consensus standards.

We have analyzed this rule under Department of Homeland Security Management Directive 023-01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and have concluded this action is one of a category of actions which do not individually or cumulatively have a significant effect on the human environment. This rule is categorically excluded, under figure 2-1, paragraph (34)(g), of the Instruction. This rule involves the establishment of a safety zone and is therefore categorically excluded under paragraph 34(g) of the Instruction.

A final environmental analysis checklist and categorical exclusion determination are available in the docket where indicated underADDRESSES.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR Part 165 as follows:

In a document published in theFederal Registeron November 17, 2010 (75 FR 70162-65), VA proposed to amend its adjudication regulations regarding the presumption of service connection for medically unexplained chronic multisymptom illnesses. The amendment clarifies VA's interpretation that FGIDs fall within the scope of the existing presumption of service connection for medically unexplained chronic multisymptom illnesses. This clarification is based on available scientific and medical evidence presented in the National Academy of Sciences' (NAS) April 2010 report titled:Gulf War and Health, Volume 8: Update on the Health Effects of Serving in the Gulf War(NAS 2010 Report) and the Secretary's determination that there is a positive association between service in Southwest Asia during certain periods and the subsequent development of FGIDs.

In response to the proposed rule, VA received eight (8) public comments. Of these comments, 5 expressed general support for the rulemaking. The sixth commenter expressed belief that “presumptive service connection for gastrointestinal (GI) disorders and any gastroesophageal reflux disease (GERD) or “bowel inflammatory conditions” should be related to Gulf War service for the period 1990 through 1991 because of the “hazardous chemical exposures known as a toxic bowl of soup.” VA appreciates this comment; however, based on findings from the NAS 2010 report, the NAS Committee concluded that there is sufficient evidence for an association between deployment to the Southwest Asia theater of operations during the Gulf War and GI symptoms consistent with FGIDs such as irritable bowel syndrome and functional dyspepsia which involve “recurrent or prolonged clusters of symptoms that occur together.” NAS 2010 Report, at 154. By contrast, Inflammatory Bowel Disease (IBD), such as ulcerative colitis or Crohn's disease, and GERD are considered to be “organic” or structural diseases characterized by abnormalities seen on x-ray, endoscopy, or through laboratory tests. The NAS Committee concluded that there is inadequate/insufficient evidence to determine whether an association exists between deployment to the Southwest Asia theater of operations during the Gulf War and the development of structural gastrointestinal diseases, and NAS defines both IBD and GERD as structural gastrointestinal diseases. This rulemaking is limited to clarifying the scope of the presumption for FGIDs as medically unexplained chronic multisymptom illnesses. Therefore, we make no change based on this comment.

The seventh commenter expressed belief that noise and vibration exposure caused symptoms of various disorders, including intestinal disorders, among the “Gulf War Seabees” and that some also have neural damage as a result of vibration exposure. VA appreciates this comment; however, we make no changes based on this comment. This rule is intended to clarify the scope of the existing presumption of service connection for medically unexplained chronic multisymptom illnesses, which applies to all veterans who served in the Southwest Asia theater of operations during the Persian Gulf War irrespective of whether their illnesses can be shown to be linked to a specific cause in service, such as noise and vibration exposure. To the extent the commenter believes that noise and vibration exposure may cause FGIDs, no change to this rule is necessary, because the rule already provides a presumption of service connection for FGIDs in all Gulf War Veterans. To the extent the commenter believes presumptive service connection based on noise and vibration exposure is warranted for conditions other than medically unexplained chronic multisymptom illnesses, that matter is beyond the scope of this clarifying rule. We note that a Veteran who believes his or her injury, disease, or illness may be related to noise or vibration exposure in service may submit evidence of such effects in support of his or her claim for benefits and VA will consider that evidence in deciding the claim.

The eighth and final commenter advocated that VA broaden the scope ofthe rule by adopting the same effective date standards established inNehmerv.United States Veterans' Administration,CV-86-6160 TEH (N.D. Cal.). For the reasons explained below, we make no change based on this comment.

InNehmer,based on circumstances unique to that case, a district court issued a series of orders requiring VA to readjudicate certain previously and finally denied claims of Vietnam Veterans and their survivors and, in some circumstances, to pay such claimants benefits retroactive to the date of their previously denied claims. VA has issued regulations at 38 CFR 3.816 to codify the requirements of theNehmercourt orders.

Pursuant to statute, when VA issues a final decision denying disability compensation for a condition, VA is, with one exception described below, prohibited from later awarding benefits retroactive to the date of the finally denied claim. 38 U.S.C. 5110. Claimants may seek to reopen their claims with new evidence or may seek a new decision based on an intervening change in law, but the effective date of awards in those circumstances generally may be no earlier than the date of the new claim or the effective date of the intervening change in law.Id.;38 CFR 3.114, 3.400. Congress has authorized payment retroactive to the date of a previously and finally denied claim only in the limited circumstance where the prior final decision is shown to have been based on “clear and unmistakable error” of fact or law.See38 U.S.C. 5109A and 7111.

TheNehmercourt orders require VA in certain cases to pay benefits retroactive to the date of a previously denied claim, even if VA's prior decision did not involve clear and unmistakable error. TheNehmercourt orders apply only to claims by certain Vietnam Veterans and their survivors based on disability due to herbicide exposure. Although VA is required to comply with theNehmercourt orders, VA has no independent authority to expand the court's orders or otherwise to pay retroactive benefits not authorized by statute. Accordingly, VA cannot in this rule authorize retroactive payments without regard to the effect of prior final decisions and without regard to the requirement for a showing of clear and unmistakable error in order to support such a retroactive award. Because existing statutes and regulations provide clear guidance concerning the effective dates of awards under this rule, we make no change to the rule based on this comment.

In this final rule we are making a change to subparagraph (3) to improve clarity and revising the note to subparagraph (3) to clarify concepts involving medically unexplained chronic multisymptom illnesses that comprise FGIDs and facilitate understanding of information relating to diagnosis of such disorders. Subparagraph (3) of the proposed rule stated that the disorders entitled to presumptive service connection are “Functional gastrointestinal disorders, including, but not limited to irritable bowel syndrome and functional dyspepsia (excluding structural gastrointestinal diseases).” 75 FR at 70165. We believe this language, in conjunction with information in the note to paragraph (a)(2)(i)(B)(3), which lists irritable bowel syndrome and functional dyspepsia as specific functional gastrointestinal disorders, is repetitive and unnecessary. We have therefore revised subparagraph (3) to remove the language regarding irritable bowel syndrome and functional dyspepsia. Secondly, the proposed rule included the following language in a note to paragraph (a)(2)(i)(B)(3): “Functional gastrointestinal disorders are a group of conditions characterized by chronic or recurrent symptoms that were present for at least 6 months prior to diagnosis and have been currently active for 3 months, that are unexplained by any structural, endoscopic, laboratory, or other objective signs of disease or injury and that may be related to any part of the gastrointestinal tract. * * *” We believe this language might be unclear as to when the 3-month period starts and what the difference is between the 6-month and 3-month periods. Established medical principles regarding these disorders generally require symptom onset at least 6 months prior to diagnosis and the presence of symptoms sufficient to diagnose the specific disorder at least 3 months prior to diagnosis. We have therefore revised the note to explain how a diagnosis of FGID is made.

Therefore, based on the rationale set forth in the proposed rule and this document, we are adopting the provisions of the proposed rule as a final rule with the changes discussed above.

This document contains no provisions constituting a collection of information under the Paperwork Reduction Act (44 U.S.C. 3501-3521).

The Secretary hereby certifies that this rule will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-612. This rule would not affect any small entities. Only VA beneficiaries could be directly affected. Therefore, pursuant to 5 U.S.C. 605(b), this rule is exempt from the initial and final regulatory flexibility analysis requirements of sections 603 and 604.

Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). The Executive Order classifies a “significant regulatory action,” requiring review by the Office of Management and Budget (OMB), as any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

The economic, interagency, budgetary, legal, and policy implications of this final rule have been examined and it has been determined not to be a significant regulatory action under Executive Order 12866.

The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any year. This rule would have no such effect on State, local, and tribal governments, or on the private sector.

The Catalog of Federal Domestic Assistance program numbers and titles for this final rule are 64.109, VeteransCompensation for Service-Connected Disability, and 64.110, Veterans Dependency and Indemnity Compensation for Service-Connected Death.

The Secretary of Veterans Affairs, or designee, approved this document and authorized the undersigned to sign and submit the document to the Office of the Federal Register for publication electronically as an official document of the Department of Veterans Affairs. John R. Gingrich, Chief of Staff, Department of Veterans Affairs, approved this document on July 6, 2011, for publication.

For the reasons set out in the preamble, VA amends 38 CFR part 3 as follows:

Throughout this document, “we,” “us,” and “our” means EPA.

The background for today's actions is discussed in detail in our May 2, 2011, proposal to approve submittals from the State of New Mexico pursuant to the CAA that address the infrastructure elements specified in the CAA section 110(a)(2), necessary to implement, maintain, and enforce the 1997 8-hour ozone and 1997 fine particulate matter (PM2.5) NAAQS (76 FR 24421). In it, we proposed to find that the current New Mexico SIP meets the provisions of the CAA sections 110(a)(1) and 110(a)(2) (i.e., 110(a)(2)(A)-(C), (D)(ii), (E)-(H), and (J)-(M)) for the 1997 ozone and 1997 PM2.5NAAQS. We also proposed to approve a revision to regulation 20.2.3 NMAC (Ambient Air Quality Standards) into the New Mexico SIP, to remove the state ambient air quality standards from being an applicable requirement under the State's Title V permitting program. EPA also proposed to correct an administrative oversight by converting our February 27, 1987, conditional approval of New Mexico's PSD program (52 FR 5964) to a full approval based on the November 2, 1988, approval of New Mexico's stack height regulations (53 FR 44191), at which point New Mexico fully met the condition in the conditional approval. Lastly, EPA proposed to make several CFR codification technical corrections to amend the description of the approved New Mexico SIP.

Our May 2, 2011, proposal provides a detailed description of the revisions and the rationale for EPA's proposed actions, together with a discussion of the opportunity to comment. The public comment period for these actions closed on June 1, 2011, and we did not receive any comments. For more information, please see our proposed rulemaking, at 76 FR 24421, the Technical Support Document, and other supporting documentation available in the electronic docket for this action athttp://www.regulations.gov(Docket Identification No. EPA-R06-OAR-2009-0647).

EPA is currently acting upon SIPs that address the infrastructure requirements of CAA section 110(a)(1) and (2) for ozone and PM2.5NAAQS for various states across the country. Commenters on EPA's recent proposals for some states raised concerns about EPA statements that it was not addressing certain substantive issues in the context of acting on the infrastructure SIP submissions.1 The commenters specifically raised concerns involving provisions in existing SIPs and with EPA's statements that it would address two issues separately and not as part of actions on the infrastructure SIP submissions: (i) Existing provisions related to excess emissions during periods of start-up, shutdown, or malfunction at sources, that may be contrary to the CAA and EPA's policies addressing such excess emissions (“SSM”); and (ii) existing provisions related to “director's variance” or “director's discretion” that purport to permit revisions to SIP approved emissions limits with limited public process or without requiring further approval by EPA, that may be contrary to the CAA (“director's discretion”). EPA notes that there are two other substantive issues for which EPA likewise stated that it would address the issues separately: (i) existing provisions for minor source new source review programs that may be inconsistent with the requirements of the CAA and EPA's regulations that pertain to such programs (“minor source NSR”); and (ii) existing provisions for Prevention of Significant Deterioration programs that may be inconsistent with current requirements of EPA's “Final NSR Improvement Rule,” 67 FR 80186 (December 31, 2002), as amended by 72 FR 32526 (June 13, 2007) (“NSR Reform”). In light of the comments, EPA now believes that its statements in various proposed actions on infrastructure SIPs with respect to these four individual issues should be explained in greater depth with respect to these issues. EPA notes that we did not receive comments on these issues in response to our New Mexico proposal (76 FR 24421), but because of the concern raised in the context of action on other state infrastructure SIP submissions, EPA feels it important to further clarify our proposal.

EPA intended the statements in the proposals concerning these four issues merely to be informational, and to provide general notice of the potential existence of provisions within the existing SIPs of some states that might require future corrective action. EPA did not want states, regulated entities, or members of the public to be under the misconception that the Agency's approval of the infrastructure SIP submission of a given state should be interpreted as a reapproval of certain types of provisions that might exist buried in the larger existing SIP for such state. Thus, for example, EPA explicitly noted that the Agency believes that some states may have existing SIP approved SSM provisions that are contrary to the CAA and EPA policy, but that “in this rulemaking, EPA is not proposing to approve or disapprove any existing State provisions with regard to excess emissions during SSM of operations at facilities.” EPA further explained, for informational purposes, that “EPA plans to address such State regulations in the future.” EPA made similar statements, for similar reasons, with respect to the director's discretion, minor source NSR, and NSR Reform issues. EPA's objective was to make clear that approval of an infrastructure SIP for these ozone and PM2.5NAAQS should not be construed as explicit or implicit reapproval of any existing provisions that relate to these four substantive issues.

Unfortunately, the commenters and others evidently interpreted these statements to mean that EPA considered action upon the SSM provisions and the other three substantive issues to be integral parts of acting on an infrastructure SIP submission, and therefore that EPA was merely postponing taking final action on the issue in the context of the infrastructure SIPs. This was not EPA's intention. To the contrary, EPA only meant to convey its awareness of the potential for certain types of deficiencies in existing SIPs, and to prevent any misunderstanding that it was reapproving any such existing provisions. EPA's intention was to convey its position that the statute does not require that infrastructure SIPs address these specific substantive issues in existing SIPs and that these issues may be dealt with separately, outside the context of acting on the infrastructure SIP submission of a state. To be clear, EPA did not mean to imply that it was not taking a full final agency action on the infrastructure SIP submission with respect to any substantive issue that EPA considers to be a required part of acting on such submissions under section 110(k) or under section 110(c). Given the confusion evidently resulting from EPA's statements, however, we want to explain more fully the Agency's reasons for concluding that these four potential substantive issues in existing SIPs may be addressed separately.

The requirement for the SIP submissions at issue arises out of CAA section 110(a)(1). That provisionrequires that states must make a SIP submission “within 3 years (or such shorter period as the Administrator may prescribe) after the promulgation of a national primary ambient air quality standard (or any revision thereof)” and that these SIPS are to provide for the “implementation, maintenance, and enforcement” of such NAAQS. Section 110(a)(2) includes a list of specific elements that “[e]ach such plan” submission must meet. EPA has historically referred to these particular submissions that states must make after the promulgation of a new or revised NAAQS as “infrastructure SIPs.” This specific term does not appear in the statute, but EPA uses the term to distinguish this particular type of SIP submission designed to address basic structural requirements of a SIP from other types of SIP submissions designed to address other different requirements, such as “nonattainment SIP” submissions required to address the nonattainment planning requirements of part D, “regional haze SIP” submissions required to address the visibility protection requirements of CAA section 169A, new source review permitting program submissions required to address the requirements of part D, and a host of other specific types of SIP submissions that address other specific matters.

Although section 110(a)(1) addresses the timing and general requirements for these infrastructure SIPs, and section 110(a)(2) provides more details concerning the required contents of these infrastructure SIPs, EPA believes that many of the specific statutory provisions are facially ambiguous. In particular, the list of required elements provided in section 110(a)(2) contains a wide variety of disparate provisions, some of which pertain to required legal authority, some of which pertain to required substantive provisions, and some of which pertain to requirements for both authority and substantive provisions.2 Some of the elements of section 110(a)(2) are relatively straightforward, but others clearly require interpretation by EPA through rulemaking, or recommendations through guidance, in order to give specific meaning for a particular NAAQS.3

Notwithstanding that section 110(a)(2) states that “each” SIP submission must meet the list of requirements therein, EPA has long noted that this literal reading of the statute is internally inconsistent, insofar as section 110(a)(2)(I) pertains to nonattainment SIP requirements that could not be met on the schedule provided for these SIP submissions in section 110(a)(1).4 This illustrates that EPA must determine which provisions of section 110(a)(2) may be applicable for a given infrastructure SIP submission. Similarly, EPA has previously decided that it could take action on different parts of the larger, general “infrastructure SIP” for a given NAAQS without concurrent action on all subsections, such as section 110(a)(2)(D)(i), because the Agency bifurcated the action on these latter “interstate transport” provisions within section 110(a)(2) and worked with states to address each of the four prongs of section 110(a)(2)(D)(i) with substantive administrative actions proceeding on different tracks with different schedules.5 This illustrates that EPA may conclude that subdividing the applicable requirements of section 110(a)(2) into separate SIP actions may sometimes be appropriate for a given NAAQS where a specific substantive action is necessitated, beyond a mere submission addressing basic structural aspects of the state's SIP. Finally, EPA notes that not every element of section 110(a)(2) would be relevant, or as relevant, or relevant in the same way, for each new or revised NAAQS and the attendant infrastructure SIP submission for that NAAQS. For example, the monitoring requirements that might be necessary for purposes of section 110(a)(2)(B) for one NAAQS could be very different than what might be necessary for a different pollutant. Thus, the content of an infrastructure SIP submission to meet this element from a state might be very different for an entirely new NAAQS, versus a minor revision to an existing NAAQS.6

Similarly, EPA notes that other types of SIP submissions required under the statute also must meet the requirements of section 110(a)(2), and this also demonstrates the need to identify the applicable elements for other SIP submissions. For example, nonattainment SIPs required by part D likewise have to meet the relevant subsections of section 110(a)(2) such as section 110(a)(2)(A) or (E). By contrast, it is clear that nonattainment SIPs would not need to meet the portion of section 110(a)(2)(C) that pertains to part C,i.e.,the PSD requirement applicable in attainment areas. Nonattainment SIPs required by part D also would not need to address the requirements of section 110(a)(2)(G) with respect to emergency episodes, as such requirements would not be limited to nonattainment areas. As this example illustrates, each type of SIP submission may implicate some subsections of section 110(a)(2) and not others.

Given the potential for ambiguity of the statutory language of section 110(a)(1) and (2), EPA believes that it is appropriate for EPA to interpret that language in the context of acting on the infrastructure SIPs for a given NAAQS. Because of the inherent ambiguity of the list of requirements in section 110(a)(2), EPA has adopted an approach in which it reviews infrastructure SIPs against this list of elements “as applicable.” In other words, EPA assumes that Congress could not have intended that each and every SIP submission, regardless of the purpose of the submission or the NAAQS in question, would meet each of the requirements, or meet each of them in the same way. EPA elected to use guidance to make recommendations for infrastructure SIPs for these NAAQS.

On October 2, 2007, EPA issued guidance making recommendations for the infrastructure SIP submissions for both the 1997 8-hour ozone NAAQS and the 1997 PM2.5NAAQS.7 Within thisguidance document, EPA described the duty of states to make these submissions to meet what the Agency characterized as the “infrastructure” elements for SIPs, which it further described as the “basic SIP requirements, including emissions inventories, monitoring, and modeling to assure attainment and maintenance of the standards.”8 As further identification of these basic structural SIP requirements, “attachment A” to the guidance document included a short description of the various elements of section 110(a)(2) and additional information about the types of issues that EPA considered germane in the context of such infrastructure SIPs. EPA emphasized that the description of the basic requirements listed on attachment A was not intended “to constitute an interpretation of ” the requirements, and was merely a “brief description of the required elements.”9 EPA also stated its belief that with one exception, these requirements were “relatively self explanatory, and past experience with SIPs for other NAAQS should enable States to meet these requirements with assistance from EPA Regions.”10 For the one exception to that general assumption, however,i.e.,how states should proceed with respect to the requirements of section 110(a)(2)(G) for the 1997 PM2.5NAAQS, EPA gave much more specific recommendations. But for other infrastructure SIP submittals, and for certain elements of the submittals for the 1997 PM2.5NAAQS, EPA assumed that each State would work with its corresponding EPA regional office to refine the scope of a State's submittal based on an assessment of how the requirements of section 110(a)(2) should reasonably apply to the basic structure of the State's SIP for the NAAQS in question.

Significantly, the 2007 Guidance did not explicitly refer to the SSM, director's discretion, minor source NSR, or NSR Reform issues as among specific substantive issues EPA expected states to address in the context of the infrastructure SIPs, nor did EPA give any more specific recommendations with respect to how states might address such issues even if they elected to do so. The SSM and director's discretion issues implicate section 110(a)(2)(A), and the minor source NSR and NSR Reform issues implicate section 110(a)(2)(C). In the 2007 Guidance, however, EPA did not indicate to states that it intended to interpret these provisions as requiring a substantive submission to address these specific issues in the context of the infrastructure SIPs for these NAAQS. Instead, EPA's 2007 Guidance merely indicated its belief that the states should make submissions in which they established that they have the basic SIP structure necessary to implement, maintain, and enforce the NAAQS. EPA believes that states can establish that they have the basic SIP structure, notwithstanding that there may be potential deficiencies within the existing SIP. Thus, EPA's proposals mentioned these issues not because the Agency considers them issues that must be addressed in the context of an infrastructure SIP as required by section 110(a)(1) and (2), but rather because EPA wanted to be clear that it considers these potential existing SIP problems as separate from the pending infrastructure SIP actions.

EPA believes that this approach to the infrastructure SIP requirement is reasonable, because it would not be feasible to read section 110(a)(1) and (2) to require a top to bottom, stem to stern, review of each and every provision of an existing SIP merely for purposes of assuring that the state in question has the basic structural elements for a functioning SIP for a new or revised NAAQS. Because SIPs have grown by accretion over the decades as statutory and regulatory requirements under the CAA have evolved, they may include some outmoded provisions and historical artifacts that, while not fully up to date, nevertheless may not pose a significant problem for the purposes of “implementation, maintenance, and enforcement” of a new or revised NAAQS when EPA considers the overall effectiveness of the SIP. To the contrary, EPA believes that a better approach is for EPA to determine which specific SIP elements from section 110(a)(2) are applicable to an infrastructure SIP for a given NAAQS, and to focus attention on those elements that are most likely to need a specific SIP revision in light of the new or revised NAAQS. Thus, for example, EPA's 2007 Guidance specifically directed states to focus on the requirements of section 110(a)(2)(G) for the 1997 PM2.5NAAQS because of the absence of underlying EPA regulations for emergency episodes for this NAAQS and an anticipated absence of relevant provisions in existing SIPs.

Finally, EPA believes that its approach is a reasonable reading of section 110(a)(1) and (2) because the statute provides other avenues and mechanisms to address specific substantive deficiencies in existing SIPs. These other statutory tools allow the Agency to take appropriate tailored action, depending upon the nature and severity of the alleged SIP deficiency. Section 110(k)(5) authorizes EPA to issue a “SIP call” whenever the Agency determines that a state's SIP is substantially inadequate to attain or maintain the NAAQS, to mitigate interstate transport, or otherwise to comply with the CAA.11 Section 110(k)(6) authorizes EPA to correct errors in past actions, such as past approvals of SIP submissions.12 Significantly, EPA's determination that an action on the infrastructure SIP is not the appropriate time and place to address all potential existing SIP problems does not preclude the Agency's subsequent reliance on provisions in section 110(a)(2) as part of the basis for action at a later time. For example, although it may not be appropriate to require a state to eliminate all existing inappropriate director's discretion provisions in the course of acting on the infrastructure SIP, EPA believes that section 110(a)(2)(A) may be among the statutory bases that the Agency cites in the course of addressing the issue in a subsequent action.13

Throughout this document wherever “we”, “us” or “our” are used, we mean EPA. Information is organized as follows:

Title I of the CAA, as amended by Congress in 1990, specifies the general requirements for states to submit SIPs to attain and/or maintain the National Ambient Air Quality Standards (NAAQS) and EPA's actions regarding approval of those SIPs. SIPs must include, among other requirements, an NSR preconstruction permit program, which, for attainment areas, meets federal PSD requirements.

On February 12, 1982, EPA approved into the Utah SIP PSD permitting regulations. On December 31, 2002, EPA published revisions to the federal PSD and non-attainment NSR regulations in 40 CFR parts 51 and 52 (67 FR 80186). These revisions are commonly referred to as the “NSR Reform” regulations and became effective nationally in areas not covered by a SIP on March 3, 2003. For information on subsequent court decisions and regulatory revisions to these rules, seehttp://www.epa.gov/nsr.

On September 15, 2006, October 1, 2007, and March 7, 2008, the Utah Department of Environmental Quality (DEQ) submitted numerous rule changes and requested that the Utah SIP be revised to reflect those changes. These changes include revisions to Utah's Rule R307-405 (“Permits: Major Sources in Attainment or Unclassified Areas (PSD)”) and to Utah's Rule R307-110-9 (“Section VIII, Prevention of Significant Deterioration of the Utah Air Quality Rules”).

On January 7, 2009 EPA proposed to partially approve and partially disapprove the revisions submitted by the Utah DEQ. 74 FR 667 (January 7,2009). This final action will update the federally approved SIP to reflect those changes made by Utah DEQ that EPA has reviewed and deemed approvable into the Utah SIP (Code of Federal Regulations, Title 40, part 52, subpart TT).

We are partially approving revisions to R307-405 (“Permits: Major Sources in Attainment or Unclassified Areas (PSD)”) and approving revisions to R307-110-9 (“Section VIII, Prevention of Significant Deterioration of the Utah Air Quality Rules”). EPA is disapproving R307-405-3.(3)(a)(i) because it defines “Major Source Baseline Date” in a manner inconsistent with the federal definition found at 40 CFR 52.21(b)(14). In all other respects we are approving the State's March 7, 2008 submitted revisions to R307-405, and the State's September 15, 2006 submitted revisions to R307-110-9. More information about each SIP submittal, including a summary of the submittal and relevant background information and analysis supporting our action, can be found in our proposed rule. 74 FR 667 (January 7, 2009).

The Natural Resources Defense Council (NRDC) commented on EPA's proposal to approve changes to Utah's permitting programs for major stationary sources, specifically the PSD permit program and the nonattainment area (Part D) permit program that incorporate EPA's “2002 NSR Reform Rules.” NRDC primarily commented on the requirements of the Federal NSR rules, not Utah's application of the Federal requirements in its own rules. Notably, NRDC participated in litigation challenging EPA's promulgation of the 2002 NSR Reform Rules, where similar arguments were made by NRDC and rejected by the DC Circuit Court.See New Yorkv.EPA,413 F.3d 3 (D.C. Cir. 2005). Many of NRDC's comments in this action, including exhibits, do not raise any specific concerns with Utah's rules, but rather, reiterate arguments that NRDC made to the court regarding EPA's 2002 NSR Reform Rules and the requirements of Sections 110(l) and 193 of the CAA.

Although NRDC's comments cite nine sections of the Utah rules, the comments make no attempt to specifically explain or demonstrate how those identified provisions are inconsistent with either Section 110(l) or Section 193 of the CAA. Furthermore, NRDC provides no evidence supporting its allegations that approval of the specific provisions would result in a violation of the CAA. The NRDC comments include a list of 31 exhibits which the comment letter incorporates by reference into the comments. The 31 exhibits appear to stem from theNew Yorkv.EPAlitigation, and were either submitted to that Court for review, or are relevant to that adjudication. In any event, none of the 31 exhibits provides EPA with any comments specific to the Utah rules at issue. NRDC does note that theNew Yorkv.EPAdecision addressed EPA's regulations, rather than state regulations submitted under section 110 of the CAA, and that the Court of Appeals had no occasion to decide whether EPA could approve a particular state's implementation of the NSR Reform Rules consistent with Sections 110(l) and 193 of the CAA. EPA's responses to NRDC's comments regarding Sections 110(l) and 193 are below.

a. Summary of Comments Regarding Section 110(l):

NRDC asserts that “[t]he 2002 NSR Reform Rule provisions that were not vacated by the DC Circuit inNew Yorkv.EPAallow previously-prohibited emissions increases to occur.” As a result, NRDC states that “it cannot be said of Utah's plan that it `will cause no degradation of air quality'” and “Utah has made no `demonstration that the emissions that are allowed by its revised rule but are prohibited by the current SIP would not interfere with attainment or other applicable requirements.'” Further, NRDC states that “EPA has never made, or even proposed to make, a finding that revising Utah's permit provisions so that they track the non-vacated provisions of the 2002 rule” would be consistent with Section 110(l) of the CAA.

b. EPA Response to Section 110(l)-Related Comments:

Section 110(l) of the CAA states that “[t]he Administrator shall not approve a revision of a plan if the revision would interfere with any applicable requirement concerning attainment and reasonable further progress or any other applicable requirement of this chapter.” 42 U.S.C. 7410(l). EPA does not interpret section 110(l) to require a full attainment or maintenance demonstration before any changes to a SIP may be approved. Generally, a SIP revision may be approved under section 110(l) if EPA finds it will at least preserve status quo air quality. SeeKentucky Resources Council, Inc.v.EPA,467 F.3d 986 (6th Cir. 2006);GHASPv.EPA,No. 06-61030 (5th Cir. Aug. 13, 2008); see also, e.g., 70 FR 53 (Jan. 3, 2005), 70 FR 28429 (May 18, 2005) (proposed and final rules, upheld inKentucky Resources,which discuss EPA's interpretation of section 110(l).

EPA has determined that Utah's SIP revision will not “interfere with any applicable requirement concerning attainment and reasonable further progress * * * or any other applicable requirement of [the CAA]” in violation of Section 110(l) of the CAA because it will result in neutral or beneficial effects on air quality. EPA's conclusion rests on two major analyses: (1) the national-scale analysis that EPA conducted in support of the 2002 NSR Reform Rules, and (2) the state-specific analysis that Utah DEQ conducted in support of its recent regulatory revisions.

First, EPA's national analysis in support of the 2002 NSR Reform Rules indicates that the non-vacated provisions of the NSR Reform Rules will have a neutral or beneficial impact. The three significant changes in the 2002 NSR Reform Rules that were upheld by the court were (1) Plantwide applicability limits (PALs), (2) the 2-in-10 baseline, and (3) the actual-to-projected actual emission test. EPA's Supplemental Environmental Analysis of the Impact of the 2002 Final NSR Improvement Rules (November 21, 2002) (Supplemental Analysis) discussed each of these three changes individually, and addresses some of the issues raised by NRDC.

With regard to PALs, the Supplemental Analysis explains, “EPA expects that the adoption of PAL provisions will result in a net environmental benefit. Our experience to date is that the emissions caps found in PAL-type permits result in real emissions reductions, as well as other benefits.” Supplemental Analysis at 6. EPA further explained that:

With regard to the 2-in-10 baseline, EPA concluded that “the environmental impact from the change in baseline EPA is now finalizing will not result in any significant change in benefits derived from the NSR program.” Supplemental Analysis at 13. This is mainly because “the number of sources receiving different baselines likely represents a very small fraction of the overall NSR permit universe, excludes new sources and coal fired power plants, and because the baseline may shift in either direction, we conclude that any overall consequences would be negligible.” Supplemental Analysis at 14. Additional information regarding the 2-in-10 baseline changes is available in the Supplemental Analysis, Appendix F.

With regard to the actual-to-projected actual test, EPA concluded, “We believe that the environmental impacts of the switch to the actual-to-projected actual test are likely to be environmentally beneficial. However, as with the change to the baseline, we believe the vast majority of sources, including new sources, new units, electric utility steam generating units, and units that actually increase emissions as a result of a change, will be unaffected by this change. Thus, the overall impacts of the NSR changes are likely to be environmentally beneficial, but only to a small extent.” Supplemental Analysis at 14 (see also Supplemental Analysis Appendix G). EPA has no reason to believe that the environmental impacts will be substantially different from those discussed in the Supplemental Analysis for the 2002 NSR Reform Rules.1

As NRDC acknowledges, the Utah PSD rules track the Federal 2002 NSR Reform Rules. Overall, as summarized above, EPA expects that changes in air quality as a result of implementing Utah's PSD rules will be consistent with EPA's position on the Federal 2002 NSR Reform Rules—that there will be somewhere between neutral and providing modest contribution to reasonable further progress when the 2002 NSR Reform Rules are compared to the pre-reform provisions. EPA's analysis for the environmental impacts of these three components of the 2002 NSR Reform Rules is informative of how Utah's adoption of NSR Reform (based on the Federal rules) is expected to affect emissions and air quality. EPA has no reason to believe that the environmental impacts in Utah will be substantially different from the anticipated nationwide effects discussed in the Supplemental Analysis for the 2002 NSR Reform Rules.

Second, Utah's own analysis of the air quality impacts of its rules supports EPA's conclusion that approval of Utah's SIP revision will not “interfere with any applicable requirement concerning attainment and reasonable further progress * * * or any other applicable requirement of [the CAA]” in violation of Section 110(l) of the CAA. As discussed above, NRDC cites seven general sections of Utah's rules as provisions the approval of which would violate Section 110(l). Without further specificity, however, it is not clear why or how NRDC believes approval of these provisions would violate Section 110(l). Moreover, NRDC has provided no information or data that indicates that EPA's analysis and conclusions regarding the impact of the 2002 NSR Reform Rules, in the Supplemental Analysis, are not applicable to Utah's rules, which mirror the Federal rules.

Utah has, however, provided such an analysis. Utah DEQ evaluated the air quality impact of the NSR Reform provisions when the State adopted the rule in 2006. In response to comments that the NSR Reform rule will allow many more modifications at existing major sources than the current NSR rules, the State noted that major source permitting requirements in attainment areas (the PSD permitting program) are only a portion of Utah's overall permitting requirements and the effect of the NSR Reform provisions must be viewed in the context of the entire program, including, in particular, Utah's overall statewide permitting program and the NSR requirements it imposes onminorsources. These requirements require all new sources and modifications, whether major or minor, to apply Best Available Control Technology (BACT), with limited exceptions (discussed below). Therefore, even when a source does not trigger PSD, the source must still apply BACT. The net effect is that emissions will not change if a project is reviewed under the minor source requirements rather than the PSD regulations. Similarly, Utah's statewide permitting program requires that sources that exceed certain emissions thresholds conduct modeling to ensure that their emissions will not result in an exceedance of the NAAQS. The thresholds that Utah applies for this requirement are the same significance thresholds as the PSD regulations require. Thus, Utah applies the same essential control technology and modeling requirements to minor sources as it does to major sources. Consequently, the fact that a source or modification might have been subject to the previously-approved PSD regulation, but is not subject to the revised PSD regulation, is not likely to result in increased emissions or interfere with NAAQS attainment.

In support of this conclusion, the State analyzed 14 different scenarios to determine how a modification would be affected by the change in applicability provisions. The scenarios focused on the types of changes that would no longer be subject to the PSD rule, and examined whether these modifications would still require Best Available Control Technology (BACT) and/or modeling to ensure that the NAAQS were not exceeded. In 12 of the 14 scenarios, under Utah's SIP-approved minor NSR program, BACT would be required for the modification even if the modification no longer met the applicability provisions of the PSD rule.2 Therefore, the state concluded that emissions will not increase under the NSR Reform rule. The two exceptions, where BACT would not be required, occurred for modifications where emissions from the source aredecreasing.Under these two scenarios, an emissions-decreasing modification that would have required review under the previously-approved PSD program could, under the revised rules, be constructed without the requirement to apply BACT. This is the type of scenario where the PSD rule created a disincentive for sources to reduce emissions. Adoption of the NSR Reform rule will remove this disincentive by allowing sources to install pollution controls or increase the efficiency of older emission units without requiring BACT, thereby resulting in reduced emissions overall.

Utah further evaluated a number of different scenarios to determine whether modifications that would no longer be subject to PSD would still be reviewed under Utah's minor source program or whether they might avoid that review aswell. Utah's minor source permitting program has a number of exemptions that are located in R307-401-9 through 16. Most of the exemptions would only apply to sources that would be minor under Utah's previously-approved PSD regulations as well as under the revised rules. The two that could possibly apply to sources that would qualify as PSD major sources under Utah's previously-approved PSD regulations are R307-401-11, Replacement-in-kind Equipment and R307-401-12, Reduction in Air Contaminants.

The replacement-in-kind rule is restrictive, and has been modified to contain some of the more specific language regarding eligibility that is found in the PSD rule. Because sources have an incentive to upgrade to newer, more efficient units and because older technologies are often no longer available, this rule is not used by sources to avoid updated technology.

Similarly, the reduction in air contaminants exemption under R307-401-12 applies by definition to sources that aredecreasingemissions. As described above, the State believes that removing the disincentive through NSR Reform is likely to decrease emissions in Utah overall.

Accordingly, EPA has concluded that adoption of this SIP revision will maintain or improve air quality and meets the requirements of section 110(l).

a. Summary of Comments Regarding Section 193:

Section 193 of the CAA states (in relevant part) that “[n]o control requirement in effect, or required to be adopted by an order, settlement agreement, or plan in effect before November 15, 1990, in any area which is a nonattainment area for any air pollutant may be modified after November 15, 1990, in any manner unless the modification insures equivalent or greater emission reductions of such air pollutant.” NRDC states that “[t]he same Utah provisions” discussed earlier in its comment violate Section 193. NRDC argues that NSR is a control requirement and thus the requirements of Section 193 apply to the NSR rules at issue in the Utah SIP revision. NRDC further alleges that neither Utah nor EPA has determined that Utah's revisions will ensure equivalent or greater emissions reductions; to the contrary, NRDC alleges that “the modifications ensure that emissions will not be reduced as much as under the preexisting rules.”

b. EPA Response to Section 193-Related Comments:

Utah's NSR Reform rule is focused on the major source permitting requirements in attainment areas (PSD permitting program). It does not alter permitting or control requirements for pollutants for which the area is designated nonattainment, and therefore is not subject to Section 193. NSR reform in nonattainment areas will be dealt with in a future rulemaking. Furthermore, as discussed above, the overall effect of Utah's revisions is expected to be neutral or beneficial. Thus, even if Section 193 were applicable, Utah's revision would satisfy Section 193 for the same reason that it satisfies Section 110(l).

EPA is taking final action to approve a revision to Utah's SIP that would, for the most part, incorporate by reference the Federal PSD requirements, found in 40 CFR 52.21, into the State's PSD program and replace EPA's prior approvals. The March 7, 2008 submitted revision to R307-405 incorporates by reference the provisions of 40 CFR 52.21 as they existed on July 1, 2007, with the exceptions noted below.

Utah did not incorporate by reference those sections of the Federal rules that do not apply to State activities or are reserved for the Administrator of the EPA. These sections are 40 CFR 52.21(a)(1) (Plan disapproval), 52.21(q) (Public participation), 52.21(s) (Environmental impact statements), 52.21(t) (Disputed permit or redesignations), and 52.21(u) (Delegation of authority). Utah did not incorporate by reference the vacated Federal requirements for “Equipment Replacement,” “Clean Unit,” and “Pollution Control Project.”

Utah's March 7, 2008 submittal of the incorporation by reference revisions to R307-405 describes the circumstances in which the term “Administrator” continues to mean the EPA Administrator, and when it means instead the Executive Secretary of the Utah Air Quality Board. R307-405-3(3)(d)(ii)) identifies the following provisions in R307-405 where the term “Administrator” shall be changed to “EPA Administrator:” 40 CFR 52.21(b)(17), 52.21(b)(37)(i), 52.21(b)(43), 52.21(b)(48)(ii)(c), 52.21(b)(50)(i), 52.21(l)(2), 52.21(p)(2), and 51.166(q)(2)(iv).

As noted above, Utah did not incorporate by reference 40 CFR 52.21(q) (Public participation). Utah has instead incorporated by reference 40 CFR 51.166(q) (Public participation) at Utah rule R307-405-18. The provisions in 40 CFR 51.166 identify what a SIP must contain for EPA to approve a PSD permit program, and generally mirror the federal PSD regulations at 40 CFR 52.21. In addition, Utah added in Utah rule R307-405-18(2) an additional provision that modifies the PSD permit public participation requirements in 40 CFR 51.166(q) to replace “within a specified time period” in 40 CFR 51.166(q)(1) with “within 30 days of receipt of the PSD permit application.”

The following provisions in R307-405 do not incorporate by reference 40 CFR 52.21, but instead either add language that is currently contained in the Utah SIP or add language specific to Utah's PSD program: R307-405-4 (“Area Designations”), R307-405-5 (“Area Redesignation”), and R307-405-8 (“Exclusions From Increment Consumption”). We have determined that these provisions are consistent with the requirements for SIP approved states contained in 40 CFR 51.166(e), (f), and (g).

EPA is also taking final action on approval of the September 15, 2006 submitted revision R307-110-9 (“Section VIII, Prevention of Significant Deterioration of the Utah Air Quality Rules”) to indicate that the most currently amended version is March 8, 2006. Section VIII summarizes, in a narrative fashion, the current federal PSD requirements, in addition to the Utah specific permitting requirements for new and modified sources and area designations. We are approving the March 8, 2006 version of Section VIII into the SIP to replace the federally-approved December 18, 1992 version currently in the Utah SIP.

As described above, the requirements included in Utah's PSD program, as specified in R307-405 are substantively the same as the Federal PSD provisions due to Utah's incorporation of the federal rules by reference. The revisions Utah made, in consideration of the requirements provided in 40 CFR 52.21, were reviewed by EPA and found to be as stringent as the requirements for PSD programs in 40 CFR 51.166, except as noted above regarding the provision in R307-405-3(3)(a)(i). Therefore, EPA has determined that, except for R307-405-3(3)(a)(i), the rule revisions to R307-405 and R307-110-9 are consistent with the program requirements for the preparation, adoption, and submittal of implementation plans for the Prevention of Significant Deterioration of Air Quality, as set forth in 40 CFR 51.166, and are approvable.

Utah has adopted a specific definition of “Major Source Baseline Date,” found at R307-405-3(3)(a)(i), in its revised PSD rule. This definition deviates from the definition found in 40 CFR 52.21(b)(14) and the corresponding requirement for state PSD programs at 51.166(b)(14). Utah's definition specifies that the major source baseline date for particulate matter 10 microns in diameter or less (PM10) is the “date that EPA approves the PM10maintenance plan that was adopted by the Board on July 6, 2005” for Davis, Salt Lake, Utah, and Weber Counties. The requirement for State programs at 40 CFR 51.166(b)(14) specifies January 6, 1975 as the major source baseline date for particulate matter, and the current EPA-approved SIP for Utah also specifies January 6, 1975 as the major source baseline date for PM-10 for the entire State (refer to Utah's SIP-approved rule R307-101-2 “Definitions”). EPA is not aware of any authority for it to approve into a SIP a different major source baseline date other than January 6, 1975. Further, we note there is no provision in the CAA for using a different date if an area was in a legally designated non-attainment status on January 6, 1975. EPA is taking final action to disapprove Utah's definition of “Major Source Baseline Date,” and therefore, the current federally-approved definition found in R307-101-2 would continue to apply as a federally enforceable provision in lieu of the State-adopted version.

We are taking final action to partially approve revisions to R307-405 (“Permits: Major Sources in Attainment or Unclassified Areas (PSD)”) and to approve revisions to R307-110-9 (“Section VIII, Prevention of Significant Deterioration of the Utah Air Quality Rules”). EPA is taking final action to disapprove R307-405-3.(3)(a)(i) because it defines “Major Source Baseline Date” in a manner inconsistent with the federal definition found at 40 CFR 52.21(b)(14). In all other respects we are approving the State's March 7, 2008 submitted revisions to R307-405, and the State's September 15, 2006 submitted revisions of R307-110-9.

Utah has not demonstrated authority to implement and enforce these rules within “Indian country” as defined in 18 U.S.C. 1151.5. Therefore, this SIP approval does not extend to “Indian country” in Utah.3 See CAA sections 110(a)(2)(A) (SIP shall include enforceable emission limits), 110(a)(2)(E)(i) (State must have adequate authority under State law to carry out SIP), and 172(c)(6) (nonattainment SIPs shall include enforceable emission limits). This is consistent with EPA's previous approval of Utah's PSD program, in which EPA specifically disapproved the program for sources within Indian Reservations in Utah because the State had not shown it had authority to regulate such sources. See 40 CFR 52.683(b). It is also consistent with EPA's approval of Utah's title V air operating permits program. See 61 FR 64622, 64623 (December 6, 1996) (interim approval does not extend to Indian country); 66 FR 50574, 50575 (October 4, 2001) (full approval does not extend to Indian country).

Under the Clean Air Act, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this proposed action merely approves State law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501et seq.);

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601et seq.);

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and

• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, this rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the State, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law.

The Congressional Review Act, 5 U.S.C. 801et seq.,as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in theFederal Register. A major rule cannot take effect until 60 days after it is published in theFederal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by September 13, 2011 . Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the timewithin which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

Part 52, chapter I, title 40 of the Code of Federal Regulations is amended as follows:

Throughout this document, “we,” “us,” and “our” refer to EPA.

Table 1 lists the rules we are approving with the dates that they were adopted by the local air agencies and submitted by the California Air Resources Board (CARB).

On May 6, 2011, EPA determined that both submittals met the completeness criteria in 40 CFR part 51 Appendix V, which must be met before formal EPA review.

There are no previous versions of SCAQMD Rule 1143 in the SIP. We approved an earlier version of SCAQMD Rule 1144 into the SIP on 7/14/2010 (75 FR 40726).

VOCs help produce ground-level ozone and smog, which harm human health and the environment. Section 110(a) of the CAA requires States to submit regulations that control VOC emissions. Both SCAQMD Rule 1143 and Rule 1144 limit emissions of VOC from the application of thinners, solvents, metal-working fluids and direct-contact lubricants. EPA's technical support documents (TSDs) have more information about these rules.

Generally, SIP rules must be enforceable (see section 110(a) of the Act), must require Reasonably Available Control Technology (RACT) for each category of sources covered by a Control Techniques Guidelines (CTG) document as well as each major source in nonattainment areas (see sections 182(a)(2) and (b)(2)), and must not relax existing requirements (see sections 110(l) and 193). SCAQMD regulates an ozone nonattainment area (see 40 CFR part 81), so SCAQMD Rule 1143 and Rule 1144 must fulfill RACT.

Guidance and policy documents that we use to evaluate enforceability and RACT requirements consistently include the following:

1. “Issues Relating to VOC Regulation Cutpoints, Deficiencies, and Deviations,” EPA, May 25, 1988 (the Bluebook).

2. “Guidance Document for Correcting Common VOC & Other Rule Deficiencies,” EPA Region 9, August 21, 2001 (the Little Bluebook).

3. CARB's Consumer Products Regulation, Title 17, California Code of Regulations (CCR), Division 3, Chapter 1, Subchapter 8.5, Article 2, Sections 94507-94517.

4. EPA's model VOC rule guidance titled, “Model Volatile OrganicCompound Rules for Reasonably Available Control Technology” (June 1992).

We believe these rules are consistent with the relevant policy and guidance regarding enforceability, RACT and SIP relaxations. The TSDs have more information on our evaluation.

The TSDs describe additional rule revisions that we recommend for the next time the local agency modifies the rules.

As authorized in section 110(k)(3) of the Act, EPA is fully approving the submitted rules because we believe they fulfill all relevant requirements. We do not think anyone will object to this approval, so we are finalizing it without proposing it in advance. However, in the Proposed Rules section of thisFederal Register, we are simultaneously proposing approval of the same submitted rules. If we receive adverse comments by August 15, 2011, we will publish a timely withdrawal in theFederal Registerto notify the public that the direct final approval will not take effect and we will address the comments in a subsequent final action based on the proposal. If we do not receive timely adverse comments, the direct final approval will be effective without further notice on September 13, 2011. This will incorporate these rules into the federally enforceable SIP.

Please note that if EPA receives adverse comment on an amendment, paragraph, or section of this rule and if that provision may be severed from the remainder of the rule, EPA may adopt as final those provisions of the rule that are not the subject of an adverse comment.

Under the Clean Air Act, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve State choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely approves State law as meeting Federal requirements and does not impose additional requirements beyond those imposed by State law. For that reason, this action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501et seq.);

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601et seq.);

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and

• Does not provide EPA with the discretionary authority to address disproportionate human health or environmental effects with practical, appropriate, and legally permissible methods under Executive Order 12898 (59 FR 7629, February 16, 1994).

The Congressional Review Act, 5 U.S.C. 801et seq.,as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rules, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in theFederal Register. A major rule cannot take effect until 60 days after it is published in theFederal Register. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Parties with objections to this direct final rule are encouraged to file a comment in response to the parallel notice of proposed rulemaking for this action published in the Proposed Rules section of today'sFederal Register, rather than file an immediate petition for judicial review of this direct final rule, so that EPA can withdraw this direct final rule and address the comment in the proposed rulemaking. This action may not be challenged later in proceedings to enforce its requirements (see section 307(b)(2)).

Part 52, chapter I, title 40 of the Code of Federal Regulations is amended as follows:

EPA Region 4 is publishing this direct final Notice of Deletion of the Hipps Road Landfill (Site), from the National Priorities List (NPL). The NPL constitutes Appendix B of 40 CFR part 300, which is the National Oil and Hazardous Substances Pollution Contingency Plan (NCP), which EPA promulgated pursuant to section 105 of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) of 1980, as amended. EPA maintains the NPL as the list of sites that appear to present a significant risk to public health, welfare, or the environment. Sites on the NPL may be the subject of remedial actions financed by the Hazardous Substance Superfund (Fund). As described in 300.425(e) (3) of the NCP, sites deleted from the NPL remain eligible for Fund-financed remedial actions if future conditions warrant such actions.

Because EPA considers this action to be noncontroversial and routine, this action will be effectiveSeptember 13, 2011unless EPA receives adverse comments byAugust 15, 2011.Along with this direct final Notice of Deletion, EPA is co-publishing a Notice of Intent to Delete in the “Proposed Rules” section of the Federal Register. If adverse comments are received within the 30-day public comment period on this deletion action, EPA will publish a timely withdrawal of this direct final Notice of Deletion before the effective date of the deletion, and the deletion will not take effect. EPA will, as appropriate, prepare a response to comments and continue with the deletion process on the basis of the Notice of Intent to Delete and the comments already received. There will be no additional opportunity to comment.

Section II of this document explains the criteria for deleting sites from the NPL. Section III discusses procedures that EPA is using for this action. Section IV discusses the Hipps Road Landfill Superfund Site and demonstrates how it meets the deletion criteria. Section V discusses EPA's action to delete the Site from the NPL unless adverse comments are received during the public comment period.

The NCP establishes the criteria that EPA uses to delete sites from the NPL. In accordance with 40 CFR 300.425(e), sites may be deleted from the NPL where no further response is appropriate. In making such a determination pursuant to 40 CFR 300.425(e), EPA will consider, in consultation with the state, whether any of the following criteria have been met:

i. responsible parties or other persons have implemented all appropriate response actions required;

ii. all appropriate Fund-financed response under CERCLA has been implemented, and no further response action by responsible parties is appropriate; or

iii. the remedial investigation has shown that the release poses no significant threat to public health or the environment and, therefore, the taking of remedial measures is not appropriate.

Pursuant to CERCLA section 121 (c) and the NCP, EPA conducts five-year reviews to ensure the continued protectiveness of remedial actions where hazardous substances, pollutants, or contaminants remain at a site above levels that allow for unlimited use and unrestricted exposure. EPA conducts such five-year reviews even if a site is deleted from the NPL. EPA may initiate further action to ensure continued protectiveness at a deleted site if new information becomes available that indicates it is appropriate. Whenever there is a significant release from a site deleted from the NPL, the deleted site may be restored to the NPL without application of the hazard ranking system.

The following procedures apply to deletion of the Site:

(1) EPA consulted with the State of Florida prior to developing this direct final Notice of Deletion and the Notice of Intent to Delete co-published today in the “Proposed Rules” section of the Federal Register.

(2) EPA has provided the Florida Department of Environmental Protection (FDEP) 30 working days for review of this notice and the parallel Notice of Intent to Delete prior to their publication today, and the state, through the FDEP, has concurred on the deletion of the Site from the NPL.

(3) Concurrently with the publication of this direct final Notice of Deletion, a notice of the availability of the parallel Notice of Intent to Delete is being published in a major local newspaper, Florida Times-Union. The newspaper notice announces the 30-day public comment period concerning the Notice of Intent to Delete the Site from the NPL.

(4) The EPA placed copies of documents supporting the proposed deletion in the deletion docket and made these items available for public inspection and copying at the Site information repositories identified above.

(5) If adverse comments are received within the 30-day public comment period on this deletion action, EPA will publish a timely notice of withdrawal of this direct final Notice of Deletion before its effective date and will prepare a response to comments and continue with the deletion process on the basis of the Notice of Intent to Delete and the comments already received.

Deletion of a site from the NPL does not itself create, alter, or revoke any individual's rights or obligations. Deletion of a site from the NPL does not in any way alter EPA's right to take enforcement actions, as appropriate. The NPL is designed primarily for informational purposes and to assist EPA management. Section 300.425(e)(3) of the NCP states that the deletion of a site from the NPL does not preclude eligibility for future response actions, should future conditions warrant such actions.

The following information provides EPA's rationale for deleting the Site from the NPL:

The twelve acre Hipps Road Landfill Site (EPA CERCLIS Identification Number FLD980709802) is located on the southeastern corner at the intersection of Hipps Road and Exline Road in Jacksonville Heights, Duval County, Florida. Landfill operations were conducted on approximately six acres of the Site. The Site is surrounded by a residential neighborhood. The Site's landfill area was initially acypress swamp. In 1968, property owner G. O. Williams contracted with Waste Control of Florida (WCF) to fill the low-lying areas of the property. Landfill operations ceased in 1970 and were covered by soil. In the early 1980s, residents complained about unusual tastes and odors in private water wells, which led to investigations that identified groundwater contamination. The City of Jacksonville began to provide residents with bottled water for use as a potable water source. The City of Jacksonville completed the extension of a city water line to the affected area in October 1983 and by September 1985, all area residents were connected to the public water system. WCF acquired the residential properties in 1987. Waste Management Corporation (WM) inherited the Site property through its acquisition of WCF. Surface water is not used as a drinking water supply in the area. Surface waters nearby are used for recreational purposes such as swimming, boating, and fishing. There are no ecologically sensitive areas near the Site, which is situated above the 500-year flood plain. WM, the current landowners, have expressed interest in using the Site as a wildlife habitat area. The Site was proposed to the NPL in September 1983 (48 FR 40674) and was finalized to the NPL on September 21, 1984 (49 FR 37070).

In May 1986, EPA presented the results of the RI/FS, which included geophysical investigations, soil sampling, and groundwater sampling to characterize the Site. The results indicated that Site groundwater was the media of concern, and the migration of contaminants would occur in the lower sand aquifer located to the northeast of the landfill.

The contaminants of concern (COCs) identified at the Site in the Site's 1990 ROD Amendment were bis (2-ethylhexyl) phthalate, chlorobenzene, chromium, 1,4-dichlorobenzene, trans-1,2-dichloroethylene, ethyl benzene, lead, naphthalene, and vinyl chloride. The risk assessment conducted during the FS concluded that none of the compounds detected in Site soil were present at concentrations of toxicological concern. The RI/FS was completed in September 1986.

Seven groundwater and five soil remedial actions were retained for detailed evaluation in the FS and were evaluated based on the National Contingency Plan decision criteria found at 40 CFR 300.430(e)(9) and include nine separate criteria used to evaluate each combination of remedial alternatives.

The ROD was released on September 3, 1986. The remedy for the Site included the following components:

• Proper landfill closure in a manner consistent with all applicable federal, state and local requirements.

• Recovery of contaminated groundwater with treatment at the publicly owned treatment works (POTW).

• Long-term monitoring of groundwater

• Operation and maintenance includes upkeep of the landfill cap, groundwater monitoring, and maintenance of the groundwater recovery system. O&M will continue for at least 20 years after the final groundwater recovery operation.

• Institutional controls may include, but are not limited to, fencing the site, continuance of the local well drilling prohibition, land use restrictions, grouting existing private wells, and public or PRP acquisition of private lands.

In September 1990, EPA amended the ROD to provide for on-Site groundwater treatment and disposal as a more cost effective treatment alternative to disposal of groundwater to the publicly-owned treatment works (POTW). The 1990 ROD Amendment changed the remedy to the recovery of groundwater from five recovery wells; treatment of contaminated groundwater by air stripping; and the use of an on-Site holding pond for disposal of treated groundwater.

In August 1994, EPA issued an ESD to alter the method by which the abandonment of private wells impacted by the Site groundwater was achieved. In June 1996, EPA issued a second ESD to address operating difficulties at the groundwater treatment system during excessive rainfall and/or effluent discharges. During this situation, the high water level switch in the holding pond would trigger a system shutdown. In an effort to keep the treatment system operational, the ESD allowed for the periodic discharge of treated groundwater to the local POTW during high water levels in the holding pond.

In July 2004, EPA issued a third ESD, which changed the existing pump-and-treat recovery system to a monitored natural attenuation (MNA) plan to complete remediation of remaining groundwater contaminants.

On May 22, 1989, the landfill closure design was completed. The Remedial Design used a standard municipal cap design consisting of:

a. General earthfill cover to provide a crown over the landfill area with a minimum grade of 2.5 percent towards the perimeter of the landfill

b. One foot of low-permeability clay having a permeability of 1×10−6cm/s or less

c. Two feet of vegetative soil cover and vegetative cover

The Remedial Action construction for both the landfill closure and groundwater treatment system began in October 1989 and was completed on September 2, 1993, as documented in the September 9, 1994, Preliminary Closeout Report. Construction of the landfill cap was completed in April 1990 and final inspection of the landfill cover was April 26, 1990. The complete groundwater treatment system was constructed from May through August 1993. The groundwater treatment system included the installation of recovery wells, air-stripping system, and air blower system. Long-term groundwater monitoring began on March 15, 1994.

As recommended in the 2001 MNA Pilot Study Report, the Remedial Goal Verification Plan (RGVP) monitoring program was replaced with the MNA long-term monitoring program beginning in September 2004. The MNA long-term monitoring program called for groundwater monitoring well sampling semi-annually.

The wells included in the MNA long-term monitoring program fulfilled the following four purposes: (1) Confirm ongoing natural attenuation mechanisms; (2) ensure that benzene and vinyl chloride concentrations continue to be below cleanup goals; (3) monitor benzene and vinyl chloride in groundwater in areas in proximity to (or upgradient of) potential receptors; and (4) monitor the efficiency of the landfill cap. The MNA long-term monitoring program included the following tasks:

• Semi-annual hydraulic (water level) monitoring of piezometers, monitoring wells, and recovery wells, as specified in the RGVP.

• Semi-annual groundwater sample collection at upgradient wells TMW-1I and TMW-5I; side-gradient wells TMW-10I; and plume wells TMW-9I, TMW-13I, and RW-2 for analyses of volatile organic compounds (VOCs) via EPA Method 8260B. EPA approved discontinuing sampling and analysis of MNA long-term monitoring program wells TMW-7I, RW-3, TMW-6I, and RW-1 on March 3, 2006. Concentrations of benzene and vinyl chloride detected in these monitoring wells were below ROD cleanup criteria for four or moreconsecutive quarters and satisfied the cleanup criteria for the RGVP and MNA monitoring program.

• Semi-annual field monitoring of the following parameters where groundwater samples were collected: dissolved oxygen, oxidation reduction potential, conductivity, pH, and temperature.

• Annual groundwater sample collection for the analyses of biogeochemical parameters and dissolved gases, and field analysis of alkalinity, sulfide, and ferrous iron.

Groundwater monitoring occurred semi-annually and associated reports were submitted to EPA semi-annually. Off-Site wells were sampled until cleanup goals were achieved for four consecutive sampling events in February 2010.

Since the Site's 2005 Five Year Review, the landfill cover, infiltration pond, and security fencing were inspected semi-annually; each Site inspection found that they were properly maintained. In addition, each semi-annual report has shown that:

• Site security, including a locked gate and perimeter fencing with appropriate notice signs, was in place.

• Stormwater management features were functioning as designed.

• The landfill cover was inspected.

• No adverse conditions were observed.

The Site has two institutional controls in place that provide protection to potential receptors. The Site lies within a Florida Groundwater Delineation Area found at Florida Administrative Code (FAC) 62-524, which restricts placement of new wells on the property and surrounding areas. This regulation was codified on March 25, 1990. The Site also lies within the jurisdiction of the St. John's River Water Management District (SJRWMD), which implements water supply well permitting controls and restricts groundwater withdrawals. A restrictive covenant recorded in the Duval County real estate records for the five parcels that constitute the Site restricts land use so that there would be no land disturbance which would effect the integrity of the final landfill cover or any component of the containment system without approval from the EPA Region 4 Regional Administrator. This restrictive convenant was recorded on January 24, 1988.

Groundwater sampling data from September 2005 through September 2009 has been reviewed to determine cleanup goal attainment. In addition, groundwater sampling results of three off-Site wells, TMW-91, TMW-131 and RW-2, were reviewed from November 2009 and February 2010. No COCs have been detected in any off-Site well since 2008. No COCs have been detected above cleanup goals in on-Site wells since the 2005 Five Year Review.

Through the Fifty-First Monitoring and Maintenance Report monitoring period which has groundwater monitoring data obtained from April 1, 2009 to September 20, 2009, only three MNA monitoring wells (TMW-91, TMW-131, and RW-2) had not achieved the ROD cleanup criteria of four consecutive sampling events with results below cleanup goals. Benzene was detected above the cleanup goal of 1 µg/L in the three wells at concentrations ranging from 1.0 to 4.5 µg/L. Vinyl chloride was detected above the cleanup goal of 1 µg/L in RW-2 once in October 2005 and in TMW-131 in March and September 2006 and March 2007. Additional sampling of TMW-91, TMW-131 and RW-2 was performed in November 2009 and February 2010. The March 2010 Final Monitoring and Maintenance Report and Site Delisting Request included the supplemental TMW-91, TMW-131, and RW-2 sampling results, which found no COCs above cleanup goals. No COCs were detected above cleanup goals in the February, September, and November 2009 and February 2010 sampling. As of February 2010, all monitoring wells have met the ROD criteria of meeting cleanup goals for four consecutive monitoring events.

Waste Management designed and implemented an Operation and Maintenance Plan to ensure the long-term effectiveness of the ROD remedial elements. This Operations and Maintenance Plan was submitted on May 17, 1994. This Plan addressed maintaining the integrity and effectiveness of the final cover, including repairing the landfill cover; maintenance and sampling of the groundwater monitoring network; and protecting and maintaining surveyed benchmarks associated with institutional controls.

Since hazardous substances are present onsite above levels allowing for unlimited use and unrestricted exposure, statutory Five Year Reviews will be conducted by EPA every five years, pursuant to CERCLA Section 121 (c) and as provided in OSWER Directive 9355.7-03B-P,Comprehensive Five-Year Review Guidance(EPA, 2001). The purpose of these reviews is to ensure that the Site remedy remains protective of human health and the environment. The first Five Year Review at the Site was conducted in February 1996, the second in July 2000, the third in September 2005, and the fourth in July 2010.

The Fourth Five-Year Review concluded that remedial actions at the Hipps Road Landfill Superfund Site are protective of human health and the environment in the short term, and exposure pathways that could result in unacceptable risks are being controlled. In order for the site to remain protective in the long-term, the Site needed to be assessed to determine if ICs are necessary to prevent inappropriate land use. Further analysis of existing groundwater use prohibitions related to the delineated areas and examination of the existing restrictive covenant indicate that all institutional controls needed at the Site have been implemented. EPA will complete the next Five Year Review by July 2015.

A public meeting was held on May 7, 1986, to present EPA's proposed plan for remedial action to the local community. Since that time community involvement activities, including community interviews, have occurred during each Five-Year review period (1996, 2000, 2005, 2010). Copies of site documents are in the designated Site repository at the Jacksonville Public Library, Webb-Wesconnett Regional Branch located at 6887 103rd St., Jacksonville, Florida.

Concurrently with the publication of this direct final Notice of Deletion, a notice of the availability of the parallel Notice of Intent to Delete is being published in a major local newspaper, Florida Times-Union. The newspaper notice announces the 30-day public comment period concerning the Notice of Intent to Delete the Site from the NPL.

The NCP specifies that EPA may delete a site from the NPL if “all appropriate responsible parties or other persons have implemented all appropriate response actions required” or “all appropriate fund-financed response under CERCLA has been implemented, and no further response action by responsible parties is appropriate”. EPA, with the concurrence of the State of Florida through the FDEP by a letter dated April 22, 2011, has determined that the Site responsible party Waste Management has implemented all appropriate response actions required and no further response action is required. Therefore, EPA is proposing the deletion of the site from the NPL. All of the completion requirements for the site have been met as described in the Hipps Road Landfill Final Close Out Report (FCOR) dated April 21, 2011.

The EPA, with concurrence of the State of Florida through the FDEP, has determined that all appropriate response actions under CERCLA, other than operation, maintenance, monitoring and five-year reviews have been completed. Therefore, EPA is deleting the Site from the NPL.

Because EPA considers this action to be noncontroversial and routine, EPA is taking it without prior publication. This action will be effective September 13, 2011 unless EPA receives adverse comments by August 15, 2011. If adverse comments are received within the 30-day public comment period, EPA will publish a timely withdrawal of this direct final notice of deletion before the effective date of the deletion, and it will not take effect. EPA will prepare a response to comments and continue with the deletion process on the basis of the notice of intent to delete and the comments already received. There will be no additional opportunity to comment.

For the reasons set out in this document, 40 CFR part 300 is amended as follows:

The Atlantic shark fisheries are managed under the 2006 Consolidated Atlantic Highly Migratory Species (HMS) Fishery Management Plan (FMP), its amendments, and its implementing regulations found at 50 CFR part 635 issued under authority of the Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. 1801et seq.).

Under § 635.5(b)(1), shark dealers are required to report to NMFS all sharks landed every two weeks. Dealer reports for fish received between the 1st and 15th of any month must be received by NMFS by the 25th of that month. Dealer reports for fish received between the 16th and the end of any month must be received by NMFS by the 10th of the following month. Under § 635.28(b)(2), when NMFS projects that fishing season landings for a specific shark quota have reached or are projected to reach 80 percent of the available quota, NMFS will file for publication with the Office of theFederal Registera notification of closure for that shark species group which will be effective no fewer than 5 days after the date of filing. From the effective date and time of the closure until NMFS announces, via a notice in theFederal Register, that additional quota is available and the season is reopened, the fishery for that specific quota is closed, even across fishing years.

On December 8, 2010 (75 FR 76302), NMFS announced that the non-sandbar LCS fishery for the Gulf of Mexico region for the 2011 fishing year would open on March 1 with a quota of 351.9 metric tons (mt) dressed weight (dw) (775,740 lb dw). Dealer reports through June 29, 2011, indicate that 278.3 mt dw or 79 percent of the available quota for non-sandbar LCS has been taken. Dealer reports received to date indicate that 52 percent of the quota was taken in March; 10 percent of the quota was landed in April; 10 percent of the quota was landed in May; and 7 percent from June 1 through June 29. Based on the rate of fishing effort indicated by these preliminary dealer reports, NMFS estimates that an additional 8 to 21 percent of the quota could be taken from June 29 through July 15, 2011, thus reaching or exceeding the 80-percent limit specified for a closure notice in the regulations. Accordingly, NMFS is closing the commercial non-sandbar LCS fishery in the Gulf of Mexico region as of 11:30 p.m. local time July 17, 2011. All other shark fisheries remain open.

At § 635.27(b)(1)(ii), the boundary between the Gulf of Mexico region and the Atlantic region is defined as a line beginning on the East Coast of Florida at the mainland at 25°20.4′ N. lat, proceeding due east. Any water and land to the south and west of that boundary is considered, for the purposes of quota monitoring and setting of quotas, to be within the Gulf of Mexico region.

During the closure, retention of non-sandbar LCS sharks in the Gulf of Mexico region is prohibited for persons fishing aboard vessels issued a commercial shark limited access permit under 50 CFR 635.4. Unless the vessel is properly permitted to operate as acharter vessel or headboat for HMS and is engaged in a for-hire trip, in which case the recreational retention limits for sharks and “no sale” provisions apply (50 CFR 635.22(a) and (c)), or if the vessel possesses a valid shark research permit under § 635.32 and a NMFS-approved observer is onboard. A shark dealer issued a permit pursuant to § 635.4 may not purchase or receive non-sandbar LCS in the Gulf of Mexico region from a vessel issued an Atlantic Shark Limited Access Permit (LAP), except that a permitted shark dealer or processor may possess non-sandbar LCS that were harvested, off-loaded, and sold, traded, or bartered, prior to the effective date of the closure and were held in storage consistent with § 635.28(b)(4). However, a permitted shark dealer or processor may possess non-sandbar LCS that were harvested by a vessel issued a valid shark research fishery permit per § 635.32 with a NMFS-approved observer onboard during the trip the sharks were taken on as long as the non-sandbar shark research fishery remains open. Under this closure, a shark dealer issued a permit pursuant to § 635.4 may, in accordance with state regulations, purchase or receive a non-sandbar LCS in the Gulf of Mexico region if the sharks were harvested, off-loaded, and sold, traded, or bartered from a vessel that fishes only in state waters and that has not been issued an Atlantic Shark LAP, HMS Angling permit, or HMS Charter/Headboat permit pursuant to § 635.4.

Pursuant to 5 U.S.C. 553(b)(B), the Assistant Administrator for Fisheries, NOAA (AA), finds that providing for prior notice and public comment for this action is impracticable and contrary to the public interest because the fishery is currently underway, and any delay in this action would cause overharvest of the quota and be inconsistent with management requirements and objectives. Similarly, affording prior notice and opportunity for public comment on this action is contrary to the public interest because if the quota is exceeded, the affected public is likely to experience reductions in the available quota and a lack of fishing opportunities in future seasons. Thus, for these reasons, the AA also finds good cause to waive the 30-day delay in effective date pursuant to 5 U.S.C. 553 (d)(3). This action is required under § 635.28(b)(2) and is exempt from review under Executive Order 12866.